EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
September 14, 2005, among China BAK Battery, Inc., a Nevada corporation (the
"Company"), and the investors identified on the signature pages hereto (each, an
"Investor" and collectively, the "Investors").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act (as defined below)
and Rule 506 promulgated thereunder, the Company desires to issue and sell to
each Investor, and each Investor, severally and not jointly, desires to purchase
from the Company certain securities of the Company, as more fully described in
this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Investors agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms shall have
the meanings indicated in this Section 1.1:
"Action" means any action, suit, inquiry, notice of violation,
proceeding (including any partial proceeding such as a deposition) or
investigation pending or threatened in writing against or affecting the Company,
any Subsidiary or any of their respective properties before or by any court,
arbitrator, governmental or administrative agency, regulatory authority
(federal, state, county, local or foreign), stock market, stock exchange or
trading facility.
"Affiliate" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is under
common control with a Person, as such terms are used in and construed under Rule
144 (as defined below).
"Business Day" means any day except Saturday, Sunday and any
day which is a federal legal holiday or a day on which banking institutions in
the States of New York or Nevada are authorized or required by law or other
governmental action to close.
"Closing" has the meaning set forth in Section 2.1.
"Closing Date" means the Business Day immediately following
the date on which all of the conditions set forth in Sections 5.1 and 5.2 hereof
are satisfied, or such other date as the parties may agree.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, $0.001
par value per share, and any securities into which such common stock may
hereafter be reclassified.
"Common Stock Equivalents" means any securities of the Company
or any Subsidiary which entitle the holder thereof to acquire Common Stock at
any time, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into 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.
"Company Counsel" means the law firm of Andrews Kurth, L.L.P.
"Company Deliverables" has the meaning set forth in Section
2.2(a).
"Disclosure Materials" has the meaning set forth in Section
3.1(h).
"Escrow Agreement" means the Escrow Agreement, dated as of
August 30, 2005, among the Company, Roth Capital Partners, LLC and Wells Fargo
Bank, National Association as the escrow agent (the "Escrow Agent") set forth
therein, in the form of Exhibit F hereto.
"Effective Date" means the date that the Registration
Statement required by Section 2(a) of the Registration Rights Agreement is first
declared effective by the Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Form SB-2" has the meaning set forth in Section 3.1(h).
"GAAP" means U.S. generally accepted accounting principles.
"Hong Kong Counsel" means the law firm of Amelia Cheung & Co.
"Initial Closing" means the initial closing pursuant to which
each Investor, except the Remaining Investors, shall deliver their respective
Investment Amount to the Escrow Agent to be placed in an escrow account until
the Closing and shall occur on the date of this Agreement.
"Investor Deliverables" has the meaning set forth in Section
2.2(c).
"Intellectual Property Rights" has the meaning set forth in
Section 3.1(p).
"Investment Amount" means, with respect to each Investor, the
Investment Amount indicated on such Investor's signature page to this Agreement.
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"Investor Party" has the meaning set forth in Section 4.7.
"Lien" means any lien, charge, encumbrance, security interest,
right of first refusal or other restrictions of any kind.
"Material Adverse Effect" means, as applicable, any of (i) a
material and adverse effect on the legality, validity or enforceability of any
Transaction Document, (ii) a material and adverse effect on the results of
operations, assets, prospects, business or condition (financial or otherwise) of
the Company and the Subsidiaries, taken as a whole, or (iii) an adverse
impairment to the Company's ability to perform on a timely basis its obligations
under any Transaction Document.
"Nevada Counsel" means the law firm of Schreck Brigone.
"New York Courts" means the state and federal courts sitting
in the City of New York, Borough of Manhattan.
"Pending Registration Statement" means the Registration
Statement on Form SB-2 filed by the Company with the Commission on January 1,
2005, as the same has been and shall be amended or supplemented.
"Per Unit Purchase Price" equals $5.50.
"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.
"PRC Counsel" means the law firm of Grandall Legal Group
"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.
"Registration Statement" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement and
covering the resale by the Investors of the appropriate Registrable Securities
as identified in Section 2(a) of the Registration Rights Agreement.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of this Agreement, among the Company and the
Investors, in the form of Exhibit A hereto.
"Remaining Investors" means the Investors to be indentified by
Roth Capital Partners, LLC on the date hereof and conveyed in writing to each of
the Investors and the Company.
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"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SEC Reports" has the meaning set forth in Section 3.1(h).
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means the shares of Common Stock issuable to the
Investors at the Closing in accordance with Section 2.2(a)(i).
"Short Sales" include, without limitation, all "short sales"
as defined in Rule 200 promulgated under Regulation SHO under the Exchange Act
and all types of direct and indirect stock pledges, forward sale contracts,
options, puts, calls, short sales, swaps and similar arrangements (including on
a total return basis), and sales and other transactions through non-US broker
dealers or foreign regulated brokers.
"Subsidiary" means any "significant subsidiary" as defined in
Rule 1-02(w) of the Regulation S-X promulgated by the Commission under the
Exchange Act.
"Trading Day" means (i) a day on which the Common Stock is
traded on a Trading Market, or (ii) if the Common Stock is not quoted on any
Trading Market, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the Pink Sheets, LLC (or any similar
organization or agency succeeding to its functions of reporting prices);
provided, that in the event that the Common Stock is not listed or quoted as set
forth in (i) and (ii) hereof, then Trading Day shall mean a Business Day.
"Trading Market" means whichever of the New York Stock
Exchange, the American Stock Exchange, the NASDAQ National Market, the NASDAQ
SmallCap Market or OTC Bulletin Board on which the Common Stock is listed or
quoted for trading on the date in question.
"Transaction Documents" means this Agreement, the Registration
Rights Agreement, the Escrow Agreement and any other documents or agreements
executed in connection with the transactions contemplated hereunder.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. At the Initial Closing each Investor, except the Remaining
Investors, shall deliver each Investor's respective Investment Amount to the
Escrow Agent to be placed in an escrow account until the Closing. At the
Closing, subject to the terms and conditions set forth in this Agreement,
including the applicable Conditions Precedent to Closings set forth in Article
V, the Escrow Agent shall release the funds received pursuant to the Initial
Closing to the Company and the Company shall issue and sell to each Investor,
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and each Investor, including the Remaining Investors shall, severally and not
jointly, purchase from the Company, the Shares representing such Investor's
Investment Amount. The Initial Closing shall take place at the offices of
Company Counsel, or such other location or time as the parties may agree. The
Closing shall take place at the offices of Company Counsel on the Closing Date
or at such other location or time as the parties may agree.
2.2 Closing Deliveries. (a) At the Closing, the Company shall deliver
or cause to be delivered to each Investor the following (the "Company
Deliverables"):
(i) a certificate evidencing a number of Shares equal to such
Investor's Investment Amount divided by the Per Unit Purchase Price, registered
in the name of such Investor;
(ii) the legal opinions of Company Counsel, Nevada Counsel,
PRC Counsel and Hong Kong Counsel, in the form attached hereto as Exhibit B,
Exhibit C, Exhibit D, and Exhibit E, respectively, addressed to the Roth Capital
Partners, LLC and the Investors; and
(iii) the Registration Rights Agreement, duly executed by the
Company;
(b) At the Initial Closing, (i) the Company shall deliver the Escrow
Agreement, duly executed by the Company Roth Capital Partners, LLC and the
Escrow Agent, and (ii) each Investor, except the Remaining Investors, shall
deliver or cause to be delivered to the Escrow Agent, its Investment Amount, in
United States dollars and in immediately available funds, by wire transfer to an
account designated in writing by the Escrow Agent for such purpose; and
(c) At the Closing, each Investor shall deliver or cause to be
delivered to the Company, the Registration Rights Agreement, duly executed by
such Investor. In addition, the Remaining Investors shall deliver or cause to be
delivered to the Company, its Investment Amount, in United States dollars and in
immediately available funds, by wire transfer to an account designated in
writing by the Company for such purpose. Each Investor's Investment Amount,
together with the duly executed Registration Rights Agreement shall be the
"Investor Deliverables".
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to each Investor as of the
date hereof and as of the Closing Date:
(a) Subsidiaries. The Company has no direct or indirect Subsidiaries
other than as specified in the SEC Reports or the Form SB-2. The Company owns,
directly or indirectly, all of the capital stock of each Subsidiary free and
clear of any and all Liens, and all the issued and outstanding shares of capital
stock of each Subsidiary are validly issued and are fully paid, non-assessable
and free of preemptive and similar rights.
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(b) Organization and Qualification. The Company and each Subsidiary are
duly incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with the requisite corporate power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Neither the Company nor any Subsidiary is in violation
of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents except where
the violation would not, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect. The Company and each Subsidiary
are duly qualified to conduct its respective businesses and are in good standing
as a foreign corporation 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, would not, individually or in the aggregate, have or reasonably be expected
to result in a Material Adverse Effect.
(c) Authorization; Enforcement. The Company has the requisite corporate
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 thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary corporate action
on the part of the Company and no further action is required by the Company in
connection therewith. Each Transaction Document has been (or upon delivery will
have been) duly executed by the Company and, when delivered in accordance with
the terms hereof, will constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of the Company's or any 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, 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 the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected, or
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(iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company or a Subsidiary is subject (including federal and state
securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), such as would not, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction Documents,
other than (i) the filing with the Commission of one or more Registration
Statements in accordance with the requirements of the Registration Rights
Agreement, (ii) filings required by state securities laws, (iii) the filing of a
Notice of Sale of Securities on Form D with the Commission under Regulation D of
the Securities Act, (iv) the filings required in accordance with Section 4.5 and
(v) those that have been made or obtained prior to the date of this Agreement.
(f) Issuance of the Shares. The Shares issuable under Section 2.2(a)(i)
have been duly authorized and, when issued and paid for in accordance with the
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens, provided, however, the Company's
representation in this subsection (f) shall not apply to Liens created by any
Investor. The Company has reserved from its duly authorized capital stock the
shares of Common Stock issuable pursuant to this Agreement in order to issue the
Shares.
(g) Capitalization. Except as set forth on Schedule 3.1(g), the number
of shares and type of all authorized, issued and outstanding capital stock of
the Company, and all shares of Common Stock reserved for issuance under the
Company's various option and incentive plans, is specified in the SEC Reports or
the Form SB-2. Except as specified in the SEC Reports or the Form SB-2 or on
Schedule 3.1(g), no Person has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as specified in the SEC
Reports or the Form SB-2 or on Schedule 3.1(g), there are no outstanding
options, warrants, scrip rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock. Except as specified in
the SEC Reports or the Form SB-2 or on Schedule 3.1(g), the issue and sale of
the Shares will not, immediately or with the passage of time, obligate the
Company to issue shares of Common Stock or other securities to any Person (other
than the Investors) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price under
such securities.
(h) SEC Reports; Financial Statements. Except as set forth on Schedule
3.1(h), the Company has filed all reports required to be filed by it under the
Securities Act and the Exchange Act, including pursuant to Section 13(a) or
15(d) thereof, for the 12 months preceding the date hereof (or such shorter
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period as the Company was required by law to file such reports) (the foregoing
materials being collectively referred to herein as the "SEC Reports" and,
together with the Company Schedules to this Agreement and the Form SB-2 (as
defined below), the "Disclosure Materials") on a timely basis or has timely
filed a valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension. Except as set forth on
Schedule 3.1(h), as of their respective dates, the SEC Reports, as amended and
the registration statement on Form SB-2/A (File No. 333-122209), as amended (the
"Form SB-2"), complied as to form in all material respects with (i) the
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder and (ii) any SEC comments
received or otherwise conveyed to the Company with respect to any previously
filed SEC Reports or the Form SB-2. In addition, none of the SEC Reports or the
Form SB-2, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Reports and the Form SB-2 comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved, except as may be otherwise
specified in such financial statements or the notes thereto, and fairly present
in all material respects the financial position of the Company and its
consolidated Subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit adjustments.
(i) Press Releases. The press releases disseminated by the Company
during the 12 months preceding the date of this Agreement taken as a whole do
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made and when made,
not misleading.
(j) 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 the Form SB-2, (i) there has been no event, occurrence or
development that has had or that would reasonably be expected to result in a
Material Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables, accrued expenses and
other liabilities incurred in the ordinary course of business consistent with
past practice and (B) liabilities not required to be reflected in the Company's
financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (iii) the Company has not altered its method of
accounting or the identity of its auditors, (iv) the Company has not declared or
made any dividend or distribution of cash or other property to its shareholders
or purchased, redeemed or made any agreements to purchase or redeem any shares
of its capital stock, and (v) the Company has not issued any equity securities
to any officer, director or Affiliate, except pursuant to existing Company stock
option plans, or as described in Schedule 3.1(j). The Company does not have
pending before the Commission any request for confidential treatment of
information.
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(k) Litigation. There is no Action which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Shares or (ii) except as specifically disclosed in the SEC
Reports or the Form SB-2, would, if there were an unfavorable decision,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect. Neither the Company nor any Subsidiary, nor any
director or officer thereof (in his or her capacity as such), is or has been the
subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty, except
as specifically disclosed in the SEC Reports or the Form SB-2. There has not
been, and to the knowledge of the Company, there is not pending any
investigation by the Commission involving the Company or any current or former
director or officer of the Company (in his or her capacity as such). The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.
(l) Labor Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company.
(m) Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or any Subsidiary under), nor has the Company 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 applicable
to the Company or Subisidiary, as appropriate, or (iii) is in violation of any
statute, rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws relating to taxes,
environmental protection, occupational health and safety, product quality and
safety and employment and labor matters applicable to the Company or Subsidiary,
as appropriate, except in the case of each of the clauses (i)-(iii) as would
not, individually or in the aggregate, have or reasonably be expected to result
in a Material Adverse Effect. The Company 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 could not have or reasonably be expected to result in a Material
Adverse Effect.
(n) Regulatory Permits. Except as disclosed in Schedule 3.1(n), the
Company 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 or the Form SB-2, except where the failure to possess such permits
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would not, individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect, and neither the Company nor any Subsidiary
has received any notice of proceedings relating to the revocation or material
modification of any such permits.
(o) Title to Assets. Except as set forth in Schedule 3.1(o), the
Company and the Subsidiaries have good and marketable title in fee simple to all
real property owned by them that is material to their respective businesses and
good and marketable title in all personal property owned by them that is
material to their respective businesses, in each case free and clear of all
Liens, except for Liens as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made of
such property by the Company and the Subsidiaries and those liens reflected on
the financial statements included in the SEC Reports or the Form SB-2 or on
Schedule 3.10(o). Any real property and facilities held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases of which the Company and the Subsidiaries are in compliance,
except as would not, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect.
(p) Patents and Trademarks. The Company and the Subsidiaries have, or
have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other similar
rights that are necessary or material for use in connection with their
respective businesses as described in the SEC Reports or the Form SB-2 and which
the failure to so have would, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect (collectively, the
"Intellectual Property Rights"). Neither the Company nor any Subsidiary has
received a written notice that the Intellectual Property Rights used by the
Company or any Subsidiary violates or infringes upon the rights of any Person.
Except as set forth in the SEC Reports or the Form SB-2, to the knowledge of the
Company, all such Intellectual Property Rights are enforceable and there is no
existing infringement by another Person of any of the Intellectual Property
Rights.
(q) [Intentionally left blank]
(r) Transactions With Affiliates and Employees. Except as set forth in
the SEC Reports or the Form SB-2, none of the officers or directors of the
Company and, to the knowledge of the Company, none of the employees of the
Company is presently a party to any transaction with the Company or any
Subsidiary (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, that is required to be disclosed in
the SEC Reports.
(s) Disclosure Controls. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15 and 15d-15) for
the Company and designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its Subsidiaries, is
made known to the Chief Executive Officer and Chief Financial Officer by others
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within those entities, particularly during the period in which the Company's
Form 10-K or 10-Q, as the case may be, is being prepared. The Company's Chief
Executive Officer and Chief Financial Officer have evaluated the effectiveness
of the Company's controls and procedures in accordance with Item 307 of
Regulation S-K under the Exchange Act for the Company's most recently ended
fiscal quarter or fiscal year-end (such date, the "Evaluation Date"). The
Company presented in its most recently filed Form 10-K or Form 10-Q the
conclusions of the Chief Executive Officer and Chief Financial Officer about the
effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there have
been no significant changes in the Company's internal control over financial
reporting (as such term is defined in Item 308(c) of Regulation S-K under the
Exchange Act) or, to the Company's knowledge, in other factors that could
significantly affect the Company's internal control over financial reporting.
(t) Solvency. Based on the financial condition of the Company as of the
Closing Date (and assuming that the Closing shall have occurred), (i) the
Company's fair saleable value of its assets exceeds the amount that will be
required to be paid on or in respect of the Company's existing debts and other
liabilities (including known contingent liabilities) as they mature, (ii) the
Company'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 the Company, and projected capital
requirements and capital availability thereof, and (iii) the current cash flow
of the Company, together with the proceeds the Company 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. The Company 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 payable on or in respect of its debt).
(u) Certain Fees. Except as described in Schedule 3.1(u), no brokerage
or finder's fees or commissions are or will be payable by the Company to any
broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions contemplated by
this Agreement. The Investors shall have no obligation with respect to any fees
or with respect to any claims (other than such fees or commissions owed by an
Investor pursuant to written agreements executed by such Investor which fees or
commissions shall be the sole responsibility of such Investor) made by or on
behalf of other Persons for fees of a type contemplated in this Section that may
be due in connection with the transactions contemplated by this Agreement.
(v) Certain Registration Matters. Assuming the accuracy of the
Investors' representations and warranties set forth in Sections 3.2(b)-(e), no
registration under the Securities Act is required for the offer and sale of the
Shares by the Company to the Investors under the Transaction Documents. Except
as specified in Schedule 3.1(v), the Company has not granted or agreed to grant
to any Person any rights (including "piggy-back" registration rights) to have
any securities of the Company registered with the Commission or any other
governmental authority that have not been satisfied.
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(w) Listing and Maintenance Requirements. The Common Stock is
registered pursuant to Section 12(g) of the Exchange Act. Except as specified in
the SEC Reports or the Form SB-2, the Company has not, in the one year preceding
the date hereof, received notice from any Trading Market to the effect that the
Company is not in compliance with the listing or maintenance requirements
thereof. The Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with the listing and
maintenance requirements for continued listing of the Common Stock on the
Trading Market on which the Common Stock is currently listed or quoted. The
issuance and sale of the Shares 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 shareholders of the
Company thereunder is required for the Company to issue and deliver to the
Investors the Shares contemplated by Transaction Documents. The representations
contained in this subsection shall not be construed to attach any liability on
the Company in the event that the Trading Market upon which the Company's common
stock is traded ceases to operate or exist.
(x) Investment Company. The Company is not, and is not an Affiliate of,
and immediately following the Closing will not have become, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(y) Application of Takeover Protections. The Company has taken all
necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Company's
Certificate of Incorporation (or similar charter documents) or the laws of its
state of incorporation that is or could become applicable to the Investors as a
result of the Investors and the Company fulfilling their obligations or
exercising their rights under the Transaction Documents, including without
limitation the Company's issuance of the Shares and the Investors' ownership of
the Shares.
(z) No Additional Agreements. The Company does not have any agreement
or understanding with any Investor with respect to the transactions contemplated
by the Transaction Documents other than as specified in the Transaction
Documents.
(aa) Disclosure. The Company confirms that neither it nor any Person
acting on its behalf has provided any Investor or its respective agents or
counsel with any information that the Company believes constitutes material,
non-public information except insofar as the existence and terms of the proposed
transactions hereunder may constitute such information. The Company understands
and confirms that the Investors will rely on the foregoing representations and
covenants in effecting transactions in securities of the Company. All disclosure
provided to the Investors regarding the Company, its business and the
transactions contemplated hereby, furnished by or on behalf of the Company
(including the Company's representations and warranties set forth in this
Agreement) are true and correct 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.
12
(bb) Tax Status. Except for matters that would not, individually or in
the aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company 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 the Company has no knowledge of a tax deficiency which
has been asserted or threatened against the Company or any Subsidiary.
(cc) No General Solicitation. Neither the Company nor any person acting
on behalf of the Company has offered or sold any of the Shares by any form of
general solicitation or general advertising. The Company has offered the Shares
for sale only to the Investors and certain other "accredited investors" within
the meaning of Rule 501 under the Securities Act.
(dd) Foreign Corrupt Practices. Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of the
Company, has (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed to
disclose fully any contribution made by the Company (or made by any person
acting on its behalf of which the Company is aware) which is in violation of
law, or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
(ee) Accountants. The Company's auditors are Schwarts Levitsky Feldman
LLP. To the knowledge of the Company, such auditors, who have certified the
consolidated financial statements included in the Form SB-2 dated June 27, 2005,
as amended, are independent public accountants with respect to the Company
within the meaning of the Securities Act and the applicable rules and
regulations thereunder and is a registered public accounting firm within the
meaning of Section 102 of the Sarbanes-Oxley Act of 2002.
(ff) Investors' Purchase of Securities. The Company acknowledges and
agrees that each of the Investors is acting solely in the capacity of an arm's
length purchaser with respect to the Transaction Documents and the transactions
contemplated hereby. The Company further acknowledges that no Investor is acting
as a financial advisor or fiduciary of the Company (or in any similar capacity)
with respect to this Agreement and the transactions contemplated hereby and any
advice given by any Investor or any of their respective representatives or
agents in connection with this Agreement and the transactions contemplated
hereby is merely incidental to the Investors' purchase of the Shares. The
Company further represents to each Investor that the Company's decision to enter
into this Agreement has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives.
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(gg) Manipulation of Price. The Company has not, and to its knowledge
no one acting on its behalf has, in violation of applicable law, (i) taken,
directly or indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of any of the Securities or (ii) sold, bid for,
purchased, or, paid any compensation for soliciting purchases of, any of the
Securities (other than for the placement agent's placement of the Securities).
3.2 Representations and Warranties of the Investors. Each Investor
hereby, for itself and for no other Investor, represents and warrants to the
Company as of the date hereof and as of the Closing Date as follows:
(a) Organization; Authority. Such Investor is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the applicable
Transaction Documents and otherwise to carry out its obligations thereunder. The
execution, delivery and performance by such Investor of the transactions
contemplated by this Agreement has been duly authorized by all necessary
corporate or, if such Investor is not a corporation, such partnership, limited
liability company or other applicable like action, on the part of such Investor.
Each of this Agreement and the Registration Rights Agreement has been duly
executed by such Investor, and when delivered by such Investor in accordance
with terms hereof, will constitute the valid and legally binding obligation of
such Investor, enforceable against it in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
(b) Investment Intent. Such Investor is acquiring the Shares as
principal for its own account for investment purposes only and not with a view
to or for distributing or reselling such Shares or any part thereof, without
prejudice, however, to such Investor's right at all times to sell or otherwise
dispose of all or any part of such Shares in compliance with applicable federal
and state securities laws. Subject to the immediately preceding sentence,
nothing contained herein shall be deemed a representation or warranty by such
Investor to hold the Shares for any period of time. Such Investor is acquiring
the Shares hereunder in the ordinary course of its business. Such Investor does
not have any agreement or understanding, directly or indirectly, with any Person
to distribute any of the Shares.
(c) Investor Status. At the time such Investor was offered the Shares,
it was, and at the date hereof it is, (i) knowledgeable, sophisticated and
experienced in making, and qualified to make, decisions with respect to
investments in securities representing an investment decision similar to that
involved in the purchase of the Shares, including investments in securities
issued by the Company and comparable entities, and has had the opportunity to
request, receive, review and consider all information it deemed relevant in
making an informed decision to purchase the Shares; and (ii) an "accredited
investor" as defined in Rule 501(a) under the Securities Act. Such Investor is
not a registered broker-dealer under Section 15 of the Exchange Act.
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(d) General Solicitation. Such Investor is not purchasing the Shares as
a result of any advertisement, article, notice or other communication regarding
the Shares published in any newspaper, magazine or similar media or broadcast
over television or radio or presented at any seminar or any other general
solicitation or general advertisement.
(e) Access to Information. Such Investor acknowledges that it has
reviewed the Disclosure Materials and that the Investor may not rely on those
portions of the Registration Statement not applicable to the offering of the
Shares, including, but not limited to, the sections entitled "Plan of
Distribution," "Calculation of Registration Fee," "The Offering," "Selling
Stockholders" and "Shares Eligible for Future Sale". Such Investor also
acknowledges that is has been afforded (i) the opportunity to ask such questions
as it has deemed necessary of, and to receive answers from, representatives of
the Company concerning the terms and conditions of the offering of the Shares
and the merits and risks of investing in the Shares; (ii) access to information
about the Company and the Subsidiaries and their respective financial condition,
results of operations, business, properties, management and prospects sufficient
to enable it to evaluate its investment; and (iii) the opportunity to obtain
such additional information that the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the investment. Neither such inquiries nor any other
investigation conducted by or on behalf of such Investor or its representatives
or counsel shall modify, amend or affect such Investor's right to rely on the
truth, accuracy and completeness of the Disclosure Materials and the Company's
representations and warranties contained in the Transaction Documents.
(f) Certain Trading Activities. Such Investor has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Investor, engaged in any transactions in the securities
of the Company (including, without limitations, any Short Sales involving the
Company's securities) since the earlier to occur of (i) the time that such
Investor was first contacted by the Company or Roth Capital Partners, LLC
regarding an investment in the Company and (ii) the 30th day prior to the date
of this Agreement. Such Investor covenants that neither it nor any Person acting
on its behalf or pursuant to any understanding with it will engage in any
transactions in the securities of the Company (including Short Sales) prior to
the time that the transactions contemplated by this Agreement are publicly
disclosed. Such Investor covenants that, until to the earlier of (i) the
Effective Date (as defined in the Registration Rights Agreement) or (ii) the
180th day after the date of this Agreement, such Investor will not, directly or
indirectly, and will not cause persons acting on its behalf to engage in any
Short Sales involving the Company's securities or sell the Shares acquired
pursuant to this Agreement.
(g) Reliance on Investor Representations. Such Investor understands
that the Shares are being offered and sold to it in reliance upon specific
exemptions from the registration requirements of the Securities Act and the
rules and regulations promulgated thereunder, and state securities laws and that
the Company is relying upon the truth and accuracy of, and the Investor's
15
compliance with, the representations, warranties, agreements, acknowledgements
and understandings of the Investor set forth herein in order to determine the
availability of such exemptions and the eligibility of the Investor to acquire
the Shares. Under such laws and rules and regulations the Shares may be resold
without registration under the Securities Act only in certain limited
circumstances. The Investor represents that it is familiar with Rule 144 under
the Securities Act, as presently in effect, and understands the resale
limitations.
(h) Risks of Investment. Such Investor understands that its investment
in the Shares involves a significant degree of risk, including a risk of total
loss of the Investor's investment, and the Investor has full cognizance of and
understands all of the risk factors related to the Investor's purchase of the
Shares, including, but not limited to, those set forth under the caption "Risk
Factors" in the quarterly report on Form 10-Q for the period ending June 30,
2005, as amended. The Investor understands that the market price of the Common
Stock has been volatile and that no representation is being made as to the
future value of the Common Stock. The Investor has the knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of an investment in the Shares and has the ability to bear the economic
risks of an investment in the Shares.
(i) No Approvals. Such Investor understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Shares.
(j) Location of Offices. Such Investors principal executive offices are
in the jurisdiction set forth immediately below the Investor's name on the
signature pages hereto.
(k) Independent Investment Decision. Such Investor has independently
evaluated the merits of its decision to purchase Shares pursuant to the
Transaction Documents, and such Investor confirms that it has not relied on the
advice of any other Investor's business and/or legal counsel in making such
decision. Such Investor has not relied on the business or legal advice of Roth
Capital Partners, LLC or any of its agents, counsel or Affiliates in making its
investment decision hereunder, and confirms that none of such Persons has made
any representations or warranties to such Investor in connection with the
transactions contemplated by the Transaction Documents.
The Company acknowledges and agrees that no Investor has made or makes any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 (a) Shares may only be disposed of in compliance with state and
federal securities laws. In connection with any transfer of the Shares other
than pursuant to an effective registration statement, to the Company, to an
Affiliate of an Investor or in connection with a pledge as contemplated in
16
Section 4.1(b), the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred Shares
under the Securities Act.
(b) Certificates evidencing the Shares will contain the following
legend, until such time as they are not required under Section 4.1(c):
[NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF
THESE SECURITIES HAVE BEEN REGISTERED] [THESE SECURITIES HAVE NOT BEEN
REGISTERED] WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A
LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
[THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES] [THESE SECURITIES] MAY BE PLEDGED IN CONNECTION WITH A BONA
FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that an Investor may from time to
time pledge, and/or grant a security interest in some or all of the Shares
pursuant to a bona fide margin agreement in connection with a bona fide margin
account and, if required under the terms of such agreement or account, such
Investor may transfer pledged or secured Shares to the pledgees or secured
parties. Such a pledge or transfer would not be subject to approval or consent
of the Company and no legal opinion of legal counsel to the pledgee, secured
party or pledgor shall be required in connection with the pledge, but such legal
opinion may be required in connection with a subsequent transfer following
default by the Investor transferee of the pledge. No notice shall be required of
such pledge. At the appropriate Investor's expense, the Company will execute and
deliver such reasonable documentation as a pledgee or secured party of Shares
may reasonably request in connection with a pledge or transfer of the Shares
including the preparation and filing of any required prospectus supplement under
Rule 424(b)(3) of the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of Selling Stockholders
thereunder.
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(c) Upon an Investor's written request, certificates evidencing the
Shares containing any legend (including the legend set forth in Section 4.1(b)):
(i) while a registration statement (including a Registration Statement) covering
the resale of such security is effective under the Securities Act, or (ii)
following a sale or transfer of such Shares pursuant to Rule 144 (assuming the
transferor is not an Affiliate of the Company), or (iii) while such Shares are
eligible for sale under Rule 144(k), shall be replaced with certificates that do
not bear such legends as hereafter set forth; provided, however, in the case of
clause (i) the request is accompanied by a written certification by the Investor
that (A) the Investor has a present intention to dispose of the Shares covered
by such Registration Statement pursuant to a plan of distribution included in a
currently available prospectus related thereto, and (B) the Investor will comply
with the prospectus delivery requirements applicable to such disposition and, in
the case of clause (ii) or (iii), the request is accompanied by such reasonable
and appropriate customary representations as may be reasonably requested by the
Company. The Company agrees that following the Effective Date or at such time as
such legend is no longer required under this Section 4.1(c), it will, no later
than seven (7) Trading Days following the delivery by a Investor to the Company
or the Company's transfer agent of a certificate representing Shares issued with
a restrictive legend (such seventh Trading Day, the "Legend Removal Date"),
together with the written request of such Investor accompanied by the written
representation letter in customary form, deliver or cause to be delivered to
such Investor a certificate representing such shares that is free from all
restrictive and other legends. Certificates for Shares subject to legend removal
hereunder shall be transmitted by the transfer agent of the Company to the
Investors by crediting the account of the Investor's prime broker with the
Depository Trust Company System.
(d) Each Investor, severally and not jointly with the other Investors,
agrees that the removal of the restrictive legend from certificates representing
Shares as set forth in this Section 4.1 is predicated upon the Company's
reliance that the Investor will sell any Shares pursuant to either the
registration requirements of the Securities Act, including any applicable
prospectus delivery requirements, or an exemption therefrom.
4.2 Furnishing of Information. As long as any Investor owns Shares, the
Company covenants to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to the Exchange Act. As long as any
Investor owns Shares, if the Company is not required to file reports pursuant to
such laws, it will prepare and furnish to the Investors and make publicly
available in accordance with Rule 144(c) such information as is required for the
Investors to sell the Shares under Rule 144. The Company further covenants that
it will take such further action as any holder of Shares may reasonably request,
all to the extent required from time to time to enable such Person to sell the
Shares without registration under the Securities Act within the limitation of
the exemptions provided by Rule 144.
4.3 Integration. The Company shall not, and shall use its best efforts
to ensure that no Affiliate of the Company 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
18
offer or sale of the Shares in a manner that would require the registration
under the Securities Act of the sale of the Shares to the Investors, or that
would be integrated with the offer or sale of the Shares for purposes of the
rules and regulations of any Trading Market in a manner that would require
shareholder approval of the sale of the Shares to the Investors.
4.4 Subsequent Registrations. Other than the Pending Registration
Statement and the Registration Statements under the Registration Rights
Agreement, prior to the Effective Date of the Registration Statements that cover
the Registrable Securities, the Company may not file any registration statement
(other than on Form S-8) with the Commission with respect to any securities of
the Company.
4.5 Securities Laws Disclosure; Publicity. By 9:00 a.m. (New York time)
on the Trading Day following the execution of this Agreement, and by 9:00 a.m.
(New York time) on the Trading Day following the Closing Date, the Company shall
issue press releases disclosing the transactions contemplated hereby and the
Closing. On the Trading Day following the execution of this Agreement the
Company will file a Current Report on Form 8-K disclosing the material terms of
the Transaction Documents (and attach as exhibits thereto the Transaction
Documents), and on the Trading Day following the Closing Date the Company will
file additional Current Reports on Form 8-K to disclose the occurrence of the
Closing. In addition, the Company will make such other filings and notices in
the manner and time required by the Commission and the Trading Market on which
the Common Stock is listed. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of any Investor, or include the name of any Investor
in any filing with the Commission (other than the Registration Statement and any
exhibits to filings made in respect of this transaction in accordance with
periodic filing requirements under the Exchange Act) or any regulatory agency or
Trading Market, without the prior written consent of such Investor, except to
the extent such disclosure is required by law or Trading Market regulations.
4.6 Limitation on Issuance of Future Priced Securities. During the six
months following the Closing Date, the Company shall not issue any "Future
Priced Securities" as such term is described by NASD IM-4350-1.
4.7 Indemnification of Investors. In addition to the indemnity provided
in the Registration Rights Agreement, the Company will indemnify and hold the
Investors and their directors, officers, shareholders, partners, employees and
agents (each, an "Investor Party") harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys' fees and costs of investigation (collectively, "Losses") that any
such Investor Party may suffer or incur as a result of or relating to any
misrepresentation, breach or inaccuracy of any representation, warranty,
covenant or agreement made by the Company in any Transaction Document. In
addition to the indemnity contained herein, the Company will reimburse each
Investor Party for its reasonable legal and other expenses (including the cost
of any investigation, preparation and travel in connection therewith) incurred
in connection therewith, as such expenses are incurred.
19
4.8 Non-Public Information. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Investor
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Investor
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that each Investor shall
be reasonably relying on the foregoing representations in effecting transactions
in securities of the Company.
4.9 Listing of Shares. The Company agrees, (i) if the Company applies
to have the Common Stock traded on any other Trading Market, it will include in
such application the Shares, and will take such other action as is necessary or
desirable to cause the Shares to be listed on such other Trading Market as
promptly as possible, and (ii) it will take all action reasonably necessary to
continue the listing and trading of its Common Stock on a Trading Market and
will comply in all material respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the Trading Market.
4.10 Use of Proceeds. The Company will use the net proceeds from the
sale of the Shares hereunder for the purchase of equipment, cost of the offering
and working capital.
ARTICLE V.
CONDITIONS PRECEDENT TO CLOSINGS
5.1 Conditions Precedent to the Obligations of the Investors to
Purchase Shares at the Closing. The obligation of each Investor to acquire
Shares at the Closing is subject to the satisfaction or waiver by such Investor,
at or before the Closing, of each of the following conditions:
(a) Representations and Warranties. The representations and warranties
of the Company contained herein shall be true and correct in all material
respects as of the date when made and as of the Closing as though made on and as
of such date;
(b) Performance. The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by it at or prior to the Closing;
(c) No Injunction. 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;
(d) Adverse Changes. Since the date of execution of this Agreement, no
event or series of events shall have occurred that has resulted in or reasonably
would be expected to result in a Material Adverse Effect (the parties agreeing
that a decrease in stock price alone shall not be deemed such an event);
20
(e) No Suspensions of Trading in Common Stock; Listing. Trading in the
Common Stock shall not have been suspended by the Commission or any Trading
Market (except for any suspensions of trading of not more than one Trading Day
solely to permit dissemination of material information regarding the Company) at
any time since the date of execution of this Agreement, and the Common Stock
shall have been at all times since such date listed for trading on a Trading
Market;
(f) Officer's Certificate. The Company shall have delivered to the
Investors a certificate executed by a duly authorized officer of the Company
certifying that (i) the representations and warranties of the Company contained
herein are true and correct in all material respects as of the date when made
and as of the Closing as though made on and as of such date, (ii) the Company
has performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by it at or prior to the Closing and (iii)
the items referenced in Sections 5.1(c)-(e) have been satisfied;
(g) Company Deliverables. The Company shall have delivered the Company
Deliverables in accordance with Section 2.2(a); and
(h) Comfort Letter. The Investors shall have received a "comfort
letter" addressed to the Investors and Roth Capital Partners, LLC from the
Company's independent accountants, Schwarts Levitsky Feldman LLP in a form and
substance satisfactory to the Investors and Roth Capital Partners, LLC as of
date hereof. As appropriate, the Investors may also request a "bring-down
comfort letter" dated as of the Closing.
5.2 Conditions Precedent to the Obligations of the Company to Sell
Shares at the Closing. The obligation of the Company to sell Shares at the
Closing is subject to the satisfaction or waiver by the Company, at or before
the Closing, of each of the following conditions:
(a) Representations and Warranties. The representations and warranties
of each Investor contained herein shall be true and correct in all material
respects as of the date when made and as of the Closing Date as though made on
and as of such date;
(b) Performance. Each Investor shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by such Investor at or prior to the Closing;
(c) No Injunction. 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
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(d) Investor Deliverables. Each Investor shall have delivered its
Investor Deliverables in accordance with Section 2.2(b) and (c).
ARTICLE VI.
MISCELLANEOUS
6.1 Fees and Expenses. 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. The Company
shall pay all stamp and other taxes and duties levied in connection with the
sale of the Shares.
6.2 Entire Agreement. The Transaction Documents, together with the
Company Schedules and the Exhibits thereto, contain the entire understanding of
the parties with respect to the subject matter hereof and supersede all prior
agreements, understandings, discussions and representations, oral or written,
with respect to such matters, which the parties acknowledge have been merged
into such documents, exhibits and schedules.
6.3 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 specified in this Section 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
specified in this Section 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 Trading Day following the
date of mailing, if sent by U.S. nationally recognized overnight courier
service, or (d) upon actual receipt by the party to whom such notice is required
to be given. The address for such notices and communications shall be as
follows:
If to the Company: China BAK Battery, Inc.
BAK Industrial Park, No. 1 BAK Street
Kuichong Town, Longgang District
Shenzhen, People's Republic Of China
Attn: Li Xiangqian, Chief Executive Officer
Facsimile: 011 86 755 89 77 00 04
and also to
Nevada Agency and Trust Company
50 West Liberty Street, Suite 880
Reno, Nevada 89501
Attn: China BAK Battery, Inc.
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With a copy to: Andrews Kurth, L.L.P.
1717 Main Street
Dallas, Texas 75201
Attn: Robin Bradford, Esq.
Facsimile: (214) 659-4401
If to an Investor: To the address set forth under such Investor's
name on the signature pages hereof;
or such other address as may be designated in writing hereafter, in the
same manner, by such Person.
6.4 Amendments; Waivers; No Additional Consideration. No provision of
this Agreement may be waived or amended except in a written instrument signed by
the Company and the Investors holding a majority of the Shares. 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. No
consideration shall be offered or paid to any Investor to amend or consent to a
waiver or modification of any provision of any Transaction Document unless the
same consideration is also offered to all Investors who then hold Shares.
6.5 Termination. This Agreement may be terminated prior to the Closing:
(a) by written agreement of the Investors and the Company; and
(b) by the Company or an Investor (as to itself but no other Investor)
upon written notice to the other, if the Closing shall not have taken place by
5:30 p.m. Eastern time on September 30, 2005; provided, that the right to
terminate this Agreement under this Section 6.5(b) 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 Initial Closing to occur on
or before such time.
In the event of a termination pursuant to this Section, the Company
shall promptly notify all non-terminating Investors. Upon a termination in
accordance with this Section 6.5, the Company and the terminating Investor(s)
shall not have any further obligation or liability (including as arising from
such termination) to the other and no Investor will have any liability to any
other Investor under the Transaction Documents as a result therefrom.
6.6 Construction. 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
23
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.
6.7 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Investors. Any Investor may assign any
or all of its rights under this Agreement to any Person to whom such Investor
assigns or transfers any Shares, provided such transferee agrees in writing to
be bound, with respect to the transferred Shares, by the provisions hereof that
apply to the "Investors."
6.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.7 (as to each
Investor Party).
6.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
agrees that all Proceedings concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
Affiliates, employees or agents) shall be commenced exclusively in the New York
Courts. Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of the any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any Proceeding, any claim that it is not personally subject to the
jurisdiction of any such New York Court, or that such Proceeding has been
commenced in an improper or inconvenient forum. Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such Proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Agreement or the transactions contemplated hereby. If either party shall
commence a Proceeding to enforce any provisions of a Transaction Document, then
the prevailing party in such Proceeding shall be reimbursed by the other party
for its reasonable attorneys' fees and other reasonable costs and expenses
incurred with the investigation, preparation and prosecution of such Proceeding.
24
6.10 Survival. The representations, warranties, agreements and
covenants contained herein shall survive the Closing and the delivery of the
Shares.
6.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, 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.
6.12 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.
6.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Investor exercises a right, election, demand
or option under a Transaction Document and the Company does not timely perform
its related obligations within the periods therein provided, then such Investor
may rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights.
6.14 Replacement of Shares. If any certificate or instrument evidencing
any Shares is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Shares. If a replacement
certificate or instrument evidencing any Shares is requested due to a mutilation
thereof, the Company may require delivery of such mutilated certificate or
instrument as a condition precedent to any issuance of a replacement.
6.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Investors and the Company 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.
25
6.16 Payment Set Aside. To the extent that the Company makes a payment
or payments to any Investor pursuant to any Transaction Document or an Investor
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
6.17 Independent Nature of Investors' Obligations and Rights. The
obligations of each Investor under any Transaction Document are several and not
joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under any Transaction Document. The decision of each Investor to
purchase Shares pursuant to the Transaction Documents has been made by such
Investor independently of any other Investor. Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such Investor in connection with monitoring its
investment in the Shares or enforcing its rights under the Transaction
Documents. Each Investor shall be entitled to independently protect and enforce
its rights, including without limitation the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the Investors
has been provided with the same Transaction Documents for the purpose of closing
a transaction with multiple Investors and not because it was required or
requested to do so by any Investor.
6.18 Limitation of Liability. Notwithstanding anything herein to the
contrary, the Company acknowledges and agrees that the liability of an Investor
arising directly or indirectly, under any Transaction Document of any and every
nature whatsoever shall be satisfied solely out of the assets of such Investor,
and that no trustee, officer, other investment vehicle or any other Affiliate of
such Investor or any investor, shareholder or holder of shares of beneficial
interest of such a Investor shall be personally liable for any liabilities of
such Investor.
26
6.19 Construction. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOLLOW]
27
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
CHINA BAK BATTERY, INC.
By:___________________________________
Name:
Title:
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR INVESTORS FOLLOW]
28
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
NAME OF INVESTOR
____________________________________________
By:_________________________________________
Name:
Title:
Investment Amount: $________________________
Tax ID No.:_________________________________
ADDRESS FOR NOTICE
c/o:________________________________________
Street:_____________________________________
City/State/Zip:_____________________________
Attention:__________________________________
Tel:________________________________________
Fax:________________________________________
DELIVERY INSTRUCTIONS
(if different from above)
c/o:________________________________________
Street:_____________________________________
City/State/Zip:_____________________________
Attention:__________________________________
Tel:________________________________________
29
COMPANY SCHEDULES
No disclosure in these schedules relating to any possible breach or violation of
any agreement, law or regulation shall be construed as an admission or
indication that any such breach or violation exists or has actually occurred.
30
SCHEDULE 3.1(g)
CAPITALIZATION
In connection with the Closing, the Company will issue to Roth Capital
Partners, LLC and Global Hunter Securities, in the aggregate, warrants to
purchase shares of Common Stock equal to 8% of the Common Stock issued in this
offering at an exercise price of 110% of the price of the Common Stock on the
Closing Date of this offering and with a term of three years.
31
SCHEDULE 3.1(h)
SEC REPORTS; FINANCIAL STATEMENTS
1. The Company did not timely file a Current Report on Form 8-K to
disclose the Company's entry into several material agreements that created a
direct financial obligation. The Company subsequently included the required
disclosure in Item 5 of its Quarterly Report on Form 10-QSB for the quarter
ended June 30, 2005, filed with the Securities and Exchange Commission on or
about August 18, 2005, which is incorporated herein by reference.
2. The Company received a comment letter from the Securities and Exchange
Commission dated August 2, 2005 regarding the Company's Pre-effective Amendments
1 and 2 to Registration Statement on Form SB-2 filed June 22 and 27, 2005,
respectively (the "Registration Statement") and the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 2004 (the "Form 10-KSB") and
subsequent Exchange Act Reports. The comment letter requests certain revisions
to the Company's Registration Statement and Form 10-KSB and in some cases,
additional disclosure for certain items. The letter is attached hereto and
incorporated herein by reference.
3. The Company disclosed in its Quarterly Report on Form 10-QSB for the
quarter ended June 30, 2005, filed with the Securities and Exchange Commission
on or about August 18, 2005 certain "off balance sheet" financing under Item 2
Management's Discussion and Analysis or Plan of Operation, which is incorporated
herein by reference. The Company did not specifically identify these obligations
as "off balance sheet" financing in its Managements Discussion and Analysis or
Plan of Operation in its Quarterly Report on Form 10-QSB for the quarter ended
March 31, 2005, filed with the Securities and Exchange Commission on or about
May 16, 2005. The information was disclosed in the footnotes to the financial
statements included in the Quarterly Report on Form 10-QSB for the quarter ended
March 31, 2005.
32
August 2, 2005
By facsimile to (214) 953-953-5822 and U.S. Mail
Mr. Xiangqian Li
Chairman, President, and Chief Executive Officer
China BAK Battery, Inc.
BAK Industrial Park
No. 1 BAK Street
Kuichong Town, Longgang District
Shenzhen, People's Republic of China
Re: China BAK Battery, Inc., formerly known as Medina Coffee, Inc.
Pre-effective Amendments 1 and 2 to Registration Statement on Form SB-2
Filed June 22 and 27, 2005
File No. 333-122209
Annual Report on Form 10-KSB for the fiscal year ended December 31,
2004 and Subsequent Exchange Act Reports
File No. 0-49712
Dear Mr. Li:
We reviewed the filings and have the comments below.
SB-2/A 1 and 2
--------------
1. If applicable, comments on the SB-2/A1 and 2 are comments on the 10-KSB
and subsequent Exchange Act reports and vice versa.
Risk Factors, page 4
- --------------------
2. Refer to prior comment 6. As requested previously, revise the ninth
factor.
3. We assume that inclusion of the words "could be" in the thirty-first
risk factor's heading are inadvertent. Please delete.
Suppliers, page 29
- ------------------
4. Expand your disclosure to discuss any material contracts that you have
entered into with your suppliers relating to energy and materials used
in the production of your products.
33
Description of Our Capital Stock, page 37
- -----------------------------------------
5. Remove from this section's first paragraph the statement that the
description of China BAK Battery's capital stock is "qualified in its
entirety" by information outside the prospectus. This section should
include all of the disclosure required by Item 202 of Regulation S-B.
Comment: Selling Stockholders, page 38
- --------------------------------------
6. Refer to (28) after the names of Robert G. and Judith T. Rader in the
table. We are unable to locate the related footnote disclosure. Please
revise.
Report of Independent Registered Public Accounting Firm, page F-1
- -----------------------------------------------------------------
7. The independent auditor's report included in your filing is not signed
by your auditor. Obtain from your auditor a signed audit report. Also
ensure that an updated consent is filed with your next amendment.
Financial Statements
- --------------------
8. Update your disclosures here and elsewhere in the filing to include
financial information through June 30, 2005.
9. As requested previously, provide us the summarized balance sheet of
Medina Coffee, the shell company immediately before the transaction
with BAK International, the operating company. Also provide us the
summarized balance sheet of BAK International immediately before the
transaction with Medina Coffee.
Statements of Changes in Stockholders' Equity, page F-4
- -------------------------------------------------------
10. Confirm to us that BAK Battery did not issue or retire any shares of
its common stock during the period from September 30, 2002 through
September 30, 2004.
11. We read your July 21, 2005 correspondence and your response to prior
comment 35. Based on your response, it appears that five shareholders,
representing 1.85% of the shares of BAK Battery immediately before the
transaction with BAK International, did not receive shares of BAK
International upon the consummation of the transaction. Expand your
disclosure to include in a footnote the effect that the transaction had
on these shareholders and the accounting treatment used to eliminate
these shares, including the line items impacted and their related
amounts.
12. We read your July 21, 2005 correspondence and your response to prior
comment 35. Based on section III of your correspondence, it appears
that 1,013,554 shares of common stock were issued to shareholders that
were not initially shareholders of Shenzhen BAK Battery Co., Ltd. or
BAK International, Ltd. These shareholders are numbered 12-18 in the
table in section III of your correspondence. Disclose in a footnote how
and when you reflected or intend to reflect the issuance of these
shares. Also disclose the value that these shares were or will be
issued at in your statement of stockholders' equity, including the line
items impacted and their related amounts. Also disclose the accounting
treatment used to record the transaction in accordance with U.S. GAAP.
34
13. You state on page F-8 that BAK International, Ltd. acquired 100% of the
outstanding shares of Shenzhen BAK Battery Co., Ltd. for a total
consideration of $11.5 million on November 6, 2004. However, you
disclosed in note 14 to the financial statements that during the year
ended September 30, 2004 the existing stockholders contributed cash in
the amount of $10,875,918 that was recorded as an increase to
additional paid-in capital in your financial statements. You stated in
your response to prior comment 35 that the $11.5 million was recorded
as if it had occurred during the year ended September 30, 2004. Tell us
the accounting guidance that you used in determining that this should
be recorded in the year ended September 20, 2004 rather than during the
year ended September 30, 2005. Also tell us how this was reflected in
your statements of cash flows.
14. You stated in your response to prior comment 35 that you received $11.5
million from the BAK International, Ltd. shareholders. Based on your
current disclosure, it appears that you have only recorded
approximately $10.9 million as contribution of cash by stockholders.
Expand your disclosure to include an explanation for the apparent $0.6
million difference.
15. Provide us a shareholder list for BAK International immediately before
the transaction with Medina Coffee. Include in your response the names
of the shareholders and the corresponding number of shares held by each
shareholder.
16. Based on the information that you provided in your July 21, 2005
correspondence, it appears that the information in exhibit B includes
transactional information that relates to the private placement
discussed on page F-23 of your Form SB-2/A. If these shares in the
private placement were not issuances of BAK International as we assume
and included in the list requested above for the shareholder list of
BAK International immediately before the transaction with Medina
Coffee, tell us which entity issued these shares. Also tell us what
accounting consideration you gave to these issuances in recording the
transaction between BAK International and Medina Coffee.
17. Your response to prior comment 36 states that you have 40,978,533 total
outstanding shares of common stock. However, your statements of changes
in stockholders' equity indicate your total outstanding shares of
common stock to be 39,826,075. The 1,152,458 share discrepancy appears
to be the post-transaction shares effectively issued to the former
shareholders of Medina Coffee. Disclose the date of the effective
issuance of these shares, the number of shares effectively issued, the
value that they were or will be reflected at in your statement of
shareholders' equity, and the line items impacted, including the
related amounts.
35
Notes to Financial Statements, page 17
- --------------------------------------
18. Expand your disclosures to include also notes to the financial
statements for the period ended March 31, 2005.
Note 4. Summary of Principal Accounting Policies
- ------------------------------------------------
N. Revenue Recognition, Returns and Warranties, page F-13
- ---------------------------------------------------------
19. We read your response to prior comment 50 and your revised disclosure.
Your response does not address how you determined that it was
appropriate to record the amount relating to the warranty reserve at
the end of the year rather than when the sales occur. Please advise.
Note 7. Long-Term Assets, name F-19
- -----------------------------------
20. Expand your disclosure to discuss the types of indirect costs that you
capitalize.
Information not Required in the Prospectus, page II-1
- -----------------------------------------------------
21. Refer to prior comment 57. As requested previously, disclose that China
BAK Battery does not maintain the insurance.
Recent Sales of Unregistered Securities, page II-1
- --------------------------------------------------
22. Refer to prior comment 58. As requested previously, state the value of
the 39,826,075 shares of common stock issued in the stock exchange
transaction on January 20, 2005.
Exhibits 10.3 and 10.4
- ----------------------
23. Refer to prior comment 60. As noted previously, absent an order
granting confidential treatment, Item 601(b)(10) of Regulation S-B
requires the filing of material contracts, including attachments, in
their entirety. Attachments include, for example, annexes, appendices,
exhibits, and schedules. Refer to section 1 of exhibit 10.3 and
sections 1.3 and 2(a) of exhibit 10.4, and revise or advise.
Exhibits 10.5, 10.6, 10.7, 10.8, 10.9, 10.10, 10.11, 10.12, 10.13, 10.14, 10.15,
10.16, 10.17, 10.18, 10.19, 10.21, 10.22, 10.23, 10.24, 10.25, 10.26, 10.27,
10.28, 10.29, 10.30, 10.31, 10.32, 10.33, 10.34, 10.35, 10.36, 10.37, 10.38,
10.39, 10.40, 10.42, 10.43, 10.44, 10.45 and 10.46
24. Refer to prior comment 61. For each exhibit specified above, tell us
why China BAK Battery is not required under paragraph (c)(2)(iv) or
paragraph (c)(2)(v) of Rule 403 of Regulation C under the Securities
Act to submit a fair and accurate English translation of the entire
foreign language document. For example, it appears that Mr. Xianggian
Li, a director and officer of China BAK Battery, is a party to the
agreements filed as exhibits 10. 11, 10. 13, 10.15, 10.23, 10.30,
10.33, and 10.44 and that Jilin Province Huaruan Technology Company,
Ltd., a corporation owned by Mr. Li, is a parry to the agreements filed
as exhibits 10. 9, 10.11, 10.13, 10.15, 10. 19, and 10.41. Note that
paragraph (c)(3)(ii) of Rule 403 is applicable only if China BAK
Battery is able to satisfy paragraph (c)(3)(i)(A) of Rule 403 or
paragraph (c)(3)(i)(B) of Rule 403.
36
25. Refer to prior comment 62. As noted previously, if a English summary of
a foreign language document is submitted under Rule 403(c)(3) of
Regulation C under the Securities Act, the English summary must fairly
and accurately:
o Summarize the terms of each material provision of the
foreign language document.
o Describe the terms that have been omitted or
abridged.
It does not appear that you have described the terms that have been
omitted or abridged in the exhibits specified above as required by
paragraph c(3)(ii)(B) of Rule 403. Please revise.
10-KSB
Item 5. Market for Common Equity, Related Stockholder Matters and Small Business
- --------------------------------------------------------------------------------
Issuer Purchases of Equity Securities
- -------------------------------------
26. Refer to prior comment 10. The range of closing high and low bid prices
of China BAK Battery's common stock for the third and fourth quarters
2004 appear to have been inverted in the table so that the high bid
prices appear in the column for the low bid prices and vice versa.
Please revise.
Item 8A. Controls and Procedures
- --------------------------------
27. Disclosure controls and procedures are now defined in Exchange Act
Rules 13a-15(e) and 15d-15(e) rather than Rule 13a-14(c). Your
disclosure controls and procedures should have been evaluated as of the
end of the period as opposed to within 90 days of the filing being
made. Also, you should disclose whether there were any changes in your
internal controls during the quarter. See Item 307 of Regulation S-B,
and revise your disclosure.
Signatures
- ----------
28. China BAK Battery's controller or principal accounting officer also
must sign the 10-KSB. Further, any person who occupies more than one of
the specified positions, for example, principal financial officer and
controller or principal accounting officer, must indicate each capacity
in which he signs the 10-KSB. See General Instruction C.2. of Form
10-KSB, and revise in future filings.
37
Closing
- -------
File amendments to the SB-2, the December 31, 2004 10-KSB, and the
March 31, 2005 10-QSB in response to the comments. To expedite our review, China
BAK Battery may wish to provide us three marked courtesy copies of the
amendments. Include with the filings any supplemental information requested and
a cover letter tagged as correspondence that keys the responses to the comments.
If China BAK Battery thinks that compliance with any of the comments is
inappropriate, provide the basis in the letter. We may have additional comments
after review of the amendments, the responses to the comments, and any
supplemental information.
We urge all persons responsible for the accuracy and adequacy of the
disclosure in the registration statement reviewed by us to ensure that they have
provided all information investors require for an informed decision. Since China
BAK Battery and its management are in possession of all facts relating to the
disclosure in the registration statement, they are responsible for the adequacy
and accuracy of the disclosures that they have made.
If China BAK Battery requests acceleration of the registration
statement's effectiveness, China BAK Battery should furnish a letter at the time
of the request, acknowledging that:
1. Should the Commission or the staff acting by delegated
authority declare the registration statement effective, it
does not foreclose the Commission from taking any action on
the filing.
2. The action of the Commission or the staff acting by delegated
authority in declaring the registration statement effective
does not relieve China BAK Battery from its full
responsibility for the adequacy and accuracy of the
registration statement's disclosures.
3. China BAK Battery may not assert our comments or the
declaration of the registration statement's effectiveness as a
defense in any proceedings initiated by the Commission or any
person under the United States' federal securities laws.
The Commission's Division of Enforcement has access to all information
that China BAK Battery provides us in our review of the registration statement
or in response to our comments on the registration statement.
We will consider a written request for acceleration of the registration
statement's effectiveness under Rule 461 of Regulation C under the Securities
Act as confirmation that those requesting acceleration are aware of their
responsibilities under the Securities Act and the Exchange Act as they relate to
the proposed public offering of the securities specified in the registration
statement. We will act on the request and by delegated authority grant
acceleration of the registration statement's effectiveness.
You may direct questions on accounting comments to Meagan Caldwell,
Staff Accountant, at (202) 824-5578 or Rufus G. Decker III, Accounting Branch
Chief, at (202) 942-1774. You may direct questions on other comments and
disclosure issues to Edward M. Kelly, Senior Counsel, at (202) 942-1978 or me at
(202) 942-2864.
38
Very truly yours,
Jennifer R. Hardy
Legal Branch Chief
cc: Nevada Agency and Trust Company
Agent for Service, China BAK Battery, Inc., f/k/a Medina Coffee, Inc.
50 West Liberty Street, Suite 880
Reno, NV 89501
George L. Diamond, Esq.
Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, TX 75202
39
SCHEDULE 3.1(j)
MATERIAL CHANGES
As part of the share exchange that was effective January 20, 2005
between the Company and the shareholders of the Company's now wholly owned
subsidiary BAK International, Ltd., (and pursuant to the Securities Exchange
Agreement dated effective as of January 20, 2005 by and among Medina Coffee,
Inc., BAK International, Ltd. and The Shareholders of BAK International, Ltd.)
the Company issued to: (i) Mr. Xiangqian Li, its sole director, President and
Chief Executive Officer, 21,233,437 shares of Common Stock, (ii) Mr. Yongbin
Han, its Chief Financial Officer, 312,256 shares of Common Stock and (iii) Dr.
Huanyu Mao, its Chief Technical Officer, 249,805 shares of Common Stock. Each of
these individuals filed an Initial Statement of Beneficial Ownership on Form 3
with the Securities and Exchange Commission with respect to these shares on
January 25, 2005.
40
SCHEDULE 3.1(n)
REGULATORY PERMITS
The Company's subsidiary, Shenzhen BAK Battery Co., Ltd. ("BAK
Battery") has not obtained the certificate of land use right for the property
and facilities located at BAK Industrial Park, No. 1 BAK Street, Kuichong Town,
Longgang District, Shenzhen, People's Republic of China. BAK Battery is
negotiating with the government regarding this matter.
41
SCHEDULE 3.1(o)
TITLE TO ASSETS
1. Schedule 3.1(n) - Regulatory Permits is incorporated herein by
reference.
2. BAK Battery has pledged certain of its machinery and equipment with a
value at June 30, 2005 of USD $9.55 million and inventory with a value at June
30, 2005 of USD $7.49 million, to Shenzhen Development Bank to secure its credit
agreement with Shenzhen Development Bank. See Item 5 - Other Information of the
Quarterly Report on Form 10Q for the quarterly period ended June 30, 2005 and
Exhibits 10.10 and 10.11, which are incorporated herein by reference. A list of
the specific items of machinery and equipment, and the items of inventory,
respectively, are attached hereto as Schedule 1 and Schedule 2 and incorporated
herein by reference.
3. BAK Battery has an arrangement with its lenders, the Agricultural Bank
of China, China Minsheng Bank and Shenzhen Commercial Bank pursuant to which
such lenders will, upon request, issue bank acceptance notes to BAK Battery's
suppliers, including new materials suppliers and suppliers of construction
materials, that guarantee the payment of a specific note payable of BAK Battery
to the supplier. To secure the bank's acceptance note, BAK Battery is required
to pledge and deposit with the issuing bank cash, which may be required in an
amount from 20% to 100% of the amount of the acceptance note. At June 30, 2005,
the aggregate amount of such pledged cash was $16,032,030.
4. The letter of Grandall Legal Group (Shenzhen) Office dated August 18,
2005 attached hereto is incorporated herein by reference.
42
SCHEDULE 1
NAME UNIT QUANTITY (PIECE) UNIT PRICE (RMB) AMOUNT (RMB)
- ---------------------- ----- ---------------- ---------------- -------------
043046A Piece 50000 9.50 475,000.00
043048S Piece 80000 7.70 616,000.00
053040S Piece 50000 7.80 390,000.00
053048A Piece 100000 8.50 850,000.00
053048A1 Piece 100000 9.00 900,000.00
053048S Piece 200000 6.70 1,340,000.00
053048S2 Piece 200000 7.00 1,400,000.00
053436S2 Piece 30000 9.40 282,000.00
053448S Piece 30000 9.50 285,000.00
053450A Piece 20000 10.00 200,000.00
053450A1 Piece 300000 10.20 3,060,000.00
053450AR Piece 60000 9.70 582,000.00
053465S Piece 100000 10.30 1,030,000.00
063048S Piece 50000 6.70 335,000.00
063048S2 Piece 100000 7.00 700,000.00
063065S Piece 20000 13.00 260,000.00
063448AR Piece 100000 10.80 1,080,000.00
063448S Piece 80000 9.40 752,000.00
063450AR Piece 80000 11.40 912,000.00
063450AR1 Piece 80000 11.40 912,000.00
063450R Piece 70000 11.30 791,000.00
063465S Piece 100000 10.60 1,060,000.00
073446S Piece 20000 10.80 216,000.00
082247S Piece 50000 10.30 515,000.00
083040S Piece 20000 10.70 214,000.00
083046S Piece 30000 11.60 348,000.00
083048ST Piece 60000 10.60 636,000.00
083048ST2 Piece 30000 10.40 312,000.00
083448S Piece 50000 10.30 515,000.00
083448ST Piece 50000 10.60 530,000.00
093046S Piece 20000 11.60 232,000.00
093448ST2 Piece 100000 12.00 1,200,000.00
103450AR Piece 200000 17.60 3,520,000.00
103465S Piece 30000 21.00 630,000.00
144060SF Piece 40000 38.40 1,536,000.00
14430C Piece 100000 8.50 850,000.00
43
NAME UNIT QUANTITY (PIECE) UNIT PRICE (RMB) AMOUNT (RMB)
- ---------------------- ----- ---------------- ---------------- -------------
14500C Piece 100000 9.70 970,000.00
18490C2 Piece 100000 14.80 1,480,000.00
18650C Piece 20000 19.20 384,000.00
18650C2 Piece 20000 20.20 404,000.00
18650C3 Piece 40000 19.70 788,000.00
343450A Piece 50000 11.40 570,000.00
363449A Piece 40000 9.40 376,000.00
363450A Piece 100000 8.70 870,000.00
363450A1 Piece 20000 10.00 200,000.00
363450AB Piece 80000 8.70 696,000.00
383450A Piece 40000 8.90 356,000.00
383450A2 Piece 20000 10.20 204,000.00
383450S Piece 30000 8.90 267,000.00
393048A1 Piece 60000 8.60 516,000.00
393048S2 Piece 30000 7.70 231,000.00
413055S Piece 100000 8.40 840,000.00
413450A Piece 300000 9.10 2,730,000.00
413450A1 Piece 300000 9.40 2,820,000.00
413450AB Piece 100000 7.80 780,000.00
413450AR Piece 50000 9.80 490,000.00
423048A Piece 100000 8.20 820,000.00
423048A1 Piece 200000 8.40 1,680,000.00
433450A Piece 100000 11.80 1,180,000.00
463436A Piece 200000 10.80 2,160,000.00
483040A Piece 100000 9.40 940,000.00
483048A Piece 300000 8.60 2,580,000.00
483048S Piece 200000 6.80 1,360,000.00
523436A Piece 60000 10.10 606,000.00
551758S Piece 50000 18.00 900,000.00
583048S2 Piece 30000 7.30 219,000.00
613048A Piece 30000 8.30 249,000.00
613048A1 Piece 200000 8.50 1,700,000.00
613048AB Piece 60000 8.40 504,000.00
763448A Piece 80000 13.00 1,040,000.00
783440A Piece 10000 12.40 124,000.00
783440A1 Piece 40000 12.50 500,000.00
Total 6160000 62,000,000.00
44
SCHEDULE 2
AMORTIZATION
TERM (YEAR)
(all amortized
ORIGINAL using the
VALUE composite life
NO. NAME QUANTITY (RMB) BEGIN TO USE method)
- ----- ------------------------------------ -------- ------------- --------------- --------------
1 Ultrasonic Welding Machine 9 558,000.00 2001.9-2002.11 5~10
2 Electromotion Vibration Test System 1 230,000.00 2004.12.31 5
3 Power Mixer 59 7,298,830.00 2001.9-2004.7 5~10
4 Domino Code-printing Machine 5 308,000.00 2002.3-2004.12 5
5 Laser Welding Machine 158 17,402,515.20 2001.9-2004.8 5~10
6 Slicer 19 741,500.00 2003.12-2004.6 5
7 Testing Box 720 34,366,940.00 2001.9-2004.9 5~10
8 Testing Equipment 2 408,576.00 2004.09.29 5
9 Mixer 3 510,000.00 2004.8-2004.9 5
10 Entrance Security System 1 62,800.00 2004.11.24 5
11 Winding Line 3 92,000.00 2003.05.31 5
12 Air Compressing system 1 270,000.00 2004.06.30 5
13 Air Compressor 5 304,000.00 2003.12-2004.4 5
14 Coulometry Titration System 1 92,932.00 2003.12.30 5
15 Slurry Machine 22 1,750,764.50 2001.9-2003.12 5~10
16 Cooling System 1 87,972.00 2001.12.31 5
17 Water Chiller 3 593,000.00 2003.5-2004.4 5
18 Water Chiller system 3 517,000.00 2002.8-2004.5 5
19 Water Tower 4 254,000.00 2004.07.24 5
20 Screwtype Water Chiller 2 738,000.00 2004.06.30 5
21 Midea Airconditioner 1 94,350.00 2002.07.31 5
ACCUMULATED DEPRECIATION
DEPRECIATION PER MONTH NET VALUE
NO. NAME (RMB) (RMB) (RMB)
- ----- ------------------------------------ ------------- ------------ -------------
1 Ultrasonic Welding Machine 203,674.05 5,277.20 354,325.95
2 Electromotion Vibration Test System 0.00 0.00 230,000.00
3 Power Mixer 1,054,065.72 111,887.15 6,244,764.28
4 Domino Code-printing Machine 39,649.20 1,200.80 268,350.80
5 Laser Welding Machine 4,353,053.55 250,615.75 13,049,461.65
6 Slicer 96,158.80 11,715.70 645,341.20
7 Testing Box 6,256,986.96 503,749.20 28,109,953.04
8 Testing Equipment 284,314.40 6,455.50 124,261.60
9 Mixer 32,232.00 8,058.00 477,768.00
10 Entrance Security System 992.24 992.24 61,807.76
11 Winding Line 22,278.00 1,453.60 69,722.00
12 Air Compressing system 25,596.00 4,266.00 244,404.00
13 Air Compressor 44,606.56 4,803.20 259,393.44
14 Coulometry Titration System 17,619.96 1,468.33 75,312.04
15 Slurry Machine 488,636.39 21,465.18 1,262,128.11
16 Cooling System 29,243.74 1,389.96 58,728.26
17 Water Chiller 140,714.80 9,369.40 452,285.20
18 Water Chiller system 128,938.07 8,168.60 388,061.93
19 Water Tower 20,066.00 4,013.20 233,934.00
20 Screwtype Water Chiller 69,962.40 11,660.40 668,037.60
21 Midea Airconditioner 43,246.90 1,490.73 51,103.10
(all amortized using the composite life method)
45
AMORTIZATION
TERM (YEAR)
(all amortized
ORIGINAL using the
VALUE composite life
NO. NAME QUANTITY (RMB) BEGIN TO USE method)
- ----- ------------------------------------ -------- ------------- --------------- --------------
22 Grinding Machine 1 41,000.00 2004.11.26 5
23 Power Distribution Box 1 39,220.25 2003.02.28 5
24 Power Distribution Facilities 1 150,000.00 2003.02.28 5
25 Code-printing Machine 5 345,225.00 2003.5-2004.1 5
26 Belt Conveyor 14 482,700.00 2002.11-2004.6 5
27 Universal Lathe 1 43,300.00 2004.05.14 5
28 Laminator 3 944,000.00 2001.12-2004.11 5
29 Laminator 2 605,000.00 2001.12-2004.7 5
30 Ball Grinding Mill 3 390,000.00 2004.06.30 5
31 Ball Mill Pulverizer 1 33,000.00 2001.09.30 5
32 Automatic Steel Ball Capping Machine 2 76,000.00 2004.10.31 5
33 Automatic Progressive Edge Separate
Machine 1 130,000.00 2004.08.31 5
34 Hot Press 2 640,000.00 2004.11.26 5
35 Hitachi Code jet machine 1 64,000.00 2004.09.13 5
36 ShenLing Air-conditioner 2 999,600.00 2004.07.24 5
37 Mannual Lithium battery tank 1 34,000.00 2001.12.31 5
38 Glove box 1 40,000.00 2001.12.31 5
39 Double traverse laser spot welding
machine 1 50,000.00 2004.06.30 5
40 Coating machine 19 9,897,759.48 2003.12-2004.08 5
41 Adsorption Desiccator 1 74,500.00 2001.12.31 5
ACCUMULATED DEPRECIATION
DEPRECIATION PER MONTH NET VALUE
NO. NAME (RMB) (RMB) (RMB)
- ----- ------------------------------------ ------------- ------------ -------------
22 Grinding Machine 647.80 647.80 40,352.20
23 Power Distribution Box 13,632.96 619.68 25,587.29
24 Power Distribution Facilities 40,290.00 2,370.00 109,710.00
25 Code-printing Machine 71,340.56 5,454.56 273,884.44
26 Belt Conveyor 68,100.17 7,626.66 414,599.83
27 Universal Lathe 4,788.98 684.14 38,511.02
28 Laminator 88,203.47 14,915.20 855,796.53
29 Laminator 94,845.33 9,559.00 510,154.67
30 Ball Grinding Mill 36,972.00 6,162.00 353,028.00
31 Ball Mill Pulverizer 20,873.60 521.40 12,126.40
32 Automatic Steel Ball Capping Machine 2,401.60 1,200.80 73,598.40
33 Automatic Progressive Edge Separate
Machine 8,216.00 2,054.00 121,784.00
34 Hot Press 10,112.00 10,112.00 629,888.00
35 Hitachi Code jet machine 3,033.60 1,011.20 60,966.40
36 ShenLing Air-conditioner 78,968.40 15,793.68 920,631.60
37 Mannual Lithium battery tank 23,659.47 537.20 10,340.53
38 Glove box 25,934.67 632.00 14,065.33
39 Double traverse laser spot welding
machine 4,740.00 790.00 45,260.00
40 Coating machine 1,200,642.00 152,501.60 8,697,117.48
41 Adsorption Desiccator 49,482.90 1,177.10 25,017.10
46
AMORTIZATION
TERM (YEAR)
(all amortized
ORIGINAL using the
VALUE composite life
NO. NAME QUANTITY (RMB) BEGIN TO USE method)
- ----- ------------------------------------ -------- ------------- --------------- --------------
42 Linear cutting machine 2 68,000.00 2004.12.31 5
43 Rotary tablet press 40 8,245,600.00 2002.11-2004.8 5~10
44 Precharge tank 4 338,700.00 2002.11.30 5
45 Cylindrical injection machine 1 38,000.00 2004.07.31 5
46 Vacuum oven 8 605,000.00 2001.9-2002.11 5~10
47 Nitrogen supply system 1 756,000.00 2004.06.30 5
48 Injection machine 78 3,254,795.76 2002.11-2004.07 5
49 Rotary wheel dehumidifier 4 1,238,000.00 2004.06.30 5
50 Automatic scraping machine 2 80,000.00 2003.12.31 5
51 Automatic adhesive tape cutter 10 600,000.00 2004.06.30 5
52 Automatic adhesive paper cutter 3 180,000.00 2004.06.30 5
Total 1,239 97,164,580.19
ACCUMULATED DEPRECIATION
DEPRECIATION PER MONTH NET VALUE
NO. NAME (RMB) (RMB) (RMB)
- ----- ------------------------------------ ------------- ------------ -------------
42 Linear cutting machine 0.00 0.00 68,000.00
43 Rotary tablet press 1,248,206.21 123,565.48 6,997,393.79
44 Precharge tank 136,994.54 5,351.46 201,705.46
45 Cylindrical injection machine 3,002.00 600.40 34,998.00
46 Vacuum oven 238,761.73 6,351.60 366,238.27
47 Nitrogen supply system 71,668.80 11,944.80 684,331.20
48 Injection machine 605,146.29 51,425.65 2,649,649.47
49 Rotary wheel dehumidifier 117,362.40 19,560.40 1,120,637.60
50 Automatic scraping machine 15,168.00 1,264.00 64,832.00
51 Automatic adhesive tape cutter 56,880.00 9,480.00 543,120.00
52 Automatic adhesive paper cutter 17,064.00 2,844.00 162,936.00
Total 17,709,175.22 1,436,257.95 79,455,404.97
47
FORM OF LETTER FROM GRANDALL LEGAL GROUP (SHENZHEN) OFFICE
We have acted as China BAK Battery, Inc. (the "Company") Chinese legal
counsel in connection with the issue of its proposed offering of shares of
common stock. After review the SECURITIES PURCHASE AGREEMENT (the "Purchase
Agreement") signed by and between the Company and the lnvestors named therein
on_________ of August 2005, we find that some clauses are not applicable in the
caseof the Shenzhen BAK Battery Co., Ltd (the "Chinese Subsidiary").
1. The dissenting opinion on the use of the term "fee simple" on
Title to Assets in the Purchase Agreement.
As is understood in the Anglo-American legal system and in the
Property Law in particular, the term "fee simple" refers to an
interest in land that, being the broadest property interest
allowed by law, endures until the current holders dies without
heirs. It is obvious that the fee simple can provide the
investor with greatest guarantee within the arm of the law.
But using the legal tern of "fee simple" for the Title of
Assets of the Chinese Subsidiary in the Purchase Agreement
will not be accurate and faithful to the investors of the
Company for their judgment. Under the legal system of China,
no equivalent concept of "fee simple" can be found since China
institutes a totally different system in terms of the title to
asset, in particular the ownership of real property. Take the
land for instance, it is set forth in the Land Administration
Law of PRC, China implements the system of socialist public
ownership of land, i.e. the system of ownership by the whole
people and the system of collective ownership by the working
people and the State-owned land and land owned by peasants'
collectives may be lawfully designated to work units or
individuals for use and land ownership and land use right that
have been registered according to law shall be protected by
law and may not be infringed by any work unit or individual.
So in this sense, the use of the term "fee simple" is not
appropriate in consideration of the current land use regime in
China.
2. The Understanding of the term "personal property" on Title to
Assets in the Purchase Agreement.
We understand that the term "personal property" refers to any
movable or intangible thing that is subject to ownership of
the Chinese Subsidiary and not classified as the real property
of the Chinese Subsidiary. And we emphasis that "personal
property", in the case of Chinese Subsidiary, can in no way be
explained as any movable or intangible thing that is subject
to the ownership of officers or directors and employees of the
Chinese Subsidiary.
3. The issue of Insurance in the Purchase Agreement
In light of the fact that the certificate of land use right
and construction by the Chinese Subsidiary have not been
obtained by Chinese Subsidiary. Since the insurance of land
use right and constructions can only be handled after the
issuance of the said certificates, the aforementioned
insurance has not been started yet. So it is not suitable to
say "Chinese 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 the Chinese Subsidiaries are engaged." In
addition, as required by the Longgang Branch of Shenzhen
Development Bank which signed loan agreement with the Chinese
Subsidiary, the raw materials, products and half-products of
the Chinese Subsidiary which are under pledge by the maximum
amount pledge contract have been insured and the insurance
amount is RMB100,000,000 yuan. Under this insurance contract,
the Chinese Subsidiary is the insured and Longgang Branch of
Shenzhen Development Bank is the first beneficiary.
48
SCHEDULE 3.1(u)
CERTAIN FEES
Fees payable to Roth Capital Partners, LLC and Global Hunter Securities in the
aggregate equal to 7.5% of the gross proceeds received from this offering.
49
SCHEDULE 3.1(v)
CERTAIN REGISTRATION MATTERS
1. Securities Exchange Agreement (the "Securities Exchange Agreement"),
dated effective as of January 20, 2005 by and among Medina Coffee, Inc., BAK
International, Ltd. and The Shareholders of BAK International, Ltd. Pursuant to
Section 7.2(d) of the Securities Exchange Agreement, the Company agreed to file
with the Securities and Exchange Commission a registration statement to register
those shares issued to those stockholders of BAK International who participated
in BAK International's private offering of securities deemed consummated on the
January 20, 2005. The Company filed a Registration Statement on Form SB-2 to
cover the shares sold pursuant to the private offering and has filed two
subsequent Pre-Effective Amendments on Form SB-2 on June 22 and June 27, 2005,
respectively.
2. The shares of Common Stock issuable upon exercise of the warrants
issuable to Roth Capital Partners, LLC and Global Hunter Securities as described
on Schedule 3.1(g) Capitalization will be entitled to the same registration
rights as those granted to Investors in this offering.
50
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of September 14, 2005, by and among China BAK Battery, Inc., a
Nevada corporation (the "Company"), and the investors signatory hereto (each an
"Investor" and collectively, the "Investors").
This Agreement is made pursuant to the Securities Purchase Agreement,
dated as of September 14, 2005, by and among the Company and the Investors (the
"Purchase Agreement").
The Company and the Investors hereby agree as follows:
1. Definitions. Capitalized terms used and not otherwise defined herein
that are defined in the Purchase Agreement will have the meanings given such
terms in the Purchase Agreement. As used in this Agreement, the following terms
have the respective meanings set forth in this Section 1:
"Advice" has the meaning set forth in Section 6(d).
"Effective Date" means, as to a Registration Statement, the date on
which such Registration Statement is first declared effective by the Commission.
"Effectiveness Date" means (a) with respect to the Registration
Statement required to be filed under Section 2(a), the earlier of: (a)(i) the
90th day following the Filing Date; provided, that, if the Commission reviews
and has written comments to the filed Registration Statement that would require
the filing of a pre-effective amendment thereto with the Commission, then the
Effectiveness Date under this clause (a)(i) shall be the 105th day following the
Filing Date, and (ii) the fifth Trading Day following the date on which the
Company is notified by the Commission that the initial Registration Statement
will not be reviewed or is no longer subject to further review and comments; (b)
with respect to any additional Registration Statements that may be required
pursuant to Section 2(b), the earlier of (i) the 120th day following (A) if such
Registration Statement is required because the Commission shall have notified
the Company in writing that certain Registrable Securities were not eligible for
inclusion on a previously filed Registration Statement, the date or time on
which the Commission shall indicate as being the first date or time that such
Registrable Securities may then be included in a Registration Statement, or (B)
if such Registration Statement is required for a reason other than as described
in (A) above, the date on which the Company first knows, or reasonably should
have known, that such additional Registration Statement(s) is required;
provided, that, if the Commission reviews and has written comments to a
Registration Statement filed under Section 2(b) that would require the filing of
a pre-effective amendment thereto with the Commission, then the Effectiveness
Date under this clause (b)(i) for such Registration Statement shall be the 150th
day following the date that the Company first knows, or reasonably should have
known, that such additional Registration Statement is required under such
Section, and (ii) the fifth Trading Day following the date on which the Company
is notified by the Commission that such additional Registration Statement will
not be reviewed or is no longer subject to further review and comments; and (c)
with respect to a Registration Statement required to be filed under Section
51
2(c), the earlier of: (c)(i) the 90th day following the date on which the
Company becomes eligible to utilize Form S-3 to register the resale of Common
Stock; provided, that, if the Commission reviews and has written comments to
such filed Registration Statement that would require the filing of a
pre-effective amendment thereto with the Commission, then the Effectiveness Date
under this clause (c)(i) shall be the 120th day following the date on which the
Company becomes eligible to utilize Form S-3 to register the resale of Common
Stock, and (ii) the fifth Trading Day following the date on which the Company is
notified by the Commission that the initial Registration Statement will not be
reviewed or is no longer subject to further review and comments.
"Effectiveness Period" has the meaning set forth in Section 2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Filing Date" means (a) with respect to the initial Registration
Statement required to be filed under Section 2(a), the 10th day following the
date on which the Pending Registration Statement is first declared effective by
the Commission; (b) with respect to any additional Registration Statements that
may be required pursuant to Section 2(b), the 45th day following (i) if such
Registration Statement is required because the Commission shall have notified
the Company in writing that certain Registrable Securities were not eligible for
inclusion on a previously filed Registration Statement, the date or time on
which the Commission shall indicate as being the first date or time that such
Registrable Securities may then be included in a Registration Statement, or (ii)
if such Registration Statement is required for a reason other than as described
in (i) above, the date on which the Company first knows, or reasonably should
have known, that such additional Registration Statement(s) is required; and (c)
with respect to a Registration Statement required to be filed under Section
2(c), the 30th day following the date on which the Company becomes eligible to
utilize Form S-3 to register the resale of Common Stock.
"Holder" or "Holders" means the holder or holders, as the case may be,
from time to time of Registrable Securities.
"Indemnified Party" has the meaning set forth in Section 5(c).
"Indemnifying Party" has the meaning set forth in Section 5(c).
"Losses" has the meaning set forth in Section 5(a).
"New York Courts" means the state and federal courts sitting in the
City of New York, Borough of Manhattan.
"Pending Registration Statement" means the Registration Statement on
Form SB-2 filed by the Company with the Commission on January 1, 2005, as the
same has been and shall be amended or supplemented.
"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.
52
"Prospectus" means the prospectus included in a Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by a
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
"Registrable Securities" means: (a) the Shares, (b) the Warrant Shares,
(c) any shares of Common Stock issuable upon exercise of warrants issued to any
placement agent as compensation in connection with the financing that is the
subject of the Purchase Agreement, and (d) any securities issued or issuable
upon any stock split, dividend or other distribution, recapitalization or
similar event, or any conversion price adjustment with respect to any of the
securities referenced in (b) or (c) above.
"Registration Statement" means the initial registration statement
required to be filed in accordance with Section 2(a) and any additional
registration statement(s) required to be filed under Sections 2(b) and 2(c),
including (in each case) the Prospectus, amendments and supplements to such
registration statements or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference therein.
"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.
"Rule 415" means Rule 415 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.
"Rule 424" means Rule 424 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.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Holder Questionnaire" has the meaning set forth in Section
2(e).
"Shares" means the shares of Common Stock issued or issuable to the
Investors pursuant to the Purchase Agreement.
"Warrants" means the Common Stock purchase warrants issued or issuable
to the placement agent identified in Schedule 3.1(u) to the Purchase Agreement
in accordance with the terms of the engagement or similar agreements between the
Company and such agents.
"Warrant Shares" means the shares of Common Stock issued or issuable
upon exercise of the Warrants.
53
2. Registration.
(a) On or prior to each Filing Date, the Company shall prepare and file
with the Commission a Registration Statement covering the resale of all
Registrable Securities not already covered by an existing and effective
Registration Statement for an offering to be made on a continuous basis pursuant
to Rule 415, on Form SB-2 (or on such other form appropriate for such purpose)..
Such Registration Statement shall contain (except if otherwise required pursuant
to written comments received from the Commission upon a review of such
Registration Statement) the "Plan of Distribution" attached hereto as Annex A.
The Company shall use its reasonable best efforts to (i) cause such Registration
Statement to be declared effective under the Securities Act as soon as possible
but, in any event, no later than its Effectiveness Date, and (ii) keep the
Registration Statement continuously effective under the Securities Act until the
date which is the earlier of (i) five years after its Effective Date, (ii) such
time as all of the Registrable Securities covered by such Registration Statement
have been publicly sold by the Holders, or (iii) such time as all of the
Registrable Securities covered by such Registration Statement may be sold by the
Holders pursuant to Rule 144(k) as determined by the counsel to the Company
pursuant to a written opinion letter to such effect, addressed and acceptable to
the Company's transfer agent and the affected Holders (the "Effectiveness
Period").
(b) If for any reason the Commission does not permit all of the
Registrable Securities to be included in a Registration Statement filed pursuant
to Section 2(a), or for any other reason any outstanding Registrable Securities
are not then covered by an effective Registration Statement, then the Company
shall prepare and file by the Filing Date for such Registration Statement, an
additional Registration Statement covering the resale of all Registrable
Securities not already covered by an existing and effective Registration
Statement for an offering to be made on a continuous basis pursuant to Rule 415,
on Form SB-2 (or on such other form appropriate for such purpose). Each such
Registration Statement shall contain (except if otherwise required pursuant to
written comments received from the Commission upon a review of such Registration
Statement) the "Plan of Distribution" attached hereto as Annex A. The Company
shall cause each such Registration Statement to be declared effective under the
Securities Act as soon as possible but, in any event, by its Effectiveness Date,
and shall use its reasonable best efforts to keep such Registration Statement
continuously effective under the Securities Act during the entire Effectiveness
Period.
(c) Promptly following any date on which the Company becomes eligible
to use a registration statement on Form S-3 to register the Registrable
Securities for resale, the Company shall file a registration statement on Form
S-3 covering the Registrable Securities (or a post-effective amendment on Form
S-3 to the then effective Registration Statement) and shall use its reasonable
best efforts to cause such Registration Statement to be declared effective as
soon as possible thereafter, but in any event prior to the Effectiveness Date
therefor. Such Registration Statement shall contain (except if otherwise
required pursuant to written comments received from the Commission upon a review
of such Registration Statement) the "Plan of Distribution" attached hereto as
Annex A. The Company shall cause such Registration Statement to be declared
effective under the Securities Act as soon as possible but, in any event, by its
Effectiveness Date, and shall use its reasonable best efforts to keep such
Registration Statement continuously effective under the Securities Act during
the entire Effectiveness Period.
54
(d) If: (i) a Registration Statement is not filed on the earlier of a
date (A) on or prior to ninety (90) days following the date of this Agreement or
(B) on or prior to its Filing Date (if the Company files a Registration
Statement without affording the Holders the opportunity to review and comment on
the same as required by Section 3(a) hereof, the Company shall not be deemed to
have satisfied this clause (i)), or (ii) a Registration Statement is not
declared effective by the Commission on or prior to its required Effectiveness
Date, or (iii) after its Effective Date, without regard for the reason
thereunder or efforts therefore, such Registration Statement ceases for any
reason to be effective and available to the Holders as to all Registrable
Securities to which it is required to cover at any time prior to the expiration
of its Effectiveness Period for more than an aggregate of 30 Trading Days (which
need not be consecutive) (any such failure or breach being referred to as an
"Event," and for purposes of clauses (i) or (ii) the date on which such Event
occurs, or for purposes of clause (iii) the date which such 30 Trading
Day-period is exceeded, being referred to as "Event Date"), then in addition to
any other rights the Holders may have hereunder or under applicable law: (x) on
each such Event Date the Company shall pay to each Holder an amount in cash, as
partial liquidated damages and not as a penalty, equal to 1.0% of the aggregate
Investment Amount paid by such Holder for Shares pursuant to the Purchase
Agreement; and (y) on each monthly anniversary of each such Event Date (if the
applicable Event shall not have been cured by such date) until the applicable
Event is cured, the Company shall pay to each Holder an amount in cash, as
partial liquidated damages and not as a penalty, equal to 1.5% of the aggregate
Investment Amount paid by such Holder for Shares pursuant to the Purchase
Agreement. The parties agree that the Company will not be liable for liquidated
damages under this Section in respect of the Warrants. If the Company fails to
pay any partial liquidated damages pursuant to this Section in full within seven
days after the date payable, the Company will pay interest thereon at a rate of
10% per annum (or such lesser maximum amount that is permitted to be paid by
applicable law) to the Holder, accruing daily from the date such partial
liquidated damages are due until such amounts, plus all such interest thereon,
are paid in full. The partial liquidated damages pursuant to the terms hereof
shall apply on a daily pro-rata basis for any portion of a month prior to the
cure of an Event, except in the case of the first Event Date.
(e) Each Holder agrees to furnish to the Company a completed
Questionnaire in the form attached to this Agreement as Annex B (a "Selling
Holder Questionnaire"). The Company shall not be required to include the
Registrable Securities of a Holder in a Registration Statement and shall not be
required to pay any liquidated or other damages under Section 2(d) to any Holder
who fails to furnish to the Company a fully completed Selling Holder
Questionnaire at least two Trading Days prior to the Filing Date (subject to the
requirements set forth in Section 3(a)).
3. Registration Procedures.
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) Not less than four Trading Days prior to the filing of a
Registration Statement or any related Prospectus or any amendment or supplement
thereto, the Company shall furnish to each Holder copies of the "Selling
Stockholders" section of such document, the "Plan of Distribution" and any risk
factor contained in such document that addresses specifically this transaction
55
or the Selling Stockholders, as proposed to be filed which documents will be
subject to the review of such Holder. The Company shall not file a Registration
Statement, any Prospectus or any amendments or supplements thereto in which the
"Selling Stockholder" section thereof differs from the disclosure received from
a Holder in its Selling Holder Questionnaire (as amended or supplemented).
(b) (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to each Registration Statement and the Prospectus
used in connection therewith as may be necessary to keep such Registration
Statement continuously effective as to the applicable Registrable Securities for
its Effectiveness Period and prepare and file with the Commission such
additional Registration Statements in order to register for resale under the
Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424; (iii)
respond as promptly as reasonably possible to any comments received from the
Commission with respect to each Registration Statement or any amendment thereto
and, as promptly as reasonably possible provide the Holders true and complete
copies of all correspondence from and to the Commission relating to such
Registration Statement that would not result in the disclosure to the Holders of
material and non-public information concerning the Company; and (iv) comply in
all material respects with the provisions of the Securities Act and the Exchange
Act with respect to the Registration Statements and the disposition of all
Registrable Securities covered by each Registration Statement.
(c) Notify the Holders as promptly as reasonably possible (and, in the
case of (i)(A) below, not less than three Trading Days prior to such filing) and
(if requested by any such Person) confirm such notice in writing no later than
one Trading Day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to a Registration Statement is proposed
to be filed; (B) when the Commission notifies the Company whether there will be
a "review" of such Registration Statement and whenever the Commission comments
in writing on such Registration Statement (the Company shall provide true and
complete copies thereof and all written responses thereto to each of the Holders
that pertain to the Holders as a Selling Stockholder or to the Plan of
Distribution, but not information which the Company believes would constitute
material and non-public information); and (C) with respect to each Registration
Statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the Commission or any other Federal or state governmental
authority for amendments or supplements to a Registration Statement or
Prospectus or for additional information; (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of a Registration
Statement covering any or all of the Registrable Securities or the initiation of
any Proceedings for that purpose; (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (v) of the occurrence of any event or passage of time that makes
the financial statements included in a Registration Statement ineligible for
inclusion therein or any statement made in such Registration Statement or
56
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any revisions to such
Registration Statement, Prospectus or other documents so that, in the case of
such Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(d) Use its reasonable best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of (i) any order suspending the effectiveness of a
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
(e) Furnish to each Holder, without charge, at least one conformed copy
of each Registration Statement and each amendment thereto and all exhibits to
the extent requested by such Person (including those previously furnished)
promptly after the filing of such documents with the Commission.
(f) Promptly deliver to each Holder, without charge, as many copies of
each Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such Persons may reasonably request. The
Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders in connection with the
offering and sale of the Registrable Securities covered by such Prospectus and
any amendment or supplement thereto.
(g) Prior to any public offering of Registrable Securities, to register
or qualify or cooperate with the selling Holders in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of all jurisdictions within the United States, to
keep each such registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by the Registration Statements; provided,
however, that the Company shall not be required to (i) qualify generally to
transact business as a foreign corporation in any jurisdiction where it is not
so qualified, (ii) consent to service of process in any such jurisdiction where
it is not so qualified or (iii) subject itself to taxation in any jurisdiction
that it is not otherwise subject to tax liabilities.
(h) Cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be delivered to
a transferee pursuant to the Registration Statements, which certificates shall
be free, to the extent permitted by the Purchase Agreement, of all restrictive
legends, and to enable such Registrable Securities to be in such denominations
and registered in such names as any such Holders may request.
(i) Upon the occurrence of any event contemplated by Section 3(c)(v),
as promptly as reasonably possible, prepare a supplement or amendment, including
a post-effective amendment, to the affected Registration Statements or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, no Registration Statement nor any Prospectus will
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
57
4. Registration Expenses. All fees and expenses incident to the
performance of or compliance with this Agreement by the Company shall be borne
by the Company whether or not any Registrable Securities are sold pursuant to a
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with any Trading Market on which the Common Stock is then
listed for trading, and (B) in compliance with applicable state securities or
Blue Sky laws), (ii) printing expenses (including, without limitation, expenses
of printing certificates for Registrable Securities and of printing prospectuses
if the printing of prospectuses is reasonably requested by the holders of a
majority of the Registrable Securities included in the Registration Statement),
(iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company, (v) Securities Act liability insurance, if the Company
so desires such insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement. In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation of
the transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.
5. Indemnification.
(a) Indemnification by the Company. The Company shall, notwithstanding
any termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, agents, investment advisors, partners, members and
employees of each of them, each Person who controls any such Holder (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
and the officers, directors, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, reasonable costs of preparation and reasonable attorneys' fees) and
expenses (collectively, "Losses"), as incurred, arising out of or relating to
any untrue or alleged untrue statement of a material fact contained in any
Registration Statement, any Prospectus or any form of prospectus or in any
amendment or supplement thereto or in any preliminary prospectus, or arising out
of or relating to any omission or alleged omission of a material fact required
to be stated therein or necessary to make the statements therein (in the case of
any Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that (i) such untrue statements or omissions are based
solely upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus or in any amendment or supplement thereto
(it being understood that the Holder has approved Annex A hereto for this
purpose) or (ii) in the case of an occurrence of an event of the type specified
58
in Sections 3(c)(ii)-(v), the use by such Holder of an outdated or defective
Prospectus after the Company has notified such Holder in writing that the
Prospectus is outdated or defective and prior to the receipt by such Holder of
an Advice or an amended or supplemented Prospectus, but only if and to the
extent that following the receipt of the Advice or the amended or supplemented
Prospectus the misstatement or omission giving rise to such Loss would have been
corrected. The Company shall notify the Holders promptly of the institution,
threat or assertion of any Proceeding of which the Company is aware in
connection with the transactions contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses, as
incurred, arising solely out of or based solely upon: (i) such Holder's failure
to comply with the prospectus delivery requirements of the Securities Act or
(ii) any untrue statement of a material fact contained in any Registration
Statement, any Prospectus, or any form of prospectus, or in any amendment or
supplement thereto, or arising solely out of or based solely upon any omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading to the extent, but only to the extent that,
(A) such untrue statements or omissions are based solely upon information
regarding such Holder furnished in writing to the Company by such Holder
expressly for use therein, or to the extent that such information relates to
such Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement (it being understood that the
Holder has approved Annex A hereto for this purpose), such Prospectus or such
form of Prospectus or in any amendment or supplement thereto or (B) in the case
of an occurrence of an event of the type specified in Sections 3(c)(ii)-(v), the
use by such Holder of an outdated or defective Prospectus after the Company has
notified such Holder in writing that the Prospectus is outdated or defective and
prior to the receipt by such Holder of an Advice or an amended or supplemented
Prospectus, but only if and to the extent that following the receipt of the
Advice or the amended or supplemented Prospectus the misstatement or omission
giving rise to such Loss would have been corrected. In no event shall the
liability of any selling Holder hereunder be greater in amount than the dollar
amount of the net proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in
any such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless: (i) the Indemnifying Party has agreed in writing to pay such
fees and expenses; (i) the Indemnifying Party shall have failed promptly to
59
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (iii) the
named parties to any such Proceeding (including any impleaded parties) include
both such Indemnified Party and the Indemnifying Party, and such Indemnified
Party shall have been advised by counsel that a conflict of interest is likely
to exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten Trading
Days of written notice thereof to the Indemnifying Party (regardless of whether
it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a) or
5(b) is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
60
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission.
The indemnity and contribution agreements contained in this Section are
in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6. Miscellaneous.
(a) Remedies. In the event of a breach by the Company or by a Holder,
of any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(b) No Piggyback on Registrations. Except as and to the extent
specified in Schedule 3.1(v) to the Purchase Agreement, neither the Company nor
any of its security holders (other than the Holders in such capacity pursuant
hereto) may include securities of the Company in a Registration Statement other
than the Registrable Securities, and the Company shall not during the
Registration Period enter into any agreement providing any such right to any of
its security holders.
(c) Compliance. Each Holder covenants and agrees that it will comply
with the prospectus delivery requirements of the Securities Act as applicable to
it in connection with sales of Registrable Securities pursuant to the
Registration Statement.
(d) Discontinued Disposition. Each Holder agrees by its acquisition of
such Registrable Securities that, upon receipt of a notice from the Company of
the occurrence of any event of the kind described in Section 3(c), such Holder
will forthwith discontinue disposition of such Registrable Securities under the
Registration Statement until such Holder's receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement or until it is
advised in writing (the "Advice") by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement. The
Company may provide appropriate stop orders to enforce the provisions of this
paragraph.
(e) Piggy-Back Registrations. If at any time during the Effectiveness
Period there is not an effective Registration Statement covering all of the
Registrable Securities and the Company shall determine to prepare and file with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
61
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each Holder written notice of such
determination and, if within fifteen days after receipt of such notice, any such
Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
holder requests to be registered, subject to customary underwriter cutbacks
applicable to all holders of registration rights.
(f) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this Section 6(f), may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of no less than a majority in interest of the then outstanding
Registrable Securities. Notwithstanding the foregoing, a waiver or consent to
depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of certain Holders and that does not directly or
indirectly affect the rights of other Holders may be given by Holders of at
least a majority of the Registrable Securities to which such waiver or consent
relates.
(g) 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 specified in this Section prior to 6:30 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 specified in this Section on a day that is not a Trading Day or later
than 6:30 p.m. (New York City time) on any Trading Day, (c) the Trading Day
following the date of mailing, if sent by U.S. nationally recognized overnight
courier service, or (d) upon actual receipt by the party to whom such notice is
required to be given. The address for such notices and communications shall be
as follows:
If to the Company: China BAK Battery, Inc.
BAK Industrial Park, No. 1 BAK Street
Kuichong Town, Longgang District
Shenzhen, People's Republic Of China
Attn: Li Xiangqian, Chief Executive Officer
Facsimile: 011 86 755 89 77 00 04
and also to
Nevada Agency and Trust Company
50 West Liberty Street, Suite 880
Reno, Nevada 89501
62
With a copy to: Andrews Kurth, L.L.P.
1717 Main Street
Dallas, Texas 75201
Attn: Robin Bradford, Esq.
Facsimile: (214) 659-4401
If to a Investor: To the address set forth under such Investor's
name on the signature pages hereto.
If to any other Person who is then the registered Holder:
To the address of such Holder as it appears
in the stock transfer books of the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(h) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of each of the
parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. Each Holder may assign their respective rights hereunder in the
manner and to the Persons as permitted under the Purchase Agreement. Any
transferee to whom the rights of a Holder are transferred, including any pledges
or secured parties, shall agree, by accepting any rights, privileges or benefits
of this Agreement, to be bound by the obligations imposed on such Holders under
this Agreement in connection with such rights, privileges or benefits so
transferred.
(i) Execution and Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(j) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
agrees that all Proceedings concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement (whether brought
against a party hereto or its respective Affiliates, employees or agents) will
be commenced in the New York Courts. Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any Proceeding, any claim that it is not
personally subject to the jurisdiction of any New York Court, or that such
Proceeding has been commenced in an improper or inconvenient forum. Each party
hereto hereby irrevocably waives personal service of process and consents to
process being served in any such Proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
63
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law. Each party
hereto hereby irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any Proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby. If either
party shall commence a Proceeding to enforce any provisions of this Agreement,
then the prevailing party in such Proceeding shall be reimbursed by the other
party for its attorney's fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such Proceeding.
(k) Cumulative Remedies. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.
(l) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(m) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(n) Independent Nature of Investors' Obligations and Rights. The
obligations of each Investor under this Agreement are several and not joint with
the obligations of each other Investor, and no Investor shall be responsible in
any way for the performance of the obligations of any other Investor under this
Agreement. Nothing contained herein or in any Transaction Document, and no
action taken by any Investor pursuant thereto, shall be deemed to constitute the
Investors as a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Investors are in any way acting in
concert or as a group with respect to such obligations or the transactions
contemplated by this Agreement or any other Transaction Document. Each Investor
acknowledges that no other Investor will be acting as agent of such Investor in
enforcing its rights under this Agreement. Each Investor shall be entitled to
independently protect and enforce its rights, including without limitation the
rights arising out of this Agreement, and it shall not be necessary for any
other Investor to be joined as an additional party in any Proceeding for such
purpose. The Company acknowledges that each of the Investors has been provided
with the same Registration Rights Agreement for the purpose of closing a
transaction with multiple Investors and not because it was required or requested
to do so by any Investor.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES TO FOLLOW]
64
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
CHINA BAK BATTERY, INC.
By:_________________________________
Name:
Title:
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES OF INVESTORS TO FOLLOW]
65
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
NAME OF INVESTING ENTITY
By:______________________________________
Name:
Title:
ADDRESS FOR NOTICE
c/o:_____________________________________
Street:__________________________________
City/State/Zip:__________________________
Attention:_______________________________
Tel:_____________________________________
Fax:_____________________________________
Email:___________________________________
66
Annex A
Plan of Distribution
The Selling Stockholders and any of their pledgees, donees,
transferees, assignees and successors-in-interest may, from time to time, sell
any or all of their shares of Common Stock on any stock exchange, market or
trading facility on which the shares are traded or in private transactions.
These sales may be at fixed or negotiated prices. The Selling Stockholders may
use any one or more of the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits Investors;
o block trades in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately negotiated transactions;
o to cover short sales made after the date that this Registration
Statement is declared effective by the Commission;
o broker-dealers may agree with the Selling Stockholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the Selling Stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
67
The Selling Stockholders may from time to time pledge or grant a
security interest in some or all of the Shares owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell shares of Common Stock from time to time under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act of 1933 amending the list of
selling stockholders to include the pledgee, transferee or other successors in
interest as selling stockholders under this prospectus.
Upon the Company being notified in writing by a Selling Stockholder
that any material arrangement has been entered into with a broker-dealer for the
sale of Common Stock through a block trade, special offering, exchange
distribution or secondary distribution or a purchase by a broker or dealer, a
supplement to this prospectus will be filed, if required, pursuant to Rule
424(b) under the Securities Act, disclosing (i) the name of each such Selling
Stockholder and of the participating broker-dealer(s), (ii) the number of shares
involved, (iii) the price at which such the shares of Common Stock were sold,
(iv)the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not
conduct any investigation to verify the information set out or incorporated by
reference in this prospectus, and (vi) other facts material to the transaction.
In addition, upon the Company being notified in writing by a Selling Stockholder
that a donee or pledgee intends to sell more than 500 shares of Common Stock, a
supplement to this prospectus will be filed if then required in accordance with
applicable securities law.
The Selling Stockholders also may transfer the shares of Common Stock
in other circumstances, in which case the transferees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus.
The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Discounts, concessions,
commissions and similar selling expenses, if any, that can be attributed to the
sale of Securities will be paid by the Selling Stockholder and/or the
purchasers. Each Selling Stockholder has represented and warranted to the
Company that it acquired the securities subject to this registration statement
in the ordinary course of such Selling Stockholder's business and, at the time
of its purchase of such securities such Selling Stockholder had no agreements or
understandings, directly or indirectly, with any person to distribute any such
securities.
The Company has advised each Selling Stockholder that it may not use
shares registered on this Registration Statement to cover short sales of Common
Stock made prior to the date on which this Registration Statement shall have
been declared effective by the Commission. If a Selling Stockholder uses this
prospectus for any sale of the Common Stock, it will be subject to the
prospectus delivery requirements of the Securities Act. The Selling Stockholders
will be responsible to comply with the applicable provisions of the Securities
Act and Exchange Act, and the rules and regulations thereunder promulgated,
including, without limitation, Regulation M, as applicable to such Selling
Stockholders in connection with resales of their respective shares under this
Registration Statement.
The Company is required to pay all fees and expenses incident to the
registration of the shares, but the Company will not receive any proceeds from
the sale of the Common Stock. The Company has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
68
Annex B
CHINA BAK BATTERY, INC.
Selling Securityholder Notice and Questionnaire
The undersigned beneficial owner of common stock (the "Common Stock"), of China
BAK Battery, Inc. (the "Company") understands that the Company has filed or
intends to file with the Securities and Exchange Commission (the "Commission") a
Registration Statement for the registration and resale of the Registrable
Securities, in accordance with the terms of the Registration Rights Agreement,
dated as of ___, 2005 (the "Registration Rights Agreement"), among the Company
and the Investors named therein. A copy of the Registration Rights Agreement is
available from the Company upon request at the address set forth below. All
capitalized terms used and not otherwise defined herein shall have the meanings
ascribed thereto in the Registration Rights Agreement.
The undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate:
QUESTIONNAIRE
1. Name.
(a) Full Legal Name of Selling Securityholder
______________________________________________________________
(b) Full Legal Name of Registered Holder (if not the same as (a)
above) through which Registrable Securities Listed in Item 3
below are held:
______________________________________________________________
(c) Full Legal Name of Natural Control Person (which means a
natural person who directly or indirectly alone or with others
has power to vote or dispose of the securities covered by the
questionnaire):
______________________________________________________________
2. Address for Notices to Selling Securityholder:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Telephone:______________________________________________________________________
69
Fax:____________________________________________________________________________
Contact Person:_________________________________________________________________
3. Beneficial Ownership of Registrable Securities:
Type and Principal Amount of Registrable Securities beneficially owned:
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
4. Broker-Dealer Status:
(a) Are you a broker-dealer?
Yes [_] No [_]
Note: If yes, the Commission's staff has indicated that you should
be identified as an underwriter in the Registration Statement.
(b) Are you an affiliate of a broker-dealer?
Yes [_] No [_]
(c) If you are an affiliate of a broker-dealer, do you certify
that you bought the Registrable Securities in the ordinary
course of business, and at the time of the purchase of the
Registrable Securities to be resold, you had no agreements or
understandings, directly or indirectly, with any person to
distribute the Registrable Securities?
Yes [_] No [_]
Note: If no, the Commission's staff has indicated that you should be
identified as an underwriter in the Registration Statement.
5. Beneficial Ownership of Other Securities of the Company Owned by the
Selling Securityholder.
Except as set forth below in this Item 5, the undersigned is not the
beneficial or registered owner of any securities of the Company other
than the Registrable Securities listed above in Item 3.
Type and Amount of Other Securities beneficially owned by the Selling
Securityholder:
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
70
6. Relationships with the Company:
Except as set forth below, neither the undersigned nor any of its
affiliates, officers, directors or principal equity holders (owners of
5% of more of the equity securities of the undersigned) has held any
position or office or has had any other material relationship with the
Company (or its predecessors or affiliates) during the past three
years.
State any exceptions here:
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
The undersigned agrees to promptly notify the Company of any inaccuracies or
changes in the information provided herein that may occur subsequent to the date
hereof and prior to the Effective Date for the Registration Statement.
By signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items 1 through 6 and the inclusion of such
information in the Registration Statement and the related prospectus. The
undersigned understands that such information will be relied upon by the Company
in connection with the preparation or amendment of the Registration Statement
and the related prospectus.
IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this
Notice and Questionnaire to be executed and delivered either in person or by its
duly authorized agent.
Dated:_____________________ Beneficial Owner:
By:____________________________________
Name:
Title:
PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND
RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:
China BAK Battery, Inc.
BAK Industrial Park, No. 1 BAK Street
Kuichong Town, Longgang District
Shenzhen, People's Republic Of China
Attn: Li Xiangqian, Chief Executive Officer
Facsimile: 011 86 755 89 77 00 04
71
EXHIBIT B
---------
FORM OF COMPANY COUNSEL OPINION
1. Each of the Transaction Agreements(1) constitutes the legal, valid, and
binding obligation of the Company, enforceable against the Company in
accordance with its terms.
2. To our knowledge, except as disclosed in the Purchase Agreement
(including the schedules thereto) or as a result of the purchase of the
Shares, the Company is not a party to (i) any outstanding options,
warrants, rights to subscribe to, calls or commitments of any character
whatsoever giving any person the right to acquire from the Company and
requiring the Company to issue any shares of Common Stock or any
securities, rights or obligations convertible into or exchangeable for
shares of Common Stock, or giving any person any right to subscribe for
or acquire from the Company and requiring the Company to issue any
shares of Common Stock, or (ii) any contracts, commitments,
understandings, or arrangements by which the Company is or may become
bound to issue shares of Common Stock or securities or rights
convertible or exchangeable into shares of Common Stock, other than
options granted to employees of the Company or its subsidiaries under
the China BAK Battery, Inc. Stock Option Plan.
3. The execution and delivery of the Transaction Agreements, the
performance by the Company of its obligations under the Transaction
Agreements and the consummation by the Company of the transactions
contemplated by the Transaction Agreements do not (i) constitute a
default under the agreements of the Company attached as exhibits 10.1
to 10.4 to the Registration Statement,(2) or give to other parties
thereto any rights of termination, amendment, acceleration or
cancellation of such agreements, (ii) result in a violation of any law,
rule or regulation of any governmental authority or regulatory body to
which the Company is subject, or (iii) result in any violation of any
order, judgment, injunction or decree of any court or governmental
authority of which we have knowledge.
4. The Company is not required to obtain any consent, waiver,
authorization or order of, or make any filing or registration with, any
Texas, New York or federal court or other federal, New York or Texas
governmental authority in connection with the execution, delivery and
performance by the Company of the Transaction Agreements.
5. Assuming the accuracy and completeness of the representations and
warranties of the Company set forth in Section 3.1 of the Purchase
Agreement and of the Investors set forth in Section 3.2(a)-(k) of the
Purchase Agreement, the offer, issuance and sale of the Shares to the
Investors pursuant to the Purchase Agreement are exempt from the
registration requirements of the Securities Act.
- ----------
(1) The phrase "Transaction Agreements" is the equivalent of the phrase
"Transaction Documents," as set forth in Article 1.1 of the Securities
Purchase Agreement.
(2) The phrase "Registration Statement" refers to the Company's
Registration Statement on Form SB-2 filed with the Securities and
Exchange Commission on June 27, 2005, as amended and supplemented.
72
EXHIBIT C
---------
FORM OF NEVADA COUNSEL OPINION
1. The Company is incorporated as a corporation and validly
existing and in good standing under the laws of the State of Nevada, with the
requisite corporate power and authority to own and use its properties and assets
and to carry on its business, as currently conducted, as described in the Form
SB-2/A filed by the Company with the United States Securities and Exchange
Commission on June 27, 2005.
2. The Company has the requisite corporate power and authority to
enter into and to consummate the Transactions(1) and otherwise to perform its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the performance by it of its obligations thereunder
have been duly authorized by all necessary corporate action on the part of the
Company. Each of the Transaction Documents has been duly executed and delivered
by the Company.
3. To our knowledge, no shares of Common Stock of the Company are
entitled to statutory preemptive or similar rights under the Governing
Documents(2) or Applicable Nevada Law.(3)
4. The shares have been duly authorized and, when paid for and
issued in accordance with the terms of the Purchase Agreement, shall have been
validly issued, fully paid and nonassessable. The Company has duly authorized
and reserved for issuance such number of shares of Common Stock as are issuable
upon exercise of the Warrants. When issued by the Company in accordance with the
terms of the Purchase Agreement and the Warrants, the Warrant Shares will be
validly issued, fully paid and non-assessable.
5. The execution and delivery by the Company of the Transaction
Documents, and the performance by the Company of its obligations thereunder, do
not violate (i) any provision of the Governing Documents, (ii) any Applicable
Nevada Law, or (iii) any Applicable Nevada Order.(4)
6. To our knowledge, other than as provided in the Transaction
Documents, the Company is not required to obtain any consent, waiver,
authorization or order of or from, or make any filing or registration with, any
Nevada Governmental Authority(5) under Applicable Nevada Law in connection
with the execution and delivery by the Company of, and the performance by the
Company of its obligations under, the Transaction Documents.
- ----------
(1) The term "Transactions" shall mean those transactions contemplated by
the Transaction Documents.
(2) The phrase "Governing Documents" shall mean the Articles of
Incorporation and the Bylaws, each as amended to date, of the Company.
(3) The phrase "Applicable Nevada Law" shall mean those statutes, rules and
regulations of the State of Nevada as in effect on the day of this
opinion, which, in our experience, are customarily applicable to
transactions of the type contemplated by the Purchase Agreement and to
general business entities that are not engaged in regulated business
activities.
(4) The phrase "Applicable Nevada Order" means any order, judgment,
injunction, or decree known to us to have been issued by any Nevada
Governmental Authority that is presently in effect and applicable to
and binding upon the Company.
(5) The phrase "Nevada Governmental Authorities" shall means the courts,
governmental agencies, bodies and authorities of the State of Nevada,
excluding its political subdivisions and local agencies.
73
EXHIBIT D
---------
FORM OF PRC COUNSEL OPINION
(A) Shenzhen BAK Battery Co., Ltd (the "PRC Subsidiary") has been duly
organized and is validly existing as a wholly-owned foreign company
with limited liability under the laws of the People's Republic of China
(the "PRC"). The PRC Subsidiary has been duly qualified as a foreign
invested enterprise invested by BAK International Limited, and its
business license is in full force and effect. All of the issued shares
of capital stock have been duly and validly authorized and issued, are
fully paid and non-assessable, and are owned indirectly by the Company,
free and clear of all liens, encumbrances, equities or claims;
(B) There are no legal or governmental proceedings pending or threatened to
which the PRC Subsidiary is a party or of which any property of the PRC
Subsidiary is subject that would be reasonably expected by us to have a
Material Adverse Effect;
(C) The execution, delivery and performance of the Transaction Documents as
defined in Paragraph 3 of the Schedule, by the Company and of the
transactions contemplated thereby, do not and will not (i) conflict
with or violate any provision of the articles of incorporation or
bylaws of the PRC Subsidiary, (ii) conflict with, or constitute a
default (or an event under which with notice or lapse of time or both
would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of any agreement,
indenture or other written instrument of the PRC Subsidiary thereof or
other written agreement or understanding to which the PRC Subsidiary
thereof is a party attached as an exhibit to the SEC Reports, (iii)
result in a violation of any law, rule or regulation of any
governmental authority, regulatory body, stock market or trading
facility to which the PRC Subsidiary is subject, or by which any
property or asset of the PRC Subsidiary is bound or affected, or (iv)
result in any violation of any order, judgment, injunction, decree or
other restriction of which we have knowledge of any court or
governmental authority of the PRC;
(D) No consent, approval, authorization, order, registration or
qualification of or with any such PRC court or governmental agency or
body is required including any establishment and transfer ownership
approval of the Ministry of Commerce and its branch, any capital
verification reports or any other approvals of the State Administration
For Industry and Commerce and its branch, for (i) the issue and sale of
the Securities or (ii) the consummation by the Company of the
transactions contemplated by the Transaction Documents or (iii) the
conduct of the business of the Company. The shareholders of the Company
have completed their overseas investment foreign exchange registrations
and alternation of foreign exchange registration promulgated by the
State Administration of Foreign Exchange on April 8, 2005.
74
EXHIBIT E
---------
FORM OF HONG KONG OPINION
a) The Company is a limited liability company, duly incorporated in Hong
Kong under the Companies Ordinance of Hong Kong on the 29th November
2003 under Incorporation No.877123 with nominal share capital of
HK$500,000 divided into 50,000,000 shares of HK$0.01 each of which
39,826,075 shares have been issued and are fully paid up or credited as
fully paid up.
b) The Company is in good standing under the laws of Hong Kong.
c) China BAK Battery, Inc. (formerly known as Medina Coffee Inc.) is the
beneficial owner of all the issued shares of the Company, free and
clear of all liens, encumbrances, equities or claims.
d) To our knowledge and according to the records kept at the registered
office of the Company and searches conducted at the Companies Registry
in Hong Kong and enquiries with the Directors of the Company, there are
no governmental proceedings pending or threatened to which the Company
is a party or of which any property is subject that would be reasonably
expected by us to have a material adverse effect.
e) The execution, delivery and performance of the Transaction Documents by
China BAK Battery, Inc. and consummation by China BAK Battery, Inc. of
the transactions contemplated thereby, do not and will not
(i) conflict with or violate any provision of the Memorandum and
Articles of Association of the Company;
(ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment,
acceleration or cancellation of any agreement, indenture or
other written instrument of the Company or other written
agreement or understanding to which the Company is a party;
(iii) result in a violation of any law, rule or regulation of any
governmental authority, or regulatory body to which the
Company is subject, or by which any property or asset of the
Company is bound or affected; or
(iv) result in any violation of any order, judgment, injunction,
decree or other restriction of which we have knowledge of any
court or governmental authority.
f) No consent, approval, authorization, order, registration or
qualification from any court or governmental agency or body in Hong
Kong is required for
(i) the issue and sale of the Securities (as defined in the
Securities Purchase Agreement dated 2005) by China BAK
Battery, Inc.;
(ii) the consummation by China BAK Battery, Inc. of the
transactions contemplated by the Transaction Documents; or
(iii) the conduct of the business of China BAK Battery, Inc.
75
EXHIBIT F
---------
THE ESCROW AGREEMENT
76
CHINA BAK BATTERY, INC. ESCROW AGREEMENT
THIS ESCROW AGREEMENT, dated ____________, 2005 (this "Escrow Agreement") is
entered into by and between China BAK Battery, Inc., a Nevada Corporation (the
"Company"); Roth Capital Partners, LLC, a California Limited Liability Company
("Roth"); and Wells Fargo Bank, National Association, (the "Escrow Agent").
WHEREAS, the Company is seeking to raise up to $75 million from investors (the
"Investors") pursuant to a private placement of its common stock, for which Roth
is serving as placement agent;
WHEREAS, the Company and Roth desire that the funds for the purchase of shares
of the Company's common stock in the private placement be deposited by the
Investors with the Escrow Agent pending closing under the Securities Purchase
Agreement (the "Securities Purchase Agreement") dated the date hereof between
the Company and the Investors, and the Investors have agreed to deposit such
funds with the Escrow Agent (capitalized terms used herein but not defined
herein have the meanings ascribed to them in the Securities Purchase Agreement);
WHEREAS, the Escrow Agent is willing to accept appointment as Escrow Agent for
only the expressed duties, terms and conditions outlined herein.
Closing. At the Initial Closing each Investor, except the Remaining Investors,
shall deliver each Investor's respective Investment Amount to the Escrow Agent
to be placed in an escrow account until the Closing. At the Closing, subject to
the terms and conditions set forth in the Securities Purchase Agreement,
including the applicable Conditions Precedent to Closings set forth in Article
V, the Escrow Agent shall release the funds received pursuant to the Initial
Closing
NOW, THEREFORE, in consideration of the premises set forth above and other good
and valuable consideration, the receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. Proceeds to be Escrowed. A sample copy of the Securities Purchase Agreement
is attached as Exhibit B. All funds payable by Investors ("Investor Funds") at
the Initial Closing pursuant to Section 2.1 of the Securities Purchase Agreement
shall be wired to an account, designated by the Escrow Agent (the "Escrow
Account") and invested as stated herein.
2. Identity of Investors. In connection with the Initial Closing, Roth shall
obtain the following information for each Investor: (i) such Investor's name and
address, (ii) the amount of funds transferred and the number of Shares to be
purchased, and (iii) such Investor's tax identification number and shall provide
the Escrow Agent such information in the form set forth in Exhibit C and
appropriate form W-9 or W-8 for each Investor as applicable. All Investor Funds
deposited in the Escrow Account shall remain the property of the Investors and
shall not be subject to any liens or charges by the Company or the Escrow Agent,
or judgments or creditors' claims against the Company or Roth. The Escrow Agent
will not use the information provided to it by the Company or Roth for any
purpose other than to fulfill its obligations as Escrow Agent. The Company, Roth
and the Escrow Agent will treat all Investor information as confidential.
3. Disbursement of Funds. At Closing, Roth and the Company shall deliver a
written notice, signed by both parties, (the "Notice") to the Escrow Agent
authorizing and instructing the Escrow Agent to release all amounts in the
Escrow Account to the Company. Upon receipt of the Notice, the Escrow Agent
shall pay out the funds of the Escrow Account and all accrued interest thereon,
as directed in such Notice. If Roth and the Company do not deliver such Notice
prior to the Termination Date or deliver a written notice signed by each of them
indicating a termination of the offering of the Shares, the Escrow Agent shall,
within a reasonable time following the Termination Date, but in no event more
than thirty (30) days after the Termination Date, refund to each of the
Investors at the address appearing on the List of Investors, or in such other
manner as provided in writing to the Escrow Agent by the Investors, such
Investor's pro rata share of the funds in the Escrow Account, including any
interest earned, determined by the amount of funds originally transferred by
such Investor in connection with its intent to purchase Shares and the Escrow
Agent shall notify Roth in writing of such disbursements.
77
4. Term of Escrow. The "Termination Date" shall be September 30, 2005; or (ii)
the date the Escrow Agent receives written notice from Roth and the Company that
it is abandoning the sale of the Shares, subject to paragraph 3. Roth and the
Company may extend the Termination Date for increments of 60 days upon written
notice signed by each of them to the Escrow Agent; provided, however, that the
Escrow Account shall be automatically closed by the Escrow Agent, and
disbursements shall be made pursuant to paragraph 3 directly above upon the one
year anniversary from the date of this Escrow Agreement.
5. Duty and Liability of the Escrow Agent. The sole duty of the Escrow Agent,
shall be to receive said funds and hold them subject to release, in accordance
herewith. The Escrow Agent may conclusively rely upon and shall be protected in
acting upon any statement, certificate, notice, request, consent, order or other
document believed by it to be genuine and to have been signed or presented by
the proper party or parties. The Escrow Agent shall have no duty or liability to
verify any such statement, certificate, notice, request, consent, order or other
document, and its sole responsibility shall be to act only as expressly set
forth in the Escrow Agreement. The Escrow Agent shall be under no obligation to
institute or defend any action, suit or proceeding in connection with the Escrow
Agreement unless first indemnified to its satisfaction. The Escrow Agent may
consult counsel of its own choice in respect of any question arising under the
Escrow Agreement and the Escrow Agent shall not be liable for any action taken
or omitted in good faith upon advice of such counsel.
6. Escrow Agent's Fee. The Escrow Agent shall be entitled to compensation for
its services as stated in the fee schedule attached hereto as Exhibit A, which
compensation shall be paid by the Company. The fee agreed upon for the services
rendered hereunder is intended as full compensation for the Escrow Agent's
services as contemplated by the Escrow Agreement; provided, however, that in the
event that the Escrow Agent performs additional services not contemplated in
this Escrow Agreement or incurs additional expenses not contemplated in Exhibit
A, the Escrow Agent may be entitled to additional fees or reimbursement of
costs. Such events that shall entitle the Escrow Agent to receive additional
fees or reimbursement of additional costs or expenses are situations wherein:
(i) the conditions for the disbursement of funds under the Escrow Agreement are
not fulfilled within the original timeframe contemplated under this Agreement,
(ii) the Escrow Agent renders any additional material service, requested by a
duly authorized agent of the Company or Roth, not contemplated in this Escrow
Agreement, (iii) there is any assignment of interest in the subject matter of
this Escrow Agreement, (iv) any material modification hereof, or if any material
controversy arises hereunder, or (v) the Escrow Agent is made a party to any
litigation pertaining to this Escrow Agreement, or the subject matter hereof, in
which case the Escrow Agent shall be compensated by the Company for such
extraordinary services and reimbursed for costs and expenses, including
attorney's fees, occasioned by any delay, controversy, litigation or event, with
the amount of such fees to be paid and costs and expenses to be reimbursed to be
reasonably determined by the Company.
Investment of Proceeds. The funds placed in the Escrow Account (the "Escrow
Funds") shall be properly and promptly credited by the Escrow Agent. The Escrow
Agent shall hold the funds in cash and uninvest..
On or prior to the date hereof, the parties shall provide the Escrow Agent with
certified tax identification numbers by furnishing appropriate IRS forms W-9 or
W-8 and other forms and documents that the Escrow Agent may reasonably request.
The parties hereto understand that if such tax reporting documentation is not so
certified to the Escrow Agent, Escrow Agent may be required by the Internal
Revenue Code of 1986, as amended, to withhold a portion of any interest or other
income earned on the Escrow Fund pursuant to this Escrow Agreement.
To the extent that the Escrow Agent becomes liable for the payment of any taxes
in respect of income derived from the investment of funds held or payments made
hereunder, the Escrow Agent shall satisfy such liability to the extent possible
from the Escrow Funds. The parties agree to indemnify and hold the Escrow Agent
harmless from and against any taxes, additions for late payment, interest,
penalties and other expenses that may be assessed against the Escrow Agent on or
with respect to any payment or other activities under this Escrow Agreement
unless any such tax, addition for late payment, interest, penalties and other
expenses shall arise out of or be caused by the actions of, or failure to act,
by the Escrow Agent.
7. Issuance of Certificates. Until the terms of this Escrow Agreement have been
met with respect to Closing or the Escrow Agent is otherwise authorized to
release the Escrow Funds pursuant to this Escrow Agreement, the Company may not
issue any certificates or other evidence of ownership of the Shares.
78
8. Notices. All notices, requests, demands, and other communications under the
Escrow Agreement shall be in writing and shall be deemed to have been duly given
(a) on the date of service if served personally on the party to whom notice is
to be given, (b) on the day of transmission if sent by facsimile/email
transmission to the facsimile number/email address given below, and telephonic
confirmation of receipt is obtained promptly after completion of transmission,
(c) on the day after delivery to Federal Express or similar overnight courier or
the Express Mail service maintained by the United States Postal Service, or (d)
on the fifth day after mailing, if mailed to the party to whom notice is to be
given, by first class mail, registered or certified, postage prepaid, and
properly addressed, return receipt requested, to the party as follows:
If to the Company: China BAK Battery, Inc.
BAK Industrial Park, No. 1 BAK Street
Kuichong Town, Longgang District
Shenzhen, People's Republic Of China
Attn: Mr. Li Xiangqian, Chief Executive Officer
Facsimile: 011 86 75 89 77 00 04
and also to: Nevada Agency and Trust Company
50 West Liberty Street, Suite 880
Reno, Nevada 89501
Attn: China BAK Battery, Inc.
Facsimile:
With a copy to: Andrews Kurth, L.L.P.
1717 Main Street
Dallas, Texas 75201
Attn: Robin Bradford, Esq.
Facsimile: (214) 659-4827
If to Roth: Roth Capital Partners
24 Corporate Plaza
Newport Beach, CA 92660
Attention: Gordon Roth/Don Skrdlant
Phone: 800 678-9147
Fax: 949-720-7215
If to Escrow Agent: Wells Fargo Bank, National Association
Corporate Trust Services
707 Wilshire Blvd., 17th Floor
Los Angeles, CA 90017
Attention: Sandy Chan/Regina Vergara
Telephone: (213) 614-5854/(213) 614-3352
Fax: (213) 614-3355
Any party may change its address for purposes of this paragraph by giving the
other party written notice of the new address in the manner set forth above.
9. Indemnification of Escrow Agent. The Company hereby indemnifies and holds
harmless the Escrow Agent from and against, any and all loss, liability, cost,
damage and expense, including, without limitation, reasonable counsel fees,
which the Escrow Agent may suffer or incur by reason of any action taken or
omitted or any disbursement of funds from the Escrow Account in each case in
accordance with the terms of this Agreement unless caused by the negligence or
willful misconduct of the Escrow Agent. The terms of this Section 10 shall
survive the termination of this Agreement and, with respect to claims arising in
connection with Escrow Agent's duties while acting as such, the resignation or
removal of Escrow Agent
79
10. Successors and Assigns. Except as otherwise provided in this Escrow
Agreement, no party hereto shall assign this Escrow Agreement or any rights or
obligations hereunder without the prior written consent of the other parties
hereto and any such attempted assignment without such prior written consent
shall be void and of no force and effect. This Escrow Agreement shall inure to
the benefit of and shall be binding upon the successors and permitted assigns of
the parties hereto.
11. Governing Law; Jurisdiction. This Escrow Agreement shall be construed,
performed, and enforced in accordance with, and governed by, the internal laws
of the State of California, without giving effect to the principles of conflicts
of laws thereof.
12. Severability. In the event that any part of this Escrow Agreement is
declared by any court or other judicial or administrative body to be null, void,
or unenforceable, said provision shall survive to the extent it is not so
declared, and all of the other provisions of this Escrow Agreement shall remain
in full force and effect.
13. Amendments; Waivers. This Escrow Agreement may be amended or modified, and
any of the terms, covenants, representations, warranties, or conditions hereof
may be waived, only by a written instrument executed by the parties hereto, or
in the case of a waiver, by the party waiving compliance. Any waiver by any
party of any condition, or of the breach of any provision, term, covenant,
representation, or warranty contained in this Escrow Agreement, in any one or
more instances, shall not be deemed to be nor construed as further or continuing
waiver of any such condition, or of the breach of any other provision, term,
covenant, representation, or warranty of this Escrow Agreement.
14. Entire Agreement. This Escrow Agreement contains the entire understanding
among the parties hereto with respect to the escrow contemplated hereby and
supersedes and replaces all prior and contemporaneous agreements and
understandings, oral or written, with regard to such escrow.
Escrow Agent is not a party to, is not bound by, and is not deemed to have
knowledge of any agreement other than this Agreement. All references in this
Agreement to other agreements, including the Securities Purchase Agreement, are
for the convenience of the Company and Roth and the Escrow Agent has no duties
or obligations with respect thereto.
15. Section Headings. The section headings in this Escrow Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Escrow Agreement.
16. Counterparts. This Escrow Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which shall constitute the same
instrument.
17. Resignation. The Escrow Agent may resign upon 30 days advance written notice
to the parties hereto, provided that such resignation shall not become effective
until a successor Escrow Agent shall have been appointed and accepted its
appointment. Upon receipt of the resignation of the Escrow Agent, the Company
and Roth shall jointly select a successor Escrow Agent and shall give written
notice thereof to the resigning Escrow Agent. If a successor to the Escrow Agent
is not appointed within such 30-day period following such written notice, the
Escrow Agent may petition any court of competent jurisdiction to name a
successor Escrow Agent or interplead the Investor Funds with such court. Upon
acceptance of the duties of Escrow Agent hereunder by the successor Escrow Agent
or deposit of the funds in the Escrow Account with the court, the Escrow Agent's
duties hereunder shall terminate. Upon resignation of the Escrow Agent, the
Escrow Agent shall turn over to its successor all funds in the Escrow Account
and any instruments held by it for the Escrow Account.
80
IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to be
executed the day and year first set forth above.
China BAK Battery, a Nevada Corporation
By:
------------------------------------
Its:
------------------------------------
Roth Capital Partners LLC, a California Limited Liability Company
By:
------------------------------------
Its:
------------------------------------
Wells Fargo Bank, National Association, as Escrow Agent
By:
------------------------------------
Its:
------------------------------------
81
EXHIBIT A
ESCROW AGENT FEE SCHEDULE
-------------------------
ACCEPTANCE FEE: WAIVED
- --------------
Initial Fees as they relate to Wells Fargo Bank acting in the capacity of Escrow
Agent --- includes creation and examination of the Escrow Agreement; acceptance
of the Escrow appointment; setting up of Escrow Account(s) and accounting
records; and coordination of receipt of funds for deposit to the Escrow Account.
Acceptance Fee payable at time of Escrow Agreement execution.
ESCROW AGENT ADMINISTRATION FEE: $2,000.00
- -------------------------------
For ordinary administration services by Escrow Agent - includes daily routine
account management; investment transactions; cash transaction processing
(including wises and check processing); monitoring claim notices pursuant to the
agreement; disbursement of the funds in accordance with the agreement; and
mailing of trust account statements to all applicable parties.
Tax reporting is included for up to Five (5) entities. Should additional
reportings be necessary, a $25 per reporting charge will be assessed.
This fee is Payable in advance, with the first installment due at the time of
Escrow Agreement execution. Fee will not be prorated in case of early
termination.
WELLS FARGO'S BID IS BASED ON THE FOLLOWING ASSUMPTIONS:
o Number of escrow funds/accounts to be established: One (1)
o Number of Deposits to Escrow Account. Not more than Fifty (50)
o Number of Withdrawals from Escrow Fund: Not more than Fifteen (15)
o Term of Escrow: Not more than Six (6) months
o THIS FEE SCHEDULE ASSUMES THAT BALANCES IN THE ESCROW ACCOUNT WILL RE
INVESTED IN MONEY MARKET FUNDS THAT WELLS FARGO HAS A RELATIONSHIP WITH
o ALL FUNDS WILL BE RECEIVED FROM OR DISTRIBUTED TO A DOMESTIC OR AN APPROVED
FOREIGN ENTITY
o IF THE ACCOUNT(S) DOES NOT OPEN WITHIN THREE (3) MONTHS OF THE DATE SHOWN
BELOW, THIS PROPOSAL WILL BE DEEMED TO BE NULL AND VOID
OUT-OF POCKET EXPENSES: AT COST
- ----------------------
We only charge for out-of-pocket expenses in response to specific tasks assigned
by the client. Therefore, we cannot anticipate what specific out-of-pocket items
will be needed or what corresponding expenses will be incurred. Possible
expenses would be, but are not limited to, express mail and messenger charges,
travel expenses to attend closing or other meetings. There are no charges for
indirect out-of- pocket expenses.
THIS FEE SCHEDULE IS BASED UPON THE ASSUMPTIONS LISTED ABOVE WHICH PERTAIN TO
THE RESPONSIBILITIES AND RISKS INVOLVED IN WELLS FARGO UNDERTAKING THE ROLE OF
ESCROW AGENT. THESE ASSUMPTIONS ARE BASED ON INFORMATION PROVIDED TO US AS OF
THE DATE OF THIS FEE SCHEDULE. OUR FEE SCHEDULE IS SUBJECT TO REVIEW AND
ACCEPTANCE OF THE FINAL DOCUMENTS. SHOULD ANY OF THE ASSUMPTIONS, DUTIES OR
RESPONSIBILITIES CHANGE, WE RESERVE THE RIGHT TO AFFIRM MODIFY OR RESCIND OUR
FEE SCHEDULE.
SUBMITTED ON: AUGUST 17, 2005
A-1
Exhibit B
b. Securities Purchase Agreement
(The Securities Purchase Agreement is the agreement to which this Escrow
Agreement is an exhibit)
B-1
Exhibit C
List of Investors
-----------------
Pursuant to the Escrow Agreement dated August 30, 2005, by and between
China BAK Battery, Inc. (the "Company"), Roth Capital Partners, LLC (the "Roth")
and Wells Fargo Bank, National Association (the "Escrow Agent"), Roth hereby
certifies that the following Investors have paid money for the purchase of
shares of common stock of the Company (the "Shares"), and the money has been
deposited with the Escrow Agent:
1. THIRD POINT-TOTAL $5,500,000.00 (1,000,000 SHARES)
$797,500.00 (145,000 Shares)
Legal Name: Third Point Partners L.P.
$357,500.00 (65,000 Shares)
Legal Name: Third Point Partners Qualified L.P.
$3,960,000.00 (720,000 Shares)
Legal Name: Third Point Offshore Fund, Ltd.
$385,000.00 (70,000 Shares)
Legal Name: Third Point Ultra Ltd.
CONTACT INFORMATION FOR ALL:
----------------------------
c/o Third Point LLC
390 Park Avenue
New York, NY 10022
Attn: Keith Waller
Tel: 212-224-7410
Fax: 212-224-7401
Email: KWaller@thirdpoint.com
DELIVERY INFORMATION FOR ALL:
-----------------------------
c/o Goldman Sachs
One New York Plaza, 44th Floor
New York, NY 10004
Attn: Jasmyn Bykowski
Tel: 212-357-4149
2. JLF ASSET MANAGEMENT. LLC- TOTAL $4,950,000.00 {900,000 SHARES)
$1,969,000.00 (358,000 Shares)
Legal Name: JLF Partners I, LP
$148,500.00 (27,000 Shares)
Legal Name: JLF Partners II, LP
$2,832,500.00 (515,000 Shares)
Legal Name: JLF Offshore Fund, Ltd.
CONTACT INFORMATION FOR ALL:
----------------------------
c/o JLF Asset Management, LLC
2775 Via de la Valle
Del Mar, CA 92014
Attn: Jeff Feinberg
Tel: 858-259-3440
Fax: 858-259-3449
Email: feinberg@jlfllc.com
C-1
DELIVERY INFORMATION FOR ALL:
-----------------------------
c/o Goldman Sachs
30 Hudson Street
Jersey City, NJ 07302-4699
Attn: Liling Xu
Tel: 212-902-1758
3. PINNACLE CHINA FUND, L.P. -TOTAL $4,950,000.00 (900,000 SHARES)
---------------------------------------------------------------
$4,950,000.00 (900,000 Shares)
------------------------------
Legal Name: Pinnacle China Fund, L.P.
CONTACT INFORMATION:
---------------------
c/o The Pinnacle China Fund, L.P.
4965 Preston Park Blvd., Suite 240
Plano, TX 75093
Attn: Barry M. Kitt
Tel: 972-985-2121
Fax: 972-985-2122
Email barry@pinnaclefund.com
DELIVERY INFORMATION:
---------------------
c/o Banc of America Securities
901 Main Street, Suite 6616
Plano, TX 75202
Attn: Brett Speer
Tel: 214-209-9973
4. SHERLEIGH ASSOCIATES - TOTAL $3,025,000.00 (550,000 SHARES)
-----------------------------------------------------------
$3,025,000.00 (550,000 Shares)
Legal Name: Sherleigh Associates Inc. Profit Sharing Plan
CONTACT AND DELIVERY INFORMATION:
---------------------------------
c/o Sherleigh Associates Inc. Profit Sharing Plan
920 Fifth Avenue, #3B
New York, NY 10021
Attn: Jack Silver
Tel: 212-542-8201
Fax: 212-542-8212
Email: siar1@earthlink.net
5. ATLAS CAPITAL -TOTAL $2,997,500.00 (545,000 SHARES)
---------------------------------------------------
$1,972,850.00 (358,700 Shares)
Legal Name: Atlas Capital Master Fund, L.P.
$1,024,650.00 (186,300 Shares)
Legal Name: Atlas Capital (Q.P.) L.P.
CONTACT INFORMATION FOR ALL:
----------------------------
c/o Atlas Capital Management
100 Crescent Court, Suite 880
Dallas, TX 75201
Attn: Caryn Peeples
Tel: 214-999-6082
Fax: 214-999-6095
Email: caryn@atlascap.net
DELIVERY INFORMATION FOR ALL:
-----------------------------
c/o Bank of America Securities
901 Main Street, Suite 6616
Dallas, TX 75202
Ann: Erick Johnson
Tel: 214-209-9916
C-2
6. SOUTHWELL PARTNERS L.P. -TOTAL S2,970,000.00 (540,000 SHARES)
-------------------------------------------------------------
$2,970,000.00 (540,000 Shares)
Legal Name: Southwell Partners, L.P.
CONTACT INFORMATION:
--------------------
c/o Southwell Partners, L.P.
1901 North Akard Street
Dallas, TX 75201
Attn: Wilson Jaeggli
Tel: 214-922-9696
Fax: 214-922-9699
Email. wilson@southwellpartners.com
DELIVERY INFORMATION:
---------------------
c/o Bank of America Securities
901 Main Street, Suite 6616
Dallas, TX 75202
Attn: Brett Speer
Tel: 214-209-9973
7. MAGNETAR-TOTAL $2,750,000.00 (500,000 SHARES)
--------------------------------------------
$2,750,000.00 (500,000 Shares)
Legal Name: Magnetar Capital Master Fund Ltd.
CONTACT AND DELIVERY INFORMATION:
---------------------------------
c/o Magnetar Capital, LLC
1603 Orrington Avenue, 13th Floor
Evanston, IL 60201
Attn: Richard Levy
Tel: 847-905-4400
Fax: 847-869-2064
Email: richard.levy@magnetarcapital.com
8. THE PINNACLE FUND - TOTAL $2,750,000.00 (500,000 SHARES)
--------------------------------------------------------
$2,750,000.00 (500,000 Shares)
Legal Name: The Pinnacle Fund, L.P.
CONTACT INFORMATION:
---------------------
c/o The Pinnacle Fund, L.P.
4965 Preston Park Blvd., Suite 240
Plano, TX 75093
Attn: Barry M. Kitt
Tel: 972-985-2121
Fax: 972-985-2122
Email: barry@pinnaclefund.com
DELIVERY INFORMATION:
---------------------
c/o Bank of America Securities
901 Main Street, Suite 6616
Dallas, TX 75202
Attn: Brett Speer
Tel: 214-209-9973
C-3
9. ALVARADO MANAGEMENT COMPANY - TOTAL $2,200,000.00 (400,00 SHARES)
-----------------------------------------------------------------
$2,200,000.00 (400,000 Shares)
Legal Name: John E. Lee
CONTACT AND DELIVERY INFORMATION:
---------------------------------
c/o Alvarado Management Co.
555 Montgomery Street, Suite 603
San Francisco, CA 94111
Attn: John Lee
Tel:415-398-1366
Fax: 415-398-1710
Email: alvresearch@yahoo.com
10. WALKER SMITH -TOTAL S1,925,000,00 (350 000 SHARES)
--------------------------------------------------
$48,950.00 (8,900 Shares)
Legal Name: Walker Smith Capital, L.P.
$281,050.00 (51,100 Shares)
Legal Name: Walker Smith Capital (QP), L.P.
$385,000.00 (70,000 Shares)
Legal Name: Walker Smith International Fund, Ltd.
$356,400.00 (64,800 Shares)
Legal Name: WS Opportunity Fund L.P.
$350,900.00 (63,800 Shares)
Legal Name: WS Opportunity Fund (QP). L.P.
$502,700.00 (91,400 Shares)
Legal Name: WS Ventures Management, L.P.
CONTACT AND DELIVERY INFORMATION FOR ALL:
-----------------------------------------
c/o Walker Smith Capital (WS Opportunity)
300 Crescent Court, Suite 1111
Dallas, TX 75201
Attn: Joe Worsham
Tel: 214-756-6073
Fax: 214-756-6079
Email: joe@walksmith.com
11. WESTPARK CAPITAL - TOTAL S1,650,000.00 (300.000 SHARES)
-------------------------------------------------------
$1,650,000.00 (300,000 Shares)
Legal Name: Westpark Capital, L.P.
CONTACT AND DELIVERY INFORMATION:
---------------------------------
c/o Westpark Capital, L.P.
4965 Preston Park Blvd., Suite 220
Piano, TX 75093
Attn: Patrick J. Brosnahan
Tel: 972-985-2127
Fax: 972-985-2161
Email: pat@westparkfund.com
C-4
12. SANDOR ADVISORS LLC - TOTAL $1.650,000.00 (300.000 SHARES)
----------------------------------------------------------
$1,650,000.00 (300,000 Shares)
Legal Name: Sandor Capital Master Fund, L.P.
CONTACT INFORMATION:
--------------------
c/o Sander Advisors, LLC
2828 Routh Street, Suite 500
Dallas, TX 75201
Attn: John Lemak
Tel:214-849-9876
Fax:214-849-9879
Email: john@lemak.net
DELIVERY INFORMATION:
---------------------
c/o UBS Hedge Fund Services
1285 Avenue of the Americas, 9th Floor
New York, NY 10019
Attn: James Morley
Tel: 212-713-9117
13. PRESIDIO MANAGEMENT - TOTAL $1,649,250.00 (299,863 SHARES)
----------------------------------------------------------
$816,000.00 (148,363 Shares)
Legal Name: Presidio Partners
$641,850.00 (116,700 Shares)
Legal Name: Geary Partners
$191,400.00 (34,800 Shares)
Legal Name: Brady Retirement Fund LP
CONTACT AND DELIVERY INFORMATION FOR ALL:
-----------------------------------------
c/o Presidio Partners
44 Montgomery Street, Suite 2110
San Francisco, CA 94104
Attn: William J. Brady
Tel: 415-433-0610
Fax: 415-433-0840
Email: wbrady@presidiomanagement.com
14. RENAISSANCE CAPITAL - TOTAL $1,100,000.00 (200,000 SHARES)
----------------------------------------------------------
$550,000.00 (100,000 Shares)
Legal Name: Renaissance US Growth Investment Trust PLC
c/o Frost National Bank, Custodian, Trust NO. W00740100000
$550,000.00 (100,000 Shares)
Legal Name: BFS US Special Opportunities Trust PLC
c/o Frost National Bank, Custodian, Trust NO. W00118000
CONTACT INFORMATION FOR ALL:
----------------------------
c/o RENN Capital Group
8080 N. Central Expressway, Suite 210, LB-59
Dallas, TX 75206
Attn: Compliance
Tel: 214-891-8294
Fax: 214-891-8291
Email: corpfin@rencapital.com
C-5
DELIVERY INFORMATION FOR ALL:
-----------------------------
c/o Frost National Bank
100 W. Houston Street
San Antonio, TX 78205
Attn: Henri Domingues T-8
Tel: 210-220-5216
15. WHITEBOX ADVISORS - TOTAL $1,100,000.00 (200.000 SHARES)
--------------------------------------------------------
$1,100,000.00 (200,000 Shares)
Legal Name: Whitebox Intermarket Partners L.P.
CONTACT AND DELIVERY INFORMATION:
---------------------------------
c/o Whitebox Advisors LLC
3033 Excelsior Blvd., Suite 300
Minneapolis, MN 55416
Attn: Clint Semm or Jonathan Wood
Tel: 612-253-6001
Fax: 612-253-6100
Email: jwood@whiteboxadvisors.com
16. JAYHAWK CAPITAL MANAGEMENT LLC - TOTAL $962,500.00 (175,000 SHARES)
-------------------------------------------------------------------
$962,500.00 (175,000 Shares)
Legal Name: Jayhawk China Fund (Cayman), Ltd.
CONTACT AND DELIVERY INFORMATION:
---------------------------------
c/o Jayhawk Capital Management, LLC
8201 Mission Road, Suite 110
Prairie Village, KS 66208
Attn: Mark Fleischhauer
Tel: 913-642-2611
Fax: 913-642-8661
Email: mark@jayhawkcapital.com
17. PRECEPT CAPITAL MANAGEMENT -TOTAL $440,000.00 (80,000 SHARES)
-------------------------------------------------------------
$440,000.00 (80,000 Shares)
Legal Name: Precept Capital Master Fund, G.P.
CONTACT AND DELIVERY INFORMATION:
---------------------------------
c/o Precept Capital Management
100 Crescent Court, Suite 850
Dallas, TX 75201
Attn: John Bateman
Tel: 214-880-7444
Fax: 214-880-0082
Email: ibateman@preceptfund.com
18. DIAMOND GROUP -TOTAL $412,500.00 (75,000 SHARES)
------------------------------------------------
$412,500.00 (75,000 Shares)
Legal Name: Diamond Opportunity Fund, LLC
CONTACT AND DELIVERY INFORMATION:
---------------------------------
c/o Diamond Group
500 Skokie Blvd., Suite 310
Northbrook, IL 60062
Attn: David Hokin or Richard Marks
Tel: 847-559-1002
Fax: 847-919-4410
Email: rmarks@diagrp.com
C-6
19. MEADOWBROOK OPPORTUNITY FUND LLC - TOTAL $330,000.00 (60.000 SHARES)
--------------------------------------------------------------------
$330,000.00 (60,000 Shares)
Legal Name: Meadowbrook Opportunity Fund LLC
CONTACT AND DELIVERY INFORMATION:
---------------------------------
c/o Meadowbrook Opportunity Fund LLC
520 Lake Cook Road, Suite 690
Deerfield, IL 60015
Attn: Daniel Elekman
Tel: 847-876.1220
Fax: 847-876-1221
Email: delekman@meadowbrookcapital.com
20. INTERGLOBE FINANCE SA - TOTAL $137,500.00 (25,000 SHARES)
---------------------------------------------------------
$137,500.00 (25,000 Shares)
Legal Name: EPM Holding AG
CONTACT AND DELIVERY INFORMATION:
---------------------------------
c/o lnterglobe Finance SA
General Guisan-Quai 36
CH-8002, Zurich
Attn: Ursula Stabinger
Tel: 41-44-289-6020
Fax: 41-44-289-6029
Email: igf@limmat.ch
- --------------------------------------------------------------------------------
Offering Price: $5.50
Total Dollars: $43,449,250.00
Total Shares: 7,899,863
Closing Date: September 16, 2005
C-7