SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act 1934
Date
of
Report (date of earliest event reported): December 17, 2007
Achievers
Magazine Inc.
(Exact
name of Company as specified in charter)
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Nevada
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333-114564
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98-0550699
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(State
or Other Jurisdiction
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(Commission
File
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(I.R.S.
Employer
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of
Incorporation)
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Number)
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Identification
Number)
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Achievers
Magazine Inc.
c/o
Xinghe
Yongle Carbon Co., Ltd.
787
Xicheng Wai
Chengguantown
Xinghe
County
Inner
Mongolia, China
Telephone:
(86)
474-7209723
(Address
of principal executive offices)
Copies
to:
Asher
S.
Levitsky PC
Sichenzia
Ross Friedman Ference LLP
61
Broadway, 32
nd
Floor
New
York,
New York 10006
Phone:
(212) 981-6767
Fax:
(212) 930 - 9725
E-mail:
alevitsky@srff.com
Achievers
Magazine Inc.
200
Cambie Street; Suite 400
Vancouver,
B.C. V6B 2M9
(Former
name and former address, if changed since last report)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of Company under any of the following
provisions:
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o
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Written
communications pursuant to Rule 425 under the Securities Act (17
CFR
230.425)
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o
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Soliciting material pursuant to Rule
14a-12(b)
under the Exchange Act (17 CFR 240.14a-12(b))
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Pre-commencement communications pursuant
to
Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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o
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Pre-commencement communications pursuant
to
Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Item
1.01 Entry into a Material Definitive Agreement.
Item
2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
Item
3.02 Unregistered Sales of Equity Securities.
On
December 17, 2007, Achievers Magazine Inc. completed the transactions pursuant
to a share exchange agreement, dated as of December 14, 2007, with Sincere
Investment (PTC), Ltd., a British Virgin Islands corporation, which is the
sole
stockholder of Talent International Investment Limited, a British Virgin Islands
corporation, which is the sole stockholder of Xinghe Yongle Carbon Co., Ltd.
(“Yongle”), a company organized under the laws of the Peoples’ Republic of China
(the “PRC”). Pursuant to the share exchange agreement, Sincere transferred to us
all of the capital stock of Talent in exchange for 9,388,172 shares of our
common stock, which were issued to Sincere. As a result, Talent became our
wholly-owned subsidiary and our business became the business of Sincere and
its
affiliated companies.
Talent
owns 100% of the stock of Yongle, which is a wholly foreign-owned enterprise
under the laws of the PRC. Yongle is a party to a series of contractual
arrangements with Xinghe Xingyong Carbon Co., Ltd., a corporation organized
under the laws of the People’s Republic of China (the “Xingyong”), and its two
stockholders, Dengyong Jin and Benhua Du, which are described under “Contractual
Agreements with Xingyong.” Throughout this Form 8-K, Talent, Yongle and Xingyong
are sometimes collectively referred to as the “Xingyong Group.”
The
transaction by which we acquired Talent is referred to as the reverse
acquisition.
In
describing our business, the terms “we,” “us,” and “our” and words of like
import refer to the Xingyong Group unless the context indicates otherwise.
References to Achievers relate to the business conducted by Achievers prior
to
the reverse acquisition.
Stock
Distribution
On
December 17, 2007, the board of directors approved a 1.6-for-one stock
distribution pursuant to which each share of common stock became converted
into
1.6 shares of common stock. This stock distribution will become effective on
or
about December 27, 2007. All references to shares and per share information,
including the conversion ratios, in this Form 8-K give effect to the stock
distribution.
Reverse
Acquisition and Related Transactions
Pursuant
to the exchange agreement, we issued 9,388,172 shares of common stock to Sincere
in exchange for 100% of the common stock of Talent. As a result of this
transaction and the other transactions described below, Sincere owned
approximately 76.8% of the Company’s outstanding common stock.
In
connection with the acquisition of Talent, on December 17, 2007:
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(a)
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We
entered into a buy-back agreement dated December 14, 2007, with Arto
Tavukciyan and Lyndon Grove pursuant to which we purchased 5,344,000
shares of common stock from them. Mr. Tavukciyan and Mr. Grove were,
at
the time of the agreement, the holders of 65.4% of our outstanding
common
stock. Pursuant to the buy-back
agreement:
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We
agreed to pay a purchase price of $700,000 for the shares, for which
we
issued our promissory note in the principal amount of $700,000, payable
in
installments of $350,000 on each of March 31, 2008 and June 30,
2008.
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We
agreed to pay a finders’ fee of $100,000 to Ventana Capital Partners,
payable in installments of $50,000 on each of March 31, 2008 and
June 30,
2008.
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We
placed 1,000,000 of the shares of common stock that we purchased
in
escrow, and the shares are subject to release from escrow under the
following conditions:
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If
by March 31, 2008, we shall not have made both the first $350,000
payment
due pursuant to the note and the first payment of $50,000 to Ventana,
the
escrow agent shall release 400,000 shares to the Sellers and 100,000
shares to Ventana.
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If,
by March 31, 2008, we shall have made both the first $350,000 payment
due
pursuant to the note and the first payment of $50,000 to Ventana,
the
escrow agent shall deliver 500,000 shares to us for
cancellation.
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If
by June 30, 2008, we shall not have made both the second $350,000
payment
due pursuant to the note and the second payment of $50,000 to Ventana,
the
escrow agent shall release 400,000 shares to the Sellers and 100,000
shares to Ventana.
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If,
by June 30, 2008, we shall have made both the second $350,000 payment
due
pursuant to the note and the second payment of $50,000 to Ventana,
the
escrow agent shall deliver 400,000 shares to us for
cancellation.
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If
the escrow agent is required to deliver some or all of the shares
from
escrow to the sellers and Ventana and if the market price for our
common
stock during the ten trading days preceding March 31, 2008 or June
30,
2008, as the case may be, is less than $.80 per share, we are required
to
deliver additional shares. The number of additional shares shall
be
determined by multiplying the number of shares to be delivered on
such
date by $0.80 per share and dividing the result by the market price
and
subtracting from that number the shares held in escrow that are to
be
delivered at that time.
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If,
prior to June 30, 2008, we issue shares of common stock at a price
which
is less than $1.20 per share, we are required to deliver additional
shares
to the escrow agent. The number of additional shares as shall be
determined by multiplying the number of shares of common stock then
held
in escrow by a fraction, the numerator of which is the number of
shares
sold by us at a price which is less than $1.20 per share and the
denominator of which is 13,000,000. For example, if there are 1,000,000
shares in escrow and we sell 2,600,000 shares at a price which is
less
than $1.20, we would issue 200,000 shares of common stock to the
escrow
agent.
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Achiever’s
transferred all of the stock of its wholly-owned subsidiary, Achievers
Publishing Inc., a British Columbia corporation, to Mr.
Tavukciyan.
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(b)
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We
entered into a securities purchase agreement dated December 14, 2007
with
XingGuang Investment Corporation Limited (“XingGuang”) pursuant to which
XingGuang purchased, for $1,200,000, our 3% promissory note in the
principal amount of $1,200,000, which, upon the filing of a restated
certificate of incorporation and a statement of designation for the
series
A preferred stock, as described below, becomes automatically converted
into 1,200,499 shares of series A convertible preferred stock and
warrants
to purchase 3,000,000 shares of common stock at $1.20 per share and
3,000,000 shares of common stock at $2.00 per share. The purchase
price of
the note is payable in installments. At the closing, XingGuang paid
$183,000 to cover closing costs at the closing and prior to the closing,
XingGuang has paid at least $217,000 of expenses relating to the
reverse
acquisition on our behalf. XingGuang is to pay a total of $800,000
in two
installments of $400,000 each, the first being due on March 31, 2008
and
the second being due on June 30, 2008. Prior to filing the restated
certificate of incorporation and a statement of designation, the
note may
be converted into 1,200,499 shares of common stock and warrants to
purchase 3,000,000 shares of common stock at $1.20 per share and
3,000,000
shares of common stock at $2.00 per
share.
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(c)
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Arto
Tavukciyan and Lyndon Grove resigned from all positions as officers
and
directors, and they elected Lizhong Gao as
director.
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The
certificate of designation for the series A preferred stock is to provide
that:
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Each
share of series A preferred stock is convertible into one share of
common
stock, at a conversion price of $1.00, subject to
adjustment.
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While
the series A preferred stock is outstanding, if we issue common stock
at a
price or warrants or other convertible securities at a conversion
or
exercise price which is less then the conversion price then in effect,
the
conversion price shall be adjusted on a formula
basis.
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While
the Series A Preferred Stock is outstanding, without the approval
of the
holders of 75% of the outstanding shares of Series A Preferred Stock,
we
may not pay cash dividends or other distributions of cash, property
or
evidences of indebtedness, and we shall not redeem any shares of
Common
Stock.
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No
dividends are payable with respect to the series A preferred
stock.
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Upon
any voluntary or involuntary liquidation, dissolution or winding-up,
the
holders of the series A preferred stock are entitled to a preference
of
$1.00 per share before any distributions or payments may be made
with
respect to the common stock or any other class or series of capital
stock
which is junior to the series A preferred stock upon voluntary or
involuntary liquidation, dissolution or winding-up. In the event
that the
XingGuang fails to make any of the payments due pursuant to the securities
purchase agreement, the amount of the total liquidation payments
shall be
reduced by the amount of the
shortfall.
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The
holders of the series A preferred stock have no voting rights. However,
so
long as any shares of series A preferred stock are outstanding, we
shall
not, without the affirmative approval of the holders of 75% of the
outstanding shares of series A preferred stock then outstanding,
(a) alter
or change adversely the powers, preferences or rights given to the
series
A preferred stock or alter or amend the certificate of designation,
(b)
authorize or create any class of stock ranking as to dividends or
distribution of assets upon liquidation senior to or otherwise pari
passu
with the series A preferred stock, or any of preferred stock possessing
greater voting rights or the right to convert at a more favorable
price
than the series A preferred stock, (c) amend our articles of incorporation
or other charter documents in breach of any of the provisions thereof,
(d)
increase the authorized number of shares of series A preferred stock,
or
(e) enter into any agreement with respect to the
foregoing.
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The
warrants have terms of five years, and expire December 3, 2012. The warrants
provide a cashless exercise feature; however, the holders of the warrants may
not make a cashless exercise prior to December 17, 2006 and thereafter the
holders may make a cashless exercise only if the underlying shares are not
covered by an effective registration statement.
Pursuant
to the securities purchase agreement:
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Our
directors approved an restatement of our articles of incorporation
which
would change our corporate name to China Carbon Graphite Group, Inc.,
change our authorized capital stock to 120,000,000 shares of capital
stock, of which 20,000,000 shares would be shares of preferred stock,
par
value $.001 per share, and 100,000,000 shares would be shares of
common
stock, par value $.001 per share, and include a statement of designations
of the rights of the holders of the series A preferred
stock.
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The
Company agreed that, within 90 days after the closing on December
17,
2007, it would have appointed such number of independent directors
that
would result in a majority of our directors being independent directors
and we would have an audit committee composed solely of at least
three
independent directors and a compensation committee would have a majority
of independent directors. The Company is required to pay liquidated
damages (i) if the Company fails to have a majority of independent
directors 90 days after the closing or (ii) thereafter, if the Company
subsequently fails to meet these requirements for a period of 60
days for
an excused reason, as defined in the purchase agreement, or 75 days
for a
reason which is not an excused reason. Liquidated damages are payable
in
cash or additional shares of series A preferred stock, with the series
A
preferred stock being valued at the market price of the shares of
common
stock issuable upon conversion of the series A preferred stock. The
liquidated damages are computed in an amount equal to 12% per annum
of the
purchase price, with a maximum of
$144,000.
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The
Company and XingGuang entered into a registration rights agreement
pursuant to which we are required to have a registration statement
filed
with the SEC by March 16, 2008 and declared effective by the SEC
not later
than August 13, 2008. We are required to pay liquidated damages at
the
rate of 200 shares of series A preferred stock for each day after
August
13, 2008 that the registration statement is not declared effective
or for
any period that we fail to keep the registration statement effective,
up
to a maximum of 100,000 shares. The number of shares of series A
preferred
stock issuable pursuant to the liquidated damages provision is subject
to
reduction based on the maximum number of shares that can be registered
under the applicable SEC
guidelines.
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XingGuang
has a right of refusal on future
financings.
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Contemporaneously
with the transactions described above, seven investors purchased
1,751,900
shares
of common stock from a group of our stockholders in a private purchase. This
purchase, while separate from the reverse acquisition, was a condition to our
consummation of the exchange agreement.
Item
2.01 Completion of Acquisition or Disposition of Assets.
Information
in response to this Item 2.01 is keyed to the Item numbers of Form
10SB.
Part
I
Item
1. Description of Business
Summary
On
December 17, 2007, we acquired the stock of Talent pursuant to the exchange
agreement.
As
a
result of the reverse acquisition, our principal business became the business
of
Xingyong, which is the manufacture of products manufactured from graphite.
Our
main products are graphite electrodes, fine grain graphite and high purity
graphite. Graphite electrode is a conducting material used for electric arc
furnaces in the manufacture of steel and smelting alloy steel, brown alumina,
yellow phosphorus, or other metals. Fine grain graphite is widely smelting
for
colored metals and rare-earth metal smelting as well as the manufacture of
molds. High purity graphite is used in metallurgy, mechanical industry,
aviation, electronic, atomic energy, chemical industry, food industry and a
variety of other fields.
Corporate
History
We
were
incorporated in Nevada under the name Achievers Magazine Inc. on February 13,
2003. By a share purchase agreement dated March 31, 2003, we acquired all
of the stock of Achievers Publishing Inc. from Arto Tavukciyan and John
Plaschinski by issuing 1,344,000 shares of common stock to Mr. Tavukciyan and
160,000 shares of its common stock to Mr. Plaschinski. On December 17, 2007,
in
connection with the reverse acquisition, we transferred all of the stock in
Achievers Publishing to Mr. Tavukciyan. Achievers Publishing publishes the
magazine “Achievers Magazine.”
Xinghe
Xingyong Carbon Co., Ltd. was organized under the laws of the PRC in
December 2001. Xingyong’s business was formerly operated as a state-owned
enterprise. The business was reorganized under the laws of the PRC
as
a limited liability company named Xinghe Xingzhi Carbon Co., Ltd. In December
2001, Mr. Jin and Mr. Du organized Xingyong to acquire the business of Xinghe
Xingzhi Carbon Co., Ltd. by paying $7,510,000, which was funded by Mr. Jin,
and
assuming bank loans in the amount of $2,970,000.
Talent
was incorporated under the laws of the British Virgin Islands on February 1.
2007, and Talent formed Yongle as a wholly foreign owned enterprise under the
laws of the PRC on September 18, 2007.
Under
the laws of the PRC, we cannot acquire Xingyong directly. As a result, Yongle
entered into a series of agreements with Xingyong which we believe give us
effective control over the business of Xingyong.
Our
relationships with
Xingyong
and
its
stockholders are governed by a series of contractual arrangements between
Yongle
and
Xingyong
,
the
operating company in the PRC. These agreements are described under “Contractual
Agreements with
Xingyong.”
Our
executive offices are located
c/o
Xinghe
Yongle Carbon Co., Ltd., 787 Xicheng Wai, Chengguantown, Xinghe County, Inner
Mongolia, China, and our telephone number is (86) 474-7209723. Our website
is
www.xyts.com
.
Information on our website or any other website is not a part of this
report.
RISK
FACTORS
You
should carefully consider the risks described below as well as other information
provided to you in this document, including information in the section of this
document entitled “Information Regarding Forward Looking Statements.” The risks
and uncertainties described below are not the only ones facing us. Additional
risks and uncertainties not presently known to us or that we currently believes
are immaterial may also impair our business operations. If any of the following
risks actually occur, the Company’s businesses, financial condition or results
of operations could be materially adversely affected, the value of the common
stock could decline, and you may lose all or part of your investment.
Risks
Related to Our Business and Industry
Our
new organizational structure makes it difficult for us to evaluate our future
business prospects.
Prior
to
December 17, 2007, our business was operated by Xingyong. Under the present
structure, although there is no change is personnel, we have agreements with
Xingyong pursuant to which we manage and derive the profit from Xingyong’s
business by providing the exclusive supporting services from Yongle to Xingyong.
It is possible that the change in our business structure may impair our ability
to operate our business.
Failure
to comply with PRC regulations relating to the establishment of offshore special
purpose companies by PRC residents may materially adversely affect
us.
In
October 2005, the PRC State Administration of Foreign Exchange, or SAFE, issued
the Notice on Relevant Issues in the Foreign Exchange Control over Financing
and
Return Investment Through Special Purpose Companies by Residents Inside China,
generally referred to as Circular 75. The policy announced in this notice
required PRC residents to register with the local SAFE branch before
establishing or acquiring control over an offshore special purpose company,
or
SPV, for the purpose of engaging in an equity financing outside of China on
the
strength of domestic PRC assets originally held by those residents. Internal
implementing guidelines issued by SAFE, which became public in June 2007 (known
as Notice 106), expanded the reach of Circular 75 by (i) purporting to cover
the
establishment or acquisition of control by PRC residents of offshore entities
which merely acquire “control” over domestic companies or assets, even in the
absence of legal ownership; (ii) adding requirements relating to the source
of
the PRC resident’s funds used to establish or acquire the offshore entity; (iii)
covering the use of existing offshore entities for offshore financings; (iv)
purporting to cover situations in which an offshore SPV establishes a new
subsidiary in China or acquires an unrelated company or unrelated assets in
China; and (v) making the domestic affiliate of the SPV responsible for the
accuracy of certain documents which must be filed in connection with any such
registration, notably, the business plan which describes the overseas financing
and the use of proceeds. Amendments to registrations made under Circular 75
are
required in connection with any increase or decrease of capital, transfer of
shares, mergers and acquisitions, equity investment or creation of any security
interest in any assets located in China to guarantee offshore obligations,
and
Notice 106 makes the offshore SPV jointly responsible for these filings. In
the
case of an SPV which was established, and which acquired a related domestic
company or assets, before the implementation date of Circular 75, a retroactive
SAFE registration was required to have been completed before March 31, 2006;
this date was subsequently extended indefinitely by Notice 106, which also
required that the registrant establish that all foreign exchange transactions
undertaken by the SPV and its affiliates were in compliance with applicable
laws
and regulations. Failure to comply with the requirements of Circular 75, as
applied by SAFE in accordance with Notice 106, may result in fines and other
penalties under PRC laws for evasion of applicable foreign exchange
restrictions. Any such failure could also result in the SPV’s affiliates being
impeded or prevented from distributing their profits and the proceeds from
any
reduction in capital, share transfer or liquidation to the SPV, or from engaging
in other transfers of funds into or out of China.
We
believe we comply with the applicable regulations. The owner of Xingyong,
Dengyong Jin, was not a stockholder of Talent. Talent’s sole stockholder was not
a resident of the PRC. We cannot assure you that, if challenged by government
agencies, the structure of our organization has fully complied with all
applicable registrations or approvals required by Circular 75. Moreover, because
of uncertainty over how Circular 75 will be interpreted and implemented, and
how
or whether SAFE will apply it to us, we cannot predict how it will affect our
business operations or future strategies. A failure by our PRC resident
beneficial holders or future PRC resident stockholders to comply with Circular
75, if SAFE requires it, could subject these PRC resident beneficial holders
to
fines or legal sanctions, restrict our overseas or cross-border investment
activities, limit our subsidiaries’ ability to make distributions or pay
dividends or affect our ownership structure, which could adversely affect our
business and prospects.
Since
the revenue we generate from Xingyong is subject to annual negotiation, our
profitability may be determined by our chief executive
officer.
Pursuant
to the business operations agreement between
Yongle
and
Xingyong, Xingyong is to make 80%-100% revenue and profit payments to
Yongle
based upon annual negotiation. Dengyong Jin is our chief executive officer
as
well as the principal stockholder of Xingyong. As a result, Mr. Jin will
have the power to determine the percentage of Xingyong’s revenue or profit that
is payable to us.
Our
principal stockholder has the power to control our business
.
Our
principal stockholder, Sincere, owns 71% of our common stock as of December
20,
2007. As a result, Sincere has the ability to elect all of our directors and
to
approve any action requiring stockholder action, without the vote of any other
stockholders.
If
our lenders demand payment when our notes are due, we may have difficulty in
making payments, which could impair our ability to continue in
business.
At
September 30, 2007, we had outstanding bank loans of $5.4 million and other
loans of $665,000, all of which are due in June 2008. In addition, we owed
$4.5
million to our chief executive officer and principal stockholder of
Xingyong, Dengyong Jin which is payable on demand. These loans exceed our
working capital, which was $6.2 million at September 30, 2007. Further, our
current assets are principally accounts receivable ($3.8 million) and inventory
($13.8 million). As a result, if the lenders demand payment when due, we may
not
be able to raise the necessary cash to enable us to pay the loans from working
capital and we cannot assure you that we will be able to obtain financing from
other sources. The bank loans are secured by a lien on our fixed assets and
land
use rights. If we were unable to pay the loans, either from our cash or from
funds obtained from other sources, or if the bank foreclosed on the collateral,
we would be unable to continue in business.
Because
we may require additional financing to expand our operations, our failure to
obtain necessary financing may impair our operations.
At
September 30, 2007, we had working capital of approximately $6.2 million. Since
we have no credit facilities, the only funding presently available to us is
cash
flow from operations. Our capital requirements in connection with the
development of our business are significant. During the nine months ended
September 30, 2007, we spent approximately $1.7 million for the purchase of
fixed assets for our business, of which $1.35 million was used to purchase
land
use rights and $350,000 was used to purchase equipment. We will continue to
require additional funds for working capital, to continue research, development
and testing of our technologies and products, and to market our products and
to
make the payments totaling $800,000 in connection with the reverse acquisition.
There can be no assurance that financing will be available in amounts or on
terms acceptable to us, if at all. Our failure to obtain any required financing
could impair our ability to both serve our existing clients base and develop
new
clients and could result in both a decrease in revenue and a loss.
To
the
extent that we require financing, the absence of an active public market for
our
common stock, the terms of our December 2007 private placement and the number
of
outstanding warrants and the exercise price and other terms on which we may
issue common stock upon exercise of the warrants, it may be difficult for us
to
raise additional equity capital if required for our present business or for
any
planned expansion. We cannot assure you that we will be able to get additional
financing on any terms, and, if we are able to raise funds, it may be necessary
for us to sell our securities at a price which is at a significant discount
from
the market price and on other terms which may be disadvantageous to us. In
connection with any such financing, we may be required to provide registration
rights to the investors and pay damages to the investor in the event that the
registration statement is not filed or declared effective by specified dates.
The price and terms of any financing which would be available to us could result
in both the issuance of a significant number of shares and significant downward
pressure on our stock price and could result in a reduction of the conversion
price of the series A preferred stock. Further, since this investor in our
December 2007 private placement has a right of first refusal with respect to
future financings, this right may affect our ability to obtain financing from
other sources.
Because
our products are marketed both in the domestic and international markets, we
are
subject to both domestic and international competition.
We
face
competition from both Chinese companies and from international companies, many
of which are better known and have greater financial resources than we have.
Many of the international companies, in particular, have longer operating
histories and have more established relationships with customers and end users.
Three of our international competitors also may have a greater ability to
attract and retain users than we do because they are engaged in major markets
of
general industrial products and cutting edge technology fields. If our
competitors are successful in providing similar or better graphite products
or
make their services easier to access, we could experience a decline in demand
for our products.
Because
the end users of graphite products seek products that incorporate the latest
technological development, including increased thickness and purity, our failure
to offer such products could impair our ability to market our
products.
Our
products are either used in the manufacturing process for other products,
particularly metals, or for incorporation in products or processes. The end
users typically view factors as both the purity of the graphite and the
thickness of graphite rods as key factors in making a decision as to which
products to purchase. Accordingly, our failure or inability to offer products
manufactured with the most current manufacturing technology could impair our
ability to make sales.
Because
we may not be able to obtain business insurance in the PRC, we may not be
protected from risks that are customarily covered by insurance in the United
States.
We
do not
maintain any business insurance, including insurance against property damage
or
general or product liability. To the extent that we suffer a loss of a type
which would normally be covered by insurance in the United States, such as
product liability and general liability insurance, we would incur significant
expenses in both defending any action and in paying any claims that result
from
a settlement or judgment.
Failure
to comply with the United States Foreign Corrupt Practices Act could subject
us
to penalties and other adverse consequences.
We
are
subject to the United States Foreign Corrupt Practices Act, which generally
prohibits United States companies from engaging in bribery or other prohibited
payments to foreign officials for the purpose of obtaining or retaining
business. Foreign companies, including some that may compete with us, are not
subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft
and other fraudulent practices occur from time-to-time in the PRC. We can make
no assurance, however, that our employees or other agents will not engage in
such conduct for which we might be held responsible. If our employees or other
agents are found to have engaged in such practices, we could suffer severe
penalties and other consequences that may have a material adverse effect on
our
business, financial condition and results of operations.
We
must effectively manage the growth of our operations, or our company will
suffer.
Our
ability to successfully implement our business plan requires an effective
planning and management process. If funding is available, we intend to
increase the scope of our operations and acquire complimentary businesses.
Implementing our business plan will require significant additional funding
and
resources. If we grow our operations, we will need to hire additional
employees and make significant capital investments. If we grow our
operations, it will place a significant strain on our management and our
resources. If we grow, we will need to improve our financial and
managerial controls and reporting systems and procedures, and we will need
to
expand, train and manage our workforce. Any failure to manage any of the
foregoing areas efficiently and effectively would cause our business to
suffer.
An
increase in the cost of raw materials will affect sales and revenues.
Any
increase in the prices of raw materials will affect the price at which we can
sell our product. We have no long term supply contracts, so the prices at which
we purchase raw materials are based on the market price at the time. If we
are
not able to raise our prices to pass on increased costs, we would be unable
to
maintain our margins.
Our
business and operations are experiencing rapid growth. If we fail to effectively
manage our growth, our business and operating results could be harmed.
We
have
experienced, and continue to experience, rapid growth in our operations, which
has placed, and will continue to place, significant demands on our management,
operational and financial infrastructure. If we do not effectively manage our
growth, the quality of our products and services could suffer, which could
negatively affect our operating results. To effectively manage this growth,
we
will need to continue to improve our operational, financial and management
controls and our reporting systems and procedures. These systems enhancements
and improvements may require significant capital expenditures and management
resources. Failure to implement these improvements could hurt our ability to
manage our growth and our financial position.
Our
intellectual property rights are valuable, and any inability to protect them
could reduce the value of our products, services and brand.
Our
trademarks, trade secrets, copyrights and other intellectual property rights
are
important assets for us. Various events outside of our control pose a threat
to
our intellectual property rights as well as to our products and services. For
example, effective intellectual property protection may not be available in
China and other countries in which our products are sold. Also, the efforts
we
have taken to protect our proprietary rights may not be sufficient or effective.
Any significant impairment of our intellectual property rights could harm our
business or our ability to compete. Also, protecting our intellectual property
rights is costly and time consuming. Any increase in the unauthorized use of
our
intellectual property could make it more expensive to do business and harm
our
operating results.
We
depend on third parties to market our products in the international
market.
Although
the market for graphite products is international, most of our products are
sold
to companies in the PRC. We do not have any offices outside of the PRC, and
we
depend on other companies to market our products in the international market.
As
a result, we are dependent upon third parties, over which we have no control,
to
develop and implement an international marketing effort. Any problems
encountered by these third parties, including potential violations of laws
of
the PRC or other countries, may affect their ability to sell our products which
would, in turn, affect our net sales.
Because
our contracts are individual purchase orders and not long-term agreements,
the
results of our operations can vary significantly from quarter to
quarter.
We
sell
our products pursuant to purchase orders and we do not have long-term contracts
with any customers. As a result, we must continually seek new customers for
our
products and seek to obtain follow-up and increased orders from existing
customers. As a result, we cannot assure you that we have a continuing stream
of
revenue from any contract. Our failure to generate new business on an ongoing
basis would materially impair our ability to operate profitably.
We
rely on highly skilled personnel and, if we are unable to retain or motivate
key
personnel or hire qualified personnel, we may not be able to grow effectively.
Our
performance largely depends on the talents and efforts of highly skilled
individuals. Our future success depends on our continuing ability to identify,
hire, develop, motivate and retain highly skilled personnel for all areas of
our
organization. Our continued ability to compete effectively depends on our
ability to attract new technology developers and to retain and motivate our
existing contractors.
We
rely on energy and transportation services or others in providing products
and
services to our users, and any failure or interruption in the services and
products provided by these third parties could harm our ability to operate
our
business and damage our reputation.
Our
systems are also heavily reliant on the availability of electricity. If we
were
to experience a major power outage, we would have to rely on back-up generators.
These back-up generators may not operate properly and their fuel supply could
be
inadequate during a major power outage. This could result in a disruption of
our
business.
If
we
fail to obtain all required licenses, permits, or approval, we may be unable
to
expand our operations.
Before
we
can develop certain products, we must obtain a variety of approvals from local
and municipal governments. There no assurance that we will be able to obtain
all
required licenses, permits, or approvals from government authorities. If we
fail
to obtain all required licenses, permits or approvals, we may be unable to
expand our operations.
If
we
make any acquisitions, they may disrupt or have a negative impact on our
business.
Although
we have no present plans for any acquisitions, in the event that we make
acquisitions, we could have difficulty integrating the acquired companies’
personnel and operations with our own. In addition, the key personnel of the
acquired business may not be willing to work for us. We cannot predict the
affect expansion may have on our core business. Regardless of whether we are
successful in making an acquisition, the negotiations could disrupt our ongoing
business, distract our management and employees and increase our expenses.
In
addition to the risks described above, acquisitions are accompanied by a number
of inherent risks, including, without limitation, the following:
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the
difficulty of integrating acquired products, services or
operations;
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the
potential disruption of the ongoing businesses and distraction of
our
management and the management of acquired
companies;
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the
difficulty of incorporating acquired rights or products into our
existing
business;
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difficulties
in disposing of the excess or idle facilities of an acquired company
or
business and expenses in maintaining such
facilities;
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difficulties
in maintaining uniform standards, controls, procedures and
policies;
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the
potential impairment of relationships with employees and customers
as a
result of any integration of new management
personnel;
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the
potential inability or failure to achieve additional sales and enhance
our
customer base through cross-marketing of the products to new and
existing
customers;
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the
effect of any government regulations which relate to the business
acquired;
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potential
unknown liabilities associated with acquired businesses or product
lines,
or the need to spend significant amounts to retool, reposition or
modify
the marketing and sales of acquired products or the defense of any
litigation, whether of not successful, resulting from actions of
the
acquired company prior to our
acquisition.
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Our
business could be severely impaired if and to the extent that we are unable
to
succeed in addressing any of these risks or other problems encountered in
connection with these acquisitions, many of which cannot be presently
identified, these risks and problems could disrupt our ongoing business,
distract our management and employees, increase our expenses and adversely
affect our results of operations.
We
may be required to pay liquidated damages if we do not register shares of common
stock issuable upon conversion of series A preferred stock or warrants issued
in
the December 2007 private placement or if we do not have a board consisting
of a
majority of independent directors.
The
registration rights agreement which we executed in connection with the December
2007 private placement requires us to file a registration statement with the
SEC
by March 16, 2008 and have the registration statement declared effective by
the
SEC not later than August 13, 2008. We are required to pay liquidated damages
at
the rate of 200 shares of series A preferred stock for each day after August
13,
2008 that the registration statement is not declared effective or for any period
that we fail to keep the registration statement effective, up to a maximum
of
100,000 shares.
Because
the holder of our warrants have cashless exercise rights, we may not receive
proceeds from the exercise of the outstanding warrants if the underlying shares
are not registered.
The
holders of our warrants issued in our December 2007 private placement have
cashless exercise rights, which provide them with the ability to receive common
stock with a value equal to the appreciation in the stock price over the
exercise price of the warrants being exercised. This right is not exercisable
prior to December 17, 2008 and thereafter it is only exercisable if the
underlying shares are not subject to an effective registration statement. To
the
extent that the holders exercise the cashless exercise rights, we will not
receive any proceeds on exercise of warrants.
Risks
Related to Doing Business in China
Adverse
changes in political and economic policies of the Chinese government could
have
a material adverse effect on the overall economic growth of China, which could
reduce the demand for our products and materially and adversely affect our
competitive position.
Our
business, financial condition, results of operations and prospects are affected
significantly by economic, political and legal developments in China. The
Chinese economy differs from the economies of most developed countries in many
respects, including:
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the
amount of government involvement;
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the
level of development;
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the
control of foreign exchange; and
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the
allocation of resources.
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While
the
Chinese economy has grown significantly in the past 20 years, the growth
has been uneven, both geographically and among various sectors of the economy.
The Chinese government has implemented various measures to encourage
economic growth and guide the allocation of resources. Some of these measures
benefit the overall Chinese economy, but may also have a negative effect on
us.
For example, our financial condition and results of operations may be adversely
affected by government control over capital investments or changes in tax
regulations that are applicable to us.
The
Chinese economy has been transitioning from a planned economy to a more
market-oriented economy. Although in recent years the Chinese government
has implemented measures emphasizing the utilization of market forces for
economic reform, the reduction of state ownership of productive assets and
the
establishment of sound corporate governance in business enterprises, a
substantial portion of the productive assets in China is still owned by the
Chinese government. The continued control of these assets and other aspects
of
the national economy by the Chinese government could materially and
adversely affect our business. The Chinese government also exercises
significant control over Chinese economic growth through the allocation of
resources, controlling payment of foreign currency-denominated obligations,
setting monetary policy and providing preferential treatment to particular
industries or companies. Efforts by the Chinese government to slow the pace
of growth of the Chinese economy could result in decreased capital expenditure
by solar energy users, which in turn could reduce demand for our products.
Any
adverse change in the economic conditions or government policies in China could
have a material adverse effect on the overall economic growth and the level
of
renewable energy investments and expenditures in China, which in turn could
lead
to a reduction in demand for our products and consequently have a material
adverse effect on our businesses.
Fluctuation
in the value of the Renminbi may have a material adverse effect on your
investment.
The
change in value of the Renminbi against the U.S. dollar and other
currencies is affected by, among other things, changes in China’s political and
economic conditions. On July 21, 2005, the Chinese government changed its
decade-old policy of pegging the value of the Renminbi to the U.S. dollar.
Under the new policy, the Renminbi is permitted to fluctuate within a narrow
and
managed band against a basket of certain foreign currencies. This change in
policy has resulted in an appreciation of Renminbi against U.S. dollar,
which is continuing. While the international reaction to the Renminbi
revaluation has generally been positive, there remains significant international
pressure on the Chinese government to adopt an even more flexible currency
policy, which could result in a further and more significant appreciation of
the
Renminbi against the U.S. dollar. As a portion of our costs and expenses is
denominated in Renminbi, the revaluation in July 2005 and potential future
revaluation has and could further increase our costs. In addition, as we rely
entirely on dividends paid to us by our operating subsidiaries, any significant
revaluation of the Renminbi may have a material adverse effect on our revenues
and financial condition, and the value of, and any of our dividends payable
on
our ordinary shares in foreign currency terms. For example, to the extent that
we need to convert U.S. dollars we receive from this offering into Renminbi
for our operations, appreciation of the Renminbi against the U.S. dollar
would have an adverse effect on the Renminbi amount we receive from the
conversion. Conversely, if we decide to convert our Renminbi into
U.S. dollars for the purpose of making payments for dividends on our
ordinary shares or for other business purposes, appreciation of the
U.S. dollar against the Renminbi would have a negative effect on the
U.S. dollar amount available to us.
Restrictions
on currency exchange may limit our ability to receive and use our revenues
effectively.
All
of
our revenues and most of our expenses are denominated in Renminbi. If our
revenues denominated in Renminbi increase or expenses denominated in Renminbi
decrease in the future, we may need to convert a portion of our revenues into
other currencies to meet our foreign currency obligations, including, among
others, payment of dividends declared, if any, in respect of our ordinary
shares. Under China’s existing foreign exchange regulations, we are able to pay
dividends in foreign currencies, without prior approval from the State
Administration of Foreign Exchange, or SAFE, by complying with certain
procedural requirements. However, we cannot assure you that that the Chinese
government will not take further measures in the future to restrict access
to
foreign currencies for current account transactions.
If
our favorable tax treatment is overturned, we may be subject to significant
penalties.
On
March 16, 2007, the PRC’s National People’s Congress passed a new corporate
income tax law, which will become effective on January 1, 2008. This new income
tax unifies the corporate income tax rate of domestic enterprise and foreign
investment enterprises to 25%. Preferential tax treatments will continue to
be
granted to entities that are classified as “high and new technology enterprises
strongly supported by the State” or conduct business in sectors that are
encouraged by the PRC’s National People’s Congress. This new tax law, however,
does not clearly define the requirements or criteria for receiving these
preferential tax treatments. Because clear implementation and requirement rules
or guidelines for the new tax law have not yet been promulgated, we cannot
assure you that our Wuhan, China subsidiary will maintain its preferential
tax
status.
For
those
enterprises which are enjoying tax holidays, such tax holidays may continue
until their expiration
in
accordance with regulations to be issued by the State Council, but where
the tax
holiday has not yet
started
because of losses, such tax holiday shall be deemed to commence from the
first
effective year of the
new
tax
law. While the new tax law equalizes the income tax rates for foreign companies
and domestic
companies,
preferential tax treatment would continue to be given to companies in certain
encouraged
sectors
and to entities classified as high-technology companies supported by the
PRC
government, whether foreign companies or domestic companies.
In
addition, according to the Enterprise Income Tax Law and its implementation
rules, effective January 1, 2008, any dividends payable to us by our Yongle
will
be subject to the PRC withholding tax at
the
rate
of 10%. Currently, any such dividends are not subject to any PRC withholding
tax. If Yongle pays
any
dividends to us in the future, our consolidated results of operations and
the
amount of dividends we pay
to
our
stockholders may be adversely affected.
The
new
tax law provides only a framework of the enterprise tax provisions. Even
with
the
promulgation
of its implementation rules, the new tax law still leaves many details on
the
definitions of numerous terms as well as the interpretation and specific
application of various provisions unclear and
unspecified.
Capital
outflow policies in the PRC may hamper our ability to remit income to the United
States.
The
People’s Republic of China has adopted currency and capital transfer
regulations. These regulations may require that we comply with complex
regulations for the movement of capital and as a result we may not be able
to
remit all income earned and proceeds received in connection with our operations
or from the sale of our operating subsidiary to the U.S. or to our
stockholders.
Our
operations and assets in the PRC are subject to significant political and
economic uncertainties.
Government
policies are subject to rapid change and the government of the China may adopt
policies which have the effect of hindering private economic activity and
greater economic decentralization. There is no assurance that the government
of
the China will not significantly alter its policies from time to time without
notice in a manner with reduces or eliminates any benefits from its present
policies of economic reform. In addition, a substantial portion of productive
assets in China remains government-owned. For instance, all lands are state
owned and leased to business entities or individuals through governmental
granting of state-owned land use rights. The granting process is typically
based
on government policies at the time of granting, which could be lengthy and
complex. This process may adversely affect our business. The government of
China
also exercises significant control over China’s economic growth through the
allocation of resources, controlling payment of foreign currency and providing
preferential treatment to particular industries or companies. Uncertainties
may
arise with changing of governmental policies and measures. In addition, changes
in laws and regulations, or their interpretation, or the imposition of
confiscatory taxation, restrictions on currency conversion, imports and sources
of supply, devaluations of currency, the nationalization or other expropriation
of private enterprises, as well as adverse changes in the political, economic
or
social conditions in China, could have a material adverse effect on our
business, results of operations and financial condition.
A
downturn in the economy of China may slow our growth and
profitability.
The
growth of the Chinese economy has been uneven across geographic regions and
economic sectors. There can be no assurance that growth of the Chinese economy
will be steady or that any downturn will not have a negative effect on our
business.
Because
Chinese law governs almost all of our material agreements, we may not be able
to
enforce our legal rights within China or elsewhere, which could result in a
significant loss of business, business opportunities, or capital.
Chinese
law governs almost all of our material agreements. We cannot assure you that
we
will be able to enforce any of our material agreements or that remedies will
be
available outside of China. The system of laws and the enforcement of existing
laws in China may not be as certain in implementation and interpretation as
in
the United States. The Chinese judiciary is relatively inexperienced in
enforcing corporate and commercial law, leading to a higher than usual degree
of
uncertainty as to the outcome of any litigation. The inability to enforce or
obtain a remedy under any of our future agreements could result in a significant
loss of business, business opportunities or capital.
It
will be extremely difficult to acquire jurisdiction and enforce liabilities
against our officers, directors and assets based in China.
Substantially
all of our assets will be located in the PRC and our officers and our present
directors reside outside of the United States. As a result, it may not be
possible for United States investors to enforce their legal rights, to effect
service of process upon our directors or officers or to enforce judgments of
United States courts predicated upon civil liabilities and criminal penalties
of
our directors and officers under Federal securities laws. Moreover, we have
been
advised that China does not have treaties providing for the reciprocal
recognition and enforcement of judgments of courts with the United States.
Further, it is unclear if extradition treaties now in effect between the United
States and China would permit effective enforcement of criminal penalties of
the
Federal securities laws.
We
may have difficulty establishing adequate management, legal and financial
controls in China, which could impair our planning processes and make it
difficult to provide accurate reports of our operating results.
China
historically has not followed Western style management and financial reporting
concepts and practices, and its access to modern banking, computer and other
control systems has been limited. Although we will be required to
implement internal controls, we may have difficulty in hiring and retaining
a
sufficient number of qualified employees to work in China in these areas. As
a
result of these factors, we may experience difficulty in establishing the
required controls and instituting business practices that meet Western
standards, making it difficult for management to forecast its needs and to
present the results of our operations accurately at all times. If we are unable
to establish the required controls, market makers may be reluctant to make
a
market in our stock and investors may be reluctant to purchase our stock, which
would make it difficult for you to sell any shares of common stock that you
may
own or acquire.
Because
our funds are held in banks which do not provide insurance, the failure of
any
bank in which we deposit our funds could affect our ability to continue in
business.
Banks
and
other financial institutions in the PRC do not provide insurance for funds
held
on deposit. As a result, in the event of a bank failure, we may not have access
to funds on deposit. Depending upon the amount of money we maintain in a bank
that fails, our inability to have access to our cash could impair our
operations, and, if we are not able to access funds to pay our suppliers,
employees and other creditors, we may be unable to continue in business.
Imposition
of trade barriers and taxes may reduce our ability to do business
internationally, and the resulting loss of revenue could harm our profitability.
We
may
experience barriers to conducting business and trade in our targeted emerging
markets in the form of delayed customs clearances, customs duties and tariffs.
In addition, we may be subject to repatriation taxes levied upon the exchange
of
income from local currency into foreign currency, substantial taxes of profits,
revenues, assets and payroll, as well as value-added tax. The markets in
which we plan to operate may impose onerous and unpredictable duties, tariffs
and taxes on our business and products, and there can be no assurance that
this
will not reduce the level of sales that we achieve in such markets, which would
reduce our revenues and profits.
Risks
Related to Ownership of our Common Stock
The
trading price for our common stock has been and may continue to be
volatile
The
market price of our common stock has experienced fluctuations and may continue
to fluctuate significantly. The market price of our common shares may be
adversely affected by various factors, including enforcement of existing laws,
innovation and technological changes, the emergence of new competitors, the
perception of desirability of investing in Chinese companies, quarterly
variations in revenue and results of operations, speculation in the press or
analyst community and general market conditions or market conditions specific
to
particular industries.
There
is a limited market for our common stock, which may make it difficult for you
to
sell your stock.
Our
common stock trades on the OTCBB under the symbol “ACMZ.” There is a limited
trading market for our common stock. Accordingly, there can be no assurance
as
to the liquidity of any markets that may develop for our common stock, the
ability of holders of our common stock to sell our common stock, or the prices
at which holders may be able to sell our common stock.
The
rights of the holders of common stock may be impaired by the potential issuance
of preferred stock.
We
are
required to amend our articles of incorporation to provide for a class of
preferred stock and to give our board of directors the right to create new
series of preferred stock. As a result, the board of directors may, without
stockholder approval, issue preferred stock with voting, dividend, conversion,
liquidation or other rights that could adversely affect the voting power and
equity interest of the holders of common stock. Preferred stock, which could
be
issued with the right to more than one vote per share, could be utilized as
a
method of discouraging, delaying or preventing a change of control. The possible
impact on takeover attempts could adversely affect the price of our common
stock. Although we have no present intention to issue any additional shares
of
preferred stock or to create any new series of preferred stock and the
certificate of designation relating to the series A preferred stock restricts
our ability to issue additional series of preferred stock, we may issue such
shares in the future. Without the consent of the holders of 75% of the
outstanding shares of series A preferred stock, we may not alter or change
adversely the rights of the holders of the series A preferred stock or increase
the number of authorized shares of series A preferred stock, create a class
of
stock which is senior to or on a parity with the series A preferred stock,
amend
our certificate of incorporation in breach of these provisions or agree to
any
of the foregoing.
Because
we may be subject to the “penny stock” rules, you may have difficulty in selling
our common stock.
If
our
stock price is less than $5.00 per share, our stock may be subject to the SEC’s
penny stock rules, which impose additional sales practice requirements and
restrictions on broker-dealers that sell our stock to persons other than
established customers and institutional accredited investors. The application
of
these rules may affect the ability of broker-dealers to sell our common stock
and may affect your ability to sell any common stock you may own.
According
to the SEC, the market for penny stocks has suffered in recent years from
patterns of fraud and abuse. Such patterns include:
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Control
of the market for the security by one or a few broker-dealers that
are
often related to the promoter or
issuer;
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Manipulation
of prices through prearranged matching of purchases and sales and
false
and misleading press releases;
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“Boiler
room” practices involving high pressure sales tactics and unrealistic
price projections by inexperienced sales
persons;
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Excessive
and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
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The
wholesale dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, along with
the
inevitable collapse of those prices with consequent investor
losses.
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The
issuance of shares through our stock compensation plans may dilute the value
of
existing stockholders and may affect the market price of our
stock.
Although
we do not have an option or other equity-based incentive plan at present, in
the
future we may use stock options, stock grants and other equity-based incentives,
to provide motivation and compensation to our officers, employees and key
independent consultants. The award of any such incentives will result in an
immediate and potentially substantial dilution to our existing stockholders
and
could result in a decline in the value of our stock price. The exercise of
these
options and the sale of the underlying shares of common stock and the sale
of
stock issued pursuant to stock grants may have an adverse effect upon the price
of our stock.
Because
we are not subject to compliance with rules requiring the adoption of certain
corporate governance measures, our stockholders have limited protections against
interested director transactions, conflicts of interest and similar
matters.
The
Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by
the
SEC, the New York and American Stock Exchanges and the Nasdaq Stock Market,
as a
result of Sarbanes-Oxley, require the implementation of various measures
relating to corporate governance. These measures are designed to enhance the
integrity of corporate management and the securities markets and apply to
securities which are listed on those exchanges or the Nasdaq Stock Market.
Because we are not presently required to comply with many of the corporate
governance provisions and because we chose to avoid incurring the substantial
additional costs associated with such compliance any sooner than necessary,
we
have not yet adopted all of these measures. We are not in compliance with
requirements relating to the distribution of annual and interim reports, the
holding of stockholders meetings and solicitation of proxies for such meeting
and requirements for stockholder approval for certain corporate actions,
including the issuance of common stock. Thus, there is no restriction on our
issuing common stock or preferred stock without the consent of the holders
of
our common stock. Until we comply with such corporate governance measures,
regardless of whether such compliance is required, the absence of such standards
of corporate governance may leave our stockholders without protections against
interested director transactions, conflicts of interest and similar matters
and
investors may be reluctant to provide us with funds necessary to expand our
operations.
Failure
to achieve and maintain effective internal controls in accordance with Section
404 of the Sarbanes-Oxley Act could have a material adverse effect on our
business and operating results and stockholders could lose confidence in our
financial reporting.
Effective
internal controls are necessary for us to provide reliable financial reports
and
effectively prevent fraud. If we cannot provide reliable financial reports
or
prevent fraud, our operating results could be harmed.
Under
the current SEC regulations, we will be required to include a management report
on internal controls over financial reporting in our Form 10-KSB annual report
for our current fiscal year, and we will be required to include an auditor’s
report on internal controls over financial reporting thereafter.
Failure
to achieve and maintain an effective internal control environment, regardless
of
whether we are required to maintain such controls, could also cause investors
to
lose confidence in our reported financial information, which could have a
material adverse effect on our stock price. We have not obtained an independent
audit of our internal controls, and, as a result, we are not aware of any
deficiencies which would result from such an audit. Further, in order for us
to
be in compliance at the end of the fiscal year, we may incur significant
expenses in having our internal controls audited and in implementing any changes
which are required.
Because
of our cash requirements and restrictions in our preferred stock purchase
agreement, we may be unable to pay dividends.
In
view
of the cash requirements of our business, we expect to use any cash flow
generated by our business to finance our operations and growth. Further, we
are
prohibited from paying dividends on our common stock while the series A
preferred stock is outstanding.
Our
stock price may be affected by our failure to meet projections and estimates
of
earnings developed either by us or by independent securities
analysts.
Although
we do not make projections relating to our future operating results, our
operating results may fall below the expectations of securities analysts and
investors. In this event, the market price of our common stock would likely
be
materially adversely affected.
The
issuance and sale of the common stock issuable upon conversion of the series
A
preferred stock and exercise of the warrants could result in a change of
control.
If
we
issue all of the shares of common stock issuable upon conversion of the series
A
preferred stock and exercise of the warrants, the 7,200,499 shares of common
stock so issuable would constitute approximately 37% of our then outstanding
common stock. The percentage would increase to the extent that we are required
to issue any additional shares of common stock become upon conversion of the
series A preferred stock pursuant to the anti-dilution and adjustment provisions
and pursuant to the liquidated damages provision of the registration rights
agreement. Any sale of all or a significant percentage of those shares to a
person or group could result in a change of control.
FORWARD
LOOKING STATEMENTS
Some
of
the statements contained in this Form 8-K that are not historical facts are
“forward-looking statements” which can be identified by the use of terminology
such as “estimates,” “projects,” “plans,” “believes,” “expects,” “anticipates,”
“intends,” or the negative or other variations, or by discussions of strategy
that involve risks and uncertainties. We urge you to be cautious of the
forward-looking statements. Such statements, which are contained in this Form
8-K, reflect our current beliefs with respect to future events and involve
known
and unknown risks, uncertainties and other factors affecting our operations,
market growth, services, products and licenses. No assurances can be given
regarding the achievement of future results, as actual results may differ
materially as a result of the risks we face, and actual events may differ from
the assumptions underlying the statements that have been made regarding
anticipated events. Factors that may cause actual results, our performance
or
achievements, or industry results, to differ materially from those contemplated
by such forward-looking statements include without limitation our ability to
obtain the necessary financing for our operations, our ability to market our
products in new markets and to offer products at competitive pricing, our
ability to attract and retain management, and to integrate and maintain
technical information and develop products using technological advances, our
compliance with laws and regulations of the PRC, the effects of currency
policies and fluctuations, general economic conditions and other factors
described under “Risk Factors” and in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”
All
written and oral forward-looking statements made in connection with this Form
8-K that are attributable to us or persons acting on our behalf are expressly
qualified in their entirety by these cautionary statements. Given the
uncertainties that surround such statements, you are cautioned not to place
undue reliance on such forward-looking statements.
Our
Business
We
manufacture graphite products, principally graphite electrodes, fine grain
graphite and high purity graphite. Graphite electrode is a conducting material
used for electric arc furnaces in the manufacture of steel and smelting alloy
steel, brown alumina, yellow phosphorus, or other metals. Fine grain graphite
is
widely smelting for colored metals and rare-earth metal smelting as well as
the
manufacture of molds. High purity graphite is used in metallurgy, mechanical
industry, aviation, electronic, atomic energy, chemical industry, food industry
and a variety of other fields.
Graphite
is an important material for the construction of both historical and modern
nuclear reactor power plants as it is considered one of the purest materials
manufactured at industrial scale and it retains its properties (including
strength) at high temperatures. At present we have the technology to produce
nuclear grade graphite and already successfully produce samples.
The
different products have different degrees of density, strength, purity and
wear
resistance.
Contractual
Agreements with
Xingyong
Carbon
Prior
to the reverse acquisition our business was conducted by Xingyong. Xingyong
is a
separate corporation organized under the laws of the PRC and is owned by
Dengyong Jin. Under the laws of the PRC, we cannot acquire Xingyong directly.
However, under PRC laws, either Yongle or Talent can directly acquire
Xingyong as long as they have sufficient capital. As a result, Yongle
entered into a series of agreements with Xingyong which we believe give us
effective control over the business of Xingyong. The business described in
this
Form 8-K is the business that was conducted by Xingyong prior to the reverse
merger.
Our
relationships with
Xingyong
and
its
stockholders are governed by a series of contractual arrangements between
Yongle
and
Xingyong
,
the
operating company in the PRC. Under PRC laws,
Xingyong
is
an
independent legal person and is not exposed to liabilities incurred by the
other
parties. Each of the contractual arrangements and the rights and obligations
of
the parties thereto are enforceable and valid in accordance with the laws of
the
PRC. On December 14, 2007, we entered into the following contractual
arrangements:
Operations
Agreement
Pursuant
to the business operations agreement, a business relationship has been
established between
Yongle
and
Xingyong by entering into an exclusive technical consulting and services
agreement
,
under
which Xingyong is to make 80%-100% revenue and profit payments to
Yongle
based upon annual negotiation
,
and
subsequently the daily operation of Xingyong will have a material impact on
its
payment capacity to
Yongle
.
In
order to ensure Xingyong’s performance of the agreements between
Yongle
and
Xingyong and all its obligations to
Yongle
,
the
shareholders of Xingyong jointly confirmed and agreed that Xingyong will not
conduct any transaction which may materially affect its assets, obligations,
rights or the company’s operation unless a prior written consent from
Yongle
or a
third party appointed by
Yongle
has been obtained
.
Option
Agreement
Pursuant
to the option agreement, Yongle was granted an exclusive option to purchase
from
Dengyong Jin and Benhua Du all of their equity interests in Xingyong at the
lowest price permitted by PRC laws applicable at the time of exercise of such
option right. Yongle was granted the option right immediately after the
execution of the option agreement, and such option right cannot be revoked
or
amended during the term of the Agreement. Yongle may exercise part or full
option anytime during the term of the option agreement. The option agreement
has
a term of 10 years.
Share
Pledge Agreement
Under
the
share pledge agreement, Dengyong Jin Benhua Du pledged 100% of their equity
interest in Xingyong to Yongle to guarantee Xingyong’s performance of its
obligations under all other related agreements by and between
Yongle
and
Xingyong. Neither Dengyong Jin, Benhua Du or Xingyong may transfer any of
the pledged shares without the permission of
Yongle
.
Exclusive
Technical and Consulting Services Agreement
Under
the
exclusive technical and consulting services agreement between
Yongle
and
Xingyong,
Yongle
agrees
to provide relevant technical consulting and services to Xingyong and Xingyong
shall not accept any other technical consulting and services from any third
party without the consent of
Yongle
.
In
addition,
Yongle
shall be
the sole and exclusive owner of all rights, title, interests and intellectual
property rights arising from the performance of the exclusive technical and
consulting services agreement. The parties to the agreement also agree to take
reasonable measures to protect and maintain the confidentiality of any
confidential data and information that may be disclosed to or acquired by them
in connection to them in the exclusive consulting and services provided
therein.
Industrial
Uses of Graphite
Graphite
is considered to be the purest form of carbon. We manufacture our graphite
products by using a high temperature process whereby the heavy hydrocarbons
are
broken down into simpler molecules. The resulting product provides us with
a
pure grade of carbon which we use to make our products. Graphite is valued
for
its good conductivity of heat and electricity and high refractoriness. The
utility of graphite is dependent largely upon its type.
There
are
three principal types of natural graphite, each occurring in different types
of
ore deposit:
|
|
Crystalline
flake graphite (or flake graphite for short) occurs as isolated,
flat,
plate-like particles with hexagonal edges if unbroken and when broken
the
edges can be irregular or angular.
|
|
|
Amorphous
graphite occurs as fine particles and is the result of thermal
metamorphism of coal, the last stage of coalification, and is sometimes
called meta-anthracite. Very fine flake graphite is sometimes called
amorphous in the trade.
|
|
|
Lump
graphite (also called vein graphite) occurs in fissure veins or fractures
and appears as massive platy intergrowths of fibrous or acicular
crystalline aggregates, and is probably hydrothermal in origin.
|
We
use
crystalline flake graphite and amorphous graphite, and we do not use lump
graphite.
All
grades of graphite, especially high grade amorphous and crystalline graphite
having colloidal property (
i.e.
,
they
remain in suspension in oil) are used as lubricants. Graphite has an
extraordinarily low co-efficient of friction under most working conditions.
This
property is invaluable in lubricants. It diminishes friction and tends to keep
the moving surface cool. Dry graphite as well as graphite mixed with grease
and
oil is utilized as a lubricant for heavy and light bearings. Graphite grease
is
used as a heavy-duty lubricant where high temperatures may tend to remove the
grease.
The
flake
type graphite is found to possess extremely low resistivity to electrical
conductance. The electrical resistivity decreases with the increase of flaky
particles. The bulk density decreases progressively as the particles become
the
mixture has more flaky particles. Because of this property in flake graphite,
it
finds a large use in the manufacture of carbon electrodes, plates and brushes
required in the electrical industry and dry cell batteries. In the manufacture
of plates and brushes, however, flake graphite has been replaced to some extent
by synthetic, amorphous, crystalline graphite and acetylene black. Graphite
electrodes serve to give conductivity to the mass of manganese dioxide used
in
dry batteries.
Graphite
crucibles are manufactured by pressing a mixture of graphite, clay and sand and
fixing the pressed article at a high temperature. They are used for melting
non-ferrous metals, especially brass and aluminum. Coarse-grained flake graphite
from Malagasy is regarded as standard for crucible manufacture.
Flake
graphite containing 80-85% carbon is used for crucible manufacture; 93% carbon
and above is preferred for the manufacture of lubricants, and graphite with
40
to 70% carbon is utilized for foundry facings. Natural graphite, refined or
otherwise pure, having a carbon content not less than 95% is used in the
manufacture of carbon rods for dry battery cells.
Currently,
artificially prepared graphite has replaced natural graphite to a great extent.
Artificial graphite is prepared by heating a mixture of anthracite, high grade
coal or petroleum coke, quartz and saw-dust at a temperature of 3000ºC, out of
contact with air. Graphite carbon is deposited as residue. Manufactured graphite
is also used for making furnace electrodes and for modes in the manufacture
of
chlorine and caustic soda.
A
considerable quantity of graphite is used in foundry-facing to prevent the
molding sands from adhering to cast articles. Here too, flake graphite is
preferred. Dust or powder of flake, crystalline-graphite are also
used.
Graphite
bricks of high purity are used as moderators in an atomic reactor. In the
nuclear field graphite is a good and convenient material as a moderator but
this
is only true if the graphite is low in certain neutron absorbing elements
notably boron and the rare earths and is of consistent quality particularly
with
regard to density and orientation.
Other
uses of graphite are in the manufacture of paints and pencils. Finely powdered
lump graphite of 70% purity is generally employed in paint manufacture. Graphite
is a great water repellent and thus makes an ideal protective coating for
wood.
Amorphous
graphite is generally used in the manufacture of lead for pencils. The
suitability of graphite for this purpose is judged by the dark streak it leaves
on the paper. It is best done by amorphous graphite. The finer the powder the
darker is the smear. The blackness of the smear decreases with increase in
flakiness of the graphite. Synthetic graphite, though it has less ash content
and a fine particle size, produces very little smears and so it is unsuitable
for pencil manufacture.
Raw
Materials
Our
principal raw materials are
coal
asphalt, asphalt coke, metallurgy coke, needle coke, metalluar coke power,
quartzose sand, coal, petroleum coke and calcined coke, all of which are carbon
rich and used in manufacturing graphite with a high degree of density, strength
and purity.
We
purchase most of our raw materials from domestic Chinese suppliers. Although
we
do not have any long-term contacts for raw materials, any increase in prices
of
raw material will affect the price at which we can sell our product. We believe
that alternative suppliers are available on reasonable terms.
Marketing
and Sales
We
have a
marketing staff of ten persons, who market primarily to wholesale customers,
and, to a lesser extent, end users in the PRC. Our marketing effort is oriented
toward working with wholesale accounts, many of which market our products in
the
international market. We believes that we need to satisfy the different needs
of
our clients by expanding our line of products. Due to international demand,
we
are focused on expanding its existing graphite varieties.
We
have
no customer that accounted for 10% or more of our net sales for the nine months
ended September 30, 2007 or 2006 or for the years ended December 31, 2006 or
2005. Our top ten domestic customers accounted for approximately 64% or our
net
sales for the nine months ended September 30, 2007.
We
do not
have any long-term contracts with any of our customers. We sell from inventory
or manufacture pursuant to purchase order.
Research
and Development
We
have a
technology cooperation agreement with Hunan University, which we believe is
the
only university in the PRC that offers a major in carbon studies. The agreement
provides that the university provides the basic research and we perform the
experiments. We also have an informal relationship with Qunghua University.
We
are engaged in research and development with respect to the development of
high
purity graphite with a diameter of 840 mm. The normal size is in the ranges
of
400 mm, and we offer products with a diameter of 600 mm. A diameter of more
than
840 mm and a purity of more than 99.9999% are threshold requirement for high
purity graphite for use in nuclear power reactors. Our research and development
expenses have not been significant to date.
Intellectual
Property
We
acquired the underlying intellectual property rights when we acquired the
business of Xinghe Xingzhi Carbon Co., Ltd. in 2002.
We
hold
one Chinese patent, Patent No IL: 2004 1 0044348.7, for high-density, high
strength and wear-resistant graphite material and the production of this
material.
We
compete with a number of domestic and international companies that manufacture
graphite products. Because of the nature of the product that we sell, we believe
that the reputation of the manufacturer and the quality of the product may
be as
important as price.
In
addition to a number of domestic firms, there are three major international
firms that offer competing products. They are SGL Group, Toyo Tanso and Poco
Graphite. SGL Group is considered one of the world’s leading manufacturers of
carbon-based products. In 1974, Toyo Tanso became the first company in Japan
to
develop isotropic graphite, significantly expanding the possibilities of carbon
use. Its products are now widely used in a variety of cutting edge technology
fields, including the semi-conductor and aerospace industries. Poco
Graphite
’
s
products are produced for the semiconductor and general industrial products,
biomedical, glass industry products and electrical discharge machining (EDM)
markets.
We
believe that we offer high quality fine grain and high purity graphite products,
and the market demand for these products is greater than the supply. We believe
that there is a market shortage of 50,000 tons for high power electrode and
a
shortage of 50,000 tons of ultra high power electrode. We believe that there
is
an increasing demand for high purity graphite with the diameter of more than
600
mm, which we offer.
Employees
At
November 30, 2007, we had 550 full time employees, of whom 466 were in
manufacturing, 36 were technical employees, who were also engaged in research
and development, 38 were executive and administrative and ten were sales and
marketing.
The
following discussion of the results of our operations and financial condition
should be read in conjunction with our financial statements and the related
notes, which appear elsewhere in this report. The following discussion includes
forward-looking statements. For a discussion of important factors that could
cause actual results to differ from results discussed in the forward-looking
statements, see
“Forward
Looking Statements.”
Overview
Xinghe
Xingyong Carbon Co., Ltd. was organized under the laws of the PRC in 2002.
Xingyong’s business was formerly operated as a state-owned enterprise. The
business was reorganized under the laws of the PRC
as
a limited liability company named Xinghe Xingzhi Carbon Co., Ltd. In December
2001, Mr. Jin organized
Xingyong
to acquire the business of Xinghe Xingzhi Carbon Co., Ltd. by paying RMB
55,600,000 (USD $7,513,531.51), which was funded by Mr. Jin, and assuming bank
loans in the amount of RMB 21,950,000 ($2,966,216.22).
From
December 2001 until the reverse acquisiti
on
on
December 17, 2007, our business was conducted by Xingyong, and this discussion
relates to the business, financial condition and results of operations of
Xingyong. We develop, manufacture and market graphite products. Our main
products include graphite electrode, fine grain graphite and high purity
graphite. We produce all of our products in China. Our products are generally
used either as a component in other products, as an element of a facility or
in
the manufacturing process of other products. We sell our products to
distributors who sell to producers of in both the domestic Chinese market and
the international market. We do not sell products directly to the end
users.
Although
our products are sold in the international market, substantially all of our
sales are to Chinese firms that may, in turn, sell the products in the
international market. We believe that our products are not subject to export
restrictions.
In
accordance with the relevant Chinese rules and regulations on management of
foreign exchange, the foreign exchange currency generated from sales of our
products outside of China are repatriated into China and sold to designated
banks instead of being deposited out of China without authorization. In
addition, we have to buy foreign exchanges from designated banks upon the
strength of commercial bills when paying current expenditures with foreign
exchanges. In addition, all of our transactions undertaken in China are
denominated in RMB, which must be converted into other currencies before
remittance out of China. Both the conversion of RMB into foreign currencies
and
the remittance of foreign currencies abroad require the approval of the Chinese
government.
Our
principal raw materials are
coal
aspalt, asphalt coke, melallurgy coke, needle coke, metalluar coke power,
quartzose sand, coal, petroleum coke and calcined coke, all of which are carbon
rich and used in manufacturing graphite with a high degree of purity.
We
purchase most of our raw materials from domestic Chinese suppliers. Although
we
do not have any long-term contacts for raw materials, any increase in prices
of
raw material will affect the price at which we can sell our product. If we
are
not able to raise our prices to pass on increased costs, we would be unable
to
maintain our margins. The laws of the PRC give the government broad power to
fix
and adjust prices. Although the government has not imposed price controls on
our
raw materials such as coal, gas, oil, electricity and/or water on our products,
it is possible that such controls may be implemented in the future. Since most
of our sales are made to domestic companies, our gross margins can be affected
by any price controls imposed by the government of the PRC.
Prior
to
December 17, 2007, we were a private company, and we did not have the expenses
of a public company. As a result, we expect to incur significantly greater
legal, accounting and other professional expenses relating to our status as
a
public company and compliance with SEC rules, including the development and
implementation of internal controls.
For
the
five years from 2003 through 2007, we received a 100% tax holiday from the
regional government for enterprise income tax. As a result, we paid no
enterprise income tax for those years. Commencing in 2008, we will be required
to pay enterprise income tax, which is assessed at the rate of 25% for Yongle
for at least 5 years and a 50% tax holiday for Xingyong for another 5 years.
Our
internal financial statements are maintained in RMB. The financial statements
included in this Form 8-K are expressed in United States dollars. The
translation adjustments in expressing the financial statements in United States
dollars is shown on the statements of operation as a translation adjustment,
and
the cumulative translation adjustment is shown as an element of stockholders’
equity.
Variable
Interest Entity
Commencing
with the reverse acquisition on December 17, 2007, Yongle has an agreement
with
Xingyong pursuant to which it manages the business of Xingyong and the profit
of
Xingyong is paid to Yongle. Xingyong is owned by Mr. Jin, who is Yongle’s and
our chief executive officer. On a going-forward basis, Xingyong will be treated
as a variable interest entity and its financial statements will be included
as
part of our consolidated financial statements under FASB Interpretation No.
46,
“Consolidation of Variable Interest Entities,” referred to as FIN 46.
Significant
Accounting Estimates and Policies
The
discussion and analysis of our financial condition and results of operations
is
based upon our financial statements that have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets and liabilities. On an on-going basis,
we
evaluate our estimates including the allowance for doubtful accounts, the
salability and recoverability of our products, income taxes and contingencies.
We base our estimates on historical experience and on other assumptions that
we
believe to be reasonable under the circumstances, the results of which form
our
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ
from
these estimates under different assumptions or conditions.
Revenue
Recognition - We recognize revenue in accordance with Staff Accounting Bulletin
No. 104, Revenue Recognition, which states that revenue should be
recognized when the following criteria are met: (1) persuasive evidence of
an arrangement exists; (2) the service has been rendered; (3) the
selling price is fixed or determinable; and (4) collection of the resulting
receivable is reasonably assured. Sales represent the invoiced value of goods,
net of value added tax (“VAT”), if any, and are recognized upon delivery of
goods and passage of title. Pursuant to China’s VAT rules and regulations, as an
ordinary VAT taxpayer we are subject to a tax rate of 17% (“output VAT”). The
output VAT is payable after offsetting VAT paid by us on purchases (“input
VAT”). We have been granted an exemption from VAT by the Xinghe County People’s
Government and Xinghe Tax Authority on some products for which an exchange
agreement is in place for raw materials and fuel.
Comprehensive
Income - We have adopted Statements of Financial Accounting Standards (“SFAS”)
No. 130, “Reporting Comprehensive Income,” which establishes standards for
reporting and presentation of comprehensive income (loss) and its components
in
a full set of general-purpose financial statements. We have has chosen to report
comprehensive income (loss) in the statements of operations and comprehensive
income.
Income
Taxes - We account for income taxes under the provisions of SFAS No. 109,
“Accounting for Income Taxes,” which requires recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have
been included in the consolidated financial statements or tax returns. Deferred
tax assets and liabilities are recognized for the future tax consequence
attributable to the difference between the tax bases of assets and liabilities
and their reported amounts in the financial statements. Deferred tax assets
and
liabilities are measured using the enacted tax rate expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of
a
change in tax rates is recognized in income in the period that includes the
enactment date. With the approvals of the Xinghe County Government, we received
a 100% tax holiday from enterprise income taxes from the 2003 through and
including 2007.
On
March
16, 2007, China’s parliament, the National People’s Congress, adopted the
Enterprise Income Tax Law, which will take effect on January 1, 2008. The new
income tax law sets unified income tax rate for domestic and foreign companies
at 25 percent except a 15 percent corporate income tax rate for qualified high
and new technology enterprises. In accordance with this new income tax law,
low
preferential tax rate in accordance with both the tax laws and administrative
regulations prior to the promulgation of this Law shall gradually become subject
to the new tax rate within five years after the implementation of this
law.
Inventories
- Inventories are stated at the lower of cost, determined on a weighted average
basis, and net realizable value. Work in progress and finished goods are
composed of direct material, direct labor and a portion of manufacturing
overhead. Net realizable value is the estimated selling price, in the ordinary
course of business, less estimated costs to complete and dispose. Management
believes that there was no obsolete inventory as of September 30, 2007 and
December 31, 2006.
Property,
Plant and Equipment
-
Property, plant and equipment are stated at cost. Major expenditures for
betterments and renewals are capitalized while ordinary repairs and maintenance
costs are expensed as incurred. Depreciation and amortization is provided using
the straight-line method over the estimated useful life of the assets after
taking into account the estimated residual value.
There
is
no private ownership of land in China. All land ownership is held by the
government of China, its agencies and collectives. Land use rights are obtained
from government, and are typically renewable. Land use rights can be transferred
upon approval by the land administrative authorities of China (State Land
Administration Bureau) upon payment of the required transfer fee. We own the
land use right for 2,356,209
square
feet, of which 290,626 square is occupied by our facilities, for a term of
50
years, beginning from issuance date of the certificates granting the land use
right. We record the property subject to land use rights as intangible property.
Recent
Accounting Pronouncements
In
December 2004, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 123(R),
Share-Based
Payment
.
SFAS
123(R) replaces SFAS No. 123,
Accounting
for Stock-Based Compensation
,
and
supersedes
Accounting
Principles Board
(APB)
Opinion No. 25,
Accounting
for Stock Issued to Employees
.
Effective January 1, 2006, the Company adopted Statement of Financial Accounting
Standard No. 123(R), Share-Based Payment, (“SFAS No. 123(R)”), using the
modified prospective transition method. SFAS No. 123(R) requires
equity-classified share-based payments to employees, including grants of
employee stock options, to be valued at fair value on the date of grant and
to
be expensed over the applicable vesting period. Under the modified prospective
transition method, share-based awards granted or modified on or after January
1,
2006, are recognized in compensation expense over the applicable vesting period.
Also, any previously granted awards that are not fully vested as of January
1,
2006 are recognized as compensation expense over the remaining vesting period.
No retroactive or cumulative effect adjustments were required upon The Company’s
adoption of SFAS No. 123(R) as the Company had not outstanding share awards
as
of the date of adoption and has not issued any share-based awards during 2006.
In
July
2006, the FASB released FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes-an Interpretation of FASB Statement 109, Accounting for Income
Taxes (“FIN 48”). FIN 48 prescribes a comprehensive model for how a company
should recognize, measure, present, and disclose in its financial statements
uncertain tax positions that a company has taken or expects to take on a tax
return. FIN 48 is effective as of the beginning of fiscal years that start
after
December 15, 2006. The Company does not expect its implementation to be material
to its financial statements.
In
September 2006, the SEC issued Staff Accounting Bulletin No. 108 (“SAB 108”).
Due to diversity in practice among registrants, SAB 108 expresses SEC staff
views regarding the process by which misstatements in financial statements
are
evaluated for purposes of determining whether financial statement restatement
is
necessary. SAB 108 is effective for fiscal years ending after November 15,
2006,
and early application is encouraged. The adoption of SAB 108 had no impact
on
the Company’s results from operations or financial position.
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
(“SFAS 157”). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in accordance with generally accepted accounting
principles, and expands disclosures about fair value measurements. This
statement does not require any new fair value measurements; rather, it applies
under other accounting pronouncements that require or permit fair value
measurements. The provisions of this statement are to be applied prospectively
as of the beginning of the fiscal year in which this statement is initially
applied, with any transition adjustment recognized as a cumulative-effect
adjustment to the opening balance of retained earnings. The provisions of SFAS
157 are effective for the fiscal years beginning after November 15, 2007.
Therefore, we anticipate adopting this standard as of January 1, 2008.
Management has not determined the effect, if any, the adoption of this statement
will have on our financial condition or results of operations.
In
September 2006, the FASB issued Statement No. 158,
“Employers’
Accounting for Defined Benefit Pension and Other Postretirement
Plans”
(“SFAS No. 158”), an amendment of FASB Statements No. 87, 88, 106
and 132(R). SFAS No. 158 requires (a) recognition of the funded
status (measured as the difference between the fair value of the plan assets
and
the benefit obligation) of a benefit plan as an asset or liability in the
employer’s statement of financial position, (b) measurement of the funded
status as of the employer’s fiscal year-end with limited exceptions, and
(c) recognition of changes in the funded status in the year in which the
changes occur through comprehensive income. The requirement to recognize the
funded status of a benefit plan and the disclosure requirements are effective
as
of the end of the fiscal year ending after December 15, 2006. The
requirement to measure the plan assets and benefit obligations as of the date
of
the employer’s fiscal year-end statement of financial position is effective for
fiscal years ending after December 15, 2008. This Statement has no current
applicability to the Company’s financial statements. Management plans to adopt
this Statement on December 31, 2006 and it is anticipated the adoption of
SFAS No. 158 will not have a material impact to the Company’s
financial position, results of operations, or cash flows.
In
February 2007, the FASB issued Statement No. 159 “The Fair Value Option for
Financial Assets and Financial Liabilities” (SFAS 159). This statement permits
companies to choose to measure many financial assets and liabilities at fair
value. Unrealized gains and losses on items for which the fair value option
has
been elected are reported in earnings. SFAS 159 is effective for fiscal years
beginning after November 15, 2007. The Company is currently assessing the impact
of SFAS 159 on its consolidated financial statements.
Results
of Operations
The
following table sets forth information from our statements of operations for
the
years ended December 31, 2006 and 2005 and the nine months ended September
30,
2007 and 2006, in dollars and as a percentage of sales (dollars in thousands):
|
|
Nine
Months Ended September 30,
|
Year
Ended December 31,
|
|
|
2007
|
2006
|
2006
|
2005
|
|
Net
sales
|
$18,800
|
100.0%
|
$9,877
|
100.0%
|
$17,199
|
100.0%
|
$16,520
|
100.0%
|
|
Cost
of sales
|
15,068
|
80.1%
|
7,013
|
71.0%
|
13,234
|
76.9%
|
12,959
|
78.4%
|
|
Gross
profit
|
3,732
|
19.9%
|
2,864
|
29.0%
|
3,965
|
23.1%
|
3,561
|
21.6%
|
|
Operating
expenses
|
683
|
3.6%
|
584
|
5.9%
|
903
|
5.3%
|
665
|
4.0%
|
|
Operating
income
|
3,049
|
16.2%
|
2,280
|
23.1%
|
3,062
|
17.8%
|
2,896
|
17.5%
|
|
Other
income
|
287
|
1.5%
|
86
|
0.9%
|
87
|
0.5%
|
8
|
0.0%
|
|
Interest
expense
|
394
|
2.1%
|
397
|
4.0%
|
422
|
2.5%
|
404
|
2.4%
|
|
Net
income
|
$
2,943
|
15.7%
|
$1,955
|
19.8%
|
$
2,681
|
15.6%
|
$
2,500
|
15.1%
|
|
Comprehensive
income
|
$
4,181
|
22.2%
|
$2,504
|
25.4%
|
$
3,480
|
20.2%
|
$
2,854
|
17.3%
|
Nine
Months Ended September 30, 2007 and 2006
Net
sales
.
During the nine months ended September 30, 2007 (the “September 2007 period”),
we had net sales of $18.8 million as compared to net sales of $9.9 million
during the nine months ended September 30, 2006 (the “September 2006 period”),
an increase $8.9 million, or 90%. This increase is the result of increase in
sales as well as price increases.
Cost
of sales; gross margin
.
During the September 2007 period, our cost of sales was $15.1 million, as
compared to cost of sales of $7.0 million during the September 2006 period,
an
increase of $8.1 million, or 115%. The increase in cost of sales was greater
than the increase in sales. As a result, although our gross profit increased
$868,000, or 30%, our gross margin decreased from 29.0% in the September 2006
period to 19.9% in the September 2007 period. The reduction in gross profit
resulted from increases in the cost of raw material, which increases were not
able to be passed on to customers during the period.
Operating
income and expenses.
Operating expenses, which consist of selling, general and administrative
expenses, and depreciation and amortization, totaled $6
8
3,000
during the September 2007 period as compared to $584,000 during the September
2006 period. Selling expenses decreased from $238,000 in the September 2006
period to $110,000 in the September 2007 period. General and administrative
expense increased from $335,000 in the September 2006 period to $560,000 in
the
September 2007 period. Depreciation and amortization remained relatively
constant, increasing from $11,000 to $13,000 due to clients recognizing the
effects of inflation on the costs of raw materials and their orders are thus
placed in advance. Consequently, selling expenses decreased while sale contracts
increased. Increases of general and administrative expenses were due to the
reverse merger. Operating income was $3.0 million during the September 2007
period, as compared to $2.1 million during the September 2006
period.
Other
income
.
During the September 2007 period, we had other income of $287,000, as compared
with $86,000 for the September 2006 period. Other income for these periods
included
Subsidy
income for interest and Subsidy income for high-technology. Subsidy income
for
interest for September 2007 is $287,000. Subsidy income for high-technology
for
September 2006 is $86,000.
Interest
expense
.
Interest expense remained relatively constant, decreasing $3,000, from
$397,000
in
the September 2006 period to $394,000 period. During the September 2007 period,
the average amount borrowed was $6016,000 and the average interest rate was
6.54
%. During the September 2006 period, the average amount borrowed was $7,114,000
and the average interest rate was 5.58%.
Net
Income
.
As a result of the factors described above, we had net income of $2.9 million
for the September 2007 period, as compared with $2.0 million for the
September 2006 period.
Comprehensive
Income
.
As a result of a currency translation adjustment, our comprehensive income
was
$
4.2
million for the September 2007 period, as compared with $2.5 million for the
September 2006 period.
Years
Ended December 31, 2006 and 2005
Net
sales
.
During the year ended December 31, 2006, we had net sales of $17.2 million,
as
compared with net sales of $16.5 million during the year ended December 31,
2005, an increase of approximately $700,000, or 4% due to expanding sales and
markets.
Cost
of sales; gross margin
.
During 2006, we had cost of sales of $13.2 million, as compared with cost of
sales of $13.0 million, an increase of $275,000, or 2%, reflecting the increase
in net sales. The gross profit rose to $4.0 million, or an 11% increase in
2006
compared with 2005. Our gross margin increased from 21.6% in 2005 to 23.1%
in
2006. The improvement in margin resulted from improvements in
management.
Operating
Expenses
.
Our operating expenses were $903,000 for 2006, compared with $665,000 for 2005,
an increase of $238,000, or approximately 36%. The increase in operating
expenses was principally due to an increase in selling expenses and, to a lesser
extend, general and administrative expenses. Selling expenses increased from
$129,000 in 2005 to $331,000 in 2006, due to an increase of sales. General
and
administrative expenses increased modestly, from $519,000 in 2005 to $556,000,
reflecting the increase in our business. Depreciation and amortization were
virtually unchanged from 2005 to 2006. As a result, our operating income
increased to $3.1 million in 2006 from $2.9 million in 2006.
Other
income
.
During 2006 period, we had other income of $87,000, as compared with $8,000
for
2005. Other income for these years included subsidy income for interest and
subsidy income for high-technology. Subsidy income for high-technology for
2006
is $87,000. Subsidy income for high-technology for 2005 is $8,000.
Interest
Expense
.
Interest expense remained relatively constant, increasing $18,000 from $404,000
in 2005 to $422,000 in 2006. During 2006, the average amount borrowed was
$7,562,000 and the average interest rate was 5.58%. During 2005, the average
amount borrowed was $7 and the average interest rate was 5.58%.
Net
Income
.
As a result of the factors described above, we had net income of $2.7 million
for 2006 period, compared with $2.5 million for 2005.
Comprehensive
Income
.
As a result of a currency translation adjustment, our comprehensive income
was
$3.5 million for 2006, compared with $2.9 million for 2005.
Liquidity
and Capital Resources
At
September 30, 2007, we had working capital of $6.2 million, as compared with
$3.9 million at December 31, 2006. During the nine months we generated cash
flow
from operations of $2.0 million, and we expended $1.7 million for the purchase
of fixed assets. The funds used to purchase fixed assets were used to purchase
land ($1.35 million) and equipment ($350,000). As of September 30, 2007, we
had
no commitments for capital expenditures.
We
have financed our operations principally through short term bank loans and,
to a
lesser extent, loans from Mr. Jin. At September 30, 2006, we had two bank loans
outstanding, totaling $6.0 million, which mature in June 2008. A bank loan
in
the amount of $5.4 million is due June 10, 2008, bears interest at 8.541% per
annum and is secured by a security interest on our fixed assets and land use
rights. Another loan, in the amount of $665,000 is due June 20, 2008, and bears
interest at 7.227% per annum and is guaranteed by Inner Mongolia Yuansheng
Investment Guarantee Corporation. No payment has been made for the guarantee.
Although we believe that we will be able to obtain extensions of these loans
when they mature, we cannot assure you that such extensions will be granted.
At
September
30, 2007, Mr. Jin has advances to us in the amount of $4.5 million. These
advances did not bear interest and are due on demand.
In
December 2007, in connection with the reverse acquisition, issues notes in
the
principal amount of $1,200,000 to the investor. Under the terms of the purchase
agreement, the investors still owe $800,000 in two installments of $400,000,
which are due on March 31, 2008 and June 30, 2008. In connection with the
reverse acquisition, issued our promissory note for $700,000 and we owe a
$100,000 finders’ fee in connection with the reverse acquisition. These payments
are due in two installments totaling $400,000 each, which are due on March
31,
2008 and June 30, 2008. These payments are secured by 1,000,000 of the share
of
common stock that we purchased from the former principal stockholders of
Achievers. These shares are held in escrow, and if we fail to make the required
payments, the escrow agent will release the shares to the sellers and the
finder.
We
require funds for working capital for our operations, in addition to the
payments due in connection with reverse acquisition as well as the purchase
of
additional equipment for our operations. We believe that our working capital,
together with the cash flow from our ongoing business will be sufficient to
enable us to meet our cash requirements for the next 12 months. Although we
do
not have any current plans to make any acquisitions, it is possible that we
may
seek to acquire one or more businesses in the education field, and we may
require financing for that purpose. We cannot assure you that funding will
be
available if and when we require funding. Further, in the event that any of
our
lenders demand payment at the time the loans are due in June 2008, we would
require additional financing in order to repay those loans, and we cannot assure
you that we will be able to obtain the necessary funding either from another
bank or from other sources.
Item
3. Description of Property.
There
is
no private ownership of land in the PRC. The government grants transferable
land
use rights, which grant the right to use the land for a specified time period,
generally 50 years, but sometimes for a different term. We have the land use
rights to an area of 1,207,388 square feet in Xinghe County,
Inner
Mongolia, China, on which we have a 263.501 square feet building that we use
for
manufacturing and office space. The land use right was granted in 2002 and
has a
term of 50 years from the date of grant.
Item
4. Security Ownership of Certain Beneficial Owners and
Management
The
following table provides information at to shares of common stock beneficially
owned as of December 20, 2007 by:
|
|
|
each
officer named in the summary compensation
table;
|
|
|
|
each
person owning of record or known by us, based on information provided
to
us by the persons named below, to own beneficially at least 5% of
our
common stock; and
|
|
|
|
all
directors and executive officers as a group.
|
|
Name
|
Shares
of Common Stock Beneficially Owned
|
Percentage
|
|
Sincere
Investment (PTC), Ltd.
Trinity
Chambers, P.O. Box 4301, Road Town, Tortola,
British
Virgin Islands
|
9,388,172
|
71.0%
|
|
Shulian
Gao and Wenyi Li
(both
are
beneficiaries
under the Trust)
|
9,388,172
|
71.0%
|
|
Dengyong
Jin
|
0
|
0.0%
|
|
Lizhong
Gao
|
0
|
0.0%
|
|
Donghai
Yu
|
0
|
0.0%
|
|
Cheng
Zhang
|
0
|
0.0%
|
|
All
officers and directors as a group (one person owning
stock)
|
9,388,172
|
71.0%
|
Lizhong
Gao is the president and sole stockholder of Sincere and has the sole power
to
vote and dispose of the shares owned by Sincere.
Except
as otherwise indicated each person has the sole power to vote and dispose of
all
shares of common stock listed opposite his name. Each person is deemed to own
beneficially shares of common stock which are issuable upon exercise or warrants
or options or upon conversion of convertible securities if they are exercisable
or convertible within 60 days of December 20, 2007.
Item
5. Directors and Executive Officers, Promoters and Control
Persons.
Directors
and Executive Officers
The
following table sets forth certain information with respect to our directors
and
executive officers.
|
Name
|
Age
|
Position
|
|
Dengyong
Jin
|
53
|
Chief
executive officer
|
|
Lizhong
Gao
|
43
|
President
and director
|
|
Donghai
Yu
|
42
|
Chief
financial officer and director
|
|
Cheng
Zhang
|
44
|
Chief
operating officer and director
|
Dengyong
Jin has been our chief executive officer since December 2007. He has been
president and chief executive officer of Xingyong since 2001 and has more that
20 years of experience in the carbon industry. He received his degree in
economics from Inner Mongolia Television University of China.
Lizhong
Gao has been our president since December 2007. From September 2002 until
November 2007, he was manager of Beijing Mingping Industry and Commercial
Company. Since November 2007, he was been president of Sincere Investment PTC,
our principal stockholder. He received his degree in economics from Inner
Mongolia Television University of China.
Donghai
Yu has been our chief financial officer since December 2007. Since November
2007
he has also been chief financial officer of Xingyong. From 2002 through 2007,
Mr. Yu has been self-employed as a financial consultant for both personal and
business finance. Mr. Yu received his MBA degree from Oklahoma City
University.
Cheng
Zhang has been our chief operating officer since December 2007. He was employed
in various capacities with Xingyong since 2001, most recently vice director
of
the operations department.
We
need
five year employment history on everyone.
We
have
no audit, compensation or nominating committee. The functions of these
committees are performed by the board of directors. None of our directors is
an
independent director.
Item
6. Executive Compensation.
Summary
Compensation Table
Set
forth
below is information for Xingyong’s chief executive officer. No other officer
received compensation in excess of $100,000 for 2006.
|
Name
and Position
|
Year
|
Salary
|
Total
Compensation
|
|
Dengyong
Jin, chief executive officer
|
2006
|
$0
|
$0
|
|
|
2005
|
0
|
0
|
We
did
not make any distributions of any kind to Mr. Jin during the nine months ended
September 30, 2007 or the years ended December 31, 2006 and 2005.
Employment
Agreements
We
have
no employment agreements with any of our officers.
Item
7. Certain Relationships and Related Transactions.
Pursuant
to the buy-back agreement, on December 17, 2007, we purchased 5,344,000 shares
of common stock from Arto Tavukciyan and Lyndon Grove. Mr. Tavukciyan and Mr.
Grove were, at the time of the agreement, the holders of 65.4% of our
outstanding common stock. Pursuant to the buy-back agreement:
|
|
|
We
agreed to pay a purchase price of $700,000 for the shares, for which
we
issued our promissory note in the principal amount of $700,000, payable
in
installments of $350,000 on each of March 31, 2008 and June 30,
2008.
|
|
|
|
We
agreed to pay a finders’ fee of $100,000 to Ventana Capital Partners,
payable in installments of $50,000 on each of March 31, 2008 and
June 30,
2008.
|
|
|
|
We
placed 1,000,000 of the shares of common stock that we purchased
in
escrow, and the shares are subject to release from escrow under the
following conditions:
|
|
|
|
If
by March 31, 2008, we shall not have made both the first $350,000
payment
due pursuant to the note and the first payment of $50,000 to Ventana,
the
escrow agent shall release 400,000 shares to the Sellers and 100,000
shares to Ventana.
|
|
|
|
If,
by March 31, 2008, we shall have made both the first $350,000 payment
due
pursuant to the note and the first payment of $50,000 to Ventana,
the
escrow agent shall deliver 500,000 shares to us for
cancellation.
|
|
|
|
If
by June 30, 2008, we shall not have made both the second $350,000
payment
due pursuant to the note and the second payment of $50,000 to Ventana,
the
escrow agent shall release 400,000 shares to the Sellers and 100,000
shares to Ventana.
|
|
|
|
If,
by June 30, 2008, we shall have made both the second $350,000 payment
due
pursuant to the note and the second payment of $50,000 to Ventana,
the
escrow agent shall deliver 400,000 shares to us for
cancellation.
|
|
|
|
If
the escrow agent is required to deliver some or all of the shares
from
escrow to the sellers and Ventana and if the market price for our
common
stock during the ten trading days preceding March 31, 2008 or June
30,
2008, as the case may be, is less than $.80 per share, we are required
to
deliver additional shares. The number of additional shares shall
be
determined by multiplying the number of shares to be delivered on
such
date by $0.80 per share and dividing the result by the market price
and
subtracting from that number the shares held in escrow that are to
be
delivered at that time.
|
|
|
|
If,
prior to June 30, 2008, we issue shares of common stock at a price
which
is less than $1.20 per share, we are required to deliver additional
shares
to the escrow agent. The number of additional shares as shall be
determined by multiplying the number of shares of common stock then
held
in escrow by a fraction, the numerator of which is the number of
shares
sold by us at a price which is less than $1.20 per share and the
denominator of which is 13,000,000. For example, if there are 1,000,000
shares in escrow and we sell 2,600,000 shares at a price that is
less than
$1.20, we would issue 200,000 shares of common stock to the escrow
agent.
|
|
|
|
We
transferred all of the stock of our wholly-owned subsidiary, Achievers
Publishing Inc., to Mr. Tavukciyan.
|
Since
our
organization, our chief executive officer, Dengyong Jin, has advanced us a
total
of approximately $4.5 million, of which approximately $4.5 million was
outstanding at September 2007. This advance bears no interest and is payable
on
demand. During the nine months ended September 30, 2007, we paid $508,000 on
account of these advances. During the year ended December 31, 2006, Mr. Jin’s
net advances to us were $495,000.
Pursuant
to the share exchange agreement, we issued 9,388,172 shares of common stock
to
Sincere in exchange for all of the outstanding capital stock of Talent. Lizhong
Gao, who is our president and a director, is the sole stockholder and chief
executive officer of Sinecere. Talent owns 100% of the stock of Yongle, which
is
a wholly foreign-owned enterprise under the laws of the PRC.
Yongle
is
a party to a series of contractual arrangements with Xingyong and its sole
stockholders, Dengyong Jin and Benhua Du, which are described in Part I, Item
1
under “Contractual Agreements with Xingyong.” Pursuant to these agreements,
Yongle manages the business of Xingyong, for which it receives an amount equal
to Xingyong’s 80%-100% profit based on the annual negotiation.
Dengyong
Jin is our chief executive officer as well as the principal stockholder of
Xingyong. As a result, Mr. Jin will have the power to determine the percentage
of Xingyong’s revenue or profit that is payable to us.
Yongle
also has a right to purchase the stock or assets of Xingyong and a proxy to
vote
its stock.
Item
8. Description of Securities.
We
are
authorized to issue 75,000,000 shares of common stock, par value $.0001 per
share
The
following summary of certain provisions of our common stock, preferred stock,
certificate of incorporation and by-laws is not intended to be complete. It
is
qualified by reference to the provisions of applicable law and to our
certificate of incorporation and by-laws.
Common
Stock
Holders
of common stock are entitled to one vote for each share held on all matters
submitted to a vote of stockholders and do not have cumulative voting rights.
Accordingly, holders of a majority of the shares of common stock entitled to
vote in any election of directors may elect all of the directors standing for
election. Holders of common stock are entitled to receive proportionately any
dividends as may be declared by our board of directors, subject to any
preferential dividend rights of outstanding preferred stock. Pursuant to the
proposed certificate of designation relating to the series A preferred stock,
we
will be prohibited from paying dividends on our common stock while the preferred
stock is outstanding. Upon our liquidation, dissolution or winding up, the
holders of common stock are entitled to receive proportionately our net assets
available after the payment of all debts and other liabilities and subject
to
the prior rights of any outstanding preferred stock. Holders of common stock
have no preemptive, subscription, redemption or conversion rights. Our
outstanding shares of common stock are fully paid and non-assessable. The
rights, preferences and privileges of holders of common stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
series of preferred stock that we may designate and issue in the
future.
Proposed
Restated Articles of Incorporation
Pursuant
to the securities purchase agreement relating to the December 2007 private
placement, we are required to amend and restate our articles of incorporation
to
provide for a change in our corporate name to China Carbon Graphic Group, Inc.
and authorized capitalization of 120,000,000 shares of capital stock, of which
20,000,000 will be shares of preferred stock, par value $.001 per share, and
100,000,000 will be shares of common stock, par value $.001 per share, and
to
adopt a certificate of designation which creates the right of the holders of
a
series of preferred stock to be designated as the series A convertible preferred
stock.
Upon
the
filing of both the restated certificate of incorporation and the certificate
of
designation, the notes are automatically converted into 1,200,499 shares of
series A preferred stock and warrants to purchase 3,000,000 shares at $1.20
per
share and 3,000,000 shares at $2.00 per share.
Our
board
of directors has approved, subject to stockholder approval, the restated
articles of incorporation.
The
Nevada General Corporation Law
We
are
incorporated in Nevada and are subject to the provisions of the Nevada General
Corporation Law. Under certain circumstances, the following selected provisions
may delay or make more difficult acquisitions or changes of control. Our
articles of incorporation and by-laws do not exclude us from such provisions.
These provisions also may have the effect of preventing changes in our
management. It is possible that these provisions could make it more difficult
to
accomplish transactions that stockholders may otherwise deem to be in their
best
interests.
Restrictions
on Control Share Acquisitions
Sections
78.378 to 78.3793 of the Nevada General Corporation Law relate to acquisitions
of control of an issuing corporation, which is defined as a Nevada corporation
that has 200 or more stockholders, at least 100 of whom have addresses in Nevada
appearing on our stock ledger. These provision will not apply unless we meet
the
definition of an issuing corporation.
Under
these provisions, acquiring person who acquires a controlling interest in an
issuing corporation and those acting in association with an acquiring person
obtain only such voting rights in the control shares as are conferred upon
them
by a resolution of the stockholders of the corporation, approved by a majority
of the voting power at a special or annual meeting of the stockholders, with
the
votes of interested stockholders not counted. The meeting of stockholders is
held upon the request and at the expense of the acquiring person.
In
the
event that the control shares are accorded full voting rights and the acquiring
person acquires control shares with a majority or more of all the voting power,
any stockholder, other than the acquiring person, who does not vote in favor
of
authorizing voting rights for the control shares is entitled to demand payment
for the fair value of his or her shares, and the corporation must comply with
the demand. A controlling interest means the ownership of outstanding voting
shares sufficient to enable the acquiring person, individually or in association
with others, directly or indirectly, to exercise (i) one-fifth or more but
less
than one-third, (ii) one-third or more but less than a majority and/or (iii)
a
majority or more of the voting power of the issuing corporation in the election
of directors. Voting rights must be conferred by a majority of the disinterested
stockholders as each threshold is reached and/or exceeded.
These
provisions do not apply if the articles of incorporation or bylaws in effect
on
the 10th day following the acquisition of a controlling interest by an acquiring
person provide that said provisions do not apply.
Restrictions
on Certain Business Combinations
Sections
78.411 to 78.444 of the Nevada General Corporation Law restrict the ability
of a
resident domestic corporation to engage in any combination with an interested
stockholder for three years after the interested stockholder’s acquisition of
the shares that cause such stockholder to become an interested stockholder,
unless the combination or the purchase of shares by the interested stockholder
that cause such stockholder to become an interested stockholder is approved
by
our the company’s board of directors before that date. If the combination was
not previously approved, the interested stockholder may effect a combination
after the three-year period only if such stockholder receives approval from
a
majority of the disinterested shares or the offer meets certain fair price
criteria.
For
purposes of the above provisions, a resident domestic corporation is a Nevada
public corporation that has 200 or more stockholders and an interested
stockholder is any person, other than the company and its subsidiaries, who
is
(i) the beneficial owner, directly or indirectly, of 10% or more of the voting
power of the outstanding voting shares of the company or (ii) an affiliate
or
associate of the company and, at any time within three years immediately before
the date in question, was the beneficial owner, directly or indirectly, of
10%
or more of the voting power of the company.
These
restrictions do not apply to corporations that elect in a charter amendment
approved by a majority of the disinterested shares to be excluded from these
provisions. Such an amendment would not become effective for 18 months after
its
passage and would apply only to stock acquisitions occurring after its effective
date. Our articles of incorporation and bylaws do not exclude us from the
restrictions imposed by such provisions.
PART
II
Item
1. Market Price of and Dividends on the Registrant’s Common Equity and Related
Stockholder Matters.
Our
common stock trades on the OTCBB under the symbol “ACMZ.” The stock has been
quoted since February 2007. However, other than nominal reported sales of our
common stock in February and March 2007, as of December 24, 2007, there have
been no reported trades since March 2, 2007. The last reported bid price for
the
common stock was $0.95.
As
of
December 26, 2007, we had approximately 20 stockholders of record.
As
of
December 20, 2007, we had 7,200,499 shares of common stock reserved for issuance
upon conversion of our 3% convertible note and the shares of series A preferred
stock and warrants issued upon conversion of the note.
We
have
no equity compensation plans under which our securities may be
issued.
Item
2. Legal Proceedings.
There
are
no material legal proceedings pending or threatened against us.
Item
3. Changes in and Disagreements with Accountants.
NA
Item
4. Recent Issuances of Unregistered Securities.
See
Item
3.02 of this Form 8-K for information relating to recent issuances of
unregistered securities.
Item
5. Indemnification of Officers and Directors.
Our
Article of Incorporation provides that we will indemnify and hold harmless,
to
the fullest extent permitted by Section 145 of the Delaware General Corporation
Law, as amended from time to time, each person that such section grants us
the
power to indemnify.
Section
78.138 of the Nevada Revised Statutes (“NRS”) provides that, with certain
specified exceptions, or unless the articles of incorporation or an amendment
thereto, in each case filed on or after October 1, 2003, provide for greater
individual liability, a director or officer is not individually liable to the
corporation or its stockholders or creditors for any damages as a result of
any
act or failure to act in his capacity as a director or officer unless it is
proven that his act or failure to act constituted a breach of his fiduciary
duties as a director or officer; and his breach of those duties involved
intentional misconduct, fraud or a knowing violation of law.
NRS
Sections 78.7502, 78.751 and 78.752 provide broad indemnification for officers
and directors, as follows:
Subsection
1 of NRS 78.7502 empowers a corporation to indemnify any person who was or
is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or
investigative (other than an action by or in the right of the corporation)
by
reason of the fact that he or she is or was a director, officer, employee or
agent of the corporation or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise (an “Indemnified Party”), against
expenses (including attorneys’ fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the Indemnified Party in
connection with such action, suit or proceeding if the Indemnified Party acted
in good faith and in a manner the Indemnified Party reasonably believed to
be in
or not opposed to the best interests of the corporation, and, with respect
to
any criminal action or proceedings, had no reasonable cause to believe the
Indemnified Party’s conduct was unlawful.
Subsection
2 of NRS 78.7502 of the Nevada Law empowers a corporation to indemnify any
Indemnified Party who was or is a party or is threatened to be made a party
to
any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in the capacity of an Indemnified Party against expenses, including
amounts paid in settlement and attorneys’ fees actually and reasonably incurred
by the Indemnified Party in connection with the defense or settlement of such
action or suit if the Indemnified Party acted under standards similar to those
set forth above, except that no indemnification may be made in respect of any
claim, issue or matter as to which the Indemnified Party shall have been
adjudged to be liable to the corporation or for amounts paid in settlement
to
the corporation unless and only to the extent that the court in which such
action or suit was brought determines upon application that in view of all
the
circumstances the Indemnified Party is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
NRS
78.7502 further provides that to the extent an Indemnified Party has been
successful on the merits or otherwise in the defense of any action, suit or
proceeding referred to in subsection (1) or (2) described above or in the
defense of any claim, issue or matter therein, the corporation shall indemnify
the Indemnified Party against expenses (including attorneys’ fees) actually and
reasonably incurred by the Indemnified Party in connection
therewith.
Subsection
1 of NRS 78.751 provides that any discretionary indemnification under NRS
78.7502, unless ordered by a court or advanced pursuant to Subsection 2 of
NRS
78.751, may be made by a corporation only as authorized in the specific case
upon a determination that indemnification of the Indemnified Person is proper
in
the circumstances. Such determination must be made (a) by the stockholders,
(b)
by the board of directors of the corporation by majority vote of a quorum
consisting of directors who were not parties to the action, suit or proceeding,
(c) if a majority vote of a quorum of such disinterested directors so orders,
by
independent legal counsel in a written opinion, or (d) by independent legal
counsel in a written opinion if a quorum of such disinterested directors cannot
be obtained. Subsection 2 of NRS 78.751 provides that a corporation’s articles
of incorporation or bylaws or an agreement made by the corporation may require
the corporation to pay as incurred and in advance of the final disposition
of a
criminal or civil action, suit or proceeding, the expenses of officers and
directors in defending such action, suit or proceeding upon receipt by the
corporation of an undertaking by or on behalf of the officer or director to
repay the amount if it is ultimately determined by a court that he is not
entitled to be indemnified by the corporation. Said Subsection 2 further
provides that the provisions of that Subsection 2 do not affect any rights
to
advancement of expenses to which corporate personnel other than officers and
directors may be entitled under contract or otherwise by law. Subsection 3
of
NRS 78.751 provides that indemnification and advancement of expenses authorized
in or ordered by a court pursuant to NRS 78.751 does not exclude any other
rights to which the Indemnified Party may be entitled under the articles of
incorporation or any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, for either an action in his official capacity or in
another capacity while holding his office. However, indemnification, unless
ordered by a court pursuant to NRS 78.7502 or for the advancement of expenses
under Subsection 2 of NRS 78.751, may not be made to or on behalf of any
director or officer of the corporation if a final adjudication establishes
that
his or her acts or omissions involved intentional misconduct, fraud or a knowing
violation of the law and was material to the cause of action. Additionally,
the
scope of such indemnification and advancement of expenses shall continue as
to
an Indemnified Party who has ceased to hold one of the positions specified
above, and shall inure to the benefit of his or her heirs, executors and
administrators. NRS 78.752 empowers a corporation to purchase and maintain
insurance or make other financial arrangements on behalf of an Indemnified
Party
for any liability asserted against such person and liabilities and expenses
incurred by such person in his or her capacity as an Indemnified Party or
arising out of such person’s status as an Indemnified Party whether or not the
corporation has the authority to indemnify such person against such liability
and expenses.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion
of
the SEC such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim
for
indemnification against such liabilities (other than director, officer or
controlling person in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with
the securities being registered, we will, unless in the opinion of our counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Securities Act and will be governed
by
the final adjudication of such issue.
PART
F/S
Reference
is made to the filings by Achievers on Form 10-KSB and Form 10-QSB for
Achiever’s financial statements.
The
financial statements of Xingyong begin on Page F-1.
The
pro
forma financial information is filed as Exhibit 99.9 to this Form
8-K.
PART
III
The
exhibits are listed and described in Item 9.01 of this Form 8-K.
Section
5.06 Change in Shell Company Status.
As
a
result of the reverse acquisition with Talent, we are no longer a shell
company.
See
“Item
1.01 Entry into a Material Definitive Agreement” for information relating to the
agreements pursuant to which the reverse merger was consummated and financed
and
“Item 2.01 Completion of Acquisition or Disposition of Assets” for a description
of our business following the completion of the reverse merger.
Item
9.01 Financial Statements and Exhibits.
|
|
(a)
|
Financial
statements of Xingyong. See Page
F-1.
|
|
|
(b)
|
Pro
forma financial information. See Exhibit
99.9.
|
|
|
(c)
|
See
(a) and (b) of this Item 9.01.
|
|
2.1
|
|
Exchange
agreement dated as of December 14, 2007, among the Registrant and
Sincere
Investment (PTC), Ltd.
|
|
4.1
|
|
3%
convertible promissory note payable to the order of XingGuang Investment
Corporation Limited
|
|
4.2
|
|
Promissory
note payable to Anna Krimshtein PLC, as escrow agent
|
|
99.1
|
|
Securities
purchase agreement dated December 14, 2007, between the Registrant
and
XingGuang Investment Corporation Limited
|
|
99.2
|
|
Registration
rights agreement dated June 14, 2007, between the Registrant and
XingGuang
Investment Corporation Limited
|
|
99.3
|
|
Buy
back agreement among the Registrant and Arto Tavukciyan and Lyndon
Grove
|
|
99.4
|
|
Escrow
agreement among the Registrant, Arto Tavukciyan and Lyndon Grove
and Anna
Krimshtein PLC, as escrow agent
|
|
99.5
|
|
Business
operations agreement between Xinghe Xingyong Carbon Co., Ltd. and
Xinghe
Yongle Carbon Co., Ltd. (English Translation)
|
|
99.6
|
|
Exclusive
Technical and Consulting Services Agreement between Xinghe Xingyong
Carbon
Co., Ltd. and Xinghe Yongle Carbon Co., Ltd. (English
Translation)
|
|
99.7
|
|
Option
Agreement between Xinghe Xingyong Carbon Co., Ltd. and Xinghe Yongle
Carbon Co., Ltd. (English Translation)
|
|
99.8
|
|
Share
Pledge Agreement among Xinghe Xingyong Carbon Co., Ltd., Xinghe Yongle
Carbon Co., Ltd. and Dengyong Jin (English Translation)
|
|
99.9
|
|
Pro
forma financial information
|
|
99.10
|
|
Statement
of Designations
|
|
99.11
|
|
Amended
and Restated Articles of Incorporation of Achievers Magazine,
Inc.
|
|
99.12
|
|
China
Carbon Graphic Group, Inc. Common Stock Purchase Warrant
“
A
”
|
|
99.13
|
|
China
Carbon Graphic Group, Inc. Common Stock Purchase Warrant
“
A
”
|
XINGHE
XINGYONG CARBON CO., LTD.
Index
to Financial Statements
|
|
Page
|
|
Report
of independent registered accounting firm
|
F-2
|
|
Balance
sheet at December 31, 2006
|
F-3
|
|
Statements
of operations for the years ended December 31, 2006 and 2005
|
F-4
|
|
Statement
of stockholders’ equity for the years ended December 31, 2006 and
2005
|
F-5
|
|
Statements
of cash flows for the years ended December 31, 2006 and
2005
|
F-6
|
|
Notes
to financial statements
|
F-7
|
|
Balance
sheet at September 30, 2007 (unaudited)
|
F-16
|
|
Statements
of operations for the nine months ended September 30, 2007 and 2006
(unaudited)
|
F-17
|
|
Statement
of stockholders’ equity for the nine months ended September 30, 2007
(unaudited)
|
F-18
|
|
Statements
of cash flows for the nine months ended September 30, 2007 and 2006
(unaudited)
|
F-19
|
|
Notes
to financial statements
|
F-20
|
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO
THE
BOARD OF DIRECTORS
XINGHE
XINGYONG CARBON CO. LTD.
We
have
audited the accompanying balance sheets of XINGHE XINGYONG CARBON CO. LTD.
(the
“Company”) as of December 31, 2006 and the related statements of operations,
stockholders’ equity and cash flows for the two years ended December 31,
2006. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
the
financial statements are free of material misstatement. The Company is not
required, nor have we been engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures
that
are appropriate in the circumstances, but not for the purpose of expressing
an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as
well as evaluating the overall financial statement presentations. We
believe that our audit provides a reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of XINGHE XINGYONG CARBON CO.,
LTD. as
of December 31, 2006 and the results of its operations and cash flows for
the
two years ended December 31, 2006, in conformity with accounting principles
generally accepted in the United States of America.
/s/
Murrell, Hall, McIntosh & Co. PLLP
Oklahoma
City, Oklahoma
December
14, 2007
Xinghe
Xingyong Carbon Co., Ltd.
Balance
Sheet
December
31, 2006
|
|
|
|
2006
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
45,460
|
|
|
Trade
accounts receivable
|
|
|
2,804,177
|
|
|
Notes
receivable
|
|
|
19,391
|
|
|
Prepaid
expenses
|
|
|
4,547
|
|
|
Advance
to suppliers and other receivables
|
|
|
107,844
|
|
|
Inventories
|
|
|
13,018,877
|
|
|
Total
current assets
|
|
|
16,000,296
|
|
|
|
|
|
|
|
|
Land
use right, net
|
|
|
19,044,092
|
|
|
|
|
|
|
|
|
Intangible
assets, net
|
|
|
774,825
|
|
|
|
|
|
|
|
|
|
|
$
|
35,819,213
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
1,093,003
|
|
|
Taxes
payable
|
|
|
188,605
|
|
|
Notes
payable
|
|
|
5,877,838
|
|
|
Loan
from shareholder
|
|
|
4,985,529
|
|
|
Total
current liabilities
|
|
|
12,144,975
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
|
|
|
Registered
capital
|
|
|
6,650,544
|
|
|
Retained
earnings
|
|
|
15,870,373
|
|
|
Accumulated
other comprehensive income
|
|
|
1,153,321
|
|
|
Total
stockholders' equity
|
|
|
23,674,238
|
|
|
|
|
|
|
|
|
|
|
$
|
35,819,213
|
|
The
accompanying notes are an integral part of these financial
statements.
Xinghe
Xingyong Carbon Co., Ltd.
Statements
of Operations
For
the Years Ended December 31, 2006 and 2005
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
17,199,071
|
|
$
|
16,519,882
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Goods Sold
|
|
|
13,234,378
|
|
|
12,959,150
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
3,964,693
|
|
|
3,560,732
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
330,586
|
|
|
128,853
|
|
|
General
and administrative
|
|
|
555,629
|
|
|
519,385
|
|
|
Depreciation
and amortization
|
|
|
16,949
|
|
|
16,520
|
|
|
Total
operating expenses
|
|
|
903,164
|
|
|
664,758
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense)
|
|
|
|
|
|
|
|
|
Other
income (expense) - net
|
|
|
86,850
|
|
|
7,769
|
|
|
Interest
Income
|
|
|
223
|
|
|
270
|
|
|
Loss
on disposal of assets
|
|
|
(45,323
|
)
|
|
-
|
|
|
Interest
Expense
|
|
|
(421,981
|
)
|
|
(404,138
|
)
|
|
Total
other income (expense)
|
|
|
(380,231
|
)
|
|
(396,099
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
Income Before Provision for Income Tax
|
|
|
2,681,298
|
|
|
2,499,875
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for Income Taxes
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
2,681,298
|
|
$
|
2,499,875
|
|
|
|
|
|
|
|
|
|
|
|
The
Components of Other Comprehensive Income
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
2,681,298
|
|
$
|
2,499,875
|
|
|
Foreign
currency translation adjustment
|
|
|
798,900
|
|
|
354,421
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
$
|
3,480,198
|
|
$
|
2,854,296
|
|
The
accompanying notes are an integral part of these financial
statements.
Xinghe
Xingyong Carbon Co., Ltd.
Statements
of Stockholders' Equity
For
the Years Ended December 31, 2006 and 2005
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Retained
|
|
Other
|
|
Total
|
|
|
|
|
|
|
Earnings
|
|
Comprehensive
|
|
Stockholders'
|
|
|
|
|
Capital
|
|
(Deficit)
|
|
Income
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2004
|
|
$
|
6,650,544
|
|
$
|
10,689,200
|
|
$
|
-
|
|
$
|
17,339,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
-
|
|
|
354,421
|
|
|
354,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year ended December 31,
2005
|
|
|
-
|
|
|
2,499,875
|
|
|
-
|
|
|
2,499,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
6,650,544
|
|
|
13,189,075
|
|
|
354,421
|
|
|
20,194,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
-
|
|
|
798,900
|
|
|
798,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year ended December 31,
2006
|
|
|
-
|
|
|
2,681,298
|
|
|
-
|
|
|
2,681,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
$
|
6,650,544
|
|
$
|
15,870,373
|
|
$
|
1,153,321
|
|
$
|
23,674,238
|
|
The
accompanying notes are an integral part of these financial
statements.
Xinghe
Xingyong Carbon Co., Ltd.
Statements
of Cash Flows
For
the Years Ended December 31, 2006 and 2005
|
|
|
2006
|
|
2005
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
Net
Income
|
|
$
|
2,681,298
|
|
$
|
2,499,875
|
|
Adjustments
to reconcile net cash provided by operating
activities
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
973,822
|
|
|
967,438
|
|
|
Net
change in assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(812,334
|
)
|
|
(639,201
|
)
|
|
Notes
receivable
|
|
|
167,836
|
|
|
(99,252
|
)
|
|
Prepaid
expenses
|
|
|
1,669
|
|
|
(6,000
|
)
|
|
Other
receivables
|
|
|
1,198,351
|
|
|
74,331
|
|
|
Inventory
|
|
|
(4,486,032
|
)
|
|
(1,554,984
|
)
|
|
Accounts
payable and accrued liabilities
|
|
|
(402,727
|
)
|
|
1,062,011
|
|
|
Taxes
payable
|
|
|
111,753
|
|
|
(110,163
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
(566,364
|
)
|
|
2,194,055
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Purchases
of fixed assets
|
|
|
(193,980
|
)
|
|
(2,147,299
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used in) investing activities
|
|
|
(193,980
|
)
|
|
(2,147,299
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Advances
from related parties
|
|
|
495,295
|
|
|
-
|
|
|
Repayment
of advance from related parties
|
|
|
-
|
|
|
(82,262
|
)
|
|
Advances
on notes payable
|
|
|
225,187
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
720,482
|
|
|
(82,262
|
)
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate
|
|
|
72,380
|
|
|
3,319
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
32,518
|
|
|
(32,187
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of year
|
|
|
12,942
|
|
|
45,129
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of year
|
|
$
|
45,460
|
|
$
|
12,942
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
421,981
|
|
$
|
404,138
|
|
|
Enterprise
incomes taxes paid
|
|
$
|
-
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these financial
statements.
Xinghe
Xingyong Carbon Co. Ltd.
Footnotes
to Financial Statements
December
31, 2006 and 2005
Nature
of organization –
Xinghe
Xingyong Carbon Co. Ltd.
(the
“Company”), was formed in January 2002 and acquired Xinghe Carbon Factory, which
was formed in 1986.
The
Company is located in
Xicheng
Wai, Chengguan town, Xinghe County, Inner Mongolia, China
The
Company manufactures graphite electrodes, high purity carbon electrodes and
other carbon products.
The
Company has registered and paid capital of 55,000,000 RMB.
|
2.
|
Basis
of Preparation of Financial
Statements
|
The
Company maintains its books and accounting records in Renminbi (“RMB”).
The
financial statements have been prepared in order to present the financial
position and results of operations in accordance with accounting principles
generally accepted in the United States of America (“US GAAP”) and are expressed
in terms of US dollars (see paragraph “Foreign Currency” below).
|
3.
|
Summary
of Significant Accounting
Policies
|
Use
of estimates
- The
preparation of these financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affected the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at
the dates of the financial statements and the reported amounts of net sales
and
expenses during the reported periods.
Significant
estimates included values and lives assigned to acquired intangible assets,
reserves for customer returns and allowances, uncollectible accounts receivable,
slow moving, obsolete and/or damaged inventory and stock warrant valuation.
Actual results may differ from these estimates.
Cash
and cash equivalents
-
The
Company
considers all highly liquid debt instruments purchased with maturity period
of
three months or less to be cash equivalents. The carrying amounts reported
in
the accompanying balance sheet for cash and cash equivalents approximate
their
fair value. Substantially all of the Company’s cash is held in bank accounts in
The Peoples Republic of China and is not protected by FDIC insurance or any
other similar insurance.
Inventory
–
Inventory
is stated at the lower of cost or market. Cost is determined using the weighted
average method. Market value represents the estimated selling price in the
ordinary course of business less the estimated costs necessary to complete
the
sale.
The
cost
of inventories comprises all costs of purchases, costs of conversion and
other
costs incurred in bringing the inventories to their present location and
condition. The costs of conversion of inventories include fixed and variable
production overheads, taking into account the stage of completion.
Accounts
receivable
–
The
Company uses the allowance method to account for uncollectible accounts
receivable. As of December 31, 2006 and 2005 all accounts receivable were
considered collectible and there was no allowance for bad debts.
Property
and equipment
-
Property and equipment is stated at the historical cost, less accumulated
depreciation. Land use rights are being amortized to expense on a straight
line
basis over the life of the rights. Depreciation on property, plant and equipment
is provided using the straight-line method over the estimated useful lives
for
both financial and income tax reporting purposes as follows:
Xinghe
Xingyong Carbon Co. Ltd.
Footnotes
to Financial Statements
December
31, 2006 and 2005
|
3.
|
Summary
of Significant Accounting Policies
(continued)
|
|
Land
use rights
|
|
|
50
years
|
|
|
Buildings
|
|
|
25
- 40 years
|
|
|
Plant
and machinery
|
|
|
10
- 20 years
|
|
|
Motor
vehicles
|
|
|
5
years
|
|
Expenditures
for renewals and betterments were capitalized while repairs and maintenance
costs are normally charged to the statement of operations in the year in
which
they are incurred. In situations where it can be clearly demonstrated that
the
expenditure has resulted in an increase in the future economic benefits expected
to be obtained from the use of the asset, the expenditure is capitalized
as an
additional cost of the asset.
Upon
sale
or disposal of an asset, the historical cost and related accumulated
depreciation or amortization of such asset were removed from their respective
accounts and any gain or loss is recorded in the Statements of
Operations.
The
Company reviews the carrying value of property, plant, and equipment for
impairment whenever events and circumstances indicate that the carrying value
of
an asset may not be recoverable from the estimated future cash flows expected
to
result from its use and eventual disposition. In cases where undiscounted
expected future cash flows are less than the carrying value, an impairment
loss
is recognized equal to an amount by which the carrying value exceeds the
fair
value of assets. The factors considered by management in performing this
assessment include current operating results, trends and prospects, the manner
in which the property is used, and the effects of obsolescence, demand,
competition, and other economic factors. Based on this assessment there was
no
impairment at December 31, 2006
Land
Use
Right
- There
is no private ownership of land in the PRC. The Company has acquired land
use
rights totaling to 1,207,388 square feet, on which a 263,501 square feet
facility is located. The land use right has a term of 50 years, commencing
year
2002. The Company evaluates the carrying value of intangible assets during
the
fourth quarter of each year and between annual evaluations if events occur
or
circumstances change that would more likely than not reduce the fair value
of
the intangible asset below its carrying amount. There were no impairments
recorded during the year ended December 31, 2006.
Foreign
Currency
–
The
Company’s principal country of operations is in The People’s Republic of China.
The financial position and results of operations of the Company are determined
using the local currency (“Renminbi” or “Yuan”) as the functional currency. The
results of operations denominated in foreign currency are translated at the
average rate of exchange during the reporting period.
Assets
and liabilities denominated in foreign currencies at the balance sheet date
are
translated at the market rate of exchange ruling at that date. The registered
equity capital denominated in the functional currency is translated at the
historical rate of exchange at the time of capital contribution. All translation
adjustments resulting from the translation of the financial statements into
the
reporting currency (“US Dollars”) are dealt with as a separate component within
shareholders’ equity. As of December 31, 2006 and 2005, the cumulative effects
of these translation adjustments of $1,153,321 and 354,421 are reflected
in
accumulated other comprehensive income.
As
of
December 31, 2006 and 2005 the exchange rate was 7.8175 Yuan and 8.11 Yuan
per
U.S. Dollar.
Income
recognition
-
Revenue is recognized in accordance with Staff Accounting Bulletin No. 104,
Revenue Recognition, which states that revenue should be recognized when
the
following criteria are met: (1) persuasive evidence of an arrangement
exists; (2) the service has been rendered; (3) the selling price is
fixed or determinable; and (4) collection of the resulting receivable is
reasonably assured. The Company believes that these criteria are satisfied
when
the goods are shipped pursuant to purchase order.
Xinghe
Xingyong Carbon Co. Ltd.
Footnotes
to Financial Statements
December
31, 2006 and 2005
|
3.
|
Summary
of Significant Accounting Policies
(continued)
|
Interest
income is recognized when earned, taking into account the average principal
amounts outstanding and the interest rates applicable
Taxation
-
Taxation
on profits earned in the PRC has been calculated on the estimated assessable
profits for the year at the rates of taxation prevailing in the PRC in the
Company operates after taking into effect the benefits from any special tax
credits or “tax holidays” allowed in the country of operations.
The
Company does not accrue United States income since it is organized and located
in the PRC and does not conduct any business in the United States.
In
2006,
the Financial Accounting Standards Board (FASB) issued FIN 48, which clarifies
the application of SFAS 109 by defining a criterion that an individual income
tax position must meet for any part of the benefit of that position to be
recognized in an enterprise’s financial statements and provides guidance on
measurement, derecognition, classification, accounting for interest and
penalties, accounting in interim periods, disclosure and transition. In
accordance with the transition provisions, the company adopted FIN 48 effective
January 1, 2007.
The
Company recognizes that virtually all tax positions in the PRC are not free
of
some degree of uncertainty due to tax law and policy changes by the state.
However, the Company cannot reasonably quantify political risk factors and
thus
must depend on guidance issued by current state officials.
Based
on
all known facts and circumstances and current tax law, the company believes
that
the total amount of unrecognized tax benefits as of December 31, 2007, is
not
material to its results of operations, financial condition or cash flows.
The
company also believes that the total amount of unrecognized tax benefits
as of
December 31, 2007, if recognized, would not have a material effect on its
effective tax rate. The Company further believes that there are no tax positions
for which it is reasonably possible, based on current Chinese tax law and
policy, that the unrecognized tax benefits will significantly increase or
decrease over the next 12 months producing, individually or in the aggregate,
a
material effect on the company’s results of operations, financial condition or
cash flows.
Enterprise
income tax
Under
the
Provisional Regulations of The People’s Republic of China Concerning Income Tax
on Enterprises promulgated by the PRC, income tax is payable by enterprises
at a
rate of 33% of their taxable income. Preferential tax treatment may, however,
be
granted pursuant to any law or regulations from time to time promulgated
by the
State Council.
The
Company has been granted a tax holiday from
Enterprises
Income Tax Policy
by the
Xinghe
District Local Tax Authority
for the
five years 2003 through 2007. As a result, no taxes are accrued for these
years.
Enterprise
income tax (“EIT”) is provided on the basis of the statutory profit for
financial reporting purposes, adjusted for income and expense items, which
are
not assessable or deductible for income tax purposes.
|
3.
|
Summary
of Significant Accounting Policies
(continued)
|
Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of
existing assets and liabilities and their respective tax basis. Deferred
tax
assets, including tax loss and credit carry forwards, and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect of deferred tax assets and liabilities of a change in
tax
rates is recognized in income in the period that includes the enactment date.
Deferred income tax expense represents the change during the period in the
deferred tax assets and deferred tax liabilities. The components of the deferred
tax assets and liabilities are individually classified as current and
non-current based on their characteristics. Deferred tax assets are reduced
by a
valuation allowance when, in the opinion of management, it is more likely
than
not that some portion or all of the deferred tax assets will not be
realized.
Xinghe
Xingyong Carbon Co. Ltd.
Footnotes
to Financial Statements
December
31, 2006 and 2005
Value
added tax
The
Provisional Regulations of The People’s Republic of China Concerning Value Added
Tax promulgated by the State Council came into effect on January 1, 1994.
Under
these regulations and the Implementing Rules of the Provisional Regulations
of
the PRC Concerning Value Added Tax, value added tax is imposed on goods sold
in
or imported into the PRC and on processing, repair and replacement services
provided within the PRC.
Value
added tax payable in The People’s Republic of China is charged on an aggregated
basis at a rate of 13% or 17% (depending on the type of goods involved) on
the
full price collected for the goods sold or, in the case of taxable services
provided, at a rate of 17% on the charges for the taxable services provided,
but
excluding, in respect of both goods and services, any amount paid in respect
of
value added tax included in the price or charges, and less any deductible
value
added tax already paid by the taxpayer on purchases of goods and services
in the
same financial year.
The
Company has been granted an exemption from VAT by the Xing He County People’s
Government and Zing He Tax Authority on some products in which an exchange
agreement is in place for raw materials and fuel.
Contingent
liabilities and contingent assets
-
A
contingent liability is a possible obligation that arises from past events
and
whose existence will only be confirmed by the occurrence or non-occurrence
of
one or more uncertain future events not wholly within the control of the
Company. It can also be a present obligation arising from past events that
is
not recognized because it is not probable that outflow of economic resources
will be required or the amount of obligation cannot be measured
reliably.
A
contingent liability is not recognized but is disclosed in the notes to the
financial statements. When a change in the probability of an outflow occurs
so
that outflow is probable, they will then be recognized as a
provision.
A
contingent asset is a possible asset that arises from past events and whose
existence will be confirmed only by the occurrence or non-occurrence of one
or
more uncertain events not wholly within the control of the Company.
Contingent
assets are not recognized but are disclosed in the notes to the financial
statements when an inflow of economic benefits is probable. When inflow is
virtually certain, an asset is recognized.
Related
companies
-
A
related company is a company in which a director or an officer has beneficial
interests in and in which the Company has significant influence.
Xinghe
Xingyong Carbon Co. Ltd.
Footnotes
to Financial Statements
December
31, 2006 and 2005
|
3.
|
Summary
of Significant Accounting Policies
(continued)
|
Retirement
benefit costs
-
According to The People’s Republic of China regulations on pensions, the Company
contributes to a defined contribution retirement program organized by the
municipal government in the province in which the Company was registered
and all
qualified employees are eligible to participate in the program. Contributions
to
the program are calculated at 23.5% of the employees’ salaries above a fixed
threshold amount and the employees contribute 2% to 8% while the Company
contributes the balance contribution of 21.5% to 15.5%. The Company has no
other
material obligation for the payment of retirement benefits beyond the annual
contributions under this program.
Fair
value of financial instruments -
The
carrying amounts of certain financial instruments, including cash, accounts
receivable, commercial notes receivable, other receivables, accounts payable,
commercial notes payable, accrued expenses, and other payables approximate
their
fair values as of December 31, 2006 because of the relatively short-term
maturity of these instruments.
Recent
accounting pronouncements
-
In
December 2004, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 123(R),
Share-Based
Payment
.
SFAS
123(R) replaces SFAS No. 123,
Accounting
for Stock-Based Compensation
,
and
supersedes
Accounting
Principles Board
(APB)
Opinion No. 25,
Accounting
for Stock Issued to Employees
.
Effective January 1, 2006, the Company adopted Statement of Financial Accounting
Standard No. 123(R), Share-Based Payment, (“SFAS No. 123(R)”), using the
modified prospective transition method. SFAS No. 123(R) requires
equity-classified share-based payments to employees, including grants of
employee stock options, to be valued at fair value on the date of grant and
to
be expensed over the applicable vesting period. Under the modified prospective
transition method, share-based awards granted or modified on or after January 1,
2006, are recognized in compensation expense over the applicable vesting
period.
Also, any previously granted awards that are not fully vested as of January
1,
2006 are recognized as compensation expense over the remaining vesting period.
No retroactive or cumulative effect adjustments were required upon The Company’s
adoption of SFAS No. 123(R) as the Company had not outstanding share awards
as
of the date of adoption and has not issued any share based awards during
2006.
In
July
2006, the FASB released FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes-an Interpretation of FASB Statement 109, Accounting for Income
Taxes (“FIN 48”). FIN 48 prescribes a comprehensive model for how a company
should recognize, measure, present, and disclose in its financial statements
uncertain tax positions that a company has taken or expects to take on a
tax
return. FIN 48 is effective as of the beginning of fiscal years that start
after
December 15, 2006. The Company does not expect its implementation to be material
to its financial statements.
In
September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin No. 108 (“SAB 108”). Due to diversity in practice among
registrants, SAB 108 expresses SEC staff views regarding the process by which
misstatements in financial statements are evaluated for purposes of determining
whether financial statement restatement is necessary. SAB 108 is effective
for
fiscal years ending after November 15, 2006, and early application is
encouraged. The adoption of SAB 108 had no impact on the Company’s results from
operations or financial position.
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
(“SFAS 157”). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in accordance with generally accepted accounting
principles, and expands disclosures about fair value measurements. This
statement does not require any new fair value measurements; rather, it applies
under other accounting pronouncements that require or permit fair value
measurements. The provisions of this statement are to be applied prospectively
as of the beginning of the fiscal year in which this statement is initially
applied, with any transition adjustment recognized as a cumulative-effect
adjustment to the opening balance of retained earnings. The provisions of
SFAS
157 are effective for the fiscal years beginning after November 15, 2007.
Therefore, we anticipate adopting this standard as of January 1, 2008.
Management has not determined the effect, if any, the adoption of this statement
will have on our financial condition or results of operations.
Xinghe
Xingyong Carbon Co. Ltd.
Footnotes
to Financial Statements
December
31, 2006 and 2005
|
3.
|
Summary
of Significant Accounting Policies
(continued)
|
In
September 2006, the FASB issued Statement No. 158,
“Employers’
Accounting for Defined Benefit Pension and Other Postretirement
Plans”
(“SFAS No. 158”), an amendment of FASB Statements No. 87, 88, 106
and 132(R). SFAS No. 158 requires (a) recognition of the funded
status (measured as the difference between the fair value of the plan assets
and
the benefit obligation) of a benefit plan as an asset or liability in the
employer’s statement of financial position, (b) measurement of the funded
status as of the employer’s fiscal year-end with limited exceptions, and
(c) recognition of changes in the funded status in the year in which the
changes occur through comprehensive income. The requirement to recognize
the
funded status of a benefit plan and the disclosure requirements are effective
as
of the end of the fiscal year ending after December 15, 2006. The
requirement to measure the plan assets and benefit obligations as of the
date of
the employer’s fiscal year-end statement of financial position is effective for
fiscal years ending after December 15, 2008. This Statement has no current
applicability to the Company’s financial statements. Management plans to adopt
this Statement on December 31, 2006 and it is anticipated the adoption of
SFAS No. 158 will not have a material impact to the Company’s
financial position, results of operations, or cash flows.
In
February 2007, the FASB issued Statement No. 159 “The Fair Value Option for
Financial Assets and Financial Liabilities” (SFAS 159). This statement permits
companies to choose to measure many financial assets and liabilities at fair
value. Unrealized gains and losses on items for which the fair value option
has
been elected are reported in earnings. SFAS 159 is effective for fiscal years
beginning after November 15, 2007. The Company is currently assessing the
impact
of SFAS 159 on its consolidated financial statements.
|
4.
|
Concentrations
of Business and Credit
Risk
|
Substantially
all of the Company’s bank accounts are in banks located in the PRC and are not
covered by any type of protection similar to that provided by the FDIC on
funds
held in U.S banks.
The
Company is operating in China, which may give rise to significant foreign
currency risks from fluctuations and the degree of volatility of foreign
exchange rates between U.S. dollars and the Chinese currency RMB.
Financial
instruments that potentially subject the Company to concentration of credit
risk
consist principally of cash and trade receivables, the balances of which
are
stated on the balance sheet. The Company places its cash in high credit quality
financial institutions. Concentration of credit risk with respect to trade
receivables is limited due to the Company's large number of diverse customers
in
different locations in China. The Company does not require collateral or
other
security to support financial instruments subject to credit risk.
For
the
years ended December 31, 2006 and 2005, no single customer accounted for
10% or
more of sales revenues.
As
of
December 31, 2006 the Company had no insurance coverage of any kind. Accrual
for
losses is not recognized until such time as an uninsured loss has
occurred.
|
5.
|
Cash
and Cash Equivalents
|
The
Company maintains all bank accounts in banks in the People’s Republic of China,
which are not protected by FDIC or any other insurance.
Xinghe
Xingyong Carbon Co. Ltd.
Footnotes
to Financial Statements
December
31, 2006 and 2005
|
5.
|
Cash
and Cash Equivalents
(continued)
|
As
of
December 31, 2006, cash and cash equivalents consist of the following:
|
|
|
2006
|
|
|
Cash
in banks
|
|
$
|
45,460
|
|
As
of
December 31, 2006, inventory consisted of the following:
|
|
|
2006
|
|
|
Raw
materials
|
|
$
|
355,975
|
|
|
Work
in process
|
|
|
10,503,765
|
|
|
Finished
goods
|
|
|
2,123,496
|
|
|
Repair
parts
|
|
|
35,641
|
|
|
|
|
$
|
13,018,877
|
|
|
7.
|
Property
and Equipment; Land Use
Rights
|
As
of
December 31, 2006, property and equipment consist of the following:
|
|
|
2006
|
|
|
Building
|
|
|
5,604,977
|
|
|
Plant
and Machinery
|
|
|
16,997,059
|
|
|
Motor
vehicles
|
|
|
35,817
|
|
|
|
|
|
22,637,852
|
|
|
Less:
Accumulated depreciation
|
|
|
(
3,593,761
|
)
|
|
|
|
$
|
19,044,092
|
|
For
the
years ended December 31, 2006 and 2005 depreciation expenses totaled $956,873
and $950,918, respectively, all of which was included as a component of cost
of
goods sold.
As
of
December 31, 2006,land use rights consist of the following:
|
|
|
2006
|
|
|
Land
Use Right
|
|
|
860,922
|
|
|
Less:
Accumulated amortization
|
|
|
(86,097
|
)
|
|
|
|
$
|
774,825
|
|
For
the
years ended December 31, 2006 and 2005, amortization expenses totaled $16,949
and $16,520 respectively.
Xinghe
Xingyong Carbon Co. Ltd.
Footnotes
to Financial Statements
December
31, 2006 and 2005
As
of
December 31, 2006, Notes Payable consisted of the following:
|
|
|
December
31, 2006
|
|
|
Bank
loans with maturities from March 25, 2006 through March 24, 2007,
interest
rate of 7.254%, secured by fixed assets and land use rights
|
|
$
|
5,877,838
|
|
Under
the
Provisional Regulations of The People’s Republic of China Concerning Income Tax
on Enterprises promulgated by the PRC, income tax is payable by enterprises
at a
rate of 33% of their taxable income. Preferential tax treatment may, however,
be
granted pursuant to any law or regulations from time to time promulgated
by the
State Council.
The
Company has been granted a 100% tax holiday from
preferential
Enterprises Income Tax Policy
by the
Xing
He
District Local Tax Authority
for the
five years 2003 through 2007 where 100% of EIT can be refunded. This tax
holiday
could be challenged or overruled by the national taxing authorities in the
PRC,
which could result in taxes and penalties owed for those years. The tax at
the
statutory rates for 2006 and 2005 would have been $804,389 and $749,963,
respectively.
The
Company purchases certain raw materials and fuels from a various trading
companies. The Company did not pay Valued Added Taxes (“VAT”) taxes on the
purchases of certain raw materials and fuel oil purchases from various trading
companies, nor did it charge VAT tax on sales of certain finished goods to
trading companies. During the years ended December 31, 2006 and 2005, the
Company had sales totaling RMB 67,067,851 and RMB 55,883,190 respectively,
on
which no VAT tax was collected. The Company has received a notification from
the
local taxing authorities indicating its agreement to this practice. However,
the
VAT tax is a national tax not controlled by the local taxing authorities.
The
Company’s local legal counsel has expressed its opinion that the national taxing
authorities are legally obligated to honor the VAT tax exemptions made by
the
local taxing authorities. If the Company is required to collect and pay VAT
tax
on these unreported sales, it could have a material negative impact on the
Company’s earnings and cash flows. Management and its local independent legal
counsel believe it is unlikely that this treatment will be challenged and
has
not provided any loss accrual related to the potential VAT tax liability
and
related penalties should its position not be sustained. For the two years
ended
December 31, 2006 and 2005, the VAT tax on unreported sales would amount
to RMB
11,401,534 (approximately $1,435,275) and RMB 9,500,142 (approximately
$1,165,662) before the imposition of any penalties or interest. [I think
we have
similar disclosure in the nine-month numbers.]
A
reconciliation of the provision for income taxes with amounts determined
by the
U.S. federal income tax rate to income before income taxes is as
follows:
|
|
|
Year Ended December 31,
|
|
|
|
|
2006
|
|
2005
|
|
|
Computed
tax at the federal statutory rate of 34%
|
|
$
|
911,641
|
|
$
|
849,958
|
|
|
Less
adjustment to EIT statutory rate of 33% (26,813)
|
|
|
(26,813
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
of tax holiday
|
|
|
(884,828
|
)
|
|
(849,958
|
)
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense per books
|
|
$
|
-
|
|
$
|
-
|
|
|
10.
|
Loans
from Shareholder
|
On
December 31, 2006, the Company had advances from shareholders of $4,985,529.
The
advances do not bear interest and are due on demand.
The
Company has received government grants to assist in the development of new
product lines. During the years ended December 31, 2006 and 2005 these grants
totaled $222,816 and $7,769, respectively. These grants were included in
other
income for financial reporting purposes.
|
12.
|
Commitments
and Contingencies
|
The
Company purchases certain raw materials and fuels from a various trading
companies. The Company did not pay Valued Added Taxes (“VAT”) taxes on the
purchases of certain raw materials and fuel oil purchases from various trading
companies, nor did it charge VAT tax on sales of certain finished goods to
trading companies. During the years ended December 31, 2006 and 2005, the
Company had sales totaling RMB 67,067,851 and RMB 55,883,190 on which no
VAT tax
was collected. The Company has received a notification from the local taxing
authorities indicating its agreement to this practice. However, the VAT tax
is a
national tax not controlled by the local taxing authorities. The Company’s local
legal counsel has expressed its opinion that the national taxing authorities
are
legally obligated to honor the VAT tax exemptions made by the local taxing
authorities. Should the Company be required to collect and pay VAT tax on
these
unreported sales, it could have a material negative impact on the Company’s
earnings. Management and its local independent legal counsel believe it is
unlikely that this treatment will be challenged and has not provided any
loss
accrual related to the potential VAT tax liability and related penalties
should
its position not be sustained. For the two years ended December 31, 2006
and
2005, the VAT tax on unreported sales would amount to RMB 11,401,534
($1,435,275) and RMB 9,500,142 ($1,165,662) before the imposition of any
penalties or interest.
The
Company has been granted a
preferential
Enterprises Income (“EIT”) Tax Policy
from the
Xinghe
District Local Tax Authority
for the
years 2003 through 2007 where 100% of EIT can be refunded. The EIT tax is
a
national tax not controlled by the local taxing authorities.
The
Company’s local legal counsel has expressed its opinion that the national taxing
authorities are legally obligated to honor the EIT commitments made by the
local
taxing authorities.
Management
and its local independent legal counsel believe it is unlikely that this
treatment will be challenged and has not provided any loss accrual related
to
any potential EIT tax liability and related penalties should its position
not be
sustained.
No
government approvals are required to conduct the Company’s principal operations,
and the Company is not aware of any probable governmental regulation of our
business sectors in the near future. Although management believes that the
Company is in material compliance with the statutes, laws, rules and
regulations of every jurisdiction in which it operates, no assurance can
be
given that the Company’s compliance with the applicable statutes, laws,
rules and regulations will not be challenged by governing authorities or
private parties, or that such challenges will not lead to a material adverse
effect on the Company’s financial position, results of operations or cash
flows.
The
Company and its subsidiaries are self-insured, and they do not carry any
property insurance, general liability insurance, or any other insurance that
covers the risks of their business operations. As a result any material loss
or
damage to its properties or other assets, or personal injuries arising from
its
business operations would have a material adverse affect on the Company’s
financial condition and operations.
The
Company is not involved in any legal matters arising in the normal course
of
business. While incapable of estimation, in the opinion of the management,
the
individual regulatory and legal matters in which it might involve in the
future
are not expected to have a material adverse effect on the Company’s financial
position, results of operations or cash flows.
Xinghe
Xingyong Carbon Co., Ltd
Balance
Sheet (Unaudited)
September
30 2007
ASSETS
|
|
|
(US
dollars)
|
|
|
Current
Assets
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
51,321
|
|
|
Trade
accounts receivable
|
|
|
3,835,666
|
|
|
Notes
receivable
|
|
|
160,277
|
|
|
Prepaid
expenses
|
|
|
15,369
|
|
|
Advance
to suppliers and other receivables
|
|
|
270,188
|
|
|
Inventories
|
|
|
13,764,441
|
|
|
Total
current assets
|
|
|
18,097,262
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
19,327,765
|
|
|
|
|
|
|
|
|
Land
use rights, net of accumulated amortization of
$86,097
|
|
|
2,121,558
|
|
|
|
|
|
|
|
|
|
|
$
|
39,546,585
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
1,009,913
|
|
|
Taxes
payable
|
|
|
372,245
|
|
|
Notes
payable
|
|
|
6,016,487
|
|
|
Loan
from stockholder
|
|
|
4,542,306
|
|
|
Total
current liabilities
|
|
|
11,940,951
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
-
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
|
|
|
Registered
capital
|
|
|
6,650,544
|
|
|
Accumulated
other comprehensive income
|
|
|
2,141,725
|
|
|
Retained
earnings
|
|
|
18,813,365
|
|
|
Total
stockholders' equity
|
|
|
27,605,634
|
|
|
|
|
|
|
|
|
|
|
$
|
39,546,585
|
|
The
accompanying notes are an integral part of these financial
statements.
Xinghe
Xingyong Carbon Co., Ltd
Statements
of Operations (Unaudited)
For
Nine Months Ended September 30, 2007 and 2006
|
|
|
(US
dollars)
|
|
|
|
|
2007
|
|
2006
|
|
|
Sales
|
|
$
|
18,799,732s
|
|
$
|
9,876,844
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Goods Sold
|
|
|
15,067,613
|
|
|
7,012,741
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
3,732,119
|
|
|
2,864,103
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
110,050
|
|
|
238,004
|
|
|
General
and administrative
|
|
|
559,517
|
|
|
334,545
|
|
|
Depreciation
and amortization
|
|
|
13,176
|
|
|
11,223
|
|
|
Total
operating expenses
|
|
|
682,743
|
|
|
583,772
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense)
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
286,779
|
|
|
86,261
|
|
|
Interest
Income
|
|
|
377
|
|
|
214
|
|
|
Loss
on disposal of assets
|
|
|
-
|
|
|
(15,583
|
)
|
|
Interest
expense
|
|
|
(393,540
|
)
|
|
(396,591
|
)
|
|
Total
other income (expense)
|
|
|
(106,384
|
)
|
|
(325,699
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
Income Before Provision for Income Tax
|
|
|
2,942,992
|
|
|
1,954,632
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for Income Taxes
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
2,942,992
|
|
$
|
1,954,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Components of Other Comprehensive Income
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
2,942,992
|
|
$
|
1,954,632
|
|
|
Foreign
currency translation adjustment
|
|
|
988,404
|
|
|
549,559
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
$
|
3,931,396
|
|
$
|
2,504,191
|
|
The
accompanying notes are an integral part of these financial
statements.
Xinghe
Xingyong Carbon Co., Ltd
Statements
of Stockholders' Equity (Unaudited)
For
Nine Months Ended September 30 2007
|
|
|
|
|
(US
dollars)
|
|
|
|
|
Common
Stock
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Number
|
|
|
|
Additional
|
|
Retained
|
|
Other
|
|
Total
|
|
|
|
|
of
|
|
Par
|
|
Paid-In
|
|
Earnings
|
|
Comprehensive
|
|
Stockholders'
|
|
|
|
|
Shares
|
|
Value
|
|
Capital
|
|
(Deficit)
|
|
Income
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
|
|
$
|
6,650,544
|
|
|
|
|
$
|
15,870,373
|
|
$
|
1,153,321
|
|
$
|
23,674,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
988,404
|
|
|
988,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30 2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,942,992
|
|
|
-
|
|
|
2,942,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30 2007
|
|
|
-
|
|
$
|
6,650,544
|
|
$
|
-
|
|
$
|
18,813,365
|
|
$
|
2,141,725
|
|
$
|
27,605,634
|
|
The
accompanying notes are an integral part of these financial
statements.
Xinghe
Xingyong Carbon Co., Ltd
Statements
of Cash Flows (Unaudited)
For
Nine Months Ended September 30, 2007 and 2006
|
|
|
2007
|
|
2006
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
2,942,992
|
|
$
|
1,954,632
|
|
|
Adjustments
to reconcile net cash provided by
|
|
|
|
|
|
|
|
|
operating
activities
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
817,621
|
|
|
703,366
|
|
|
Net
change in assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(976,712
|
)
|
|
1,255,225
|
|
|
Notes
receivable
|
|
|
(138,597
|
)
|
|
55,737
|
|
|
Prepaid
expenses
|
|
|
(10,603
|
)
|
|
(14,539
|
)
|
|
Other
receivables
|
|
|
(158,485
|
)
|
|
1,186,465
|
|
|
Inventory
|
|
|
(548,994
|
)
|
|
(4,298,062
|
)
|
|
Accounts
payable and accrued liabilities
|
|
|
(97,513
|
)
|
|
(1,543,289
|
)
|
|
Taxes
payable
|
|
|
178,324
|
|
|
(162,125
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
2,008,033
|
|
|
(862,591
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Purchases
of fixed assets
|
|
|
(1,682,014
|
)
|
|
(196,286
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used in) investing activities
|
|
|
(1,682,014
|
)
|
|
(196,286
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Advances
from related parties
|
|
|
(508,092
|
)
|
|
877,828
|
|
|
Repayment
of advance from related parties
|
|
|
-
|
|
|
-
|
|
|
Advances
on notes payable
|
|
|
52,728
|
|
|
303,551
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
(455,364
|
)
|
|
1,181,379
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate
|
|
|
135,206
|
|
|
(128,416
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
5,861
|
|
|
(5,913
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of year
|
|
|
45,460
|
|
|
12,942
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of year
|
|
$
|
51,321
|
|
$
|
7,029
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
393,540
|
|
$
|
396,591
|
|
|
Enterprise
incomes taxes paid
|
|
$
|
-
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these financial
statements.
Xinghe
Xingyong Carbon Co., Ltd
Footnotes
to Financial Statements
September
30, 2007
|
1.
|
Description
of Business
|
Nature
of organization
–
Xinghe
Xingyong Carbon Co. Ltd. (the “Company”), was formed in January 2002 and
acquired Xinghe Carbon Factory, which was formed in 1986. The Company is
located in Xicheng Wai, Chengguan town, Xinghe County, Inner Mongolia,
China.
The
Company manufactures graphite electrodes, high purity carbon electrodes and
other carbon products.
The
Company has registered and paid capital of $6,650,544.
|
2.
|
Basis
of Preparation of Financial
Statements
|
The
Company maintains its books and accounting records in Renminbi
(“RMB”).
The
financial statements have been prepared in order to present the financial
position and results of operations in accordance with accounting principles
generally accepted in the United States of America (“US GAAP”) and are expressed
in terms of US dollars (see paragraph “Foreign Currency” below).
|
3.
|
Summary
of Significant Accounting
Policies
|
Use
of estimates
- The
preparation of these financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affected the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at
the dates of the financial statements and the reported amounts of net sales
and
expenses during the reported periods.
Significant
estimates included values and lives assigned to acquired intangible assets,
reserves for customer returns and allowances, uncollectible accounts receivable,
slow moving, obsolete and/or damaged inventory and stock warrant valuation.
Actual results may differ from these estimates.
Cash
and cash equivalents -
The
Company considers all highly liquid debt instruments purchased with maturity
period of three months or less to be cash equivalents. The carrying amounts
reported in the accompanying balance sheet for cash and cash equivalents
approximate their fair value. Substantially all of the Company’s cash is held in
bank accounts in The Peoples Republic of China and is not protected by FDIC
insurance or any other similar insurance.
Inventory
–
Inventory
is stated at the lower of cost or market. Cost is determined using the weighted
average method. Market value represents the estimated selling price in the
ordinary course of business less the estimated costs necessary to complete
the
sale.
The
cost
of inventories comprises all costs of purchases, costs of conversion and
other
costs incurred in bringing the inventories to their present location and
condition. The costs of conversion of inventories include fixed and variable
production overheads, taking into account the stage of completion.
Accounts
receivable –
The
Company uses the allowance method to account for uncollectible accounts
receivable. As of September 30, 2007 all accounts receivable were considered
collectible and there was no allowance for bad debts.
Property
and equipment
-
Property and equipment is stated at the historical cost, less accumulated
depreciation. Land use rights are being amortized to expense on a straight
line
basis over the life of the rights. Depreciation on property, plant and equipment
is provided using the straight-line method over the estimated useful lives
of
the assets for both financial and income tax reporting purposes as
follows:
Xinghe
Xingyong Carbon Co., Ltd
Footnotes
to Financial Statements
September
30, 2007
|
Buildings
|
|
|
25
- 40 years
|
|
|
Plant
and machinery
|
|
|
10
- 20 years
|
|
|
Motor
vehicles
|
|
|
5
years
|
|
Expenditures
for renewals and betterments were capitalized while repairs and maintenance
costs are normally charged to the statement of operations in the year in
which
they are incurred. In situations where it can be clearly demonstrated that
the
expenditure has resulted in an increase in the future economic benefits expected
to be obtained from the use of the asset, the expenditure is capitalized
as an
additional cost of the asset.
Upon
sale
or disposal of an asset, the historical cost and related accumulated
depreciation or amortization of such asset were removed from their respective
accounts and any gain or loss is recorded in the Statements of
Operations.
The
Company reviews the carrying value of property, plant, and equipment for
impairment whenever events and circumstances indicate that the carrying value
of
an asset may not be recoverable from the estimated future cash flows expected
to
result from its use and eventual disposition. In cases where undiscounted
expected future cash flows are less than the carrying value, an impairment
loss
is recognized equal to an amount by which the carrying value exceeds the
fair
value of assets. The factors considered by management in performing this
assessment include current operating results, trends and prospects, the manner
in which the property is used, and the effects of obsolescence, demand,
competition, and other economic factors. Based on this assessment there was
no
impairment at September 30, 2007.
Land
Use Rights
–
There is no
private ownership of land in the PRC. The Company has acquired land use rights
totaling to 2,356,209 square feet, on which a 290,626 square feet facility
is
located. The land use right has a term of 50 years, commencing year 2002.
The
cost of the land use rights is amortized over the 50-year term of the land
use.
The Company evaluates the carrying value of intangible assets during the
fourth
quarter of each year and between annual evaluations if events occur or
circumstances change that would more likely than not reduce the fair value
of
the intangible asset below its carrying amount. There were no impairments
recorded during the period ended September 30, 2007.
Foreign
Currency
–
The
Company’s principal country of operations is in The People’s Republic of China.
The financial position and results of operations of the Company are determined
using the local currency (“Renminbi” or “Yuan”) as the functional currency. The
results of operations denominated in foreign currency are translated at the
average rate of exchange during the reporting period.
Assets
and liabilities denominated in foreign currencies at the balance sheet date
are
translated at the market rate of exchange ruling at that date. The registered
equity capital denominated in the functional currency is translated at the
historical rate of exchange at the time of capital contribution. All translation
adjustments resulting from the translation of the financial statements into
the
reporting currency (“US Dollars”) are dealt
with
as a
separate component within shareholders’ equity.
Translation
adjustments
for the
nine months ended September 30, 2007 and 2006 were $988,404 and $549,559,
respectively.
As
of
September 30 2006 and 2007 the exchange rate was 7.9 and 7.5 Yuan per U.S.
Dollar.
Income
recognition
-
Revenue
is recognized in accordance with Staff Accounting Bulletin No. 104, Revenue
Recognition, which states that revenue should be recognized when the following
criteria are met: (1) persuasive evidence of an arrangement exists; (2) the
service has been rendered; (3) the selling price is fixed or determinable;
and
(4) collection of the resulting receivable is reasonably assured. The Company
believes that these criteria are satisfied when the goods are shipped pursuant
to a purchase order.
Interest
income is recognized when earned, taking into account the average principal
amounts outstanding and the interest rates applicable
Taxation
-
Taxation
on profits earned in the PRC has been calculated on the estimated assessable
profits for the year at the rates of taxation prevailing in the PRC in the
Company operates after taking into effect the benefits from any special tax
credits or “tax holidays” allowed in the country of operations.
Xinghe
Xingyong Carbon Co., Ltd
Footnotes
to Financial Statements
September
30, 2007
The
Company does not accrue United States income tax since it is organized and
located in the PRC and does not conduct any business in the United States.
In
2006,
the Financial Accounting Standards Board (FASB) issued FIN 48, which clarifies
the application of SFAS 109 by defining a criterion that an individual income
tax position must meet for any part of the benefit of that position to be
recognized in an enterprise’s financial statements and provides guidance on
measurement, derecognition, classification, accounting for interest and
penalties, accounting in interim periods, disclosure and transition. In
accordance with the transition provisions, the company adopted FIN 48 effective
January 1, 2007.
The
Company recognizes that virtually all tax positions in the PRC are not free
of
some degree of uncertainty due to tax law and policy changes by the state.
However, the Company cannot reasonably quantify political risk factors and
thus
must depend on guidance issued by current state officials.
Based
on
all known facts and circumstances and current tax law, the company believes
that
the total amount of unrecognized tax benefits as of December 31, 2007, is
not
material to its results of operations, financial condition or cash flows.
The
company also believes that the total amount of unrecognized tax benefits
as of
December 31, 2007, if recognized, would not have a material effect on its
effective tax rate. The Company further believes that there are no tax positions
for which it is reasonably possible, based on current Chinese tax law and
policy, that the unrecognized tax benefits will significantly increase or
decrease over the next 12 months producing, individually or in the aggregate,
a
material effect on the company’s results of operations, financial condition or
cash flows.
Enterprise
income tax
Under
the
Provisional Regulations of The People’s Republic of China Concerning Income Tax
on Enterprises promulgated by the PRC, income tax is payable by enterprises
at a
rate of 33% of their taxable income. Preferential tax treatment may, however,
be
granted pursuant to any law or regulations from time to time promulgated
by the
State Council.
The
Company has been granted a tax holiday from 100% of the Enterprises Income
Tax
from the Xing He District Local Tax Authority for the five years 2003 through
2007 where 100%.
Enterprise
income tax is provided on the basis of the statutory profit for financial
reporting purposes, adjusted for income and expense items that are not
assessable or deductible for income tax purposes.
Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of
existing assets and liabilities and their respective tax basis. Deferred
tax
assets, including tax loss and credit carry forwards, and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect of deferred tax assets and liabilities of a change in
tax
rates is recognized in income in the period that includes the enactment date.
Deferred income tax expense represents the change during the period in the
deferred tax assets and deferred tax liabilities. The components of the deferred
tax assets and liabilities are individually classified as current and
non-current based on their characteristics. Deferred tax assets are reduced
by a
valuation allowance when, in the opinion of management, it is more likely
than
not that some portion or all of the deferred tax assets will not be
realized.
Value
added tax
The
Provisional Regulations of The People’s Republic of China Concerning Value Added
Tax promulgated by the State Council came into effect on January 1, 1994.
Under
these regulations and the Implementing Rules of the Provisional Regulations
of
the PRC Concerning Value Added Tax, value added tax is imposed on goods sold
in
or imported into the PRC and on processing, repair and replacement services
provided within the PRC.
Xinghe
Xingyong Carbon Co., Ltd
Footnotes
to Financial Statements
September
30, 2007
Value
added tax payable in The People’s Republic of China is charged on an aggregated
basis at a rate of 13% or 17% (depending on the type of goods involved) on
the
full price collected for the goods sold or, in the case of taxable services
provided, at a rate of 17% on the charges for the taxable services provided,
but
excluding, in respect of both goods and services, any amount paid in respect
of
value added tax included in the price or charges, and less any deductible
value
added tax already paid by the taxpayer on purchases of goods and services
in the
same financial year.
The
Company has been granted an exemption from VAT by the Xing He County People’s
Government and Xing He Tax Authority on some products in which an exchange
agreement is in place for raw materials and fuel.
Contingent
liabilities and contingent assets -
A
contingent liability is a possible obligation that arises from past events
and
whose existence will only be confirmed by the occurrence or non-occurrence
of
one or more uncertain future events not wholly within the control of the
Company. It can also be a present obligation arising from past events that
is
not recognized because it is not probable that outflow of economic resources
will be required or the amount of obligation cannot be measured
reliably.
A
contingent liability is not recognized but is disclosed in the notes to the
financial statements. When a change in the probability of an outflow occurs
so
that outflow is probable, they will then be recognized as a
provision.
A
contingent asset is a possible asset that arises from past events and whose
existence will be confirmed only by the occurrence or non-occurrence of one
or
more uncertain events not wholly within the control of the Company.
Contingent
assets are not recognized but are disclosed in the notes to the financial
statements when an inflow of economic benefits is probable. When inflow is
virtually certain, an asset is recognized.
Related
companies -
A
related
company is a company in which a director or an officer has beneficial interests
in and in which the Company has significant influence.
Retirement
benefit costs
-
According to The People’s Republic of China regulations on pensions, the Company
contributes to a defined contribution retirement program organized by the
municipal government in the province in which the Company was registered
and all
qualified employees are eligible to participate in the program. Contributions
to
the program are calculated at 23.5% of the employees’ salaries above a fixed
threshold amount and the employees contribute 2% to 8% while the Company
contributes the balance contribution of 21.5% to 15.5%. The Company has no
other
material obligation for the payment of retirement benefits beyond the annual
contributions under this program.
Fair
value of financial instruments -
The
carrying amounts of certain financial instruments, including cash, accounts
receivable, commercial notes receivable, other receivables, accounts payable,
commercial notes payable, accrued expenses, and other payables approximate
their
fair values as of September 30, 2007 because of the relatively short-term
maturity of these instruments.
Recent
accounting pronouncements
-
In
December 2004, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 123(R),
Share-Based
Payment
.
SFAS
123(R) replaces SFAS No. 123,
Accounting
for Stock-Based Compensation
,
and
supersedes
Accounting
Principles Board
(APB)
Opinion No. 25,
Accounting
for Stock Issued to Employees
.
Effective January 1, 2006, the Company adopted Statement of Financial Accounting
Standard No. 123(R), Share-Based Payment, (“SFAS No. 123(R)”), using the
modified prospective transition method. SFAS No. 123(R) requires
equity-classified share-based payments to employees, including grants of
employee stock options, to be valued at fair value on the date of grant and
to
be expensed over the applicable vesting period. Under the modified prospective
transition method, share-based awards granted or modified on or after January
1,
2006, are recognized in compensation expense over the applicable vesting
period.
Also, any previously granted awards that are not fully vested as of January
1,
2006 are recognized as compensation expense over the remaining vesting period.
No retroactive or cumulative effect adjustments were required upon The Company’s
adoption of SFAS No. 123(R) as the Company had not outstanding share awards
as
of the date of adoption and has not issued any share based awards during
2006.
Xinghe
Xingyong Carbon Co., Ltd
Footnotes
to Financial Statements
September
30, 2007
In
July
2006, the FASB released FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes-an Interpretation of FASB Statement 109, Accounting for Income
Taxes (“FIN 48”). FIN 48 prescribes a comprehensive model for how a company
should recognize, measure, present, and disclose in its financial statements
uncertain tax positions that a company has taken or expects to take on a
tax
return. FIN 48 is effective as of the beginning of fiscal years that start
after
December 15, 2006. The Company does not expect its implementation to be material
to its financial statements.
In
September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin No. 108 (“SAB 108”). Due to diversity in practice among
registrants, SAB 108 expresses SEC staff views regarding the process by which
misstatements in financial statements are evaluated for purposes of determining
whether financial statement restatement is necessary. SAB 108 is effective
for
fiscal years ending after November 15, 2006, and early application is
encouraged. The adoption of SAB 108 had no impact on the Company’s results from
operations or financial position.
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS
157”). SFAS No. 157 defines fair value, establishes a framework for measuring
fair value in accordance with generally accepted accounting principles, and
expands disclosures about fair value measurements. This statement does not
require any new fair value measurements; rather, it applies under other
accounting pronouncements that require or permit fair value measurements.
The
provisions of this statement are to be applied prospectively as of the beginning
of the fiscal year in which this statement is initially applied, with any
transition adjustment recognized as a cumulative-effect adjustment to the
opening balance of retained earnings. The provisions of SFAS 157 are effective
for the fiscal years beginning after November 15, 2007. Therefore, we anticipate
adopting this standard as of January 1, 2008. Management has not determined
the
effect, if any, the adoption of this statement will have on our financial
condition or results of operations.
In
September 2006, the FASB issued Statement No. 158,
“Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans”
(“SFAS
No. 158”), an amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS No.
158 requires (a) recognition of the funded status (measured as the difference
between the fair value of the plan assets and the benefit obligation) of
a
benefit plan as an asset or liability in the employer’s statement of financial
position, (b) measurement of the funded status as of the employer’s fiscal
year-end with limited exceptions, and (c) recognition of changes in the funded
status in the year in which the changes occur through comprehensive income.
The
requirement to recognize the funded status of a benefit plan and the disclosure
requirements are effective as of the end of the fiscal year ending after
December 15, 2006. The requirement to measure the plan assets and benefit
obligations as of the date of the employer’s fiscal year-end statement of
financial position is effective for fiscal years ending after December 15,
2008.
This Statement has no current applicability to the Company’s financial
statements. Management plans to adopt this Statement on December 31, 2006
and it
is anticipated the adoption of SFAS No. 158 will not have a material impact
to
the Company’s financial position, results of operations, or cash
flows.
In
February 2007, the FASB issued Statement No. 159 “The Fair Value Option for
Financial Assets and Financial Liabilities” (SFAS 159). This statement permits
companies to choose to measure many financial assets and liabilities at fair
value. Unrealized gains and losses on items for which the fair value option
has
been elected are reported in earnings. SFAS 159 is effective for fiscal years
beginning after November 15, 2007. The Company is currently assessing the
impact
of SFAS 159 on its consolidated financial statements.
|
4.
|
Concentrations
of Business and Credit
Risk
|
Substantially
all of the Company’s bank accounts are in banks located in the PRC and are not
covered by any type of protection similar to that provided by the FDIC on
funds
held in U.S banks.
Xinghe
Xingyong Carbon Co., Ltd
Footnotes
to Financial Statements
September
30, 2007
The
Company is operating in China, which may give rise to significant foreign
currency risks from fluctuations and the degree of volatility of foreign
exchange rates between U.S. dollars and the Chinese currency RMB.
Financial
instruments that potentially subject the Company to concentration of credit
risk
consist principally of cash and trade receivables, the balances of which
are
stated on the balance sheet. The Company places its cash in high credit quality
financial institutions. Concentration of credit risk with respect to trade
receivables is limited due to the Company's large number of diverse customers
in
different locations in China. The Company does not require collateral or
other
security to support financial instruments subject to credit risk.
For
the
nine months ended September 30, 2007 no single customer accounted for 10%
or
more of sales revenues.
As
of
September 30, 2007 the Company had no insurance coverage of any kind. Accrual
for losses is not recognized until such time as an uninsured loss has
occurred.
|
5.
|
Cash
and Cash Equivalents
|
The
Company maintains all bank accounts in banks in the People’s Republic of China,
which are not protected
by
FDIC
or any other insurance.
As
of
September
30, 2007
,
cash
and cash equivalents consist of the following:
|
|
|
2007
|
|
|
Cash
in banks
|
|
$
|
51,321
|
|
As
of
September 30, 2007, inventory consisted of the following:
|
|
|
2007
|
|
|
Raw
materials
|
|
$
|
2,337,397
|
|
|
Work
in process
|
|
|
9,621,484
|
|
|
Finished
goods
|
|
|
1,767,775
|
|
|
Repair
parts
|
|
|
37,785
|
|
|
|
|
$
|
13,764,441
|
|
Xinghe
Xingyong Carbon Co., Ltd
Footnotes
to Financial Statements
September
30, 2007
|
7.
|
Property
and Equipment; Land Use
Rights
|
As
of
September
30, 2007
,
property and equipment consist of the following:
|
|
|
2007
|
|
|
Building
|
|
$
|
6,146,548
|
|
|
Plant
and Machinery
|
|
|
17,698,930
|
|
|
Motor
vehicles
|
|
|
37,229
|
|
|
|
|
|
23,882,707
|
|
|
Less:
Accumulated depreciation
|
|
|
(
4,554,942
|
)
|
|
|
|
$
|
19,327,765
|
|
For
the
nine months ended
September
30, 2007 and 2006,
depreciation
expenses totaled $804,445 and $703,366, all of which was included as a component
of cost of goods sold.
As
of
September 30, 2007, land use rights consist of the following:
|
|
|
2007
|
|
2006
|
|
|
Land
Use
Right
|
|
$
|
2,224,472
|
|
|
851,499
|
|
|
Less:
Accumulated
amortization
|
|
|
(
102,914
|
)
|
|
(
80,895
|
)
|
|
|
|
$
|
2,121,558
|
|
|
770,604
|
|
For
the
nine month ended
September
30, 2007and 2006, amortization expenses totaled $13,176 and $11,223
respectively.
As
of
September 30, 2007, notes payable consist of the following:
|
|
|
2007
|
|
|
Bank
loans dated June 12, 2007, due June 10, 2008 with a interest rate
of
8.541%, interest to be paid monthly and secured by fixed assets
and land
use rights
|
|
$
|
5,351,682
|
|
|
Other
loan dated June 22, 2007, due June 20, 2008 with a interest rate
of
7.227%, interest to be paid quarterly.
|
|
|
664,805
|
|
|
|
|
$
|
6,016,487
|
|
Under
the
Provisional Regulations of The People’s Republic of China Concerning Income Tax
on Enterprises promulgated by the PRC, income tax is payable by enterprises
at a
rate of 33% of their taxable income. Preferential tax treatment may, however,
be
granted pursuant to any law or regulations from time to time promulgated
by the
State Council.
The
Company has been granted a 100% tax holiday from Enterprises Income Tax Policy
from the Xing He District Local Tax Authority for the five years 2003 through
2007. This tax holiday could be challenged by higher taxing authorities in
the
PRC, which could result in taxes and penalties owed for those years.
For
the
nine month ended September 30, 2007 and 2006, the enterprise income tax at
the
statutory rates would have been approximately $971,187 and $ 645,029,
respectively.
Xinghe
Xingyong Carbon Co., Ltd
Footnotes
to Financial Statements
September
30, 2007
A
reconciliation of the provision for income taxes with amounts determined
by the
U.S. federal income tax rate to income before income taxes is as
follows.
|
|
|
2007
|
|
|
Computed
tax at the federal statutory rate of 34%
|
|
$
|
1,000,617
|
|
|
|
|
|
|
|
|
Less
adjustment to EIT statutory rate of 33%
|
|
|
(
29,430
|
)
|
|
|
|
|
|
|
|
Benefit
of tax holiday
|
|
|
(
971,187
|
)
|
|
|
|
|
|
|
|
Income
tax expenses per books
|
|
$
|
-
|
|
|
10.
|
Loans
from Shareholder
|
On
September 30, 2007, the Company had advances from a shareholder of $4,542,306.
The advances did not bear interest and are due on demand.
The
Company has received government grants to assist in the development of new
product lines. During the nine months ended September 30, 2007 this grants
totaled $242,142.
|
12.
|
Commitments
and Contingencies
|
No
government approvals are required to conduct the Company’s principal operations,
and the Company is not aware of any probable governmental regulation of our
business sectors in the near future. Although management believes that the
Company is in material compliance with the statutes, laws, rules and regulations
of every jurisdiction in which it operates, no assurance can be given that
the
Company’s compliance with the applicable statutes, laws, rules and regulations
will not be challenged by governing authorities or private parties, or that
such
challenges will not lead to a material adverse effect on the Company’s financial
position, results of operations or cash flows.
The
Company and its subsidiaries are self-insured, and they do not carry any
property insurance, general liability insurance, or any other insurance that
covers the risks of their business operations. As a result any material loss
or
damage to its properties or other assets, or personal injuries arising from
its
business operations would have a material adverse affect on the Company’s
financial condition and operations.
The
Company is not involved in any legal matters arising in the normal course
of
business. While incapable of estimation, in the opinion of the management,
the
individual regulatory and legal matters in which it might involve in the
future
are not expected to have a material adverse effect on the Company’s financial
position, results of operations or cash flows.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
|
|
|
|
|
|
|
|
|
|
|
ACHIEVERS
MAGAZINE, INC.
|
|
|
|
|
|
(Registrant)
|
|
|
|
|
|
Date:
December 27, 2007
|
|
|
|
/s/ Dengyong
Jin
|
|
|
|
|
|
Dengyong
Jin, CEO
|
|
|
|
|
|
|
Exhibit
NEITHER
THIS NOTE NOR THE SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK OR COMMON
STOCK
OR WARRANTS ISSUABLE UPON CONVERSION OF THIS NOTE HAS BEEN REGISTERED UNDER
THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW, AND SUCH
SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR STATE LAW OR AN OPINION
OF
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
|
$1,200,000
|
|
New
York, New York
December
17, 2007
|
ACHIEVERS
MAGAZINE, INC.
3%
CONVERTIBLE SUBORDINATED NOTE DUE DECEMBER 31, 2008
FOR
VALUE
RECEIVED, Achievers Magazine, Inc., a Nevada corporation (the “Company”), hereby
promises to pay to the order of XingGuang Investment Corporation Limited or
registered assigns (the “Holder”), the principal amount of $1,200,000 on
December 31, 2008 (the “Maturity Date”). Interest on the outstanding principal
balance shall be paid at the rate of three percent (3%) per annum, payable
on
the Maturity Date. Interest shall be computed on the basis of a 360-day year,
using the number of days actually elapsed. This Note is issued pursuant to
that
certain Securities Purchase Agreement (the “Agreement”), dated December 17,
2007, by and among the Company and XingGuang Investment Corporation Limited.
All
terms defined in the Agreement and used in this Note shall have the same meaning
in this Note as in the Agreement.
Article
1.
Events
of Default; Acceleration
(a)
Events
of Default Defined
.
The
entire unpaid principal amount of this Note, together with interest thereon
shall, on written notice to the Company given by the holders of this Note,
forthwith become and be due and payable if any one or more the following events
(“Events of Default”) shall have occurred (for any reason whatsoever and whether
such happening shall be voluntary or involuntary or be affected or come about
by
operation of law pursuant to or in compliance with any judgment, decree, or
order of any court or any order, rule or regulation of any administrative or
governmental body) and be continuing. An Event of Default shall
occur:
(i)
if
failure shall be made in the payment of the principal or interest on the Note
when and as the same shall become due and such failure shall continue for a
period of five (5) business days after such payment is due; or
(ii)
if
the
Company shall violate or breach any of the representations, warranties and
covenants contained in the Note or the Agreement and such violation or breach
shall continue for thirty (30) days after written notice of such breach shall
been received by the Company from the Holder; or
(iii)
if
the
Company or any Significant Subsidiary (which term shall mean any subsidiary
of
the Company which would be considered a significant subsidiary, as defined
in
Rule 1-02 of Regulation S-X of the SEC shall consent to the appointment of
a
receiver, trustee or liquidator of itself or of a substantial part of its
property, or shall admit in writing its inability to pay its debts generally
as
they become due, or shall make a general assignment for the benefit of
creditors, or shall file a voluntary petition in bankruptcy, or an answer
seeking reorganization in a proceeding under any bankruptcy law (as now or
hereafter in effect) or an answer admitting the material allegations of a
petition filed against the Company or any Significant Subsidiary, in any such
proceeding, or shall by voluntary petition, answer or consent, seek relief
under
the provisions of any other now existing or future bankruptcy or other similar
law providing for the reorganization or winding up of corporations, or an
arrangement, composition, extension or adjustment with its or their creditors,
or shall, in a petition in bankruptcy filed against it or them be adjudicated
a
bankrupt, or the Company or any Significant Subsidiary or their directors or
a
majority of its stockholders shall vote to dissolve or liquidate the Company
or
any Significant Subsidiary other than a liquidation involving a transfer of
assets from a Subsidiary to the Company or another Subsidiary; or
(iv)
if
an
involuntary petition shall be filed against the Company or any Significant
Subsidiary seeking relief against the Company or any Significant Subsidiary
under any now existing or future bankruptcy, insolvency or other similar law
providing for the reorganization or winding up of corporations, or an
arrangement, composition, extension or adjustment with its or their creditors,
and such petition shall not be vacated or set aside within ninety (90) days
from
the filing thereof; or
(v)
if
a
court of competent jurisdiction shall enter an order, judgment or decree
appointing, without consent of the Company or any Significant Subsidiary, a
receiver, trustee or liquidator of the Company or any Significant Subsidiary,
or
of all or any substantial part of the property of the Company or any Significant
Subsidiary, or approving a petition filed against the Company or any Significant
Subsidiary seeking a reorganization or arrangement of the Company or any
Significant Subsidiary under the Federal bankruptcy laws or any other applicable
law or statute of the United States of America or any State thereof, or any
substantial part of the property of the Company or any Significant Subsidiary
shall be sequestered; and such order, judgment or decree shall not be vacated
or
set aside within ninety (90) days from the date of the entry thereof;
or
(vi)
if,
under
the provisions of any law for the relief or aid of debtors, any court of
competent jurisdiction shall assume custody or control of the Company or any
Significant Subsidiary or of all or any substantial part of the property of
the
Company or any Significant Subsidiary and such custody or control shall not
be
terminated within ninety (90) days from the date of assumption of such custody
or control.
(b)
Rights
of Note Holder
.
Nothing
in this Note shall be construed to modify, amend or limit in any way the right
of the holder of this Note to bring an action against the Company.
Article
2.
Conversion
(a)
Automatic
Conversion
.
Upon
the filing of both the Restated Certificate and the Certificate of Designation,
the principal and interest of this Note shall be automatically converted into
such number of shares of Series A Preferred Stock and Warrants to purchase
the
number of shares of Common Stock as is set forth on Schedule A to this Agreement
without any action on the part of the holder. Such shares of Series A Preferred
Stock and Warrants are referred to as the Automatic Conversion Securities.
Upon
such conversion, this Note and the Company’s obligations under this Note
(including the obligation to pay interest) shall terminate.
(b)
Conversions
at Option of Holder
.
This
Note shall be initially convertible (subject to the 4.9% Limitations, as defined
in Section 3(d) of this Note), in whole at any time or in part from time to
time
into such number of shares of Common Stock and Warrants to purchase such number
of shares of Common Stock as is determined by multiplying each element of the
Optional Conversion Securities by a fraction, the numerator of which is the
principal amount being converted and the denominator of which is the initial
principal amount of this Note. The Optional Conversion Securities are set forth
on Schedule B to this Agreement. Holders shall effect conversions by providing
the Company with the form of conversion notice attached hereto as
Annex
A
(a
“
Notice
of Conversion
”)
executed by the Holder, together with the delivery by the Holder to the Company
of this Note, with this Note being duly endorsed in full for transfer to the
Company or with an applicable stock power duly executed by the Holder in the
manner and form as deemed reasonable by the transfer agent of the Common Stock;
provided, however, that at the election of the Holder, the Holder may execute
the Notice of Conversion and transmit the Notice of Conversion to the Company.
Each Notice of Conversion shall specify the principal amount of this Note to
be
converted, the principal amount of this Note outstanding prior to the conversion
at issue, the principal amount of this Note owned subsequent to the conversion
at issue, and the date on which such conversion is to be effected, which date
may not be prior to the date the Holder delivers such Notice of Conversion
and
the Note to the Company by overnight delivery service or by telecopier or PDF
(the “
Conversion
Date
”).
If no
Conversion Date is specified in a Notice of Conversion, the Conversion Date
shall be the Trading Day immediately following the date that such Notice of
Conversion and applicable stock certificates are received by the Company. The
calculations and entries set forth in the Notice of Conversion shall control
in
the absence of manifest or mathematical error. The principal amount of this
Note
being converted into Optional Conversion Securities in accordance with the
terms
of this Section 3(b) shall be canceled and may not be reissued.
(c)
Automatic
Conversion Upon Change of Control
.
This
Note shall be automatically converted into the Optional Conversion Securities
upon the close of business on the business day immediately preceding the date
fixed for consummation of any transaction resulting in a Change of Control
of
the Company (an “
Automatic
Conversion Event
”).
A
“Change in Control” means a consolidation or merger of the Company with or into
another company or entity in which the Company is not the surviving entity
or
the sale of all or substantially all of the assets of the Company to another
company or entity not controlled by the then existing stockholders of the
Company in a transaction or series of transactions. The Company shall not be
obligated to issue certificates evidencing the Common Stock and Warrants or
other consideration issuable upon such conversion unless this Note is either
delivered to the Company or its transfer agent or the Holder notifies the
Company or its transfer agent in writing that such certificates have been lost,
stolen, or destroyed and executes an agreement satisfactory to the Company
to
indemnify the Company from any loss incurred by it in connection therewith.
Upon
the conversion of this Note pursuant to this Section 3(c), the Company shall
promptly send written notice thereof, by hand delivery or by overnight delivery,
to the Holder at its address then shown on the records of the Company, which
notice shall state that this Note must be surrendered at the office of the
Company (or of its transfer agent for the Common Stock, if
applicable).
(d)
Beneficial
Ownership Limitation
.
Except
as provided in Section 3(c) of this Note, which shall apply as stated therein
if
an Automatic Conversion Event shall occur, the Company shall not effect any
conversion of this Note, and the Holder shall not have the right to convert
any
portion of this Note to the extent that after giving effect to such conversion,
the Holder (together with the Holder’s Affiliates) would beneficially own in
excess of 4.9% of the number of shares of the Common Stock outstanding
immediately after giving effect to such conversion. For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially owned
by
the Holder and its affiliates shall include the number of shares of Common
Stock
issuable upon conversion of the Note and upon exercise of the Warrants issued
upon conversion of this Note with respect to which the determination of
beneficial ownership is being made, but shall exclude the number of shares
of
Common Stock which would be issuable upon (A) conversion of the remaining,
non-converted portion of this Note beneficially owned by the Holder or any
of
its affiliates, and (B) exercise or conversion of the unexercised or
non-converted portion of any other securities of the Company (including
warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any of its
affiliates, so long as such other securities of the Company are not exercisable
nor convertible within sixty (60) days from the date of such
determination. For purposes of this Section 3(d), in determining the
number of outstanding shares of Common Stock, the Holder may rely on the number
of outstanding shares of Common Stock as reflected in the most recent of the
following: (A) the Company’s most recent quarterly reports, Form 10-Q, Form
10-QSB, Annual Reports, Form 10-K, or Form 10-KSB, as the case may be, as filed
with the Commission under the Exchange Act (B) a more recent public announcement
by the Company or (C) any other written notice by the Company or the Company’s
transfer agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of the Holder, the Company
shall within two (2) Trading Days confirm orally and in writing to the Holder
the number of shares of Common Stock then outstanding. In any case, the
number of outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company, including
the
Note, by the Holder or its affiliates since the date as of which such number
of
outstanding shares of Common Stock was publicly reported by the Company.
Beneficial ownership shall be calculated in accordance with Section 13(d) of
the
Exchange Act. This Section 3(d) may be not be waived or amended. The limitation
set forth in this Section 3(d) is referred to as the “
4.9%
Limitation
.”
(i)
Reservation
of Shares Issuable Upon Conversion
.
The
Company covenants that it will at all times reserve and keep available out
of
its authorized and unissued shares of Common Stock solely for the purpose of
issuance upon conversion of this Note and upon conversion of the Series A
Preferred Stock issuable upon conversion of this Note and upon exercise of
the
Warrants issuable upon conversion of this Note, each as herein provided, free
from preemptive rights or any other actual contingent purchase rights of persons
other than the Holders, not less than such number of shares of the Common Stock
as shall (subject to any additional requirements of the Company as to
reservation of such shares set forth in the Purchase Agreement) be issuable
upon
the conversion of this Note including shares of Common Stock issuable upon
exercise of any Warrants issued or issuable upon conversion of this Note. The
Company covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid,
non-assessable and, if the Conversion Shares Registration Statement is then
effective under the 1933 Act, registered for public sale in accordance with
such
Conversion Shares Registration Statement.
(ii)
Fractional
Shares
.
Upon a
conversion hereunder, the Company shall not be required to issue stock
certificates representing fractions of shares of the Common Stock. All
fractional shares shall be carried forward and any fractional shares which
remain after the Holder converts the full principal amount of this Note shall
be
dropped and eliminated.
(iii)
Transfer
Taxes
.
The
issuance of certificates for shares of the Common Stock and Warrants on
conversion of this Note shall be made without charge to the Holders thereof
for
any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not
be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder, and the Company shall not be required to issue
or
deliver such certificates unless or until the person or persons requesting
the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been
paid.
(iv)
Absolute
Obligation
.
Except
as expressly provided herein, no provision of this Note shall alter or impair
the obligation of the Company, which is absolute and unconditional, to pay
the
liquidated damages (if any) on, this Note at the time, place, and rate, and
in
the coin or currency, herein prescribed.
(e)
Certain
Adjustments
.
(i)
Stock
Dividends and Stock Splits
.
If the
Company, at any time from and after the Closing Date, while this Note is
outstanding: (A) shall pay a stock dividend or otherwise make a distribution
or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock (which, for avoidance
of
doubt, shall not include any shares of Common Stock issued by the Company
pursuant to this Note), (B) subdivide outstanding shares of Common Stock into
a
larger number of shares, (C) combine (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or (D)
issue
by reclassification of shares of the Common Stock any shares of capital stock
of
the Company, then the number of shares of Common Stock in the Optional
Conversion Securities shall be multiplied by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding after such event
and
of which the denominator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding before such event. Any
adjustment made pursuant to this Section 3(f)(i) shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
re-classification.
(ii)
Warrants
and Series A Preferred Stock
.
The
number of shares of Series A Preferred Stock and the number of shares of Common
Stock issuable upon exercise of the Warrants shall be adjusted as provided
in
the Certificate of Designation and in the Warrants, respectively, with respect
to any events of the type described in this Section 3(f) which occur subsequent
to the Closing Date.
(f)
Calculations
.
All
calculations under this Section 3 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be.
(g)
Notice
to Holders
.
If (A)
the Company shall declare a dividend (or any other distribution) on the Common
Stock; (B) the Company shall declare a redemption of the Common Stock; (C)
the
Company shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock
or
any Fundamental Transaction, (E)
the
Company shall authorize the voluntary or involuntary dissolution, liquidation
or
winding up of the affairs of the Company; then in each case, the Company shall
cause to be filed at each office or agency maintained for the purpose of
conversion of this Note, and shall cause to be
mailed
to
the Holders at their last addresses as they shall appear upon the
stock
books
of
the
Company, at least 30 calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating
(x)
the
date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled
to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification is expected to become
effective or close, and the date as of which it is expected that holders of
the
Common Stock of record shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable upon such
reclassification or Fundamental Transaction; provided, that the failure to
mail
such notice or any defect therein or in the mailing thereof shall not affect
the
validity of the corporate action required to be specified in such
notice.
(h)
Exempt
Issuance
.
Notwithstanding the foregoing, no adjustment in the Conversion Price will be
made in respect of an Exempt Issuance.
(i)
Fundamental
Transaction
.
If, at
any time while this Note is outstanding, (A) the Company effects any merger
or
consolidation of the Company with or into another Person, (B) the Company
effects any sale of all or substantially all of its assets in one or a series
of
related transactions, (C) any tender offer or exchange offer (whether by the
Company or another Person) is completed pursuant to which holders of Common
Stock are permitted to tender or exchange their shares for other securities,
cash or property, or (D) the Company effects any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or property
(in any such case, a “Fundamental Transaction”), then upon any subsequent
conversion of this Note, the Holder shall have the right to receive, for each
Conversion Share that would have been issuable upon such conversion absent
such
Fundamental Transaction, the same kind and amount of securities, cash or
property as it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such Fundamental
Transaction, the holder of one share of Common Stock (the “Alternate
Consideration”). For purposes of any such conversion, the determination of the
Conversion Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in respect
of one share of Common Stock in such Fundamental Transaction, and the Company
shall apportion the Conversion Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different components
of
the Alternate Consideration. If holders of Common Stock are given any choice
as
to the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration
it receives upon any conversion of this Note following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing provisions,
any
successor to the Company or surviving entity in such Fundamental Transaction
shall assume this Note.
Article
3.
Subordination
(a)
Agreement
of Subordination
.
The
Company, for itself, its successors and assigns, covenants and agrees, and
the
Holder of this Note by his or her acceptance of this Note likewise covenants
and
agrees, that the payment of the principal of and interest on this Note is hereby
expressly subordinated, to the extent and in the manner hereinafter set forth,
to the prior payment in full of all Senior Indebtedness, as hereinafter defined.
The provisions of this Article 4 shall constitute a continuing offer to all
persons who, in reliance upon such provision, become holders of, or continue
to
hold, Senior Indebtedness, and such provisions are made for the benefit of
the
holders of Senior Indebtedness, and such holders are hereby made obligees
hereunder the same as if their names were written herein as such, and they
and/or each of them may proceed to enforce such provisions.
(b)
Company
Not to Make Payments with Respect to Note in Certain
Circumstances
.
(i)
Upon
the
maturity of any Senior Indebtedness by lapse of time, acceleration or otherwise,
all principal thereof and premium, if any, and interest thereon shall first
be
paid in full, or such payment duly provided for in cash or in a manner
satisfactory to the holder or holders of such Senior Indebtedness, before any
payment is made by the Company (A) on account of the principal of or interest
on
this Note or (B) to acquire this Note.
(ii)
Upon
the
happening of an event of default with respect to any Senior Indebtedness, as
such event of default is defined therein or in the instrument under which it
is
outstanding, permitting the holders to accelerate the maturity thereof, then,
unless and until such event of default shall have been cured or waived or shall
have ceased to exist, no payment shall be made by the Company (A) on account
of
the principal of or interest on this Note or (B) to acquire this
Note.
(iii)
Subject
to Paragraphs 4(b)(i) and (ii), as long as any Senior Indebtedness shall be
outstanding, (A) the Company shall not make any payment of principal on this
Note except upon the Maturity Date, and (B) the Company may pay interest on
this
Note as long as the payment of such principal or interest will not result in
an
event of default under the terms of the instruments pursuant to which the Senior
Indebtedness is issued.
(iv)
In
the
event that, notwithstanding the provision of this Paragraph 4(b), the Company
shall make any payment to the Holder of this Note on account of the principal
of
or interest on this Note after the happening of a default in payment of the
principal of or premium, if any, or interest on Senior Indebtedness or after
receipt by the Company of written notice of an event of default with respect
to
any Senior Indebtedness, then unless and until such default or event of default
shall have been cured or waived or shall have ceased to exist, such payment
shall be held by the holder of this Note in trust for the benefit of, and shall
be paid forthwith over and delivered to, the holders of Senior Indebtedness
(pro
rata as to each of such holders on the basis of the respective amounts of Senior
Indebtedness held by them) or their representative or the trustee under the
indenture or other agreement (if any) pursuant to which any instruments
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all Senior Indebtedness in
full
in accordance with the terms of such Senior Indebtedness, after giving effect
to
any concurrent payment or distribution to or for the holders of Senior
Indebtedness.
(c)
Notes
Subordinated to Prior Payment of all Senior Indebtedness on Dissolution,
Liquidation or Reorganization of Company
.
Upon
any distribution of assets of the Company upon any dissolution, winding up,
liquidation or reorganization of the Company (whether in bankruptcy, insolvency
or receivership proceedings or upon an assignment for the benefit of creditors
or otherwise):
(i)
The
holders of all Senior Indebtedness shall first be entitled to receive payment
in
full of the principal thereof, premium, if any, and interest due thereon before
the holder of this Note are entitled to receive any payment on account of the
principal of or interest on this Note (other than securities of the Company
or
any other entity provided for by a plan of reorganization or readjustment which
stock and securities are subordinated to the payment of all Senior Indebtedness
and securities received in lieu thereof which may at the time be outstanding);
and
(ii)
Any
payment or distribution of assets of the Company of any kind or character
whether in cash, property or securities (other than securities that are
subordinated to the payment of all Senior Indebtedness and securities received
in lieu thereof which may at the time be outstanding), to which the holder
of
this Note would be entitled except for the provisions of this Article 4, shall
be paid by the liquidating trustee or agent or other person making such payment
of distribution, whether a trustee in bankruptcy, a receiver or liquidating
trustee or other trustee or agent, directly to the holders of Senior
Indebtedness or their representative or representatives, or to the trustee
or
trustees under any indenture under which any instruments evidencing any of
such
Senior Indebtedness may have been issued, to the extent necessary to make
payment in full of all Senior Indebtedness remaining unpaid, after giving effect
to any concurrent payment or distribution or provision therefor to the holders
of such Senior Indebtedness.
(iii)
In
the
event that, notwithstanding the foregoing provision of this Paragraph 4(c),
any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities (other than shares representing equity
of the Company as reorganized or readjusted, or securities of the Company or
any
other entity provided for by a plan of reorganization or readjustment which
stock and securities are subordinated to the payment of all Senior Indebtedness
and securities received in lieu thereof which may at the time be outstanding),
shall be received by the holder of this Note on account of principal of or
interest on this Note before all Senior Indebtedness is paid in full, or
effective provision made for its payment or distribution, such payment or
distribution shall be received and held in trust for and shall be paid over
to
the holders of the Senior Indebtedness remaining unpaid or unprovided for or
their representative or representatives, or to the trustee or trustees under
any
indenture under which any instruments evidencing any of such Senior Indebtedness
may have been issued, for application to the payment of such Senior Indebtedness
until all such Senior Indebtedness shall have been paid in full, after giving
effect to any concurrent payment or distribution or provision therefor to the
holders of such Senior Indebtedness.
(d)
Noteholder
to be Subrogated to Right of Holders of Senior Indebtedness
.
Subject
to the payment in full of all Senior Indebtedness, the holders of the Notes
shall be subrogated, pro rata, to the rights of the holders of Senior
Indebtedness to receive payments or distributions of assets of the Company
applicable to the Senior Indebtedness until all amounts owing on the Notes
shall
be paid in full, and, for the purpose of such subrogation, no payments or
distributions to the holders of the Senior Indebtedness by or on behalf of
the
Company or by or on behalf of the holder of this Notes by virtue of this Article
4 which otherwise would have been made to the holder of this Notes shall, as
between the Company and the holder of this Note, be deemed to be payment by
the
Company to or on account of the Senior Indebtedness, it being understood that
the provisions of this Article 4 are, and are intended solely, for the purpose
of defining the relative rights of the holders of the Notes, on the one hand,
and the holders of the Senior Indebtedness, on the other hand.
(e)
Obligation
of the Company Unconditional
.
Nothing
contained in this Article 4 or elsewhere in this Note is intended to or shall
impair as between the Company and the holder of this Note, the obligation of
the
Company, which is absolute and unconditional, to pay to the holder of this
Note
the principal of and interest on this Note as and when the same shall become
due
and payable in accordance with its terms, or is intended to or shall affect
the
relative rights of the holder of this Note and creditors of the Company other
than the holders of the Senior Indebtedness, nor shall anything herein or
therein prevent the holder of this Note of this Note from exercising all
remedies otherwise permitted by applicable law upon default under this Note,
subject to the rights, if any, under this Article 4 of the holders of Senior
Indebtedness in respect of cash, property or securities of the Company received
upon the exercise of any such remedy; provided, however, that the holder of
this
Note shall not exercise any remedies if the exercise of such remedies would
result in an event of default under the terms of the Senior Indebtedness. Upon
any distribution of assets of the Company referred to in this Article 4, the
holders of this Note shall be entitled to rely upon any order or decree made
by
any court of competent jurisdiction in which any dissolution, winding up,
liquidation or reorganization proceedings are pending, or a certificate of
the
liquidating trustee or agent or other person making any distribution to the
holder of this Note for the purpose of ascertaining the persons entitled to
participate in such distribution, the holders of the Senior Indebtedness and
other indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article 4. In no event shall any provision of this Article
4
be interpreted as limiting or abrogating the right of the holder of this Note
to
convert principal and interest thereon pursuant to Article 3 of this
Note.
(f)
Subordination
Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior
Indebtedness
.
No
right of any present or future holders of any Senior Indebtedness to enforce
subordination as herein provided shall at any time in any way be prejudiced
or
impaired by any act or failure to act on the part of the Company or by any
act
or failure to act, in good faith, by any such holder, or by any noncompliance
by
the Company with the terms, provisions and covenants of this Note, regardless
of
any knowledge thereof which any such holder may have or be otherwise charged
with.
(g)
Definition
of Senior Indebtedness
.
The
term “Senior Indebtedness” is defined to mean the principal of and premium, if
any, and interest on and any obligations of the Company with respect to the
Company’s indebtedness to all indebtedness and obligations (other than the
Notes) of the Company to banks, insurance companies and other institutional
lenders.
(h)
Additional
Agreement
.
The
holder of this Note, by its acceptance of this Note, agrees to execute any
formal instruments of subordination which may be reasonably requested by any
holder of Senior Indebtedness.
Article
4.
Miscellaneous
(a)
Transferability
.
This
Note shall not be transferred except in a transaction exempt from registration
pursuant to the 1933 Act and applicable state securities law. The Company shall
treat as the owner of this Note the person shown as the owner on its books
and
records.
(b)
Limited
Right of Prepayment
.
The
Company shall have no right to prepay this Note without the prior written
consent of the Holder, which consent may be given or withheld by the Holder
in
its sole discretion. Any prepayment shall be accompanied by interest on this
Note to the date of prepayment.
(c)
WAIVER
OF TRIAL BY JURY
.
IN ANY
LEGAL PROCEEDING TO ENFORCE PAYMENT OF THIS NOTE, THE COMPANY WAIVES TRIAL
BY
JURY.
(d)
WAIVER
OF ANY RIGHT OF COUNTERCLAIM
.
EXCEPT
AS PROHIBITED BY LAW, THE COMPANY HEREBY WAIVES ANY RIGHT TO ASSERT ANY CLAIM
IT
MAY HAVE AGAINST THE HOLDER OF THIS NOTE BY WAY OF A COUNTERCLAIM (OTHER THAN
A
COMPULSORY COUNTERCLAIM) IN ANY ACTION ON THIS NOTE.
(e)
Usury
Saving Provision
.
All
payment obligations arising under this Note are subject to the express condition
that at no time shall the Company be obligated or required to pay interest
at a
rate which could subject the holder of this Note to either civil or criminal
liability as a result of being in excess of the maximum rate which the Company
is permitted by law to contract or agree to pay. If by the terms of this Note,
the Company is at any time required or obligated to pay interest at a rate
in
excess of such maximum rate, the applicable rate of interest shall be deemed
to
be immediately reduced to such maximum rate, and interest thus payable shall
be
computed at such maximum rate, and the portion of all prior interest payments
in
excess of such maximum rate shall be applied and shall be deemed to have been
payments in reduction of principal.
(f)
Notice
to Company
.
Notice
to the Company shall be given to the Company at its principal executive offices,
presently located at
c/o
Xinghe
Xingyong Carbon Co., Ltd., 787 Xicheng Wai, Chengguantown, Xinghe County, Inner
Mongolia, China,
Attention:
Dengyong
Jin, CEO, with a copy to Asher S. Levitsky PC, Sichenzia Ross Friedman Ference
LLP, 61 Broadway, 32 Floor, New York, NY 10006, or to such other address or
person as the Company may, from time to time, advise the holder of this Note,
or
to the holder of this Note at the address set forth on the Company’s records.
Notice shall be given by hand delivery, certified or registered mail, return
receipt requested, overnight courier service which provides evidence of
delivery, or by telecopier if confirmation of receipt is given or of
confirmation of transmission is sent as herein provided.
(g)
Governing
Law
.
This
Note shall be governed by the laws of the State of New York applicable to
agreements executed and to be performed wholly within such state. The Company
hereby (i) consents to the exclusive jurisdiction of the United States District
Court for the Southern District of New York and Supreme Court of the State
of
New York in the County of New York in any action relating to or arising out
of
this Note, (ii) agrees that any process in any such action may be served upon
it
either (x) by certified or registered mail, return receipt requested, or by
an
overnight courier service which obtains evidence of delivery, with the same
full
force and effect as if personally served upon him in New York City or (y) any
other manner permitted by law, and (iii) waives any claim that the jurisdiction
of any such tribunal is not a convenient forum for any such action and any
defense of lack of in personam jurisdiction with respect thereto.
(h)
Expenses
.
In the
event that the Holder commences a legal proceeding in order to enforce its
rights under this Note, the Company shall pay all reasonable legal fees and
expenses incurred by the holder with respect thereto.
IN
WITNESS WHEREOF, the Company has executed this Note as of the date and year
first aforesaid.
|
|
ACHIEVERS
MAGAZINE, INC.
|
|
|
|
|
|
|
|
|
By:
/s/ Dengyong Jin, CEO
|
|
|
|
Dengyong
Jin, CEO
|
NOTICE
OF
CONVERSION
[To
be
Signed Only Upon Conversion
of
Part
or All of Notes]
Achievers
Magazine, Inc.
The
undersigned, the holder of the foregoing Note, hereby surrenders such Note
for
conversion into shares of Common Stock of Achievers Magazine, Inc. to the extent
of $ * unpaid principal amount of due
on such Note, and requests that the certificates for such shares and Warrants
be
issued in the name
of
,
and
delivered
to
,
whose
address
is
.
Dated:
(Signature
must conform in all respects to name of holder as specified on the face of
the
Note.)
*
Insert
here the unpaid principal amount of the Note (or, in the case of a partial
conversion,
the
portion thereof as to which the Note is being converted). In the case of a
partial conversion, a new Note will be issued and delivered, representing the
unconverted portion of the unpaid principal amount of this Note, to or upon
the
order of the holder surrendering such Note.
Schedule
A –
A
utomatic
Conversion Securities
The
number determined by dividing the principal amount of this Note by $1,200,000
and multiplying the result by each of the following (i) 1,200,499
shares
of the Company’s Series A Convertible Preferred Stock, par value $.001 per share
(“Series A Preferred Stock”), with each share of Series A Preferred Stock being
initially convertible into one (1) share of the Company’s Common Stock, par
value $.001 per share, subject to adjustment, (ii) Warrants to purchase
3,000,000 shares of Common Stock at $1.20 per share, and (iii) Warrants to
purchase 3,000,000 shares of Common Stock at $1.20 per share. The number of
shares of Common Stock and the number of shares of Common Stock issuable upon
exercise of Warrants that were issued as Optional Conversion Securities shall
reduce, on a share for share basis, the number of shares of Series A Preferred
Stock and the number of shares issuable upon exercise of Warrants, respectively,
issuable as Automatic Conversion Securities.
Schedule
B – Optional Conversion Securities
The
number determined by dividing the principal amount of this Note by $1,200,000
and multiplying the result by each of the following (i) 1,200,499
shares
of
the Common Stock, subject to adjustment, (ii) Warrants to purchase 3,000,000
shares of Common Stock at $1.20 per share, and (iii) Warrants to purchase
3,000,000 shares of Common Stock at $2.00 per share.
Exhibit
4.3.1
Achievers
Capitalization
|
|
|
|
|
1.6
for 1
|
|
|
|
%
w/
|
|
%
w/
|
|
|
|
|
Shares
|
|
distribution
|
|
Percent
|
|
Preferred
|
|
Pref
and wts
|
|
|
Outstanding
shares
|
|
|
5,108,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
from controlling s/h
|
|
|
3,340,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public
float
|
|
|
1,768,900
|
|
|
2,830,240
|
|
|
23.2
|
%
|
|
21.1
|
%
|
|
14.6
|
%
|
|
Shares
issued to Sincerely
|
|
|
5,867,608
|
|
|
9,388,172
|
|
|
76.8
|
%
|
|
70.0
|
%
|
|
48.3
|
%
|
|
Total
|
|
|
7,636,508
|
|
|
12,218,412
|
|
|
100.0
|
%
|
|
|
|
|
62.9
|
%
|
|
Investor
Preferred
|
|
|
750,312
|
|
|
1,200,499
|
|
|
|
|
|
8.9
|
%
|
|
6.2
|
%
|
|
Total
w/ Investor Preferred
|
|
|
8,386,820
|
|
|
13,418,911
|
|
|
|
|
|
100.0
|
%
|
|
69.1
|
%
|
|
Investor
Warrants $1.20
|
|
|
|
|
|
3,000,000
|
|
|
|
|
|
|
|
|
15.4
|
%
|
|
Investor
Warrants $2.00
|
|
|
|
|
|
3,000,000
|
|
|
|
|
|
|
|
|
15.4
|
%
|
|
Total
w/ Investor Preferred and Wts
|
|
|
|
|
|
19,418,911
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
outstanding
shares + escrow shs
|
|
|
|
|
|
13,218,412
|
|
|
|
|
|
|
|
|
|
|
Note:
of
the 3,340,000 shares purchased from the controlling s/h, 1,000,000 shares are
held in escrow
These
shares are not treated as outstanding for purposes of this table
SHARE
EXCHANGE AGREEMENT
This
Agreement dated as of the 14
th
day of
December, 2007, by and among Achievers Magazine Inc., a Nevada corporation,
having its offices at 220
Cambie
Street, Suite 400, Vancouver, British Columbia V6B 2MP (the “
Issuer
”),
and
Sincere Investment (PTC), Ltd., a British Virgin Islands corporation, having
an
office at
Trinity
Chambers, P.O. Box 4301, Road Town, British Virgin Islands
(the
“
Shareholder
”).
WITNESSETH:
WHEREAS
,
the
Shareholder is the holder of all of the issued and outstanding capital stock
(the “
Talent
Shares
”)
of
Talent International Investment Limited, a British Virgin Islands corporation
(“
Talent
”);
WHEREAS
,
the
Talent is also the holder of all of the issued and outstanding capital stock
of
Xinghe Yongle Carbon Co., Ltd.;
WHEREAS
,
the
Issuer is willing to issue shares of its common stock, par value $.0001 per
share (“
Common
Stock
”),
to
the Shareholder in consideration for the Talent Shares;
NOW,
THEREFORE
,
for the
mutual consideration set out herein, the parties agree as follows:
1.
Exchange
of Shares
.
(a)
Issuance
of Shares by Issuer
.
On and
subject to the conditions set forth in this Agreement, the Issuer will issue
to
the Shareholder, in exchange for all of the Talent Shares, which represents
all
of the issued and outstanding capital stock of Talent (the “
Shares
”),
5,867,608 shares of Common Stock, all of which will be issued in the name of
the
Shareholder.
(b)
Transfer
of Talent Shares by the Shareholder
.
On and
subject to the conditions set forth in this Agreement, the Shareholder will
transfer to the Issuer all of the Talent Shares, free and clear of any and
all
liens, claims, encumbrances, preemptive rights, right of first refusal and
adverse interests of any kind, in exchange for the Shares to be issued to the
Shareholder and the Designees.
(c)
Closing
.
The
issuance of the Shares to the Shareholder and the Designees and the transfer
of
the Talent Shares to the Issuer will take place at a closing (the “
Closing
”)
to be
held at the office of Sichenzia Ross Friedman Ference, LLP, 61 Broadway,
32
nd
Floor,
New York, New York 10006 as soon as possible after or contemporaneously with
the
satisfaction or waiver of all of the conditions to closing set forth in Section
4 of this Agreement.
2.
Representations
and Warranties of the Issuer
.
The
Issuer hereby represents, warrants, covenants and agrees as
follows:
(a)
General
.
(i)
The
Issuer is a corporation duly organized, validly existing and in good standing
under the laws of the State of Nevada. The Issuer has the corporate power to
own
its properties and to carry on its business as now being conducted and is duly
qualified to do business and is in good standing in each jurisdiction in which
the failure to be so qualified and in good standing would have a material
adverse effect on the Issuer. The Issuer is not in violation of any provisions
of its certificate of incorporation or its bylaws. No consent, approval or
agreement of any individual or entity is required to be obtained by the Issuer
in connection with the execution and performance by the Issuer of this Agreement
or the execution and performance by the Issuer of any agreements, instruments
or
other obligations entered into in connection with this Agreement. The Issuer
does not have any equity investment or other interest, direct or indirect,
in,
or any outstanding loans, advances or guarantees to or on behalf of, any
domestic or foreign corporation, limited liability company, association,
partnership, joint venture or other entity.
(ii)
The
Issuer provided to the Shareholder true, correct and complete copies of the
Issuer’s articles of incorporation, including all amendments thereto, and the
Issuer’s bylaws, including all amendments thereto, as such articles of
incorporation and bylaws are in effect on the date hereof.
(iii)
The
Issuer has full power and authority to carry out the transactions provided
for
in this Agreement, and this Agreement constitutes the legal, valid and binding
obligations of the Issuer, enforceable in accordance with its terms, except
as
enforceability may be limited by bankruptcy, insolvency and other laws of
general application affecting the enforcement of creditor’s rights and except
that any remedies in the nature of equitable relief are in the discretion of
the
court. All necessary action required to be taken by the Issuer for the
consummation of the transactions contemplated by this Agreement has been
taken.
(iv)
The
Shares, when issued pursuant to this Agreement, will be duly and validly
authorized and issued, fully paid and non-assessable. The issuance of the Shares
to Shareholder and Designees is exempt from the registration requirements of
the
Securities Act of 1933, as amended (the “
Securities
Act
”),
pursuant to an exemption provided by Regulation S promulgated by the Securities
and Exchange Commission (“
SEC
”)
thereunder (“
Regulation
S
”).
(v)
The
Issuer has authorized capital stock consisting of 75,000,000 shares of Issuer
Common Stock, of which 5,108,900 shares of Common Stock are issued and
outstanding on the date of this Agreement.
(vi)
The
Issuer is not party to any agreement or understanding pursuant to which any
securities of any class of capital stock are to be issued or created or
transferred. Except as contemplated in the securities purchase agreement dated
the date of this Agreement between the Issuer and XingGuang Investment
Corporation Limited (the “Purchase Agreement”), neither the Issuer nor any
officer, director or 5% stockholder of the Issuer has any agreements, plans,
understandings or proposals, whether formal or informal or whether oral or
in
writing, pursuant to which it or he granted or may have issued or granted any
individual or entity any Convertible Security or any interest in the Issuer
or
the Issuer’s earnings or profits, however defined. As used in this Agreement,
the term “Convertible Securities” shall mean any options, rights, warrants,
convertible debt, equity securities or other instrument or agreement upon the
exercise or conversion of which or upon the exchange of which or pursuant to
the
terms of which additional shares of any class of capital stock of the Issuer
may
be issued.
(vii)
There
is
no private or governmental action, suit, proceeding, claim, arbitration or
investigation pending before any agency, court or tribunal, foreign or domestic,
or, to the Issuer’s Best Knowledge, threatened against the Issuer or any of its
properties or any of its officers or directors (in their capacities as such).
There is no judgment, decree or order against the Issuer that could prevent,
enjoin, alter or delay any of the transactions contemplated by this Agreement.
The term “Best Knowledge” of the Issuer shall mean and include (i) actual
knowledge and (ii) that knowledge which a prudent businessperson would
reasonably have obtained in the management of such Person’s business affairs
after making due inquiry and exercising the due diligence which a prudent
businessperson should have made or exercised, as applicable, with respect
thereto.
(viii)
There
are
no material claims, actions, suits, proceedings, inquiries, labor disputes
or
investigations (whether or not purportedly on behalf of the Issuer) pending
or,
to the Issuer’s Best Knowledge, threatened against the Issuer or any of its
assets, at law or in equity or by or before any governmental entity or in
arbitration or mediation. No bankruptcy, receivership or debtor relief
proceedings are pending or, to the best of the Issuer’s knowledge, threatened
against the Issuer.
(ix)
The
Issuer has complied with, is not in violation of, and has not received any
notices of violation with respect to, any federal, state, local or foreign
Law,
judgment, decree, injunction or order, applicable to it, the conduct of its
business, or the ownership or operation of its business. References in this
Agreement to “Laws” shall refer to any laws, rules or regulations of any
federal, state or local government or any governmental or quasi-governmental
agency, bureau, commission, instrumentality or judicial body (including, without
limitation, any federal or state securities law, regulation, rule or
administrative order).
(x)
The
Issuer has properly filed all tax returns required to be filed and has paid
all
taxes shown thereon to be due. All tax returns previously filed are true and
correct in all material respects.
(xi)
The
Issuer has no outstanding liabilities or obligations to any party except as
reflected on the Issuer’s Form 10-QSB for the quarter ended October 31, 2007,
other than charges since such date similar to those incurred in past periods
and
consistent with past practice, all of which will be paid in full or otherwise
satisfied on or prior to the Closing Date.
(xii)
The
Issuer’s Form 10-KSB for the year ended July 31, 2007, contains the audited
financial statements of the Issuer, certified by
Amisano
Hanson, Chartered Accountants
(“
Auditor
”),
the
Issuer’s independent registered accounting firm, and the Issuer’s Form 10-QSB
for the quarter ended October 31, 2007 contains the unaudited financial
statements of the Issuer which have been reviewed by Auditor. The balance sheets
fairly present the financial position of the Issuer, as of their respective
dates, and each of the consolidated statements of income, stockholders’ equity
and cash flows (including any related notes and schedules thereto) fairly
presents the results of operations, cash flows and changes in stockholders’
equity, as the case may be, of the Issuer for the periods to which they relate,
in each case in accordance with generally accepted accounting principles
(“
GAAP
”)
consistently applied during the periods involved. Auditor is independent as
to
the Issuer in accordance with the rules and regulations of the SEC. The books
and records of the Issuer have been, and are being, maintained in all material
respects in accordance with GAAP and any other applicable legal and accounting
requirements and reflect only actual transaction. The Issuer has not received
any letters of comments from the SEC relating to any filing made by the Issuer
with the SEC which has not been addressed by an amended filing, and each amended
filing fully responds to the questions raised by the staff of the SEC. The
Issuer maintains disclosure controls and procedures that are effective to ensure
that information required to be disclosed by the Issuer in its annual and
quarterly reports filed with the SEC is accumulated and communicated to the
Issuer’s management, including its principal executive and financial officers as
appropriate, to allow timely decisions regarding required disclosure. There
were
no significant changes in the Issuer’s internal controls or other factors that
could significantly affect such controls subsequent to July 31, 2007. The Issuer
has not received any advice from Auditor to the effect that there is any
significant deficiency or material weakness in the Issuer’s controls or
recommending any corrective action on the part of the Issuer or any subsidiary
of the Issuer. The Issuer does not have any contingent liabilities. All of
the
Issuer’s operations are conducted by its wholly-owned subsidiary,
Achievers
Publishing Inc., a British Columbia corporation (the “Subsidiary”). As of the
date of this Agreement, the Issuer has no assets and no liabilities other than
the liabilities set forth on closing balance sheet of the Issuer as of the
closing date, which is set forth on Schedule A to this Agreement. All
liabilities of the Issuer will be paid or otherwise satisfied at the Closing,
and the Issuer will provide Talent with evidence of such payment. The Issuer
has
no guarantee or other contingent obligations or liabilities relating to the
operations, liabilities or commitments of the Subsidiary, whether contractually
or as a matter of law.
(xiii)
The
execution and delivery of this Agreement by the Issuer and the consummation
of
the transactions contemplated by this Agreement will not result in any material
violation of the Issuer’s certificate of incorporation or by-laws, or any
applicable Law.
(xiv)
The
Issuer has provided the Shareholder with a currently dated lien search showing
no liens on the business or assets of the Issuer.
(b)
SEC
Documents
.
The
Issuer’s Common Stock is registered pursuant to Section 12(d) of the Securities
Exchange Act of 1934, as amended (the “
Exchange
Act
”).
The
Issuer is current with its reporting obligations under the Exchange Act. The
Common Stock is listed on the OTC Bulletin Board. The Issuer has received no
notice, either oral or written, with respect to the continued listing of the
Common Stock on the OTC Bulletin Board. The Issuer has not provided to any
investor any information that, according to applicable law, rule or regulation,
should have been disclosed publicly prior to the date hereof by the Issuer,
but
which has not been so disclosed. As of their respective dates, the Issuer’s
filings made pursuant to the Exchange Act (the “
Issuer
SEC Documents
”)
complied in all material respects with the requirements of the Exchange Act,
and
rules and regulations of the SEC promulgated thereunder and the Issuer SEC
Documents did 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, not misleading.
3.
Representations
and Warranties of Shareholder
.
The
Shareholder hereby represents, warrants, covenants and agrees as
follows:
(a)
The
Shareholder understands that the offer and sale of the Shares is being made
only
by means of this Agreement and understands that the Issuer has not authorized
the use of, and the Shareholder confirms that he or she is not relying upon,
any
other information, written or oral, other than material contained in this
Agreement. The Shareholder is aware that the purchase of the Shares involves
a
high degree of risk and that the Shareholder may sustain, and has the financial
ability to sustain, the loss of his entire investment, understands that no
assurance can be given that the Issuer will be profitable in the future, that
there is no public market for the Common Stock, and the Issuer can give no
assurance that there will ever be a public market for the Common Stock.
Furthermore, in subscribing for the Shares, the Shareholder acknowledges it
is
not relying upon any projections or any statements of any kind relating to
future revenue, earnings, operations or cash flow in making an investment in
the
Shares.
(b)
The
Shareholder is not acquiring the Shares as a result of, and will not itself
engage in, any "directed selling efforts" (as defined in Regulation S) in the
United States in respect of the Shares which would include any activities
undertaken for the purpose of, or that could reasonably be expected to have
the
effect of, conditioning the market in the United States for the resale of the
Shares; provided, however, that the Shareholder may sell or otherwise dispose
of
the Shares pursuant to registration thereof under the Securities Act and any
applicable state and provincial securities laws or under an exemption from
such
registration requirements;
(c)
The
Shareholder acknowledges and agrees that none of the Shares have been registered
under the Securities Act, or under any state securities or "blue sky" laws
of
any state of the United States, and, unless so registered, may not be offered
or
sold in the United States or, directly or indirectly, to U.S. Persons, as that
term is defined in Regulation S, except in accordance with the provisions of
Regulation S, pursuant to an effective registration statement under the
Securities Act, or pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act and in each
case
in accordance with applicable state and provincial securities laws;
(d)
The
Shareholder acknowledges and agrees that the Issuer will refuse to register
any
transfer of the Shares not made in accordance with the provisions of Regulation
S, pursuant to an effective registration statement under the Securities Act
or
pursuant to an available exemption from the registration requirements of the
Securities Act and in accordance with applicable state and provincial securities
laws;
(e) The
Shareholder represents and warrants that no broker or finder was involved
directly or indirectly in connection with his or her purchase of the Shares
pursuant to this Agreement. The Shareholder shall indemnify the Issuer and
hold
it harmless from and against any manner of loss, liability, damage or expense,
including fees and expenses of counsel, resulting from a breach of the
Shareholder’s warranty contained in this Paragraph 3(e).
(f)
The
Shareholder understands that he or she has no registration rights with respect
to the Shares.
(g)
The
Shareholder is not a citizen or resident of the United States.
(h)
The
Shareholder is acquiring the Shares for investment only and not with a view
to
resale or distribution and, in particular, it has no intention to distribute
either directly or indirectly any of the Shares in the United States or to
U.S.
Persons;
(i)
The
Shareholder is acquiring the Shares as principal for the Shareholder’s own
account, for investment purposes only, and not with a view to, or for, resale,
distribution or fractionalization thereof, in whole or in part, and no other
person has a direct or indirect beneficial interest in such Shares;
(j)
The
Shareholder is not an underwriter of, or dealer in, the common stock of the
Issuer, nor is the Shareholder participating, pursuant to a contractual
agreement or otherwise, in the distribution of the Shares;
(l)
The
Shareholder is not aware of any advertisement of any of the Shares;
and
(m)
No
person has made to the Shareholder any written or oral
representations:
(i)
that
any
person will resell or repurchase any of the Shares;
(ii)
that
any
person will refund the purchase price of any of the Shares;
(iii)
as
to the
future price or value of any of the Shares; or
(iv)
that
any
of the Shares will be listed and posted for trading on any stock exchange
or
automated dealer quotation system or that application has been made to list
and
post any of the Shares of the Issuer on any stock exchange or automated dealer
quotation system.
(n)
The
Shareholder represents he has such knowledge and experience in financial and
business matters as to enable the Shareholder to understand the nature and
extent of the risks involved in purchasing the Shares. The Shareholder is fully
aware that such investments can and sometimes do result in the loss of the
entire investment. The Shareholder has engaged his or her own counsel and
accountants to the extent that the Shareholder deems it necessary.
4.
Conditions
to the Obligation of Shareholder and the Issuer
.
The
obligations of Shareholder and the Issuer under this Agreement are subject
to
the following conditions:
(a)
The
completion of the sale of notes an investor group pursuant to an agreement
between the Issuer and XingGuang Investment Corporation Limited
contemporaneously with the exchange contemplated by this Agreement;
(b)
The
completion of the purchase by the Issuer of 3,340,000 shares of Common Stock
pursuant to a buy-back agreement dated the date of this Agreement among the
Issuer, as purchaser, and Arto Tavukciyan and Lyndon Grove, as sellers, with
625,000 of the shares of Common Stock being held in escrow subject to the Issuer
making payments required in the buy-back agreement.
(c)
The
purchase by eight investors of the issuance
of
1,751,900
shares
of common stock from an investor group.
(d)
The
delivery by the Issuer of a legal opinion from counsel to the Company in a
form
reasonably satisfactory to the Shareholder that: (i) the Shares, when
issued pursuant to this Agreement, will be duly and validly authorized and
issued, fully paid and non-assessable and (ii) all of the outstanding shares
of
capital stock of the Issuer have been duly and validly authorized and issued,
fully paid and non-assessable and were either (x) registered pursuant to the
Securities Act of 1933, as amended, or (y) were issued in transactions exempt
from the registration requirements of such Act pursuant to Section 4(2) and/or
Rule 505 or 506 of the Securities and Exchange Commission under such
Act.
(e)
The
resignation of, and execution of a general release by, all officers and
directors of the Issuer, and the election of Dengyong Jin as the sole
director.
(f)
The
stock
of the Subsidiary, shall have been transferred or sold in a transaction whereby
the Issue has no obligations or liabilities, direct or contingent, with respect
to any current or future liabilities, obligations or contractual rights of
the
Subsidiary.
5.
Miscellaneous
.
(a)
This
Agreement constitutes the entire agreement between the parties relating to
the
subject matter hereof, superseding any and all prior or contemporaneous oral
and
prior written agreements, understandings and letters of intent. This Agreement
may not be modified or amended nor may any right be waived except by a writing
that expressly refers to this Agreement, states that it is a modification,
amendment or waiver and is signed by all parties with respect to a modification
or amendment or the party granting the waiver with respect to a waiver. No
course of conduct or dealing and no trade custom or usage shall modify any
provisions of this Agreement.
(b)
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of New York applicable to contracts made and to be performed entirely
within such State.
(c) This
Agreement shall be binding upon and inure to the benefit of the parties hereto,
and their respective successors and permitted assigns.
(d)
This
Agreement may be executed in two or more counterparts, each of which shall
be
deemed an original but all of which together shall constitute one and the same
document.
(e)
The
various representations, warranties, and covenants set forth in this Agreement
or in any other writing delivered in connection therewith shall survive the
issuance of the Shares.
[Signatures
on following page.]
IN
WITNESS
WHEREOF,
the parties hereto have caused this Agreement to be duly executed as of the
date
first above written.
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Achievers
Magazine Inc.
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|
|
|
By:
/s/ Arto
Tavukciyan
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|
Arto
Tavukciyan, President and Chief Executive Officer
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|
|
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Sincere
Investment (PTC), Ltd.
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|
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By:
/s/Lizhong
Gao
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Name:
Lizhong
Gao
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Title:
President
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Schedule
A
Parent
Only Balance Sheet (unaudited)
AGREEMENT
This
Agreement is made as of the 14
th
day of
December, 2007, by and between Achievers Magazine Inc., a Nevada corporation
(the “Issuer”), and Arto Tavukciyan, (“Arto”) and Lyndon Grove (“Lyndon” and,
together with Arto, the “Sellers” and each, a “Seller”).
WITNESSETH:
WHEREAS,
the Sellers are the owners of an aggregate of 3,340,000 shares (the “Shares”) of
the Issuer’s common stock, par value $.0001 per share (“Common Stock”), in the
respective amounts set forth on Schedule A hereto, and
WHEREAS,
the Sellers desire to sell to the Issuer, and the Issuer desires to purchase
the
Shares from the Sellers, on and subject to the terms of this
Agreement;
WHEREFORE,
the parties hereto hereby agree as follows:
1.
Sale
of the Shares
.
Subject
to the terms and conditions of this Agreement, and in reliance upon the
representations, warranties, covenants and agreements contained in this
Agreement, the Sellers shall sell the Shares to the Issuer, and the Issuer
shall
purchase the Shares from the Sellers for a purchase price (the “Purchase Price”)
equal to $700,000, allocated between the Sellers as set forth in Schedule A
attached hereto. In addition, the Issuer will pay a finders’ fee of $100,000 to
Ventana Capital Partners (“Ventana”), payable in installments of $50,000 on each
of March 31, 2008 and June 30, 2008.
2.
Closing
.
(a)
The
purchase and sales of the Shares shall take place at a closing (the “Closing”),
to occur immediately following execution and delivery of this
Agreement.
(b)
At
the
Closing:
(i)
The
Sellers shall deliver to the Issuer certificates for 2,715,000 of the Shares,
duly endorsed in form for transfer to the Issuer.
(ii)
The
Sellers shall deliver to the Escrow Agent certificates for 625,000 shares,
duly
endorsed in blank in form for transfer. Such shares shall be held by the Escrow
Agent pursuant to the Escrow Agreement.
(iii)
The
Issuer shall deliver to the Sellers its promissory note in the principal amount
of $700,000 (the “Note”), which shall be payable to the Escrow Agent, as
hereinafter defined.
(iv)
The
Issuer shall deliver a certificate for 625,000 of the Shares, together with
a
stock power duly endorse in blank, to Anna Krimshtein PLC, as escrow agent,
(the
“Escrow Agent”) such shares to be held as security for the payment by the Issuer
of its obligations under the Note and its obligations to Ventana in the amount
of $100,000, which are payable in installments of $50,000 on each of March
31,
2008 and June 30, 2008.
(v)
The
Issuer shall have executed the escrow agreement pursuant to which 625,000 shares
shall be held in escrow under the following terms and conditions:
(A)
If
by
March 31, 2008, the Issuer shall not have made (x) the first payment due
pursuant to the Note, which is in the amount of $350,000, and (y) the first
payment of $50,000 to Ventana, both of which are due on March 31, 2008, the
Escrow Agent shall release 250,000 shares to the Sellers and 62,500 shares
to
Ventana.
(B)
If,
by
March 31, 2008, the Issuer shall have made both (x) the first payment due
pursuant to the Note, which is in the amount of $350,000 and (y) the first
payment of $50,000 to Ventana, both of which are due on March 31, 2008, the
Escrow Agent shall deliver 312,500 shares to the Issuer.
(C)
If,
by
June 30, 2008, the Issuer shall not have made (x) the second payment due
pursuant to the Note, which is in the amount of $350,000, and (y) the second
payment of $50,000 to Ventana, both of which are due on June 30, 2008, the
Escrow Agent shall release 250,000 shares to the Sellers and 62,500 shares
to
Ventana.
(D)
If,
by
June 30, 2008, the Issuer shall have made both (x) the first payment due
pursuant to the Note, which is in the amount of $350,000 and (y) the first
payment of $50,000 to Ventana, both of which are due on June 30, the Escrow
Agent shall deliver 312,500 shares to the Issuer.
(E)
The
Issuer has approved a 1.6-for-1 share distribution pursuant to which each share
of common stock becomes 1.6 shares, with the result that the Issuer will issue
six-tenths (0.6) of a share of Common Stock for each share of Common Stock
outstanding on the record date. As a result, the numbers in this Agreement
will
be increased by 60%. As a result, upon the effectiveness of the share
distribution, the number of shares held in escrow will become 1,000,000 shares,
and the amount of shares referred to in this Section 2(b)(v) shall be adjusted
as follows: 312,500 shares shall become 500,000 shares, 250,000 shares shall
become 400,000 shares, 62,500 shares shall become 100,000 shares.
(vi)
The
Sellers shall deliver evidence that, as of Closing, that all liabilities and
obligations of the Issuer, of any kind and description, whether immediate,
direct, contingent or indirect, shall have been paid or cancelled, with the
result that the Issuer has, as of the Closing, no liabilities or obligations
of
any kind.
(vii)
The
Issuer shall have transferred all of the capital stock of Achievers Publishers,
Inc., a British Columbia corporation and wholly-owned subsidiary of the Issuer
to Arto, with the Issuer having no residual liabilities or obligations with
respect thereto.
(viii)
The
Issuer shall deliver or cause the Issuer’s transfer agent to deliver a certified
copy of the stock ledger of the Issuer listing every stockholder of record
as of
the most recent practicable date.
(ix)
Counsel
for the Issuer shall have given its opinion to the Issuer, which may be relied
on by any subsequent purchasers of the Issuer’s capital stock and their counsel
if such purchases take place as part of the next direct or indirect merger
or
similar transaction with an operating business that results in a change of
control of the Issuer (“Reverse Merger Issuances”), to the effect that all of
the issued and outstanding capital stock has been duly and validly authorized
and issued and is fully paid and non-assessable and to such counsel’s knowledge
not issued in violation of any preemptive right, right of first refusal or
other
right, and that the issuance of such capital stock was exempt from the
registration requirements of the Securities Act of 1933, as amended, by virtue
of Section 4(2) of the Securities Act of 1933, as amended, and/or Rule 506
or
506 of the Commission thereunder.
(x)
All
officers and directors of the Issue shall have resigned from their positions,
and they shall have elected Dengyong Jin as the sole director.
(xi)
The
Issuer shall deliver a good standing certificate issued by the Secretary of
State of the State of Nevada and a certified copy of the Issuer’s Articles of
Incorporation, as currently in effect, certified by the Secretary of State
of
the State of Nevada.
(c)
The
Sellers understand that following the Closing, the Issuer may engage a different
accounting firm. At and at any time after the Closing, the parties shall duly
execute, acknowledge and deliver all such further assignments, conveyances,
instruments and documents, and shall take such other action consistent with
the
terms of this Agreement to carry out the transactions contemplated by this
Agreement. Without limiting the foregoing, the Issuer and Sellers jointly and
severally agree that they shall cause the Issuer’s current management to execute
such certificates, auditor representation letters and other representations
(“Certifications”) as the Issuer may reasonably request in order to enable the
Issuer to prepare and file future reports with the Commission, including the
Issuer’s Report on Form 8-K relating to this Agreement, and Sellers shall pay
such fees and take such steps as may be necessary to facilitate the Issuer’s
auditor’s preparation of the financial statements and its report for accounting
periods and events prior to the Closing related thereto for the current fiscal
year and provide such additional assistance as is required by the Issuer in
order to file its financial statements in filings made subsequent to the
Closing; provided, however, that Sellers shall have no obligation with respect
to fees of any accountants engaged by the Issuer after the Closing. Such
Certifications shall specifically include a representation letter for the
benefit of the Issuer’s auditor in the form requested by its auditors. Any such
Certifications shall treat only periods and events prior to Closing. Further,
at
the cost of Sellers, the Issuer will file its final federal and state returns
and any SEC filings, including any amendment to any previously filed reports,
relating to periods prior to the Closing Date.
3.
Certain
Adjustments in the Shares held in Escrow
.
(a)
In
the
event that the market price for the Issuer’s Common Stock is less than Minimum
Price on March 31, 2008 or June 30, 2008, and the Escrow Agent is required
to
deliver some or all of the shares held in escrow, the Issuer shall deliver
to
the Escrow Agent such additional number of share as is determined by multiplying
the number of shares to be delivered on such date by the Minimum Price and
dividing the result by the market price and subtracting from that number the
shares held in escrow that are to be delivered at that time. The Minimum Price
shall be $0.80 per share. For example, if on March 31, 2008, the market price
is
$0.60 per share and the number of shares to be delivered from escrow is 312,500
shares, the number of additional shares of Common Stock to be delivered shall
be
determined as follows:
312,500
x
$.80 = $250,000
$250,000/$.60
= 416,667
416,667
shares – 312,500 shares = 104,167 shares, being the number of additional
shares to be issued.
(b)
The
market price shall determined by taking the average of the high and low reported
sales prices of the Common Stock on each day during the ten trading days
preceding March 31, 2008 or June 30, 2008, as the case may be.
(c)
If,
prior
to June 30, 2008, the Issuer shall issue any shares of Common Stock at a price
which is less than $1.20 per share (after giving effect to the 1.6-for-one
share
distribution), the Issuer shall issue to the Escrow Agent such number of
additional shares as shall be determined by multiplying the number of shares
of
Common Stock then held in escrow, after giving effect to the share distribution,
by a fraction, the numerator of which is the number of shares sold by the Issuer
at a price which is less than $1.20 and the denominator of which is 13,000,000.
For example, if, at a time when there are 1,000,000 shares in escrow, the Issuer
sells 2,600,000 shares of Common Stock at a price which is less than $1.20,
the
number shares to be issued to the Escrow Agent shall be determined as
follows:
Number
of
additional shares = 1,000,000 x 2,600,000/13,000,000 = 200,000
shares.
If
the
number of shares held by the escrow agent is 500,000 shares, the number of
additional shares would be 100,000 shares.
(d)
All
additional shares issuable to the Escrow Agent shall be issued in the name
of
the Escrow Agent, as escrow agent.
4.
Representations
and Warranties of the Issuer and Sellers
.
The
Issuer and Sellers hereby jointly and severally make the following
representations and warranties to each other and to any persons who acquire
the
Issuer’s capital stock following the Closing in Reverse Merger Issuances,
provided, that such representations and warranties shall survive the Closing
for
a period of one (1) year and provided further that each Seller makes no
representations and warranties other than with respect to himself and the Shares
to be sold hereunder:
(a)
The
Issuer is a corporation duly organized, validly existing and in good standing
under the laws of the State of Nevada. The Issuer has the corporate power to
own
its properties and to carry on its business as now being conducted and is duly
qualified to do business and is in good standing in each jurisdiction in which
the failure to be so qualified and in good standing would have a material
adverse effect on the Issuer. The Issuer is not in violation of any of the
provisions of its certificate of incorporation or by-laws. No consent, approval
or agreement of any individual or entity is required to be obtained by the
Issuer in connection with the execution and performance by the Issuer of this
Agreement or the execution and performance by the Issuer of any agreements,
instruments or other obligations entered into in connection with this Agreement.
The Issuer has no active subsidiary, and, except for an inactive subsidiary
which has no assets or liabilities, it does not have any equity investment
or
other interest, direct or indirect, in, or any outstanding loans, advances
or
guarantees to or on behalf of, any domestic or foreign individual or
entity.
(b)
The
Issuer has authorized capital stock consisting of 75,000,000 shares of Issuer
Common Stock, par value $.000l per share, of which 5,108,900 shares of Common
Stock, including the Shares, are presently issued and outstanding. Sellers
own
the Shares free and clear of any and all liens, claims, encumbrances, preemptive
rights, right of first refusal and adverse interests of any kind.
(c)
Neither
the Issuer nor Sellers are party to any agreement or understanding pursuant
to
which any securities of any class of capital stock are to be issued or created
or transferred. The Issuer has not acquired any shares of Common Stock, and
has
no formal or informal agreements or understandings pursuant to which it can
or
will acquire any shares of Issuer Common Stock (other than this Agreement).
Except as contemplated in the Securities Purchase Agreement (the “Purchase
Agreement”), neither the Issuer nor Sellers nor any officer, director or 5%
stockholder of the Issuer has any agreements, plans, understandings or
proposals, whether formal or informal or whether oral or in writing, pursuant
to
which it or he granted or may have issued or granted any individual or entity
any Convertible Security or any interest in the Issuer or the Issuer’s earnings
or profits, however defined. As used in this Agreement, the term “Convertible
Securities” shall mean any options, rights, warrants, convertible debt, equity
securities or other instrument or agreement upon the exercise or conversion
of
which or upon the exchange of which or pursuant to the terms of which additional
shares of any class of capital stock of the Issuer may be issued.
(d)
There
is
no private or governmental action, suit, proceeding, claim, arbitration or
investigation pending before any agency, court or tribunal, foreign or domestic,
or, to the Issuer’s Best Knowledge, threatened against the Issuer or any of its
properties or any of its officers or directors (in their capacities as such).
There is no judgment, decree or order against the Issuer that could prevent,
enjoin, alter or delay any of the transactions contemplated by this Agreement.
The term “Best Knowledge” of the Issuer shall mean and include (i) actual
knowledge and (ii) that knowledge which a prudent businessperson would
reasonably have obtained in the management of such Person’s business affairs
after making due inquiry and exercising the due diligence which a prudent
businessperson should have made or exercised, as applicable, with respect
thereto.
(e)
There
are
no claims, actions, suits, proceedings, inquiries, labor disputes or
investigations (whether or not purportedly on behalf of the Issuer) pending
or,
to the Issuer’s Best Knowledge, threatened against the Issuer or any of its
assets, at law or in equity or by or before any governmental entity or in
arbitration or mediation. No bankruptcy, receivership or debtor relief
proceedings are pending or, to the best of the Issuer’s knowledge, threatened
against the Issuer.
(f)
The
Issuer is in compliance with, is not in violation of, and has not received
any
notices of violation with respect to, any federal, state, local or foreign
Law,
judgment, decree, injunction or order, applicable to it, the conduct of its
business, or the ownership or operation of its business. References in this
Agreement to “Laws” shall refer to any laws, rules or regulations of any
federal, state or local government or any governmental or quasi-governmental
agency, bureau, commission, instrumentality or judicial body (including, without
limitation, any federal or state securities law, regulation, rule or
administrative order).
(g)
The
Issuer has properly filed all tax returns required to be filed and has paid
all
taxes shown thereon to be due. All tax returns previously filed are true and
correct in all material respects.
(h)
The
Issuer has no outstanding liabilities or obligations to any party except as
reflected on the Issuer’s Form 10-KSB for the year ended July 31, 2007 and the
Form 10-QSB for the quarter ended October 31, 2007, other than charges since
such date similar to those incurred in past periods and consistent with past
practice, all of which will be discharged prior to or at the Closing so that,
at
the Closing, the Issuer will have no direct, contingent or other obligations
of
any kind or any commitment or contractual obligations of any kind and
description.
(i)
All
of
the business and financial transactions of the Issuer have been fully and
properly reflected in the books and records of the Issuer in all material
respects and in accordance with generally accepted accounting principles
consistently applied.
(j)
The
Issuer is current with its reporting obligations under Section 15(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). None of the
Issuer’s filings made pursuant to the Exchange Act (collectively, the “Issuer
SEC Documents”) contain any misstatements of material fact or omit to state a
material fact necessary to make the statements made therein not misleading.
The
Issuer SEC Documents, as of their respective dates, complied in all material
respects with the requirements of the Exchange Act, and the rules and
regulations of the Commission there under, and are available on the Commission’s
EDGAR system. The financial statements included in the Issuer SEC Documents
present and reflect, in accordance with generally accepted accounting
principles, consistently applied, the financial condition of the Issuer on
the
balance sheet dates and the results of its operations, cash flows and changes
in
stockholders’ equity for the periods then ended in accordance with generally
accepted accounting principles, consistently applied. The accountants who
audited the Issuer’s financial statements are independent, within the meaning of
the Securities Act and are a member of the PCAOB. There has not occurred any
material adverse change, or any development involving a prospective material
adverse change, in the condition, financial or otherwise, or in the earnings,
business or operations of the Issuer, from that set forth in the Issuer’s Form
10-KSB for the year ended July 31, 2007.
(k)
The
execution and delivery of this Agreement by the Issuer and the consummation
of
the transactions contemplated by this Agreement will not result in any material
violation of the Issuer’s certificate of incorporation or by-laws, or any
applicable Law.
(l)
All
representations, covenants and warranties of the Issuer and Sellers contained
in
this Agreement shall be true and correct on and as of the Closing Date with
the
same effect as though the same had been made on and as of such
date.
5.
Release
.
Each
Seller does hereby release and discharge the Issuer, its officers, directors
and
counsel their respective heirs, executors, administrators, successors and
assigns from any and all actions, causes of action, suits, debts, sums of money,
accounts, reckonings, bonds, bills, specialties, covenants, contracts,
controversies, agreements, promises, damages, claims and demands whatsoever,
in
law, admiralty or equity which against them or any of them such Seller and
his
heirs, executors, administrators, successors and assigns ever had, now have
or
may in the future can, shall or may have, for, upon or by reason or any matter,
cause or thing whatsoever from the beginning of the world to the date of this
Agreement; provided, however, that nothing in this Section 5 shall be construed
as a release of any of the rights or obligations which either Seller may have
pursuant to this Agreement, the escrow agreement or the Note.
6.
Finder’s
Fee
.
Sellers
jointly and severally represent and warrant that, other than the fee payable
to
Ventana, no person is entitled to receive a finder’s, broker’s or similar fee
from the Issuer in connection with this Agreement as a result of any action
taken by the Issuer or Sellers pursuant to this Agreement, and agree jointly
and
severally to indemnify and hold harmless the Issuer, its officers, directors
and
affiliates, in the event of a breach of the representation and warranty set
forth in this Section 6.
7.
Indemnification
by Sellers
.
Sellers
shall jointly and severally indemnify and hold harmless the Issuer, its officers
and directors from and against any manner of loss, liability, damage or expense
(including reasonable fees and expenses of counsel) which they may incur as
a
result of a breach of any of the representations and warranties contained in
Section 4 of this Agreement.
8.
Termination
by Mutual Agreement
.
This
Agreement may be terminated at any time by mutual consent of the parties hereto,
provided that such consent to terminate is in writing and is signed by each
of
the parties hereto.
9.
Miscellaneous
.
(a)
Entire
Agreement
.
This
Agreement constitutes the entire agreement of the parties, superseding and
terminating any and all prior or contemporaneous oral and written agreements,
understandings or letters of intent between or among the parties with respect
to
the subject matter of this Agreement. No part of this Agreement may be modified
or amended, nor may any right be waived, except by a written instrument which
expressly refers to this Agreement, states that it is a modification or
amendment of this Agreement and is signed by the parties to this Agreement,
or,
in the case of waiver, by the party granting the waiver. No course of conduct
or
dealing or trade usage or custom and no course of performance shall be relied
on
or referred to by any party to contradict, explain or supplement any provision
of this Agreement, it being acknowledged by the parties to this Agreement that
this Agreement is intended to be, and is, the complete and exclusive statement
of the agreement with respect to its subject matter. Any waiver shall be limited
to the express terms thereof and shall not be construed as a waiver of any
other
provisions or the same provisions at any other time or under any other
circumstances.
(b)
Severability
.
If any
section, term or provision of this Agreement shall to any extent be held or
determined to be invalid or unenforceable, the remaining sections, terms and
provisions shall nevertheless continue in full force and effect
(c)
Notices
.
All
notices provided for in this Agreement shall be in writing signed by the party
giving such notice, and delivered personally or sent by overnight courier,
mail
or messenger against receipt thereof or sent by registered or certified mail,
return receipt requested, or by facsimile transmission or similar means of
communication if receipt is confirmed or if transmission of such notice is
confirmed by mall as provided in this Section 7(c). Notices shall be deemed
to
have been received on the date of personal delivery or telecopy or attempted
delivery. Notice shall be delivered to the parties at the following
addresses:
|
If
to the Issuer:
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Achievers
Magazine Inc.
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c/o
Xinghe Xingyong Carbon Co., Ltd.
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787
Xicheng Wai
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Chengguantown
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Xinghe
County
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Inner
Mongolia, China
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Attention:
Denyong Jin, CEO
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Fax:
86-0474-7209799
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Attention
of Mr. Dengyong Jin, CEO
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With
a copy to:
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|
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Sichenzia
Ross Friedman Ference LLP
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61
Broadway
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New
York, New York 10006
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|
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Attention:
Asher S. Levitsky
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|
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E-mail:
alevitsky@srff.com
|
|
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Fax:
(212) 930-9725
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|
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If
to Arto:
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Arto
Tavukciyan
|
|
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Achievers
Publishing
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|
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Suite
400-220 Cambie Street
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|
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Vancouver,
BC V6B 2M9
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|
|
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If
to Lyndon:
|
Lyndon
Grove
|
|
|
Achievers
Publishing
|
|
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400-220
Cambie Street
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|
|
Vancouver,
BC V6B 2M9
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|
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With
a copy to
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|
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Ventana
Capital Partners, Inc.
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|
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5782
Caminito Empresa
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La
Jolla, CA 92037
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Any
party
may, by like notice, change the address, person or telecopier number to which
notice shall be sent.
(d)
Governing
Law
.
This
Agreement shall be governed and construed in accordance with the laws of the
State of New York applicable to agreements executed and to be performed wholly
within such State, without regard to any principles of conflicts of law. Each
of
the parties hereby irrevocably consents and agrees that any legal or equitable
action or proceeding arising under or in connection with this Agreement shall
be
brought in the federal or state courts located in the County of New York in
the
State of New York, by execution and delivery of this Agreement, irrevocably
submits to and accepts the jurisdiction of said courts, (iii) waives any defense
that such court is not a convenient forum, and (iv) consent to any service
of
process made either (x) in the manner set forth in Section 11(c) of this
Agreement (other than by telecopier), or (y) any other method of service
permitted by law.
(e)
Waiver
of Jury Trial
.
EACH
PARTY, TO THE EXTENT PERMITTED BY LAW, HEREBY EXPRESSLY WAIVES ANY RIGHT TO
A
TRIAL BY JURY IN THE EVENT OF ANY SUIT, ACTION OR PROCEEDING TO ENFORCE THIS
AGREEMENT OR ANY OTHER ACTION OR PROCEEDING WHICH MAY ARISE OUT OF OR IN ANY
WAY
BE CONNECTED WITH THIS AGREEMENT OR ANY OF THE OTHER DOCUMENTS.
(f)
Expenses
.
Sellers
shall be responsible and liable for their and the Issuer’s expenses incurred in
connection with the preparation of this Agreement, the consummation of the
transactions contemplated by this Agreement.
(g)
Successors
.
This
Agreement shall be binding upon the parties and their respective heirs,
executors, administrators, legal representatives, successors and assigns;
provided, however, that the Issuer may not assign this Agreement or any of
its
rights under this Agreement without the prior written consent of the Sellers,
and neither Seller may assign this Agreement or any of his rights under this
Agreement without the prior written consent of the Issuer.
(h)
Further
Assurances
.
Each
party to this Agreement agrees, without cost or expense to any other party,
to
deliver or cause to be delivered such other documents and instruments as may
be
reasonably requested by any other party to this Agreement in order to carry
out
more fully the provisions of, and to consummate the transaction contemplated
by,
this Agreement.
(i)
Counterparts
.
This
Agreement may be executed simultaneously in two or more counterparts, each
of
which shall be deemed an original but all of which together shall constitute
one
and the same instrument.
(j)
No
Strict Construction
.
The
language used in this Agreement will be deemed to be the language chosen by
the
parties with the advice of counsel to express their mutual intent, and no rules
of strict construction will be applied against any party.
(k)
Headings
.
The
headings in the Sections of this Agreement are inserted for convenience only
and
shall not constitute a part of this Agreement.
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written.
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ISSUER;
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Achievers
Magazine Inc.
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By:
|
/s/
Dengyong Jin
|
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Dengyong
Jin, CEO
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SELLERS:
|
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/s/
Arto Tavukciyan
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Arto
Tavukciyan
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/s/
Lyndon Grove
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Lyndon
Grove
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Schedule
A
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Number of Shares
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Purchase Price
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2,840,000
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*
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Lyndon
Grove
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500,000
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*
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*Total
payments are $700,000, to be paid to the escrow agent.
SECURITIES
PURCHASE AGREEMENT
BETWEEN
ACHIEVERS
MAGAZINE INC.
AND
XINGGUANG
INVESTMENT CORPORATION LIMITED
DATED
December
14, 2007
SECURITIES
PURCHASE AGREEMENT
This
SECURITIES PURCHASE AGREEMENT (the “
Agreement
”)
is
made and entered into as of the 14
th
day of
December, 2007 between
Achievers
Magazine Inc.
,
a
Nevada corporation (the “
Company
”),
and
XingGuang Investment Corporation Limited
,
a
British
Virgin Islands corporation (“
Investor
”).
RECITALS
:
WHEREAS
,
the
Investor wishes to purchase from the Company, upon the terms and subject to
the
conditions of this Agreement, for the Purchase Price, as hereinafter defined,
one or more convertible notes (the “
Notes
”)
in the
aggregate principal amount of $1,200,000, which Notes are convertible into
either:
(a)
an
aggregate of (i) 1,200,499 shares of the Company’s Series A Convertible
Preferred Stock, par value $.001 per share (“
Series
A Preferred Stock
”),
with
each share of Series A Preferred Stock being initially convertible into one
(1)
share of the Company’s common stock, par value $.001 per share (“
Common
Stock
”),
subject to adjustment, and (ii) common stock purchase warrants (the
“
Warrants
”)
to
purchase 3,000,000 shares of Common Stock at $1.20 per share, and 3,000,000
shares of Common Stock at $2.00 per share; or
(b)
until
the Restated Certificate, as hereinafter defined, is filed with the Secretary
of
State of Nevada, an aggregate of (i) 1,200,499 shares of the Common Stock,
subject to adjustment, and (ii) Warrants to purchase 3,000,000 shares of Common
Stock at $1.20 per share, and 3,000,000 shares of Common Stock at $2.00 per
share.
WHEREAS
,
Investor is purchasing Notes in the principal amount set forth in Schedule
A of
this Agreement;
WHEREAS
,
upon
conversion of the Note, the Common Stock and Warrants will be issued in the
names set forth in Schedule A;
WHEREAS
,
contemporaneously with the Closing, the Company is acquiring all of the issued
and outstanding capital stock of Talent Int’l Investment Limited, a British
Virgin Islands corporation (“Talent”), which owns all of the capital stock of
Xinghe Yongle Carbon Co., Ltd., a corporation organized under the laws of the
People’s Republic of China as a wholly foreign owned enterprised (“Yongle”);
and
WHEREAS
,
Yongle
is a party to agreements with Xinghe Xingyong Carbon Co., Ltd., a corporation
organized under the laws of the People’s Republic of China (the “PRC Company”),
pursuant to which Yongle has the right to advise, consult, manage and operate
the business and assets of the PRC Company and collect and own all of its net
profits, and, has voting and other rights pursuant to a proxy and voting
agreement and a voting trust and escrow agreement as a result of which Yongle
has voting control over the PRC Company; and
SECURITIES
PURCHASE AGREEMENT BETWEEN
ACHIEVERS
MAGAZINE INC. AND XINGGUANG INVESTMENT
CORPORATION
LIMITED
PAGE
1
WHEREAS
,
the
parties intend to memorialize the terms on which the Company will sell to the
Investor and the Investor will purchase the Securities;
NOW,
THEREFORE
,
in
consideration of the mutual covenants and premises contained herein, and for
other good and valuable consideration, the receipt and adequacy of which are
hereby conclusively acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
Article
1
INCORPORATION
BY REFERENCE AND DEFINITIONS
1.1
Incorporation
by Reference
.
The
foregoing recitals and the Exhibits and Schedules attached hereto and referred
to herein, are hereby acknowledged to be true and accurate, and are incorporated
herein by this reference.
1.2
Supersedes
Other Agreements
.
This
Agreement, to the extent that it is inconsistent with any other instrument
or
understanding among the parties, shall supersede such instrument or
understanding to the fullest extent permitted by law. A copy of this Agreement
shall be filed at the Company’s principal office.
1.3
Certain
Definitions
.
For
purposes of this Agreement, the following capitalized terms shall have the
following meanings (all capitalized terms used in this Agreement that are not
defined in this Article 1 shall have the meanings set forth elsewhere in this
Agreement):
1.3.1
“
4.9%
Limitation
”
has
the
meaning set forth in Section 2.1.2 of this Agreement.
1.3.2
“
1933
Act
”
means
the Securities Act of 1933, as amended.
1.3.3
“
1934
Act
”
means
the Securities Exchange Act of 1934, as amended.
1.3.4
“
Affiliate
”
means
a
Person or Persons directly or indirectly, through one or more intermediaries,
controlling, controlled by or under common control with the Person(s) in
question. The term “control,” as used in the immediately preceding sentence,
means, with respect to a Person that is a corporation, the right to the
exercise, directly or indirectly, of more than 50% of the voting rights
attributable to the shares of such controlled corporation and, with respect
to a
Person that is not a corporation, the possession, directly or indirectly, of
the
power to direct or cause the direction of the management or policies of such
controlled Person.
1.3.5
“
Articles
”
means
the articles of incorporation of the Company, as the same may be amended from
time to time.
1.3.6
“
Authorized
Stock Proviso
”
has
the
meaning set forth in Section 4.4.3 of this Agreement.
1.3.7
“
Bylaws
”
means
the bylaws of the Company, as the same may be amended from time to
time.
SECURITIES
PURCHASE AGREEMENT BETWEEN
ACHIEVERS
MAGAZINE INC. AND XINGGUANG INVESTMENT
CORPORATION
LIMITED
PAGE
2
1.3.8
“
Certificate
of Designation
”
means
the certificate of the rights, preferences and privileges, subject to the
limitations, with respect to the Series A Preferred Stock. The Certificate
of
Designation shall be in substantially the form of
Exhibit
A
to this
Agreement.
1.3.9
“
Closing
”
means
the
consummation of the transactions contemplated by this Agreement, all of which
transactions shall be consummated contemporaneously with the
Closing.
1.3.10
“
Closing
Date
”
means
the date on which the Closing occurs.
1.3.11
“
Common
Stock
”
means
the Company’s common stock, which is presently designated as the common stock,
par value $.00002 per share. Pursuant to the Restated Certificate, the par
value
will be changed to $.001 per share.
1.3.12
“
Company’s
Governing Documents
”
means
the Articles and Bylaws.
1.3.13
“
EBITDA
”
means
consolidated earnings before interest, taxes, depreciation and amortization,
determined in accordance with GAAP.
1.3.14
“
Exempt
Issuance
”
means
the
issuance of (a) shares of Common Stock or options to employees, officers,
directors of and consultants (other than consultants whose services relate
to
the raising of funds) of the Company pursuant to any stock or option plan that
was or may be adopted by a majority of independent members of the Board of
Directors of the Company or a majority of the members of a committee of
independent directors established for such purpose, (b) securities upon the
exercise of or conversion of any (i) securities issued hereunder and pursuant
to
the Registration Rights Agreement, the Notes, the Warrants and the Certificate
of Designation, (ii) any other options, warrants or convertible securities
which
are outstanding on after completion of the Closing or (iii) securities issued
pursuant to options and warrants issued under a plan adopted pursuant to (a)
above, and (c) securities issued pursuant to acquisitions, licensing agreements,
or other strategic transactions, provided any such issuance shall only be to
a
Person which is, itself or through its subsidiaries, an operating company in
a
business which the Company’s board of directors believes is beneficial to the
Company and in which the Company receives benefits in addition to the investment
of funds, but shall not include a transaction in which the Company is issuing
securities primarily for the purpose of raising capital or to an entity whose
primary business is investing in securities.
1.3.15
“
GAAP
”
means
United States generally accepted accounting principles consistently
applied.
1.3.16
“
Material
Adverse Effect
”
means
any adverse effect on the business, operations, properties or financial
condition of the Company or any of its Subsidiaries that is material and adverse
to the Company and its Subsidiaries taken as a whole and/or any condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the ability of the Company or any Subsidiary to perform any of its material
obligations under this Agreement, the Registration Rights Agreement or the
Warrants or to perform its obligations under any other material agreement.
1.3.17
“
Nevada
Law
”
shall
mean the Nevada Corporation Law.
SECURITIES
PURCHASE AGREEMENT BETWEEN
ACHIEVERS
MAGAZINE INC. AND XINGGUANG INVESTMENT
CORPORATION
LIMITED
PAGE
3
1.3.18
“
Note(s)
”
shall
have the meaning set forth in the introductory paragraph of this Agreement
and
shall be in substantially the form of
Exhibit
B
to this
Agreement.
1.3.19
“
Person
”
means
an individual, partnership, firm, limited liability company, trust, joint
venture, association, corporation, or any other legal entity.
1.3.20
“
PRC
Agreements
”
shall
mean the agreements between Yongle and the PRC Company.
1.3.21
“
PRC
Company Stockholders
”
shall
mean the stockholders of the PRC Company, which, as of the date of this
Agreement, are ____________________________.
1.3.22
“
Preferred
Stock
”
means
the preferred stock, par value $.001 per share, as created by the Restated
Certificate.
1.3.23
“
Proxy
Statement
”
means
a
proxy statement filed with the SEC pursuant to Section 14(a) of the 1934 Act
which seeks stockholder approval of the Restated Certificate or an information
statement pursuant to Section 14(c) of the 1934 Act advising stockholders that
the holders of a majority of the shares of Common Stock have approved the
Restated Certificate, whichever shall be appropriate.
1.3.24
“
Purchase
Price
”
means
the $1,200,000 to be paid by the Investor to the Company for the
Securities.
1.3.25
“
Registration
Rights Agreement
”
means
the registration rights agreement between the Investor and the Company in
substantially the form of
Exhibit
C
to this
Agreement.
1.3.26
“
Registration
Statement
”
means
the registration statement under the 1933 Act to be filed with the SEC for
the
registration of the Shares pursuant to the Registration Rights
Agreement.
1.3.27
“
Related
Companies
”
shall
mean Sincere, Talent and the PRC Company, each of which is a “
Related
Company
.”
1.3.28
“
Restated
Certificate
”
means
the restated certificate of incorporation which is in substantially the form
of
Exhibit
D
to this
Agreement.
1.3.29
“
Securities
”
means
the Note, the shares of Series A Preferred Stock, the Warrants and the
Shares.
1.3.30
“
SEC
”
means
the Securities and Exchange Commission.
1.3.31
“
SEC
Documents
”
means,
at any given time, the Company’s latest Form 10-K or Form 10-KSB and all Forms
10-Q or 10-QSB and 8-K and all proxy statements or information statements filed
between the date the most recent Form 10-K or Form 10-KSB was filed and the
date
as to which a determination is being made.
SECURITIES
PURCHASE AGREEMENT BETWEEN
ACHIEVERS
MAGAZINE INC. AND XINGGUANG INVESTMENT
CORPORATION
LIMITED
PAGE
4
1.3.32
“
Series
A Preferred Stock
”
means
the shares of Series A Preferred Stock having the rights, preferences and
privileges and subject to the limitations set forth in the Certificate of
Designation.
1.3.33
“
Shares
”
means,
collectively, the shares of Common Stock issued or issuable (i) upon conversion
of the Notes or Series A Preferred Stock and (ii) upon exercise of the
Warrants.
1.3.34
“
Subsidiary
”
means
an entity in which the Company and/or one or more other Subsidiaries directly
or
indirectly own either 50% of the voting rights or 50% of the equity
interests.
1.3.35
“
Subsequent
Financing
”
means
any offer and sale of shares of Preferred Stock or debt that is initially
convertible into shares of Common Stock or otherwise senior or superior to
the
Series A Preferred Stock.
1.3.36
“
Total
Shares
”
means
the number of shares of Common Stock as have been or would be issued upon
conversion of the Notes and the Series A Preferred Stock and Warrants issuable
upon conversion of the Notes. The number of Total Shares shall be adjusted
to
reflect any change in the conversion price of the Notes or Series A Preferred
Stock and the expiration of any Warrants.
1.3.37
“
Transaction
Documents
”
means
this Agreement, all Schedules and Exhibits attached hereto, the Notes, the
Certificate of Designation, the Warrants, the Registration Rights Agreement,
the
Closing Escrow Agreement and all other documents and instruments to be executed
and delivered by the parties in order to consummate the transactions
contemplated hereby.
1.3.38
“
Unsold
Shares
”
means
the difference between (a) the number of shares of Series A Preferred Stock
which were initially issued upon conversion of the Notes and (b) the number
of
shares of Series A Preferred Stock, regardless of when such shares were issued,
which have been converted into Common Stock with the Common Stock having been
sold.
1.3.39
“
Warrants
”
means
the common stock purchase warrants in substantially the forms of
Exhibits
E-1 and E-2
to
this
Agreement.
1.4
References
.
All
references in this Agreement to “herein” or words of like effect, when referring
to preamble, recitals, article and section numbers, schedules and exhibits
shall
refer to this Agreement unless otherwise stated.
1.5
Value
of Series A Preferred Stock
.
Wherever this Agreement provides for the delivery of shares of Series A
Preferred Stock in satisfaction of an obligation under this Agreement, a share
of Series A Preferred Stock shall have a value equal to the market price of
the
shares of Common Stock issuable upon conversion of the Series A Preferred
Stock
Article
2
SALE
AND PURCHASE OF NOTES; PURCHASE PRICE
2.1
Sale
of Notes.
SECURITIES
PURCHASE AGREEMENT BETWEEN
ACHIEVERS
MAGAZINE INC. AND XINGGUANG INVESTMENT
CORPORATION
LIMITED
PAGE
5
Upon
the
terms and subject to the conditions set forth herein, and in accordance with
applicable law, the Company agrees to sell to the Investor, and Investor agrees
to purchase from the Company. The Purchaser Price shall be paid as follows:
(a)
at least $217,000 has been paid on behalf of the Company by the Investor, (b)
$183,000 is payable at the closing, (c) $400,000 is payable on March 31, 2008
and (d) $400,000 is payable on June 30, 2008. At or prior to the Closing the
Investor shall wire the that portion of the Purchase Price that is payable
at
closing to the Escrow Agent, who shall release the Purchase Price to the Company
upon receipt of instructions from the Investor and the Company.
2.1.1
Except
as
expressly provided in the Certificate of Designation and the Warrants, an
Investor shall not be entitled to convert the Notes or Series A Preferred
Stock
into
shares of Common Stock or to exercise the Warrants to the extent that such
conversion or exercise would result in beneficial ownership by the Investor
and
its Affiliates of more than 4.9% of the then outstanding number of shares of
Common Stock on such date after giving effect to such conversion or exercise.
For the purposes of this Agreement beneficial ownership shall be determined
in
accordance with Section 13(d) of the 1934 Act, and Regulation 13d-3 thereunder.
The limitation set forth in this Section 2.1.3 is referred to as the
“
4.9%
Limitation
.”
As
a
result of the 4.9% Limitation, no Investor will have 5% of the voting power
of
the Company; provided, however, that this sentence shall not affect any of
an
Investor’s rights under the Certificate of Designation.
Article
3
CLOSING
DATE AND DELIVERIES AT CLOSING
3.1
Closing
Date
.
The
Closing of the transactions contemplated by this Agreement, unless expressly
determined herein, shall be held at the offices of the Sichenzia Ross Friedman
Ference LLP, 61 Broadway, New York, New York 10006, at 2:00 P.M. local time,
on
the Closing Date or on such other date and at such other place as may be
mutually agreed by the parties, including closing by facsimile with originals
to
follow.
3.2
Deliveries
by the Company
.
In
addition to and without limiting any other provision of this Agreement, the
Company agrees to deliver, or cause to be delivered, to the escrow agent under
the Escrow Agreement, the following:
(a)
At
or
prior to Closing, an executed Agreement with all exhibits and schedules attached
hereto;
(b)
At
the
Closing, Notes in the names of the Investor in the amounts set forth in Schedule
A to this Agreement;
(c)
The
executed Registration Rights Agreement;
(d)
Evidence
that the Company has acquired all of the shares of Talent.
(e)
Executed
disbursement instructions;
SECURITIES
PURCHASE AGREEMENT BETWEEN
ACHIEVERS
MAGAZINE INC. AND XINGGUANG INVESTMENT
CORPORATION
LIMITED
PAGE
6
(f)
Copies
of
all SEC correspondence since last Form 10-KSB and any correspondence which
was
issued prior to the last Form 10-KSB which has not been resolved to the
satisfaction of the SEC.
(g)
Certifications
in form and substance acceptable to the Company and the Investor from any and
all brokers or agents involved in the transactions contemplated hereby as to
the
amount of commission or compensation payable to such broker or agent as a result
of the consummation of the transactions contemplated hereby and from the Company
or Investor, as appropriate, to the effect that reasonable reserves for any
other commissions or compensation that may be claimed by any broker or agent
have been set aside;
(h)
Management
letter from the Company’s registered independent accounting firm or confirmation
from such firm that no such letter were issued in connection with the Company’s
most recent audit;
(i)
Evidence
of approval of the Board of Directors of the Company of the Transaction
Documents and the transactions contemplated hereby and thereby;
(j)
Evidence
that the Restated Certificate has been approved by the directors, and that
the
board of directors has authorized the filing of the Proxy Statement with the
SEC.
(k)
Good
standing certificate from the Secretary of State of the State of
Nevada;
(l)
Copy
of
the Company’s Articles, as currently in effect, certified by the Secretary of
State of the State of Nevada;
(m)
An
opinion from the Company’s PRC counsel that (i) each of the Related Companies is
legally established and validly existing as an independent legal entity; (ii)
each of the Related Companies is an independent legal person and none of them
is
exposed to liabilities incurred by the other party; (iii) the PRC Agreements
constitute valid and binding obligations of the parties to such agreements,
and
(iv) each of the PRC Agreements and the rights and obligations of the parties
thereto are enforceable and valid in accordance with the laws of the
PRC;
(n)
Such
other documents or certificates as shall be reasonably requested by Investor
or
their counsel; and
(o)
The
Company must be current in its filings with the SEC, and the Company’s Common
Stock must be trading on the OTC Bulletin Board.
3.3
Deliveries
by Investor
.
In
addition to and without limiting any other provision of this Agreement, the
Investor agree to deliver, or cause to be delivered, to the Escrow Agent under
the Escrow Agreement, the following:
(a)
A
deposit
from each Investor as to the Investor’s portion of the Purchase
Price;
(b)
The
executed Agreement with all Exhibits and Schedules attached hereto;
SECURITIES
PURCHASE AGREEMENT BETWEEN
ACHIEVERS
MAGAZINE INC. AND XINGGUANG INVESTMENT
CORPORATION
LIMITED
PAGE
7
(c)
The
executed Registration Rights Agreement;
(d)
Executed
disbursement instructions; and
(e)
Such
other documents or certificates as shall be reasonably requested by the Company
or its counsel.
3.4
Delivery
of Original Documents
.
In the
event any document provided to the other party in Paragraphs 3.2 and 3.3 herein
are provided by facsimile, the party shall forward an original document to
the
other party within seven (7) business days.
3.5
Further
Assurances
.
The
Company and each Investor shall, upon request, on or after the Closing Date,
cooperate with each other (specifically, the Company shall cooperate with the
Investor, and each Investor shall cooperate with the Company) by furnishing
any
additional information, executing and delivering any additional documents and/or
other instruments and doing any and all such things as may be reasonably
required by the parties or their counsel to consummate or otherwise implement
the transactions contemplated by this Agreement.
3.6
Waiver
.
An
Investor may waive any of the requirements of Section 3.2 of this Agreement,
and
the Company may waive any of the provisions of Section 3.3 of this Agreement.
The Investor may also waive any of the requirements of the Company under the
Escrow Agreement.
Article
4
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The
Company represents and warrants to the Investor as of the date hereof and as
of
Closing Date (which warranties and representations shall survive the Closing
regardless of any examinations, inspections, audits and other investigations
the
Investor have heretofore made or may hereinafter make with respect to such
warranties and representations) as follows:
4.1
Organization
and Qualification
.
Each of
the Company, each Subsidiary and each of the Related Companies is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and has the requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted and is duly qualified to do business in any other
jurisdiction by virtue of the nature of the businesses conducted by it or the
ownership or leasing of its properties, except where the failure to be so
qualified will not, when taken together with all other such failures, have
a
Material Adverse Effect on the business, operations, properties, assets,
financial condition or results of operation of the Company, its Subsidiaries
and
the Related Companies taken as a whole.
4.2
Company’s
Governing Documents
.
The
complete and correct copies of the Company’s Governing Documents (a) have been
provided to the Investor and (b) have been filed with the SEC in accordance
with
the regulations of the SEC and (c) will be in full force and effect on the
Closing Date.
4.3
Capitalization
.
SECURITIES
PURCHASE AGREEMENT BETWEEN
ACHIEVERS
MAGAZINE INC. AND XINGGUANG INVESTMENT
CORPORATION
LIMITED
PAGE
8
4.3.1
The
authorized and outstanding capital stock of the Company as of the date of this
Agreement and as adjusted to reflect the issuance and sale of the Securities
pursuant to this Agreement is set forth in Schedule 4.3.l to this Agreement.
Schedule 4.3.1 lists all shares and potentially dilutive events, including
shares issuable pursuant to employment, consulting and other services
agreements, acquisition agreements, options and equity-based incentive plans,
debt securities, convertible securities, financing or business relationships
as
well as each agreement, plan, arrangement or understanding pursuant to which
any
shares of any class of capital stock may be issued, a copy of each of which
has
been provided to the Investor.
4.3.2
All
shares of capital stock described above to be issued have been duly authorized
and when issued, will be validly issued, fully paid and non-assessable and
free
of preemptive rights.
4.3.3
Except
pursuant to this Agreement and as set forth in Schedule 4.3.1, there are no
outstanding options, warrants, rights to subscribe for, calls or commitments
of
any character whatsoever relating to, or securities or rights convertible into
or exchangeable for, shares of any class of capital stock of the Company, or
agreements, understandings or arrangements to which the Company is a party,
or
by which the Company is or may be bound, to issue additional shares of its
capital stock or options, warrants, scrip or rights to subscribe for, calls
or
commitment of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, any shares of any class of its capital
stock. The Company agrees to inform the Investor in writing of any additional
warrants granted prior to the Closing Date.
4.3.4
Neither
of the PRC Company, nor ____________ has any agreement or understanding, whether
formal or informal, which could result in the issuance of any equity securities
or right to purchase or otherwise acquire equity securities of such
corporation.
4.4
Authority
.
4.4.1
The
Company has all requisite corporate power and authority to execute and deliver
this Agreement, Notes and the Securities issuable upon conversion of the Notes,
the Registration Rights Agreement, the Closing Escrow Agreement and any other
Transaction Documents to which the Company is a party, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement,
the Notes and the Securities issuable upon conversion of the Notes, the
Registration Rights Agreement, the Closing Escrow Agreement and any other
Transaction Documents to which the Company is a party have been duly authorized
by all necessary corporate action and no other corporate proceedings on the
part
of the Company is necessary to authorize this Agreement or to consummate the
transactions contemplated hereby and thereby except as disclosed in this
Agreement. This Agreement has been duly executed and delivered by the Company
and constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency and other laws of
general application affecting the enforcement of creditors’ rights and except
that any the granting of equitable relief is in the discretion of the
court.
SECURITIES
PURCHASE AGREEMENT BETWEEN
ACHIEVERS
MAGAZINE INC. AND XINGGUANG INVESTMENT
CORPORATION
LIMITED
PAGE
9
4.4.2
The
Note,
when issued pursuant to this Agreement, constitutes the valid, binding and
obligation of the Company enforceable in accordance with its terms, except
as
enforceability may be limited by bankruptcy, insolvency and other laws of
general application affecting the enforcement of creditors’ rights and except
that any the granting of equitable relief is in the discretion of the court.
The
Restated Certificate has been approved by the board of directors. Upon the
filing of the Restated Certificate and the Certificate of Designation, the
equity Securities issuable upon conversion of the Note, when so issued, will
be
duly and validly authorized and issued, fully paid and non-assessable and the
Warrants will be the valid and binding obligations of the Company, enforceable
in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency and other laws of general application affecting the
enforcement of creditors’ rights and except that any the granting of equitable
relief is in the discretion of the court. All such Securities, when so issued,
will be free and clear of all liens, charges, claims, options, pledges,
restrictions, preemptive rights, rights of first refusal and encumbrances
whatsoever (other than those incurred by the Investor).
4.4.3
Notwithstanding
any contrary representations and warranties,
no
representation is made with respect to the ability of any Investor to convert
the Note or, following the filing of the Restated Certificate and the
Certificate of Designation, the Series A Preferred Stock or exercise any Warrant
if and to the extent that the conversion price of the Note or the Series A
Preferred Stock, as defined in the Note or the Certificate of Designation,
or
the number of Shares issuable upon exercise of the Warrants would result in
the
issuance of a number of shares of Common Stock which is greater than the amount
by which the authorized Common Stock exceeds the sum of the outstanding Common
Stock and the shares of Common Stock reserved for issuance pursuant to
outstanding agreements and outstanding options, warrants, rights, convertible
securities and other securities upon the exercise or conversion of which or
pursuant to the terms of which additional shares of Common Stock may be issuable
(the foregoing proviso being referred to as the “
Authorized
Stock Proviso
”).
4.4.4
Each
Related Company is legally established, and validly existing as an independent
legal entities; (ii) each Related Company is an independent legal person and
none of them is exposed to liabilities incurred by the other party; (iii) the
PRC Agreements constitute valid and binding obligations of the parties to such
agreements, and (iv) each of the PRC Agreements and the rights and obligations
of the parties thereto are enforceable and valid in accordance with the laws
of
the PRC.
4.5
No
Conflict; Required Filings and Consents
.
Neither
the execution and delivery of this Agreement by the Company nor the issuance
of
the Notes and other Transaction Documents, and the performance by the Company
of
its obligations hereunder and thereunder will: (i) conflict with or violate
the
Company’s or any Subsidiary’s Governing Instruments; (ii) conflict with, breach
or violate any federal, state, foreign or local law, statute, ordinance, rule,
regulation, order, judgment or decree (collectively, “
Laws
”)
in
effect as of the date of this Agreement and applicable to the Company or any
Subsidiary; or (iii) result in any breach of, constitute a default (or an event
that with notice or lapse of time or both would become a default) under, give
to
any other entity any right of termination, amendment, acceleration or
cancellation of, require payment under, or result in the creation of a lien
or
encumbrance on any of the properties or assets of the Company or any Subsidiary
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which the
Company or any Subsidiary is a party or by which the Company or any Subsidiary
or any of their respective properties or assets is bound, other than such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens that would not, in the aggregate, have a Material Adverse
Effect
except
to the extent that stockholder approval may be required as a result of the
Authorized Stock Proviso, in which event, the Company will seek stockholder
approval to an increase in the authorized Common Stock sufficient to enable
the
Company to be in compliance with this Section 4.5. Neither the execution of
this
Agreement nor the consummation of the terms contemplated by this Agreement
will
impair Investor’s rights under the PRC Agreements.
SECURITIES
PURCHASE AGREEMENT BETWEEN
ACHIEVERS
MAGAZINE INC. AND XINGGUANG INVESTMENT
CORPORATION
LIMITED
PAGE
10
4.6
Reports
and Financial Statements
.
4.6.1
The
consolidated financial statements of the Related Companies for the years ended
July 31, 2007 and 2006, including consolidated balance sheets, statements of
operations, stockholders’ equity and cash flows, together with the notes
thereon, certified by
Amisano
Hanson, Chartered Accountants
(“Amisano
”),
the
Company’s independent registered accounting firm, together with the unaudited
consolidated financial statements for the three months ended October 31, 2007
and 2006, which have been reviewed by Amisano
have
been
delivered to the Investor. Each of the consolidated balance sheets fairly
presents the financial position of the Related Companies, as of its date, and
each of the consolidated statements of income, stockholders’ equity and cash
flows (including any related notes and schedules thereto) fairly presents the
results of operations, cash flows and changes in stockholders’ equity, as the
case may be, of the Related Companies for the periods to which they relate,
in
each case in accordance with GAAP consistently applied during the periods
involved.
Amisano
is
independent as to the Company and each of the Related Companies in accordance
with the rules and regulations of the SEC. The books and records of the Related
Companies have been, and are being, maintained in all material respects in
accordance with GAAP and any other applicable legal and accounting requirements
and reflect only actual transaction. Neither the Company nor any of the Related
Companies has received any advice from Amisano
to
the
effect that there is any significant deficiency or material weakness in the
Company’s or any Related Party’s controls or recommending any corrective action
on the part of the Company or any Related Party. Neither the Company nor any
Related Party has any contingent liability which is not reflected in the
financial statements. To the extent that the consolidated financial statements
of Amisano do not include the financial condition or results of operations
of
the PRC Company, separate statements for the PRC Company, conforming to the
delivery requirements of this Section 4.6.1, shall have been
delivered.
4.6.2
The
Company’s Form 10-KSB for the year ended July 31, 2007, contains the audited
financial statements of the Company, certified by Amisano Hanson, Chartered
Accountants
,
(“Amisano
”),
the
Company’s independent registered accounting firm, for the years ended July 31,
2007 and 2006. The balance sheets fairly present the financial position of
the
Company, as of their respective dates, and each of the consolidated statements
of income, stockholders’ equity and cash flows (including any related notes and
schedules thereto) fairly presents the results of operations, cash flows and
changes in stockholders’ equity, as the case may be, of the Company for the
periods to which they relate, in each case in accordance with GAAP consistently
applied during the periods involved. Amisano is independent as to the Company
in
accordance with the rules and regulations of the SEC. The books and records
of
the Company have been, and are being, maintained in all material respects in
accordance with GAAP and any other applicable legal and accounting requirements
and reflect only actual transaction. The Company has not received any letters
of
comments from the SEC relating to any filing made by the Company with the SEC
which has not been addressed by an amended filing, and each amended filing
fully
responds to the questions raised by the staff of the SEC. The Company maintains
disclosure controls and procedures that are effective to ensure that information
required to be disclosed by the Company in its annual and quarterly reports
filed with the SEC is accumulated and communicated to the Company’s management,
including its principal executive and financial officers as appropriate, to
allow timely decisions regarding required disclosure. There were no significant
changes in the Company’s internal controls or other factors that could
significantly affect such controls subsequent to December 31, 2006. The Company
has not received any advice from Amisano to the effect that there is any
significant deficiency or material weakness in the Company’s controls or
recommending any corrective action on the part of the Company or any Subsidiary.
The Company does not have any contingent liabilities.
SECURITIES
PURCHASE AGREEMENT BETWEEN
ACHIEVERS
MAGAZINE INC. AND XINGGUANG INVESTMENT
CORPORATION
LIMITED
PAGE
11
4.7
Compliance
with Applicable Laws
.
Neither
the Company nor any Subsidiary nor any Related Party is in violation of, or,
to
the knowledge of the Company is under investigation with respect to or has
been
given notice or has been charged with the violation of, any Law of a
governmental agency, except for violations which individually or in the
aggregate do not have a Material Adverse Effect.
4.8
Brokers
.
Except
as set forth on Schedule 4.8, no broker, finder or investment banker is entitled
to any brokerage, finder’s or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by
or
on behalf of the Company.
4.9
SEC
Documents
.
The
Investor acknowledge that the Company is a publicly held company and has made
available to the Investor upon request true and complete copies of any requested
SEC Documents. The Company has registered its Common Stock pursuant to Section
12(d) of the 1934 Act, and the Common Stock is quoted and traded on the OTC
Bulletin Board of the National Association of Securities Dealers, Inc. The
Company has received no notice, either oral or written, with respect to the
continued quotation or trading of the Common Stock on the OTC Bulletin Board.
The Company has not provided to the Investor any information that, according
to
applicable law, rule or regulation, should have been disclosed publicly prior
to
the date hereof by the Company, but which has not been so disclosed. As of
their
respective dates, the SEC Documents complied in all material respects with
the
requirements of the 1934 Act, and rules and regulations of the SEC promulgated
thereunder and the SEC Documents did 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, not misleading.
4.10
Litigation
.
To the
knowledge of the Company, no litigation, claim, or other proceeding before
any
court or governmental agency is pending or to the knowledge of the Company,
threatened against the Company, the prosecution or outcome of which may have
a
Material Adverse Effect.
4.11
Employment
Agreements
.
Except
as disclosed in the Company’s Form 10-KSB for the year ended July 31, 2006 or as
otherwise disclosed pursuant to this Agreement, the Company does not have any
agreement or understanding with any officer or director, and there has been
no
material change in the compensation of any officer and director from that shown
in said Form 10-KSB.
4.12
Exemption
from Registration
.
Subject
to the accuracy of the Investor’ representations in Article V of this Agreement,
except as required pursuant to the Registration Rights Agreement, the sale
of
the Note by the Company to the Investor or the issuance of Series A Preferred
Stock or Common Stock and Warrants will not require registration under the
1933
Act. When issued upon conversion of the Notes or the Series A Preferred Stock,
as the case may be, or upon exercise of the Warrants in accordance with their
terms, the Shares underlying the Preferred Stock and the Warrants will be duly
and validly authorized and issued, fully paid, and non-assessable. The Company
is issuing Notes, and upon conversion of the Notes, the Preferred Stock and
the
Warrants in accordance with and in reliance upon the exemption from securities
registration afforded, inter alia, by Rule 506 under Regulation D as promulgated
by the SEC under the 1933 Act, and/or Section 4(2) of the 1933 Act.
SECURITIES
PURCHASE AGREEMENT BETWEEN
ACHIEVERS
MAGAZINE INC. AND XINGGUANG INVESTMENT
CORPORATION
LIMITED
PAGE
12
4.13
No
General Solicitation or Advertising in Regard to this
Transaction
.
Neither
the Company nor any of its Affiliates nor, to the knowledge of the Company,
any
Person acting on its or their behalf (i) has conducted or will conduct any
general solicitation (as that term is used in Rule 502(c) of Regulation D as
promulgated by the SEC under the 1933 Act) or general advertising with respect
to the sale of the Preferred Stock or Warrants, or (ii) made any offers or
sales
of any security or solicited any offers to buy any security under any
circumstances that would require registration of the Notes, Series A Preferred
Stock, Common Stock or Warrants, under the 1933 Act, except as required
herein.
4.14
No
Material Adverse Effect
.
Since
July 31, 2007, no event or circumstance resulting in a Material Adverse Effect
has occurred or exists with respect to the Company, any Subsidiary or any
Related Party. No material supplier or customer has given notice, oral or
written, that it intends to cease or reduce the volume of its business with
the
Company, any Subsidiary or any Related Party from historical levels. Since
July
31, 2007, no event or circumstance has occurred or exists with respect to the
Company, any Subsidiary or any Related Party, that, under any applicable law,
rule or regulation, requires or would require, public disclosure or announcement
prior to the date hereof by the Company but which has not been so publicly
announced or disclosed in writing to the Investor.
4.15
Material
Non-Public Information
.
The
Company has not disclosed to the Investor any material non-public information
that (i) if disclosed, would reasonably be expected to have a material effect
on
the price of the Common Stock or (ii) according to applicable law, rule or
regulation, should have been disclosed publicly by the Company prior to the
date
hereof but which has not been so disclosed.
4.16
Internal
Controls And Procedures
.
The
Company and its Subsidiaries and each of the Related Parties maintain books
and
records and internal accounting controls which provide reasonable assurance
that
(i) all transactions to which the Company or any Subsidiary or any Related
Party
is a party or by which their respective properties are bound are executed with
management’s authorization; (ii) the recorded accounting of the Company’s, any
Subsidiary’s or any Related Party’s consolidated assets is compared with
existing assets at regular intervals; (iii) access to the Company’s, any
Subsidiary’s or any Related Party’s consolidated assets is permitted only in
accordance with management’s authorization; and (iv) all transactions to which
the Company or any Subsidiary or any Related Party is a party or by which any
of
their respective properties are bound are recorded as necessary to permit
preparation of the financial statements of the Company and the Related Companies
individually (unless the financial condition and results of operations and
cash
flows are consolidated with those of the Company under GAAP) in accordance
with
GAAP.
4.17
Full
Disclosure
.
No
representation or warranty made by
the
Company
in
this
Agreement and no certificate or document furnished or to be furnished to the
Investor pursuant to this Agreement contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material fact
necessary to make the statements contained herein or therein not
misleading.
SECURITIES
PURCHASE AGREEMENT BETWEEN
ACHIEVERS
MAGAZINE INC. AND XINGGUANG INVESTMENT
CORPORATION
LIMITED
PAGE
13
Article
5
REPRESENTATIONS
AND WARRANTIES OF THE INVESTOR
Each
Investor severally and not jointly represents and warrants to the Company
that:
5.1
Concerning
the Investor
.
The
state in which any offer to purchase shares hereunder was made or accepted
by
such Investor is the state shown as such Investor’s address. The Investor was
not formed for the purpose of investing solely in the Securities.
5.2
Authorization
and Power
.
The
Investor has the requisite power and authority to enter into and perform this
Agreement and to purchase the securities being sold to it hereunder. The
execution, delivery and performance of this Agreement by the Investor and the
consummation by the Investor of the transactions contemplated hereby have been
duly authorized by all necessary partnership action where appropriate. This
Agreement, the Registration Rights Agreement and the Closing Escrow Agreement
have been duly executed and delivered by such Investor and at the Closing shall
constitute valid and binding obligations of such Investor enforceable against
the Investor in accordance with their terms, except as such enforceability
may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application.
5.3
No
Conflicts
.
The
execution, delivery and performance of this Agreement and the consummation
by
such Investor of the transactions contemplated hereby or relating hereto do
not
and will not (i) result in a violation of such Investor’s charter documents or
bylaws where appropriate or (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 instrument to which such Investor
is
a party, or result in a violation of any law, rule, or regulation, or any order,
judgment or decree of any court or governmental agency applicable to such
Investor or its properties (except for such conflicts, defaults and violations
as would not, individually or in the aggregate, have a Material Adverse Effect
on such Investor). The Investor is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court
or
governmental agency in order for it to execute, deliver or perform any of such
Investor’s obligations under this Agreement or to purchase the securities from
the Company in accordance with the terms hereof, provided that for purposes
of
the representation made in this sentence, the Investor is assuming and relying
upon the accuracy of the relevant representations and agreements of the Company
herein.
5.4
Financial
Risks
.
Such
Investor acknowledges that such Investor is able to bear the financial risks
associated with an investment in the securities being purchased by such Investor
from the Company and that it has been given full access to such records of
the
Company and its Subsidiaries and to the officers of the Company and its
Subsidiaries as it has deemed necessary or appropriate to conduct its due
diligence investigation. Such Investor is capable of evaluating the risks and
merits of an investment in the securities being purchased by the Investor from
the Company by virtue of its experience as an investor and its knowledge,
experience, and sophistication in financial and business matters and the
Investor is capable of bearing the entire loss of its investment in the
securities being purchased by the Investor from the Company.
SECURITIES
PURCHASE AGREEMENT BETWEEN
ACHIEVERS
MAGAZINE INC. AND XINGGUANG INVESTMENT
CORPORATION
LIMITED
PAGE
14
5.5
Accredited
Investor
.
The
Investor is (i) an “accredited investor” as that term is defined in Rule 501 of
Regulation D promulgated under the 1933 Act by reason of Rule 501(a)(3) and
(6),
(ii) experienced in making investments of the kind described in this Agreement
and the related documents, (iii) able, by reason of the business and financial
experience of its officers (if an entity) and professional advisors (who are
not
affiliated with or compensated in any way by the Company or any of its
affiliates or selling agents), to protect its own interests in connection with
the transactions described in this Agreement, and the related documents, and
(iv) able to afford the entire loss of its investment in the securities being
purchased by the Investor from the Company.
5.6
Brokers
.
No
broker, finder or investment banker is entitled to any brokerage, finder’s or
other fee or Commission in connection with the transactions contemplated by
this
Agreement based upon arrangements made by or on behalf of such Investor. Such
Investor understands that any obligations under agreements or arrangements
with
brokers disclosed in Schedule 4.8 are obligations of the Company.
5.7
Knowledge
of Company
.
Such
Investor and such Investor’s advisors, if any, have been, upon request,
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the securities
being purchased by such Investor from the Company. Such Investor and such
Investor’s advisors, if any, have been afforded the opportunity to ask questions
of the Company and have received complete and satisfactory answers to any such
inquiries
.
5.8
Risk
Factors
.
Each
Investor understands that such Investor’s investment in the securities being
purchased by such Investor from the Company involves a high degree of risk.
Such
Investor understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation
or
endorsement of the securities being purchased by the Investor from the Company.
Such Investor warrants that such Investor is able to bear the complete loss
of
such Investor’s investment in the securities being purchased by the Investor
from the Company.
5.9
Full
Disclosure
.
No
representation or warranty made by such Investor in this Agreement and no
certificate or document furnished or to be furnished to the Company pursuant
to
this Agreement contains or will contain any untrue statement of a material
fact,
or omits or will omit to state a material fact necessary to make the statements
contained herein or therein not misleading. Except as set forth or referred
to
in this Agreement, Investor does not have any agreement or understanding with
any person relating to acquiring, holding, voting or disposing of any equity
securities of the Company.
Article
6
C
OVENANTS
OF THE COMPANY
6.1
Registration
Rights
.
The
Company shall cause the Registration Rights Agreement to remain in full force
and effect according to the provisions of the Registration Rights Agreement
and
the Company shall comply in all material respects with the terms thereof. The
Company does not have any agreement or obligation which would enable any Person
to include securities in any registration statement required to be filed on
behalf of the Investor pursuant to the Registration Rights Agreement and will
not take any action which will give any Person any right to include securities
in any such registration statement. Except as contemplated by the Registration
Rights Agreement, no Person has any demand or piggyback registration right
with
respect to any securities of the Company.
SECURITIES
PURCHASE AGREEMENT BETWEEN
ACHIEVERS
MAGAZINE INC. AND XINGGUANG INVESTMENT
CORPORATION
LIMITED
PAGE
15
6.2
Reservation
of Common Stock
.
As of
the date hereof, the Company has reserved and the Company shall continue to
reserve and keep available at all times, free of preemptive rights, the maximum
number of shares of Common Stock for the purpose of enabling the Company to
issue the shares of Common Stock underlying the Notes, Series A Preferred Stock
and Warrants.
6.3
Compliance
with Laws
.
The
Company hereby agrees to comply and to cause each Subsidiary and each Related
Party to comply in all respects with the Company’s reporting, filing and other
obligations under the Laws.
6.4
Exchange
Act Registration
.
The
Company will continue its obligation to report to the SEC under Section 12
of
the 1934 Act and will use its best efforts to comply in all respects with its
reporting and filing obligations under the 1934 Act, and will not take any
action or file any document (whether or not permitted by the 1934 Act or the
rules thereunder) to terminate or suspend any such registration or to terminate
or suspend its reporting and filing obligations under the 1934 until the
Investor have disposed of all of their Shares.
6.5
Corporate
Existence; No Conflicting Agreements
.
The
Company will take all steps necessary to preserve and continue the corporate
existence of the Company. The Company shall not enter into any agreement, the
terms of which agreement would restrict or impair the right or ability of the
Company to perform any of its obligations under this Agreement or any of the
other agreements attached as exhibits hereto.
6.6
Listing,
Securities Exchange Act of 1934 and Rule 144
Requirements
.
6.6.1
The
Company shall not take any action which would cause its Common Stock not to
be
traded on the OTC Bulletin Board, except that the Company may list the Common
Stock on the Nasdaq Stock Market or the American or New York Stock Exchange
if
it meets the applicable listing requirements. If, for any time after the
Closing, the Company is no longer in compliance with this Section 6.6.1, then
the Company shall pay to the Investor as liquidated damages and not as a
penalty, an amount equal to twelve percent (12%) per annum, based on the lesser
of (a) the Purchase Price or (b) that percentage of the Purchase Price which
the
Unsold Shares bears to the number of shares of Common Stock initially issuable
upon conversion of the Series A Preferred Stock sold pursuant to this Agreement.
The Unsold Shares shall mean shares of Series A Preferred Stock with respect
to
which both (i) the Series A Preferred Stock has not been converted and (ii)
the
underlying shares of Common Stock have not been sold or otherwise transferred
pursuant to a registration statement or Rule 144.
Such
damages shall be payable quarterly on the tenth (10
th
)
day of
the following calendar quarter, and shall cease at the time the Company begins
complying with the provisions of this Section 6.6.1.
6.6.2
Liquidated
damages payable pursuant to Sections 6.6.1 shall be payable in shares of Series
A Preferred Stock or cash, as the Investor may request. In no event shall the
total liquidated damages payable pursuant to Sections 6.6.1, whether in cash
or
Series A Preferred Stock, exceed in the aggregate twelve percent (12%) of the
Purchase Price of the Unsold Shares that are outstanding as of the date on
which
a computation is being made.
SECURITIES
PURCHASE AGREEMENT BETWEEN
ACHIEVERS
MAGAZINE INC. AND XINGGUANG INVESTMENT
CORPORATION
LIMITED
PAGE
16
6.7
Independent
Directors
.
6.7.1
The
Company shall have caused the appointment of the majority of the board of
directors, which shall not consist of more than seven members, to be independent
directors, as defined by the
rules
of
the Nasdaq Stock Market, not later than the ninety (90) days after the Closing
Date.
6.7.2
If,
at
any time subsequent to ninety (90) days after the Closing Date until the earlier
of (a) three years from the Closing or (b) the Restriction Termination Date
at
90%, the board of directors shall not be composed of a majority of independent
directors:
6.7.2.1
for
a
reason other than for an Excused Reason, the Company shall have 60 days to
take
such steps as are necessary so that a majority of the Company’s directors are
independent directors, and
6.7.2.2
for
an
Excused Reason, the Company shall have 75 days from the date that the Company
becomes aware of the event (or the last event if there are more than one such
event) giving rise to the Excused Reason, to take such steps as are necessary
so
that a majority of the Company’s directors are independent
directors.
6.7.3
The
term
“Excused Reason” shall mean the death or resignation of an independent director
or the occurrence of an event whereby an independent director ceases to be
independent.
6.7.4
From
and
after the Closing Date, the Company shall have a chief financial officer who
speaks and understands both English and Chinese and is familiar with GAAP (a
“qualified CFO”), who may serve on a part time basis until three months after
the Closing Date, by which time the Company shall have a full-time qualified
CFO. In the event that at any time subsequent to the Closing Date the Company
fails to have a qualified CFO, the Company shall, within 60 days from the date
that the Company ceases to have a qualified CFO, hire a qualified CFO. If the
Company shall not be able to hire a qualified CFO promptly upon the resignation
or termination of employment of the former chief financial officer, the Company
may engage an accountant or accounting firm to perform the duties of the chief
financial officer until a qualified CFO can be hired. In no event shall the
Company either (i) fail to file an annual, quarter or other report in a timely
manner because of the absence of a qualified CFO, or (ii) not have a person
who
can make the statements and sign the certifications required to be filed in
an
annual or quarterly report under the 1933 Act.
6.8
Independent
Directors; Committees.
No
later
than ninety (90) days after the Closing Date, the Company will have an audit
committee comprised solely of not less than three independent directors and
a
compensation committee comprised of not less than three directors, a majority
of
whom are independent directors. Further, if the Company shall form an executive
or nominating committee or any other committee, a majority of the members of
such committee shall be independent directors. If at any time subsequent to
the
Closing Date during the period when the Company is required to have a majority
of independent directors pursuant to Section 6.10 of this Agreement, independent
directors do not comprise all of the members of the audit committee and a
majority of the members of the compensation committee or any other committee
within the grace periods provided in Section 6.10, the Company shall pay to
the
Investor, as liquidated damages and not as a penalty, an amount equal to twelve
percent (12%) per annum of the Purchase Price of the then outstanding Series
A
Preferred Stock payable in the manner and at the time provided in Section 6.10,
such payment shall be based on the number of days that such condition exists.
The parties agree that the only damages payable for a violation of the terms
of
this Agreement with respect to which liquidated damages are expressly provided
shall be such liquidated damages. Notwithstanding the foregoing, no liquidated
damages shall be payable pursuant to this Section 6.11 during any period for
which liquidated damages are payable pursuant to Section 6.10.
SECURITIES
PURCHASE AGREEMENT BETWEEN
ACHIEVERS
MAGAZINE INC. AND XINGGUANG INVESTMENT
CORPORATION
LIMITED
PAGE
17
6.9
Right
of First Refusal
.
6.9.1
Until
the
earlier of (i) three years from the date of this Agreement or (ii) such time
as
the Investor, as a group, cease to own at least five percent (5%) of the total
number of shares of Common Stock that were issued or are issuable upon
conversion of Series A Preferred Stock that were initially issued to the
Investor, in the event that the Company seeks to raise additional funds through
a
private
placement of its securities (a “
Proposed
Financing
”),
other
than Exempt Issuances, each Investor shall have the right to participate in
any
subsequent funding by the Company of the offering price on a pro rata basis,
based on the percentage that (a) the number of such Investor’s Percentage
Shares, without regard to the 4.9% Limitation but excluding shares of Common
Stock issuable upon exercise of Warrants, bears to (b) the total number of
shares of Common Stock outstanding plus the number of Shares issuable upon
conversion of the Series A Preferred Stock and any other series of convertible
preferred stock or debt securities, without regard to the 4.9% Limitations
any
other limitations on exercise such other convertible preferred stock or debt
securities. This Section 6.13 shall apply to each such offering based on the
total purchase price of the securities being offered by the Company. This right
is personal to the Investor and is not transferable, whether in connection
with
the sale of stock or otherwise.
6.9.2
The
terms
on which the Investor shall purchase securities pursuant to Proposed Financing
shall be the same as such securities are purchased by other Investor. The
Company shall give the Investor the opportunity to participate in the offering
by giving the Investor not less than ten (10) days notice setting forth the
terms of the Proposed Financing. In the event that the terms of the Proposed
Financing are changed in a manner which is more favorable to the potential
investor, the Company shall provide the Investor, at the same time as the notice
is provided to the other potential Investor, with a new ten (10) day notice
setting forth the revised terms that are provided to the other potential
Investor.
6.9.3
In
the
event that the Investor does not exercise its right to participate in the
Proposed Financing within the time limits set forth in Section 6.13.2 of this
Agreement, the Company may sell the securities in the Proposed Financing at
a
price and on terms which are no more favorable to the Investor than the terms
provided to the Investor. If the Company subsequently changes the price or
terms
so that the price is more favorable to the Investor or so the terms are more
favorable to the Investor, the Company shall provide the Investor with the
opportunity to purchase the securities on the revised terms in the manner set
forth in Section
6.13.2
of this
Agreement.
6.10
Price
Adjustment
.
From
the
Closing Date until such time as the Restriction Termination Date,
except
for Exempt Issuances, as to which this
Section
6.10 does not apply, if the Company closes on the sale or issuance of Common
Stock at a price, or warrants, options, convertible
debt or
equity securities with a exercise price per share or exercise price per share
which is less than the Conversion Price, as defined in the Note and the
Certificate of Designation, then in effect (such lower sales price, conversion
or exercise price, as the case may be, being referred to as the “Lower Price”),
the Conversion Price in effect from and after the date of such transaction
shall
be reduced on a formula basis as follows:
The
Conversion Price shall be adjusted by multiplying the Conversion Price in effect
immediately prior to such issuance by a fraction, the numerator of which shall
be the sum of the number of shares of Common Stock outstanding immediately
prior
to the issuance of such additional shares plus the number of shares of Common
Stock which the aggregate consideration received or receivable for the issuance
of such additional shares would purchase at the Conversion Price then in effect,
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately after the issuance of such additional shares (including
the exercise or conversion of all options, warrants and other convertible
securities).
For
purpose of determining the exercise price of warrants issued by the Company,
the
price, if any, paid per share for the warrants shall be added to the exercise
price of the warrants. A similar provision shall be included in the
Warrants..
SECURITIES
PURCHASE AGREEMENT BETWEEN
ACHIEVERS
MAGAZINE INC. AND XINGGUANG INVESTMENT
CORPORATION
LIMITED
PAGE
18
6.11
Restated
Certificate.
The
Company’s board of directors has approved the Restated Certificate. The Company
shall promptly, but not later than thirty (30) days after the Closing Date,
file
the Proxy Statement with the SEC, and shall mail the Proxy Statement to
stockholders within five (5) business days after the SEC has completed its
review of the Proxy Statement, of, if the SEC does not review the Proxy
Statement, within fifteen (15) business days after the Proxy Statement is filed
with the SEC.
The
Company shall schedule an annual or special meeting of stockholders as soon
as
possible, but not later than twenty five (25) days after the Proxy Statement
is
mailed to stockholders. The Company shall file the Restated Certificate with
the
Secretary of State of the State of Nevada promptly, but not later than three
(3)
business days after the meeting of stockholders at which the Restated
Certificate is approved. [names] each agree to vote in favor of the Restated
Certificate.
6.12
No
Outside Interests
.
Until
the Restriction Termination Date, the Company’s chairman and chief executive
officer will devote their full time and attention to the business of the Company
and shall not have any business interests or activities other than
as chairman or chief executive officer, as the case may be, except that
he or she may devote time, which shall not be material and which shall not
interfere with his or her duties as the Company’s chairman or chief
executive officer, as the case may be, to personal passive investments and
charitable and community activities. Furthermore, none of the PRC Company
Stockholders shall have any interests or engage in any business which is
directly or indirectly competitive with that of the Company or any Related
Party.
Article
7
COVENANTS
OF THE INVESTOR
Each
Investor, severally and not jointly, covenants and agrees with the Company
as
follows:
7.1
Compliance
with Law
.
Each
Investor’s trading activities with respect to shares of the Company’s Common
Stock will be in compliance with all applicable state and federal securities
laws, rules and regulations and rules and regulations of any public market
on
which the Company’s Common Stock is listed.
7.2
Transfer
Restrictions
.
The
Investor’s acknowledge that (a) the Preferred Stock, Warrants and Shares
underlying the Preferred Stock and Warrants have not been registered under
the
provisions of the 1933 Act, and may not be transferred unless (i) subsequently
registered thereunder or (ii) the Investor shall have delivered to the Company
an opinion of counsel, reasonably satisfactory in form, scope and substance
to
the Company, to the effect that the Preferred Stock, Warrants and Shares
underlying the Notes and Warrants to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration; and (b) any sale
of
the Shares underlying the Preferred Stock and Warrants made in reliance on
Rule
144 promulgated under the 1933 Act may be made only in accordance with the
terms
of said Rule and further, if said Rule is not applicable, any resale of such
securities under circumstances in which the seller, or the person through whom
the sale is made, may be deemed to be an underwriter, as that term is used
in
the 1933 Act, may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder. Each Investor agrees
that until the Restriction Termination Date it will not sell the Common Stock
short or effect any sales based upon market-based metrics.
SECURITIES
PURCHASE AGREEMENT BETWEEN
ACHIEVERS
MAGAZINE INC. AND XINGGUANG INVESTMENT
CORPORATION
LIMITED
PAGE
19
7.3
Restrictive
Legend
.
Each
Investor acknowledges and agrees that the Securities and the Shares shall bear
a
restrictive legend and a stop-transfer order may be placed against transfer
of
any such Securities except that the requirement for a restrictive legend shall
not apply to Shares sold pursuant to a current and effective registration
statement or a sale pursuant Rule 144 or any successor rule.
Article
8
CONDITIONS
PRECEDENT TO THE COMPANY’S OBLIGATIONS
The
obligation of the Company to consummate the transactions contemplated hereby
shall be subject to the fulfillment, on or prior to Closing Date, of the
following conditions:
8.1
No
Termination
.
This
Agreement shall not have been terminated pursuant to Article 10
hereof.
8.2
Representations
True and Correct
.
The
representations and warranties of the Investor contained in this Agreement
shall
be true and correct in all material respects on and as of the Closing Date
with
the same force and effect as if made on as of the Closing Date.
8.3
Compliance
with Covenants
.
The
Investor shall have performed and complied in all material respects with all
covenants, agreements, and conditions required by this Agreement to be performed
or complied by it prior to or at the Closing Date.
8.4
No
Adverse Proceedings
.
On the
Closing Date, no action or proceeding shall be pending by any public authority
or individual or entity before any court or administrative body to restrain,
enjoin, or otherwise prevent the consummation of this Agreement or the
transactions contemplated hereby or to recover any damages or obtain other
relief as a result of the transactions proposed hereby.
Article
9
CONDITIONS
PRECEDENT TO INVESTOR’S OBLIGATIONS
The
obligation of the Investor to consummate the transactions contemplated hereby
shall be subject to the fulfillment, on or prior to Closing Date unless
specified otherwise, of the following conditions:
9.1
No
Termination
.
This
Agreement shall not have been terminated pursuant to Article 10
hereof.
SECURITIES
PURCHASE AGREEMENT BETWEEN
ACHIEVERS
MAGAZINE INC. AND XINGGUANG INVESTMENT
CORPORATION
LIMITED
PAGE
20
9.2
Representations
True and Correct
.
The
representations and warranties of the Company contained in this Agreement shall
be true and correct in all material respects on and as of the Closing Date
with
the same force and effect as if made on as of the Closing Date.
9.3
Compliance
with Covenants
.
The
Company shall have performed and complied in all material respects with all
covenants, agreements, and conditions required by this Agreement to be performed
or complied by it prior to or at the Closing Date.
9.4
No
Adverse Proceedings
.
On the
Closing Date, no action or proceeding shall be pending by any public authority
or individual or entity before any court or administrative body to restrain,
enjoin, or otherwise prevent the consummation of this Agreement or the
transactions contemplated hereby or to recover any damages or obtain other
relief as a result of the transactions proposed hereby.
Article
10
TERMINATION,
AMENDMENT AND WAIVER
10.1
Termination
.
This
Agreement may be terminated at any time prior to the Closing Date
10.1.1
by
mutual
written consent of the Investor and the Company;
10.1.2
by
the
Company upon a material breach of any representation, warranty, covenant or
agreement on the part of any Investor set forth in this Agreement, or any
Investor upon a material breach of any representation, warranty, covenant or
agreement on the part of the Company set forth in this Agreement, or if any
representation or warranty of the Company or the Investor, respectively, shall
have become untrue, in either case such that any of the conditions set forth
in
Article 8 or Article 9 hereof would not be satisfied (a “
Terminating
Breach
”),
and
such breach shall, if capable of cure, not have been cured within five (5)
business days after receipt by the party in breach of a notice from the
non-breaching party setting forth in detail the nature of such
breach.
10.2
Effect
of Termination
.
Except
as otherwise provided herein, in the event of the termination of this Agreement
pursuant to Section 10.1 hereof, there shall be no liability on the part of
the
Company or any Investor or any of their respective officers, directors, agents
or other representatives and all rights and obligations of any party hereto
shall cease.
10.3
Amendment
and Waiver
.
10.3.1
This
Agreement may be amended by the parties hereto any time prior to the Closing
Date by an instrument in writing signed by the parties hereto, subject to the
provisions of Section 10.3.3; provided, however that the 4.9% Limitation may
not
be amended or waived.
10.3.2
At
any
time prior to the Closing Date, the Company or the Investor, as appropriate,
may: (a) extend the time for the performance of any of the obligations or other
acts of other party or; (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto which
have been made to it or them; or (c) waive compliance with any of the agreements
or conditions contained herein for its or their benefit other than the 4.9%
Limitation which may not be waived. Any such extension or waiver shall be valid
only if set forth in an instrument in writing signed by the party or parties
to
be bound thereby, subject to Section 10.3.3 of this Agreement.
SECURITIES
PURCHASE AGREEMENT BETWEEN
ACHIEVERS
MAGAZINE INC. AND XINGGUANG INVESTMENT
CORPORATION
LIMITED
PAGE
2
1
10.3.3
Any
amendment or waiver signed by the holders of 75% of the principal amount of
the
Note or, after the issuance of the Series A Preferred Stock, 75% of the holders
of the then outstanding shares of Series A Preferred Stock, or, after the
conversion of all shares of Series A Preferred Stock, the holders of Warrant
to
purchase a majority of the shares of Common Stock then issuable upon exercise
of
the Warrants, shall be deemed to be approval of the Investor; provided, that
any
amendment or waiver which changes the conversion rate or conversion price of
the
Notes or Series A Preferred Stock or the exercise price of the Warrants shall
require the approval of all of the holders of the Warrants.
Article
11
GENERAL
PROVISIONS
11.1
Transaction
Costs
Except
as otherwise provided herein, each of the parties shall pay all of his or its
costs and expenses (including attorney fees and other legal costs and expenses
and accountants’ fees and other accounting costs and expenses) incurred by that
party in connection with this Agreement.
11.2
Indemnification
.
The
Investor agrees to indemnify, defend and hold the Company (following the Closing
Date) and its officers and directors harmless against and in respect of any
and
all claims, demands, losses, costs, expenses, obligations, liabilities or
damages, including interest, penalties and reasonable attorney’s fees, that it
shall incur or suffer, which arise out of or result from any breach of this
Agreement by the Investor or failure by the Investor to perform with respect
to
the representations, warranties or covenants contained in this Agreement or
in
any exhibit or other instrument furnished or to be furnished under this
Agreement. The Company agrees to indemnify, defend and hold the Investor
(following the Closing Date) harmless against and in respect of any and all
claims, demands, losses, costs, expenses, obligations, liabilities or damages,
including interest, penalties and reasonable attorney’s fees, that it shall
incur or suffer, which arise out of, result from or relate to any breach of
this
Agreement or failure by the Company to perform with respect to the
representations, warranties or covenants contained in this Agreement or in
any
exhibit or other instrument furnished or to be furnished under this Agreement.
In no event shall the Company or the Investor be entitled to recover
consequential or punitive damages resulting from a breach or violation of this
Agreement nor shall any party have any liability hereunder in the event of
gross
negligence or willful misconduct of the indemnified party. In the event of
the
failure of the Company to issue the Series A Preferred Stock and Warrants in
violation of the provisions of this Agreement, the Investor, as their sole
remedy, shall be entitled to pursue a remedy of specific performance upon tender
into the Court an amount equal to the Purchase Price hereunder. The
indemnification by the Investor shall be limited to $50,000.00. This Section
11.2 shall not relate to indemnification under the Registration Rights
Agreement.
11.3
Headings.
The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation
of
this Agreement.
11.4
Entire
Agreement.
This
Agreement (together with the Schedule, Exhibits, Warrants and documents referred
to herein) constitute the entire agreement of the parties and supersede all
prior agreements and undertakings, both written and oral, between the parties,
or any of them, with respect to the subject matter hereof.
SECURITIES
PURCHASE AGREEMENT BETWEEN
ACHIEVERS
MAGAZINE INC. AND XINGGUANG INVESTMENT
CORPORATION
LIMITED
PAGE
22
11.5
Notices
.
All
notices and other communications hereunder shall be in writing and shall be
deemed to have been given (i) on the date they are delivered if delivered in
person; (ii) on the date initially received if delivered by facsimile
transmission followed by registered or certified mail confirmation; (iii) on
the
date delivered by an overnight courier service; or (iv) on the third business
day after it is mailed by registered or certified mail, return receipt requested
with postage and other fees prepaid as follows:
|
If
to the Company
:
|
|
|
|
Achievers
Magazine Inc.
|
|
c/o
Xinghe
Xingyong Carbon Co., Ltd.
|
|
787
Xicheng Wai
|
|
Chengguantown
|
|
Xinghe
County
|
|
Inner
Mongolia, China
|
|
Attention:
Dengyong
Jin, CEO
|
|
Fax:
86-0474-7209799
|
|
|
|
With
a copy to
:
|
|
|
|
Sichenzia
Ross Friedman Ference LLP
|
|
61
Broadway
|
|
New
York, New York 10006
|
|
Attention:
Asher S. Levitsky PC
|
|
E-mail:
alevitsky@srff.com
|
|
Fax:
(212) 930-9725
|
|
If
to Investor
:
|
|
|
|
XingGuang
Investment Corporation Limited
|
|
#413
2731 Long Hunan Road
|
|
Shanghai
201315
|
|
E-mail:
xingguangcn@gmail.com
|
|
Fax:
86-21-6819-7920
|
11.6
Severability.
If any
term or other provision of this Agreement is invalid, illegal or incapable
of
being enforced by any rule of law or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party. Upon
such
determination that any such term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith
to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
SECURITIES
PURCHASE AGREEMENT BETWEEN
ACHIEVERS
MAGAZINE INC. AND XINGGUANG INVESTMENT
CORPORATION
LIMITED
PAGE
23
11.7
Binding
Effect.
All the
terms and provisions of this Agreement whether so expressed or not, shall be
binding upon, inure to the benefit of, and be enforceable by the parties and
their respective administrators, executors, legal representatives, heirs,
successors and assignees.
11.8
Preparation
of Agreement.
This
Agreement shall not be construed more strongly against any party regardless
of
who is responsible for its preparation. The parties acknowledge each contributed
and is equally responsible for its preparation.
In
resolving any dispute regarding, or construing any provision in, this Agreement,
there shall be no presumption made or inference drawn because of the drafting
history of the Agreement, or because of the inclusion of a provision not
contained in a prior draft or the deletion or modification of a provision
contained in a prior draft.
11.9
Governing
Law.
This
Agreement shall be governed by, and construed in accordance with, the laws
of
the State of New York, without giving effect to applicable principles of
conflicts of law.
11.10
Jurisdiction;
Waiver of Jury Trial
.
If
any action is brought among the parties with respect to this Agreement or
otherwise, by way of a claim or counterclaim, the parties agree that in any
such
action, and on all issues, the parties irrevocably waive their right to a trial
by jury.
Exclusive jurisdiction and venue for any such action shall be the federal and
state courts situated in the City, County and State of New York. In the event
suit or action is brought by any party under this Agreement to enforce any
of
its terms, or in any appeal therefrom, it is agreed that the prevailing party
shall be entitled to reasonable attorneys fees to be fixed by the arbitrator,
trial court, and/or appellate court if such party prevails on substantially
all
issues in dispute.
11.11
Preparation
and Filing of Securities and Exchange Commission
filings
.
The
Investor shall reasonably assist and cooperate with the Company in the
preparation of all filings with the SEC after the Closing Date due after the
Closing Date.
11.12
Further
Assurances, Cooperation
.
Each
party shall, upon reasonable request by the other party, execute and deliver
any
additional documents necessary or desirable to complete the transactions herein
pursuant to and in the manner contemplated by this Agreement. The parties hereto
agree to cooperate and use their respective best efforts to consummate the
transactions contemplated by this Agreement.
11.13
Survival
.
The
representations, warranties, covenants and agreements made herein shall survive
the Closing of the transaction contemplated hereby.
11.14
Third
Parties
.
Except
as disclosed in this Agreement, nothing in this Agreement, whether express
or
implied, is intended to confer any rights or remedies under or by reason of
this
Agreement on any persons other than the parties hereto and their respective
administrators, executors, legal representatives, heirs, successors and
assignees. Nothing in this Agreement is intended to relieve or discharge the
obligation or liability of any third persons to any party to this Agreement,
nor
shall any provision give any third persons any right of subrogation or action
over or against any party to this Agreement.
11.15
Failure
or Indulgence Not Waiver; Remedies Cumulative.
No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty, covenant or
agreement herein, nor shall nay single or partial exercise of any such right
preclude other or further exercise thereof or of any other right. All rights
and
remedies existing under this Agreement are cumulative to, and not exclusive
of,
any rights or remedies otherwise available.
SECURITIES
PURCHASE AGREEMENT BETWEEN
ACHIEVERS
MAGAZINE INC. AND XINGGUANG INVESTMENT
CORPORATION
LIMITED
PAGE
24
11.16
Counterparts.
This
Agreement may be executed in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when executed shall
be
deemed to be an original, but all of which taken together shall constitute
one
and the same agreement. A facsimile transmission of this signed Agreement shall
be legal and binding on all parties hereto.
[SIGNATURES
ON FOLLOWING PAGE]
SECURITIES
PURCHASE AGREEMENT BETWEEN
ACHIEVERS
MAGAZINE INC. AND XINGGUANG INVESTMENT
CORPORATION
LIMITED
PAGE
25
IN
WITNESS WHEREOF
,
the
Investor and the Company have as of the date first written above executed this
Agreement.
|
THE
COMPANY:
|
|
|
|
ACHIEVERS
MAGAZINE INC.
|
|
|
|
|
|
/s/
Dengyong Jin
|
|
Dengyong
Jin, CEO
|
|
INVESTOR:
|
|
|
|
XINGGUANG
INVESTMENT CORPORATION LIMITED
|
|
|
|
|
|
By:
/s/ Xiangxin Sun
|
|
Name:
Xiangxin Sun
|
|
Title:
President
|
SECURITIES
PURCHASE AGREEMENT BETWEEN
ACHIEVERS
MAGAZINE INC. AND XINGGUANG INVESTMENT
CORPORATION
LIMITED
PAGE
26
Schedule
A
Schedule
4.3.1
[Note
to
Vintage: Insert Excell spreadsheet here]
Exhibit
A
[See
Exhibit 99.11]
Exhibit
B
[See
Exhibit 4.1]
Exhibit
C
[See
Exhibit 99.2]
Exhibit
D
[See
Exhibit 99.12]
Exhibit
E-1
[See
Exhibit 99.13]
Exhibit
E-2
[See
Exhibit 99.14]
Exhibit
C
REGISTRATION
RIGHTS AGREEMENT
This
REGISTRATION RIGHTS AGREEMENT (the “
Agreement
”)
is
made and entered into as of the 14
th
day of
December, 2007, by and among Achievers Magazine Inc., a Nevada corporation
(the
“
Company
”),
and
Achievers Magazine Inc., a Nevada corporation, and XingGuang Investment
Corporation Limited
,
a
British
Virgin Islands corporation
(the
“
Investor
”).
Unless
defined otherwise, capitalized terms herein shall have the identical meaning
as
in the Securities Purchase Agreement of even date herewith (the “
Purchase
Agreement
”),
by
and among the Company and the Investor.
PRELIMINARY
STATEMENT
WHEREAS
,
pursuant to the Purchase Agreement, the Investor is purchasing a Notes in the
principal amount of $1,200,000, which is convertible into shares of Series
A
Convertible Preferred Stock and Warrants or shares of Common Stock and Warrants,
all as set forth in the Notes, which entitle the Investor to receive shares
of
Common Stock upon conversion or exercise thereof, such shares being referred
to
as the “
Shares
”;
and
WHEREAS
,
the
ability of the Investors to sell their Shares is subject to certain restrictions
under the 1933 Act; and
WHEREAS
,
as a
condition to purchase of the Series A Preferred Stock and Warrants pursuant
to
the Purchase Agreement, the Company has agreed to provide the Investors with
a
mechanism that will permit the Investors to sell the Shares in the
future.
NOW,
THEREFORE
,
in
consideration of the premises and of the mutual covenants and agreements, and
subject to the terms and conditions herein contained, the parties hereto hereby
agree as follows:
ARTICLE
I
INCORPORATION
BY REFERENCE
1.1.
Definitions
.
All
terms defined in the Purchase Agreement and used in this Agreement shall have
the same meanings in this Agreement as in the Purchase Agreement. As used in
this Agreement the following terms shall have the meanings hereinafter set
forth.
(a)
“
Excusable
Reason
”
shall
have the meaning set forth in Section 2.6 of this Agreement.
(b)
“
Filing
Date
”
shall
mean, with respect to the Initial Registration Statement, the 90
th
calendar
day following the date hereof and, with respect to any Subsequent Registration
Statements, the later of (a) ninety (90) days after the Company receives a
demand for registration of additional Registrable Securities or (b) the earliest
practical date on which the Company is permitted by SEC Guidance to file such
additional Registration Statement related to the Registrable Securities. If
any
Filing Date or Required Effectiveness Date occurs on a date which is either
(x)
a Saturday, Sunday or day on which banks in the State or New York are authorized
or required to be closed on all or part of the normal business day or (y) the
SEC is closed for all or a portion of the business day, the Filing Date or
Required Effective Date, as the case may be, shall the next day which is not
a
day described in clauses (x) or (y).
(c)
“
Initial
Registration Statement
”
shall
mean the Registration Statement filed pursuant to Section 2.2 of this
Agreement.
(d)
“
Subsequent
Registration Statements
”
shall
mean one or more Registration Statements filed pursuant to Section 2.3 of
this
Agreement.
(e)
“
Registrable
Securities
”
shall
mean and include the Shares issuable upon conversion of the Notes or the Series
A Preferred Stock and upon exercise or conversion the Warrants issued pursuant
to the Purchase Agreement or the Notes. As to any particular Registrable
Securities, such securities will cease to be Registrable Securities when (a)
they have been effectively registered under the 1933 Act and disposed of in
accordance with the registration statement covering them, (b) they are or may
be
freely traded without registration pursuant to Rule 144, or (c) they have been
otherwise transferred and new certificates for them not bearing a restrictive
legend have been issued by the Company and the Company shall not have “stop
transfer” instructions against them..
(f)
“
Registration
Expenses
”
shall
mean all expenses incident to the Company’s performance of or compliance with
its obligations under this Agreement, including, without limitation, all
registration, filing, listing, stock exchange and NASD fees, all fees and
expenses of complying with state securities or blue sky laws (including fees,
disbursements and other charges of counsel for the underwriters only in
connection with blue sky filings), all word processing, duplicating and printing
expenses, messenger and delivery expenses, the fees, disbursements and other
charges of counsel for the Company and of its independent public accountants,
including the expenses incurred in connection with “cold comfort” letters
required by or incident to such performance and compliance, any fees and
disbursements of underwriters customarily paid by the issuer of securities,
but
excluding from the definition of Expenses underwriting and discounts and
brokerage commissions and applicable transfer taxes, if any, or legal and other
expenses incurred by any sellers, which discounts, commissions, transfer taxes
and legal and other expenses shall be borne by the seller or sellers of
Registrable Securities in all cases.
(g)
“
Registration
Statement
”
shall
mean the registration statement required to be filed pursuant to Section 2.2
of
this Agreement hereunder and any additional registration statements contemplated
by Section 2.3, including (in each case) the Prospectus, amendments and
supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference or deemed to be incorporated by reference in such registration
statement.
(h)
“
Required
Effective Date
”
shall
mean the first to occur of (i) 150 days following the Filing Date with respect
to the Registration Statement, (ii) ten (10) days following the receipt of
a “No
Review” or similar letter from the SEC or (iii) the third (3rd) business day
following the day the Company receives notice from the SEC that the SEC has
determined that the Registration Statement eligible to be declared effective
without further comments by the SEC; provided, however, that in no event shall
the Required Effective Date of a Subsequent Registration Statement be earlier
than the earliest date on which, based on SEC Guidance, the SEC will declare
effective such Additional Registration Statement.
(i)
“
Rule
144
”
means
Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended or interpreted from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
purpose and effect as such Rule.
(j)
“
Rule
415
”
means
Rule 415 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended or interpreted from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
purpose and effect as such Rule.
(k)
“
Rule
424
”
means
Rule 424 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended or interpreted from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
purpose and effect as such Rule.
(l)
“
SEC
Guidance
”
means
(i) any publicly-available written or oral guidance, comments, requirements
or
requests of the Commission staff and (ii) the Securities Act.
1.2.
References
.
All
references in this Agreement to “herein” or words of like effect, when referring
to preamble, recitals, article and section numbers, schedules and exhibits
shall
refer to this Agreement unless otherwise stated.
ARTICLE
II
REQUIRED
REGISTRATION OF REGISTRABLE SECURITIES
2.1.
Registrable
Securities
.
The
Company shall file one or more Registration Statements covering the Registrable
Securities as provided in Sections 2.2 and 2.3 of this Agreement.
2.2.
Registration
of Registrable Securities
.
The
Company shall prepare and file the Initial Registration Statement covering
the
sale of such number of shares of the Registrable Securities as the Investors
shall elect by written notice to the Company, and absent such election, covering
the sale of all of the Registrable Securities. The Company shall use its best
efforts to cause the Registration Statement to be declared effective by the
SEC
on the Required Effective Date. Subject to SEC Guidance on the number of Shares
which may be registered pursuant to Rule 415, nothing contained in this
Agreement shall be deemed to limit the number of Registrable Securities to
be
registered by the Company hereunder. As a result, should the Registration
Statement not relate to the maximum number of Registrable Securities acquired
by
(or potentially acquirable by) the holders of the Shares of the Company issued
to the Investor pursuant to the Purchase Agreement and the Warrants, other
than
as a result of the election by the holder thereof not to have Shares included
in
the Registration Statement (unless such election was made with a view to meeting
the SEC Guidance relating to Rule 415), the Company shall be required to
promptly file a separate registration statement (utilizing Rule 462 promulgated
under the 1933 Act, if applicable, to the extent that it may do so) relating
to
such Registrable Securities which then remain unregistered, subject to the
SEC
Guidance on the earliest day on which such Registration Statement may be filed.
The provisions of this Agreement shall relate to any such separate registration
statement as if it were an amendment to the Registration Statement. No shares
of
Common Stock or other securities shall be included in the Initial or any
Subsequent Registration Statement other than Shares issued or issuable to the
Investors and their transferees who hold Registrable Securities; it being
understood that the Initial and Subsequent Registration Statements shall relate
solely to Registrable Securities, and the Company shall not file any
registration statement with respect to other securities if the effect thereof
would be to impair the ability of the Investors to have registered the maximum
number of Registrable Securities which are permitted based on SEC Guidance.
The
Investors have advised the Company that, to the extent that all of the
Registrable Securities cannot be registered based on SEC Guidance relating
to
Rule 415, as long as the Investors shall be able so sell the shares of Common
Stock issuable upon conversion of the Series A Preferred Stock pursuant to
Rule
144(k), or subsequent similar rule, six months after the Closing Date, the
registration statement filed pursuant to this Section 2.1 shall only include
Registrable Securities issuable upon exercise of the Warrants.
2.3.
Subsequent
Registration
.
Subject
to the limitations of Section 2.2, at any time and from time to time, the
Investors may request the registration under the 1933 Act on a Subsequent
Registration Statement of all or part of the Registrable Securities nor
previously sold or subject to an effective registration statement. Subject
to
the conditions of Section 2.6 of this Agreement, the Company shall use its
commercially reasonable best efforts to file such registration statement under
the 1933 Act by the Filing Date and have the Subsequent Registration Statement
declared effective by the Required Effective Date. The Company shall notify
the
Investor promptly when any such Registration Statement has been declared
effective. The parties intend that all Registrable Securities are to be
registered pursuant to this Section 2.2, and that this Section 2.3 is intended
to provide the Investors with registration rights in the event that all of
the
Registrable Securities are not included in the Registration Statement required
by Section 2.2, either because the number of Registrable Securities had to
be
reduced in order for the offering to be deemed a secondary offering under Rule
415 based on SEC Guidance or because the Investors believed that the SEC
Guidance would not permit the registration of all of the Registrable Securities.
If more than eighty percent (80%) of the Shares have been registered and sold
(either pursuant to the Registration Statement or Rule 144, the Company’s
obligations under this Article II shall terminate.
2.4.
Registration
Statement Form
.
Registrations under Section 2.2 and Section 2.3 shall be on the appropriate
registration form of the SEC as shall permit the disposition of such Registrable
Securities in accordance with the intended method or methods of disposition
specified in the Registration Statement; provided, however, such intended method
of disposition shall not include an underwritten offering of the Registrable
Securities.
2.5.
Expenses
.
The
Company will pay all Registration Expenses in connection with any Initial or
Subsequent Registration Statement or any registration statement in which
Registrable Securities are included pursuant to Article III of this Agreement.
2.6.
Effective
Registration Statement
.
An
Initial or Subsequent Registration Statement shall not be deemed to have been
effected, other than for an Excusable Reason, as hereinafter defined, (i) unless
a registration statement with respect thereto has become effective, provided
that a registration which does not become effective after the Company filed
a
registration statement with respect thereto solely by reason of the refusal
to
proceed of any holder of Registrable Securities (other than a refusal to proceed
based upon the advice of counsel in the form of a letter signed by such counsel
and provided to the Company relating to a disclosure matter unrelated to such
holder) shall be deemed to have been effected by the Company, (ii) if, after
it
has become effective, such registration statement becomes subject to any stop
order, injunction or other order or extraordinary requirement of the SEC or
other governmental agency or court for any reason and such stop order or other
action continues in effect for five trading days or (iii) if, after it has
become effective, such registration ceases to be effective other than for an
Excusable Reason. An “
Excusable
Reason
”
means
the occurrence of negotiations with respect to a material agreement prior to
either the announcement of the execution of the agreement or the termination
of
the negotiations with respect to such proposed agreement and other similar
material corporate events to which the Company is a party or expects to be
a
party if, in the reasonable judgment of the Company, disclosure of the
negotiations or other event would be adverse to the best interests of the
Company provided that the Company is continuing to treat such negotiations
as
confidential and provided further that the period during which the Company
is
precluded from filing the registration statement (or suspended the use of an
effective registration statement) as a result thereof has not exceeded twenty
(20) trading days in the aggregate, and provided further that the Company shall
not be permitted to avoid filing a registration statement (or to suspend the
use
of an effective registration statement) for an Excusable Reason more than twice
in any one-year period. An Excusable Reason shall also include acts of God
and
closure of the SEC.
2.7.
Plan
o
f
Distribution
.
The
Company hereby agrees that the Registration Statement shall include a plan
of
distribution section reasonably acceptable to the Investors; provided, however,
such plan of distribution section shall be modified by the Company so as to
not
provide for the disposition of the Registrable Securities on the basis of an
underwritten offering.
2.8.
Liquidated
Damages
.
(i)
In
the
event (a) the Registration Statement is not declared effective by the Required
Effectiveness Date, or (b) if the Registrable Securities are registered pursuant
to an effective Registration Statement and such Registration Statement or other
Registration Statement(s) demanded by Investor including the Registrable
Securities is not effective in the period from the Required Effective Date
through two years following the date hereof other than for an Excusable Reason,
the Company shall, for each such day (x) after the Required Effectiveness Date
that the Registration Statement shall not have been declared effective, or
(y)
during which the Registration Statement is not effective as required by clause
(b) of this Section 2.8(i), issue to the Investor, as liquidated damages and
not
as a penalty, 200 shares of Series A Preferred Stock for any such day (based
on
a 365 day working calendar year), such issuance shall be made no later than
the
tenth business day of the calendar month next succeeding the month in which
such
day occurs; provided, however, that if the Registration Statement does not
cover, or registration has not been requested for, whether as a result of SEC
Guidance with respect to Rule 415 or otherwise, the Registrable Securities
issuable upon conversion of all of the shares of Series A Preferred Stock that
were issued by the Company, the liquidated damages per day shall be the
percentage of 200 shares that the number of Registrable Securities then subject
to, or proposed to be include in, the Registration Statement bears to the total
number Registrable Securities issued or issuable upon exercise of all of the
Warrants that were initially issued to the Investors. However, in no event
shall
the Company be required to pay any liquidated damages under this Section 2.8
in
an amount exceeding 100,000 shares of Series A Preferred Stock in the aggregate
(as adjusted pursuant to the terms of the Certificate of Designation). Any
Registrable Securities which have been sold pursuant to a Registration Statement
shall not be deemed to be Shares covered by the Registration
Statement.
(ii)
Notwithstanding
the provisions of Section 2.8(i), no fractional shares shall be issued. Any
fractional shares which would otherwise be issued on any date on which Preferred
Stock is to be issued pursuant to Section 2.8(i) of this Agreement, shall be
carried forward; provided, however, that if, at the expiration of the period
during which liquidated damages is payable there remains a fractional shall
which has not been applied to liquidated damages, the Company shall have no
further obligation to issue such fractional share.
(iii)
In
no
event shall the Company be required to pay any liquidated damages in the event
that the failure of the registration statement to be declared effective on
the
Required Effective Date results in whole or in part from either (a) the failure
of any Investor to provide information relating to the Investor and its proposed
method of sale or any other information concerning the Investor that is required
to be included in the registration statement or (b) any delays resulting from
questions raised by the SEC or any other regulatory agency, market or exchange
concerning any Investor or the affiliates of any Investor, it being understood
that SEC comments relating to compliance with Rule 415 shall not be deemed
a
delay covered by this clause (b).
(iv)
The
parties hereto agree that the liquidated damages provided for in this Section
2.8 constitute a reasonable estimate of the damages that may be incurred by
the
Investor by reason of the failure of the Registration Statement(s) to be filed
or declared effective in accordance with the provisions hereof.
(v)
The
obligation of the Company terminates when the Investor no longer holds more
than
ten percent (10%) of the Registrable Securities, based on the number of
Registrable Securities initially issuable pursuant to the Purchase Agreement
and
any shares issued due to adjustments in these transaction documents and the
Warrants.
ARTICLE
III
INCIDENTAL
REGISTRATION RIGHTS
3.1.
Right
To Include (“Piggy-Back”) Registrable Securities
.
Provided that the Registrable Securities have not been registered, if at any
time after the date hereof but before the second anniversary of the date hereof,
the Company proposes to register any of its securities under the 1933 Act (other
than by a registration in connection with an acquisition in a manner which
would
not permit registration of Registrable Securities for sale to the public, on
Form S-8, or any successor form thereto, on Form S-4, or any successor form
thereto and other than pursuant to Section 2), on an underwritten basis (either
best-efforts or firm-commitment), then, the Company will each such time give
prompt written notice to all holders of Registrable Securities of its intention
to do so and of such holders of Registrable Securities’ rights under this
Section 3.1. Upon the written request of any such holders of Registrable
Securities made within ten (10) days after the receipt of any such notice (which
request shall specify the Registrable Securities intended to be disposed of
by
such holders of Registrable Securities and the intended method of disposition
thereof), the Company will, subject to the terms of this Agreement, use its
commercially reasonable best efforts to effect the registration under the 1933
Act of the Registrable Securities, to the extent requisite to permit the
disposition (in accordance with the intended methods thereof as aforesaid)
of
such Registrable Securities so to be registered, by inclusion of such
Registrable Securities in the registration statement which covers the securities
which the Company proposes to register, provided that if, at any time after
written notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason either not to register
or to delay registration of such securities, the Company may, at its election,
give written notice of such determination to each holders of Registrable
Securities and, thereupon, (i) in the case of a determination not to register,
shall be relieved of this obligation to register any Registrable Securities
in
connection with such registration (but not from its obligation to pay the
Registration Expenses in connection therewith), without prejudice, however,
to
the rights of any holder or holders of Registrable Securities entitled to do
so
to request that such registration be effected as a registration under Section
2,
and (ii) in the case of a determination to delay registering, shall be permitted
to delay registering any Registrable Securities, for the same period as the
delay in registering such other securities. No registration effected under
this
Section 3.1 shall relieve the Company of its obligation under Section 2 of
this
Agreement other than with respect to Registrable Securities registered and
sold
pursuant to such registration statement. The Company will pay all Registration
Expenses in connection with each registration of Registrable Securities
requested pursuant to this Section 3.1.
3.2.
Priority
In Incidental Registrations
.
If the
managing underwriter of the underwritten offering contemplated by this Section
3
shall inform the Company and holders of the Registrable Securities requesting
such registration by letter of its belief that the number of securities
requested to be included in such registration exceeds the number which can
be
sold in such offering, then the Company will include in such registration,
to
the extent of the number which the Company is so advised can be sold in such
offering, (i) first securities proposed by the Company to be sold for its own
account, and (ii) second to holders of securities having demand registration
rights and exercising such rights in connection with such registration
statement, (iii) third Registrable Securities, and for (iv) fourth to securities
of other selling security holders (including officers, directors and 5%
stockholders, subject to any lock-up agreements with such persons) who requested
to be included in such registration.
ARTICLE
IV
REGISTRATION
PROCEDURES
4.1.
Registration
Procedures
.
If and
whenever the Company is required to effect the registration of any Registrable
Securities under the 1933 Act as provided in Section 2.2 and, as applicable,
2.3, the Company shall, as expeditiously as possible:
(i)
prepare
and file with the SEC the Registration Statement, or amendments thereto, to
effect such registration (including such audited financial statements as may
be
required by the 1933 Act or the rules and regulations promulgated thereunder)
and thereafter use its commercially reasonable best efforts to cause such
registration statement to be declared effective by the SEC, as soon as
practicable, but in any event no later than the Required Effectiveness Date
(with respect to a registration pursuant to Section 2.2); provided, however,
that before filing such registration statement or any amendments thereto, the
Company will furnish to the counsel selected by the holders of Registrable
Securities which are to be included in such registration, copies of all such
documents proposed to be filed;
(ii)
with
respect to any Initial or Subsequent Registration Statement, prepare and file
with the SEC such amendments and supplements to such Registration Statement
and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the 1933
Act with respect to the disposition of all Registrable Securities covered by
such registration statement until the earlier to occur of thirty six (36) months
after the date of this Agreement (subject to the right of the Company to suspend
the effectiveness thereof for an Excusable Reason (each a “
Black-Out
Period
”))
or
such time as all of the securities which are the subject of such registration
statement cease to be Registrable Securities (such period, in each case, the
“
Registration
Maintenance Period
”).
The
Company shall notify the Investors within twenty four (24) hours prior to any
Black-Out Period;
(iii)
furnish
to each holder of Registrable Securities covered by such registration statement
such number of conformed copies of such registration statement and of each
such
amendment and supplement thereto (in each case including all exhibits), such
number of copies of the prospectus contained in such registration statement
(including each preliminary prospectus and any summary prospectus) and any
other
prospectus filed under Rule 424 under the 1933 Act, in conformity with the
requirements of the 1933 Act, and such other documents, as such holder of
Registrable Securities and underwriter, if any, may reasonably request in order
to facilitate the public sale or other disposition of the Registrable Securities
owned by such holder of Registrable Securities;
(iv)
use
its
commercially reasonable best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement under
such other U.S. federal or state securities laws or U.S. state blue sky laws
as
any U.S. holder of Registrable Securities thereof shall reasonably request,
to
keep such registrations or qualifications in effect for so long as such
registration statement remains in effect, and take any other action which may
be
reasonably necessary to enable such holder of Registrable Securities to
consummate the disposition in such jurisdictions of the securities owned by
such
holder of Registrable Securities, except that the Company shall not for any
such
purpose be required to qualify generally to do business as a foreign corporation
in any jurisdiction wherein it would not but for the requirements of this
subdivision (iv) be obligated to be so qualified or to consent to general
service of process in any such jurisdiction;
(v)
use
its
commercially reasonable best efforts to cause all Registrable Securities covered
by such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the U.S.
holder of Registrable Securities thereof to consummate the disposition of such
Registrable Securities;
(vi)
furnish
to each holder of Registrable Securities who requests, a signed counterpart,
addressed to such holder of Registrable Securities, and the underwriters, if
any, of an opinion of counsel for the Company, dated the effective date of
such
registration statement (or, if such registration includes an underwritten public
offering, an opinion dated the date of the closing under the underwriting
agreement), such opinion to be in the form filed as Exhibit 5 to the
registration statement, and
(vii)
notify
the Investors and their counsel promptly and confirm such advice in writing
promptly after the Company has knowledge thereof:
(a)
when
the Registration Statement, the prospectus or any prospectus supplement related
thereto or post-effective amendment to the Registration Statement has been
filed, and, with respect to the Registration Statement or any post-effective
amendment thereto, when the same has become effective;
(b)
of
any request by the SEC for amendments or supplements to the Registration
Statement or the prospectus or for additional information;
(c)
of
the issuance by the SEC of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings by any Person for
that purpose; and
(d)
of
the receipt by the Company of any notification with respect to the suspension
of
the qualification of any Registrable Securities for sale under the securities
or
blue sky laws of any jurisdiction or the initiation or threat of any proceeding
for such purpose;
(viii)
notify
each holder of Registrable Securities covered by such registration statement,
at
any time when a prospectus relating thereto is required to be delivered under
the 1933 Act, upon discovery that, or upon the happening of any event as a
result of which, the prospectus included in such registration statement, as
then
in effect, includes an untrue statement of a material fact or omits to state
any
material facts required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing, and
at
the request of any such holder of Registrable Securities promptly prepare and
furnish to such holder of Registrable Securities a reasonable number of copies
of a supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such securities, such
prospectus shall not include 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 not misleading in the light of the circumstances then
existing;
(ix)
use
its
commercially reasonable best efforts to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(x)
otherwise
use its commercially reasonable best efforts to comply with all applicable
rules
and regulations of the SEC, and make available to its security holders, as
soon
as reasonably practicable, an earnings statement covering the period of at
least
twelve months, but not more than eighteen months, beginning with the first
full
calendar month after the effective date of such registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the 1933
Act
and Rule 158 thereunder;
(xi)
enter
into such agreements and take such other actions as the Investors shall
reasonably request in writing (at the expense of the requesting or benefiting
Investors) in order to expedite or facilitate the disposition of such
Registrable Securities; and
(xii)
use
its
commercially reasonable best efforts to list all Registrable Securities covered
by such registration statement on any securities exchange on which any of the
Registrable Securities are then listed.
(xiii)
The
Company may require each holder of Registrable Securities as to which any
registration is being effected to furnish the Company such information regarding
such holder of Registrable Securities and the distribution of such securities
as
the Company may from time to time reasonably request in writing. In this
connection, the Investors shall:
(a)
furnish the information as to any shares of Common Stock or other securities
of
the Company owned by the holder, the holder’s proposed plan of distribution, any
relationship between the holder and the Company and any other information which
the Company reasonably requests in connection with the preparation of the
registration statement and update such information immediately upon the
occurrence of any events or condition which make the information concerning
the
Seller inaccurate in any material respect;
(b)
not
sell any Registrable Securities pursuant to the registration statement except
in
the manner set forth in the Registration Statement;
(c)
comply with the prospectus delivery requirements and the provisions of
Regulation M of the SEC pursuant to the 1933 Act to the extent that such
regulation is applicable to the holder;
(d)
not
sell
or otherwise transfer or distribute any Registrable Securities if the holder
possesses any material nonpublic information concerning the
Company.
4.2.
The
Company will not file any registration statement pursuant to Section 2.2 or
Section 2.3, or amendment thereto or any prospectus or any supplement thereto
to
which the Investors shall reasonably object, provided that the Company may
file
such documents in a form required by law or upon the advice of its
counsel.
4.3.
The
Company represents and warrants to each holder of Registrable Securities that
it
has obtained all necessary waivers, consents and authorizations necessary to
execute this Agreement and consummate the transactions contemplated hereby
other
than such waivers, consents and/or authorizations specifically contemplated
by
the Purchase Agreement.
4.4.
Each
holder of Registrable Securities agrees that, upon receipt of any notice from
the Company of the occurrence of any event of the kind described in subdivision
(viii) of Section 4.1, such Holder will forthwith discontinue such holder of
Registrable Securities’ disposition of Registrable Securities pursuant to the
Registration Statement relating to such Registrable Securities until such holder
of Registrable Securities’ receipt of the copies of the supplemented or amended
prospectus contemplated by subdivision (viii) of Section 4.1 and, if so directed
by the Company, will deliver to the Company (at the Company’s expense) all
copies, other than permanent file copies, then in such Holder’s possession of
the prospectus relating to such Registrable Securities current at the time
of
receipt of such notice.
ARTICLE
V
UNDERWRITTEN
OFFERINGS
5.1.
Incidental
Underwritten Offerings
.
If the
Company at any time proposes to register any of its securities under the 1933
Act as contemplated by Section 3.1 and such securities are to be distributed
by
or through one or more underwriters, the Company will, if requested by any
holder of Registrable Securities as provided in Section 3.1 and subject to
the
provisions of Section 3.2, use its commercially reasonable best efforts to
arrange for such underwriters to include all the Registrable Securities to
be
offered and sold by such holder among the securities to be distributed by such
underwriters. In no event shall any Investors be deemed an underwriter for
purposes of this Agreement. This Article V shall not apply to any Registrable
Securities theretofore registered pursuant to Article II of this
Agreement.
5.2.
Participation
In Underwritten Offerings
.
No
holder of Registrable Securities may participate in any underwritten offering
under Section 3.1 unless such holder of Registrable Securities (i) agrees to
sell such Person’s securities on the basis provided in any underwriting
arrangements approved, subject to the terms and conditions hereof, by the
holders of a majority of Registrable Securities to be included in such
underwritten offering and (ii) completes and executes all questionnaires,
indemnities, underwriting agreements and other documents (other than powers
of
attorney) required under the terms of such underwriting arrangements.
Notwithstanding the foregoing, no underwriting agreement (or other agreement
in
connection with such offering) shall require any holder of Registrable
Securities to make a representation or warranty to or agreements with the
Company or the underwriters other than representations and warranties contained
in a writing furnished by such holder of Registrable Securities expressly for
use in the related registration statement or representations, warranties or
agreements regarding such holder of Registrable Securities, such holder’s
Registrable Securities and such holder’s intended method of distribution and any
other representation required by law.
5.3.
Preparation;
Reasonable Investigation
.
In
connection with the preparation and filing of each registration statement under
the 1933 Act pursuant to this Agreement, the Company will give the holders
of
Registrable Securities registered under such registration statement, and their
respective counsel and accountants, the opportunity to participate in the
preparation of such registration statement, each prospectus included therein
or
filed with the SEC, and each amendment thereof or supplement thereto, and will
give each of them such access to its books and records and such opportunities
to
discuss the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the reasonable opinion of such holders’ and such underwriters’ respective
counsel, to conduct a reasonable investigation within the meaning of the 1933
Act.
ARTICLE
VI
INDEMNIFICATION
6.1.
Indemnification
by the Company
.
In the
event of any registration of any securities of the Company under the 1933 Act,
the Company will, and hereby does agree to indemnify and hold harmless the
holder of any Registrable Securities covered by such registration statement,
its
directors and officers, each other Person who participates as an underwriter
in
the offering or sale of such securities and each other Person, if any, who
controls such holder or any such underwriter within the meaning of the 1933
Act
against any losses, claims, damages or liabilities, joint or several, to which
such holder or any such director or officer or underwriter or controlling person
may become subject under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings, whether commenced
or
threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such securities were registered under the
1933 Act, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, or any omission
or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and the Company
will
reimburse such holder and each such director, officer, underwriter and
controlling person for any legal or any other expenses reasonably incurred
by
them in connection with investigating or defending any such loss, claim,
liability, action or proceeding, provided that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability,
(or
action or proceeding in respect thereof) or expense arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, any such preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by such
holder or underwriter stating that it is for use in the preparation thereof
and,
provided further that the Company shall not be liable to any Person who
participates as an underwriter in the offering or sale of Registrable Securities
or to any other Person, if any, who controls such underwriter within the meaning
of the 1933 Act, in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of such Person’s failure to send or give a copy of the final prospectus, as
the same may be then supplemented or amended, within the time required by the
1933 Act to the Person asserting the existence of an untrue statement or alleged
untrue statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Securities to such Person if such
statement or omission was corrected in such final prospectus or an amendment
or
supplement thereto. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such holder or any
such
director, officer, underwriter or controlling person and shall survive the
transfer of such securities by such holder.
6.2.
Indemnification
by the Investor
.
The
Company may require, as a condition to including any Registrable Securities
in
any registration statement filed pursuant to this Agreement, that the Company
shall have received an undertaking satisfactory to it from the prospective
holder of such Registrable Securities, to indemnify and hold harmless (in the
same manner and to the same extent as set forth in Section 6.1) the Company,
each director of the Company, each officer of the Company and each other Person,
if any, who controls the Company within the meaning of the 1933 Act, with
respect to any statement or alleged statement in or omission or alleged omission
from such registration statement, any preliminary prospectus, final prospectus
or summary prospectus contained therein, or any amendment or supplement thereto,
if such statement or alleged statement or omission or alleged omission was
made
in reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such holder of Registrable
Securities specifically stating that it is for use in the preparation of such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement. Any such indemnity shall remain in full
force and effect, regardless of any investigation made by or on behalf of the
Company or any such director, officer or controlling person and shall survive
the transfer of such securities by the Investor. The indemnification by the
Investor
shall be
limited to Fifty Thousand ($50,000) Dollars.
6.3.
Notices
Of Claims, Etc
.
Promptly after receipt by an indemnified party of notice of the commencement
of
any action or proceeding involving a claim referred to in Sections 6.1 and
Section 6.2, such indemnified party will, if claim in respect thereof is to
be
made against an indemnifying party, give written notice to the latter of the
commencement of such action, provided that the failure of any indemnified party
to give notice as provided herein shall not relieve the indemnifying party
of
its obligations under Sections 6.1 and Section 6.2, except to the extent that
the indemnifying party is actually prejudiced by such failure to give notice.
In
case any such action is brought against an indemnified party, unless in such
reasonable judgment
of
counsel to the indemnified party,
a
conflict of interest
,
as
hereinafter defined,
between
such indemnified and indemnifying parties may exist in respect of such claim,
the indemnifying party shall be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified,
to the extent that the indemnifying party may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
of any such action which does not include as an unconditional term thereof
the
giving by the claimant or plaintiff to such indemnified party of a release
from
all liability, or a covenant not to sue, in respect to such claim or litigation.
No indemnified party shall consent to entry of any judgment or enter into any
settlement of any such action the defense of which has been assumed by an
indemnifying party without the consent of such indemnifying party
.
If the
defendants in any action covered by this Section 6.3 include both the
indemnified party and the indemnifying party and counsel for the indemnified
party shall have reasonably concluded that there may be reasonable defenses
available to it which are different from or additional to those available to
the
indemnifying party or if the interests of the indemnified party reasonably
may
be deemed to conflict with the interests of the indemnifying party
(collectively, a “conflict of interest”), the indemnified parties, as a group,
shall have the right to select one separate counsel and to assume such legal
defenses and otherwise to participate in the defense of such action, with the
reasonable expenses and fees of such separate counsel and other expenses related
to such participation to be reimbursed by the indemnifying party. Such counsel
shall be selected by the holders of a majority of the shares of Common Stock
having an indemnity claim against the Company, whether pursuant to this
Agreement or any other agreements which provide such or similar
indemnity.
6.4.
Other
Indemnification
.
Indemnification similar to that specified in Sections 6.1 and Section 6.2 (with
appropriate modifications) shall be given by the Company and each holder of
Registrable Securities (but only if and to the extent required pursuant to
the
terms herein) with respect to any required registration or other qualification
of securities under any Federal or state law or regulation of any governmental
authority, other than the 1933 Act.
6.5.
Indemnification
Payments
.
The
indemnification required by Sections 6.1 and Section 6.2 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or expense, loss, damage or liability
is incurred.
6.6.
Contribution
.
(i)
If
the
indemnification provided for in Sections 6.1 and Section 6.2 is unavailable
to
an indemnified party in respect of any expense, loss, claim, damage or liability
referred to therein, 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 expense, loss, claim, damage or liability
(i) in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the holder of Registrable Securities
or underwriter, as the case may be, on the other from the distribution of the
Registrable Securities or (ii) if the allocation provided by clause (i) above
is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and of the holder of Registrable
Securities or underwriter, as the case may be, on the other in connection with
the statements or omissions which resulted in such expense, loss, damage or
liability, as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the holder of Registrable
Securities or underwriter, as the case may be, on the other in connection with
the distribution of the Registrable Securities shall be deemed to be in the
same
proportion as the total net proceeds received by the Company from the initial
sale of the Registrable Securities by the Company to the purchasers bear to
the
gain, if any, realized by all selling holders participating in such offering
or
the underwriting discounts and commissions received by the underwriter, as
the
case may be. The relative fault of the Company on the one hand and of the holder
of Registrable Securities or underwriter, as the case may be, on the other
shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission to state a material fact relates
to information supplied by the Company, by the holder of Registrable Securities
or by the underwriter and the parties’ relative intent, knowledge, access to
information supplied by the Company, by the holder of Registrable Securities
or
by the underwriter and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission,
provided that the foregoing contribution agreement shall not inure to the
benefit of any indemnified party if indemnification would be unavailable to
such
indemnified party by reason of the provisions contained herein, and in no event
shall the obligation of any indemnifying party to contribute under this Section
6.6 exceed the amount that such indemnifying party would have been obligated
to
pay by way of indemnification if the indemnification provided for hereunder
had
been available under the circumstances.
(ii)
The
Company and the holders of Registrable Securities agree that it would not be
just and equitable if contribution pursuant to this Section 6.6 were determined
by pro rata allocation (even if the holders of Registrable Securities and any
underwriters were treated as one entity for such purpose) or by any other method
of allocation that does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth herein, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim.
(iii)
Notwithstanding
the provisions of this Section 6.6, no holder of Registrable Securities or
underwriter shall be required to contribute any amount in excess of the amount
by which (i) in the case of any such holder, the net proceeds received by such
holder from the sale of Registrable Securities in the applicable Registration
Statement or (ii) in the case of an underwriter, the total price at which the
Registrable Securities purchased by it and distributed to the public were
offered to the public exceeds, in any such case, the amount of any damages
that
such holder or underwriter has otherwise been required to pay by reason of
such
untrue or alleged untrue statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall
be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
ARTICLE
VII
RULE
144
7.1.
Rule
144
.
The
Company shall use its commercially reasonable efforts to file in a timely manner
the reports required to be filed by the Company under the 1933 Act and the
1934
Act (including but not limited to the reports under Sections 13 and 15(d) of
the
1934 Act referred to in subparagraph (c) of Rule 144) and the rules and
regulations adopted by the SEC thereunder (or, if the Company is not required
to
file such reports, will, upon the request of any holder of Registrable
Securities, make publicly available other information) and will take such
further action as any holder of Registrable Securities may reasonably request,
all to the extent required from time to time to enable such holder to sell
Registrable Securities without registration under the 1933 Act within the
limitation of the exemptions provided by (a) Rule 144, or (b) any similar rule
or regulation hereafter adopted by the SEC. Upon the request of any holder
of
Registrable Securities, the Company will deliver to such holder a written
statement as to whether it has complied with the requirements of this Section
7.1.
ARTICLE
VIII
MISCELLANEOUS
8.1.
Amendments
And Waivers
.
This
Agreement may be amended and the Company may take any action herein prohibited,
or omit to perform any act herein required to be performed by it, only if the
Company shall have obtained the written consent to such amendment, action or
omission to act, of the holder or holders of fifty-one percent (51%) or more
of
the sum of the Shares issued at such time, plus Shares issuable upon conversion
of the Series A Preferred Stock or exercise of the Warrants (if such Securities
were not fully exercised or converted in full as of the date such consent if
sought without regard to the 4.9% Limitation, as defined in the Purchase
Agreement). Each holder of any Registrable Securities at the time or thereafter
outstanding shall be bound by any consent authorized by this Section 8.1,
whether or not such Registrable Securities shall have been marked to indicate
such consent.
8.2.
Nominees
For Beneficial Owners
.
In the
event that any Registrable Securities are held by a nominee for the beneficial
owner thereof, the beneficial owner thereof shall be treated as the holder
of
such Registrable Securities for purposes of any request or other action by
any
holder or holders of Registrable Securities pursuant to this Agreement or any
determination of any number of percentage of shares of Registrable Securities
held by a holder or holders of Registrable Securities contemplated by this
Agreement. The Company may require assurances reasonably satisfactory to it
of
such owner’s beneficial ownership or such Registrable Securities.
8.3.
Notices
.
Except
as
otherwise provided in this Agreement, all notices, requests and other
communications to any Person provided for hereunder shall be in writing and
shall be given to such Person (a) in the case of a party hereto other than
the
Company, addressed to such party in the manner set forth in the Purchase
Agreement or at such other address as such party shall have furnished to the
Company in writing, or (b) in the case of any other holder of Registrable
Securities, at the address that such holder shall have furnished to the Company
in writing, or, until any such other holder so furnishes to the Company an
address, then to and at the address of the last holder of such Registrable
Securities who has furnished an address to the Company, or (c) in the case
of
the Company, at the address set forth on the signature page hereto, to the
attention of its President, or at such other address, or to the attention of
such other officer, as the Company shall have furnished to each holder of
Registrable Securities at the time outstanding. Each such notice, request or
other communication shall be effective (i) upon receipt after such communication
is deposited in the mail with first class postage prepaid, addressed as
aforesaid or (ii) if given by any other means (including, without limitation,
by
fax or air courier), when delivered at the address specified above, provided
that any such notice, request or communication shall not be effective until
received, and provided, further, that notice by fax shall not be deemed received
unless receipt is acknowledged.
8.4.
Assignment
.
This
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the parties hereto. In addition, and whether or not any express assignment
shall have been made, the provisions of this Agreement which are for the benefit
of the parties hereto other than the Company shall also be for the benefit
of
and enforceable by any subsequent holder of any Registrable Securities. Each
of
the Holders of the Registrable Securities agrees, by accepting any portion
of
the Registrable Securities after the date hereof, to the provisions of this
Agreement including, without limitation, appointment of a representative (the
“Investor’s Representative”) to act on behalf of such Holder pursuant to the
terms hereof which such actions shall be made in the good faith discretion
of
the Investor’s Representative and be binding on all persons for all
purposes.
8.5.
Descriptive
Headings
.
The
descriptive headings of the several sections and paragraphs of this Agreement
are inserted for reference only and shall not limit or otherwise affect the
meaning hereof.
8.6.
Governing
Law
.
This
Agreement shall be governed by, and construed in accordance with, the laws
of
the State of New York, without giving effect to applicable principles of
conflicts of law.
8.7.
Jurisdiction
.
If any
action is brought among the parties with respect to this Agreement or otherwise,
by way of a claim or counterclaim, the parties agree that in any such action,
and on all issues, the parties irrevocably waive their right to a trial by
jury.
Exclusive jurisdiction and venue for any such action shall be the State or
Federal Courts serving the City, County and State of New York. In the event
suit
or action is brought by any party under this Agreement to enforce any of its
terms, or in any appeal therefrom, it is agreed that the prevailing party shall
be entitled to reasonable attorneys fees to be fixed by the arbitrator, trial
court, and/or appellate court if such party prevails on substantially all
disputed matters.
8.8.
Entire
Agreement
.
This
Agreement, together with the Purchase Agreement, embodies the entire agreement
and understanding between the Company and each other party hereto relating
to
the subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
8.9.
Severability
.
If any
provision of this Agreement, or the application of such provisions to any Person
or circumstance, shall be held invalid, the remainder of this Agreement, or
the
application of such provision to Persons or circumstances other than those
to
which it is held invalid, shall not be affected thereby.
8.10.
Binding
Effect
.
All the
terms and provisions of this Agreement whether so expressed or not, shall be
binding upon, inure to the benefit of, and be enforceable by the parties and
their respective administrators, executors, legal representatives, heirs,
successors and assignees.
8.11.
Preparation
of Agreement
.
This
Agreement shall not be construed more strongly against any party regardless
of
who is responsible for its preparation. The parties acknowledge each contributed
and is equally responsible for its preparation.
8.12.
Failure
or Indulgence Not Waiver; Remedies Cumulative
.
No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty, covenant or
agreement herein, nor shall nay single or partial exercise of any such right
preclude other or further exercise thereof or of any other right. All rights
and
remedies existing under this Agreement are cumulative to, and not exclusive
of,
any rights or remedies otherwise available.
8.13.
Counterparts
.
This
Agreement may be executed in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when executed shall
be
deemed to be an original, but all of which taken together shall constitute
one
and the same agreement. A facsimile transmission of this signed Agreement shall
be legal and binding on all parties hereto.
[SIGNATURES
ON FOLLOWING PAGE]
IN
WITNESS WHEREOF
,
the
Investor and the Company have as of the date first written above executed this
Agreement.
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ACHIEVERS
MAGAZINE INC.
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By:
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/s/
Dengyong Jin
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Dengyong
Jin
|
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Chief
Executive Officer
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XingGuang
Investment Corporation Limited
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By:
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/s/
Xiangxin Sun
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Xiangxin
Sun
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President
|
Business
Operations Agreement
This
Business Operations Agreement (this “Agreement”) is entered into
as
of
December 7, 2007, in Xinghe County, Inner Mongolia, People’s Republic of China
(“PRC”) by and among the following parties:
|
Party
A:
|
Xinghe
Yongle Carbon Co., Ltd.
(
兴和县永乐碳素有榰狝任公司
)
|
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Address:
|
No.
19, Xingxin Street, Houhe, Xinghe County, Wulanchabu,
|
Inner
Mongolia
,
PRC
|
Legal
Representative:
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Mr.
Wei Aihu
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Party
B:
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Xinghe
Xingyong Carbon Co., Ltd.
(
兴和兴永碳素有榰公司)
|
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Address:
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Xicheng
Wai, Chengguan town,
Xinghe County, Inner Mongolia, P.R.
Chin
|
|
Legal
Representative:
|
Mr.
Jin Dengyong
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Party
C:
Mr.
Jin Dengyong (
梍登永
)
|
Address:
|
No.
76, Xingxin Street, Houhe, Chengguan town,
Xinghe County, Inner Mongolia, PRC
|
Mr.
Du Benhua (
杜本华)
|
ID
No.
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152627195301180018
|
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Address:
|
No.
49, Limin alley, Chengguan town,
Xinghe County,
Wulanchabu, Inner Mongolia, PRC
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WHEREAS:
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1.
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Party
A is a wholly foreign-owned enterprise
duly
incorporated and existing in the
PRC;
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2.
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Party
B is a limited liability company duly incorporated and registered
in the
PRC;
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3.
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A
business relationship has been established between Party A and
Party B by
entering into
Exclusive
Technical Consulting and Services Agreement,
under
which Party B shall make various payments to Party A, and subsequently
the
daily operation of Party B will have a material impact on its
payment
capacity to Party A.; and
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4.
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Members
of Party C, are shareholders of Party B (the “Shareholders of Party B”),
among which Jin Dengyong owns 98% equity interest, and Du Benhua
owns2%
equity interest in Party B.
|
All
Parties through friendly negotiation in the principle of equality and mutual
benefits, hereby jointly agree the following:
In
order
to ensure Party B’s performance of the agreements between Party A and Party B
and all its obligations to Party A,
Party
C
hereby jointly confirm and agree that Party B will not conduct any transaction
which may materially affect its assets, business, employment, obligations,
rights or the company’s operation unless a prior written consent from Party A or
a third party appointed by Party A, including but not limited to the following
contents, has been obtained:
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1.1
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To
conduct any business which is beyond the normal business scope
of Party B
or conduct business in a way which is inconsistent with the past
practices
or in an abnormal way;
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1.2
|
To
borrow money or incur any debt from any third
party;
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1.3
|
To
change or dismiss any directors or to dismiss and replace any senior
management officers;
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1.4
|
To
sell to or acquire from any third party or dispose of in any other
way any
assets or rights having a value in excess of RMB200,000 Yuan, including
but not limited to any intellectual property
rights;
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1.5
|
To
provide guarantee of the obligations of any third party with its
assets or
intellectual property rights or to provide any other guarantee
or to place
its assets under any other
encumbrance;
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1.6
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To
amend the Articles of Association of the company or to change its
scope of
business;
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1.7
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To
change the normal business process or modify any material
bylaws;
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1.8
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To
assign rights and obligations under this Agreement to any third
party;
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1.9
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To
materially adjust the business operation model, marketing strategy,
operation guidance or client
relationship;
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1.10
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To
distribute any dividend in any
form;
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1.11
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To
increase compensation payable to any executive officers or senior
management; and
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1.12
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To
engage in any activity not permitted by the laws of the
PRC.
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2.
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Management
of Operation and Arrangements of
Personnel
|
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2.1
|
Party
B together with Party C hereby jointly agree to accept and strictly
enforce the proposals in respect of the employment and dismissal
of its
employees, the daily business management and financial management,
etc.,
provided by Party A from time to
time.
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2.2
|
Party
B together with Party C hereby jointly agree that the Shareholders
of
Party B shall only appoint candidates designated by Party A as
the
directors of Party B in accordance with the procedures regulated
by laws
and regulations and the Article of Association of the company,
and cause
the chosen directors to elect Party A’s president candidate as President
of the company, and Party B shall engage Party A
’
s
nominees as Party B
’
s
General Manager, Chief Financial Officer, and other senior officers.
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2.3
|
In
case of departure of any of the above officers from Party A by
reason of
quitting or being dismissed, such officer will lose the qualification
to
undertake any positions in Party B and therefore the Shareholders
of Party
B shall dismiss such officer and appoint other nominees of Party
A to
assume such positions.
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2.4
|
For
the purpose of Article 2.3, the Shareholders of Party B shall take
all
necessary inside and outside procedures to accomplish the above
dismissal
and engagement.
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2.5
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The
Shareholders of Party B hereby agree, simultaneously with the execution
of
this Agreement, to sign Power of Attorney, according to which the
Shareholders of Party B will irrevocably authorize personnel designated
by
Party A to exercise their shareholders’ rights and their full voting
rights as shareholders at Party B’s shareholders’ meetings. The
Shareholders of Party B further agree to replace the authorized
persons
appointed in the above mentioned Power of Attorney at any time
at the
request of Party A. The power of attorney is
irrevocable.
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3.1
|
In
the event that any of the agreements between Party A and Party
B
terminates or expires, Party A is entitled to terminate all agreements
between Party A and Party B including but not limited to the Exclusive
Technical Consulting and Services
Agreement.
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3.2
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Whereas
the business relationship between Party A and Party B has been
established
through the Exclusive Technical Consulting and Services Agreement
and
other agreements and the daily business operations of Party B shall
bear a
material impact on its capacity to make the payments due to Party
A, the
Shareholders of Party B jointly agree that they will immediately
and
unconditionally pay or transfer to Party A any bonus, dividends
or any
other incomes or benefits (regardless of the forms) obtained from
Party B
as the shareholders of Party B at the time when such payables occur
and
provide all necessary documents or take all necessary actions required
by
Party A to realize such payment or transfer
.
|
|
4.
|
Entire
Agreement and
Amendments
|
|
4.1
|
This
Agreement together with all the other agreements and/or documents
mentioned or explicitly included in this Agreement dated the date
of this
Agreement will be part of the whole agreement concluded in respect
of the
matters in this Agreement and shall replace all other prior oral
and
written agreements, contracts, understandings and communications
among all
the parties in relation to this
matters.
|
|
4.2
|
Any
amendment and supplement to this Agreement shall take effect only
after it
is executed by all Parties. The amendment and supplement duly executed
shall be part of this Agreement and shall have the same legal effect
as
this Agreement.
|
The
execution, validity, performance and interpretation and the resolution of
disputes of this Agreement shall be governed by and construed in accordance
with
the PRC laws.
|
6.1
|
The
parties shall strive to settle any dispute arising from the interpretation
or performance through negotiation in good faith. In case no settlement
can be reached through consultation, each party can submit such
dispute to
China International Economic and Trade Arbitration Commission (“CIETAC”)
for arbitration in accordance with the current rules of CIETAC.
The
arbitration proceedings shall take place in Beijing and shall be
conducted
in Chinese. The arbitration award shall be final and binding upon
all
parties.
|
|
6.2
|
Each
Party shall continue to perform its obligations in good faith according
to
the provisions of this Agreement except for the matters in
dispute.
|
|
7.1
|
Notices
for the purpose of exercising the rights and performing the obligations
hereunder shall be in writing and be delivered by personal delivery,
registered or mail or postage prepaid mail, recognized express
service or
by facsimile transmission to the address of the relevant party
or parties
set forth below.
|
|
|
Party
A:
|
Xinghe
Yongle Carbon Co.,
Ltd.
|
|
|
Party
A:
|
Xinghe
Yongle Carbon Co., Ltd.
|
|
|
Address:
|
No.
19, Limin alley, Chengguan Town, Xinghe County, Wulanchabu, Inner
Mongolia, PRC
|
|
|
Party
B:
|
Xinghe
Xingyong Carbon Co., Ltd.
|
|
|
Address:
|
Xicheng
Wai, Chengguan town,
Xinghe County, Inner Mongolia, P.R.
China
|
|
|
Attention:
|
Mr.
Jin Dengyong
|
|
|
Address:
|
No.
76, Xingxin Street, Houhe, Chengguan town,
Xinghe County, Inner Mongolia, PRC
|
|
|
Address:
|
No.
49, Limin alley, Chengguan town,
Xinghe County,
Wulanchabu, Inner Mongolia, PRC
|
Any
notice by facsimile transmission or e-mail shall be effective only if the
recipient acknowledges receipt.
|
8.
|
Effect,
Term and Other About This
Agreement
|
|
8.1
|
Any
written consent, suggestion, appointment or other decisions which
have
material effects on Party B’s daily business operations involved in this
Agreement shall adopted by the board of directors of Party A.
|
|
8.2
|
This
Agreement will take effect upon execution by duly authorized
representatives of all parties and the term of this Agreement will
last
until Party A is dissolved according to the PRC laws, unless Party
A
terminates this Agreement pursuant to Article
8.3.
|
|
8.3
|
Party
B and the Shareholders of Party B shall not terminate this Agreement
within the term of this Agreement while Party A is entitled to
terminate
this Agreement any time by issuing a written notice to Party B
and the
Shareholders of Party B 30 days prior to the
termination.
|
|
8.4
|
In
case any term or provision in this Agreement is regarded as illegal
or can
not be enforced in accordance with the applicable law, it shall
be deemed
to be deleted from this Agreement and be null and void, and this
Agreement
shall be treated as without it from the very beginning. However,
the rest
of the provisions will remain effective. The parties shall replace
the
deleted provisions with lawful, effective and mutually acceptable
ones
through negotiations.
|
|
8.5
|
Any
non-exercise of any rights, powers or privileges hereunder shall
not be
deemed as a waiver thereof. Any single or partial exercise of such
rights,
powers or privileges shall not exclude one party from exercising
any other
rights, powers or privileges.
|
IN
WITNESS WHEREOF
the
parties hereto have caused this Agreement to be duly executed on their behalf
by
duly authorized representatives as of the Effective Date first written
above.
(No
text
on this page, Signature page to Business Operations Agreement)
Party
A: Xinghe Yongle Carbon Co., Ltd.
(Stamp)
/s/
Wei Aihu
Authorized
Representative:
Mr. Wei
Aihu
Party
B: Xinghe Xingyong Carbon Co., Ltd.
(Stamp)
/s/
Jin Dengyong
Authorized
Representative:
Mr. Jin
Dengyong
Party
C:
Mr.
Jin Dengyong
Signature:
/s/
Jin Dengyong
Mr.
Du Benhua
Signature:
/s/
Du Benhua
EXCLUSIVE
TECHNICAL CONSULTING AND SERVICES AGREEMENT
This
Exclusive Technical Consulting and Services Agreement (the
“
Agreement
”
)
is
entered into in Xinghe County, Inner Mongolia, People’s Republic of China(“PRC”)
as of December 7, 2007, between the following two parties (the
“Parties).
|
Party
A:
|
Xinghe
Yongle Carbon Co., Ltd. (
兴和县永乐碳素有榰狝任公司)
|
|
Address:
|
No.
19, Xingxin Street, Houhe, Xinghe County, Wulanchabu, Inner Mongolia,
PRC
|
|
Legal
Representative:
|
Mr.
Wei Aihu
|
|
Party
B:
|
Xinghe
Xingyong Carbon Co., Ltd. (
兴和兴永碳素有榰公司)
|
|
Address:
|
Xicheng
Wai, Chengguan town,
Xinghe County, Inner Mongolia, PRC
|
|
Legal
Representative:
|
Mr.
Jin Dengyong
|
WHEREAS,
|
1.
|
Party
A is a wholly foreign-owned enterprise incorporated and existing
in the
PRC, Whose main business is to conduct the manufacture of the carbon
products, transfer the related technology, and provide consulting
services;
|
|
2.
|
Party
B is a limited liability company incorporated and registered in
the PRC;
and
|
|
3.
|
Party
A agrees to provide technical consulting and relevant services
to Party B
and Party B agrees to accept such technical consulting and
services.
|
THEREFORE,
Party A and Party B, through friendly negotiation and based on equality and
mutual benefit, enter into the Agreement as follows:
|
1.
|
Technical
Consulting and Services; Ownership and Exclusive
Interests
|
|
1.1
|
During
the term of this Agreement, Party A agrees to provide relevant
technical
consulting and services to Party B (the content is specified in
Appendix
1) in accordance with terms and conditions under the
Agreement.
|
|
1.2
|
Party
B hereby agrees to accept such technical consulting and services.
In
consideration of the value of technical consulting and services
and the
good cooperation relationship, Party B further agrees that, during
the
term of this Agreement, it shall not accept technical consulting
and
services for above-mentioned business provided by any third party
without
the prior written consent of Party
A.
|
|
1.3
|
Party
A shall be the sole and exclusive owner of all rights, title, interests
and intellectual property rights arising from the performance of
this
Agreement (including but not limited to, any copyrights, patent,
know-how,
commercial secrets and otherwise), regardless developed independently
by
Party A or by Party B based on Party A’s intellectual property or by Party
A based on Party B’s intellectual property. Party B shall not claim
against Party A on any rights, ownership, interests or intellectual
property.
|
If
such
development is conducted on the basis of Party B’s intellectual property, Party
B shall ensure that such intellectual property is clear and free from any
lien
or encumbrance or license, or Party B shall indemnify Party A any and all
damages incurred thereby. In case Party A shall be liable to any third party
by
reason thereof, Party A shall be compensated in full by Party B as long as
Party
A has compensated the third party.
|
1.4
|
Party
B promises that under the same conditions, Party A has the priority
on
cooperation with party B in respect of any business. Subject to
Party A’s
written consent, Party B can cooperate with other enterprises under
the
same conditions.
|
|
2.
|
Calculation
and Payment of the Fee for Technical Consulting and Services (the
“Service
Fees”)
|
|
2.1
|
The
parties agree that the Fees under this Agreement shall be determined
according to Appendix 2.
|
|
2.2
|
In
the event Party B fails to make payment for the Service Fees and
other
fees, Party B shall pay to Party A 0.05% of the delayed payment
per day as
liquidated damages.
|
|
2.3
|
Party
A has the right to appoint its employee or an
accountant
registered in PRC or any other country (“Party A’s Authorized
Representative”), at its own expenses, to inspect and audit the accounting
books of Party B for the purpose of determining the amount or calculation
method of services. Party B shall provide Party A with documents,
accounting books, recordation and data required by Party A in order
to
enable Party A’s Authorized Representative to audit the accounting books
and determine the amount of Service Fee. Unless an error of more
than 5%
shall occur in the income of Party B, the amount determined by
Party A’s
Authorized Representative shall be the amount of the Service Fee.
|
|
2.4
|
Unless
otherwise agreed upon by the Parties, the Service Fee paid by Party
B in
accordance with this Agreement shall not subject to any deduction
or
offset (e.g. bank service charge).
|
|
2.5
|
In
addition to the Service Fee, Party B shall pay Party A any and
all actual
expenses incurred by Party A arising out of provision of the technical
consulting and services under this agreement, including but not
limited to
expenses relating to travel, traffic, printing and postage and
other
out-of-pocket expenses incurred by Party A.
|
|
2.6
|
Both
Parties agree that any losses incurred during the performance of
this
Agreement shall be jointly burden by both
Parties.
|
|
3.
|
Representations
and Warranties
|
|
3.1
|
Party
A hereby represents and warrants as
follows:
|
|
|
3.1.1
|
Party
A is a company duly registered and
validly
existing under PRC laws.
|
|
|
3.1.2
|
Party
A shall perform this Agreement within its corporation powers
and scope of
business with necessary corporation authorizations, and has gained
all
consents and approvals of any other third parties and government
authorities. The performance of this Agreement shall not be in
violation
of any binding or effective laws or contracts.
|
|
|
3.1.3
|
Once
the Agreement has been duly executed by both parties, it will
constitute a
legitimate, valid legal document binding upon and enforceable
against
Party A in accordance with its terms
upon its execution
.
|
|
3.2
|
Party
B hereby represents and warrants as
follows:
|
|
|
3.2.1
|
Party
B is a company duly registered and validly existing under PRC
laws.
|
|
|
3.2.2
|
Party
B shall perform this Agreement within its corporation powers
and scope of
business with necessary corporation authorization, and has
gained all
consents and approvals of any other third parties and government
authorities. The performance of this Agreement shall not be
in violation
of any effective laws or contracts binding upon Party B.
|
|
|
3.2.3
|
Once
the Agreement has been duly executed by both parties, it will
constitute a
legitimate, valid legal document binding upon and enforceable
against
Party B in accordance with its terms
upon its execution
.
|
|
4.1
|
The
Parties agree to take various reasonable measures to protect
and maintain
the confidentiality of the confidential data and information
(the
“
Confidential
Information
”
,
the disclosing party shall explicitly inform the receiving
party of the
confidentiality of the disclosed documents and information
in writing)
disclosed to or acquired by them in the exclusive consulting
and services,
and shall not disclose, give or transfer any Confidential Information
(including but not limited to the receiving party being merged
or acquired
or controlled directly or indirectly by any third party) to
any third
party without prior written consent of the disclosing party.
Upon
termination or expiration of this Agreement, the Parties shall,
at the
request of either Party, return any documents, information
or software
containing any of such Confidential Information to the owner
or disclosing
party, or destroy such Confidential Information with the consent
of the
owner or disclosing party, including deleting any such Confidential
Information from any memory devices, and ceasing to use such
confidential
Information. The Parties shall take necessary measures to disclose
the
Confidential Information to the employees, agents or professional
consultants of Party B who need to know such information and
cause them to
observe the confidential obligations hereunder. Party B, Party
B’s
employees, agents or professional consultants shall enter into
confidential agreement with Party A for the purpose of protecting
confidential information.
|
|
4.2
|
The
restrictions stipulated in Article 4.1 shall not apply
to:
|
|
|
4.2.1
|
the
materials available to the public at the time of
disclosure;
|
|
|
4.2.2
|
the
materials that become available to the public after the disclosure
not due
to the fault of
either
Party;
|
|
|
4.2.3
|
the
materials
Party
A or Party B proves to have got the control neither directly
nor
indirectly from any other party before the disclosure;
and
|
|
|
4.2.4
|
each
Party is required by law to disclose to relevant government
authorities,
stock exchange institute, or necessarily discloses the above
confidential
information directly to the legal counsel and financial consultant
in
order to keep its usual
business.
|
|
4.3
|
Both
Parties agree that this article shall survive the modification,
recession
or termination of this Agreement.
|
|
5.1
|
Unless
otherwise provided in this agreement, if Party B fails or
pauses to
perform its obligation under this Agreement, and fails to
correct the same
within thirty (30) days after receiving the other party’s notification,
which shall set forth in reasonable detail the basis for
the claim of
breach, or if any representation or warranty is found to
be inaccurate and
not cured within thirty (30) days, then Party B breaches
its obligation
under this agreement.
|
|
5.2
|
If
either party to this Agreement breaches this Agreement or
any
representations and warranties made in this Agreement, the
other party may
notify in writing the breaching party requesting it to correct
its
breaching acts, take relevant measures to effectively and
promptly avoid
the occurrence of any damages, and to resume the performance
of this
Agreement 30 days after receipt of the notice. The breaching
party shall
compensate any losses caused to the non-breaching party in
order to make
the non-breaching party obtain any and all the rights and
interests it
should have acquired if the contract had been soundly performed.
|
|
5.3
|
In
the event that either party’s breach of this agreement results in any fee,
liability or loss (including but not limited to loss of profits)
incurred
by the other, the breaching party shall indemnify the non-breaching
party
any of the aforesaid fee, liability or loss( including but
not limited to
any interest and attorney fee paid or incurred due to the
breach). The
total compensation paid by the breaching party to the non-breaching
party
shall be equal to the losses caused by the breach of this
Agreement, which
shall include the receivable interests by the non-breaching
party for the
performance of this Agreement, but shall not exceed the reasonable
expectations of the Parties.
|
|
5.4
|
If
Party B fails to follow Party A’s instruction, or misuses the intellectual
property or conducts improper technical operations, and any
third party
claims damages due to Party B’s aforesaid activities, Party B shall assume
all the liabilities arising out thereof. If Party B finds
out that any
third party uses Party A’s intellectual property without legal
authorization, Party B shall notify Party A immediately and
assist Party A
to take any actions.
|
|
5.5
|
In
the event both Parties breach this Agreement, they shall
determine the
compensation payable according to the extent of their breach
respectively.
|
|
6.
|
Effective
Date and Term
|
|
6.1
|
This
Agreement shall be executed as of the date indicated at the
head of this
Agreement, and shall take effect
simultaneously.
|
|
6.2
|
The
term of this Agreement is ten (10) years commencing upon
its execution,
unless earlier terminated by Party A. Prior to the expiration
of this
Agreement, if Party A intends to extend the term of this
Agreement, the
parties shall extend the term of this Agreement as per the
requirement of
Party A, and the parties shall enter into exclusive technical
consulting
and service agreement separately or continue to perform this
Agreement as
required by Party A.
|
|
7.1
|
During
the term of this Agreement, if Party B terminates this Agreement
in
advance without any due cause, Party B shall indemnify Party
A all losses
caused thereby to Party A, and pay the relevant fees for
the services
already provided.
|
|
7.2
|
This
Agreement can be terminated by mutual consent of the parties.
|
|
7.3
|
The
rights and obligations of both Parties under Article 4 and
5 shall survive
the termination of this Agreement.
|
|
8.1
|
The
parties shall strive to settle any dispute arising from the
interpretation
or performance in connection with this Agreement through
friendly
consultation. In case no settlement can be reached through
consultation,
each party may submit such dispute to China International
Economic and
Trade Arbitration Commission (the
“
CIETAC
”
).
The arbitration shall follow the current rules of CIETAC,
and the
arbitration proceedings shall be conducted in Chinese and
shall take place
in Beijing. The arbitration award shall be final and binding
upon both
Parties. This article shall survive the termination or recession
of this
Agreement.
|
|
8.2
|
Each
Party shall continue to perform its obligations in good faith
according to
the provisions of this Agreement except for the matters in
dispute.
|
|
9.1
|
Force
Majeure, means any event that is beyond the party
’
s
reasonable control and cannot be prevented with reasonable
care, including
but not limited to acts of governments, including changes
in government
laws and policies, acts of nature, fire, explosion, typhoon,
flood,
earthquake, tide, lightning, war, shortages in raw materials,
insurrection, or labor disputes to which the delayed Party
is not a party.
However, any shortage of credit, capital or finance shall
not be regarded
as an event of Force Majeure. The affected party who is claiming
to be not
liable to its failure of fulfilling this Agreement by Force
Majeure shall
inform the other party, without delay, of the steps of the
performance of
this Agreement by the affected
party.
|
|
9.2
|
In
the event that the affected party is delayed in or prevented
from
performing its obligations under this Agreement by Force
Majeure, within
the scope of such delay or prevention, the affected party
will not be
responsible for any damage by reason of such a failure or
delay of
performance. The affected party shall take appropriate means
to mitigate
or eliminate the effects of Force Majeure and try to resume
performance of
the obligations delayed or prevented by the event of Force
Majeure. After
the event of Force Majeure is eliminated, both parties agree
to resume
performance of this Agreement with their best
efforts.
|
Notices
or other communications required to be given by any party pursuant
to this
Agreement shall be in writing and be delivered by personal delivery,
registered
mail or postage prepaid mail, recognized
express
service or by facsimile transmission to the address of the relevant
party or
parties set forth below.
|
|
Party
A:
|
Xinghe
Yongle Carbon Co., Ltd.
|
|
|
Address:
|
No.
19, Xingxin Street, Houhe, Xinghe County, Wulanchabu, Inner
Mongolia,
PRC
|
|
|
Party
B:
|
Xinghe
Xingyong Carbon Co., Ltd.
|
|
|
Address:
|
Cheng
Guan Zhe Xi Cheng Wai, Xing He county, Nei Meng Gu, P.
R.
China
|
|
|
Attention:
|
Mr.
Jin
Dengyong
|
Any
notice by facsimile transmission or e-mail shall be effective only if the
recipient acknowledges receipt.
Party
B
shall not assign its rights or obligations under this Agreement to any third
party without the prior written consent of Party A. Party A may assign its
rights or obligations under this Agreement to any third party without the
consent of Party B, but shall inform Party B of the above
assignment.
All
parties confirm that this Agreement is fair and reasonable on the basis of
equality and mutual benefits. Any provision of this Agreement that is invalid
or
unenforceable because of any inconsistency with relevant law shall be
ineffective or unenforceable within such jurisdiction where the relevant
law
governs, without affecting in any way the remaining provisions
hereof.
|
13.
|
Amendment
and Supplement
|
Any
amendment to and supplement of this Agreement shall come into force only
after a
written agreement with respect thereto is signed by both parties. The amendment
and supplement duly executed by both parties shall be part of this Agreement
and
shall have the same legal effect as this Agreement.
The
execution, validity, performance and interpretation of this Agreement and
dispute resolution shall be governed by and construed in accordance with
the PRC
laws.
IN
WITNESS THEREOF the parties hereto have caused this Agreement to be duly
executed on their behalf by duly authorized representatives as of the date
first
set forth above.
Party
A:
:
Xinghe Yongle Carbon Co., Ltd.
(Stamp)
/s/
Wei Aihu
Authorized
Representative: Mr.
Wei
Aihu
Party
B:
Xinghe
Xingyong Carbon Co., Ltd.
(Stamp)
/s/
Jin Dengyong
Authorized
Representative: Mr.
Jin
Dengyong
Appendix
1: The list of Technical Consulting and Services
Party
A
shall provide technical and consulting services as follows:
|
|
1.
|
Providing
the development and research on the technologies of carbon
production;
|
|
|
2.
|
Providing
the training services to the staff;
|
|
|
3.
|
Providing
the services on the development and transfer of the related technologies;
|
|
|
4.
|
Providing
the market investigation, research and consulting
services;
|
|
|
5.
|
Providing
the middle and long term market development strategy, and market
plan
services;
|
|
|
6.
|
Providing
carbon related technologies
services;
|
|
|
7.
|
Providing
the related technologies
consultation;
|
|
|
8.
|
Providing
the services on the sale of self-manufactured
products.
|
Appendix
2: Calculation and Payment of the
Service
Fee for Technical Consulting and Services
|
I.
|
The
Service
Fee hereunder shall be calculated by 80% to 100% of the total business
income of Party B, the specific percentage of the Service Fee (with
limitation to the scope from 80 % to 100% ) shall be determined
by both
parties on the basis of actual situation of provision of services,
and the
Service Fee shall be calculated and paid on a quarterly
basis.
|
|
II.
|
The
amount of the Service Fee shall be determined by both parties on
the basis
of the following factors:
|
|
|
1.
|
the
technical difficulty and complexity of technical consulting and
services;
|
|
|
2.
|
the
time taken by Party
’s
employees for the technical consulting and
services;
|
|
|
3.
|
the
specific content and commercial value of the technical consulting
and
services;
|
|
|
4.
|
the
market reference price of technical consulting and services of
the same
category.
|
|
III.
|
Party
A shall collect the Service Fee on a quarterly basis, and shall
issue to
Party B the bill for the previous quarter within thirty (30)
days upon the
commencement of a quarter, and shall notify Party B thereof.
Party B shall
pay the Service Fee into the bank account designated by Party
A within ten
(10) working days after receiving the notification from Party
A, and Party
B shall fax or post the copy of the payment certificate to Party
A within
ten (10) working days after accomplishment of the
payment.
|
|
IV.
|
If
Party A regards the Service Fee pricing mechanism agreed upon
hereunder as
not applicable due to certain reasons, Party B shall actively
negotiate
with Party A in good faith within ten (10) working days after
receiving
the written request of Party A with a view to reach a new pricing
mechanism. If Party B has no response after receiving the notification
with respect to adjustment of pricing mechanism, Party B shall
be deemed
to have accepted the proposed adjustment of pricing mechanism.
In response
to Party B’s request, Party A shall enter into negotiation with Party B
for the adjustment of pricing mechanism.
|
Option
Agreement
THIS
OPTION AGREEMENT
(this
“Agreement”) is entered into by and among the following parties (the “Parties”)
in Xinghe County, Inner Mongolia, People’s Republic of China (“PRC”) on December
7, 2007.
|
Party
A:
|
Xinghe
Yongle Carbon Co., Ltd.
(兴和县永乐碳素有榰狝任公司)
|
|
Address:
|
No.
19, Xingxin Street, Houhe, Xinghe County, Wulanchabu, Inner Mongolia,
PRC
|
|
Legal
Representative:
|
Mr.
Wei Aihu
|
|
Mr.
Jin Dengyong
|
(梍登永)
ID
No: 152627550418003
|
|
Address:
|
No.
76, Xingxin Street, Houhe, Chengguan town,
Xinghe County, Inner Mongolia, PRC
|
|
Mr.
Du Benhua
|
(杜本华)
ID
No: 152627195301180018
|
|
Address:
|
No.
49, Limin alley, Chengguan town,
Xinghe County,
Wulanchabu, Inner Mongolia
,
PRC
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|
Party
C:
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Xinghe
Xingyong Carbon Co., Ltd. (
兴和兴永碳素有榰公司)
|
|
Address:
|
Xicheng
Wai, Chengguan town,
Xinghe County, Inner Mongolia, P.R.
China
|
|
Legal
Representative:
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Mr.
Jin Dengyong
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WHEREAS
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1.
|
Party
A is a wholly foreign-owned enterprise duly registered and validly
existing in the PRC;
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|
2.
|
Party
C is a limited liability company duly registered in the
PRC;
|
|
3.
|
The
members of Party B are the shareholders of Party C (the “Authorizing
Parties” or the “Shareholders of Party C”), among which, Mr. Jin Dengyong
owns 98% equity interest in Party C, and Mr. Du Benhua owns 2%;
and
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|
4.
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Party
A and Party B have entered into Share Pledge Agreement, under which
Party
B provides warranty to Party A with respect to Party C’s performance of
obligations under the Exclusive Technical Consulting and Service
Agreement
entered into by and between Party A and Party C. For purpose of
ensuring
the security of the pledge, and in consideration of the technical
support
provided by Party A to Party C and the good cooperation relationship
between the Parties, the Parties hereby enter into the following
agreement.
|
THE
PARTIES THEREFORE AGREE AS FOLLOWS:
All
the
Parties to this Agreement agree that, upon the effectiveness of this Agreement,
unless otherwise disclosed to and approved by Party A, Party A is granted
an
exclusive option to purchase or designate a third party to purchase from
Party B
all their respective equity interests in Party C at any time in accordance
with
provisions of this agreement at the lowest price permitted by PRC laws
applicable at the time of exercise of such option right. Party A will be
granted
the option right immediately after the execution of this Agreement, and such
option right cannot be revoked or amended during the term of this Agreement
(including the extension period under Article 1.2).
This
Agreement shall
be
executed and take effect as of the date first indicated in this Agreement
and
shall remain in full force and effect for ten (10) years. Prior to the
expiration of this Agreement, if requested by Party A, the parties hereto
shall
extend the term of this Agreement as the request of Party A, and enter into
a
new option agreement or continue to perform this Agreement.
|
2.
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exercise
of the option and its
closing
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|
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2.1.1
|
The
Authorizing Parties agree unanimously that with the permission
of PRC laws
and regulations, Party A may exercise part or full option anytime
during
the term of this Agreement.
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|
|
2.1.2
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The
Authorizing Parties agree unanimously that there is no limitation
on the
times for Party A to exercise its option, unless Party A has
purchased all
of the equity interests in
Party
C.
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2.1.3
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The
Authorizing Parties agree unanimously that Party A may designate
in its
sole discretion any third party to exercise the options on
its behalf, in
which case Party A shall provide a prior written notice to
the Authorizing
Parties.
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2.2
|
Presentation
of the amount for the options
|
The
Authorizing Parties agree unanimously that all the consideration they
received
from Party A for Party A or its designated third party’s exercising the options
will be transferred to Party C free of charge, or in any other way
approved by
Party A in writing.
The
Authorizing Parties agree unanimously that the options of Party A under
this
Agreement may be transferred to a third party, which shall be deemed
as a party
to this Agreement and is entitled to exercise the options under terms
of this
Agreement, to enjoy the rights and assume the obligations of Party
A under this
Agreement.
To
exercise an option, Party A shall send a written notice to the Authorizing
Parties 10 days prior to the closing date (as defined below), specifying
the
following:
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|
2.4.1
|
the
date of the effective closing of share purchase (the “Closing
Date”);
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2.4.2
|
the
name of the person in which the Equity Interests shall be registered
after
the exercise of the option;
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2.4.3
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the
amount of Equity Interests to be purchased from such Authorizing
Parties;
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2.4.4
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price
and method of payment; and
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|
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2.4.5
|
a
power of attorney (applicable if a third party has been designated
to
exercise the Option)
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All
Parties
agree unanimously that Party A is entitled to exercise the Options and elect
to
register the Equity Interests in the name of a third party as it may designates
from time to time.
Each
time
when Party A
exercises
the option, within ten business days after receiving the option notice issued
by
Party pursuant to Article 2.4:
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2.5.1
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T
he
Authorizing Parties shall hold a shareholders’ meeting which shall approve
the Authorizing Parties transfer its equity interests to Party
A or any
third party designated by Party A.
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|
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2.5.2
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The
Authorizing Parties shall enter into an equity transfer agreement
whose
substantial content is consistent with the equity transfer agreement
listed in Annex 1 of this Agreement with Party A ( if applicable,
with any
third party designated by Party A).
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|
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2.5.3
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The
members of Party B shall execute all other necessary contracts,
agreements
or documents, obtain all necessary governmental approvals and
consents,
and take all necessary actions to transfer the valid ownership
of the
purchased shares to Party A or any third party designate by Party
A
subject to no security interests, and cause Party A or any third
party
designated by Party A to be owner of the purchased shares registered
with
administrative authorities, and shall deliver to Party A or any
third
party designated by Party A the latest business license, articles
of
association, approving certificate (if applicable) and other
documents
issued by or filed with relevant PRC authorities, and the aforesaid
documents shall reflect the changes of the shares, directors
and legal
representative of Party C.
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|
3.
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REPRESENTATIONS
AND WARRANTIES
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3.1
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The
Authorizing Parties hereby present and warrant as
follows:
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|
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3.1.1
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They
have the full power and authority to enter into and perform
this
Agreement;
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|
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3.1.2
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The
fulfilling of the obligations hereunder does not violate any
applicable
laws, regulations and contracts, or require any government
authorization
or approval;
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3.1.3
|
There
is no lawsuit, arbitration or other legal or administrative
procedures
pending which, based on its knowledge, will possibly have material
and
adverse affects on the performance of this
Agreement;
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|
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3.1.4
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They
have disclosed to Party A any and all the situations which
may adversely
affect the performance of this
Agreement.
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|
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3.1.5
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They
have not been declared bankruptcy, and are in good financial
status.
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3.1.6
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There
is no any pledge, debt or other third party right on the equity
interests
in Party C held by the Authorizing Parties, and all such equity
interests
are free from any recourse of any third
party.
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3.1.7
|
The
Authorizing Parties will not sell, pledge, encumber, lien or
grant any
other third party any rights on the equity interests in Party
C and will
not dispose the same to any third party by transferring, presenting,
pledging or any other means.
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3.1.8
|
The
options granted to Party A are exclusive, and the Authorizing
Parties
shall not grant options or any right in the equity interests
to other
parties in any ways.
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|
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3.1.9
|
During
the term of this agreement, Party C’s business will comply with laws and
regulations, rules and other administrative provisions or guidance
issued
by governmental authorities, and there exists no breach of
the aforesaid
stipulations which may adversely affect the business or assets
of the
company.
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3.1.10
|
The
Authorizing Parties shall maintain the existence of Party C
in accordance
with good financial and business standards and practices, run
the business
and handle related affairs with care and efficiency, and make
any and all
efforts to maintain the business license, certificate and approving
document which are necessary for the continuance of its business,
and
shall ensure the same will not be revoked, withdrew or declared
void.
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3.1.11
|
As
requested by Party A, The Authorizing Parities shall provide
all the
operational and financial documents with respect to Party
C.
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|
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3.1.12
|
Prior
to Party A ( or any third party designate by Party A) exercising
its
option right and purchasing all the equity interests of Party
C, unless
otherwise approved by Party A ( or any third party designated
by Party A)
in writing, Party C shall not:
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|
|
3.1.12.1
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sell,
transfer, pledge or otherwise dispose any assets, business
or income, or
permit to set any security interests thereon (except those
arising out of
normal or daily business or disclosed to and approved by
Party A in
writing);
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|
|
3.1.12.2
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enter
into transactions which will substantially and adversely
affect its
assets, liabilities, operations, equity interests and other
legitimate
interests (except those arising out of normal or daily business
or
disclosed to and approved by Party A in
writing);
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|
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3.1.12.3
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distribute
any dividend or bonus to
shareholders;
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3.1.12.4
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incur,
inherit, warrant or permit any debt, except for: (i) those
arising out of
normal or daily business and not through loan; (ii) or disclosed
to and
approved by Party A in writing;
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|
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3.1.12.5
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enter
into any material contract other than contracts executed
in the normal
business (for purpose of this article, a contract whose value
excesses
1,000,000RMB shall be deemed as a material contract
);
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|
3.1.12.6
|
increase
or decrease the registered capital of Party C, or alter the
structure of
the registered capital;
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|
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3.1.12.7
|
supplement,
alter or amend the articles of association of Party
C.
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|
3.1.12.8
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merge
into or associate with any third party, or acquire or invest
in any third
party.
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3.1.13
|
Before
Party A ( or any third party designated by Party A) acquires
all the
shares or assets of Party C, without explicit written consent
of Party A (
or any third party designated by Party A), Party B can
not conduct the
following jointly or
separately:
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|
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3.1.13.1
|
Supplement
,
modify, or amend the constitutional documents of Party
C, and such
supplement, modification and amendment will materially
and adversely
affect Party C’s assets, liabilities, operation, equity interests and
other legitimate rights (except for increasing the capital
proportionally
in order to satisfy the requirement of law), or adversely
affect the
performance of this Agreement and other agreements entered
into by and
among Party A, Party B and Party C.
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3.1.13.2
|
Cause
Party C to enter into transactions which will substantially
and adversely
affect its assets, liabilities, operations, equity interests
and other
legitimate interests (except those arising out of normal
or daily business
or disclosed to and approved by Party A in writing in
advance);
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3.1.13.3
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Cause
the shareholders’ meeting of Party C to adopt any resolution on approving
distribution of dividend or bonus ;
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3.1.13.4
|
At
any time after this Agreement become effective, sell, transfer,
pledge or
otherwise dispose the legitimate and beneficial rights
of the equity
interests of Party C , or permit to set any security interests
thereon
;
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|
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3.1.13.5
|
Cause
the shareholders’ meeting of Party C to approve to sell, transfer, pledge
or otherwise dispose the legitimate and beneficial rights
of the equity
interests of Party C , or permit to set any security interests
thereon;
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|
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3.1.13.6
|
Cause
the shareholders’ meeting of Party C to approve Party C’s merge or
association with any third party, or to approve Party C
to acquire any
third party or invest in any third party, or to approve
any reorganization
in other form.
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3.1.13.7
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Close
down, liquidate or wind up Party C.
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3.1.14
|
Before
Party A (or any third party designated by Party A ) acquires
all the
equity or assets of Party C through exercising the option
right, each
member of Party B warrants:
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|
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3.1.14.1
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P
romptly
notify Party A in writing of any pending or possible
arbitration,
litigation, or administrative procedures related to the
shares owned by
him, or of any situation which may adversely affect such
shares.
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3.1.14.2
|
Cause
the shareholders’ meeting of Party C to approve the transfer of the
purchased shares, and cause Party C to amend its articles
of association
to reflect the share transfer from Party B to Party A
and other changed
items mentioned in this agreement, and shall apply to
relevant PRC
authorities for approval (if required by laws), registration,
and cause
shareholders’ meeting to appoint the persons nominated by Party A or
any
third party designated by Party A to be new directors
or new legal
representative.
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3.1.14.3
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In
order to maintain the legitimate and valid ownership
over the equity
interests, execute all necessary and proper documents,
take all necessary
and proper actions, and raise all necessary or proper
claims, and make all
necessary or proper defenses against all claims.
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|
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3.1.14.4
|
Upon
the request of Party A, shall promptly transfer the equity
interests to
any third party designated by Party A without any condition
at any time,
and waive the preemptive right to purchase the equity
interests when
another shareholder transfers its equity interests in
Party C.
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3.1.14.5
|
Shall
strictly comply with this Agreement and other agreements
entered into by
and between Party A and Party B, and perform all the
obligations under
such agreements, and shall not have any action or ommision
which suffices
to adversely affect the validity or enforceability of
such agreements.
|
The
Authorizing Parties
hereby
undertake to Party A that it will bear all costs arising from executing
each
Assignment, process all formalities needed for Party A or its designated
third
party to be the shareholders of Party C. Such formalities include,
but are not
limited to, assisting Party A with the obtaining of necessary approvals
of the
equity transfer from relevant government authorities (if any),
the submission of
the Assignment and shareholders’ meeting resolution to the relevant
administrative department of industry and commerce for the purpose
of amending
the Articles of Association, changing the list of shareholders
and other
constitutional documents of company.
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3.3
|
On
the date of the conclusion of this Agreement and each
Closing day, Members
of Party B hereby
jointly
and individually undertake:
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|
|
3.3.1
|
shall
have the right and capability to execute, deliver and
perform this
Agreement and any share transfer agreement entered
into in accordance with
this Agreement for each assignment of the purchased
equity interests
(
“
Transfer Agreement”). Once executed, this Agreement and any Transfer
Agreement to which the Authorizing party is a contractual
party,
constitute legal, valid and binding obligations to
the Authorizing
Parties, and can be enforced in accordance with provisions
therein.
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3.3.2
|
the
execution, delivery or performance of this Agreement
or any Transfer
Agreement shall not: (i) violate any PRC laws and regulations;
(ii)
contradict with its articles of association or any
other constitutional
documents; (iii) result in violation or breach of any
contract or document
binding upon him; (iv) result in violation of any condition
for the
issuance or valid existence of any approval or authorization;
(v) result
in suspend or withdrawal of any permission and approval
or any additional
requirements.
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3.3.3
|
Party
B has sound and good, transferable ownership over the
equity interests in
Party C. And Party B has never established any security
interest on the
aforesaid equity interests.
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3.3.4
|
Party
C has no outstanding debt, except (i) those incurred
in the normal
business; and (ii) those disclosed to and approved
by Party A in writing.
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3.3.5
|
Party
C will comply with any and all laws and regulations
applicable to the
acquisition of equity interests and assets.
|
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3.3.6
|
there
exists no processing, pending, possible litigation,
arbitration or
administrative procedures related to Party C and/ or
the equity interests
or assets of Party C.
|
Taxes
arising from the performance of this Agreement will be borne
and paid by each
party respectively.
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5.1
|
If
Party B or Party C violates this Agreement of its
representations and
warranties in this Agreement, the Party A may notify
the default party in
writing requesting it to correct its wrongdoings
within 10 days of
receiving the notice, take corresponding measures
to effectively and
timely avoid the damages and to resume performing
this Agreement. If there
are damages, the default party shall compensate Party
A, causing Party A
to obtain all receivable rights and interests from
the performance of the
Agreement.
|
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5.3
|
If
Party B fails to correct its wrongdoings within ten
(10) working days upon
receipt of notice under Article 5.1, Party A has
the right to require the
defaulting party to compensate him with respect to
expenses, liabilities
or losses (including but not limited to the interests
lost or paid due to
the breach and attorney fees). Meanwhile, Party A
has the right to execute
the attached share transfer agreement to transfer
the equity interests
held by Party B to Party A and (or) any third party
designated by Party A.
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|
6.
|
GOVERNING
LAW AND DISPUTE SETTLEMENT
|
This
Agreement shall be governed by the laws of the PRC, including
but not limited to
the execution, performance, effect and interpretation of this
Agreement.
|
6.2
|
Friendly
Consultation
|
The
Parties shall settle the dispute regarding the interpretation
or performance of
this Agreement through friendly consultation or mediation by
a third party. Any
dispute failing
to
be
resolved through such consultation or mediation shall be submitted
to the
arbitration authority for arbitration within 30 days after
the commencement of
such discussions.
Any
dispute arising from or in connection with this Agreement shall
be submitted to
China International Trade Arbitration Committee for arbitration
in accordance
with its arbitration rules. The arbitration site shall be Beijing.
The
arbitration award shall be final and binding on all Parties
to this
Agreement.
|
7.1
|
Confidential
Information
|
The
contents of this Agreement and the Annexes hereof shall be
kept confidential. No
Party shall disclose any such information to any third party
(except for the
part agreed upon by the Parties with a prior written agreement).
Each Party’s
obligations under this clause shall survive the termination
of this Agreement.
Notwithstanding the foregoing, disclosure shall be permitted
to the auditors and
counsel for the Parties and in any required filings with the
United States
Securities and Exchange Commission.
If
a
disclosure is explicitly required by law, any courts, arbitration
tribunals, or
administrative authorities, such a disclosure by any Party
shall not be deemed a
violation of Article 7.1 above.
All
the
parties hereby acknowledge that this Agreement is a fair and
reasonable
agreement entered into by and among the parties on the basis
of equality and
mutual benefits. This Agreement constitutes the entire agreement
and
understanding among the Parties in respect of the subject matter
hereof and
supersedes all prior discussions, negotiations and agreements
among them. This
Agreement shall only be amended by a written instrument signed
by all the
Parties. The Annexes attached hereto shall constitute an integral
part of this
Agreement and shall have the same legal effect as this Agreement.
|
|
8.2.1
|
Any
notices or other correspondences among the Parties
in connection with the
Performance of this Agreement shall be in writing
and be delivered in
person, by registered mail, postage prepaid mail,
recognized express mail
or facsimile to the following correspondence
addresses:
|
|
|
Party
A:
|
Xinghe
Yongle Carbon Co., Ltd.
|
|
|
Address:
|
No.
19, Xingxin Street, Houhe, Xinghe County, Wulanchabu,
Inner Mongolia,
PRC
|
|
|
Address:
|
No.
76, Xingxin Street, Houhe, Chengguan town,
Xinghe County, Inner Mongolia, PRC
|
|
|
Address:
|
No.
49, Limin alley, Chengguan town,
Xinghe County,
Wulanchabu, Inner Mongolia
,
PRC
|
|
|
Party
C:
|
Xinghe
Xingyong Carbon Co., Ltd.
|
|
|
Address:
|
Cheng
Guan Zhe Xi Cheng Wai, Xing He county, Nei Meng
Gu, P. R.
China
|
|
|
Attention:
|
Mr.
Jin Dengyong
|
Any
notice by facsimile transmission or e-mail shall be effective only if the
recipient acknowledges receipt.
This
Agreement shall be binding on the Parties.
|
8.4
|
Language
and Counterparts
|
This
Agreement shall be executed in
two
originals in Chinese, with each party holding one copy.
|
8.5
|
Days
and Business Day
|
A
reference to a day herein is to a calendar day. A reference to a business
day
herein is to any day from Monday through Friday in a week.
The
headings contained herein are inserted for reference purposes only and shall
not
affect the meaning or interpretation of any part of this Agreement.
|
8.7
|
Supplementary
Articles
|
The
Authorizing Parties shall bear joint and several liabilities to Party A with
respect to the obligations, warranties, and liabilities under this Agreement.
As
far as Party A is concerned, if any member of the Authorizing Parties breaches
this Agreement, such breach shall be deemed as the breach of this Agreement
by
all the Authorizing Parties.
Any
matter not specified in this Agreement shall be handled through discussions
among the Parties and resolved in accordance with PRC laws.
(No
text
on this page Signature Page to Option Agreement)
Party
A: Xinghe Yongle Carbon Co., Ltd.
(Stamp)
Signature:
/s/
Wei Ai Hu
Authorized
Representative:
Wei
Ai
Hu
Party
B:
Mr.
Jin Dengyong
/s/
Jin Dengyong
Mr.
Du Benhua
/s/
Du
Benhua
Party
C: Xinghe Xingyong Carbon Co., Ltd.
(Stamp)
Signature:
/s/
Jin Dengyong
Authorized
Representative:
Jin
DengYong
EQUITY
PLEDGE A
GREEMENT
This
Equity Pledge Agreement (this “Agreement”) is entered into at Xinghe County,
Inner Mongolia, People’s Republic of China (“PRC”) on December 7, 2007 by and
among the following parties:
|
Pledgee:
|
Xinghe
Yongle Carbon Co., Ltd. (
兴和县永乐碳素有榰狝任公司
)
|
|
Address:
|
No.
19, Xingxin Street, Houhe, Xinghe County, Wulanchabu, Inner
Mongolia
,
PRC
|
Legal
Representative: Mr. Wei Aihu
Pledgors:
Mr.
Jin Dengyong (
梍登永)
ID
No.
152627550418003
Address:
No. 76,
Xingxin Street, Houhe, Chengguan town,
Xinghe
County, Inner Mongolia, PRC
Mr.
Du Benhua
(
杜本华)
ID
No.
152627195301180018
Address:
No. 49, Limin alley, Chengguan town,
Xinghe
County,
Wulanchabu, Inner Mongolia
,
PRC
WHEREAS,
|
1.
|
Pledgee
is a wholly foreign owned company duly registered and validly existing
in
the PRC;
|
|
2.
|
Xinghe
Xingyong Carbon Co. Ltd. (“Xingyong”) is a limited liability company duly
registered and validly existing in
PRC;
|
|
3.
|
Pledgors
are the shareholders of Xingyong, and among which Jin Dengyong owns
98%
equity interest, and Du Benhua owns 2% equity interest;
and
|
|
4.
|
Pledgee,
Pledgors and the Xingyong have severally signed Exclusive Technical
Consultation and Service Agreement, Business Operation Agreement,
Option
Agreement, and Assets Transfer Agreement on December 7,
2007.
|
|
5.
|
In
order to guarantee that Pledgee collects normally technical service
fees
under the Exclusive Technical Consulting and Services Agreement,
and to
ensure the performance of the Exclusive Technical Consulting and
Services
Agreement, Business Operation Agreement, Option Agreement, and Assets
Transfer Agreement, the Pledgors are willing to severally and jointly
pledge all their equity interest in Xingyong to the Pledgee as a
security
for the performance of the obligations of Xingyong under the aforesaid
agreements, with Pledgee as the Pledgee.
|
Therefore,
through friendly negotiations and in the principles of equality and mutual
benefit, the parties hereby enter into an agreement as follows.
Unless
otherwise provided in this Agreement, the following terms shall have the
following meanings:
|
1.1
|
Pledge
means the full content of Article 2
hereunder.
|
|
1.2
|
Equity
Interest means 100% equity interests in Xingyong legally held by
the
Pledgors and all the present and future rights and benefits based
on such
equity interest.
|
|
1.3
|
Various
Agreements mean Exclusive Technical Consultation and Service Agreement,
Option Agreement, Business Operation Agreement, and Assets Transfer
Agreement signed by some or all of the parties respectively on [
] [ ],
2007.
|
|
1.4
|
Event
of Default means any event defined in Article 7
hereunder.
|
|
1.5
|
Notice
of Default means the notice of default issued by Pledgee in accordance
with this Agreement.
|
|
2.1
|
The
Pledgors agree to pledge all the equity interest in Xingyong to Pledgee
as
the security for Pledgee’s rights and interest under the Various
Agreements.
|
|
2.2
|
The
Pledge under this Agreement includes the rights owned by the Pledgee
to
collect the fees (including legal fees), expenses, interests, losses,
liquidated damages and compensations that Xingyong shall pay under
the
Various Agreements, and civil liabilities that Xingyong or Pledgors
shall
bear in case the
Various
Agreements wholly or partially become null and void due to any
reason.
|
|
2.3
|
The
Pledge under this Agreement refers to the priority right owned by
Pledgee
to the money gained from the conversion, auction, or sale of the
equity
interests pledged by the Pledgors to
Pledgee.
|
|
2.4
|
Unless
consent in writing by Pledgee, after the execution of this Agreement,
the
pledge under this Agreement will be discharged only when Xingyong
and
Pledgors have performed all the obligations and liabilities under
the
Various Agreements and Pledgee confirms in writing. If Xingyong or
Pledgors have not fully performed all or part of its or their obligations
or liabilities under the Various Agreements at the expiration of
such
agreements, Pledgee will maintain the pledge hereunder up to the
date when
all such obligations and liabilities are fully
performed.
|
|
3.1
|
This
Agreement shall be excuted by all parties and take effect as of the
date
when the equities pledged are recorded in the Register of Shareholder
of
Xingyong
|
|
3.2
|
Pledgee
is entitled to dispose the pledged equity hereunder if Xingyong fails
to
pay the fees in accordance with the Technical Consulting and Service
Agreement or fail to perform the Business Operation Agreement, Assets
Transfer Agreement and the Option Agreement or otherwise fails to
comply
with its obligations under the Various Agreements as required
thereunder.
|
|
4.
|
Physical
Possession Of Documents
|
|
4.1
|
The
Pledgors shall deliver the physical possession of the Certificate
of
Distribution (original) of Xingyong to Pledgee, provide the proper
record
of such pledge on the shareholders’ register of Xingyong to Pledgee , and
handle various approval and examination, registration and filling
procedures required by PRC laws and regulations within ten (10) working
days as of the date of conclusion of this Agreement or an earlier
time
agreed upon by the parties.
|
|
4.2
|
If
items of the Pledge change, and such changes need to be registered
or
filed, Pledgee and Pledgors shall register or file such changes within
five (5) working days as of the day of change, and shall deliver
relevant
change registration or filling
documents.
|
|
4.3
|
During
the term of the equity pledge, the Pledgors shall instruct Xingyong
not to
distribute any dividend, or adopt any profits distribution plan;
if the
Pledgors shall be entitled to collect any economic interests other
than
dividend and profits distribution plan, the Pledgors shall instruct
Xingyong to transfer such economic interests into cash and pay the
same
into the bank account designated by Pledgee in accordance with Pledgee’s
requirements, and the Pledgors shall not use money deposited into
the bank
account without the prior written consent of Pledgee.
|
|
4.4
|
During
the term of Equity pledge, if one Pledgor subscribes new capital
contribution or accepts an equity transfer from another Pledgor (
“Newly-added Equities”), the Newly-added Equities shall be automatically
become pledged equities of this Agreement, and such Pledgor shall
accomplish all the procedures with respect to the pledge of the
Newly-added Equities within ten (10) working days after acquiring
the
Newly-added Equities. If ts Pledgor fails to accomplish the relevant
procedures as specified in this article, the Pledgee shall have the
right
to exercise the pledge right as specified in Article 8 of this
Agreement.
|
|
5.
|
Warranties
and Representation of the
Pledgors
|
The
Pledgors hereby make the following representation and warranties to the Pledgee
and confirm that Pledgee executes this Agreement in reliance of such
representation and warranties:
|
5.1
|
The
Pledgors lawfully own the equity interests hereunder and are entitled
to
create pledge on such the equity interests;
|
|
5.2
|
During
the term of equity pledge according to Article 2.4 of this Agreement,
Pledgee shall not be interfered by any other parties once Pledgee
exercises the rights of the Pledge in accordance with this
Agreement.
|
|
5.3
|
Pledgee
is entitled to exercise the rights of the Pledge in accordance with
relevant laws and this Agreement.
|
|
5.4
|
The
execution and performance of this Agreement of the Pledgors has gained
all
necessary corporate and government authorization and shall not violate
any
applicable laws and regulations. The representative who signs this
Agreement is lawfully and effectively authorized to execute this
Agreement.
|
|
5.5
|
Except
for the pledge under this Agreement, there is no other encumbrance
or any
security interests for the benefit of any third party on the equity
interests pledged by the Pledgors (including but not limited to
pledge).
|
|
5.6
|
There
is no pending or possible civil, administrative or criminal litigation
or
administrative punishment or arbitration relating to the equity interests
hereunder on the date of execution of this
Agreement.
|
|
5.7
|
There
are no outstanding taxes, fees or undecided legal procedures related
with
the equity interests hereunder on the date of execution of this
Agreement.
|
|
5.8
|
Each
provision hereunder is the expression of each Party’s true meaning and
shall be binding upon all the Parties.
|
|
6.
|
Covenant
Of The Pledgors
|
|
6.1
|
During
the term of this Agreement, the Pledgors covenant to Pledgee that
the
Pledgors will:
|
|
|
6.1.1
|
not
transfer or assign the equity interests, create or permit to create
any
pledges or security interests for the benefit of any third party
without
prior written consent from the Pledgee except transfer to the Pledgee
or
the person designated by the Pledgee as required by the Pledgee;
|
|
|
6.1.2
|
comply
with and implement laws and regulations with respect to the pledge
of
rights, present to Pledgee the notices, orders or suggestions with
respect
to the Pledge issued or made by the competent authority within five
(5)
working days upon receiving such notices, orders or suggestions and
take
actions in accordance with the reasonable instruction of
Pledgee;
|
|
|
6.1.3
|
timely
notify Pledgee of any events or any received notices which may affect
the
Pledgors’ equity interest or any part of its right, and any events or any
received notices which may change the Pledgors’ any covenant and
obligation under this Agreement or which may affect the Pledgors’
performance of its obligations under this Agreement, and take actions
in
accordance with the instructions of
Pledgee;
|
|
6.2
|
The
Pledgors agree that Pledgee’s right of exercising the Pledge pursuant to
this Agreement shall not be suspended or hampered by the Pledgors
or any
successors or transferees of the Pledgors or any other
persons.
|
|
6.3
|
The
Pledgors warrant to Pledgee that in order to protect or perfect the
security over the obligations of Pledgors and/or Xingyong under Various
Agreements, the Pledgors shall make any necessary amendment (if
applicable), execute in good faith and cause other parties who have
interests in the pledge to execute all the title certificates, contracts,
and /or perform and cause other parties who have interests to take
action
as required by the Pledgee and make access to exercise the rights
and
authorization vested in the Pledgee under this Agreement, and execute
all
the documents with respect to the changes of certificate of equity
interests with the Pledgee or another party designated by the Pledgee,
and
provides the Pledgee with all the documents regarded as necessary
to the
Pledgee within the reasonable time.
|
|
6.4
|
The
Pledgors warrant to Pledgee that the Pledgors will comply with and
perform
all the guarantees, covenants, agreements, representations and conditions
for the benefits of the Pledgee. The Pledgors shall compensate for
all the
losses suffered by Pledgee for the reasons that the Pledgors do not
perform or fully perform their guarantees, covenants, agreements,
representations and conditions.
|
|
7.1
|
The
following events shall be regarded as an event of
default:
|
|
|
7.1.1
|
Xingyong
or its successors or transferees fail to make full payment of service
fees
under the Service Agreement on time, or the Pledgors or its successors
or
transferees fail to perform the Business Operation Agreement, Assets
Transfer Agreement, Option Agreement, and Exclusive Technical Consulting
and Service Agreement or Xingyong or Pledgors otherwise fail to comply
with their obligations under the Various
Agreements.;
|
|
|
7.1.2
|
The
Pledgors make any material misleading or fraudulent representations
or
warranties under Article 5 and 6 herein, and/or the Pledgors are
in
violation of any representations or warranties under Article 5 and
6
herein;
|
|
|
7.1.3
|
The
Pledgors violate any provisions of this Agreement in any material
respect;
|
|
|
7.1.4
|
The
Pledgors waive the pledged equity interests or transfers the pledged
equity interests without prior written consent from the Pledgee except
otherwise agreed under Article 6.1.1
herein;
|
|
|
7.1.5
|
The
Pledgors are incapable of repaying the general debt or other
debt;
|
|
|
7.1.6
|
This
Agreement is illegal for the reason of the promulgation of any related
laws or the Pledgor's incapability of continuing to perform the
obligations herein;
|
|
|
7.1.7
|
Any
approval, permits, licenses or authorization from the competent authority
of the government needed to perform this Agreement or validate this
Agreement are withdrawn, suspended, invalidated or materially amended;
|
|
|
7.1.8
|
The
property of the Pledgors is adversely changed and causes Pledgee
to deem
that the capability of the Pledgors to perform the obligations herein
is
affected;
|
|
|
7.1.9
|
Other
circumstances whereby the Pledgee is incapable of exercising the
right to
dispose the Pledge in accordance with relevant
laws.
|
|
7.2
|
The
Pledgors shall immediately give a written notice to Pledgee if the
Pledgors are aware of or find that any event under Article 7.1 herein
or
any events that may result in the foregoing events have happened
or are
going on.
|
|
7.3
|
Unless
the event of default under Article 7.1 herein has been solved to
Pledgee's
satisfaction, Pledgee, at any time when the event of default happens
or
thereafter, may give a written notice of default to the Pledgors
and
require the Pledgors to immediately make full payment of the outstanding
fees under the Various Agreements, and other payables or timely perform
the Business Operation Agreement, the Option Agreement, the Asset
Transfer
Agreement. If the Pledgors fail to timely correct or cure its breach
within ten (10) days upon such written notice, Pledgee shall be entitled
to exercise the rights of Pledge in accordance with Article 8
herein.
|
|
8.
|
Exercise
Of The Right Of The Pledge
|
|
8.1
|
The
Pledgors shall not transfer the pledged equities without prior written
approval from Pledgee prior to the full repayment of the fees and
the full
performance of the obligations under Various
Agreements.
|
|
8.2
|
Pledgee
shall give a notice of default to the Pledgors in accordance with
Article
7.3 when it exercises the right of
pledge.
|
|
8.3
|
Subject
to Article 7.3, the Pledgee may exercise the right of the Pledge
at any
time when Pledgee gives a notice of default in accordance with Article
7.3
or thereafter.
|
|
8.4
|
Pledgee
is entitled to have priority in receiving payment by the evaluation
or
proceeds from the auction or sale of whole or part of the equity
pledged
herein in accordance with legal procedure until the outstanding fees
under
Various Agreements and all other payables thereunder are repaid,
and the
full performance of the Business Operation Agreement, the Option
Agreement, and the Assets Transfer
Agreement.
|
|
8.5
|
The
Pledgors shall not hinder the Pledgee from disposing the Pledge in
accordance with this Agreement and shall give necessary assistance
so that
the Pledgee could realize his
Pledge.
|
|
9.1
|
The
Pledgors shall not transfer the rights and obligations to any third
party
herein without prior written consent from the
Pledgee.
|
|
9.2
|
This
Agreement shall be binding upon the Pledgors and their successors
and be
effective to Pledgee and its successors and
assignees.
|
|
9.3
|
Pledgee
may transfer all or any rights and obligations under the Various
Agreement
to any third Pledgeet any time. In this case, the assignee shall
enjoy and
undertake the same rights and obligations herein of Pledgee as if
the
assignee is a party hereto. When Pledgee transfers the rights and
obligations under the Various Agreement, at the request of Pledgee,
the
Pledgors shall execute relevant agreements and/or documents with
respect
to such transfer.
|
|
9.4
|
After
the change of Pledgee resulting from the transfer, the new parties
to the
pledge shall execute a new pledge agreement and the Pledgors shall
be
responsible for all the registration
procedures.
|
|
10.
|
Fees
And Other Charges
|
|
10.1
|
Pledgee
and Pledgors shall be equally responsible for all the fees and actual
expenditures in relation to this Agreement including but not limited
to
legal fees, cost of production, stamp tax and any other taxes and
charges.
|
|
11.1
|
If
this Agreement is delayed in or prevented from performing in the
Event of
Force Majeure (“Event of Force Majeure”), only to the extent of such delay
or prevention, the affected party is absolved from any liability
under
this Agreement. Force Majeure, which includes acts of governments,
including changes in government laws and policies, acts of nature,
fire,
explosion, geographic change, flood, earthquake, tide, lightning,
war,
shortages in raw materials, insurrection, or labor disputes to which
the
delayed Party is not a party, means any unforeseen events beyond
the
prevented party’s reasonable control and cannot be prevented with
reasonable care. However, any shortage of credit, capital or finance
shall
not be regarded as an event
beyond
a Party’s reasonable control. The Pledgeeffected by Force Majeure who
claims for exemption from performing any obligations under this Agreement
or under any Article herein shall notify the other party of such
exemption
promptly and advise him of the steps to be taken for completion of
the
performance.
|
|
11.2
|
The
Pledgeeffected by Force Majeure shall not assume any liability under
this
Agreement. However, subject to the Pledgeeffected by Force Majeure
having
taken its reasonable and practicable efforts to perform this Agreement,
the Party claiming for exemption of the liabilities may be exempted
from
performing such liability as delayed or prevented by Force Majeure.
Once
causes for such exemption of liabilities are rectified and remedied,
both
parties agree to resume performance of this Agreement with their
best
efforts.
|
|
12.
|
Applicable
Law and Dispute Resolution
|
|
12.1
|
The
execution, validity, performance and interpretation of this Agreement
and
dispute resolution shall be governed by and construed in accordance
with
the PRC law.
|
|
12.2
|
The
parties shall strive to settle any dispute arising from the interpretation
or performance through friendly consultation. In case no settlement
can be
reached through consultation, each party can submit such matter to
China
International Economic and Trade Arbitration Commission (“CIETAC”) for
arbitration. The arbitration shall follow the current rules of CIETAC,
and
the arbitration proceedings shall be conducted in Chinese and shall
take
place in Beijing. The arbitration award shall be final and binding
upon
the parties.
|
|
12.3
|
Each
Party shall continue performance of this Agreement in good faith
according
to the stipulations herein except the matters in
dispute.
|
Any
notice or correspondence given by the Pledgees stipulated hereunder, shall
be in
writing and shall be delivered in person or by registered or postage prepaid
mail or recognized express service, or by facsimile transmission to the
following addresses:
|
|
Pledgee:
|
Xinghe
Yongle Carbon Co., Ltd.
|
|
|
Address:
|
No.
19, Xingxin Street, Houhe, Xinghe County, Wulanchabu, Inner Mongolia,
PRC
|
|
|
Address:
|
No.
76, Xingxin Street, Houhe, Chengguan town, Xinghe County, Inner Mongolia,
PRC
|
Mr.
Du Benhua
|
|
Address:
|
No.
49, Limin alley, Chengguan town, Xinghe County, Wulanchabu, Inner
Mongolia, PRC
|
Any
notice by facsimile transmission or e-mail shall be effective only if the
recipient acknowledges receipt.
The
appendices to this Agreement are entire and integral part of this
Agreement.
The
Pledgee’s non-exercise or delay in exercise of any rights, remedies, power or
privileges hereunder shall not be deemed as the waiver of such rights, remedies,
power or privileges. Any single or partial exercise of the rights, remedies,
power and privileges shall not exclude the Pledgee from exercising any other
rights, remedies, power and privileges. The rights, remedies, power and
privileges hereunder are accumulative and shall not exclude the application
of
any other rights, remedies, power and privileges stipulated by
laws.
|
16.1
|
Any
amendments, modifications or supplements to this Agreement shall
be in
writing and take effect upon being signed and sealed by the parties
hereto.
|
|
16.2
|
All
parties confirm that this Agreement is fair and reasonable on the
basis of
equality and mutual benefits. In case any provision in this Agreement
is
determined to be illegal or unenforceable in accordance with the
applicable laws, it shall be null and void within competent jurisdiction
and all other provisions of this Agreement will remain effective.
|
|
16.3
|
This
Agreement is written in Chinese and has 3 counterparts.
|
(No
text
on this page, Signature Page to Equity Pledge Agreement)
Pledgee
:
Xinghe Yongle Carbon Co., Ltd.
(Stamp)
Authorized
Representative:
/s/
Wu
Aihu
Pledgors
:
Mr.
Jin Dengyong
Signature:
/s/
Jin Dengyong
Mr.
Du Benhua
Signature:
/s/
Du
Benhua
Appendices
|
1.
|
Name
list of Xinghe Xingyong Carbon Co., Ltd’s
shareholder
|
Unaudited
Condensed Consolidated Pro Forma Balance Sheet
And
Statements of Operations
For
the Nine months ended September 30, 2007 and the year
ended
December
31, 2006
On
December 17, 2007, Achievers Magazine Inc. (the “Company”) acquired all of the
issued and outstanding capital stock of Talent International Investment Limited
from its sole stockholder, Sincere Investment (PTC), Ltd. Talent is the sole
stockholder of Xinghe Yongle Carbon Co., Ltd., which has a contractual operation
to manage the business of Xinghe Xingyong Carbon Co., Ltd. As a result of these
agreements, on an ongoing basis, the financial statements of the Company will
include the financial statements of Xingyong, which is the operating entity.
Pursuant to the share exchange agreement, the Company issued all shares of
the
Common Stock of the Company to Sincere 9,388,172 shares of the common stock
(reflecting a 1.6 for one share distribution pursuant to which each share of
common stock becomes converted into 1.6 shares), representing 71.0% of shares
outstanding after the issuance of the shares and the purchase by the Company
of
3,340,000 shares. The shares acquired by the Company have been cancelled, except
for 1,000,000 shares which remain outstanding and are being held in escrow
pending payment of the $700,000 balance of the purchase price and a $100,000
fee
payable in connection with the transaction.
The
accompanying unaudited condensed pro forma consolidated balance sheet represents
the consolidated financial position of Company and Xingyong as though the
reorganization of the Company and the acquisition of Xingyong had occurred
on
September 30, 2007. The accompanying unaudited condensed pro forma consolidated
statements of operations for the nine months ended on September 30, 2007 and
for
the year ended December 31, 2006 present the operations of the combined entities
as though the reorganization and acquisition had occurred at the beginning
of
each of those periods.
The
unaudited condensed pro forma consolidated financial information is for
illustrative purposes and is not necessarily the financial position and results
of operations that would have occurred had the reorganization and acquisition
actually occurred on those days or for any other period.
All
references in these unaudited condensed pro forma consolidated statements to
the
number of shares outstanding per share amounts of parent and the Company’s
common stock have been restated to reflect the effect of the 1.6 for one share
distribution described above.
Achievers
Magazine Inc
Unaudited
Condensed Consolidated Pro Forma Balance Sheet
As
of
September 30, 2007
|
|
|
Xinghe Xingyong Carbon Co., Ltd
|
|
Achievers Magazine Inc
|
|
Adjustment
|
|
Pro Forma Results
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
51,321
|
|
$
|
-
|
|
$
|
-
|
|
$
|
51,321
|
|
|
Trade
accounts receivable
|
|
|
3,835,666
|
|
|
0
|
|
|
0
|
|
|
3,835,666
|
|
|
Notes
receivable
|
|
|
160,277
|
|
|
0
|
|
|
0
|
|
|
160,277
|
|
|
Prepaid
expenses
|
|
|
15,369
|
|
|
0
|
|
|
0
|
|
|
15,369
|
|
|
Advance
to suppliers and other receivables
|
|
|
270,188
|
|
|
0
|
|
|
0
|
|
|
270,188
|
|
|
Inventories
|
|
|
13,764,441
|
|
|
0
|
|
|
0
|
|
|
13,764,441
|
|
|
Total
current assets
|
|
|
18,097,262
|
|
|
-
|
|
|
-
|
|
|
18,097,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
19,327,765
|
|
|
0
|
|
|
0
|
|
|
19,327,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
use rights, net of accumulated amortization of 86,097 and 66,432,
respectively
|
|
|
2,121,558
|
|
|
0
|
|
|
0
|
|
|
2,121,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
39,546,585
|
|
$
|
-
|
|
$
|
-
|
|
$
|
39,546,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
1,009,913
|
|
$
|
418,000
|
|
$
|
(418,000
|
)
|
$
|
1,009,913
|
|
|
Taxes
payable
|
|
|
372,245
|
|
|
0
|
|
|
0
|
|
|
372,245
|
|
|
Notes
payable
|
|
|
6,016,487
|
|
|
28,000
|
|
|
(28,000
|
)
|
|
6,016,487
|
|
|
Loan
from shareholder
|
|
|
4,542,306
|
|
|
0
|
|
|
0
|
|
|
4,542,306
|
|
|
Total
current liabilities
|
|
|
11,940,951
|
|
|
445,000
|
|
|
(445,000
|
)
|
|
11,940,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered
capital
|
|
|
6,650,544
|
|
|
6,000
|
|
|
(6,000
|
)
|
|
6,650,544
|
|
|
Accumulated
other comprehensive income
|
|
|
2,141,725
|
|
|
0
|
|
|
0
|
|
|
2,141,725
|
|
|
Retained
earnings
|
|
|
18,813,365
|
|
|
(451,000
|
)
|
|
451,000
|
|
|
18,813,365
|
|
|
Total
stockholders' equity
|
|
|
27,605,634
|
|
|
(445,000
|
)
|
|
445,000
|
|
|
27,605,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
39,546,585
|
|
$
|
(445,000
|
)
|
$
|
445,000
|
|
$
|
39,546,585
|
|
Achievers
Magazine Inc
Unaudited
Condensed Consolidated Pro Forma of Operations and comprenesive
Income
For
Nine
Months Ended September 30, 2007
|
|
|
Xinghe Xingyong Carbon Co., Ltd
|
|
Achievers Magazine Inc
|
|
Pro Forma Results
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
18,799,732
|
|
$
|
-
|
|
$
|
18,799,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Goods Sold
|
|
|
15,067,613
|
|
|
|
|
|
15,067,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
3,732,119
|
|
|
40,000
|
|
|
3,772,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
110,050
|
|
|
0
|
|
|
110,050
|
|
|
General
and administrative
|
|
|
559,517
|
|
|
108,000
|
|
|
667,517
|
|
|
Depreciation
and amortization
|
|
|
13,176
|
|
|
0
|
|
|
13,176
|
|
|
Total
operating expenses
|
|
|
682,743
|
|
|
108,000
|
|
|
790,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
286,779
|
|
|
0
|
|
|
286,779
|
|
|
Interest
Income
|
|
|
377
|
|
|
0
|
|
|
377
|
|
|
Loss
on disposal of assets
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
Interest
Expense
|
|
|
(393,540
|
)
|
|
-
|
|
|
(393,540
|
)
|
|
Total
other income (expense)
|
|
|
(106,384
|
)
|
|
-
|
|
|
(106,384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income Before Provision for Income Tax
|
|
|
2,942,992
|
|
|
0
|
|
|
2,942,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for Income Taxes
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
2,942,992
|
|
$
|
(108,000
|
)
|
$
|
2,834,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Components of Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
2,942,992
|
|
$
|
(108,000
|
)
|
$
|
2,834,992
|
|
|
Foreign
currency translation adjustment
|
|
|
1,237,745
|
|
|
-
|
|
|
1,237,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
$
|
4,180,737
|
|
$
|
(108,000
|
)
|
$
|
4,072,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Earnings Per Share
|
|
|
|
|
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Weighted Average Shares Outstanding
|
|
|
|
|
|
|
|
|
12,224,182
|
|
Achievers
Magazine Inc
Unaudited
Condensed Consolidated Pro Forma of Operations and comprenesive
Income
For
the
Year Ended December 31, 2006
|
|
|
Xinghe Xingyong Carbon Co., Ltd
|
|
Achievers Magazine Inc
|
|
Pro Forma Results
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
17,199,071
|
|
$
|
-
|
|
$
|
17,199,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Goods Sold
|
|
|
13,234,378
|
|
|
0
|
|
|
13,234,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
3,964,693
|
|
|
0
|
|
|
3,964,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
330,586
|
|
|
0
|
|
|
330,586
|
|
|
General
and administrative
|
|
|
555,629
|
|
|
102,000
|
|
|
657,629
|
|
|
Depreciation
and amortization
|
|
|
16,949
|
|
|
0
|
|
|
16,949
|
|
|
Total
operating expenses
|
|
|
903,164
|
|
|
102,000
|
|
|
1,005,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
86,850
|
|
|
0
|
|
|
86,850
|
|
|
Interest
Income
|
|
|
223
|
|
|
0
|
|
|
223
|
|
|
Loss
on disposal of assets
|
|
|
(45,323
|
)
|
|
0
|
|
|
(45,323
|
)
|
|
Interest
Expense
|
|
|
(421,981
|
)
|
|
-
|
|
|
(421,981
|
)
|
|
Total
other income (expense)
|
|
|
(380,231
|
)
|
|
-
|
|
|
(380,231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income Before Provision for Income Tax
|
|
|
2,681,298
|
|
|
(102,000
|
)
|
|
2,579,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Deferred
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
2,681,298
|
|
$
|
(102,000
|
)
|
$
|
2,579,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Components of Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
2,681,298
|
|
$
|
(102,000
|
)
|
$
|
2,579,298
|
|
|
Foreign
currency translation adjustment
|
|
|
798,900
|
|
|
-
|
|
|
798,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
$
|
3,480,198
|
|
$
|
(102,000
|
)
|
$
|
3,378,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Earnings Per Share
|
|
|
|
|
|
|
|
$
|
0.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Weighted Average Shares Outstanding
|
|
|
|
|
|
|
|
|
12,224,182
|
|
Exhibit
A
STATEMENT
OF DESIGNATIONS
Section
1
.
Definitions
.
Capitalized terms used and not otherwise defined herein that are defined
in the
Purchase Agreement (as defined below) shall have the meanings given such
terms
in the Purchase Agreement. For the purposes hereof, the following terms shall
have the following meanings:
“
Bankruptcy
Event
”
means
any of the following events: (a) the Company or any Significant Subsidiary
(as
such term is defined in Rule 1.02(s) of Regulation S-X) thereof commences
a case
or other proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation
or
similar law of any jurisdiction relating to the Company or any Significant
Subsidiary thereof; (b) there is commenced against the Company or any
Significant Subsidiary thereof any such case or proceeding that is not stayed
or
dismissed within 90 days after commencement; (c) the Company or any Significant
Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief
or other order approving any such case or proceeding is entered; (d) the
Company
or any Significant Subsidiary thereof suffers any appointment of any custodian
or the like for it or any substantial part of its property that is not
discharged or stayed within 90 days; (e) the Company or any Significant
Subsidiary thereof makes a general assignment for the benefit of creditors;
(f)
the Company or any Significant Subsidiary thereof calls a meeting of its
creditors with a view to arranging a composition, adjustment or restructuring
of
its debts; or (g) the Company or any Significant Subsidiary thereof, by any
act
or failure to act, expressly indicates its consent to, approval of or
acquiescence in any of the foregoing or takes any corporate or other action
for
the purpose of effecting any of the foregoing.
“
Closing
Date
”
means
the Closing Date, as defined in the Purchase Agreement.
“
Commission
”
means
the Securities and Exchange Commission.
“
Common
Stock
”
means
the Company’s common stock, par value $.001 per share, and stock of any other
class into which such shares may hereafter have been reclassified or
changed.
“
Common
Stock Equivalents
”
means
any securities of the Company or the Subsidiaries which would entitle the
holder
thereof to acquire at any time Common Stock, including without limitation,
any
debt, preferred stock, rights, options, warrants or other instrument that
is at
any time convertible into or exchangeable for, or otherwise entitles the
holder
thereof to receive, Common Stock.
“
Conversion
Date
”
shall
have the meaning set forth in Section 6(a).
“
Conversion
Ratio
”
shall
have the meaning set forth in Section 6(a).
“
Conversion
Price
”
shall
mean the $1.00, adjusted as provided in this Statemetn of
Designation.
“
Conversion
Shares
”
means,
collectively, the shares of Common Stock into which the shares of Series
A
Preferred Stock are convertible in accordance with the terms
hereof.
“
Conversion
Shares Registration Statement
”
means
a
registration statement that meets the requirements of the Registration Rights
Agreement and registers the resale of all Conversion Shares by the Holder,
who
shall be named as a “selling stockholder” thereunder, all as provided in the
Registration Rights Agreement.
“
Dilutive
Issuance
”
shall
have the meaning set forth in Section 7(b) hereof.
“
Effective
Date
”
means
the date that the Conversion Shares Registration Statement is declared effective
by the Commission.
“
EBITDA
”
shall
have the meaning set forth in the Purchase Agreement.
“
Exchange
Act
”
means
the Securities Exchange Act of 1934, as amended.
“
Exempt
Issuance
”
shall
have the meaning set forth in Section 1.3.10 of the Purchase
Agreement.
“
Fundamental
Transaction
”
shall
have the meaning set forth in Section 7(f)(iv) hereof.
“
Holder
”
shall
have the meaning given such term in Section 2 hereof.
“
Junior
Securities
”
means
the Common Stock and all other equity or equity equivalent securities of
the
Company other than those securities that are explicitly senior in rights
or
liquidation preference to the Series A Preferred Stock.
“
Original
Issue Date
”
shall
mean the date of the first issuance of any shares of the Series A Preferred
Stock regardless of the number of transfers of any particular shares of Series
A
Preferred Stock and regardless of the number of certificates which may be
issued
to evidence such Series A Preferred Stock.
“
Person
”
means
a
corporation, an association, a partnership, a limited liability company,
a
business association, an individual, a trust, a government or political
subdivision thereof or a governmental agency.
“
Purchase
Agreement
”
means
the Preferred Stock Purchase Agreement, dated as of December 14, 2007, to
which
the Company and the original Holders are parties, as amended, modified or
supplemented from time to time in accordance with its terms, a copy of which
is
on file at the principal offices of the Company.
“
Registration
Rights Agreement
”
means
the Registration Rights Agreement, dated as of the Closing Date, to which
the
Company and the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
“
Securities
Act
”
means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“
Series
A Preferred Stock
”
shall
have the meaning set forth in Section 2.
“
Subscription
Amount
”
shall
mean the one million two hundred thousand ($1,200,000) paid or to be paid
for
the Series A Preferred Stock purchased pursuant to the Purchase Agreement,
in
United States dollars and in immediately available funds or as otherwise
provided in the Purchase Agreement.
“
Subsidiary
”
shall
mean a corporation, limited liability company, partnership, joint venture
or
other business entity of which the Company owns beneficially or of record
more
than a majority of the equity interest.
“
Trading
Day
”
means
a
day on which the Common Stock is traded on a Trading Market.
“
Trading
Market
”
means
the following markets or exchanges on which the Common Stock is listed or
quoted
for trading on the date in question: the Nasdaq SmallCap Market, the American
Stock Exchange, the New York Stock Exchange, the Nasdaq National Market or
the
OTC Bulletin Board.
“
Transaction
Documents
”
shall
have the meaning set forth in the Purchase Agreement.
“
VWAP
”
means,
for any date, the price determined by the first of the following clauses
that
applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
the daily volume weighted average price of the Common Stock for such date
(or
the nearest preceding date) on the primary Trading Market on which the Common
Stock is then listed or quoted as reported by Bloomberg Financial L.P. (based
on
a Trading Day from 9:30 a.m. EST to 4:02 p.m. Eastern Time) using the VAP
function; (b) if the Common Stock is not then listed or quoted on the
Trading Market and if prices for the Common Stock are then reported in the
“Pink
Sheets” published by the National Quotation Bureau Incorporated (or a similar
organization or agency succeeding to its functions of reporting prices),
the
most recent bid price per share of the Common Stock so reported; or (c) in
all other cases, the fair market value of a share of Common Stock as determined
by a nationally recognized-independent appraiser selected in good faith by
Purchasers holding a majority of the principal amount of Series A Preferred
Stock then outstanding.
“Warrants”
shall have the meaning set forth in the Purchase Agreement.
Section
2
.
Designation,
Amount and Par Value
.
The
series of preferred stock, par value $.001 per share (“Preferred Stock”)
consisting of ten million (10,000,000) shares shall be designated as the
Company’s Series A Convertible Preferred Stock (the “
Series
A Preferred Stock
”)
and
the number of shares so designated shall be (which shall not be subject to
increase without the consent of all of the holders of 75% of the then
outstanding shares of Series A Preferred Stock (each a “
Holder
”
and
collectively, the “
Holders
”)).
In
the event of the conversion of shares of Series A Preferred Stock into this
Company’s Common Stock, pursuant to Section 6 hereof, or in the event that the
Company shall otherwise acquire and cancel any shares of Series A Preferred
Stock, the shares of Series A Preferred Stock so converted or otherwise acquired
and canceled shall have the status of authorized but unissued shares of
preferred stock, without designation as to series until such stock is once
more
designated as part of a particular Series by the Company’s Board of Directors.
In addition, if the Company shall not issue the maximum number of shares
of
Series A Preferred Stock, the Company may, from time to time, by resolution
of
the Board of Directors and the approval of the holders of a majority of the
outstanding shares of Series A Preferred Stock, reduce the number of shares
of
Series A Preferred Stock authorized, provided, that no such reduction shall
reduce the number of authorized shares to a number which is less than the
number
of shares of Series A Preferred Stock then issued or reserved for issuance.
The
number of shares by which the Series A Preferred Stock is reduced shall have
the
status of authorized but unissued shares of Preferred Stock, without designation
as to series, until such stock is once more designated as part of a particular
Series by the Company’s Board of Directors. The Board of Directors shall cause
to be filed with the Secretary of State of the State of Nevada such certificate
as shall be necessary to reflect any reduction in the number of shares
constituting the Series A Preferred Stock.
Section
3
.
Dividends
and Other Distributions
.
No
dividends shall be payable with respect to the Series A Preferred Stock.
While
the Series A Preferred Stock is outstanding, without the approval of the
holders
of 75% of the outstanding shares of Series A Preferred Stock, (a) the
Corporation may not pay cash dividends or other distributions of cash, property
or evidences of indebtedness, and (b) the Corporation shall not redeem any
shares of Common Stock. Nothing in this Section 3 shall be construed to prohibit
the Corporation from honoring its agreements pursuant to a certain buy-back
agreement dated as of December 14, 2007, by and among the Corporation and
the
stockholders named therein. A share distribution, dividend or split is not
a
dividend or distribution within the meaning of this Section 3.
Section
4
.
Voting
Rights
.
The
Series A Preferred Stock shall have no voting rights. However, so long as
any
shares of Series A Preferred Stock are outstanding, the Company shall not,
without the affirmative approval of the Holders of 75% of the shares of the
Series A Preferred Stock then outstanding, (a) alter or change adversely
the
powers, preferences or rights given to the Series A Preferred Stock or alter
or
amend this Certificate of Designation, (b) authorize or create any class
of
stock ranking as to dividends or distribution of assets upon a Liquidation
(as
defined in Section 5) senior to or otherwise pari passu with the Series A
Preferred Stock, or any of preferred stock possessing greater voting rights
or
the right to convert at a more favorable price than the Series A Preferred
Stock, (c) amend its certificate or articles of incorporation or other charter
documents in breach of any of the provisions hereof, (d) increase the authorized
number of shares of Series A Preferred Stock, or (e) enter into any agreement
with respect to the foregoing. The holders of the Series A Preferred Stock
will
not be entitled to vote as a class with respect to the increase or decrease
in
the number of authorized shares of preferred stock; provided, however, that
the
provisions of Section 6(c) of this Certificate of Designation may not be
amended
or waived.
Section
5
.
Liquidation
.
Upon
any liquidation, dissolution or winding-up of the Company, whether voluntary
or
involuntary (a “
Liquidation
”),
the
Holders shall be entitled to receive out of the assets of the Company, whether
such assets are capital or surplus, for each share of Series A Preferred
Stock
an amount equal to $1.00 (the “
Liquidation
Value
”)
before
any distribution or payment shall be made to the holders of any Junior
Securities and after any distributions or payments made to holders of any
class
or series of securities which are senior to the Series A Preferred Stock
upon
voluntary or involuntary liquidation, dissolution or winding up, and if the
assets of the Company shall be insufficient to pay in full such amounts,
then
the entire assets to be distributed to the Holders shall be distributed among
the Holders ratably in accordance with the respective amounts that would
be
payable on such shares if all amounts payable thereon were paid in full;
provided, however, that, if the initial purchasers of the Series A Preferred
Stock shall not have paid the full amount of the Purchase Price as required
by
the Purchase Agreement, there shall be deducted from the total Liquidation
Value
payable to the holders of the Series A Preferred Stock, on a pro rata basis,
the
amount of the Purchase Price which remains unpaid. In the event the assets
of
the Company available for distribution to the holders of shares of Series
A
Preferred Stock upon dissolution, liquidation or winding up of the Company,
whether voluntary or involuntary, shall be insufficient to pay in full all
amounts to which such holders are entitled pursuant to Section 5, no such
distribution shall be made on account of any shares of any other class or
series
of capital stock of the Company ranking on a parity with the shares of Series
A
Preferred Stock upon such dissolution, liquidation or winding up unless
proportionate distributive amounts shall be paid on account of the shares
of
Series A Preferred Stock, ratably, in proportion to the full distributable
amounts for which holders of all such parity shares are respectively entitled
upon such dissolution, liquidation or winding up. At the election of a Holder
made by written notice delivered to the Company at least two (2) business
days
prior to the effective date of the subject transaction, as to the shares
of
Series A Preferred Stock held by such Holder, a Fundamental Transaction
(excluding for purposes of this Section 5 any Fundamental Transaction described
in Section 7(f)(iv)(A) or 7(f)(iv)(B)) or Change of Control shall be treated
as
a Liquidation as to such Holder.
Section
6.
Conversion
.
a)
Conversions
at Option of Holder
.
Each
share of Series A Preferred Stock shall be initially convertible (subject
to the
limitations set forth in Section 6(c)), into one (1) share of Common Stock
(as
adjusted as provided below, the “
Conversion
Ratio
”)
at the
option of the Holders, at any time and from time to time from and after the
Original Issue Date. The Conversion Ratio
reflects
a 1.6-for-one stock distribution approved by the directors of the Corporation
on
December 14, 2007, whereby each share of common stock became converted into
1.6
shares of Common Stock (the “Stock Distribution”).
Holders
shall effect conversions by providing the Company with the form of conversion
notice attached hereto as
Annex
A
(a
“
Notice
of Conversion
”)
as
fully and originally executed by the Holder, together with the delivery by
the
Holder to the Company of the stock certificate(s) representing the number
of
shares of Series A Preferred Stock so converted, with such stock certificates
being duly endorsed in full for transfer to the Company or with an applicable
stock power duly executed by the Holder in the manner and form as deemed
reasonable by the transfer agent of the Common Stock. Each Notice of Conversion
shall specify the number of shares of Series A Preferred Stock to be converted,
the number of shares of Series A Preferred Stock owned prior to the conversion
at issue, the number of shares of Series A Preferred Stock owned subsequent
to
the conversion at issue, the stock certificate number and the shares of Series
A
Preferred Stock represented thereby which are accompanying the Notice of
Conversion, and the date on which such conversion is to be effected, which
date
may not be prior to the date the Holder delivers such Notice of Conversion
and
the applicable stock certificates to the Company by overnight delivery service
(the “
Conversion
Date
”).
If no
Conversion Date is specified in a Notice of Conversion, the Conversion Date
shall be the Trading Day immediately following the date that such Notice
of
Conversion and applicable stock certificates are received by the Company.
The
calculations and entries set forth in the Notice of Conversion shall control
in
the absence of manifest or mathematical error. Shares of Series A Preferred
Stock converted into Common Stock in accordance with the terms hereof shall
be
canceled and may not be reissued. The initial Conversion Price of the Series
A
Preferred Stock shall be equal to $1.00 per share. If the initial Conversion
Price is adjusted pursuant to Section 7 or as otherwise provided herein,
the
Conversion Ratio shall likewise be adjusted and the new Conversion Ratio
shall
equal the Liquidation Value divided by the new Conversion Price. Thereafter,
subject to any further adjustments in the Conversion Price, each share of
Series
A Preferred Stock shall be initially convertible into that number of shares
of
Common Stock equal to the new Conversion Ratio.
b)
Automatic
Conversion Upon Change of Control
.
Subject
to Section 5, all of the outstanding shares of Series A Preferred Stock shall
be
automatically converted into the Conversion Shares upon the close of business
on
the business day immediately preceding the date fixed for consummation of
any
transaction resulting in a Change of Control of the Company (an “Automatic
Conversion Event”). A “Change in Control” means a consolidation or merger of the
Company with or into another company or entity in which the Company is not
the
surviving entity or the sale of all or substantially all of the assets of
the
Company to another company or entity not controlled by the then existing
stockholders of the Company in a transaction or series of transactions. The
Company shall not be obligated to issue certificates evidencing the Conversion
Shares unless certificates evidencing the shares of Series A Preferred Stock
so
converted are either delivered to the Company or its transfer agent or the
holder notifies the Company or its transfer agent in writing that such
certificates have been lost, stolen, or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred
by
it in connection therewith. Upon the conversion of the Series A Preferred
Stock
pursuant to this Section 6(b), the Company shall promptly send written notice
thereof, by hand delivery or by overnight delivery, to the holder of record
of
all of the Series A Preferred Stock at its address then shown on the records
of
the Company, which notice shall state that certificates evidencing shares
of
Series A Preferred Stock must be surrendered at the office of the Company
(or of
its transfer agent for the Common Stock, if applicable).
c)
Beneficial
Ownership Limitation
.
Except
as provided in Section 6(b) of this Statement of Designation, which shall
apply
as stated therein if an Automatic Conversion Event shall occur, the Company
shall not effect any conversion of the Series A Preferred Stock, and the
Holder
shall not have the right to convert any portion of the Series A Preferred
Stock
to the extent that after giving effect to such conversion, the Holder (together
with the Holder’s affiliates), as set forth on the applicable Notice of
Conversion, would beneficially own in excess of 4.9% of the number of shares
of
the Common Stock outstanding immediately after giving effect to such
conversion. For purposes of the foregoing sentence, the number of shares
of Common Stock beneficially owned by the Holder and its affiliates shall
include the number of shares of Common Stock issuable upon conversion of
the
Series A Preferred Stock with respect to which the determination of such
sentence is being made, but shall exclude the number of shares of Common
Stock
which would be issuable upon (A) conversion of the remaining, nonconverted
shares of Series A Preferred Stock beneficially owned by the Holder or any
of
its affiliates, so long as such shares of Series A Preferred Stock are not
convertible within sixty (60) days from the date of such determination, and
(B)
exercise or conversion of the unexercised or nonconverted portion of any
other
securities of the Company (including the Warrants) subject to a limitation
on
conversion or exercise analogous to the limitation contained herein beneficially
owned by the Holder or any of its affiliates, so long as such other securities
of the Company are not exercisable nor convertible within sixty (60) days
from
the date of such determination. For purposes of this Section 6(c), in
determining the number of outstanding shares of Common Stock, the Holder
may
rely on the number of outstanding shares of Common Stock as reflected in
the
most recent of the following: (A) the Company’s most recent quarterly reports,
Form 10-Q, Form 10-QSB, Annual Reports, Form 10-K, or Form 10-KSB, as the
case
may be, as filed with the Commission under the Exchange Act (B) a more recent
public announcement by the Company or (C) any other written notice by the
Company or the Company’s transfer agent setting forth the number of shares of
Common Stock outstanding. Upon the written or oral request of the Holder,
the Company shall within two (2) Trading Days confirm orally and in writing
to
the Holder the number of shares of Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall be determined
after
giving effect to the conversion or exercise of securities of the Company,
including the Series A Preferred Stock, by the Holder or its affiliates since
the date as of which such number of outstanding shares of Common Stock was
publicly reported by the Company. This Section 6(c) may not be waived or
amended. For purposes of this Section 6(c), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act.
d)
Mechanics
of Conversion
i.
Delivery
of Certificate Upon Conversion
.
Except
as otherwise set forth herein, not later than three Trading Days after each
Conversion Date (the “
Share
Delivery Date
”),
the
Company shall deliver to the Holder (A) a certificate or certificates which,
after the Effective Date, shall be free of restrictive legends and trading
restrictions (other than those required by the Purchase Agreement) representing
the number of shares of Common Stock being acquired upon the conversion of
shares of Series A Preferred Stock, and (B) a bank check in the amount of
accrued and unpaid dividends (if the Company has elected or is required to
pay
accrued dividends in cash). After the Effective Date, the Company shall,
upon
request of the Holder, deliver any certificate or certificates required to
be
delivered by the Company under this Section electronically through the
Depository Trust Company or another established clearing Company performing
similar functions if the Company’s transfer agent has the ability to deliver
shares of Common Stock in such manner. If in the case of any Notice of
Conversion such certificate or certificates are not delivered to or as directed
by the applicable Holder by the third Trading Day after the Conversion Date,
the
Holder shall be entitled to elect by written notice to the Company at any
time
on or before its receipt of such certificate or certificates thereafter,
to
rescind such conversion, in which event the Company shall immediately return
the
certificates representing the shares of Series A Preferred Stock tendered
for
conversion.
ii.
Reservation
of Shares Issuable Upon Conversion
.
The
Company covenants that it will at all times reserve and keep available out
of
its authorized and unissued shares of Common Stock solely for the purpose
of
issuance upon conversion of the Series A Preferred Stock, each as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holders, not less than such number of shares
of
the Common Stock as shall (subject to any additional requirements of the
Company
as to reservation of such shares set forth in the Purchase Agreement) be
issuable (taking into account the adjustments and restrictions of Section
7)
upon the conversion of all outstanding shares of Series A Preferred Stock.
The
Company covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid,
nonassessable and, if the Conversion Shares Registration Statement is then
effective under the Securities Act, registered for public sale in accordance
with such Conversion Shares Registration Statement.
iii.
Fractional
Shares
.
Upon a
conversion hereunder, the Company shall not be required to issue stock
certificates representing fractions of shares of the Common Stock. All
fractional shares shall be carried forward and any fractional shares which
remain after a Holder converts all of his or her Series A Preferred Stock
shall
be dropped and eliminated.
iv.
Transfer
Taxes
.
The
issuance of certificates for shares of the Common Stock on conversion of
the
Series A Preferred Stock shall be made without charge to the Holders thereof
for
any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not
be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a
name
other than that of the Holder of such shares of Series A Preferred Stock
so
converted and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been
paid.
v.
Absolute
Obligation
.
Except
as expressly provided herein, no provision of this Certificate of Designation
shall alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the liquidated damages (if any) on, the shares of Series
A
Preferred Stock at the time, place, and rate, and in the coin or currency,
herein prescribed.
Section
7
.
Certain
Adjustments
.
a)
Stock
Dividends and Stock Splits
.
If the
Company, at any time while the Series A Preferred Stock is outstanding: (A)
shall pay a stock dividend or otherwise make a distribution or distributions
on
shares of its Common Stock or any other equity or equity equivalent securities
payable in shares of Common Stock (which, for avoidance of doubt, shall not
include any shares of Common Stock issued by the Company pursuant to this
Series
A Preferred Stock), (B) subdivide outstanding shares of Common Stock into
a
larger number of shares, (C) combine (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or (D)
issue
by reclassification of shares of the Common Stock any shares of capital stock
of
the Company, then the Conversion Price shall be multiplied by a fraction
of
which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock outstanding after
such
event. Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
re-classification. This Section 7(a) shall not relate to the Stock Distribution.
b)
Pro
Rata Distributions
.
If the
Company, at any time while Series A Preferred Stock is outstanding, shall
distribute to all holders of Common Stock (and not to Holders) evidences
of its
indebtedness or assets or rights or warrants to subscribe for or purchase
any
security, then in each such case the Conversion Price shall be determined
by
multiplying such Conversion Price in effect immediately prior to the record
date
fixed for determination of stockholders entitled to receive such distribution
by
a fraction of which the denominator shall be the VWAP determined as of the
record date mentioned above, and of which the numerator shall be such VWAP
on
such record date less the then fair market value at such record date of the
portion of such assets or evidence of indebtedness so distributed applicable
to
one outstanding share of the Common Stock as determined by the Board of
Directors in good faith. In either case the adjustments shall be described
in a
statement provided to the Holders of the portion of assets or evidences of
indebtedness so distributed or such subscription rights applicable to one
share
of Common Stock. Such adjustment shall be made whenever any such distribution
is
made and shall become effective immediately after the record date mentioned
above.
c)
Sale
at Lower Price
.
From
the Closing Date until such time as the Restriction Termination Date, as
defined
in the Purchase Agreement,
except
for Exempt Issuances, as to which this
Section
7(c) does not apply, if the Corporation closes on the sale or issuance of
Common
Stock at a price, or warrants, options, convertible
debt or
equity securities with a exercise price per share or exercise price per share
which is less than the Conversion Price then in effect (such lower sales
price,
conversion or exercise price, as the case may be, being referred to as the
“Lower Price”), the Conversion Price in effect from and after the date of such
transaction shall be reduced on a formula basis as follows:
The
Conversion Price shall be adjusted by multiplying the Conversion Price in
effect
immediately prior to such issuance by a fraction, the numerator of which
shall
be the sum of the number of shares of Common Stock outstanding immediately
prior
to the issuance of such additional shares plus the number of shares of Common
Stock which the aggregate consideration received or receivable for the issuance
of such additional shares would purchase at the Conversion Price then in
effect,
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately after the issuance of such additional shares (including
the exercise or conversion of all options, warrants and other convertible
securities).
For
purpose of determining the exercise price of warrants issued by the Company,
the
price, if any, paid per share for the warrants shall be added to the exercise
price of the warrants.
d)
Calculations
.
All
calculations under this Section 7 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held
by or
for the account of the Company. For purposes of this Section 7, the number
of
shares of Common Stock deemed to be issued and outstanding as of a given
date
shall be the sum of the number of shares of Common Stock (excluding treasury
shares, if any) actually issued and outstanding.
e)
Notice
to Holders
.
i.
Adjustment
to Conversion Price
.
Whenever the Conversion Price is adjusted pursuant to any of this Section
7, the
Company shall promptly mail to each Holder a notice setting forth the Conversion
Price after such adjustment and setting forth a brief statement of the facts
requiring such adjustment. If the Company issues a variable rate security,
despite the prohibition thereon in the Purchase Agreement, the Company shall
be
deemed to have issued Common Stock or Common Stock Equivalents at the lowest
possible conversion or exercise price at which such securities may be converted
or exercised in the case of a Variable Rate Transaction (as defined in the
Purchase Agreement), or the lowest possible adjustment price in the case
of an
MFN Transaction (as defined in the Purchase Agreement).
ii.
Notices
of Other Events
.
If (A)
the Company shall declare a dividend (or any other distribution) on the Common
Stock; (B) the Company shall declare a redemption of the Common Stock; (C)
the
Company shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock
or
any Fundamental Transaction, (E)
the
Company shall authorize the voluntary or involuntary dissolution, liquidation
or
winding up of the affairs of the Company; then in each case, the Company
shall
cause to be filed at each office or agency maintained for the purpose of
conversion of the Series A Preferred Stock, and shall cause to be
mailed
to
the Holders at their last addresses as they shall appear upon the
stock
books
of
the
Company, at least 30 calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating
(x)
the
date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be
taken,
the date as of which the holders of the Common Stock of record to be entitled
to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification is expected to
become
effective or close, and the date as of which it is expected that holders
of the
Common Stock of record shall be entitled to exchange their shares of the
Common
Stock for securities, cash or other property deliverable upon such
reclassification or Fundamental Transaction;
provided
,
that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice.
iii.
Exempt
Issuance
.
Notwithstanding the foregoing, no adjustment will be made under this Section
7
in respect of an Exempt Issuance.
iv.
Fundamental
Transaction
.
If, at
any time while this Series A Preferred Stock is outstanding, (A) the Company
effects any merger or consolidation of the Company with or into another Person,
(B) the Company effects any sale of all or substantially all of its assets
in
one or a series of related transactions, (C) any tender offer or exchange
offer
(whether by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to tender or exchange their shares
for
other securities, cash or property, or (D) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for
other
securities, cash or property (in any such case, a “
Fundamental
Transaction
”),
then
upon any subsequent conversion of this Series A Preferred Stock, the Holder
shall have the right to receive, for each Conversion Share that would have
been
issuable upon such conversion absent such Fundamental Transaction, the same
kind
and amount of securities, cash or property as it would have been entitled
to
receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of one share
of
Common Stock (the “
Alternate
Consideration
”).
For
purposes of any such conversion, the determination of the Conversion Price
shall
be appropriately adjusted to apply to such Alternate Consideration based
on the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the
Conversion Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction,
then
the Holder shall be given the same choice as to the Alternate Consideration
it
receives upon any conversion of this Series A Preferred Stock following such
Fundamental Transaction. To the extent necessary to effectuate the foregoing
provisions, any successor to the Company or surviving entity in such Fundamental
Transaction shall file a new Certificate of Designation with the same terms
and
conditions and issue to the Holder new preferred stock consistent with the
foregoing provisions and evidencing the Holder’s right to convert such preferred
stock into Alternate Consideration. The terms of any agreement pursuant to
which
a Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this paragraph
(f)(iv) and insuring that this Series A Preferred Stock (or any such replacement
security) will be similarly adjusted upon any subsequent transaction analogous
to a Fundamental Transaction. Notwithstanding the foregoing or any other
provisions of this Certificate of Designation, in the event that the agreement
relating to a Fundamental Transaction provides for the conversion or exchange
of
the Series A Preferred Stock into equity or debt securities, cash or other
consideration and the agreement is approved by the holders of a majority
of the.
then-outstanding shares of Series A Preferred Stock, then the holders of
the
Series A Preferred Stock shall have only the rights set forth in such
agreement.
Section
8
.
Miscellaneous
.
a)
Notices
.
Any and
all notices or other communications or deliveries to be provided by the Holders
hereunder, including, without limitation, any Notice of Conversion, shall
be in
writing and delivered personally, by facsimile, sent by a nationally recognized
overnight courier service, addressed to the Company, at its principal address
as
reflected in its most recent filing with the Commission. Any and all notices
or
other communications or deliveries to be provided by the Company hereunder
shall
be in writing and delivered personally, by facsimile, sent by a nationally
recognized overnight courier service addressed to each Holder at the facsimile
telephone number or address of such Holder appearing on the books of the
Company, or if no such facsimile telephone number or address appears, at
the
principal place of business of the Holder. Any notice or other communication
or
deliveries hereunder shall be deemed given when received, and any notice
by
telecopier shall be effective if confirmation of receipt is given by the
party
to whom the notice is transmitted.
b)
Lost
or Mutilated Preferred Stock Certificate
.
If a
Holder’s Series A Preferred Stock certificate shall be mutilated, lost, stolen
or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated certificate, or in
lieu of
or in substitution for a lost, stolen or destroyed certificate, a new
certificate for the shares of Series A Preferred Stock so mutilated, lost,
stolen or destroyed but only upon receipt of evidence of such loss, theft
or
destruction of such certificate, and of the ownership thereof, and indemnity,
if
requested, all reasonably satisfactory to the Company.
c)
Next
Business Day
.
Whenever any payment or other obligation hereunder shall be due on a day
other
than a Business Day, such payment shall be made on the next succeeding Business
Day.
d)
Headings
.
The
headings contained herein are for convenience only, do not constitute a part
of
this Certificate of Designation and shall not be deemed to limit or affect
any
of the provisions hereof.
e)
Rank
of Series
.
For
purposes of this Certificate of Designation, any stock of any series or class
of
the Company shall be deemed to rank
(i)
prior to
the shares of Series A Preferred Stock, as to dividends or upon liquidation,
dissolution or winding up, as the case may be, if the holders of such class
or
classes shall be entitled to the receipt of dividends or of amounts
distributable upon dissolution, liquidation or winding up of the Company,
as the
case may be, in preference or priority to the holders of shares of Series
A
Preferred Stock;
(ii)
on a
parity with shares of Series A Preferred Stock, as to dividends or upon
liquidation, dissolution or winding up, as the case may be, whether or not
the
dividend rates, dividend payment dates or redemption or liquidation prices
per
share or sinking fund provisions, if any, be different from those of Series
A
Preferred Stock, if the holders of such stock shall be entitled to the receipt
of dividends or of amounts distributable upon dissolution, liquidation or
winding up of the Company, as the case may be, in proportion to their respective
dividend rates or liquidation prices, without preference or priority, one
over
the other, as between the holders of such stock and the holders of shares
of
Series A Preferred Stock; and
(iii)
junior
to shares of Series A Preferred Stock as to dividends or upon liquidation,
dissolution or winding up, as the case may be, if such class shall be Common
Stock or if the holders of shares of Series A Preferred Stock shall be entitled
to receipt of dividends or of amounts distributable upon dissolution,
liquidation or winding up of the Company, as the case may be, in preference
or
priority to the holders of shares of such class or classes.
f)
Amendment
.
This
Certificate of Designation may be amended with the approval of the Company’s
board of directors and the consent of the holders of seventy-five percent
(75%)
of the outstanding shares of Series A Preferred Stock, except that any amendment
to the conversion limitation set forth in Section 6.2(b) shall also require
the
consent of the holders of a majority of the Company’s Common
Stock.
ANNEX
A
NOTICE
OF
CONVERSION
(TO
BE
EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF SERIES A
PREFERRED STOCK)
The
undersigned hereby elects to convert the number of shares of Series A
Convertible Preferred Stock indicated below, into shares of common stock,
par
value $0.001 per share (the “
Common
Stock
”),
of
China Carbon Graphic Group, Inc., a Nevada Company (the “
Company
”),
according to the conditions hereof, as of the date written below. If shares
are
to be issued in the name of a person other than undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by the Company
in accordance therewith. No fee will be charged to the Holder for any
conversion, except for such transfer taxes, if any.
Conversion
calculations:
|
Date
to Effect Conversion:
_____________________________________________
|
|
Number
of shares of Common Stock owned prior to Conversion:
_______________
|
|
Number
of shares of Series A Preferred Stock to be Converted:
_________________
|
|
Value
of shares of Series A Preferred Stock to be Converted:
____________________
|
|
Number
of shares of Common Stock to be Issued:
___________________________
|
|
Certificate
Number of Series A Preferred Stock attached
hereto:_________________
|
|
Number
of Shares of Series A Preferred Stock represented by attached
certificate:__________
|
|
|
|
|
|
Number
of shares of Series A Preferred Stock subsequent to Conversion:
________________
|
|
[HOLDER]
By:___________________________________
Name:
Title:
|
AMENDED
AND
RESTATED
ARTICLES OF INCORPORATION
OF
ACHIEVERS
MAGAZINE INC.
Pursuant
to NRS 78.403
Achievers
Magazine Inc., a corporation organized and existing under the Laws of the
State
of Nevada, (the “Corporation”), pursuant to NRS 78.403, does hereby adopt the
following as its Articles of Incorporation, replacing in their entirety,
the
Corporation’s present Articles of Incorporation.
1.
The
Corporation’s Articles of Incorporation of the Corporation are hereby amended
and restated in its entirety to read as follows:
FIRST:
The name of the Corporation is China Carbon Graphic Group, Inc. (the
“Corporation”).
SECOND:
The purpose of the Corporation is to engage in any lawful act or activity
for
which corporations may be organized under the general corporation law of
the
State of Nevada.
THIRD:
(a)
The
total
number of shares of capital stock which this Corporation is authorized to
issue
is one hundred ten million (120,000,000) shares, of which:
(i)
twenty
million (20,000,000) shares shall be designated as Preferred Stock, and shall
have a par value of $.001 per share; and
(ii)
one
hundred million (100,000,000) shares shall be designated as Common Stock,
and
shall have a par value of $.001 per share.
(b)
The
Board
of Directors is expressly authorized at any time, and from time to time,
to
provide for the issuance of shares of Preferred Stock in one or more series,
with such voting powers, full or limited, or without voting powers and with
such
designations, preferences and relative, participating, optional or other
special
rights, qualifications, limitations or restrictions thereof, as shall be
stated
and expressed in the resolution or resolutions providing for the issue thereof
adopted by the Board of Directors and as are not stated and expressed in
these
Articles of Incorporation, or any amendment thereto, including (but without
limiting the generality of the foregoing) the following:
(i)
the
designation of such series;
(ii)
the
dividend rate of such series, the conditions and dates upon which such dividends
shall be payable, the preference or relation which such dividends shall bear
to
the dividends payable on any other class or classes or of any other series
of
capital stock, whether such dividends shall be cumulative or noncumulative,
and
whether such dividends may be paid in shares of any class or series of capital
stock or other securities of the Corporation;
(iii)
whether
the shares of such series shall be subject to redemption by the Corporation,
and, if made subject to such redemption, the times, prices and other terms
and
conditions of such redemption;
(iv)
the
terms
and amount of any sinking fund provided for the purchase or redemption of
the
shares of such series;
(v)
whether
or not the shares of such series shall be convertible into or exchangeable
for
shares of any other class or classes or series of capital stock or other
securities of the Corporation, and, if provision be made for conversion or
exchange, the times, prices, rates, adjustment and other terms and conditions
of
such conversion or exchange;
(vi)
the
extent, if any, to which the holders of the shares of such series shall be
entitled to vote, as a class or otherwise, with respect to the election of
the
directors or otherwise, and the number of votes to which the holder of each
share of such series shall be entitled;
(vii)
the
restrictions, if any, on the issue or reissue of any additional shares or
series
of Preferred Stock; and
(viii)
the
rights of the holders of the shares of such series upon the dissolution of,
or
upon the distribution of assets of, the Corporation.
(c)
No
holder
of any stock of the Corporation of any class or series now or hereafter
authorized, shall, as such holder, be entitled as of right to purchase or
subscribe for any shares of stock of the Corporation of any class or any
series
now or hereafter authorized, or any securities convertible into or exchangeable
for any such shares, or any warrants, options, rights or other instruments
evidencing rights to subscribe for, or purchase, any such shares, whether
such
shares, securities, warrants, options, rights or other instruments be unissued
or issued and thereafter acquired by the Corporation.
FOURTH:
The terms and conditions of any rights, options and warrants approved by
the
Board of Directors may provide that any or all of such terms and conditions
may
not be waived or amended or may be waived or amended only with the consent
of
the holders of a designated percentage of a designated class or classes of
capital stock of the Corporation (or a designated group or groups of holders
within such class or classes, including but not limited to disinterested
holders), and the applicable terms and conditions of any such rights, options
or
warrants so conditioned may not be waived or amended or may not be waived
or
amended absent such consent.
FIFTH:
The liability of the directors of the corporation for monetary
damages
shall
be
eliminated to the fullest extent permissible under Nevada law.
SIXTH:
(a)
Right
to Indemnification
.
Each
person who was or is made a party or is threatened to be made a party to
or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter, a “proceeding”), by reason of the
fact that he or she, or a person of whom he or she is the legal representative,
is or was a director or officer of the Corporation or is or was serving at
the
request of the Corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis
of
such proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Chapter 78 of the Nevada
Revised Statutes, as the same exists or may hereafter be amended (but, in
the
case of any such amendment, only to the extent that such amendment permits
the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys’ fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, the Corporation shall
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors of the Corporation.
The right to indemnification conferred in this Article SIXTH shall be a contract
right and shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition;
provided, however, that, if Chapter 78 of the Nevada Revised Statutes requires,
the payment of such expenses incurred by a director or officer in his or
her
capacity as a director of officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery
to
the Corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that
such
director or officer is not entitled to be indemnified under this Article
SIXTH
or otherwise. The Corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of the Corporation with the same
scope
and effect as the foregoing indemnification of directors and
officers.
(b)
Non-Exclusivity
of Rights
.
The
right to indemnification and the payment of expenses incurred in defending
a
proceeding in advance of its final disposition conferred in this Article
SIXTH
shall not be exclusive of any other right which any person may have or hereafter
acquire under any statute, provision of the Articles of Incorporation, by-law,
agreement, vote of stockholders or disinterested directors or
otherwise.
(c)
Insurance
.
The
Corporation may maintain insurance, at its expense, to protect itself and
any
director, officer, employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any such expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the Chapter
78 of the Nevada Revised Statutes.
SEVENTH:
In furtherance and not in limitation of the powers conferred upon the Board
of
Directors by law, the Board of Directors shall have power to make, adopt,
alter,
amend or repeal from time to time By-laws of the Corporation, subject to
the
right of the stockholders entitled to vote with respect thereto to alter
and
repeal By-laws made by the Board of Directors and subject to the provisions
of
any By-law limiting the right of the Board of Directors to make certain
modifications to the By-laws.
2.
Set
forth
as Exhibit A to this Restated Certificate of Incorporation is the State of
Designations of the rights, preferences, privilege and limitations.
3.
This
Restated Certificate of Incorporation has been duly adopted in accordance
with
the provisions of NRS 78.390 and 78.403.
4.
The
capital of the Corporation will not be reduced under or by reason of any
amendment herein certified.
IN
WITNESS WHEREOF, the Corporation has caused these Amended and Restated Articles
of Incorporation to be signed by its chief executive officer this
th
day of
December, 2008.
Dengjong
Jin, Chief Executive Officer
Exhibit
E-1
NEITHER
THE
WARRANTS
REPRESENTED BY THIS CERTIFICATE
NOR
THE SHARES OF COMMON STOCK
HAVE
BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“
1933
ACT
”
),
OR ANY STATE
SECURITIES
LAWS AND NEITHER SUCH SHARES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT
WITH RESPECT THERETO IS EFFECTIVE UNDER THE 1933 ACT
,
OR (2) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE 1933
ACT
AND ANY APPLICABLE STATE SECURITIES LAWS
AND THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY AS TO SUCH EXEMPTION
.
IN
ADDITION, A SECURITIES PURCHASE AGREEMENT DATED AS OF DECEMBER 14, 2007, (THE
“PURCHASE AGREEMENT”), A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS
PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS BETWEEN
THE
PARTIES WITH RESPECT TO THIS WARRANT.
---------------------------------------
CHINA
CARBON GRAPHIC GROUP, INC.
COMMON
STOCK PURCHASE WARRANT “A”
Number
of
Shares:
[
]
Holder:
[
]
Original
Issue Date: December 17, 2007
Expiration
Date: December 17, 2012
Exercise
Price per Share: $1.20
China
Carbon Graphic Group, Inc., a Nevada corporation (the “
Company
”),
hereby certifies that, for value received,
[
],
or
registered assigns (the “
Warrant
Holder
”),
is
entitled, subject to the terms set forth below, to purchase from the Company
up
to
3,000,000
shares
(as
adjusted from time to time as provided in Section 7 of this Warrant, the
“
Warrant
Shares
”)
of
common stock, $.001 par value (the “
Common
Stock
”),
of
the Company at a price of one dollar and twenty cents ($1.20) per Warrant Share
(as adjusted from time to time as provided in Section 7, the “
Exercise
Price
”),
at
any time and from time to time from and after the date thereof and through
and
including 5:00 p.m. New York City time on
December
17, 2012 (the “Expiration Date”), and subject to the following terms and
conditions:
1.
Registration
of Warrant
.
The
Company shall register this Warrant upon records to be maintained by the Company
for that purpose (the “
Warrant
Register
”),
in
the name of the record Warrant Holder hereof from time to time. The Company
may
deem and treat the registered Warrant Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to
the
Warrant Holder, and for all other purposes, and the Company shall not be
affected by notice to the contrary.
2.
Investment
Representation
.
The
Warrant Holder by accepting this Warrant represents that the Warrant Holder
is
acquiring this Warrant for its own account or the account of an affiliate
that
is
an accredited investor which has been identified to and approved by (such
approval not to be unreasonably withheld or delayed)
for
investment purposes and not with the view to any offering or distribution and
that the Warrant Holder will not sell or otherwise dispose of this Warrant
or
the underlying Warrant Shares in violation of applicable securities laws. The
Warrant Holder acknowledges that the certificates representing any Warrant
Shares will bear a legend indicating that they have not been registered under
the
1933
Act
,
and may
not be sold by the Warrant Holder except pursuant to an effective registration
statement or pursuant to an exemption from registration requirements of the
1933
Act and in accordance with federal and state securities laws. If this Warrant
was acquired by the Warrant Holder pursuant to the exemption from the
registration requirements of the 1933 Act afforded by Regulation S thereunder,
the Warrant Holder acknowledges and covenants that this Warrant may not be
exercised by or on behalf of a Person during the one year distribution
compliance period (as defined in Regulation S) following the date hereof.
“
Person
”
means an
individual, partnership, firm, limited liability company, trust, joint venture,
association, corporation, or any other legal entity.
3.
Validity
of Warrant and Issue of Shares
.
The
Company represents and warrants that this Warrant has been duly authorized
and
validly issued and warrants and agrees that all of Common Stock that may be
issued upon the exercise of the rights represented by this Warrant will, when
issued upon such exercise, be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof
other
than those incurred by the Holder
.
The
Company further warrants and agrees that during the
Exercise
Period
,
the
Company will at all times have authorized and reserved a sufficient number
of
Common Stock to provide for the exercise of the rights represented by this
Warrant.
4.
Registration
of Transfers and Exchange of Warrants
.
a.
Subject
to compliance with the
federal
and state securities laws
,
the
Company shall register the transfer of any portion of this Warrant in the
Warrant Register, upon surrender of this Warrant with the Form of Assignment
attached hereto duly completed and signed, to the Company at the office
specified in or pursuant to Section 12. Upon any such registration or transfer,
a new warrant to purchase Common Stock, in substantially the form of this
Warrant (any such new warrant, a “
New
Warrant
”),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Warrant Holder.
The acceptance of the New Warrant by the transferee thereof shall be deemed
the
acceptance of such transferee of all of the rights and obligations of a Warrant
Holder of a Warrant.
b.
This
Warrant is exchangeable, upon the surrender hereof by the Warrant Holder to
the
office of the Company specified in or pursuant to Section 9 for one or more
New
Warrants, evidencing in the aggregate the right to purchase the number of
Warrant Shares which may then be purchased hereunder. Any such New Warrant
will
be dated the date of such exchange.
5.
Exercise
of Warrants
.
a.
Upon
surrender of this Warrant with the Form of Election to Purchase attached hereto
duly completed and signed to the Company, at its address set forth in Section
13, and upon payment and delivery of the Exercise Price per Warrant Share
multiplied by the number of Warrant Shares that the Warrant Holder intends
to
purchase hereunder, in lawful money of the United States of America,
by
wire
transfer
or by
certified or official bank check or checks, to the Company, all as specified
by
the Warrant Holder in the Form of Election to Purchase, the Company shall
promptly (but in no event later than 7 business days after the Date of Exercise
(as defined herein)) issue or cause to be issued and cause to be delivered
to or
upon the written order of the Warrant Holder and in such name or names as the
Warrant Holder may designate (subject to the restrictions on transfer described
in the legend set forth on the face of this Warrant), a certificate for the
Warrant Shares issuable upon such exercise, with such restrictive legend as
required by the 1933 Act. Any person so designated by the Warrant Holder to
receive Warrant Shares shall be deemed to have become holder of record of such
Warrant Shares as of the Date of Exercise of this Warrant.
b.
A
“Date
of Exercise” means the date on which the Company shall have received (i) this
Warrant (or any New Warrant, as applicable), with the Form of Election to
Purchase attached hereto (or attached to such New Warrant) appropriately
completed and duly signed, and (ii) payment of the Exercise Price for the number
of Warrant Shares so indicated by the Warrant Holder to be
purchased.
c.
This
Warrant shall be exercisable at any time and from time to time
during
the Exercise Period
for such
number of Warrant Shares as is indicated in the attached Form of Election To
Purchase. If less than all of the Warrant Shares which may be purchased under
this Warrant are exercised at any time, the Company shall issue or cause to
be
issued, at its expense, a New Warrant evidencing the right to purchase the
remaining number of Warrant Shares for which no exercise has been evidenced
by
this Warrant.
d.
(i)
Notwithstanding
anything contained herein to the contrary
,
but
subject to
Section
5(e) and
Section
6, the holder of this Warrant may, at its election exercised in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making
the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the “
Net
Number
”
of
shares of Common Stock determined according to the following formula (a
“
Cashless
Exercise
”):
Net
Number = (A x (B - C))/B
(ii)
For
purposes of the foregoing formula:
A=
the
total number shares with respect to which this Warrant is then being
exercised.
B=
the
last reported sale price (as reported by Bloomberg) of the Common Stock on
the
trading day immediately preceding the date of the Exercise Notice.
C=
the
Warrant Exercise Price then in effect at the time of such exercise.
e.
The
holder of this Warrant
may
not
make
a
Cashless Exercise
(i)
during the twelve (12) months following the Original Issue Date and (ii)
thereafter if the sale by the Holder of the Warrant Shares is covered
by
an
effective registration statement
.
6.
Maximum
Exercise
.
The
Warrant Holder shall not be entitled to exercise this
Warrant
on a Date of Exercise in connection with that number of shares of Common Stock
which would be in excess of the sum of (i) the number of shares of Common Stock
beneficially owned by the Warrant Holder and its affiliates on
the
Date
of Exercise
,
and
(ii) the number of shares of Common Stock issuable upon the exercise of this
Warrant with respect to which the determination of this limitation is being
made
on an
Date
of
Exercise
,
which
would result in beneficial ownership by the Warrant Holder and its affiliates
of
more than 4.9% of the outstanding shares of Common Stock on such date. This
Section 6 may not be waived or amended. As used in this Warrant, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), and Regulation 13d-3
thereunder.
7.
Adjustment
of Exercise Price and Number of Shares
.
The
Exercise Price and the number of shares of Common Stock set forth in the Warrant
reflect a 3.2-for-one whereby each share of common stock became converted into
3.2 shares of Common Stock which was approved by the Company’s board of
directors on or about the Original Issuance Date (the “3.2-for-one
Distribution”). The character of the shares of stock or other securities at the
time issuable upon exercise of this Warrant and the Exercise Price therefore,
are subject to adjustment upon the occurrence any of the following events which
shall have occurred or which shall occur at any time on or after the Closing
Date, as defined in the Purchase Agreement and regardless of whether any
Warrants were issued on the Closing Date but shall not include the 3.2-for-one
Distribution, and all such adjustments shall be cumulative:
a.
Adjustment
for Stock Splits, Stock Dividends, Recapitalizations, Etc.
The
Exercise Price of this Warrant and the number of shares of Common Stock or
other
securities at the time issuable upon exercise of this Warrant shall be
appropriately adjusted to reflect any stock dividend, stock split,
stock
distribution,
combination
of shares
,
reverse
split
,
reclassification, recapitalization or other similar event affecting the number
of outstanding shares of stock or securities.
b.
Adjustment
for Reorganization, Consolidation, Merger, Etc.
In case
of any consolidation or merger of the Company with or into any other
corporation, entity or person, or any other corporate reorganization, in which
the Company shall not be the continuing or surviving entity of such
consolidation, merger or reorganization (any such transaction being hereinafter
referred to as a
“
Reorganization
”
),
then, in
each case, the holder of this Warrant, on exercise hereof at any time after
the
consummation or effective date of such Reorganization (the
“
Effective
Date
”
),
shall
receive,
in lieu of the shares of stock or other securities at any time issuable upon
the
exercise of the Warrant issuable on such exercise prior to the Effective Date,
the stock and other securities and property (including cash) to which such
holder would have been entitled upon the Effective Date if such holder had
exercised this Warrant immediately prior thereto (all subject to further
adjustment as provided in this Warrant).
c.
Certificate
as to Adjustments.
In case
of any adjustment or readjustment in the price or kind of securities issuable
on
the exercise of this Warrant, the Company will promptly give written notice
thereof to the holder of this Warrant in the form of a certificate, certified
and confirmed by the Board of Directors of the Company, setting forth such
adjustment or readjustment and showing in reasonable detail the facts upon
which
such adjustment or readjustment is based.
8.
Fractional
Shares
.
The
Company shall not be required to issue or cause to be issued fractional Warrant
Shares on the exercise of this Warrant. The number of full Warrant Shares that
shall be issuable upon the exercise of this Warrant shall be computed on the
basis of the aggregate number of Warrants Shares purchasable on exercise of
this
Warrant so presented. If any fraction of a Warrant Share would, except for
the
provisions of this Section 8, be issuable on the exercise of this Warrant,
the
Company shall, at its option, (i) pay an amount in cash equal to the Exercise
Price multiplied by such fraction or (ii) round the number of Warrant Shares
issuable, up to the next whole number.
9.
Sale
or Merger of the Company
.
Upon
a
Merger
Transaction
,
the
restriction contained in Section 6 shall immediately be released and the Warrant
Holder will have the right to exercise this Warrant concurrently with such
Merger
Transaction
.
For
purposes of this Warrant, the term “
Merger
Transaction
”
shall
mean a consolidation or merger of the Company
into
another company or entity in which the Company is not the surviving entity
or
the sale of all or substantially all of the assets of the Company to another
company or entity not controlled by the then existing stockholders of the
Company
.
10.
Notice
of Intent to Sell or Merge the Company
.
The
Company will give Warrant Holder ten (10) business days notice before
any
Merger Transaction
.
11.
Issuance
of Substitute Warrant
.
In the
event of a merger, consolidation, recapitalization or reorganization of the
Company or a reclassification of Company shares of stock, which results in
an
adjustment to the number of shares subject to this Warrant and/or the Exercise
Price hereunder, the Company agrees to issue to the Warrant Holder a substitute
Warrant reflecting the adjusted number of shares and/or Exercise Price upon
the
surrender of this Warrant to the Company.
However,
in the event that the Company does not issue a substitute warrant, the number
and class of Warrant Shares or other securities and the Exercise Price shall
be
adjusted as provided in this Warrant, and this Warrant shall relate the adjusted
number of Warrant Shares and Exercise Price.
12.
Notice
.
All
notices and other communications hereunder shall be in writing and shall be
deemed to have been given (i) on the date they are delivered if delivered in
person; (ii) on the date initially received if delivered by facsimile
transmission followed by registered or certified mail confirmation; (iii) on
the
date delivered by an overnight courier service; or (iv) on the
date
of
delivery
after it
is mailed by registered or certified mail, return receipt requested with postage
and other fees prepaid as follows:
If
to
the Company
:
China
Carbon Graphic Group, Inc.
c/o
Xinghe
Xingyong Carbon Co., Ltd.
787
Xicheng Wai
Chengguantown
Xinghe
County
Inner
Mongolia, China
Attention:
Dengyong
Jin, CEO
Fax:
86-0474-7209799
With
a
copy to
:
Sichenzia
Ross Friedman Ference LLP
61
Broadway, 32 Floor
New
York,
New York 10006
Attention:
Asher S. Levitsky PC
E-mail:
alevitsky@srff.com
Fax:
(212) 930-9725
If
to
the Warrant Holder
:
at
the
address or telecopier number and to the attention of the person shown on the
Company’s warrant register.:
a.
This
Warrant shall be binding on and inure to the benefit of the parties hereto
and
their respective successors and permitted assigns. This Warrant may be amended
only by a writing signed by the Company and the Warrant Holder.
b.
Nothing
in this Warrant shall be construed to give to any person or corporation other
than the Company and the Warrant Holder any legal or equitable right, remedy
or
cause of action under this Warrant; this Warrant shall be for the sole and
exclusive benefit of the Company and the Warrant Holder.
c.
This
Warrant shall be governed by, 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.
d.
The
headings herein are for convenience only, do not constitute a part of this
Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
e.
In
case
any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Warrant shall not in any way be affected or
impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonably
substitute therefore, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
f.
The
Warrant Holder shall not, by virtue hereof, be entitled to any voting or other
rights of a stockholder of the Company, either at law or equity, and the rights
of the Warrant Holder are limited to those expressed in this
Warrant.
IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
the
authorized officer as of the date first above stated.
|
|
China
Carbon Graphic Group, Inc.
|
|
|
|
|
|
|
By:
/s/
|
|
|
Name:
|
|
|
|
Title:
|
Chief
Executive Officer
|
FORM
OF ELECTION TO PURCHASE
(To
be
executed by the Warrant Holder to exercise the right to purchase shares of
Common Stock under the foregoing Warrant)
To:
China
Carbon Graphic Group, Inc.:
In
accordance with the Warrant enclosed with this Form of Election to Purchase,
the
undersigned hereby irrevocably elects to purchase ______________ shares of
Common Stock (“Common Stock”), $.001 par value, of Capital Solutions I, Inc. and
encloses the warrant and $____ for each Warrant Share being purchased or an
aggregate of $________________ in cash or certified or official bank check
or
checks, which sum represents the aggregate Exercise Price (as defined in the
Warrant) together with any applicable taxes payable by the undersigned pursuant
to the Warrant.
The
undersigned requests that certificates for the shares of Common Stock issuable
upon this exercise be issued in the name of:
______________________________________________
______________________________________________
______________________________________________
(Please
print name and address)
______________________________________________
(Please
insert Social Security or Tax Identification Number)
If
the
number of shares of Common Stock issuable upon this exercise shall not be all
of
the shares of Common Stock which the undersigned is entitled to purchase in
accordance with the enclosed Warrant, the undersigned requests that a New
Warrant (as defined in the Warrant) evidencing the right to purchase the shares
of Common Stock not issuable pursuant to the exercise evidenced hereby be issued
in the name of and delivered to:
______________________________________________
______________________________________________
______________________________________________
(Please
print name and address)
Dated:
__________
Name
of
Warrant Holder:
(Print)
______________________________________________
(By:)
______________________________________________
(Name:)
______________________________________________
(Title:)
______________________________________________
Signature
must conform in all respects to name of
Warrant
Holder as specified on the face of the
Warrant
Exhibit
E-2
NEITHER
THE
WARRANTS
REPRESENTED BY THIS CERTIFICATE
NOR
THE SHARES OF COMMON STOCK
HAVE
BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“
1933
ACT
”
),
OR ANY STATE
SECURITIES
LAWS AND NEITHER SUCH SHARES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT
WITH RESPECT THERETO IS EFFECTIVE UNDER THE 1933 ACT
,
OR (2) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE 1933
ACT
AND ANY APPLICABLE STATE SECURITIES LAWS
AND THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY AS TO SUCH EXEMPTION
.
IN
ADDITION, A SECURITIES PURCHASE AGREEMENT DATED AS OF DECEMBER 14, 2007, (THE
“PURCHASE AGREEMENT”), A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS
PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS BETWEEN
THE
PARTIES WITH RESPECT TO THIS WARRANT.
CHINA
CARBON GRAPHIC GROUP, INC.
COMMON
STOCK PURCHASE WARRANT “A”
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Number
of Shares:
[
]
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Holder:
[
]
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Original
Issue Date: December 17, 2007
Expiration
Date: December 17, 2012
Exercise
Price per Share: $2.00
China
Carbon Graphic Group, Inc., a Nevada corporation (the “
Company
”),
hereby certifies that, for value received,
[
],
or
registered assigns (the “
Warrant
Holder
”),
is
entitled, subject to the terms set forth below, to purchase from the Company
up
to
3,000,000
shares
(as
adjusted from time to time as provided in Section 7 of this Warrant, the
“
Warrant
Shares
”)
of
common stock, $.001 par value (the “
Common
Stock
”),
of
the Company at a price of two dollars ($2.00) per Warrant Share (as adjusted
from time to time as provided in Section 7, the “
Exercise
Price
”),
at
any time and from time to time from and after the date thereof and through
and
including 5:00 p.m. New York City time on
December
17, 2012 (the “Expiration Date”), and subject to the following terms and
conditions:
1.
Registration
of Warrant
.
The
Company shall register this Warrant upon records to be maintained by the Company
for that purpose (the “
Warrant
Register
”),
in
the name of the record Warrant Holder hereof from time to time. The Company
may
deem and treat the registered Warrant Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to
the
Warrant Holder, and for all other purposes, and the Company shall not be
affected by notice to the contrary.
2.
Investment
Representation
.
The
Warrant Holder by accepting this Warrant represents that the Warrant Holder
is
acquiring this Warrant for its own account or the account of an affiliate
that
is
an accredited investor which has been identified to and approved by (such
approval not to be unreasonably withheld or delayed)
for
investment purposes and not with the view to any offering or distribution and
that the Warrant Holder will not sell or otherwise dispose of this Warrant
or
the underlying Warrant Shares in violation of applicable securities laws. The
Warrant Holder acknowledges that the certificates representing any Warrant
Shares will bear a legend indicating that they have not been registered under
the
1933
Act
,
and may
not be sold by the Warrant Holder except pursuant to an effective registration
statement or pursuant to an exemption from registration requirements of the
1933
Act and in accordance with federal and state securities laws. If this Warrant
was acquired by the Warrant Holder pursuant to the exemption from the
registration requirements of the 1933 Act afforded by Regulation S thereunder,
the Warrant Holder acknowledges and covenants that this Warrant may not be
exercised by or on behalf of a Person during the one year distribution
compliance period (as defined in Regulation S) following the date hereof.
“
Person
”
means an
individual, partnership, firm, limited liability company, trust, joint venture,
association, corporation, or any other legal entity.
3.
Validity
of Warrant and Issue of Shares
.
The
Company represents and warrants that this Warrant has been duly authorized
and
validly issued and warrants and agrees that all of Common Stock that may be
issued upon the exercise of the rights represented by this Warrant will, when
issued upon such exercise, be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof
other
than those incurred by the Holder
.
The
Company further warrants and agrees that during the
Exercise
Period
,
the
Company will at all times have authorized and reserved a sufficient number
of
Common Stock to provide for the exercise of the rights represented by this
Warrant.
4.
Registration
of Transfers and Exchange of Warrants
.
a.
Subject
to compliance with the
federal
and state securities laws
,
the
Company shall register the transfer of any portion of this Warrant in the
Warrant Register, upon surrender of this Warrant with the Form of Assignment
attached hereto duly completed and signed, to the Company at the office
specified in or pursuant to Section 12. Upon any such registration or transfer,
a new warrant to purchase Common Stock, in substantially the form of this
Warrant (any such new warrant, a “
New
Warrant
”),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Warrant Holder.
The acceptance of the New Warrant by the transferee thereof shall be deemed
the
acceptance of such transferee of all of the rights and obligations of a Warrant
Holder of a Warrant.
b.
This
Warrant is exchangeable, upon the surrender hereof by the Warrant Holder to
the
office of the Company specified in or pursuant to Section 9 for one or more
New
Warrants, evidencing in the aggregate the right to purchase the number of
Warrant Shares which may then be purchased hereunder. Any such New Warrant
will
be dated the date of such exchange.
5.
Exercise
of Warrants
.
a.
Upon
surrender of this Warrant with the Form of Election to Purchase attached hereto
duly completed and signed to the Company, at its address set forth in Section
13, and upon payment and delivery of the Exercise Price per Warrant Share
multiplied by the number of Warrant Shares that the Warrant Holder intends
to
purchase hereunder, in lawful money of the United States of America,
by
wire
transfer
or by
certified or official bank check or checks, to the Company, all as specified
by
the Warrant Holder in the Form of Election to Purchase, the Company shall
promptly (but in no event later than 7 business days after the Date of Exercise
(as defined herein)) issue or cause to be issued and cause to be delivered
to or
upon the written order of the Warrant Holder and in such name or names as the
Warrant Holder may designate (subject to the restrictions on transfer described
in the legend set forth on the face of this Warrant), a certificate for the
Warrant Shares issuable upon such exercise, with such restrictive legend as
required by the 1933 Act. Any person so designated by the Warrant Holder to
receive Warrant Shares shall be deemed to have become holder of record of such
Warrant Shares as of the Date of Exercise of this Warrant.
b.
A
“Date
of Exercise” means the date on which the Company shall have received (i) this
Warrant (or any New Warrant, as applicable), with the Form of Election to
Purchase attached hereto (or attached to such New Warrant) appropriately
completed and duly signed, and (ii) payment of the Exercise Price for the number
of Warrant Shares so indicated by the Warrant Holder to be
purchased.
c.
This
Warrant shall be exercisable at any time and from time to time
during
the Exercise Period
for such
number of Warrant Shares as is indicated in the attached Form of Election To
Purchase. If less than all of the Warrant Shares which may be purchased under
this Warrant are exercised at any time, the Company shall issue or cause to
be
issued, at its expense, a New Warrant evidencing the right to purchase the
remaining number of Warrant Shares for which no exercise has been evidenced
by
this Warrant.
d.
(i)
Notwithstanding
anything contained herein to the contrary
,
but
subject to
Section
5(e) and
Section
6, the holder of this Warrant may, at its election exercised in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making
the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the “
Net
Number
”
of
shares of Common Stock determined according to the following formula (a
“
Cashless
Exercise
”):
Net
Number = (A x (B - C))/B
(ii)
For
purposes of the foregoing formula:
A=
the
total number shares with respect to which this Warrant is then being
exercised.
B=
the
last reported sale price (as reported by Bloomberg) of the Common Stock on
the
trading day immediately preceding the date of the Exercise Notice.
C=
the
Warrant Exercise Price then in effect at the time of such exercise.
e.
The
holder of this Warrant
may
not
make
a
Cashless Exercise
(i)
during the twelve (12) months following the Original Issue Date and (ii)
thereafter if the sale by the Holder of the Warrant Shares is covered
by
an
effective registration statement
.
6.
Maximum
Exercise
.
The
Warrant Holder shall not be entitled to exercise this
Warrant
on a Date of Exercise in connection with that number of shares of Common Stock
which would be in excess of the sum of (i) the number of shares of Common Stock
beneficially owned by the Warrant Holder and its affiliates on
the
Date
of Exercise
,
and
(ii) the number of shares of Common Stock issuable upon the exercise of this
Warrant with respect to which the determination of this limitation is being
made
on an
Date
of
Exercise
,
which
would result in beneficial ownership by the Warrant Holder and its affiliates
of
more than 4.9% of the outstanding shares of Common Stock on such date. This
Section 6 may not be waived or amended. As used in this Warrant, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), and Regulation 13d-3
thereunder.
7.
Adjustment
of Exercise Price and Number of Shares
.
The
Exercise Price and the number of shares of Common Stock set forth in the Warrant
reflect a 3.2-for-one whereby each share of common stock became converted into
3.2 shares of Common Stock which was approved by the Company’s board of
directors on or about the Original Issuance Date (the “3.2-for-one
Distribution”). The character of the shares of stock or other securities at the
time issuable upon exercise of this Warrant and the Exercise Price therefore,
are subject to adjustment upon the occurrence any of the following events which
shall have occurred or which shall occur at any time on or after the Closing
Date, as defined in the Purchase Agreement and regardless of whether any
Warrants were issued on the Closing Date but shall not include the 3.2-for-one
Distribution, and all such adjustments shall be cumulative:
a.
Adjustment
for Stock Splits, Stock Dividends, Recapitalizations, Etc.
The
Exercise Price of this Warrant and the number of shares of Common Stock or
other
securities at the time issuable upon exercise of this Warrant shall be
appropriately adjusted to reflect any stock dividend, stock split,
stock
distribution,
combination
of shares
,
reverse
split
,
reclassification, recapitalization or other similar event affecting the number
of outstanding shares of stock or securities.
b.
Adjustment
for Reorganization, Consolidation, Merger, Etc.
In case
of any consolidation or merger of the Company with or into any other
corporation, entity or person, or any other corporate reorganization, in which
the Company shall not be the continuing or surviving entity of such
consolidation, merger or reorganization (any such transaction being hereinafter
referred to as a
“
Reorganization
”
),
then, in
each case, the holder of this Warrant, on exercise hereof at any time after
the
consummation or effective date of such Reorganization (the
“
Effective
Date
”
),
shall
receive,
in lieu of the shares of stock or other securities at any time issuable upon
the
exercise of the Warrant issuable on such exercise prior to the Effective Date,
the stock and other securities and property (including cash) to which such
holder would have been entitled upon the Effective Date if such holder had
exercised this Warrant immediately prior thereto (all subject to further
adjustment as provided in this Warrant).
c.
Certificate
as to Adjustments.
In case
of any adjustment or readjustment in the price or kind of securities issuable
on
the exercise of this Warrant, the Company will promptly give written notice
thereof to the holder of this Warrant in the form of a certificate, certified
and confirmed by the Board of Directors of the Company, setting forth such
adjustment or readjustment and showing in reasonable detail the facts upon
which
such adjustment or readjustment is based.
8.
Fractional
Shares
.
The
Company shall not be required to issue or cause to be issued fractional Warrant
Shares on the exercise of this Warrant. The number of full Warrant Shares that
shall be issuable upon the exercise of this Warrant shall be computed on the
basis of the aggregate number of Warrants Shares purchasable on exercise of
this
Warrant so presented. If any fraction of a Warrant Share would, except for
the
provisions of this Section 8, be issuable on the exercise of this Warrant,
the
Company shall, at its option, (i) pay an amount in cash equal to the Exercise
Price multiplied by such fraction or (ii) round the number of Warrant Shares
issuable, up to the next whole number.
9.
Sale
or Merger of the Company
.
Upon
a
Merger
Transaction
,
the
restriction contained in Section 6 shall immediately be released and the Warrant
Holder will have the right to exercise this Warrant concurrently with such
Merger
Transaction
.
For
purposes of this Warrant, the term “
Merger
Transaction
”
shall
mean a consolidation or merger of the Company
into
another company or entity in which the Company is not the surviving entity
or
the sale of all or substantially all of the assets of the Company to another
company or entity not controlled by the then existing stockholders of the
Company
.
10.
Notice
of Intent to Sell or Merge the Company
.
The
Company will give Warrant Holder ten (10) business days notice before
any
Merger Transaction
.
11.
Issuance
of Substitute Warrant
.
In the
event of a merger, consolidation, recapitalization or reorganization of the
Company or a reclassification of Company shares of stock, which results in
an
adjustment to the number of shares subject to this Warrant and/or the Exercise
Price hereunder, the Company agrees to issue to the Warrant Holder a substitute
Warrant reflecting the adjusted number of shares and/or Exercise Price upon
the
surrender of this Warrant to the Company.
However,
in the event that the Company does not issue a substitute warrant, the number
and class of Warrant Shares or other securities and the Exercise Price shall
be
adjusted as provided in this Warrant, and this Warrant shall relate the adjusted
number of Warrant Shares and Exercise Price.
12.
Notice
.
All
notices and other communications hereunder shall be in writing and shall be
deemed to have been given (i) on the date they are delivered if delivered in
person; (ii) on the date initially received if delivered by facsimile
transmission followed by registered or certified mail confirmation; (iii) on
the
date delivered by an overnight courier service; or (iv) on the
date
of
delivery
after it
is mailed by registered or certified mail, return receipt requested with postage
and other fees prepaid as follows:
If
to
the Company
:
China
Carbon Graphic Group, Inc.
c/o
Xinghe
Xingyong Carbon Co., Ltd.
787
Xicheng Wai
Chengguantown
Xinghe
County
Inner
Mongolia, China
Attention:
Dengyong
Jin, CEO
Fax:
86-0474-7209799
With
a
copy to
:
Sichenzia
Ross Friedman Ference LLP
61
Broadway, 32 Floor
New
York,
New York 10006
Attention:
Asher S. Levitsky PC
E-mail:
alevitsky@srff.com
Fax:
(212) 930-9725
If
to
the Warrant Holder
:
at
the
address or telecopier number and to the attention of the person shown on the
Company’s warrant register.:
a.
This
Warrant shall be binding on and inure to the benefit of the parties hereto
and
their respective successors and permitted assigns. This Warrant may be amended
only by a writing signed by the Company and the Warrant Holder.
b.
Nothing
in this Warrant shall be construed to give to any person or corporation other
than the Company and the Warrant Holder any legal or equitable right, remedy
or
cause of action under this Warrant; this Warrant shall be for the sole and
exclusive benefit of the Company and the Warrant Holder.
c.
This
Warrant shall be governed by, 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.
d.
The
headings herein are for convenience only, do not constitute a part of this
Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
e.
In
case
any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Warrant shall not in any way be affected or
impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonably
substitute therefore, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
f.
The
Warrant Holder shall not, by virtue hereof, be entitled to any voting or other
rights of a stockholder of the Company, either at law or equity, and the rights
of the Warrant Holder are limited to those expressed in this
Warrant.
IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
the
authorized officer as of the date first above stated.
|
Date:
,
2007
|
China
Carbon Graphic Group, Inc.
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/s/
Dengyong Jin
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Dengyong
Jin, CEO
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FORM
OF ELECTION TO PURCHASE
(To
be
executed by the Warrant Holder to exercise the right to purchase shares of
Common Stock under the foregoing Warrant)
To:
China
Carbon Graphic Group, Inc.:
In
accordance with the Warrant enclosed with this Form of Election to Purchase,
the
undersigned hereby irrevocably elects to purchase ______________ shares of
Common Stock (“Common Stock”), $.001 par value, of Capital Solutions I, Inc. and
encloses the warrant and $____ for each Warrant Share being purchased or an
aggregate of $________________ in cash or certified or official bank check
or
checks, which sum represents the aggregate Exercise Price (as defined in the
Warrant) together with any applicable taxes payable by the undersigned pursuant
to the Warrant.
The
undersigned requests that certificates for the shares of Common Stock issuable
upon this exercise be issued in the name of:
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(Please
print name and address)
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(Please
insert Social Security or Tax Identification Number)
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If
the
number of shares of Common Stock issuable upon this exercise shall not be all
of
the shares of Common Stock which the undersigned is entitled to purchase in
accordance with the enclosed Warrant, the undersigned requests that a New
Warrant (as defined in the Warrant) evidencing the right to purchase the shares
of Common Stock not issuable pursuant to the exercise evidenced hereby be issued
in the name of and delivered to:
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(Please
print name and address)
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(Print)
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(By:)
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(Name:)
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(Title:)
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Signature
must conform in all respects to name of
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Warrant
Holder as specified on the face of the
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Warrant
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