UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington,
D.C. 20549
FORM 10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|
For the
quarterly period ended June 30, 2010
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|
For the
transition period from __________ to __________
Commission
File Number: 000-19644
China
Broadband, Inc.
(Exact
name of registrant as specified in its charter)
Nevada
|
|
20-1778374
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer Identification No.)
|
incorporation
or organization)
|
|
|
1900
Ninth Street, 3rd Floor
Boulder,
Colorado 80302
(Address
of principal executive offices)
(303)
449-7733
(Registrant's
telephone number, including area code)
(Former
name, former address and former fiscal year if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes
x
No
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes
o
No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “larger accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
¨
|
Accelerated
filer
¨
|
Non-accelerated
filer
¨
|
Smaller
reporting company
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
¨
No
x
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 190,769,563 shares as of August 18,
2010.
QUARTERLY
REPORT ON FORM 10-Q
OF
CHINA BROADBAND, INC.
FOR
THE PERIOD ENDED JUNE 30, 2010
TABLE
OF CONTENTS
PART I
|
-
|
FINANCIAL
INFORMATION
|
3
|
|
|
|
|
Item
1.
|
|
Financial
Statements
|
3
|
Item
2.
|
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
18
|
Item
3
|
|
Quantitative
and Qualitative Disclosures About Market Risk
|
26
|
Item
4.
|
|
Controls
and Procedures
|
26
|
|
|
|
|
PART II
|
-
|
OTHER
INFORMATION
|
27
|
|
|
|
|
Item
1.
|
|
Legal
Proceedings
|
|
Item
1A.
|
|
Risk
Factors
|
|
Item
2.
|
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
Item
3.
|
|
Defaults
Upon Senior Securities
|
|
Item
4.
|
|
Removed
and Reserved
|
|
Item
5.
|
|
Other
Information
|
|
Item
6.
|
|
Exhibits
|
|
Signatures
|
28
|
References
Except
as otherwise indicated by the context, references in this report to (i) the
“Company,” “we,” “us,” and “our” are to the combined business of China
Broadband, Inc., a Nevada corporation, and its consolidated subsidiaries; (ii)
“Broadband Cayman” are to our wholly-owned subsidiary China Broadband, Ltd., a
Cayman Islands company; (iii) “WFOE” are to our wholly-owned subsidiary Beijing
China Broadband Network Technology Co., Ltd., a PRC company; (iv) “Jinan
Broadband” are to our 51% owned subsidiary Jinan Guangdian Jia He Broadband Co.
Ltd, a PRC company; (v) “Shandong Media” are to our 50% joint venture Shandong
Lushi Media Co., Ltd., a PRC company; (vi) “AdNet” are to our wholly-owned
subsidiary Wanshi Wangjing Media Technologies (Beijing) Co., Ltd. (a/k/a AdNet
Media Technologies (Beijing) Co., Ltd.), a PRC company; (vii) “SEC” are to the
United States Securities and Exchange Commission; (viii) “Securities Act” are to
Securities Act of 1933, as amended; (ix) “Exchange Act” are to the Securities
Exchange Act of 1934, as amended; (x) “PRC” and “China” are to People’s Republic
of China; (xii) “Renminbi” and “RMB” are to the legal currency of China; and
(xiii) “U.S. dollar,” “$” and “US$” are to United States
dollars.
PART
I — FINANCIAL INFORMATION
Item
1. Financial Statements.
China
Broadband, Inc. and Subsidiaries
CONSOLIDATED
BALANCE SHEETS
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,606,943
|
|
|
$
|
2,190,494
|
|
Marketable
equity securities, available for sale
|
|
|
47,875
|
|
|
|
47,244
|
|
Accounts
receivable, net
|
|
|
175,416
|
|
|
|
213,713
|
|
Inventory
|
|
|
441,722
|
|
|
|
455,492
|
|
Prepaid
expense
|
|
|
518,602
|
|
|
|
237,704
|
|
Loan
receivable from related party
|
|
|
291,191
|
|
|
|
289,974
|
|
Amounts
due from shareholders
|
|
|
695,758
|
|
|
|
168,907
|
|
Other
current assets
|
|
|
67,733
|
|
|
|
78,478
|
|
Total
current assets
|
|
|
3,845,240
|
|
|
|
3,682,006
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
5,486,242
|
|
|
|
7,362,641
|
|
Intangible
assets, net
|
|
|
3,158,624
|
|
|
|
4,294,614
|
|
Other
assets
|
|
|
384,008
|
|
|
|
430,561
|
|
Total
assets
|
|
$
|
12,874,114
|
|
|
$
|
15,769,822
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,826,861
|
|
|
$
|
1,350,076
|
|
Accrued
expenses
|
|
|
1,893,027
|
|
|
|
1,839,272
|
|
Deferred
revenue
|
|
|
1,512,882
|
|
|
|
1,637,283
|
|
Deferred
tax liability
|
|
|
281,626
|
|
|
|
281,626
|
|
Convertible
notes payable
|
|
|
454,916
|
|
|
|
304,853
|
|
Warrant
liabilities
|
|
|
755,404
|
|
|
|
819,150
|
|
Loan
payable
|
|
|
398,960
|
|
|
|
398,960
|
|
Loan
payable to beneficial owner
|
|
|
20,000
|
|
|
|
-
|
|
Payable
to Shandong Media
|
|
|
-
|
|
|
|
145,679
|
|
Payable
to Jinan Parent
|
|
|
133,814
|
|
|
|
152,268
|
|
Other
current liabilities
|
|
|
480,599
|
|
|
|
378,847
|
|
Total
current liabilities
|
|
|
7,758,089
|
|
|
|
7,308,014
|
|
|
|
|
|
|
|
|
|
|
Convertible
notes payable
|
|
|
4,715,331
|
|
|
|
4,665,306
|
|
Deferred
tax liability and uncertain tax position liability
|
|
|
194,467
|
|
|
|
454,578
|
|
Total
liabilities
|
|
|
12,667,887
|
|
|
|
12,427,898
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par value; 5,000,000 shares authorized, no shares issued and
outstanding
|
|
|
-
|
|
|
|
-
|
|
Common
stock, $.001 par value; 95,000,000 shares authorized, 65,414,515 and
64,761,396 issued and outstanding
|
|
|
65,415
|
|
|
|
64,762
|
|
Additional
paid-in capital
|
|
|
15,150,032
|
|
|
|
14,901,493
|
|
Accumulated
deficit
|
|
|
(19,438,701
|
)
|
|
|
(17,215,041
|
)
|
Accumulated
other comprehensive income
|
|
|
750,263
|
|
|
|
331,283
|
|
Total
China Broadband shareholders' deficit
|
|
|
(3,472,991
|
)
|
|
|
(1,917,503
|
)
|
Noncontrolling
interests
|
|
|
3,679,218
|
|
|
|
5,259,427
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders' equity
|
|
|
206,227
|
|
|
|
3,341,924
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
$
|
12,874,114
|
|
|
$
|
15,769,822
|
|
See
notes to consolidated financial statements.
China
Broadband, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,817,306
|
|
|
$
|
1,989,517
|
|
|
$
|
3,692,987
|
|
|
$
|
3,938,927
|
|
Cost
of revenue
|
|
|
1,035,276
|
|
|
|
1,102,915
|
|
|
|
2,109,084
|
|
|
|
2,276,796
|
|
Gross
profit
|
|
|
782,030
|
|
|
|
886,602
|
|
|
|
1,583,903
|
|
|
|
1,662,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and adminstrative expenses
|
|
|
616,133
|
|
|
|
740,878
|
|
|
|
1,339,403
|
|
|
|
1,458,806
|
|
Professional
fees
|
|
|
381,271
|
|
|
|
181,901
|
|
|
|
550,036
|
|
|
|
292,397
|
|
Depreciation
and amortization
|
|
|
957,314
|
|
|
|
904,824
|
|
|
|
1,902,758
|
|
|
|
1,736,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(1,172,688
|
)
|
|
|
(941,001
|
)
|
|
|
(2,208,294
|
)
|
|
|
(1,825,203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
& other income / (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
929
|
|
|
|
1,926
|
|
|
|
2,290
|
|
|
|
5,384
|
|
Interest
expense
|
|
|
(182,313
|
)
|
|
|
(89,664
|
)
|
|
|
(273,548
|
)
|
|
|
(177,048
|
)
|
Change
in fair value of warrant liabilities
|
|
|
21,932
|
|
|
|
(626,978
|
)
|
|
|
63,746
|
|
|
|
(1,240,787
|
)
|
Gain
(loss) on sale of securities
|
|
|
1,350
|
|
|
|
(10,283
|
)
|
|
|
1,350
|
|
|
|
(30,635
|
)
|
Impairment
of intangibles
|
|
|
(900,000
|
)
|
|
|
-
|
|
|
|
(900,000
|
)
|
|
|
-
|
|
Impairment
of equipment
|
|
|
(750,000
|
)
|
|
|
-
|
|
|
|
(750,000
|
)
|
|
|
-
|
|
Other
|
|
|
(1,298
|
)
|
|
|
53
|
|
|
|
476
|
|
|
|
(275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss before income taxes and noncontrolling interest
|
|
|
(2,982,088
|
)
|
|
|
(1,665,947
|
)
|
|
|
(4,063,980
|
)
|
|
|
(3,268,564
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
|
246,383
|
|
|
|
14,680
|
|
|
|
260,111
|
|
|
|
29,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss, net of tax
|
|
|
(2,735,705
|
)
|
|
|
(1,651,267
|
)
|
|
|
(3,803,869
|
)
|
|
|
(3,239,204
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus: Net
loss attributable to noncontrolling interests
|
|
|
1,316,554
|
|
|
|
138,657
|
|
|
|
1,580,209
|
|
|
|
384,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to China Broadband shareholders
|
|
$
|
(1,419,151
|
)
|
|
$
|
(1,512,610
|
)
|
|
$
|
(2,223,660
|
)
|
|
$
|
(2,854,958
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.05
|
)
|
Diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
65,089,760
|
|
|
|
62,621,651
|
|
|
|
64,926,485
|
|
|
|
56,290,826
|
|
Diluted
|
|
|
65,089,760
|
|
|
|
62,621,651
|
|
|
|
64,926,485
|
|
|
|
56,290,826
|
|
See
notes to consolidated financial statements.
China
Broadband, Inc. and Subsidiaries
CONSOLIDATED
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE LOSS
for
the Periods Ended June 30, 2010 (Unaudited) and December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
China
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Broadband
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Par
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Shareholders'
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income(loss)
|
|
|
(Deficit)/Equity
|
|
|
Interest
|
|
|
Equity
|
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2008
|
|
|
50,585,455
|
|
|
$
|
50,586
|
|
|
$
|
13,372,359
|
|
|
$
|
(12,200,289
|
)
|
|
$
|
320,858
|
|
|
$
|
1,543,514
|
|
|
$
|
6,637,631
|
|
|
$
|
8,181,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
effect of accounting change for warrants - reclassification of warrants to
warrant liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
(731,496
|
)
|
|
|
424,373
|
|
|
|
-
|
|
|
|
(307,123
|
)
|
|
|
-
|
|
|
|
(307,123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shandong
Media valuation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(275,448
|
)
|
|
|
(275,448
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued as payment for convertible note interest
|
|
|
921,043
|
|
|
|
921
|
|
|
|
259,637
|
|
|
|
-
|
|
|
|
-
|
|
|
|
260,558
|
|
|
|
-
|
|
|
|
260,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
option compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
33,656
|
|
|
|
-
|
|
|
|
-
|
|
|
|
33,656
|
|
|
|
-
|
|
|
|
33,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for AdNet acquisition
|
|
|
11,254,898
|
|
|
|
11,255
|
|
|
|
1,676,980
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,688,235
|
|
|
|
-
|
|
|
|
1,688,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
related to stock issued for AdNet acquisition
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,622
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,622
|
)
|
|
|
|
|
|
|
(3,622
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for cash
|
|
|
2,000,000
|
|
|
|
2,000
|
|
|
|
298,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
300,000
|
|
|
|
-
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
related to stock issued for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,021
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,021
|
)
|
|
|
-
|
|
|
|
(4,021
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,439,125
|
)
|
|
|
-
|
|
|
|
(5,439,125
|
)
|
|
|
(1,102,756
|
)
|
|
|
(6,541,881
|
)
|
|
$
|
(5,439,125
|
)
|
Foreign
currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28,345
|
|
|
|
28,345
|
|
|
|
-
|
|
|
|
28,345
|
|
|
|
28,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss on marketable equity securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(17,920
|
)
|
|
|
(17,920
|
)
|
|
|
-
|
|
|
|
(17,920
|
)
|
|
|
(17,920
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2009
|
|
|
64,761,396
|
|
|
$
|
64,762
|
|
|
$
|
14,901,493
|
|
|
$
|
(17,215,041
|
)
|
|
$
|
331,283
|
|
|
$
|
(1,917,503
|
)
|
|
$
|
5,259,427
|
|
|
$
|
3,341,924
|
|
|
$
|
(5,428,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued as payment for convertible note interest
|
|
|
653,119
|
|
|
|
653
|
|
|
|
131,982
|
|
|
|
-
|
|
|
|
-
|
|
|
|
132,635
|
|
|
|
-
|
|
|
|
132,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
option compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
26,557
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26,557
|
|
|
|
-
|
|
|
|
26,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense related to discount and beneficial convertible features in
connection with convertible note and warrants issuance
|
|
|
-
|
|
|
|
-
|
|
|
|
90,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
90,000
|
|
|
|
-
|
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,223,660
|
)
|
|
|
-
|
|
|
|
(2,223,660
|
)
|
|
|
(1,580,209
|
)
|
|
|
(3,803,869
|
)
|
|
$
|
(2,223,660
|
)
|
Foreign
currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
410,349
|
|
|
|
410,349
|
|
|
|
-
|
|
|
|
410,349
|
|
|
|
410,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain on marketable equity securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,631
|
|
|
|
8,631
|
|
|
|
-
|
|
|
|
8,631
|
|
|
|
8,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
June 30, 2010
|
|
|
65,414,515
|
|
|
$
|
65,415
|
|
|
$
|
15,150,032
|
|
|
$
|
(19,438,701
|
)
|
|
$
|
750,263
|
|
|
$
|
(3,472,991
|
)
|
|
$
|
3,679,218
|
|
|
$
|
206,227
|
|
|
$
|
(1,804,680
|
)
|
See
notes to consolidated financial statements.
China
Broadband, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(Restated)
|
|
Cash
flows from operating
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(3,803,869
|
)
|
|
$
|
(3,239,204
|
)
|
Adjustments
to reconcile net loss to net cash provided by operating
activities
|
|
|
|
|
|
|
|
|
Stock
compensation expense
|
|
|
159,193
|
|
|
|
160,111
|
|
Interest
expense related to discount and beneficial convertible features in
connection with convertible note and warrant issuance
|
|
|
90,000
|
|
|
|
-
|
|
Depreciation
and amortization
|
|
|
1,902,758
|
|
|
|
1,528,029
|
|
Noncash
interest expense - original issue discount
|
|
|
50,025
|
|
|
|
50,025
|
|
Deferred
income tax
|
|
|
(260,111
|
)
|
|
|
(29,360
|
)
|
(Gain)
loss on sale of marketable equity securities
|
|
|
(1,350
|
)
|
|
|
30,626
|
|
Change
in fair value of warrant liabilities
|
|
|
(63,746
|
)
|
|
|
1,240,787
|
|
Adjustment
to foreign currency translation account
|
|
|
378,332
|
|
|
|
-
|
|
Impairment
charge to Shandong Media intangibles
|
|
|
900,000
|
|
|
|
-
|
|
Impairment
charge to Jinan equipment
|
|
|
750,000
|
|
|
|
-
|
|
Change
in assets and liabilities, net of amounts assumed in AdNet
acquisition,
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
39,573
|
|
|
|
(98,078
|
)
|
Inventory
|
|
|
15,684
|
|
|
|
88,973
|
|
Prepaid
expenses and other assets
|
|
|
(268,862
|
)
|
|
|
(69,244
|
)
|
Accounts
payable and accrued expenses
|
|
|
494,733
|
|
|
|
460,686
|
|
Deferred
revenue
|
|
|
(126,461
|
)
|
|
|
42,766
|
|
Other
|
|
|
-
|
|
|
|
(2
|
)
|
Net
cash provided by operating activities
|
|
|
255,899
|
|
|
|
166,115
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Cash
acquired in AdNet acquisition
|
|
|
-
|
|
|
|
17,568
|
|
Proceeds
from sale of marketable equity securities
|
|
|
9,350
|
|
|
|
78,706
|
|
Acquisition
of property and equipment
|
|
|
(468,887
|
)
|
|
|
(236,515
|
)
|
Loan
to Sinotop Group Ltd
|
|
|
(580,000
|
)
|
|
|
-
|
|
Loans
to Shandong Media shareholders
|
|
|
(526,141
|
)
|
|
|
(552,140
|
)
|
Net
cash used in investing activities
|
|
|
(1,565,678
|
)
|
|
|
(692,381
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds
from sale of equity securities
|
|
|
-
|
|
|
|
300,000
|
|
Proceeds
from issuance of convertible notes payable
|
|
|
750,000
|
|
|
|
304,853
|
|
Legal
fees associated with AdNet acquisition and share issuance
|
|
|
-
|
|
|
|
(7,643
|
)
|
Payments
to Jinan Parent
|
|
|
(18,454
|
)
|
|
|
(2,643,373
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
731,546
|
|
|
|
(2,046,163
|
)
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
(5,318
|
)
|
|
|
21,720
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(583,551
|
)
|
|
|
(2,550,709
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
2,190,494
|
|
|
|
4,425,529
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
1,606,943
|
|
|
$
|
1,874,820
|
|
China
Broadband, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow
Information
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash
paid for interest
|
|
$
|
824
|
|
|
$
|
552
|
|
Value
assigned to shares as payment for interest expense
|
|
$
|
132,635
|
|
|
$
|
126,455
|
|
Shandong
Media valuation adjustment
|
|
$
|
-
|
|
|
$
|
275,448
|
|
Repayment
of convertible notes payable by assignment of Sinotop Group Ltd note
receivable
|
|
$
|
580,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Cumulative
effect of change in accounting principle upon adoption of new accounting
pronouncement on January 1, 2009, reclassification of warrants
from equity to warrant liabilities
|
|
$
|
-
|
|
|
$
|
424,373
|
|
See
notes to consolidated financial statements.
CHINA
BROADBAND, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
China
Broadband, Inc., a Nevada corporation (“China Broadband”, “we”, “us”, or “the
Company”) owns and operates in the media segment through its subsidiaries in the
People’s Republic of China (“PRC” or “China”) (1) a cable broadband business,
Beijing China Broadband Network Technology Co. Ltd ( “Jinan Broadband”) and (2)
a print based media and television programming guide publication, Shandong Lushi
Media Co., Ltd. ( “Shandong Media”).
(1) We
provide cable and wireless broadband services, principally internet services,
Internet Protocol Point wholesale services, related network equipment rental and
sales, and fiber network construction and maintenance through our variable
interest entity (“VIE”), Jinan Broadband, based in the Jinan region of
China.
(2) We
operate a print based media and television programming guide publication
business through our VIE, Shandong Media, a joint venture based in the Shandong
Province of China.
We
acquired AdNet Media Technologies (Beijing) Co. Ltd (“AdNet”) during the first
half of 2009. Due to the shift of our business model to the
pay-per-view
(“PPV”) and video-on-demand (“VOD”)
business, as of December 31, 2009 we
permanently suspended day to day operations of AdNet. We have
maintained our technology and other assets of AdNet for future use in our new
PPV business.
The
unaudited consolidated financial statements include the accounts of China
Broadband, Inc. and (a) its wholly-owned subsidiary, China Broadband Cayman, (b)
Beijing China Broadband Network Technology Co, Ltd. (WFOE), a wholly-owned
subsidiary of China Broadband Cayman, and (c) four entities located in the PRC:
Jinan Zhong Kuan, Jinan Broadband, Shandong Media and AdNet, which are
controlled by the Company through contractual arrangements, as if they are
wholly-owned subsidiaries of the Company. All material intercompany
transactions and balances are eliminated in consolidation.
In the
opinion of management, our Financial Statements reflect all adjustments, which
are of a normal, recurring nature, necessary for a fair statement of the results
for the periods presented in accordance with U.S. Generally Accepted Accounting
Principles (GAAP) and with the instructions to Form 10-Q in Article 10 of SEC
Regulation S-X. The results of operations for the interim periods
presented are not necessarily indicative of results for the full
year.
Certain
information and footnote disclosures normally included in the annual
consolidated financial statements prepared in accordance with accounting
principles generally accepted in the United States of America (“U.S. GAAP”) have
been condensed or omitted. These unaudited condensed financial
statements should be read in conjunction with the Company’s audited consolidated
financial statements and notes thereto included in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2009.
The
information presented in the accompanying condensed consolidated balance sheet
as of December 31, 2009 has been derived from the Company’s audited consolidated
financial statements but does not include all disclosures required by U.S.
GAAP. All other information has been derived from the Company’s
unaudited condensed consolidated financial statements for the three months and
six months ended June 30, 2010.
The
financial statements for the three months and six months ended June 30, 2009
have been restated for the reasons described below and the accompanying
financial statements for the three months and six months ended June 30, 2009
include the following changes.
|
1)
|
Reclassified
certain warrants from shareholders’ equity to liabilities in accordance
with EITF 07-5, “Determining Whether an Instrument (or Embedded Feature)
is Indexed to an Entity’s Own Stock” (FASB ASC 815-40-15-5) ("ASC
815”). ASC 815 became effective and should have been adopted by
the Company as of January 1, 2009 by classifying certain warrants as
liabilities measured at fair value with changes in fair value recognized
in earnings each reporting period and recording a cumulative-effect
adjustment to the opening balance of accumulated deficit. The
cumulative-effect adjustment at January 1, 2009 was as
follows:
|
|
|
Additional
|
|
|
Accumulated
|
|
|
Warrant
|
|
|
|
Paid-in Capital
|
|
|
Deficit
|
|
|
Liabilities
|
|
Warrants
|
|
$
|
(731,000
|
)
|
|
$
|
424,000
|
|
|
$
|
307,000
|
|
For the
three months and six months ended June 30, 2009, the adoption of ASC 815 had the
effect of increasing warrant liabilities and net loss by approximately $627,000
and $1,241,000, respectively.
|
2)
|
Corrected
an error related to the valuation of our Shandong Media intangibles which
include our publication rights, operating permits and customer
relationships and minor changes to the valuation of property and
equipment. The correction resulted in a decrease to the value
of our intangible assets and property and equipment by reclassifying
approximately $275,000 from non-controlling
interest.
|
|
3)
|
Adjusted
the original purchase accounting for our AdNet acquisition. Our
AdNet intangible asset was decreased by approximately $1,150,000 and
approximately $1,239,000 was recorded to goodwill, $100,000 was recorded
to amount due from former AdNet shareholders and approximately $189,000
was recorded to deferred tax liability. In addition,
amortization expense of approximately $63,000 was recorded for the three
months and six months ended June 30,
2009.
|
|
4)
|
Reclassified
legal costs for approximately $8,000 related to stock issued for our AdNet
acquisition and related to stock issued for cash to additional paid in
capital.
|
3.
|
Accounting
Policy Changes
|
ASC 810.
We adopted ASC 810
on January 1, 2010, which provides consolidation guidance for
variable-interest entities include: (1) the elimination of the exemption for
qualifying special purpose entities, (2) a new approach for determining who
should consolidate a variable-interest entity, and (3) changes to when it is
necessary to reassess who should consolidate a variable-interest entity.
The
adoption of ASC 810 did not have a material impact on the Company’s financial
statements.
ASU 2010-06.
On January 1,
2010, we adopted ASU No. 2010-06 which provides improvements to disclosure
requirements related to fair value measurements. The adoption of these
provisions did not have an effect on the Company’s financial reporting. New
disclosures are required for significant transfers in and out of Level 1 and
Level 2 fair value measurements, disaggregation regarding classes of assets and
liabilities, valuation techniques and inputs used to measure fair value for both
recurring and nonrecurring fair value measurements for Level 2 or Level 3.
Additional new disclosures regarding the purchases, sales, issuances and
settlements in the roll forward of activity in Level 3 fair value measurements
are effective for fiscal years beginning after December 15, 2010 beginning with
the first interim period, the Company does not expect the adoption of these new
Level 3 disclosures to have a material impact on the Company’s financial
reporting.
4.
|
Going Concern and Management’s
Plans
|
The
Company has incurred significant continuing losses during 2010 and has a working
capital deficit at June 30, 2010 and has relied on debt and equity financings to
fund operations. These conditions raise substantial doubt about the
Company’s ability to continue as a going concern.
The
unaudited consolidated financial statements have been prepared assuming that the
Company will continue as a going concern and, accordingly, do not include any
adjustments that might result from the outcome of this
uncertainty. As of June 30, 2010, the Company had limited cash
resources and management continued its efforts to raise additional funds through
debt or equity offerings. The Company's independent registered public
accounting firm's report of the financial statements for the year ended December
31, 2009, contained an explanatory paragraph regarding the Company's ability to
continue as a going concern.
Management
has raised additional funds through an equity offering and will continue to seek
funds to merge with or acquire other companies. See Note 21
“Subsequent Events” below.
5.
|
Shandong
Media Joint Venture - Cooperation Agreement Additional
Payment
|
In
connection with the Shandong Newspaper Cooperation Agreement, based on certain
financial performance we were required to make an additional payment of 5
million RMB (approximately US $730,000). In 2008 we recorded the
additional payment due as an increase to our Shandong Media noncontrolling
interest account. We are currently in discussions with Shandong
Broadcast & TV Weekly Press and Modern Movie & TV Biweekly Press with
regards to this payment.
6.
|
Variable
Interest Entities
|
Financial
accounting standards require the “primary beneficiary” of a VIE to include the
VIE’s assets, liabilities and operating results in its consolidated financial
statements. In general, a VIE is a corporation, partnership,
limited-liability company, trust or any other legal structure used to conduct
activities or hold assets that either (a) has an insufficient amount of equity
to carry out its principal activities without additional subordinated financial
support, (b) has a group of equity owners that are unable to make significant
decisions about its activities, or (c) has a group of equity owners that do not
have the obligation to absorb losses or the right to receive returns generated
by its operations.
Our
consolidated VIEs were recorded at fair value on the date we became the primary
beneficiary. Our VIEs are Jinan Broadband and Shandong
Media.
7.
|
Fair
Value Measurements
|
Accounting
standards require the categorization of financial assets and liabilities, based
on the inputs to the valuation technique, into a three-level fair value
hierarchy. The various levels of the fair value hierarchy are described as
follows:
|
·
|
Level 1 —
Financial assets and liabilities whose values are based on unadjusted
quoted market prices for identical assets and liabilities in an active
market that we have the ability to
access.
|
|
·
|
Level 2 —
Financial assets and liabilities whose values are based on quoted prices
in markets that are not active or model inputs that are observable for
substantially the full term of the asset or
liability.
|
|
·
|
Level 3 —
Financial assets and liabilities whose values are based on prices or
valuation techniques that require inputs that are both unobservable and
significant to the overall fair value
measurement.
|
Accounting
standards require the use of observable market data, when available, in making
fair value measurements. When inputs used to measure fair value fall within
different levels of the hierarchy, the level within which the fair value
measurement is categorized is based on the lowest level input that is
significant to the fair value measurement.
The
following tables present the fair value hierarchy for those assets and
liabilities measured at fair value on a recurring basis at June 30, 2010 and
December 31, 2009:
|
|
June 30, 2010
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total Fair Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
$
|
47,875
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
47,875
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of warrants
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
755,404
|
|
|
$
|
755,404
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total Fair Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
$
|
47,244
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
47,244
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of warrants
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
819,150
|
|
|
$
|
819,150
|
|
8.
|
Related
Party Transactions
|
Loan
Receivable
As of
June 30, 2010, the Company advanced an aggregate of approximately $291,000 in
the form of a loan to Music Magazine to fund its operations. The loan
is unsecured, interest free and is due on December 31, 2010. Music
Magazine is an affiliate of Modern Movie & TV Biweekly Press, our partner in
our Shandong Media joint venture company.
Amounts
due from Shareholders
As of
June 30, 2010, amounts due from shareholders include approximately $92,000
advanced to Shandong Broadcast & TV Weekly Press and approximately $604,000
advanced to Modern Movie & TV Biweekly Press. Both companies are our
partners in our Shandong Media joint venture company. The amount due
from Shandong Broadcast & TV Weekly Press is unsecured, interest free and
has no fixed repayment terms. The amount due from Modern Movie &
TV Biweekly Press is unsecured, interest free and is due on December 31,
2010. During the 6 months ended June 30, 2010, we received repayments
of approximately $17,000 from Shandong Broadcast and TV Weekly Press and
advanced approximately $543,000 net amount to Modern Movie & TV Biweekly
Press.
Payable
to Jinan Parent
During
the six months ended June 30, 2010, our payable to Jinan Parent decreased
approximately $18,000. At June 30, 2010, approximately $134,000
remains due to Jinan Parent. The advance is unsecured, interest free
and has no fixed repayment terms.
Loan Payable to Beneficial
Owner
On March
9, 2010, China Broadband Cayman entered into a Note Purchase Agreement and a
non-binding Letter of Intent, or the LOI with Sinotop Group Ltd., a Hong Kong
corporation, or Sinotop Hong Kong. Through a series of contractual
arrangements referred to herein as “VIE Contracts”, Sinotop Hong Kong controls
Beijing Sino Top Scope Technology Co., Ltd., or Sinotop
Beijing. Sinotop Beijing, a corporation established in the PRC is, in
turn, a party to a joint venture with two other PRC companies to provide
integrated value-added service solutions for the delivery of PPV, VOD, and
enhanced premium content for cable providers.
Pursuant
to the Note Purchase Agreement, on March 9, 2010, China Broadband Cayman
acquired a Convertible Promissory Note, or Note from Sinotop Hong Kong in
consideration of China Broadband Cayman’s US$580,000 loan to Sinotop Hong
Kong.
On March
9, 2010, a significant beneficial owner of the Company’s securities, Oliveira
Capital LLC, advanced $600,000 to China Broadband Cayman in order to make the
loan to Sinotop Hong Kong as described above
.
On June
24, 2010, the Company repaid $580,000 of the $600,000 loan by assigning the
Company’s Convertible Promissory Note from Sinotop Hong Kong in the amount or
$580,000 to Oliveira Capital. As of June 30, 2010, $20,000 remains
payable to Oliveira Capital.
On July
30, 2010, Oliveira Capital LLC agreed to (i) cancel the remaining $20,000 of the
March 9, 2010 loan and (ii) assign the $580,000 note of Sinotop Hong Kong to the
Company, in exchange for (x) 1,200,000 shares of Series B Preferred Stock of the
Company and (y) warrants to purchase of 36,000,000 shares of the Company’s
common stock. See Note 21 “Subsequent Events”
below.
9.
|
Property
and Equipment
|
During
the second quarter of
2010, based on our best estimate, the Company recorded an impairment reserve of
$750,000 related to the equipment at our Jinan Broadband subsidiary. In
July 2010, the equipment was taken out of service due to changes in customer
needs. The net book value of the equipment is $1,483,000. During the
next quarter, the Company will evaluate whether there are other uses for the
equipment or whether the equipment can be sold. Further, we will be able
to better determine the net realizable value of the
equipment.
Property an
d equipment at June 30, 2010 and
December 31, 2009
consisted of the following
:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Furniture
and office equipment
|
|
$
|
1,016,000
|
|
|
$
|
984,000
|
|
Headend
facilities and machinery
|
|
|
14,672,000
|
|
|
|
14,172,000
|
|
Vehicles
|
|
|
30,000
|
|
|
|
30,000
|
|
Total
property and equipment
|
|
|
15,718,000
|
|
|
|
15,186,000
|
|
Less: accumulated
depreciation
|
|
|
(9,482,000
|
)
|
|
|
(7,823,000
|
)
|
Less: impairment
charge
|
|
|
(750,000
|
)
|
|
|
-
|
|
Net
carrying value
|
|
$
|
5,486,000
|
|
|
$
|
7,363,000
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense
|
|
$
|
1,620,000
|
|
|
$
|
1,509,000
|
|
In the
first quarter of 2009 the Company decreased the value of our intangible assets
by reclassifying approximately $279,000 from noncontrolling
interest. The reclassification was made to correct an error related
to the valuation of our Shandong Media intangibles which includes our
publication rights, operating permits and customer relationships. The
Company assessed the impact of this adjustment on all prior periods and
determined that the effect of this adjustment did not result in a material
misstatement to any previously issued annual or quarterly financial
statements.
Determining
the fair value of a reporting unit requires the use of significant estimates and
assumptions, including revenue growth rates, discount rates and future market
conditions, among others. Long-lived assets are reviewed for impairment whenever
events, such as significant changes in the business climate, changes in product
and service offerings, or other circumstances indicate that the carrying amount
may not be recoverable. Our Shandong Media joint venture has
sustained consistent losses. In accordance with SFAS 144 we prepared
an analysis and accordingly recorded an impairment charge of $900,000 to our
Shandong Media intangibles which include publication rights, operating permits
and customer relationships during the second quarter of 2010.
The
Company amortizes its service agreement, publication rights, operating permits,
customer relationships and software technology that have finite
lives. Our service agreement, publication rights and operating
permits are amortized over 20 years. Customer relationships are
amortized over 10 years and our software technology is amortized over 3
years.
We have
intangible assets relating to the acquisition of our Jinan Broadband subsidiary,
Shandong Media joint venture and AdNet Media acquisition.
|
|
Balance at
|
|
|
|
|
|
Amortization/
|
|
|
|
|
|
Balance at
|
|
|
|
December
31,
|
|
|
|
|
|
Impairment
|
|
|
Other
|
|
|
June 30,
|
|
|
|
2009
|
|
|
Additions
|
|
|
Charge
|
|
|
Changes
|
|
|
2010
|
|
Amortized
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
agreement
|
|
$
|
1,483,762
|
|
|
$
|
-
|
|
|
$
|
(43,360
|
)
|
|
$
|
-
|
|
|
$
|
1,440,402
|
|
Publication
rights
|
|
|
824,812
|
|
|
|
-
|
|
|
|
(354,116
|
)
|
|
|
-
|
|
|
|
470,696
|
|
Customer
relationships
|
|
|
183,730
|
|
|
|
-
|
|
|
|
(82,307
|
)
|
|
|
-
|
|
|
|
101,423
|
|
Operating
permits
|
|
|
1,234,583
|
|
|
|
-
|
|
|
|
(530,045
|
)
|
|
|
-
|
|
|
|
704,538
|
|
Software
technology
|
|
|
567,727
|
|
|
|
-
|
|
|
|
(126,162
|
)
|
|
|
-
|
|
|
|
441,565
|
|
Total
amortized intangible assets
|
|
$
|
4,294,614
|
|
|
$
|
-
|
|
|
$
|
(1,135,990
|
)
|
|
$
|
-
|
|
|
$
|
3,158,624
|
|
|
|
Balance at
|
|
|
|
|
|
Amortization/
|
|
|
|
|
|
Balance at
|
|
|
|
December 31,
|
|
|
|
|
|
Impairment
|
|
|
Other
|
|
|
December 31,
|
|
|
|
2008
|
|
|
Additions
|
|
|
Charge
|
|
|
Changes
|
|
|
2009
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
agreement
|
|
$
|
1,570,482
|
|
|
$
|
-
|
|
|
$
|
(86,720
|
)
|
|
$
|
-
|
|
|
$
|
1,483,762
|
|
Publication
rights
|
|
|
968,977
|
|
|
|
-
|
|
|
|
(42,250
|
)
|
|
|
(101,915
|
)
|
|
|
824,812
|
|
Customer
relationships
|
|
|
228,933
|
|
|
|
-
|
|
|
|
(20,491
|
)
|
|
|
(24,712
|
)
|
|
|
183,730
|
|
Operating
permits
|
|
|
1,450,366
|
|
|
|
-
|
|
|
|
(63,236
|
)
|
|
|
(152,547
|
)
|
|
|
1,234,583
|
|
Software
technology
|
|
|
-
|
|
|
|
756,969
|
|
|
|
(189,242
|
)
|
|
|
-
|
|
|
|
567,727
|
|
Total
amortized intangible assets
|
|
$
|
4,218,758
|
|
|
$
|
756,969
|
|
|
$
|
(401,939
|
)
|
|
$
|
(279,174
|
)
|
|
$
|
4,294,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
-
|
|
|
$
|
1,239,291
|
|
|
$
|
(1,239,291
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
In
accordance with ASC 250, we recorded amortization expense related to our
intangible assets of $235,990 and $180,525 for the six months ended June 30,
2010 and 2009, respectively.
The
following table outlines the amortization expense for the next five years and
thereafter:
|
|
Jinan
|
|
|
Shandong
|
|
|
AdNet
|
|
|
|
|
Years ending December 31,
|
|
Broadband
|
|
|
Media
|
|
|
Media
|
|
|
Total
|
|
2010
(six months)
|
|
$
|
43,360
|
|
|
$
|
88,985
|
|
|
$
|
126,162
|
|
|
$
|
258,507
|
|
2011
|
|
|
86,720
|
|
|
|
177,969
|
|
|
|
252,323
|
|
|
|
517,012
|
|
2012
|
|
|
86,720
|
|
|
|
177,969
|
|
|
|
63,081
|
|
|
|
327,770
|
|
2013
|
|
|
86,720
|
|
|
|
177,969
|
|
|
|
-
|
|
|
|
264,689
|
|
2014
|
|
|
86,720
|
|
|
|
177,969
|
|
|
|
-
|
|
|
|
264,689
|
|
Thereafter
|
|
|
1,050,161
|
|
|
|
475,796
|
|
|
|
-
|
|
|
|
1,525,957
|
|
Total
amortization to be recognized
|
|
$
|
1,440,401
|
|
|
$
|
1,276,657
|
|
|
$
|
441,566
|
|
|
$
|
3,158,624
|
|
Accrued
expenses at June 30, 2010 and December 31, 2009 consist of the
following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Accrued
expenses
|
|
$
|
860,000
|
|
|
$
|
1,053,000
|
|
Accrued
payroll
|
|
|
1,033,000
|
|
|
|
786,000
|
|
|
|
$
|
1,893,000
|
|
|
$
|
1,839,000
|
|
On April
14, 2010, we entered into a convertible promissory note with a private investor
for a loan amount of $150,000. Interest was payable at an annual rate
equal to the applicable federal rate on the date of issuance. The
principal and accrued interest on the Note was paid in connection with the
closing of the financings on July 30, 2010 (see Note 21 “Subsequent Event”
below). Under the terms of the Note, the Company granted the Payee a
5-year warrant to purchase 1,000,000 shares of the Company’s common stock at an
exercise price of $.05 per share. The Company recorded interest
expense of $90,000 during the six months ended June 30, 2010 related to discount
and beneficial convertible features in connection with convertible note and
warrants issuance.
In 2009,
we completed a private placement transaction and sold 5% Convertible Promissory
Notes, or the 2009 Notes, for gross proceeds of approximately $305,000 and an
aggregate of 2,000,000 shares of our common stock at a purchase price of $.15
per share, for aggregate proceeds of $300,000. The Notes accrue interest at 5%
per year payable quarterly in cash or stock, are initially convertible at $.20
per share, and initially became due and payable in full on May 27,
2010. Simultaneous with the closing of the financings on July 30,
2010 (see Note 21 “Subsequent Events” below), and pursuant to a Waiver and
Agreement to Convert, dated May 20, 2010, the note holders agreed to convert
100% of the outstanding principal and interest owing on such notes into shares
of common stock and warrants. The Company did not pay any placement
agent or similar fees in connection with the Note
Offering.
In
connection with the 2009 private placement, we entered into a waiver letter with
all the holders of January 2008 Notes, pursuant to which, among other things,
the conversion price of the January 2008 Notes were reduced from $.75 per share
to (i) $.20 per share for existing note holders that invested in the 2009
private placement and (ii) $.25 per share for those that did not
participate. All of the existing note holders waived certain anti
dilution adjustments contained in the January 2008 Notes and the Class A
Warrants in exchange for the above changes.
On
January 11, 2008, we completed a private placement transaction and sold an
aggregate of $4,971,250 principal amount of notes due January 11, 2013, or the
January 2008 Notes, and Class A Warrants to purchase an aggregate of 6,628,333
shares of our common stock, at $.60 per share and expiring on June 11,
2013. The conversion price of these January 2008 Notes was originally
$.75 per share and, in June of 2009 in connection with a subsequent financing
with these investors, reduced to $.20 per share (see waiver letters under
“Private Financings, June 2009” above). One investor had his
conversion price reduced to $.25 per share. We recorded a $504,661
original issue discount related to the Notes. We calculate the
interest at 5% annually and issue shares for interest payments on a quarterly
basis. We recorded amortization of original issue discount as
interest expense of $50,025 for each of the six months ended June 30, 2010 and
2009. Simultaneous with the closing of the financings on July 30,
2010 (see Note 21 “Subsequent Events” below), and pursuant to a Waiver and
Agreement to Convert, dated May 20, 2010, the note holders agreed to convert
100% of the outstanding principal and interest owing on such notes into shares
of common stock and warrants.
The
convertible notes due are as follows:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
Convertible
notes, noncurrent
|
|
$
|
4,971,250
|
|
|
$
|
4,971,250
|
|
Less: Original
issue discount
|
|
|
(255,919
|
)
|
|
|
(305,944
|
)
|
|
|
$
|
4,715,331
|
|
|
$
|
4,665,306
|
|
|
|
|
|
|
|
|
|
|
Convertible
notes, current
|
|
$
|
454.916
|
|
|
$
|
304,853
|
|
In June
2008, the FASB issued authoritative guidance on determining whether an
instrument (or embedded feature) is indexed to an entity’s own stock. Under the
authoritative guidance, effective January 1, 2009, instruments which do not have
fixed settlement provisions are deemed to be derivative instruments. Certain
warrants issued by the Company, do not have fixed settlement provisions because
their exercise prices may be lowered if the Company issues securities at lower
prices in the future. The Company was required to include the reset provisions
in order to protect the holders from potential dilution associated with future
financings. The warrants have been characterized as derivative liabilities to be
re-measured at the end of every reporting period with the change in value
reported in the statement of operations.
The
warrant liabilities were valued using The Black-Scholes Merton model which
incorporates the following assumptions:
|
June 30,
|
|
December 31,
|
|
2010
|
|
2009
|
Risk-free
interest rate
|
1.17%
|
|
1.50%
|
Expected
volatility
|
295.69%
|
|
309.62%
|
Expected
life (in years)
|
2.95
years
|
|
3.4
years
|
Expected
dividend yield
|
0
|
|
0
|
The FASB
authoritative guidance was adopted as of January 2009 and is reported as a
cumulative change in accounting principle. The cumulative effect on the
accounting for the warrants at January 1, 2009 was as follows:
|
|
Additional
|
|
|
Accumulated
|
|
|
Warrant
|
|
|
|
Paid-in Capital
|
|
|
Deficit
|
|
|
Liabilities
|
|
Warrants
|
|
$
|
(731,496
|
)
|
|
$
|
424,373
|
|
|
$
|
307,123
|
|
The
warrants were originally recorded at their relative fair value as an increase in
additional paid-in capital. The decrease in the accumulated deficit includes
gains resulting from decreases in the fair value of the warrant liabilities
through December 31, 2008. The warrant liability amount reflects the fair value
of the derivative instrument from issuance date as of the January 1, 2009 date
of implementation.
14.
|
Net
Loss Per Common Share
|
Basic net
loss per common share is calculated by dividing the net loss by the weighted
average number of outstanding common shares during the period. Diluted net loss
per common share includes the weighted average dilutive effect of stock options
and warrants.
Potential
common shares outstanding as of June 30, 2010 and 2009:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Warrants
|
|
|
17,874,800
|
|
|
|
16,874,800
|
|
|
|
17,874,800
|
|
|
|
16,874,800
|
|
Options
|
|
|
317,500
|
|
|
|
317,500
|
|
|
|
317,500
|
|
|
|
317,500
|
|
For each
of the three month and six month periods ended June 30, 2010 and 2009, the
number of securities not included in the diluted EPS because the effect would
have been anti-dilutive was 18,192,300 and 17,192,300,
respectively.
During
the second quarter of 2010, the Company received payments in full satisfaction
of the amounts due from non-controlling interests. Subsequently, the
Company made certain balance sheet reclassifications to correct an error related
to the original purchase accounting for our Shandong Media Joint
Venture. The reclassification had the effect of increasing foreign
currency translation by approximately $378,000. The Company assessed
the impact of this adjustment on the current period and all prior periods and
determined that the effect of this adjustment was not material to the full year
2008 or 2009, and that reclassification did not result in a material
misstatement to any previously issued annual or quarterly financial
statements.
Comprehensive
loss for the periods ended June 30, 2010 and 2009 is as follows:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Net
loss attributable to shareholders
|
|
$
|
(1,419,151
|
)
|
|
$
|
(1,512,610
|
)
|
|
$
|
(2,223,660
|
)
|
|
$
|
(2,854,958
|
)
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
translation adjustment
|
|
|
390,732
|
|
|
|
923
|
|
|
|
410,349
|
|
|
|
21,721
|
|
Unrealized
gain (loss) on marketable equity securities
|
|
|
(67,937
|
)
|
|
|
48,869
|
|
|
|
8,631
|
|
|
|
(36,291
|
)
|
Comprehensive
loss
|
|
$
|
(1,096,356
|
)
|
|
$
|
(1,462,818
|
)
|
|
$
|
(1,804,680
|
)
|
|
$
|
(2,869,528
|
)
|
16.
|
Interest
Expense and Share Issuance
|
In
connection with the Convertible Notes issued in January 2008 and June 2009,
during the six months ended June 30, 2010 and 2009 the Company incurred $183,000
and $176,000, respectively, for interest expense related to these
Notes.
As set
forth in the related documents and with the consent of the Note holders, we
issued 653,119 and 260,703 shares to the Note holders as payment for convertible
note interest of approximately $133,000 and $126,000 for the six months ended
June 30, 2010 and 2009, respectively.
In
connection with the Convertible Note issued April 2010 we recorded interest
expense of $90,000 related to discount and beneficial convertible features in
connection with the convertible note and warrants issuance.
17.
|
Stock
Based Compensation
|
Through
June 30, 2010, we have issued 317,500 options to purchase shares of our common
stock.
The
following table provides the details of the total stock based compensation
during the three and six month periods ended June 30, 2010 and
2009:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Stock
option amortization
|
|
$
|
18,000
|
|
|
$
|
18,000
|
|
|
$
|
27,000
|
|
|
$
|
27,000
|
|
Warrant
amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,000
|
|
Stock
issued as payment for interest
|
|
|
67,000
|
|
|
|
64,000
|
|
|
|
132,000
|
|
|
|
126,000
|
|
|
|
$
|
85,000
|
|
|
$
|
82,000
|
|
|
$
|
159,000
|
|
|
$
|
160,000
|
|
The
Company accounts for its stock option awards pursuant to the provisions of ASC
718,
Stock Compensation
and recorded a charge of $27,000 during both six month periods ended June 30,
2010 and 2009 in connection with stock option compensation.
There
were no stock options issued during the six month periods ended June 30, 2010
and 2009. As of June 30, 2010, there were 317,500 options outstanding
with 292,500 options exercisable at a weighted average exercise price of $0.63
with a weighted average remaining life of 4.5 years.
As of
June 30, 2010 the Company had total unrecognized compensation expense related to
options granted of $8,000 which will be recognized over a remaining service
period of .75 years.
In
connection with the Company’s Share Exchange, capital raising efforts in 2007,
the Company’s January 2008 Financing of Convertible Notes and Class A Warrants
and the April 2010 Convertible Note, the Company issued warrants to investors
and service providers to purchase common stock of the Company. As of
June 30, 2010, the weighted average exercise price was $.88 and the weighted
average remaining life was 3.0 years. The following table outlines
the warrants outstanding as of June 30, 2010:
|
|
Number of
|
|
|
|
|
|
|
|
Warrants
|
|
|
Exercise
|
|
Expiration
|
Name
|
|
Issued
|
|
|
Price
|
|
Date
|
Share
Exchange Consulting Warrants
|
|
|
4,474,800
|
|
|
$
|
0.60
|
|
1/11/2013
|
2007
Private Placement Broker Warrants
|
|
|
640,000
|
|
|
$
|
0.60
|
|
1/11/2013
|
2007
Private Placement Investor Warrants
|
|
|
4,000,000
|
|
|
$
|
2.00
|
|
1/11/2013
|
January
2008 Financing Class A Warrants
|
|
|
6,628,333
|
|
|
$
|
0.60
|
|
6/11/2013
|
January
2008 Financing Broker Warrants
|
|
|
1,131,667
|
|
|
$
|
0.50
|
|
6/11/2013
|
April
2010 Financing Investor Warrants
|
|
|
1,000,000
|
|
|
$
|
0.05
|
|
4/14/2015
|
|
|
|
17,874,800
|
|
|
|
|
|
|
Deferred
taxes are recognized for the future tax consequences attributable to temporary
differences between the carrying amounts of assets and liabilities for financial
statement purposes and income tax purposes using enacted rates expected to be in
effect when such amounts are realized or settled. The effect on
deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date. The income tax benefit for the six
month periods ended June 30, 2010 and 2009 results primarily from changes in
calculated deferred taxes, particularly liabilities associated with intangible
assets. The Company recorded approximately $260,000 income tax
benefit during the six months ended June 30, 2010 primarily due to the
recognition of the impairment charge related to the Shandong Media
intangibles. Deferred tax assets associated with net operating losses
have a full valuation allowance recorded against them.
The
Company’s current management does not believe that China Broadband, Inc. has
filed United States corporate income tax returns for several years prior to the
January 23, 2007 merger transaction and accompanying change in management.
Management believes that because of the lack of taxable income there will be no
material penalties resulting from any previous non-compliance.
The
estimation of the income tax effect of any future repatriation of the Company’s
share of any profits generated by its interests in Jinan Broadband, Shandong
Media and AdNet is not practicable. This is because it may involve
additional Chinese taxation on the distributions, or sale proceeds, to the
extent that they are in excess of the investments made, but with credits for
some or all of the Chinese taxes against U.S. taxes, plus the utilization of
operating losses of the WFOE. All of the foregoing would be subject
to various tax-planning strategies.
The
Company has not recognized deferred tax assets relating to the excess of its
income tax bases in its non-U.S. subsidiaries over their financial statement
carrying value because the Company expects to hold the investments and reinvest
future earnings indefinitely.
The
Company’s income tax benefit for the six months ended June 30, 2010 and 2009
each consisted entirely of foreign deferred taxes arising from net operating
loss carryforwards.
The
Company’s United States income tax returns are subject to examination by the
Internal Revenue Service (“IRS”) for at least 2006 and later years. Because of
the uncertainty regarding the filing of tax returns for earlier years it is
possible that the Company is subject to examination by the IRS for earlier
years. All of the Chinese tax returns for the Chinese operating companies are
subject to examination by the Chinese tax authorities for all periods from the
companies’ inceptions in 2007, 2008 and 2009 as applicable.
20.
|
Non-Controlling
Interests
|
In
December 2007, the FASB issued authoritative guidance which establishes
reporting standards that require companies to more clearly identify in the
financial statements and disclose the impact of noncontrolling interests in a
consolidated subsidiary on the consolidated financial
statements. Noncontrolling interests are now classified as equity in
the financial statements. The consolidated income statement is presented by
requiring net income to include net income for both the parent and the
noncontrolling interests, with disclosure of both amounts on the consolidated
statements of income. The calculation of earnings per share continues
to be based on income amounts attributable to the parent. Prior
period amounts related to noncontrolling interests have been reclassified to
conform to the current period presentation. The Company adopted this
guidance on January 1, 2009.
During
the second quarter of 2010, the Company made certain adjustments to correct an
error related to an under-allocation of amortization expense to Non-controlling
Interests in prior periods. The adjustment related to prior allocations of
amortization expense for certain intangible assets of both Jinan Broadband and
Shandong Media had the effect of increasing the Net Loss Attributable to
Non-Controlling Interests in the three and six month periods ended June 30, 2010
by approximately $277,000. The Company assessed the impact of this
adjustment on the current period and all prior periods and determined that the
effect of this adjustment did not result in a material misstatement to the
current periods or any previously issued annual or quarterly financial
statements.
On July
30, 2010, we acquired, through our subsidiary China Broadband Cayman, Sinotop
Group Limited, a Hong Kong corporation, or Sinotop Hong Kong. Through
a series of contractual arrangements referred to herein as “VIE Contracts”,
Sinotop Hong Kong controls Beijing Sino Top Scope Technology Co., Ltd., or
Sinotop Beijing. Sinotop Beijing, a corporation established in the
PRC is, in turn, a party to a joint venture with two other PRC companies to
provide integrated value-added service solutions for the delivery of
pay-per-view (“PPV”), video-on-demand (“VOD”), and enhanced premium content for
cable providers.
Also on
July 30, 2010, in connection with the acquisition of Sinotop Hong Kong, we
closed financings with several accredited investors and sold, in the aggregate,
$9,625,000 of securities and, specifically, sold (i) $3.125 million of common
units, at a per unit price of $0.05, with each common unit consisting of one
share of common stock and a warrant for the purchase of one share of common
stock at an exercise price of $0.05, (ii) $3.5 million of Series A units, at a
per unit price of $0.50, with each Series A unit consisting of one share of
Series A Preferred Stock (convertible into ten shares of common stock) and a
warrant to purchase 34.2857 shares of common stock at an exercise price of
$0.05, and (iii) $3.0 million of Series B units, at a per unit price of $0.50,
with each Series B unit consisting of one share of Series B Preferred Stock
(convertible into ten shares of common stock) and a warrant to purchase ten
shares of common stock. Accordingly, the Company issued 62,500,000
shares of Common Stock, 7,000,000 shares of Series A Preferred Stock, 6,000,000
shares of Series B Preferred Stock in connection with the Financings, and
warrants to purchase an aggregate of 362,500,000 shares of Common
Stock. The proceeds of the financings will be used to fund our value
added service platform and for general working capital purposes.
Simultaneous
with the closing of the financings above, and pursuant to (i) a Waiver and
Agreement to Convert, dated May 20, 2010, with the holders of an aggregate of
$4,971,250 in principal amount of notes of the Company, dated January 11, 2008,
and (ii) a Waiver and Agreement to Convert, dated May 20, 2010, with the holders
of an aggregate of $304,902 in principal amount of notes of the Company, dated
June 30, 2009, the holders of such notes agreed to convert 100% of the
outstanding principal and interest owing on such notes into an aggregate of
62,855,048 shares of Common Stock, 4,266,800 shares of Series B Preferred Stock
and warrants for the purchase of an aggregate of 105,523,048 shares of Common
Stock, as set forth in the respective waivers.
On July
30, 2010, Oliveira Capital LLC agreed to (i) cancel the remaining $20,000 of the
March 9, 2010 loan and (ii) assign the $580,000 note of Sinotop Hong Kong to the
Company, in exchange for (x) 1,200,000 shares of Series B Preferred Stock of the
Company and (y) warrants to purchase of 36,000,000 shares of the Company’s
common stock.
Cautionary
Note Regarding Forward Looking Statements
This Form
10-Q contains “forward-looking” statements that involve risks and uncertainties.
You can identify these statements by the use of forward-looking words such as
"may", "will", "expect", "anticipate", "estimate", "believe", "continue", or
other similar words. You should read statements that contain these words
carefully because they discuss our future expectations, contain projections of
our future results of operations or financial condition or state other
"forward-looking" information. We believe that it is important to communicate
our future expectations to our investors. However, these forward-looking
statements are not guarantees of future performance and actual results may
differ materially from the expectations that are expressed, implied or
forecasted in any such forward-looking statements. There may be events in the
future that we are unable to accurately predict or control, including weather
conditions and other natural disasters which may affect demand for our products,
and the product–development and marketing efforts of our competitors. Examples
of these events are more fully described in the Company’s Annual Report on Form
10-K for the year ended December 31, 2009 under Part I. Item 1A. Risk
Factors.
Unless
required by law, the Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise. However, readers should carefully review the reports
and documents the Company files from time to time with the SEC, particularly its
Quarterly Reports on Form 10-Q, Annual Report on Form 10-K , Current Reports on
Form 8-K and all amendments to those reports.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
The
following management’s discussion and analysis should be read in conjunction
with our financial statements and the notes thereto and the other financial
information appearing elsewhere in this report. In addition to historical
information, the following discussion contains certain forward-looking
information. See “Cautionary Note Regarding Forward Looking Statements” above
for certain information concerning those forward looking
statements.
Overview
We
operate in the media segment through our Chinese VIEs, (1) a cable broadband
business based in the Jinan region of China and (2) a television
program guide, newspaper and magazine publishing business based in the Shandong
region of China.
Through
our VIE Jinan Broadband, we provide cable and wireless broadband services,
principally internet services, Internet Protocol Point wholesale services,
related network equipment rental and sales, and fiber network construction and
maintenance. Jinan Broadband’s revenue consists primarily of sales to
our PRC-based internet consumers, cable modem consumers, business customers and
other internet and cable services.
Through
our VIE Shandong Media, we operate our publishing business, which includes the
distribution of periodicals, the publication of advertising, the organization of
public relations events, the provision of information related services,
copyright transactions, the production of audio and video products, and the
provision of audio value added communication services. Shandong Media’s revenue
consists primarily of sales of publications and advertising
revenues.
In
addition, our subsidiary AdNet holds a business license to operate in 28
provinces and provide internet content advertising in cafés in the
PRC. Though we acquired AdNet during the first half of 2009, due to
the shift of our business model to the
pay-per-view
(“PPV”) and video-on-demand (“VOD”)
business, as of December 31,
2009, we permanently suspended the day-to-day operations of AdNet. We
have maintained our technology and other assets of AdNet for future use in our
new PPV business.
Recent
Developments
On July
30, 2010, we acquired, through our subsidiary China Broadband Cayman, Sinotop
Group Limited, a Hong Kong corporation, or Sinotop Hong Kong. Through
a series of contractual arrangements referred to herein as “VIE Contracts”,
Sinotop Hong Kong controls Beijing Sino Top Scope Technology Co., Ltd., or
Sinotop Beijing. Sinotop Beijing, a corporation established in the
PRC is, in turn, a party to a joint venture with two other PRC companies to
provide integrated value-added service solutions for the delivery of PPV, VOD,
and enhanced premium content for cable providers.
Also on
July 30, 2010, in connection with the acquisition of Sinotop Hong Kong, we
closed financings with several accredited investors and sold, in the aggregate,
$9,625,000 of securities and, specifically, sold (i) $3.125 million of common
units, at a per unit price of $0.05, with each common unit consisting of one
share of common stock and a warrant for the purchase of one share of common
stock at an exercise price of $0.05, (ii) $3.5 million of Series A units, at a
per unit price of $0.50, with each Series A unit consisting of one share of
Series A Preferred Stock (convertible into ten shares of common stock) and a
warrant to purchase 34.2857 shares of common stock at an exercise price of
$0.05, and (iii) $3.0 million of Series B units, at a per unit price of $0.50,
with each Series B unit consisting of one share of Series B Preferred Stock
(convertible into ten shares of common stock) and a warrant to purchase ten
shares of common stock. Accordingly, the Company issued 62,500,000
shares of Common Stock, 7,000,000 shares of Series A Preferred Stock, 6,000,000
shares of Series B Preferred Stock in connection with the Financings, and
warrants to purchase an aggregate of 362,500,000 shares of Common
Stock. The proceeds of the financings will be used to fund our value
added service platform and for general working capital purposes.
Simultaneous
with the closing of the financings above, and pursuant to (i) a Waiver and
Agreement to Convert, dated May 20, 2010, with the holders of an aggregate of
$4,971,250 in principal amount of notes of the Company, dated January 11, 2008,
and (ii) a Waiver and Agreement to Convert, dated May 20, 2010, with the holders
of an aggregate of $304,902 in principal amount of notes of the Company, dated
June 30, 2009, the holders of such notes agreed to convert 100% of the
outstanding principal and interest owing on such notes into an aggregate of
62,855,048 shares of Common Stock, 4,266,800 shares of Series B Preferred Stock
and warrants for the purchase of an aggregate of 105,523,048 shares of Common
Stock, as set forth in the respective waivers.
On July
30, 2010, Oliveira Capital LLC agreed to (i) cancel the remaining $20,000 of the
March 9, 2010 loan and (ii) assign the $580,000 note of Sinotop Hong Kong to the
Company, in exchange for (x) 1,200,000 shares of Series B Preferred Stock of the
Company and (y) warrants to purchase of 36,000,000 shares of the Company’s
common stock.
On August
9, 2010, Pu Yue resigned as a member of our Board of Directors. Mr.
Yue’s resignation was not in connection with any disagreement with the
Company.
Results
of Operations
Comparison of Three Months
Ended June 30, 2010 and 2009
The following
table sets forth key components of our results of operations for the periods
indicated
.
|
|
3 Months Ended
|
|
|
Amount
|
|
|
%
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
Increase
/
|
|
|
Increase
/
|
|
|
|
2010
|
|
|
2009
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,817,000
|
|
|
$
|
1,989,000
|
|
|
$
|
(172,000
|
)
|
|
|
-9
|
%
|
Cost
of revenue
|
|
|
1,035,000
|
|
|
|
1,103,000
|
|
|
|
(68,000
|
)
|
|
|
-6
|
%
|
Gross
profit
|
|
|
782,000
|
|
|
|
886,000
|
|
|
|
(104,000
|
)
|
|
|
-12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and adminstrative expenses
|
|
|
616,000
|
|
|
|
741,000
|
|
|
|
(125,000
|
)
|
|
|
-17
|
%
|
Professional
fees
|
|
|
381,000
|
|
|
|
182,000
|
|
|
|
199,000
|
|
|
|
109
|
%
|
Depreciation
and amortization
|
|
|
957,000
|
|
|
|
905,000
|
|
|
|
52,000
|
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(1,172,000
|
)
|
|
|
(942,000
|
)
|
|
|
(230,000
|
)
|
|
|
24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
& other income / (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
1,000
|
|
|
|
2,000
|
|
|
|
(1,000
|
)
|
|
|
-50
|
%
|
Interest
expense
|
|
|
(182,000
|
)
|
|
|
(90,000
|
)
|
|
|
(92,000
|
)
|
|
|
102
|
%
|
Change
in fair value of warrant liabilities
|
|
|
22,000
|
|
|
|
(627,000
|
)
|
|
|
649,000
|
|
|
|
-
|
|
Gain
(loss) on sale of securities
|
|
|
1,000
|
|
|
|
(10,000
|
)
|
|
|
11,000
|
|
|
|
-110
|
%
|
Impairment
of intangibles
|
|
|
(900,000
|
)
|
|
|
-
|
|
|
|
(900,000
|
)
|
|
|
-
|
|
Impairment
of equipment
|
|
|
(750,000
|
)
|
|
|
-
|
|
|
|
(750,000
|
)
|
|
|
-
|
|
Other
|
|
|
(2,000
|
)
|
|
|
-
|
|
|
|
(2,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes and noncontrolling interests
|
|
|
(2,982,000
|
)
|
|
|
(1,667,000
|
)
|
|
|
(1,315,000
|
)
|
|
|
79
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
|
246,000
|
|
|
|
15,000
|
|
|
|
231,000
|
|
|
|
1540
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss, net of tax
|
|
|
(2,736,000
|
)
|
|
|
(1,652,000
|
)
|
|
|
(1,084,000
|
)
|
|
|
66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to noncontrolling interests
|
|
|
1,317,000
|
|
|
|
139,000
|
|
|
|
1,178,000
|
|
|
|
847
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to China Broadband shareholders
|
|
$
|
(1,419,000
|
)
|
|
$
|
(1,513,000
|
)
|
|
$
|
94,000
|
|
|
|
-6
|
%
|
Revenues
Our
revenues are generated by our operating companies in the PRC. Revenues for
the three months ended June 30, 2010 totaled $1,817,000, as compared to
$1,989,000 for the three months ended June 30, 2009, a decrease of approximately
$172,000, or 9%.
Jinan
Broadband’s revenue consists primarily of sales to our PRC based internet
consumers, cable modem consumers, business customers and other internet and
cable services. For the three months ended June 30, 2010, revenues totaled
$1,080,000, a decrease of $59,000, or 5%, as compared to revenues of $1,138,000
for the same period of 2009. The decrease is attributable to decreases in our
value added services.
Shandong
Media’s revenue consists primarily of sales of publications and advertising
revenues. For the three months ended June 30, 2010, revenues totaled
$738,000, a decrease of $111,000, or 13%, as compared to revenues of $849,000
for the same period of 2009. Although we had decreases in both our
publication and advertising revenues, the decrease is mainly attributable to
decreases in advertising revenue which can be directly correlated to the decline
of the advertising market as a whole in China. We anticipate that this
decrease is temporary and that the advertising market will recover. We
will continue to look to increase our advertising sales for the publishing side
of the business. We have experienced advertising growth from Q1 to Q2 of
2010.
Gross
Profit
Our gross
profit for the three months ended June 30, 2010 was $782,000, as compared to
$886,000 for the three months ended June 30, 2009, a decrease of approximately
$104,000, or 12%. Jinan Broadband’s gross profit decreased $104,000, or
18%, due to both decreased revenue and increased costs. Shandong Media’s
gross profit decreased $11,000, or 4%, primarily due to decreased
revenues.
Gross
profit as a percentage of revenue was 43% for the three months ended June 30,
2010, as compared to 45% for the three months ended June 30, 2009
.
Selling,
General and Administrative Expenses
Our
selling, general and administrative expenses for the three months ended June 30,
2010 decreased approximately $125,000 to $616,000, as compared to $741,000 for
the three months ended June 30, 2009.
Salaries
and personnel costs are the major component of selling, general and
administrative expenses. For the three months ended June 30, 2010, salaries and
personnel costs totaled $386,000, a decrease of $35,000 or 8% as compared to
$421,000 for the same period of 2009. During the three months ended June 30,
2010, salaries and personnel costs accounted for 55% of our selling, general and
administrative expenses.
We expect
our selling, general and administrative expenses will increase as we continue to
grow our business.
Professional
Fees
Our
professional fees are generally related to public company reporting and
governance expenses as well as costs related to our acquisitions. Our
costs for professional fees increased $199,000, or 109%, to $381,000 during the
three months ended June 30, 2010 from $182,000 in 2009. Increases for
this period relate to current fundraising activities. See “Recent
Developments” above.
Depreciation
and Amortization
Our
depreciation expense increased $56,000, or 7%, to $816,000 for the three months
ended June 30, 2010 from $760,000 in 2009. The increase is mainly due to
the acquisition of new equipment by our Jinan Broadband subsidiary.
Our
amortization expense decrease $4,000, or 3%, to $141,000 for the three months
ended June 30, 2010 from $145,000 in 2009.
Interest
and Other Income (Expense), net
Interest
income
Our
interest income decreased $1,000, or 50%, to $1,000 for the three months ended
June 30, 2010 from $2,000 in 2009.
Interest
expense
Interest
expense is related to our 5% Convertible Notes issued in January 2008 and June
2009 and our April 2010 convertible note. Interest expense increased
$92,000, or 102%, to $182,000 for the three months ended June 30, 2010 from
$90,000 in 2009, primarily due to additional convertible notes issued in 2009
and 2010. Interest expense includes amortization of the original issue
discount on the notes resulting from the allocation of fair value to the
warrants issued in the financing. Interest on the Notes compounds
monthly at the annual rate of five percent (5%). The outstanding principal
amount of the January 2008 Notes as of June 30, 2010 was $4,971,250, net of
original issue discount of $504,661. The outstanding principal amount on
the June 2009 Notes as of December 31, 2009 was approximately
$305,000.
We expect
our interest expense to decrease substantially. Simultaneous with the
closing of the financings on July 30, 2010 (see “Recent Developments” above),
and pursuant to a Waiver and Agreement to Convert, dated May 20, 2010, the note
holders agreed to convert 100% of the outstanding principal and interest owing
on such notes into shares of common stock and warrants. In addition,
the convertible promissory note issued in April 2010 was paid in
full.
Change
in fair value of warrant liabilities
Under new
authoritative guidance, effective January 1, 2009, the Company was required to
reclassify warrants from equity to warrant liabilities. Warrants are fair
valued quarterly using the Black-Scholes Merton Model and changes in fair value
are recorded to the statement of operations. We recorded a gain of $22,000
classified as a change in fair value of warrants on our statement of operations
for the three months ended June 30, 2010 and we recorded a charge of $627,000 in
2009.
Loss
on sale of marketable equity securities
During
the three month period ended June 30, 2010 we recorded a gain of approximately
$1,000 on the sale of our Cablecom Holding shares and we recorded a loss of
approximately $10,000 during the same period of 2009.
Impairment
of intangibles
Our
Shandong Media joint venture has not experienced the growth
anticipated. We prepared an analysis and accordingly recorded an
impairment charge of $900,000 to our Shandong Media intangibles which include
publication rights, operating permits and customer relationships during the
second quarter of 2010.
Impairment
of equipment
During
the second quarter of
2010, based on our best estimate, the Company recorded an impairment reserve of
$750,000 related to the equipment at our Jinan Broadband subsidiary. In
July 2010, the equipment was taken out of service due to changes in customer
needs. The net book value of the equipment is $1,483,000. During the
next quarter, the Company will evaluate whether there are other uses for the
equipment or whether the equipment can be sold.
Net
Income/Loss Attributable to Noncontrolling Interest
49% of
the operating loss of our Jinan Broadband subsidiary is allocated to Jinan
Parent, the 49% co-owner of this business. During the three months ended
June 30, 2010, $735,000 of our operating losses from Jinan Broadband was
allocated to Jinan Parent, as compared to $142,000 during the same period of
2009.
50% of
the operating loss of our Shandong Media joint venture is allocated to our 50%
Shandong Newspaper joint venture partner. During the three months ended
June 30, 2010, $582,000 of our operating loss from Shandong Media was allocated
to Shandong Newspaper, as compared to $3,000 of operating income during the same
period of 2009.
Net
Loss Attributable to Shareholders
Net loss
attributable to shareholders for the three months ended June 30, 2010 was
$1,663,000, an increase of $150,000, or 10%, as compared to $1,513,000 for the
three months ended June 30, 2009. The increase is primarily due to
impairment charges recognized in 2010 related to our Shandong Media intangibles
and Jinan Broadband equipment offset by the recognition of a $627,000 charge due
to the increase in the fair value of warrant liabilities in
2009.
The
following table breaks down the results of operations for the three months ended
June 30, 2010 and 2009 between our VIE operating companies and our non-operating
companies. Our VIE operating companies include Jinan Broadband and
Shandong Media.
|
|
3
Months Ended
|
|
|
3
Months Ended
|
|
|
|
June
30, 2010
|
|
|
June
30, 2009
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Non-
|
|
|
|
|
|
|
|
|
Total
|
|
|
Non-
|
|
|
|
|
|
|
Operating
|
|
|
Revenue
|
|
|
Operating
|
|
|
Total
|
|
|
Operating
|
|
|
Revenue
|
|
|
Operating
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,817,000
|
|
|
|
|
|
$
|
-
|
|
|
$
|
1,817,000
|
|
|
$
|
1,989,000
|
|
|
|
|
|
$
|
-
|
|
|
$
|
1,989,000
|
|
Cost
of revenue
|
|
|
1,035,000
|
|
|
|
|
|
|
-
|
|
|
|
1,035,000
|
|
|
|
1,103,000
|
|
|
|
|
|
|
-
|
|
|
|
1,103,000
|
|
Gross
profit
|
|
|
782,000
|
|
|
|
43
|
%
|
|
|
-
|
|
|
|
782,000
|
|
|
|
886,000
|
|
|
|
45
|
%
|
|
|
-
|
|
|
|
886,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and adminstrative expenses
|
|
|
418,000
|
|
|
|
23
|
%
|
|
|
198,000
|
|
|
|
616,000
|
|
|
|
531,000
|
|
|
|
27
|
%
|
|
|
210,000
|
|
|
|
741,000
|
|
Professional
fees
|
|
|
-
|
|
|
|
0
|
%
|
|
|
381,000
|
|
|
|
381,000
|
|
|
|
12,000
|
|
|
|
1
|
%
|
|
|
170,000
|
|
|
|
182,000
|
|
Depreciation
and amortization
|
|
|
816,000
|
|
|
|
45
|
%
|
|
|
141,000
|
|
|
|
957,000
|
|
|
|
760,000
|
|
|
|
38
|
%
|
|
|
145,000
|
|
|
|
905,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(452,000
|
)
|
|
|
-11
|
%
|
|
|
(720,000
|
)
|
|
|
(1,172,000
|
)
|
|
|
(417,000
|
)
|
|
|
-21
|
%
|
|
|
(525,000
|
)
|
|
|
(942,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
& other income / (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
1,000
|
|
|
|
|
|
|
|
-
|
|
|
|
1,000
|
|
|
|
2,000
|
|
|
|
|
|
|
|
-
|
|
|
|
2,000
|
|
Interest
expense
|
|
|
-
|
|
|
|
|
|
|
|
(182,000
|
)
|
|
|
(182,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
(90,000
|
)
|
|
|
(90,000
|
)
|
Change
in fair value of warrant liabilities
|
|
|
-
|
|
|
|
|
|
|
|
22,000
|
|
|
|
22,000
|
|
|
|
-
|
|
|
|
|
|
|
|
(627,000
|
)
|
|
|
(627,000
|
)
|
Gain
(loss) on sale of securities
|
|
|
-
|
|
|
|
|
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
-
|
|
|
|
|
|
|
|
(10,000
|
)
|
|
|
(10,000
|
)
|
Impairment
of intangibles
|
|
|
-
|
|
|
|
|
|
|
|
(900,000
|
)
|
|
|
(900,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Impairment
of equipment
|
|
|
(750,000
|
)
|
|
|
|
|
|
|
-
|
|
|
|
(750,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
|
|
|
|
(2,000
|
)
|
|
|
(2,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes and noncontrolling interest
|
|
|
(1,201,000
|
)
|
|
|
|
|
|
|
(1,781,000
|
)
|
|
|
(2,982,000
|
)
|
|
|
(415,000
|
)
|
|
|
|
|
|
|
(1,252,000
|
)
|
|
|
(1,667,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
|
-
|
|
|
|
|
|
|
|
246,000
|
|
|
|
246,000
|
|
|
|
-
|
|
|
|
|
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
(1,201,000
|
)
|
|
|
|
|
|
|
(1,535,000
|
)
|
|
|
(2,736,000
|
)
|
|
|
(415,000
|
)
|
|
|
|
|
|
|
(1,237,000
|
)
|
|
|
(1,652,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to noncontrolling interest
|
|
|
1,317,000
|
|
|
|
|
|
|
|
-
|
|
|
|
1,317,000
|
|
|
|
139,000
|
|
|
|
|
|
|
|
-
|
|
|
|
139,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to shareholders
|
|
$
|
116,000
|
|
|
|
|
|
|
$
|
(1,535,000
|
)
|
|
$
|
(1,419,000
|
)
|
|
$
|
(276,000
|
)
|
|
|
|
|
|
$
|
(1,237,000
|
)
|
|
$
|
(1,513,000
|
)
|
Comparison of Six months
Ended June 30, 2010 and 2009
The following
table sets forth key components of our results of operations for the periods
indicated
.
|
|
6 Months Ended
|
|
|
Amount
|
|
|
%
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
Increase
/
|
|
|
Increase
/
|
|
|
|
2010
|
|
|
2009
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
3,693,000
|
|
|
$
|
3,939,000
|
|
|
$
|
(246,000
|
)
|
|
|
-6
|
%
|
Cost
of revenue
|
|
|
2,109,000
|
|
|
|
2,277,000
|
|
|
|
(168,000
|
)
|
|
|
-7
|
%
|
Gross
profit
|
|
|
1,584,000
|
|
|
|
1,662,000
|
|
|
|
(78,000
|
)
|
|
|
-5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and adminstrative expenses
|
|
|
1,339,000
|
|
|
|
1,459,000
|
|
|
|
(120,000
|
)
|
|
|
-8
|
%
|
Professional
fees
|
|
|
550,000
|
|
|
|
292,000
|
|
|
|
258,000
|
|
|
|
88
|
%
|
Depreciation
and amortization
|
|
|
1,903,000
|
|
|
|
1,736,000
|
|
|
|
167,000
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(2,208,000
|
)
|
|
|
(1,825,000
|
)
|
|
|
(383,000
|
)
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
& other income / (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
2,000
|
|
|
|
5,000
|
|
|
|
(3,000
|
)
|
|
|
-60
|
%
|
Interest
expense
|
|
|
(274,000
|
)
|
|
|
(176,000
|
)
|
|
|
(98,000
|
)
|
|
|
56
|
%
|
Change
in fair value of warrant liabilities
|
|
|
64,000
|
|
|
|
(1,241,000
|
)
|
|
|
1,305,000
|
|
|
|
-105
|
%
|
Gain
(loss) on sale of securities
|
|
|
1,000
|
|
|
|
(31,000
|
)
|
|
|
32,000
|
|
|
|
-103
|
%
|
Impairment
of intangibles
|
|
|
(900,000
|
)
|
|
|
-
|
|
|
|
(900,000
|
)
|
|
|
-
|
|
Impairment
of equipment
|
|
|
(750,000
|
)
|
|
|
-
|
|
|
|
(750,000
|
)
|
|
|
-
|
|
Other
|
|
|
1,000
|
|
|
|
-
|
|
|
|
1,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes and noncontrolling interest
|
|
|
(4,064,000
|
)
|
|
|
(3,268,000
|
)
|
|
|
(796,000
|
)
|
|
|
24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
|
260,000
|
|
|
|
29,000
|
|
|
|
231,000
|
|
|
|
797
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss, net of tax
|
|
|
(3,804,000
|
)
|
|
|
(3,239,000
|
)
|
|
|
(565,000
|
)
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus:
Net loss attributable to noncontrolling interests
|
|
|
1,580,000
|
|
|
|
384,000
|
|
|
|
1,196,000
|
|
|
|
311
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to China Broadband shareholders
|
|
$
|
(2,224,000
|
)
|
|
$
|
(2,855,000
|
)
|
|
$
|
631,000
|
|
|
|
-22
|
%
|
Revenues
Our
revenues are generated by our operating companies in the PRC. Revenues for
the six months ended June 30, 2010 totaled $3,693,000, as compared to $3,939,000
for the six months ended June 30, 2009, a decrease of approximately $246,000, or
6%.
Jinan
Broadband’s revenue consists primarily of sales to our PRC based internet
consumers, cable modem consumers, business customers and other internet and
cable services. For the six months ended June 30, 2010, revenues totaled
$2,310,000, an increase of $86,000, or 4%, as compared to revenues of $2,224,000
for the same period of 2009. The increase is attributable to increased sales to
business customers.
Shandong
Media’s revenue consists primarily of sales of publications and advertising
revenues. For the six months ended June 30, 2010, revenues totaled
$1,383,000, a decrease of $332,000, or 19%, as compared to revenues of
$1,715,000 for the same period of 2009. Although we had decreases in both
our publication and advertising revenues, the decrease is mainly attributable to
decreases in advertising revenue which can be directly correlated to the decline
of the advertising market as a whole in China. We believe this decrease to
be temporary. We will continue to look to increase our advertising sales
for the publishing side of the business. We have experienced
advertising growth from Q1 to Q2 of 2010.
Gross
Profit
Our gross
profit for the six months ended June 30, 2010 was $1,584,000, as compared to
$1,662,000 for the six months ended June 30, 2009, a decrease of approximately
$78,000, or 5%. Jinan Broadband’s gross profit increased $16,000, or 2%,
mainly due to increased revenue. Shandong Media’s gross profit decreased
$104,000, or 17%, primarily due to decreased revenues.
Gross
profit as a percentage of revenue was 43% for the six months ended June 30,
2010, as compared to 42% for the six months ended June 30, 2009
.
Selling,
General and Administrative Expenses
Our
selling, general and administrative expenses for the six months ended June 30,
2010 decreased approximately $120,000 to $1,339,000, as compared to $1,459,000
for the six months ended June 30, 2009.
Salaries
and personnel costs are the major component of selling, general and
administrative expenses. For the six months ended June 30, 2010, salaries and
personnel costs totaled $847,000, a decrease of $4,000 or 1/2% as compared to
$851,000 for the same period of 2009. During the six months ended June 30, 2010,
salaries and personnel costs accounted for 59% of our selling, general and
administrative expenses.
We expect
our selling, general and administrative expenses will increase as we continue to
grow our business.
Professional
Fees
Our
professional fees are generally related to public company reporting and
governance expenses as well as costs related to our acquisitions. Our
costs for professional fees increased $258,000, or 88%, to $550,000 during the
six months ended June 30, 2010 from $292,000 in 2009. Increases for
this period relate to current fundraising activities. See “Recent
Developments” above
Depreciation
and Amortization
Our
depreciation expense increased $111,000, or 7%, to $1,620,000 for the six months
ended June 30, 2010 from $1,509,000 in 2009. The increase is mainly due to
the acquisition of new equipment by our Jinan Broadband subsidiary.
Our
amortization expense increased $56,000, or 24%, to $283,000 for the six months
ended June 30, 2010 from $227,000 in 2009. The increase is mainly due to
the amortization expense related to our software technology acquired from our
AdNet Media acquisition.
Interest
and Other Income (Expense), net
Interest
income
Our
interest income decreased $3,000, or 60%, to $2,000 for the three months ended
June 30, 2010 from $5,000 in 2009
Interest
expense
Interest
expense is related to our 5% Convertible Notes issued in January 2008 and June
2009 and our April 2010 convertible note. Interest expense increased
$98,000, or 56%, to $274,000 for the six months ended June 30, 2010 from
$176,000 in 2009, primarily due to additional convertible notes issued in 2009
and 2010. Interest expense includes amortization of the original issue
discount on the notes resulting from the allocation of fair value to the
warrants issued in the financing. Interest on the Notes compounds
monthly at the annual rate of five percent (5%). The outstanding principal
amount of the January 2008 Notes as of June 30, 2010 was $4,971,250, net of
original issue discount of $504,661. The outstanding principal amount on
the June 2009 Notes as of December 31, 2009 was approximately
$305,000.
We expect
our interest expense to decrease substantially. Simultaneous with the
closing of the financings on July 30, 2010 (see “Recent Developments” above),
and pursuant to a Waiver and Agreement to Convert, dated May 20, 2010, the note
holders agreed to convert 100% of the outstanding principal and interest owing
on such notes into shares of common stock and warrants. In addition,
the convertible promissory note issued in April 2010 was paid in
full.
Change
in fair value of warrant liabilities
Under new
authoritative guidance, effective January 1, 2009, the Company was required to
reclassify warrants from equity to warrant liabilities. Warrants are fair
valued quarterly using the Black-Scholes Merton Model and changes in fair value
are recorded to the statement of operations. We recorded a gain of $64,000
classified as a change in fair value of warrants on our statement of operations
for the six months ended June 30, 2010 and we recorded a charge of $1,241,000 in
2009.
Loss
on sale of marketable equity securities
During
the six month period ended June 30, 2010 we recorded a gain of approximately
$1,000 on the sale of our Cablecom Holding shares and we recorded a loss of
approximately $31,000 during the same period of 2009.
Impairment
of intangibles
Our
Shandong Media joint venture has not experienced the growth
anticipated. We prepared an analysis and accordingly recorded an
impairment charge of $900,000 to our Shandong Media intangibles which include
publication rights, operating permits and customer relationships during the
second quarter of 2010.
Impairment
of equipment
During
the second quarter of
2010, based on our best estimate, the Company recorded an impairment reserve of
$750,000 related to the equipment at our Jinan Broadband subsidiary. In
July 2010, the equipment was taken out of service due to changes in customer
needs. The net book value of the equipment is $1,483,000. During the
next quarter, the Company will evaluate whether there are other uses for the
equipment or whether the equipment can be sold.
Net
Loss Attributable to Noncontrolling Interest
49% of
the operating loss of our Jinan Broadband subsidiary is allocated to Jinan
Parent, the 49% co-owner of this business. During the six months ended
June 30, 2010, $938,000 of our operating losses from Jinan Broadband was
allocated to Jinan Parent, as compared to $366,000 during the same period of
2009.
50% of
the operating loss of our Shandong Media joint venture is allocated to our 50%
Shandong Newspaper joint venture partner. During the six months ended June
30, 2010, $642,000 of our operating loss from Shandong Media was allocated to
Shandong Newspaper, as compared to $18,000 during the same period of
2009.
Net
Loss Attributable to Shareholders
Net loss
attributable to shareholders for the six months ended June 30, 2010 was
$2,468,000, an increase of $387,000, or 14%, as compared to $2,855,000 for the
six months ended June 30, 2009. The increase is primarily due to
impairment charges recognized in 2010 related to our Shandong Media intangibles
and Jinan Broadband equipment offset by the recognition of a $1,241,000 charge
due to the increase in the fair value of warrant liabilities in
2009.
The
following table breaks down the results of operations for the six months ended
June 30, 2010 and 2009 between our VIE operating companies and our non-operating
companies. Our VIE operating companies include Jinan Broadband and
Shandong Media.
|
|
6
Months Ended
|
|
|
6
Months Ended
|
|
|
|
June
30, 2010
|
|
|
June
30, 2009
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Non-
|
|
|
|
|
|
|
|
|
Total
|
|
|
Non-
|
|
|
|
|
|
|
Operating
|
|
|
Revenue
|
|
|
Operating
|
|
|
Total
|
|
|
Operating
|
|
|
Revenue
|
|
|
Operating
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
3,693,000
|
|
|
|
|
|
$
|
-
|
|
|
$
|
3,693,000
|
|
|
$
|
3,939,000
|
|
|
|
|
|
$
|
-
|
|
|
$
|
3,939,000
|
|
Cost
of revenue
|
|
|
2,109,000
|
|
|
|
|
|
|
-
|
|
|
|
2,109,000
|
|
|
|
2,277,000
|
|
|
|
|
|
|
-
|
|
|
|
2,277,000
|
|
Gross
profit
|
|
|
1,584,000
|
|
|
|
43
|
%
|
|
|
-
|
|
|
|
1,584,000
|
|
|
|
1,662,000
|
|
|
|
42
|
%
|
|
|
-
|
|
|
|
1,662,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and adminstrative expenses
|
|
|
952,000
|
|
|
|
26
|
%
|
|
|
389,000
|
|
|
|
1,341,000
|
|
|
|
1,056,000
|
|
|
|
27
|
%
|
|
|
403,000
|
|
|
|
1,459,000
|
|
Professional
fees
|
|
|
-
|
|
|
|
0
|
%
|
|
|
549,000
|
|
|
|
549,000
|
|
|
|
16,000
|
|
|
|
0
|
%
|
|
|
276,000
|
|
|
|
292,000
|
|
Depreciation
and amortization
|
|
|
1,621,000
|
|
|
|
44
|
%
|
|
|
281,000
|
|
|
|
1,902,000
|
|
|
|
1,510,000
|
|
|
|
38
|
%
|
|
|
226,000
|
|
|
|
1,736,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(989,000
|
)
|
|
|
-27
|
%
|
|
|
(1,219,000
|
)
|
|
|
(2,208,000
|
)
|
|
|
(920,000
|
)
|
|
|
-23
|
%
|
|
|
(905,000
|
)
|
|
|
(1,825,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
& other income / (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
2,000
|
|
|
|
|
|
|
|
-
|
|
|
|
2,000
|
|
|
|
5,000
|
|
|
|
|
|
|
|
-
|
|
|
|
5,000
|
|
Interest
expense
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
(273,000
|
)
|
|
|
(274,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
(176,000
|
)
|
|
|
(176,000
|
)
|
Change
in fair value of warrant liabilities
|
|
|
-
|
|
|
|
|
|
|
|
64,000
|
|
|
|
64,000
|
|
|
|
-
|
|
|
|
|
|
|
|
(1,241,000
|
)
|
|
|
(1,241,000
|
)
|
Gain
(loss) on sale of securities
|
|
|
-
|
|
|
|
|
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
-
|
|
|
|
|
|
|
|
(31,000
|
)
|
|
|
(31,000
|
)
|
Impairment
of intangibles
|
|
|
-
|
|
|
|
|
|
|
|
(900,000
|
)
|
|
|
(900,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Impairment
of equipment
|
|
|
(750,000
|
)
|
|
|
|
|
|
|
-
|
|
|
|
(750,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
|
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes and noncontrolling interest
|
|
|
(1,738,000
|
)
|
|
|
|
|
|
|
(2,326,000
|
)
|
|
|
(4,064,000
|
)
|
|
|
(915,000
|
)
|
|
|
|
|
|
|
(2,353,000
|
)
|
|
|
(3,268,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
|
-
|
|
|
|
|
|
|
|
260,000
|
|
|
|
260,000
|
|
|
|
-
|
|
|
|
|
|
|
|
29,000
|
|
|
|
29,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss, net of tax
|
|
|
(1,738,000
|
)
|
|
|
|
|
|
|
(2,066,000
|
)
|
|
|
(3,804,000
|
)
|
|
|
(915,000
|
)
|
|
|
|
|
|
|
(2,324,000
|
)
|
|
|
(3,239,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus:
Net loss attributable to noncontrolling interest
|
|
|
1,580,000
|
|
|
|
|
|
|
|
-
|
|
|
|
1,580,000
|
|
|
|
384,000
|
|
|
|
|
|
|
|
-
|
|
|
|
384,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to China Broadband shareholders
|
|
$
|
(158,000
|
)
|
|
|
|
|
|
$
|
(2,066,000
|
)
|
|
$
|
(2,224,000
|
)
|
|
$
|
(531,000
|
)
|
|
|
|
|
|
$
|
(2,324,000
|
)
|
|
$
|
(2,855,000
|
)
|
Liquidity
and Capital Resources
As of
June 30, 2010 we had cash and cash equivalents of approximately
$1,607,000. The following sets forth a summary of the Company’s cash flows
for the six months ended June 30, 2010 and 2009:
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
Net
cash provided by operating activities
|
|
$
|
256,000
|
|
|
$
|
166,000
|
|
Net
cash used in investing activities
|
|
|
(1,566,000
|
)
|
|
|
(693,000
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
732,000
|
|
|
|
(2,046,000
|
)
|
Effect
of exchange rate changes on cash
|
|
|
(5,000
|
)
|
|
|
22,000
|
|
Net
decrease in cash and cash equivalents
|
|
|
(583,000
|
)
|
|
|
(2,551,000
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
2,190,000
|
|
|
|
4,426,000
|
|
Cash
and cash equivalents at end of period
|
|
|
1,607,000
|
|
|
|
1,875,000
|
|
Operating
activities
Cash
provided by operating activities for the six months ended June 30, 2010 and 2009
was $256,000 and $166,000, respectively.
Investing
activities
Investing
activities for the six months ended June 30, 2010 and 2009 used cash of
$1,566,000 and $693,000, respectively. For 2010, this amount consisted
primarily of (i) $469,000 for additions to property, (ii) $580,000 loan to
Sinotop Group Ltd for our acquisition (see “Recent Developments” above) and
(iii) $526,000 loan to our Shandong Media shareholders. For 2009, this
amount consisted primarily of (i) $237,000 for additions to property and
equipment and (ii) $552,000 loan to our Shandong Media
shareholders.
Financing
activities
Financing
activities for the six months ended 2010 and 2009 provided (used) cash of
$732,000 and ($2,046,000), respectively. For 2010, the amount consisted
primarily of $750,000 from the issuance of a convertible notes payable.
For 2009, the amount was due to an increase in the payable to Jinan Parent in
the amount of $2,643,000 offset by total proceeds of approximately $605,000 from
the sale of equity securities and the issuance of convertible notes
payable.
As
discussed above, on July 30, 2010, we consummated financings which resulted in
gross proceeds to the Company of $9.625 million. While we believe
that the proceeds from these financings will sustain our business operations for
the near term, we anticipate that we will need to raise additional funds to
fully implement our business model and related strategies. In
addition, the fact that we have incurred significant continuing losses during
the first six months of 2010, had a working capital deficit at June 30, 2010,
and have relied on debt and equity financings to fund out operations to date,
could raise substantial doubt about our ability to continue as a going
concern.
Obligations
Under Material Contracts
On March
7, 2008, we entered into the Shandong Media Cooperation Agreement with Shandong
Broadcast & TV Weekly Press and Modern Movie & TV Biweekly Press,
pursuant to which Shandong Broadcast & TV Weekly Press and Modern Movie
& TV Biweekly Press contributed their entire businesses and transferred
certain employees to Shandong Media in exchange for a 50% stake in Shandong
Media, with the other 50% of Shandong Media to be owned by our WFOE in the
PRC. In exchange, we were required to pay approximately $1.5 million
(approximately 10 million RMB), which was contributed to Shandong Media as
working and acquisition capital.
Based on
certain financial performance we were required to make an additional payment of
5 million RMB (approximately US $730,000). In 2008 we recorded the
additional payment due as an increase to our Shandong noncontrolling interest
account. We are currently in discussions with Shandong Broadcast & TV
Weekly Press and Modern Movie & TV Biweekly Press with regards to this
payment.
On June
30, 2009, we consummated a note offering pursuant to which we issued
$304,902 principal amount of notes to nine investors. The notes accrue
interest at 5% per year payable quarterly in cash or stock, were initially
convertible at $.20 per share, and become due and payable in full on May 27,
2010. Simultaneous with the closing of the financings above, and pursuant to (i)
a Waiver and Agreement to Convert, dated May 20, 2010, with the holders of an
aggregate of $4,971,250 in principal amount of notes of the Company, dated
January 11, 2008, and (ii) a Waiver and Agreement to Convert, dated May 20,.
2010, with the holders of an aggregate of $304,902 in principal amount of notes
of the Company, dated June 30, 2009, the holders of such notes agreed to convert
100% of the outstanding principal and interest owing on such notes into an
aggregate of 62,855,048 shares of Common Stock, 4,266,800 shares of Series B
Preferred Stock and warrants for the purchase of an aggregate of 105,523,048
shares of Common Stock, as set forth in the respective waivers.
Critical
Accounting Policies and Significant Judgments and Estimates
The
discussion and analysis of our financial condition and results of operation are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. Note 2 to the consolidated financial statements in our Annual
Report on Form 10-K for the year ended December 31, 2009 includes a summary of
our most significant accounting policies. There have been no material
changes to the critical accounting policies previously disclosed in our 2009
Annual Report on Form 10-K. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of assets and
liabilities. On an ongoing basis, we evaluate our estimates and judgments,
including those related to revenue recognition, inventories, securities
available for sale, income taxes, stock-based compensation and warrant
liabilities. Management bases its estimates on historical experience and
on various other factors that are believed to be reasonable under the
circumstances, the results of which form the 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. Periodically, we review our critical
accounting estimates with the Audit Committee of our Board of
Directors.
Recent
Accounting Pronouncements
Refer to
Note 3 for to the financial statements for updates on recent accounting
pronouncements since the filing of our 2009 annual report on Form
10-K.
Off-Balance
Sheet Arrangements
We do not
have any off balance sheet arrangements that are reasonably likely to have a
current or future effect on our financial condition, revenues, results of
operations, liquidity or capital expenditures.
Item
3. Quantitative and Qualitative Disclosures about Market Risk
We are a
smaller reporting company as defined by Rule 12b-2 of the Securities Exchange
Act of 1934 and are not required to provide the information under this
item.
Item
4. Controls and Procedures
a.
Evaluation of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under
the Exchange Act) that are designed to ensure that information that would be
required to be disclosed in Exchange Act reports is recorded, processed,
summarized and reported within the time period specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to our
management, including to our Principal Executive Officer and Principal Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.
As
required by Rule 13a-15 under the Exchange Act, our management,
including our Principal Executive Officer and Principal Financial Officer,
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of June 30, 2010. Based on that evaluation, our
Principal Executive Officer and Principal Financial Officer concluded that
as of June 30, 2010, and as of the date that the evaluation of the effectiveness
of our disclosure controls and procedures was completed, our disclosure controls
and procedures were not effective to satisfy the objectives for which they are
intended. Until recently, we have not had the resources to
effectively monitor new accounting pronouncements, which has resulted in a
material weakness in our internal controls and procedures.
As a
result of this weakness, we have restated our financial statements for the three
months ended March 30, 2009 the three and six months ended June 30, 2009 and the
three and nine months ended September 30, 2009.
Although the material
weaknesses existed at June 30, 2010, we have hired outside consultants to cure
this weakness and help improve our internal controls.
b.
Changes in Internal Control over Financial Reporting
There
have been no changes in our internal control over financial reporting during the
period covered by this report that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings.
There are
no material pending legal proceedings to which we are a party or to which any of
our property is subject. To the best of our knowledge, no such actions against
us are contemplated or threatened.
Item
1A. Risk Factors
The
discussion of our business and operations should be read together with the risk
factors contained in Part I, Item 1A of our Annual Report on Form 10-K for the
year ended December 31, 2009, which describes the various risks and
uncertainties to which we are or may become subject to.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item
3. Defaults Upon Senior Securities.
None.
Item
4. Removed and Reserved
Item
5. Other Information.
None.
Item 6. Exhibits.
EXHIBIT
INDEX
Exhibit
No.
|
|
Description
|
3.1
|
|
Amended
and Restated Bylaws of the Company
|
3.2
|
|
Certificate
of Designations of Preferences, Rights and Limitations of Series A
Preferred Stock
|
3.3
|
|
Certificate
of Designations of Preferences, Rights and Limitations of Series B
Preferred Stock
|
4.1
|
|
Form
of Warrant issued pursuant to the Securities Purchase Agreement dated May
20, 2010
|
4.2
|
|
Form
of Warrant issued pursuant to the Series A Securities Purchase Agreement
dated May 20, 2010, as amended on July 30, 2010.
|
4.3
|
|
Form
of Warrant issued pursuant to the Series B Securities Purchase Agreement
dated May 20, 2010.
|
4.4
|
|
Form
of Registration Rights Agreement dated July 30, 2010 pursuant to the
Securities Purchase Agreement dated May 20, 2010.
|
4.5
|
|
Registration
Rights Agreement dated July 30, 2010 between the Company and Shane
McMahon.
|
4.6
|
|
Registration
Rights Agreement dated July 30, 2010 pursuant to the Series B Securities
Purchase Agreement dated May 20, 2010.
|
10.1
|
|
Form
of Securities Purchase Agreement dated May 20, 2010
|
10.2
|
|
Form
of Series A Securities Purchase Agreement, dated May 20,
2010
|
10.3.
|
|
Form
of Series B Securities Purchase Agreement dated May 20,
2010.
|
10.4
|
|
Form
of Waiver and Agreement to Convert, dated May 20, 2010
|
10.5
|
|
Form
of Waiver and Agreement to Convert, dated May 20, 2010
|
10.6
|
|
Loan
Cancellation Agreement, dated May 20, 2010, between the Company and Steven
Oliveira
|
10.7
|
|
Loan
Cancellation and Note Assignment Agreement, dated June 24, 2010, between
the Company and Chardan SPAC Asset Management LLC
|
10.8
|
|
First
Amendment to Series A Securities Purchase Agreement, dated July 30,
2010
|
10.9
|
|
Employment
Agreement, dated July 30, 2010 between the Company and Shane
McMahon
|
10.10
|
|
Employment
Agreement, dated July 30, 2010 between the Company and Weicheng
Liu
|
10.11
|
|
Employment
Agreement, dated July 30, 2010 between the Company and Marc
Urbach
|
10.12
|
|
Employment
Agreement, dated July 30, 2010 between the Company and Clive
Ng
|
10.13
|
|
Ordinary
Share Purchase Agreement, dated July 30, 2010, among the Company, China
Broadband Ltd. and Weicheng Liu
|
31.1
|
|
Certification
by Chief Executive Officer pursuant to Sarbanes Oxley Section
302.
|
31.2
|
|
Certification
by Chief Financial Officer pursuant to Sarbanes Oxley Section
302.
|
32.1
|
|
Certification
by Chief Executive Officer pursuant to 18 U.S.C. Section
1350.
|
32.2
|
|
Certification
by Chief Financial Officer pursuant to 18 U.S.C. Section
1350.
|
SIGNATURES
In
accordance with 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 thereunto duly authorized on August 23, 2010.
|
CHINA
BROADBAND, INC
|
|
|
|
|
By:
|
/s/
Marc Urbach
|
|
|
Name:
Marc Urbach
|
|
|
Title:
President (Principal Executive Officer, Principal Accounting Officer
and Principal
Financial
Officer)
|
|
|
|
Exhibit
Index
Exhibit
No.
|
|
Description
|
3.1
|
|
Amended
and Restated Bylaws of the Company
|
3.2
|
|
Certificate
of Designations of Preferences, Rights and Limitations of Series A
Preferred Stock
|
3.3
|
|
Certificate
of Designations of Preferences, Rights and Limitations of Series B
Preferred Stock
|
4.1
|
|
Form
of Warrant issued pursuant to the Securities Purchase Agreement dated May
20, 2010
|
4.2
|
|
Form
of Warrant issued pursuant to the Series A Securities Purchase Agreement
dated May 20, 2010, as amended on July 30, 2010.
|
4.3
|
|
Form
of Warrant issued pursuant to the Series B Securities Purchase Agreement
dated May 20, 2010.
|
4.4
|
|
Form
of Registration Rights Agreement dated July 30, 2010 pursuant to the
Securities Purchase Agreement dated May 20, 2010.
|
4.5
|
|
Registration
Rights Agreement dated July 30, 2010 between the Company and Shane
McMahon.
|
4.6
|
|
Registration
Rights Agreement dated July 30, 2010 pursuant to the Series B Securities
Purchase Agreement dated May 20, 2010.
|
10.1
|
|
Form
of Securities Purchase Agreement dated May 20, 2010
|
10.2
|
|
Form
of Series A Securities Purchase Agreement, dated May 20,
2010
|
10.3.
|
|
Form
of Series B Securities Purchase Agreement dated May 20,
2010.
|
10.4
|
|
Form
of Waiver and Agreement to Convert, dated May 20, 2010
|
10.5
|
|
Form
of Waiver and Agreement to Convert, dated May 20, 2010
|
10.6
|
|
Loan
Cancellation Agreement, dated May 20, 2010, between the Company and Steven
Oliveira
|
10.7
|
|
Loan
Cancellation and Note Assignment Agreement, dated June 24, 2010, between
the Company and Chardan SPAC Asset Management LLC
|
10.8
|
|
First
Amendment to Series A Securities Purchase Agreement, dated July 30,
2010
|
10.9
|
|
Employment
Agreement, dated July 30, 2010 between the Company and Shane
McMahon
|
10.10
|
|
Employment
Agreement, dated July 30, 2010 between the Company and Weicheng
Liu
|
10.11
|
|
Employment
Agreement, dated July 30, 2010 between the Company and Marc
Urbach
|
10.12
|
|
Employment
Agreement, dated July 30, 2010 between the Company and Clive
Ng
|
10.13
|
|
Ordinary
Share Purchase Agreement, dated July 30, 2010, among the Company, China
Broadband Ltd. and Weicheng Liu
|
31.1
|
|
Certification
by Chief Executive Officer pursuant to Sarbanes Oxley Section
302.
|
31.2
|
|
Certification
by Chief Financial Officer pursuant to Sarbanes Oxley Section
302.
|
32.1
|
|
Certification
by Chief Executive Officer pursuant to 18 U.S.C. Section
1350.
|
32.2
|
|
Certification
by Chief Financial Officer pursuant to 18 U.S.C. Section
1350.
|
Exhibit 3.1
AMENDED
AND RESTATED BYLAWS
OF
CHINA
BROADBAND INC.
(the
“Corporation”)
Adopted
on July 30, 2010
ARTICLE
I
OFFICES
Section
1.1.
Registered Office
.
The registered office and registered agent of the Corporation shall be as from
time to time set forth in the Corporation’s Articles of
Incorporation.
Section
1.2.
Other Offices
. The
Corporation may also have offices at such other places, both within and without
the State of Nevada, as the Board of Directors may from time to time determine
or the business of the Corporation may require.
ARTICLE
II
STOCKHOLDERS
Section
2.1.
Place of Meetings
.
All meetings of the stockholders for the election of Directors shall be held at
such place, within or without the State of Nevada, as may be fixed from time to
time by the Board of Directors. Meetings of stockholders for any
other purpose may be held at such time and place, within or without the State of
Nevada, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section
2.2.
Annual Meeting
. An
annual meeting of the stockholders shall be held at such time as may be
determined by the Board of Directors, at which meeting the stockholders shall
elect a Board of Directors and transact such other business as may properly be
brought before the meeting.
Section
2.3.
List of Stockholders
.
At least ten days before each meeting of stockholders, a complete list of the
stockholders entitled to vote at such meeting, arranged in alphabetical order,
with the address of and the number of voting shares registered in the name of
each, shall be prepared by the officer or agent having charge of the stock
transfer books. Such list shall be kept on file at the registered
office of the Corporation for a period of ten days prior to such meeting and
shall be subject to inspection by any stockholder at any time during usual
business hours. Such list shall be produced and kept open at the time and place
of the meeting during the whole time thereof, and shall be subject to the
inspection of any stockholder who may be present.
Section
2.4.
Special Meetings
.
Special meetings of the stockholders, for any purpose or purposes, unless
otherwise prescribed by law, by the Articles of Incorporation or by these
Amended and Restated Bylaws, may be called by the Chief Executive Officer or the
President or the Board of Directors, or shall be called by the President or
Secretary at the request in writing of the holders of not less than thirty
percent
of all the
shares issued, outstanding and entitled to vote. Such request shall state the
purpose or purposes of the proposed meeting. Business transacted at
all special meetings shall be confined to the purposes stated in the notice of
the meeting unless all stockholders entitled to vote are present and
consent.
Section
2.5.
Notice
. Written or
printed notice stating the place, day and hour of any meeting of the
stockholders and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than ten nor more than
sixty days before the date of the meeting, either personally or by mail, by or
at the direction of the Chief Executive Officer, the President, the Secretary,
or the officer or person calling the meeting, to each stockholder of record
entitled to vote at the meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the mail, addressed to the stockholder
at his address as it appears on the stock transfer books and records of the
Corporation or its transfer agent, with postage thereon prepaid.
Section
2.6.
Quorum
. At all
meetings of the stockholders, the presence in person or by proxy of the holders
of a majority of the shares issued and outstanding and entitled to vote shall be
necessary and sufficient to constitute a quorum for the transaction of business
except as otherwise provided by law, by the Articles of Incorporation or by
these Amended and Restated Bylaws. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or
represented. If the adjournment is for more than 30 days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified.
Section
2.7.
Voting
. When a quorum
is present at any meeting of the Corporation’s stockholders, the vote of the
holders of a majority of the shares having voting power present in person or
represented by proxy at such meeting shall decide any questions brought before
such meeting, unless the question is one upon which, by express provision of
law, the Articles of Incorporation or these Amended and Restated Bylaws, a
different vote is required, in which case such express provision shall govern
and control the decision of such question. The stockholders present
at a duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
Section
2.8.
Method of Voting
.
Each outstanding share of the Corporation’s capital stock shall be entitled to
one vote on each matter submitted to a vote at a meeting of stockholders, except
to the extent that the voting rights of the shares of any class or classes are
otherwise provided by applicable law or the Articles of Incorporation, as
amended from time to time. At any meeting of the stockholders, every
stockholder having the right to vote shall be entitled to vote in person or by
proxy appointed by an instrument in writing subscribed by such stockholder or by
his duly authorized attorney-in-fact and bearing a date not more than 6 months
prior to such meeting, unless such instrument provides for a longer
period. Each proxy shall be revocable unless expressly provided
therein to be irrevocable and if, and only so long as, it is coupled with an
interest sufficient in law to support an irrevocable power. Such
proxy shall be filed with the Secretary of the Corporation prior to or at the
time of the meeting. Voting for directors shall be in accordance with
Article III of these Amended and Restated Bylaws. Voting on any
question or in any election may be by voice vote or show of hands unless the
presiding officer shall order or any stockholder shall demand that voting be by
written ballot.
Section
2.9.
Record Date; Closing
Transfer Books
. The Board of Directors may fix in advance a record date
for the purpose of determining stockholders entitled to notice of or to vote at
a meeting of stockholders, such record date to be not less than ten nor more
than sixty days prior to such meeting, or the Board of Directors may close the
stock transfer books for such purpose for a period of not less than ten nor more
than sixty days prior to such meeting. In the absence of any action
by the Board of Directors, the date upon which the notice of the meeting is
mailed shall be the record date.
Section
2.10.
Action By Consent
.
Any action required or permitted by law, the Articles of Incorporation, or these
Amended and Restated Bylaws to be taken at a meeting of the stockholders of the
Corporation may be taken without a meeting if a consent or consents in writing,
setting forth the action so taken, shall be signed by stockholders holding at
least a majority of the voting power; provided that if a different proportion of
voting power is required for such an action at a meeting, then that proportion
of written consents is required. Such signed consent shall be
delivered to the Secretary for inclusion in the Minute Book of the
Corporation.
ARTICLE
III
BOARD
OF DIRECTORS
Section
3.1.
Management
. The
business and affairs of the Corporation shall be managed by or under the
direction of the Board of Directors, who may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law, the
Articles of Incorporation, a stockholders’ agreement or these Amended and
Restated Bylaws directed or required to be exercised or done by the
stockholders.
Section
3.2.
Qualification; Election;
Term
. None of the directors need be a stockholder of the Corporation or a
resident of the State of Nevada. The directors shall be elected by
plurality vote at the annual meeting of the stockholders, except as hereinafter
provided, and each director elected shall hold office until his successor shall
be elected and qualified.
Section
3.3.
Number
. The number of
directors of the Corporation shall be fixed as the Board of Directors may from
time to time designate. No decrease in the number of directors shall
have the effect of shortening the term of any incumbent director.
Section
3.4.
Removal
. Any director
may be removed either for or without cause at any special meeting of
stockholders by the affirmative vote of at least two-thirds of the voting power
of the issued and outstanding stock entitled to vote; provided, however, that
notice of intention to act upon such matter shall have been given in the notice
calling such meeting.
Section
3.5.
Vacancies
. Any
vacancy occurring in the Board of Directors by death, resignation, removal or
otherwise may be filled by an affirmative vote of at least a majority of the
remaining directors though less than a quorum of the Board of
Directors. A director elected to fill a vacancy shall be elected for
the unexpired term of his predecessor in office. A directorship to be
filled by reason of an increase in the number of directors may be filled by the
Board of Directors for a term of office only until the next election of one or
more directors by the stockholders.
Section
3.6.
Place of Meetings
.
Meetings of the Board of Directors, regular or special, may be held at such
place within or without the State of Nevada as may be fixed from time to time by
the Board of Directors.
Section
3.7.
Annual Meeting
. The
first meeting of each newly elected Board of Directors shall be held without
further notice immediately following the annual meeting of stockholders and at
the same place, unless by unanimous consent or unless the directors then elected
and serving shall change such time or place.
Section
3.8.
Regular Meetings
.
Regular meetings of the Board of Directors may be held without notice at such
time and place as shall from time to time be determined by resolution of the
Board of Directors.
Section
3.9.
Special Meetings
.
Special meetings of the Board of Directors may be called by the Chief Executive
Officer or President on oral or written notice to each director, given either
personally, by telephone, by telegram, by mail, by facsimile or by e-mail at
least forty-eight hours prior to the time of the meeting. Special
meetings shall be called by the Chief Executive Officer, President or the
Secretary in like manner and on like notice on the written request of 2
directors. Except as may be otherwise expressly provided by law, the Articles of
Incorporation or these Amended and Restated Bylaws, neither the business to be
transacted at, nor the purpose of, any special meeting need to be specified in a
notice or waiver of notice.
Section
3.10.
Quorum and Voting
. At
all meetings of the Board of Directors the presence of a majority of the number
of directors shall be necessary and sufficient to constitute a quorum for the
transaction of business, and the affirmative vote of at least a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically provided by law,
the Articles of Incorporation or these Amended and Restated
Bylaws. If a quorum shall not be present at any meeting of directors,
the directors present thereat may adjourn the meeting from time to time without
notice other than announcement at the meeting, until a quorum shall be
present.
Section
3.11.
Interested Directors
.
No contract or transaction between the Corporation and one or more of its
directors or officers, or between the Corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers or have a financial interest,
shall be void or voidable solely for this reason, solely because the director or
officer is present at or participates in the meeting of the Board of Directors
or committee thereof which authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose, if: (1) the fact as to
his relationship or interest and as to the contract or transaction is known to
the Board of Directors or the committee, and the Board of Directors or committee
in good faith authorizes the contract or transaction by the affirmative vote of
a majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or (2) the fact as to his relationship or
interest and as to the contract or transaction is known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (3) the contract or
transaction is fair as to the Corporation as of the time it is authorized,
approved, or ratified by the Board of Directors, a committee thereof, or the
stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
Section
3.12.
Action by Consent
.
Any action required or permitted to be taken at any meeting of the Board of
Directors may be taken without such a meeting if a consent or consents in
writing, setting forth the action so taken, is signed by all the members of the
Board of Directors.
Section
3.13.
Compensation of
Directors
. Directors shall receive such compensation for their services,
and reimbursement for their expenses as the Board of Directors, by resolution,
shall establish; provided that nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
ARTICLE
IV
COMMITTEES
Section
4.1.
Designation
. The
Board of Directors may, by resolution passed by a majority of the whole Board,
designate committees, each committee to consist of two or more directors of the
Corporation, which committees shall have such power and authority and shall
perform such functions as may be provided in such resolution.
Section
4.2.
Authority
. Each
committee, to the extent provided in such resolution, shall have and may
exercise all of the authority of the Board of Directors in the management of the
business and affairs of the Corporation, except where action of the full Board
of Directors is required by statute or by the Articles of
Incorporation.
Section
4.3.
Change in Number
. The
number of committee members may be increased or decreased (but not below two)
from time to time by resolution adopted by a majority of the whole Board of
Directors.
Section
4.4.
Removal
. Any
committee member may be removed by the Board of Directors by the affirmative
vote of a majority of the whole Board, whenever in its judgment the best
interests of the Corporation will be served thereby.
Section
4.5.
Vacancies
. A vacancy
occurring in any committee (by death, resignation, removal or otherwise) may be
filled by the Board of Directors in the manner provided for original designation
in Section 4.1.
Section
4.6.
Meetings
. The time,
place and notice (if any) of all committee meetings shall be determined by the
respective committee. Unless otherwise determined by a particular
committee, meetings of the committees may be called by the Chief Executive
Officer or President on oral or written notice to each member, given either
personally, by telephone, by telegram, by mail, by facsimile or by e-mail at
least forty-eight hours prior to the time of the meeting and special meetings
shall be called by the Chief Executive Officer, the President or the Secretary
in like manner and on like notice on the written request of any committee
member. Neither the business to be transacted at, nor the purpose of,
any meeting need be specified in a notice or waiver of notice of any
meeting.
Section
4.7.
Quorum; Majority
Vote
. Unless otherwise determined by a particular committee, at any
meeting a majority of the committee members shall constitute a quorum for the
transaction of business and the act of a majority of the members present at any
meeting at which a quorum is present shall be the act of the committee, except
as otherwise specifically provided by statute or by the Articles of
Incorporation or by these Amended and Restated Bylaws. If a quorum is
not present at a meeting of the committee, the members present thereat may
adjourn the meeting from time to time, without notice other than an announcement
at the meeting until a quorum is present.
Section
4.8.
Action by Consent
.
Any action required or permitted to be taken at any committee meeting may be
taken without such a meeting if a consent or consents in writing, setting forth
the action so taken, is signed by all the members of such
committee.
Section
4.9.
Compensation
.
Compensation of committee members shall be fixed pursuant to the provisions of
Section 3.13.
ARTICLE
V
NOTICE
Section
5.1.
Form of Notice
.
Whenever required by law, the Articles of Incorporation or these Amended and
Restated Bylaws, notice is to be given to any director or stockholder, and no
provision is made as to how such notice shall be given, such notice may be
given: (a) in writing, by mail, postage prepaid, addressed to such director or
stockholder at such address as appears on the books and records of the
Corporation or its transfer agent; or (b) in any other method permitted by
law. Any notice required or permitted to be given by mail shall be
deemed to be given at the time when the same shall be deposited in the United
States mail.
Section
5.2.
Waiver
. Whenever any
notice is required to be given to any stockholder or director of the Corporation
as required by law, the Articles of Incorporation or these Amended and Restated
Bylaws, a waiver thereof in writing signed by the person or persons entitled to
such notice, whether before or after the time stated in such notice, shall be
equivalent to the giving of such notice. Attendance of a stockholder or director
at a meeting shall constitute a waiver of notice of such meeting, except where
such stockholder or director attends for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE
VI
OFFICERS
AND AGENTS
Section
6.1.
In General
. The
officers of the Corporation shall be elected by the Board of Directors and shall
be a President, a Treasurer, and a Secretary. The Board of Directors
may also elect a Chairman of the Board, a Chief Executive Officer, a Chief
Operating Officer, a Chief Financial Officer, and one or more Vice Presidents,
Assistant Vice Presidents, Assistant Secretaries and Assistant
Treasurers. Any two or more offices may be held by the same
person.
Section
6.2.
Election
. The Board
of Directors, at its first meeting after each annual meeting of stockholders,
shall elect the officers, none of whom need be a member of the Board of
Directors.
Section
6.3.
Other Officers and
Agents
. The Board of Directors may also elect and appoint such other
officers and agents as it shall deem necessary, who shall be elected and
appointed for such terms and shall exercise such powers and perform such duties
as shall be determined from time to time by the Board.
Section
6.4.
Salaries
. The
salaries of all officers and agents of the Corporation shall be fixed by the
Board of Directors or any committee of the Board, if so authorized by the
Board.
Section
6.5.
Term of Office and
Removal
. Each officer of the Corporation shall hold office until his
death, or his resignation or removal from office, or the election and
qualification of his successor, whichever shall first occur. Any
officer or agent elected or appointed by the Board of Directors may be removed
at any time, for or without cause, by the affirmative vote of a majority of the
whole Board of Directors, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed. If the office of
any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors.
Section
6.6.
Employment and Other
Contracts
. The Board of Directors may authorize any officer or officers
or agent or agents to enter into any contract or execute and deliver any
instrument in the name or on behalf of the Corporation, and such authority may
be general or confined to specific instances. The Board of Directors
may, when it believes the interest of the Corporation will best be served
thereby, authorize executive employment contracts which will contain such terms
and conditions as the Board of Directors deems appropriate.
Section
6.7.
Chairman of the
Board
. The Chairman of the Board, subject to the direction of the Board
of Directors, shall perform such executive, supervisory and management functions
and duties as from time to time may be assigned to him or her by the Board of
Directors. The Chairman of the Board shall preside at all meetings of
the stockholders of the Corporation and all meetings of the Board of
Directors.
Section
6.8.
Chief Executive
Officer
. The Chief Executive Officer shall have general and active
management of the business of the Corporation and shall see that all orders and
resolutions of the Board of Directors are carried into effect. The
Chief Executive Officer shall preside at all meetings of the stockholders of the
Corporation and all meetings of the Board of Directors in the absence of the
Chairman of the Board.
Section
6.9.
President
. The
President shall be subject to the direction of the Board of Directors and the
Chief Executive Officer and shall have general charge of the business, affairs
and property of the Corporation and general supervision over its other officers
and agents. The President shall see that the officers carry all other
orders and resolutions of the Board of Directors into effect. The
President shall execute all authorized conveyances, contracts, or other
obligations in the name of the Corporation except where required by law to be
otherwise signed and executed and except where the signing and execution shall
be expressly delegated by the Board of Directors to some other officer or agent
of the Corporation or reserved to the Board of Directors or any committee
thereof. The President shall preside at all meetings of the
stockholders of the Corporation and all meetings of the Board of Directors in
the absence of the Chairman of the Board and the Chief Executive
Officer. The President shall perform all duties incident to the
office of the President and such other duties as may be prescribed by the Board
of Directors from time to time.
Section
6.10.
Chief Operating
Officer
. The Chief Operating Officer shall be subject to the direction of
the Chief Executive Officer, the President and the Board of Directors and shall
have day-to-day managerial responsibility for the operation of the
Corporation.
Section
6.11.
Chief Financial
Officer
. The Chief Financial Officer shall be subject to the direction of
the Chief Executive Officer, the President and the Board of Directors and shall
have day-to-day managerial responsibility for the finances of the
Corporation.
Section
6.12.
Vice Presidents
. Each
Vice President shall have such powers and perform such duties as the Board of
Directors or any committee thereof may from time to time prescribe, or as the
President may from time to time delegate to him. In the absence or
disability of the President, any Vice President may perform the duties and
exercise the powers of the President.
Section
6.13.
Secretary
. The
Secretary shall attend all meetings of the stockholders and record all votes and
the minutes of all proceedings in a book to be kept for that
purpose. The Secretary shall perform like duties for the Board of
Directors when required. He shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the Board of
Directors and shall perform such other duties as may be prescribed by the Board
of Directors under whose supervision he shall be. He shall keep in
safe custody the seal of the Corporation. He shall be under the supervision of
the President. He shall perform such other duties and have such other
authority and powers as the Board of Directors may from time to time prescribe
or as the President may from time to time delegate.
Section
6.14.
Assistant
Secretaries
. Each Assistant Secretary shall have such powers and perform
such duties as the Board of Directors may from time to time prescribe or as the
President may from time to time delegate to him.
Section
6.15.
Treasurer
. The
Treasurer shall have the custody of all corporate funds and securities, shall
keep full and accurate accounts of receipts and disbursements of the
Corporation, and shall deposit all moneys and other valuable effects in the name
and to the credit of the Corporation in such depositories as may be designated
by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, shall render to the Directors, at the regular meetings
of the Board of Directors, or whenever they may require it, an account of all
his transactions as Treasurer and of the financial condition of the Corporation,
and shall perform such other duties as the Board of Directors may prescribe or
the President may from time to time delegate.
Section
6.16.
Assistant Treasurers
.
Each Assistant Treasurer shall have such powers and perform such duties as the
Board of Directors may from time to time prescribe or as the President may from
time to time delegate to him.
Section
6.17.
Bonding
. If required
by the Board of Directors, all or certain of the officers shall give the
Corporation a bond, in such form, in such sum, and with such surety or sureties
as shall be satisfactory to the Board of Directors, for the faithful performance
of the duties of their office and for the restoration to the Corporation, in
case of their death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever kind in their
possession or under their control belonging to the Corporation.
ARTICLE
VII
CERTIFICATES
OF SHARES
Section
7.1.
Form of
Certificates
. The Corporation may, but is not required to,
deliver to each stockholder a certificate or certificates, in such form as may
be determined by the Board of Directors, representing shares to which the
stockholder is entitled. Such certificates shall be consecutively
numbered and shall be registered on the books and records the Corporation or its
transfer agent as they are issued. Each certificate shall state on
the face thereof the holder’s name, the number, class of shares, and the par
value of such shares or a statement that such shares are without par
value.
Section
7.2.
Shares without
Certificates
. The Board of Directors may authorize the
issuance of uncertificated shares of some or all of the shares of any or all of
its classes or series. The issuance of uncertificated shares has no
effect on existing certificates for shares until surrendered to the Corporation,
or on the respective rights and obligations of the stockholders. Unless
otherwise provided by the Nevada Revised Statutes, the rights and obligations of
stockholders are identical whether or not their shares of stock are represented
by certificates. Within a reasonable time after the issuance or
transfer of uncertificated shares, the Corporation shall send the stockholder a
written statement containing the information required on the certificates
pursuant to Section 6.1. At least annually thereafter, the
Corporation shall provide to its stockholders of record, a written statement
confirming the information contained in the informational statement previously
sent pursuant to this Section.
Section
7.3.
Lost Certificates
.
The Board of Directors may direct that a new certificate be issued, or that
uncertificated shares be issued, in place of any certificate theretofore issued
by the Corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing such issue of a new certificate or uncertificated
shares, the Board of Directors, in its discretion and as a condition precedent
to the issuance thereof, may require the owner of such lost or destroyed
certificate, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the Corporation a bond, in such form, in such
sum, and with such surety or sureties as it may direct as indemnity against any
claim that may be made against the Corporation with respect to the certificate
alleged to have been lost or destroyed. When a certificate has been lost,
apparently destroyed or wrongfully taken, and the holder of record fails to
notify the Corporation within a reasonable time after he has notice of it, and
the Corporation registers a transfer of the shares represented by the
certificate before receiving such notification, the holder of record is
precluded from making any claim against the Corporation for the transfer or a
new certificate or uncertificated shares.
Section
7.4.
Transfer of Shares
.
Shares of stock shall be transferable only on the books of the Corporation or
its transfer agent by the holder thereof in person or by his duly authorized
attorney. Upon surrender to the Corporation or the transfer agent of
the Corporation of a certificate representing shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation or the transfer agent of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
Section
7.5.
Registered
Stockholders
. The Corporation shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact thereof and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
ARTICLE
VIII
GENERAL
PROVISIONS
Section
8.1.
Dividends
. Dividends
upon the outstanding shares of the Corporation, subject to the provisions of the
Articles of Incorporation, if any, may be declared by the Board of Directors at
any regular or special meeting. Dividends may be declared and paid in
cash, in property, or in shares of the Corporation, subject to the provisions of
the Nevada Revised Statutes and the Articles of Incorporation. The
Board of Directors may fix in advance a record date for the purpose of
determining stockholders entitled to receive payment of any dividend, such
record date to be not more than sixty days prior to the payment date of such
dividend, or the Board of Directors may close the stock transfer books for such
purpose for a period of not more than sixty days prior to the payment date of
such dividend. In the absence of any action by the Board of
Directors, the date upon which the Board of Directors adopts the resolution
declaring such dividend shall be the record date.
Section
8.2.
Reserves
. There may
be created by resolution of the Board of Directors out of the surplus of the
Corporation such reserve or reserves as the directors from time to time, in
their discretion, think proper to provide for contingencies, or to equalize
dividends, or to repair or maintain any property of the Corporation, or for such
other purpose as the directors shall think beneficial to the Corporation, and
the directors may modify or abolish any such reserve in the manner in which it
was created. Surplus of the Corporation to the extent so reserved
shall not be available for the payment of dividends or other distributions by
the Corporation.
Section
8.3.
Telephone and Similar
Meetings
. Stockholders, directors and committee members may participate
in and hold a meeting by means of conference telephone or similar communications
equipment by which all persons participating in the meeting can hear each
other. Participation in such a meeting shall constitute presence in
person at the meeting, except where a person participates in the meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
Section
8.4.
Books and Records
.
The Corporation shall keep correct and complete books and records of account and
minutes of the proceedings of its stockholders and Board of Directors, and shall
keep at its registered office or principal place of business, or at the office
of its transfer agent or registrar, a record of its stockholders, giving the
names and addresses of all stockholders and the number and class of the shares
held by each.
Section
8.5.
Checks and Notes
. All
checks or demands for money and notes of the Corporation shall be signed by such
officer or officers or such other person or persons as the Board of Directors
may from time to time designate.
Section
8.6.
Loans
. No loans shall
be contracted on behalf of the Corporation and no evidence of indebtedness shall
be issued in its name unless authorized by a resolution of the Board of
Directors. Such authority may be general or confined to specific
instances.
Section
8.7.
Fiscal Year
. The
fiscal year of the Corporation shall be fixed, and shall be subject to change,
by the Board of Directors.
Section
8.8.
Seal
. The Corporation
may have a seal, and such seal may be used by causing it or a facsimile thereof
to be impressed or affixed or reproduced or otherwise. Any officer of
the Corporation shall have authority to affix the seal to any document requiring
it.
Section
8.9.
Indemnification
. The
Corporation shall indemnify its directors to the fullest extent permitted by the
Nevada Revised Statutes and may, if and to the extent authorized by the Board of
Directors, so indemnify its officers and any other person whom it has the power
to indemnify against liability, reasonable expense or other matter
whatsoever.
Section
8.10.
Insurance
. The
Corporation may at the discretion of the Board of Directors purchase and
maintain insurance on behalf of any person who holds or who has held any
position identified in Section 8.9 against any and all liability incurred by
such person in any such position or arising out of his status as
such.
Section
8.11.
Resignation
. Any
director, officer or agent may resign by giving written notice to the President
or the Secretary. Such resignation shall take effect at the time
specified therein or immediately if no time is specified therein. Unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section
8.12.
Off-Shore
Offerings
. In all offerings of securities pursuant to
Regulation S of the Securities Act of 1933, as amended (the “Act”), the
Corporation shall require that its stock transfer agent refuse to register any
transfer of securities not made in accordance with the provisions of Regulation
S, pursuant to registration under the Act or an available exemption
thereunder.
Section
8.13.
Amendment of Bylaws
.
These Amended and Restated Bylaws may be altered, amended or repealed at any
meeting of the Board of Directors at which a quorum is present, by the
affirmative vote of a majority of the Directors present at such
meeting.
Section
8.14.
Invalid Provisions
.
If any part of these Amended and Restated Bylaws shall be held invalid or
inoperative for any reason, the remaining parts, so far as possible and
reasonable, shall be valid and operative.
Section
8.15.
Relation to Articles of
Incorporation
. These Amended and Restated Bylaws are subject to, and
governed by, the Articles of Incorporation.
***
Exhibit
3.2
CERTIFICATE
OF DESIGNATION
OF
SERIES
A PREFERRED STOCK
OF
CHINA
BROADBAND, INC.
1.
Designation
. This
series of Preferred Stock shall be designated as the “Series A Preferred
Stock.”
2.
Authorization
. China
Broadband, Inc. (the “
Company
”) shall have the
authority to issue 7,000,000 shares of the Series A Preferred Stock, par value
US$0.001 per share, of the Company (the “
Series A Preferred
Stock
”). Such number of shares may be increased or decreased,
but not to a number less than the number of shares of Series A Preferred Stock
then issued and outstanding, by resolution adopted by the full Board of
Directors (the “
Board
”)
of the Company.
3.
Rank
. The
Series A Preferred Stock shall, with respect to dividend rights and rights on
liquidation, winding up and dissolution, rank (a) on a parity with any other
series of Preferred Stock hereafter established by the Board, and (b) prior to
the Common Stock, par value $0.001 per share (“
Common Stock
”).
4.
Dividend
Provisions
. The Series A Preferred Stock is only entitled to
receive dividends when and if declared by the Board.
5.
Liquidation
Preference
.
(a) Upon
the occurrence of a Liquidation Event (as defined below), the holders of shares
of Series A Preferred Stock then outstanding shall be entitled to be paid out of
the assets of the Company available for distribution to its stockholders,
whether from capital, surplus or earnings, an amount per share (the “
Liquidation Preference
”) equal
to $0.50, as may be adjusted from time to time plus all accrued, but unpaid
dividends, whether declared or not.
(b) If,
upon the occurrence of a Liquidation Event, the assets and funds of the Company
legally available for distribution to stockholders by reason of their ownership
of stock of the Company shall be insufficient to permit the payment to such
holders of Series A Preferred Stock, of the full aforementioned Liquidation
Preference, then the entire assets and funds of the Company legally available
for distribution to stockholders by reason of their ownership of stock of the
Company shall be distributed ratably among the holders of Series A Preferred
Stock.
(c) For
purposes of this Section 4, a “
Liquidation Event
” is any
liquidation, dissolution or winding up of the Company, either voluntary or
involuntary, and upon the election of the holders of a majority of the then
outstanding Series A Preferred Stock shall be deemed to be occasioned by, or to
include, (i) the acquisition of the Company by another entity by means of any
transaction or series of related transactions (including, without limitation,
any reorganization, merger, consolidation, or other transaction in which control
of the Company is transferred, but, excluding any merger effected exclusively
for the purpose of changing the domicile of the Company) unless the Company’s
stockholders of record as constituted immediately prior to such acquisition or
sale will, immediately after such acquisition or sale (by virtue of securities
issued as consideration for the Company’s acquisition or sale or otherwise) hold
at least 50% of the voting power of the surviving or acquiring entity or (ii) a
sale of all or substantially all of the assets of the Company.
6.
Conversion
. The
holders of the Series A Preferred Stock shall have conversion rights as follows
(the “
Conversion
Rights
”):
(a)
Right to
Convert
. Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time, at the office of
the Company or any transfer agent for such stock, into ten (10) fully paid and
nonassessable shares of Common Stock.
(b)
Mechanics of
Conversion
. Before any holder of Series A Preferred Stock
shall be entitled to convert the same into shares of Common Stock, he, she or it
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Company or of any transfer agent, and shall give written notice to
the Company at its principal corporate office, of the election to convert the
same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. The Company
shall, as soon as practicable thereafter and in any event within three business
days after such notice, issue and deliver at such office to such holder of
Series A Preferred Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Series A Preferred Stock to be converted, and
the person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date. If the
conversion is in connection with an underwritten public offering of the
Company’s Common Stock, the conversion may, at the option of any holder
tendering Series A Preferred Stock for conversion, be conditioned upon the
closing with the underwriters of the sale of the Company’s Common Stock pursuant
to such offering, in which event the persons entitled to receive the Common
Stock upon conversion of the Series A Preferred Stock shall not be deemed to
have converted such Series A Preferred Stock until immediately prior to the
closing of such public offering.
(c)
Status of Converted
Stock
. In the event any shares of Series A Preferred Stock
shall be converted pursuant to this Section 6, the shares so converted
shall be canceled and shall not be reissued by the Company.
(d)
Conversion
Adjustments
. The number of shares issuable upon conversion of
Series A Preferred Stock shall be subject to adjustment from time to time as
follows:
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(i)
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Adjustments for
Subdivisions or Combinations of Common Stock
. In the
event the outstanding shares of Common Stock shall be subdivided by stock
split, stock dividend or otherwise, into a greater number of shares of
Common Stock, the number of shares of Common Stock issuable upon
conversion of Series A Preferred Stock shall, concurrently with the
effectiveness of such subdivision, be proportionately
increased. In the event the outstanding shares of Common Stock
shall be combined or consolidated into a lesser number of shares of Common
Stock, the number of shares of Common Stock issuable upon conversion of
Series A Preferred Stock shall, concurrently with the effectiveness of
such combination or consolidation, be proportionately
decreased.
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(ii)
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Adjustments for Stock
Dividends and Other Distributions
. In the event the
Company makes, or fixes a record date for the determination of holders of
Common Stock entitled to receive, any distribution (excluding repurchases
of securities by the Company not made on a pro rata basis) payable in
property or in securities of the Company other than shares of Common
Stock, and other than as otherwise adjusted for in this Section 6 in
connection with a dividend, then and in each such event the holders of
Series A Preferred Stock shall receive, at the time of such distribution,
the amount of property or the number of securities of the Company that
they would have received had their Series A Preferred Stock been converted
into Common Stock on the date of such
event.
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(iii)
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Adjustments for
Reorganizations, Reclassifications or Similar Events
. If
the Common Stock shall be changed into the same or a different number of
shares of any other class or classes of stock or other securities or
property, whether by capital reorganization, reclassification or
otherwise, then each share of Series A Preferred Stock shall thereafter be
convertible into the number of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock of the
Company deliverable upon conversion of such shares of Series A Preferred
Stock shall have been entitled upon such reorganization, reclassification
or other event.
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(iv)
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Certificate as to
Adjustments
. Upon the occurrence of each adjustment or
readjustment pursuant to this Section 6, the Company at its expense
shall promptly compute such adjustment or readjustment in accordance with
the terms hereof and furnish to each holder of Series A Preferred Stock to
which such adjustment pertains a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment
or readjustment is based. The Company shall, upon the written
request at any time of any holder of Series A Preferred Stock, furnish or
cause to be furnished to such holder a like certificate setting forth
(i) such adjustments and readjustments, and (iii) the number of
shares of Common Stock and the amount, if any, of other property which at
the time would be received upon the conversion of such holder’s Series A
Preferred Stock.
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(e)
No
Impairment
. The Company will not go through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, or avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed by the Company pursuant to this Section 7, but will
at all times in good faith assist in the carrying out of all the provisions of
this Section 7 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of Series A
Preferred Stock against impairment.
(f)
Reservation of Stock
Issuable Upon Conversion
. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock solely for the purpose of effecting the conversion of the shares of Series
A Preferred Stock such number of shares of its Common Stock as shall from time
to time be sufficient to effect the conversion of all outstanding shares of
Series A Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of Series A Preferred Stock, the Company will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
(g)
Status of Converted or
Contributed Shares
. In case any shares of Series A Preferred
Stock are converted into Common Stock pursuant to this Section 6 or are
contributed back to the Company (through repurchase or otherwise) after the date
such shares of Series A Preferred Stock were first issued, all such shares so
converted or contributed shall, upon such conversion or contribution, be
cancelled and shall not be issuable by the Company. The Company may
from time to time take such appropriate corporate action as may be necessary to
reduce accordingly the number of authorized shares of the Company’s Series A
Preferred Stock.
7.
Voting Rights and Board of
Directors
. Except as otherwise required by law, each holder of
Series A Preferred Stock shall be entitled to ten (10) votes for each one (1)
share of Common Stock that is issuable upon conversion of a share of Series A
Preferred Stock held at the record date for determination of the stockholders
entitled to vote, or, if no such record date is established, at the date such
vote is taken or any written consent of stockholders is
solicited. Except as required by law or as otherwise set forth
herein, all shares of Series A Preferred Stock and all shares of Common Stock
shall vote together as a single class. Fractional votes by the
holders of Series A Preferred Stock shall not, however, be permitted, and any
fractional voting rights shall (after aggregating all shares into which shares
of Series A Preferred Stock held by each holder could be converted) be rounded
up to the nearest whole number of shares of Common Stock into which a share of
Series A Preferred Stock is convertible into.
8.
Amendments
. The
terms, conditions, rights and preferences contained in this Certificate of
Designation may be amended, modified, waived, amended and restated or replaced
in its entirety upon the approval of the Board with the consent of at least
two-thirds of the then outstanding shares of Series A Preferred Stock voting as
a separate class.
* * * * *
IN WITNESS WHEREOF, the foregoing
Certificate of Designation has been duly executed on behalf of the Company by
the undersigned on July __, 2010.
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China
Broadband, Inc.
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By:
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/s/
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Marc
Urbach
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President
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SIGNATURE
PAGE TO CERTIFICATE OF DESIGNATION
Exhibit
3.3
CERTIFICATE
OF DESIGNATION
OF
SERIES
B PREFERRED STOCK
OF
CHINA
BROADBAND, INC.
1.
Designation
. This
series of Preferred Stock shall be designated as the “Series B Preferred
Stock.”
2.
Authorization
. China
Broadband, Inc. (the “
Company
”) shall have the
authority to issue 6,000,000 shares of the Series B Preferred Stock, par value
US$0.001 per share, of the Company (the “
Series B Preferred
Stock
”). Such number of shares may be increased or decreased,
but not to a number less than the number of shares of Series B Preferred Stock
then issued and outstanding, by resolution adopted by the full Board of
Directors (the “
Board
”)
of the Company.
3.
Rank
. The Series
B Preferred Stock shall, with respect to dividend rights and rights on
liquidation, winding up and dissolution, rank (a) on a parity with any other
series of Preferred Stock hereafter established by the Board, and (b) prior to
the Company’s Common Stock, par value $0.001 per share (“
Common Stock
”).
4.
Dividend
Provisions
. The Series B Preferred Stock is only entitled to
receive dividends when and if declared by the Board.
5.
Liquidation
Preference
.
(a) Upon
the occurrence of a Liquidation Event (as defined below), the holders of shares
of Series B Preferred Stock then outstanding shall be entitled to be paid out of
the assets of the Company available for distribution to its stockholders,
whether from capital, surplus or earnings, an amount per share (the “
Liquidation Preference
”) equal
to $0.50, as may be adjusted from time to time plus all accrued, but unpaid
dividends, whether declared or not.
(b) If,
upon the occurrence of a Liquidation Event, the assets and funds of the Company
legally available for distribution to stockholders by reason of their ownership
of stock of the Company shall be insufficient to permit the payment to such
holders of Series B Preferred Stock, of the full aforementioned Liquidation
Preference, then the entire assets and funds of the Company legally available
for distribution to stockholders by reason of their ownership of stock of the
Company shall be distributed ratably among the holders of Series B Preferred
Stock.
(c) For
purposes of this Section 4, a “
Liquidation Event
” is any
liquidation, dissolution or winding up of the Company, either voluntary or
involuntary, and upon the election of the holders of a majority of the then
outstanding Series B Preferred Stock shall be deemed to be occasioned by, or to
include, (i) the acquisition of the Company by another entity by means of any
transaction or series of related transactions (including, without limitation,
any reorganization, merger, consolidation, or other transaction in which control
of the Company is transferred, but, excluding any merger effected exclusively
for the purpose of changing the domicile of the Company) unless the Company’s
stockholders of record as constituted immediately prior to such acquisition or
sale will, immediately after such acquisition or sale (by virtue of securities
issued as consideration for the Company’s acquisition or sale or otherwise) hold
at least 50% of the voting power of the surviving or acquiring entity or (ii) a
sale of all or substantially all of the assets of the Company.
6.
Conversion
. The
holders of the Series B Preferred Stock shall have conversion rights as follows
(the “
Conversion
Rights
”):
(a)
Right to
Convert
. Each share of Series B Preferred Stock shall be
convertible, at the option of the holder thereof, at any time, at the office of
the Company or any transfer agent for such stock, into ten (10) fully paid and
nonassessable shares of Common Stock.
(b)
Mechanics of
Conversion
. Before any holder of Series B Preferred Stock
shall be entitled to convert the same into shares of Common Stock, he, she or it
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Company or of any transfer agent, and shall give written notice to
the Company at its principal corporate office, of the election to convert the
same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. The Company
shall, as soon as practicable thereafter and in any event within three business
days after such notice, issue and deliver at such office to such holder of
Series B Preferred Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Series B Preferred Stock to be converted, and
the person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date. If the
conversion is in connection with an underwritten public offering of the
Company’s Common Stock, the conversion may, at the option of any holder
tendering Series B Preferred Stock for conversion, be conditioned upon the
closing with the underwriters of the sale of the Company’s Common Stock pursuant
to such offering, in which event the persons entitled to receive the Common
Stock upon conversion of the Series B Preferred Stock shall not be deemed to
have converted such Series B Preferred Stock until immediately prior to the
closing of such public offering.
(c)
Conversion
Adjustments
. The number of shares issuable upon conversion of
Series B Preferred Stock shall be subject to adjustment from time to time as
follows:
(i)
Adjustments for Subdivisions
or Combinations of Common Stock
. In the event the outstanding
shares of Common Stock shall be subdivided by stock split, stock dividend or
otherwise, into a greater number of shares of Common Stock, the number of shares
of Common Stock issuable upon conversion of Series B Preferred Stock shall,
concurrently with the effectiveness of such subdivision, be proportionately
increased. In the event the outstanding shares of Common Stock shall
be combined or consolidated into a lesser number of shares of Common Stock, the
number of shares of Common Stock issuable upon conversion of Series B Preferred
Stock shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately decreased.
(ii)
Adjustments for Stock
Dividends and Other Distributions
. In the event the Company
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, any distribution (excluding repurchases of securities by
the Company not made on a pro rata basis) payable in property or in
securities of the Company other than shares of Common Stock, and other than as
otherwise adjusted for in this Section 6 in connection with a dividend,
then and in each such event the holders of Series B Preferred Stock shall
receive, at the time of such distribution, the amount of property or the number
of securities of the Company that they would have received had their Series B
Preferred Stock been converted into Common Stock on the date of such
event.
(iii)
Adjustments for
Reorganizations, Reclassifications or Similar Events
. If the
Common Stock shall be changed into the same or a different number of shares of
any other class or classes of stock or other securities or property, whether by
capital reorganization, reclassification or otherwise, then each share of Series
B Preferred Stock shall thereafter be convertible into the number of shares of
stock or other securities or property to which a holder of the number of shares
of Common Stock of the Company deliverable upon conversion of such shares of
Series B Preferred Stock shall have been entitled upon such reorganization,
reclassification or other event.
(iv)
Certificate as to
Adjustments
. Upon the occurrence of each adjustment or
readjustment pursuant to this Section 6, the Company at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and furnish to each holder of Series B Preferred Stock to which such
adjustment pertains a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Company shall, upon the written request at any time of any
holder of Series B Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and
readjustments, and (iii) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be received upon the
conversion of such holder’s Series B Preferred Stock.
(d)
No
Impairment
. The Company will not go through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, or avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed by the Company pursuant to this Section 6, but will
at all times in good faith assist in the carrying out of all the provisions of
this Section 6 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of Series B
Preferred Stock against impairment.
(e)
Reservation of Stock
Issuable Upon Conversion
. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock solely for the purpose of effecting the conversion of the shares of Series
B Preferred Stock such number of shares of its Common Stock as shall from time
to time be sufficient to effect the conversion of all outstanding shares of
Series B Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of Series B Preferred Stock, the Company will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
(f)
Status of Converted or
Contributed Shares
. In case any shares of Series B Preferred
Stock are converted into Common Stock pursuant to this Section 6 or are
contributed back to the Company (through repurchase or otherwise) after the date
such shares of Series B Preferred Stock were first issued, all such shares so
converted or contributed shall, upon such conversion or contribution, be
cancelled and shall not be issuable by the Company. The Company may
from time to time take such appropriate corporate action as may be necessary to
reduce accordingly the number of authorized shares of the Company’s Series B
Preferred Stock
(g)
Limitations and Restrictions
on Conversion
. The Company shall not effect any conversion of
Series B Preferred Stock, and no holder of Series B Preferred Stock shall have
the right to convert any portion of their Series B Preferred Stock, pursuant to
Section 6(a) or otherwise, to the extent that after giving effect to such
conversion, such holder (together with such holder’s affiliates) would
beneficially own in excess of 4.99% of the number of shares of Common Stock
outstanding immediately after giving effect to such conversion unless such
holder shall have, in its sole discretion, elected to increase such amount to
9.99% of the number of shares of 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 a holder of Series B
Preferred Stock (together with such holder’s affiliates) shall include the
number of shares of Common Stock issuable upon conversion of the Series B
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 portion of the
holder’s Series B Preferred Stock beneficially owned by such holder or any of
its affiliates and (B) exercise or conversion of the unexercised or nonconverted
portion of any other securities of the Company subject to a limitation on
conversion or exercise analogous to the limitation contained herein beneficially
owned by such holder of Series B Preferred Stock or any of its affiliates.
Except as set forth in the preceding sentence, for purposes of this Section
6(h), beneficial ownership shall be calculated in accordance with Section 13(d)
of the Exchange Act. To the extent that the limitation contained in
this section applies, the determination of whether the Series B Preferred Stock
is convertible (in relation to other securities owned by such holder of Series B
Preferred Stock) and of which a portion of such holder’s Series B Preferred
Stock is convertible shall be in the sole discretion of such holder. To ensure
compliance with this restriction, such holder will be deemed to represent to the
Company each time it delivers written notice the Company in accordance with
Section 6(b) with respect to the conversion of Series B Preferred Stock that
such holder has not violated the restrictions set forth in this paragraph, and
the Company shall have no obligation to verify or confirm the accuracy of such
determination. For purposes of this Section 6(g), in determining the
number of outstanding shares of Common Stock, a holder of Series B Preferred
Stock may rely on the number of outstanding shares of Common Stock as reflected
in a Company filing with the U.S. Securities and Exchange Commission, a public
announcement by the Company, or any other notice by the Company or the Company’s
transfer agent setting forth the number of shares of Common Stock
outstanding. The provisions of this Section 6(g) may be waived by a holder
with respect to the Series B Preferred Stock held by such holder, upon not less
than sixty-one (61) days’ prior notice to the Company, and the provisions of
this Section 6(g) shall continue to apply until such 61st day (or such later
date, as determined by such holder).
7.
Voting
Rights
. Except as provided in Section 8 hereof, and except for
any other matters brought before the holders of Series B Preferred Stock for a
vote of the holders of Series B Preferred Stock as a separate class, the holders
of Series B Preferred Stock shall not be entitled to vote on matters submitted
to a vote of the shareholders of the Company. Without limiting the
generality of the foregoing, the holders of the Series B Preferred Stock shall
not
be entitled
to vote on an as converted basis with the holders of the Company’s Common
Stock.
8.
Amendments
. The
terms, conditions, rights and preferences contained in this Certificate of
Designation may be amended, modified, waived, amended and restated or replaced
in its entirety upon the approval of the Board with the consent of at least a
majority of the then outstanding shares of Series B Preferred Stock voting as a
separate class.
* * * * *
IN WITNESS WHEREOF, the foregoing
Certificate of Designation has been duly executed on behalf of the Company by
the undersigned on July __, 2010.
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China
Broadband, Inc.
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By:
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/s/
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Marc
Urbach
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President
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SIGNATURE
PAGE TO CERTIFICATE OF DESIGNATION
Exhibit
4.1
NEITHER
THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL,
IN A FORM ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER THE SECURITIES ACT.
CHINA
BROADBAND, INC.
COMMON
STOCK PURCHASE WARRANT
Initial
Holder:
[ ]
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Original Issue
Date:
____________, 2010
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No. of Shares Subject to
Warrant:
[ ]
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Exercise Price Per
Share:
$0.05
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Expiration
Time:
5:00 p.m., New York City time, on ________,
2015
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China Broadband, Inc., a Nevada
corporation (the “
Com
pany
”), hereby certifies that,
for value received, the Initial Holder shown above, or its permitted registered
assigns (the “
Holder
”),
is entitled to purchase from the Company up to the number of shares of its
common stock, par value $0.001 per share (the “
Common Stock
”), shown
above (each such share, a “
Warrant Share
” and all such
shares, the “
Warrant
Shares
”) at the exercise price shown above (as may be adjusted from time
to time as provided herein, the “
Exercise Price
”), at any time
and from time to time on or original issue date indicated above (the “
Original Issue Date
”) and
through and including the expiration time shown above (the “
Expiration Time
”), and subject
to the following terms and conditions:
This
Warrant is being issued pursuant to a Securities Purchase Agreement, dated May
20, 2010 (the “
SPA
”), by
and between the Company, the Holder and the other parties
thereto.
1.
Definitions
. In
addition to the terms defined elsewhere in this Warrant, capitalized terms that
are not otherwise defined herein have the meanings given to such terms in the
SPA.
2.
List of Warrant
Holders
. 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 Holder (which shall include the Holder or, as the case may
be, any registered assignee to which this Warrant is permissibly assigned
hereunder from time to time). The Company may deem and treat the
registered Holder of this Warrant as the absolute owner hereof for the purpose
of any exercise hereof or any distribution to the Holder, and for all other
purposes, absent actual notice to the contrary.
3.
List of Transfers;
Restrictions on Transfer
. The Company shall register any transfer of all
or 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 its address specified herein. 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 Holder. The acceptance of the
New Warrant by the transferee thereof shall be deemed the acceptance by such
transferee of all of the rights and obligations in respect of the New Warrant
that the Holder has in respect of this Warrant.
4.
Exercise and Duration of
Warrant
.
(a)
All or any part of this Warrant
shall be exercisable by the registered Holder in any manner permitted by
Section 10 of this Warrant at any time and from time to time on or after
the Original Issue Date and through and including the Expiration Time. Subject
to Section 11 hereof, at the Expiration Time, the portion of this Warrant not
exercised prior thereto shall be and become void and of no value and this
Warrant shall be terminated and shall no longer be outstanding.
(b)
The Holder may exercise this Warrant by delivering to the Company: (i) an
exercise notice, in the form attached hereto (the “
Exercise Notice
”), completed
and duly signed, and (ii) payment by wire transfer of immediately available
funds to an account designated by the Company of the Exercise Price for the
number of Warrant Shares as to which this Warrant is being exercised. The
date such items are delivered to the Company (as determined in accordance with
the notice provisions hereof) is an “
Exercise Date
.” The
Holder shall be required to deliver the original Warrant, or any New Warrant
that may have been previously issued, in order to effect an exercise
hereunder. Execution and delivery of the Exercise Notice shall have
the same effect as cancellation of the original Warrant, or any New Warrant that
may have been previously issued, and issuance of a New Warrant evidencing the
right to purchase the remaining number of Warrant Shares.
(c)
The Company will not close its stockholder books or records in any manner which
prevents the timely exercise of this Warrant pursuant to the terms
hereof.
5.
Delivery of Warrant
Shares
.
(a)
Upon exercise of this Warrant, the Company shall promptly (but in no event later
than three (3) Trading Days after the Exercise Date) issue or cause to be issued
and cause to be delivered to or upon the written order of the Holder and in such
name or names as the Holder may designate, a certificate for the Warrant Shares
issuable upon such exercise, free of restrictive legends. “
Trading Day
” shall mean a date
on which the Company’s Common Stock trades on its principal trading market.
The Holder, or any Person permissibly so designated by the Holder to
receive Warrant Shares, shall be deemed to have become the holder of record of
such Warrant Shares as of the Exercise Date. The Company shall, upon the
written request of the Holder, use its best efforts to deliver, or cause to
be delivered, Warrant Shares hereunder electronically through the Depository
Trust and Clearing Corporation (“
DTCC
”) or another established
clearing corporation performing similar functions, if available;
provided, that,
the Company
may, but will not be required to, change its transfer agent if its current
transfer agent cannot deliver Warrant Shares electronically through DTCC or
another established clearing corporation performing similar functions, if
available. If as of the time of exercise the Warrant Shares constitute
restricted or control securities, the Holder, by exercising, agrees not to
resell them except in compliance with all applicable securities
laws.
(b)
To the extent permitted by law, the Company’s obligations to issue and deliver
Warrant Shares in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation to
the Company or any violation or alleged violation of law by the Holder or any
other Person, and irrespective of any other circumstance that might otherwise
limit such obligation of the Company to the Holder in connection with the
issuance of Warrant Shares. Nothing herein shall limit a Holder’s
right to pursue any other remedies available to it hereunder, at law or in
equity including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver
certificates representing shares of Common Stock upon exercise of the Warrant as
required pursuant to the terms hereof.
(c)
If the Company fails to cause its transfer agent
to transmit to the Holder a certificate or the certificates (or, if
electronically, a book-entry position) representing the Warrant Shares pursuant
to the terms hereof by applicable delivery date, then the Holder will have the
right to rescind such exercise.
6.
Charges, Taxes and
Expenses
. Issuance and delivery of certificates (or, if electronically, a
book-entry position) representing the Warrant Shares shall be made without
charge to the Holder for any issue or transfer tax, withholding tax, transfer
agent fee or other incidental tax or expense in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by the
Company;
provided,
however
,
that
the Company shall not be required to pay any tax that may be payable in respect
of any transfer involved in the registration of any certificates for Warrant
Shares or the Warrants in a name other than that of the Holder. The Holder shall
be responsible for all other tax liability that may arise as a result of holding
or transferring this Warrant or receiving Warrant Shares upon exercise
hereof.
7.
Repl
acement of
Warrant
. If this Warrant is mutilated, lost, stolen or destroyed,
the Company shall issue or cause to be issued in exchange and substitution for
and upon cancellation hereof, or in lieu of and substitution for this Warrant, a
New Warrant, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. Applicants for a New Warrant under such circumstances
shall also comply with such other reasonable regulations and procedures and
pay such other reasonable third-party costs as the Company may prescribe. If a
New Warrant is requested as a result of a mutilation of this Warrant, then the
Holder shall deliver such mutilated Warrant to the Company as a condition
precedent to the Company’s obligation to issue the New Warrant.
8.
Reservation of Warrant
Shares
. The Company covenants that it will at all times reserve and
keep available out of the aggregate of its authorized but unissued and otherwise
unreserved Common Stock, solely for the purpose of enabling it to issue Warrant
Shares upon exercise of this Warrant as herein provided, the number of Warrant
Shares that are then issuable and deliverable upon the exercise of this entire
Warrant, free from preemptive rights or any other contingent purchase
rights of persons other than the Holder (taking into account the adjustments and
restrictions of Section 9). The Company covenants that all Warrant Shares so
issuable and deliverable shall, upon issuance and the payment of the applicable
Exercise Price in accordance with the terms hereof, be duly and validly
authorized, issued and fully paid and nonassessable.
9.
Certain Adjustments to
Exercise Price
. The Exercise Price and number of Warrant
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 9.
(a)
Adjustments for Stock Splits
and Combinations and Stock Dividends
.
If the Company
shall at any time or from time to time after the date hereof, effect a stock
split or combination of the outstanding Common Stock or pay a stock dividend in
shares of Common Stock, then the Exercise Price shall be proportionately
adjusted. Any adjustments under this Section 9(a) shall be effective
at the close of business on the date the stock split or combination becomes
effective or the date of payment of the stock dividend, as
applicable.
(b
)
Merger Sale,
Reclassification, etc.
In case of any: (i)
consolidation or merger (including a merger in which the Company is the
surviving entity), (ii) sale or other disposition of all or substantially all of
the Company’s assets or distribution of property to shareholders (other than
distributions payable out of earnings or retained earnings), or
reclassification, change or conversion of the outstanding securities of the
Company or of any reorganization of the Company (or any other corporation the
stock or securities of which are at the time receivable upon the exercise of
this Warrant) or any similar corporate reorganization on or after the date
hereof, then and in each such case the Holder of this Warrant, upon the exercise
hereof at any time thereafter shall be entitled to receive, in lieu of the stock
or other securities and property receivable upon the exercise hereof prior to
such consolidation, merger, sale or other disposition, reclassification, change,
conversion or reorganization, the stock or other securities or property to which
such Holder would have been entitled upon such consummation if such Holder had
exercised this Warrant immediately prior thereto.
10.
Right of
Redemption
. In the event that (i) the closing price of the
Common Stock as reported by the applicable Trading Market shall equal or exceed
$0.125 (subject to adjustment for any stock splits, combinations or similar
events with respect to the Common Stock after the Original Issue Date) per share
for twenty (20) consecutive Trading Days and (ii) there is an effective
registration statement covering the Warrant Shares on file with the SEC (or all
of the Warrant Shares may be sold pursuant to Rule 144 of the Securities Act
without restriction), the Company shall, upon thirty (30) days’ written notice
to the Holder (during which time the Holder may exercise all or any portion of
this Warrant), be entitled to redeem all, but not less than all, of the
then outstanding Warrants for an amount, with respect to each Warrant, equal to
the product of the number of Warrant Shares issuable upon exercise of such
outstanding Warrant and $0.001 per Warrant Share (the “
Redemption
Price
”). The Holder agrees to return the redeemed Warrants to
the Company, or to provide evidence of the mutilation, loss, theft or
destruction of the Warrant, including any requested indemnity, in accordance
with
S
ection
7
hereof, upon notice
of such redemption and payment of the Redemption Price. Payment of
the Redemption Price shall be made by the Company in the form of a certified
check or through any other means acceptable to the Holder within two (2) Trading
Days of the Company’s receipt of the Warrant or evidence of the mutilation,
loss, theft or destruction of the Warrant, including any requested indemnity, in
accordance with
Section 7
hereof.
11.
No Fractional Shares
.
No fractional Warrant Shares will be issued in connection with any
exercise of this Warrant. In lieu of any fractional shares that would otherwise
be issuable, the Company shall pay cash equal to the product of such fraction
multiplied by the closing price of the Company’s Common Stock as reported by the
applicable Trading Market on the Exercise Date.
12.
Notices
.
Any and all notices or other communications or deliveries hereunder
(including, without limitation, any Exercise Notice) shall be delivered in
accordance with the procedures set forth in Section 10.2 of the
SPA.
13.
Warrant Agent
. The
Company shall serve as warrant agent under this Warrant. Upon thirty (30) days’
notice to the Holder, the Company may appoint a new warrant agent. Any
corporation into which the Company or any new warrant agent may be merged or any
corporation resulting from any consolidation to which the Company or any new
warrant agent shall be a party or any corporation to which the Company or any
new warrant agent transfers substantially all of its corporate trust or
shareholders services business shall be a successor warrant agent under this
Warrant without any further act. Any such successor warrant agent shall promptly
cause notice of its succession as warrant agent to be mailed (by first class
mail, postage prepaid) to the Holder at the Holder’s last address as shown on
the Warrant Register.
14.
Miscellaneous
.
(a)
This Warrant shall be binding on and inure to the benefit of the parties hereto
and their respective successors and assigns. Subject to the preceding sentence,
nothing in this Warrant shall be construed to give to any Person other than the
Company and the Holder any legal or equitable right, remedy or cause of action
under this Warrant. This Warrant may be amended only in writing signed by
the Company and the Holder, or their successors and assigns.
(b)
Each party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Warrant
(whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced exclusively in
the state and federal courts sitting in the City of New York. Each
party hereto hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in the City of New York, New York for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of this Warrant, and hereby irrevocably waives, and agrees not
to assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is improper. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Note and agrees that such service
shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law. EACH PARTY
HERETO (INCLUDING ITS AFFILIATES, AGENTS, OFFICERS, DIRECTORS AND EMPLOYEES)
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(c) 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.
(d) 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 reasonable
substitute therefore, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
(e) Prior
to exercise of this Warrant, the Holder hereof shall not, by reason of by being
a Holder, be entitled to any rights of a stockholder with respect to the Warrant
Shares.
(f)
No provision hereof, in
the absence of any affirmative action by Holder to exercise this Warrant to
purchase Warrant Shares, and no enumeration herein of the rights or privileges
of Holder, shall give rise to any liability of Holder for the purchase price of
any Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.
[Signature
Page Follows]
IN WITNESS WHEREOF
, the
Company has caused this Warrant to be duly executed by its authorized officer as
of the date first indicated above.
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CHINA
BROADBAND, INC.
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By:
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Name:
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Title:
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Signature
Page
Warrant
CHINA
BROADBAND, INC.
EXERCISE
NOTICE
Ladies
and Gentlemen:
(1)
The undersigned hereby elects to exercise its Warrant with respect to
______________ shares of Common Stock. Capitalized terms used herein
and not otherwise defined herein have the respective meanings set forth in the
Warrant.
(2)
The holder hereby tenders the sum of $ ______________ to the Company in
accordance with the terms of the Warrant.
(3)
Pursuant to this Exercise Notice, the Company shall deliver to the Holder the
number of Warrant Shares determined in accordance with the terms of the Warrant
and, in lieu of any fractional shares, cash.
Dated:
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HOLDER:
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name
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Warrant
CHINA
BROADBAND, INC.
FORM
OF ASSIGNMENT
To be
completed and signed only upon transfer of Warrant
FOR VALUE RECEIVED
, the
undersigned hereby sells, assigns and transfers unto _________________ the right
represented by the within Warrant to purchase _________________ shares of Common
Stock to which the within Warrant relates and appoints __________________
attorney to transfer said right on the books of the Company with full power of
substitution in the premises.
Dated:
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TRANSFEROR:
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TRANSFEREE:
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name
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Title:
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WITNESS:
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Address
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Warrant
Exhibit
4.2
NEITHER
THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL,
IN A FORM ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER THE SECURITIES ACT.
CHINA
BROADBAND, INC.
COMMON
STOCK PURCHASE WARRANT
Initial Holder:
Shane McMahon
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Original Issue
Date:
July 30, 2010
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No. of Shares Subject to
Warrant:
240,000,000
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Exercise Price Per
Share:
$0.05
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Expiration
Time:
5:00 p.m., New York City time, on June 30,
2015
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China Broadband, Inc., a Nevada
corporation (the “
Company
”), hereby certifies
that, for value received, the Initial Holder shown above, or its permitted
registered assigns (the “
Holder
”), is entitled to
purchase from the Company up to the number of shares of its common stock, par
value $0.001 per share (the “
Com
mon Stock
”), shown above
(each such share, a “
Warrant
Share
” and all such shares, the “
Warrant Shares
”) at the
exercise price shown above (as may be adjusted from time to time as provided
herein, the “
Exercise
Price
”), at any time and from time to time on or original issue date
indicated above (the “
Original
Issue Date
”) and through and including the expiration time shown above
(the “
Expiration Time
”),
and subject to the following terms and conditions:
This
Warrant is being issued pursuant to a Securities Purchase Agreement, dated May
20, 2010 (the “
SPA
”), by
and between the Company, the Holder and the other parties thereto, pursuant to
which the Holder purchased units consisting of shares of the Company’s Series A
Preferred Stock.
1.
Definitions
. In
addition to the terms defined elsewhere in this Warrant, capitalized terms that
are not otherwise defined herein have the meanings given to such terms in the
SPA.
2.
List of
Warrant
Holders
. 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 Holder (which shall include the Holder or, as the case may
be, any registered assignee to which this Warrant is permissibly assigned
hereunder from time to time). The Company may deem and treat the
registered Holder of this Warrant as the absolute owner hereof for the purpose
of any exercise hereof or any distribution to the Holder, and for all other
purposes, absent actual notice to the contrary.
3.
List of Transfers;
Restrictions on Transfer
. The Company shall register any transfer of all
or 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 its address specified herein. 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 Holder. The acceptance of the
New Warrant by the transferee thereof shall be deemed the acceptance by such
transferee of all of the rights and obligations in respect of the New Warrant
that the Holder has in respect of this Warrant.
4.
Exercise and
Duration
of
Warrant
.
(a)
All or any part of this Warrant
shall be exercisable by the registered Holder at any time and from time to time
on or after the Original Issue Date and through and including the Expiration
Time. Subject to Section 10 hereof, at the Expiration Time, the portion of this
Warrant not exercised prior thereto shall be and become void and of no value and
this Warrant shall be terminated and shall no longer be
outstanding.
(b)
The Holder may exercise this Warrant by delivering to the Company: (i) an
exercise notice, in the form attached hereto (the “
Exercise Notice
”), completed
and duly signed, and (ii) payment by wire transfer of immediately available
funds to an account designated by the Company of the Exercise Price for the
number of Warrant Shares as to which this Warrant is being exercised (unless
cashless exercise shall have been elected in accordance with the provisions of
Section 4(c) hereof). The date such items are delivered to the Company (as
determined in accordance with the notice provisions hereof) is an “
Exercise Date
.” The
Holder shall be required to deliver the original Warrant, or any New Warrant
that may have been previously issued, in order to effect an exercise
hereunder. Execution and delivery of the Exercise Notice shall have
the same effect as cancellation of the original Warrant, or any New Warrant that
may have been previously issued, and issuance of a New Warrant evidencing the
right to purchase the remaining number of Warrant Shares.
(c) Notwithstanding
any provisions herein to the contrary, in lieu of exercising this Warrant by
payment of cash, the Holder may exercise this Warrant by a cashless exercise and
shall receive the number of Warrant Shares equal to an amount (as determined
below) by surrender of this Warrant at the principal office of the Company
together with the properly endorsed Exercise Notice in which event the Company
shall issue to the Holder a number of Warrant Shares computed using the
following formula:
Where
|
X
=
|
the
number of Warrant Shares to be issued to the Holder.
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Y
=
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the
number of Warrant Shares purchasable upon exercise of all of the Warrant
or, if only a portion of the Warrant is being exercised, the portion of
the Warrant being exercised.
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A
=
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the
Exercise Price.
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B
=
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the
average of the Fair Market Value for the five days immediately preceding
the date of the Exercise
Notice.
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For
purposes of this Section 4(c), “Fair Market Value” means (a) if the Common Stock
is then listed or quoted on a national trading market, the volume weighted
average price of the Common Stock for the 20 trading days preceding such
Exercise Date (b) if the Common Stock is not then listed or quoted on a national
trading market and if prices for the Common Stock are then quoted on the OTC
Bulletin Board, the volume weighted average price of the Common Stock for the 20
trading days preceding such Exercise Date on the OTC Bulletin Board, (c) if the
Common Stock is not then listed or quoted on the OTC Bulletin Board and if
prices for the Common Stock are then reported in the “Pink Sheets” published by
Pink Sheets, LLC (or a similar organization or agency succeeding to its
functions of reporting prices), the average closing bid price per share of the
Common Stock for the 20 trading days preceding such Determination Date as so
reported, or (d) in all other cases, the value of the Common Stock as determined
in good faith by the Company’s Board of Directors.
(d)
The Company will not close its stockholder books or records in any manner which
prevents the timely exercise of this Warrant pursuant to the terms
hereof.
5.
Delivery of Warrant
Shares
.
(a)
Upon exercise of this Warrant, the Company shall promptly (but in no event later
than three (3) Trading Days after the Exercise Date) issue or cause to be issued
and cause to be delivered to or upon the written order of the Holder and in such
name or names as the Holder may designate, a certificate for the Warrant Shares
issuable upon such exercise, free of restrictive legends. “
Trading Day
” shall mean a date
on which the Company’s Common Stock trades on its principal trading market.
The Holder, or any Person permissibly so designated by the Holder to
receive Warrant Shares, shall be deemed to have become the holder of record of
such Warrant Shares as of the Exercise Date. The Company shall, upon the
written request of the Holder, use its best efforts to deliver, or cause to be
delivered, Warrant Shares hereunder electronically through the Depository Trust
and Clearing Corporation (“
DTCC
”) or another established
clearing corporation performing similar functions, if available;
provided, that,
the
Company may, but will not be required to, change its transfer agent if its
current transfer agent cannot deliver Warrant Shares electronically through DTCC
or another established clearing corporation performing similar functions, if
available. If as of the time of exercise the Warrant Shares constitute
restricted or control securities, the Holder, by exercising, agrees not to
resell them except in compliance with all applicable securities
laws.
(b)
To the extent permitted by law, the Company’s obligations to issue and
deliver Warrant Shares in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation to
the Company or any violation or alleged violation of law by the Holder or any
other Person, and irrespective of any other circumstance that might otherwise
limit such obligation of the Company to the Holder in connection with the
issuance of Warrant Shares. Nothing herein shall limit a Holder’s
right to pursue any other remedies available to it hereunder, at law or in
equity including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver
certificates representing shares of Common Stock upon exercise of the Warrant as
required pursuant to the terms hereof.
(c)
If the Company fails to cause its transfer agent to transmit to the Holder
a certificate or the certificates (or, if electronically, a book-entry position)
representing the Warrant Shares pursuant to the terms hereof by applicable
delivery date, then the Holder will have the right to rescind such
exercise.
6.
Charges, Taxes and
Expenses
. Issuance and delivery of certificates (or, if electronically, a
book-entry position) representing the Warrant Shares shall be made without
charge to the Holder for any issue or transfer tax, withholding tax, transfer
agent fee or other incidental tax or expense in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by the
Company;
provided,
however
,
that
the Company shall not be required to pay any tax that may be payable in respect
of any transfer involved in the registration of any certificates for Warrant
Shares or the Warrants in a name other than that of the Holder. The Holder shall
be responsible for all other tax liability that may arise as a result of holding
or transferring this Warrant or receiving Warrant Shares upon exercise
hereof.
7.
Replacement of
Warrant
. If this Warrant is mutilated, lost, stolen or destroyed,
the Company shall issue or cause to be issued in exchange and substitution for
and upon cancellation hereof, or in lieu of and substitution for this Warrant, a
New Warrant, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. Applicants for a New Warrant under such circumstances
shall also comply with such other reasonable regulations and procedures and pay
such other reasonable third-party costs as the Company may prescribe. If a New
Warrant is requested as a result of a mutilation of this Warrant, then the
Holder shall deliver such mutilated Warrant to the Company as a condition
precedent to the Company’s obligation to issue the New Warrant.
8.
Reservation of Warrant
Shares
. The Company covenants that it will at all times reserve and
keep available out of the aggregate of its authorized but unissued and otherwise
unreserved Common Stock, solely for the purpose of enabling it to issue Warrant
Shares upon exercise of this Warrant as herein provided, the number of Warrant
Shares that are then issuable and deliverable upon the exercise of this entire
Warrant, free from preemptive rights or any other contingent purchase rights of
persons other than the Holder (taking into account the adjustments and
restrictions of Section 9). The Company covenants that all Warrant Shares so
issuable and deliverable shall, upon issuance and the payment of the applicable
Exercise Price in accordance with the terms hereof, be duly and validly
authorized, issued and fully paid and nonassessable.
9.
Certain Adjustments to
Exercise Price
. The Exercise Price and number of Warrant
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 9.
(a)
Adjustments for
Stock Splits and Combinations and Stock Dividends
.
If the Company
shall at any time or from time to time after the date hereof, effect a stock
split or combination of the outstanding Common Stock or pay a stock dividend in
shares of Common Stock, then the Exercise Price shall be proportionately
adjusted. Any adjustments under this Section 9(a) shall be effective
at the close of business on the date the stock split or combination becomes
effective or the date of payment of the stock dividend, as
applicable.
(b)
Merger Sale,
Reclassification, etc.
In case of any: (i)
consolidation or merger (including a merger in which the Company is the
surviving entity), (ii) sale or other disposition of all or substantially all of
the Company’s assets or distribution of property to shareholders (other than
distributions payable out of earnings or retained earnings), or
reclassification, change or conversion of the outstanding securities of the
Company or of any reorganization of the Company (or any other corporation the
stock or securities of which are at the time receivable upon the exercise of
this Warrant) or any similar corporate reorganization on or after the date
hereof, then and in each such case the Holder of this Warrant, upon the exercise
hereof at any time thereafter shall be entitled to receive, in lieu of the stock
or other securities and property receivable upon the exercise hereof prior to
such consolidation, merger, sale or other disposition, reclassification, change,
conversion or reorganization, the stock or other securities or property to which
such Holder would have been entitled upon such consummation if such Holder had
exercised this Warrant immediately prior thereto.
10.
No Fractional
Shares
. No fractional Warrant Shares will be issued in connection
with any exercise of this Warrant. In lieu of any fractional shares that would
otherwise be issuable, the Company shall pay cash equal to the product of such
fraction multiplied by the closing price of the Company’s Common Stock as
reported by the applicable Trading Market on the Exercise Date.
11.
Notices
.
Any and all notices or other communications or deliveries hereunder
(including, without limitation, any Exercise Notice) shall be delivered in
accordance with the procedures set forth in Section 10.2 of the
SPA.
12.
Warrant Agent
.
The Company shall serve as warrant agent under this Warrant. Upon thirty (30)
days’ notice to the Holder, the Company may appoint a new warrant agent.
Any corporation into which the Company or any new warrant agent may be
merged or any corporation resulting from any consolidation to which the Company
or any new warrant agent shall be a party or any corporation to which the
Company or any new warrant agent transfers substantially all of its corporate
trust or shareholders services business shall be a successor warrant agent under
this Warrant without any further act. Any such successor warrant agent shall
promptly cause notice of its succession as warrant agent to be mailed (by first
class mail, postage prepaid) to the Holder at the Holder’s last address as shown
on the Warrant Register.
13.
Miscellaneous
.
(a)
This Warrant shall be binding on and inure to the benefit of the parties hereto
and their respective successors and assigns. Subject to the preceding sentence,
nothing in this Warrant shall be construed to give to any Person other than the
Company and the Holder any legal or equitable right, remedy or cause of action
under this Warrant. This Warrant may be amended only in writing signed by
the Company and the Holder, or their successors and assigns.
(b)
Each party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Warrant
(whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced exclusively in
the state and federal courts sitting in the City of New York. Each
party hereto hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in the City of New York, New York for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of this Warrant, and hereby irrevocably waives, and agrees not
to assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is improper. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Note and agrees that such service
shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law. EACH PARTY
HERETO (INCLUDING ITS AFFILIATES, AGENTS, OFFICERS, DIRECTORS AND EMPLOYEES)
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(c)
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.
(d)
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 reasonable
substitute therefore, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
(e)
Prior to exercise of this Warrant, the Holder hereof shall not, by reason of by
being a Holder, be entitled to any rights of a stockholder with respect to the
Warrant Shares.
(f)
No provision hereof, in
the absence of any affirmative action by Holder to exercise this Warrant to
purchase Warrant Shares, and no enumeration herein of the rights or privileges
of Holder, shall give rise to any liability of Holder for the purchase price of
any Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.
[Signature
Page Follows]
IN WITNESS WHEREOF
, the
Company has caused this Warrant to be duly executed by its authorized officer as
of the date first indicated above.
CHINA
BROADBAND, INC.
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Warrant
CHINA
BROADBAND, INC.
EXERCISE
NOTICE
Ladies
and Gentlemen:
The
undersigned, pursuant to the provisions set forth in the attached Warrant hereby
irrevocably elects to purchase ____________ Warrant Shares covered by such
Warrant, and is providing, herewith, the aggregate purchase price for such
shares. Capitalized terms used herein and not otherwise defined
herein have the respective meanings set forth in the Warrant.
The
undersigned intends that payment of the Warrant Price shall be made as (check
one):
Cash
Exercise_______
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Cashless
Exercise_______
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If the
Holder has elected a Cash Exercise, the Holder shall pay the sum of $________ by
certified or official bank check (or via wire transfer) to the Company in
accordance with the terms of the Warrant.
If the
Holder has elected a Cashless Exercise, a certificate shall be issued to the
Holder for the number of shares equal to the whole number portion of the product
of the calculation set forth below, which is ___________. The Company
shall pay a cash adjustment in respect of the fractional portion of the product
of the calculation set forth below in an amount equal to the product of the
fractional portion of such product and the closing price of one share of Common
Stock on the date of exercise, which product is ____________.
Where:
The
number of Warrant Shares to be issued to the Holder
__________________(“X”).
The
number of Warrant Shares purchasable upon exercise of all of the Warrant or, if
only a portion of the Warrant is being exercised, the portion of the Warrant
being exercised ___________________________ (“Y”).
The
Exercise Price ______________ (“A”).
The 5-day
average Fair Market Value of one share of Common Stock _______________________
(“B”).
[Signature
Page to Exercise Notice Follows]
Pursuant
to this Exercise Notice, the Company shall deliver to the Holder the number of
Warrant Shares determined in accordance with the terms of the Warrant and, in
lieu of any fractional shares, cash.
Dated:
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Warrant
CHINA
BROADBAND, INC.
FORM
OF ASSIGNMENT
To be
completed and signed only upon transfer of Warrant
FOR VALUE RECEIVED
, the
undersigned hereby sells, assigns and transfers unto _________________ the right
represented by the within Warrant to purchase _________________ shares of Common
Stock to which the within Warrant relates and appoints __________________
attorney to transfer said right on the books of the Company with full power of
substitution in the premises.
Dated:
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TRANSFEROR:
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WITNESS:
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Warrant
Exhibit
4.3
NEITHER
THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL,
IN A FORM ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER THE SECURITIES ACT.
CHINA
BROADBAND, INC.
COMMON
STOCK PURCHASE WARRANT
Initial
Holder:
Steven Oliviera
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Original Issue
Date:
____________, 2010
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No. of Shares Subject to
Warrant:
[ ]
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Exercise Price Per
Share:
$0.05
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Expiration
Time:
5:00 p.m., New York City time, on ________,
2015
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China Broadband, Inc., a Nevada
corporation (the “
Company
”), hereby certifies
that, for value received, the Initial Holder shown above, or its permitted
registered assigns (the “
Holder
”), is entitled to
purchase from the Company up to the number of shares of its common stock, par
value $0.001 per share (the “
Common Stock
”), shown
above (each such share, a “
Warrant Share
” and all such
shares, the “
Warrant
Shares
”) at the exercise price shown above (as may be adjusted from time
to time as provided herein, the “
Exercise Price
”), at any time
and from time to time on or original issue date indicated above (the “
Original Issue Date
”) and
through and including the expiration time shown above (the “
Expiration Time
”), and subject
to the following terms and conditions:
This
Warrant is being issued pursuant to a Securities Purchase Agreement, dated May
20, 2010 (the “
SPA
”), by
and between the Company, the Holder and the other parties thereto, pursuant to
which the Holder purchased units consisting of shares of the Company’s Series B
Preferred Stock.
1.
Definitions
. In
addition to the terms defined elsewhere in this Warrant, capitalized terms that
are not otherwise defined herein have the meanings given to such terms in the
SPA.
2.
List of Warrant
Holders
. 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 Holder (which shall include the Holder or, as the case may
be, any registered assignee to which this Warrant is permissibly assigned
hereunder from time to time). The Company may deem and treat the
registered Holder of this Warrant as the absolute owner hereof for the purpose
of any exercise hereof or any distribution to the Holder, and for all other
purposes, absent actual notice to the contrary.
3.
List of Transfers;
Restrictions on Transfer
. The Company shall register any transfer of all
or 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 its address specified herein. 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 Holder. The acceptance of the
New Warrant by the transferee thereof shall be deemed the acceptance by such
transferee of all of the rights and obligations in respect of the New Warrant
that the Holder has in respect of this Warrant.
4.
Exercise and Duration of
Warrant
.
(a)
All or any part of this Warrant
shall be exercisable by the registered Holder at any time and from time to time
on or after the Original Issue Date and through and including the Expiration
Time. Subject to Section 11 hereof, at the Expiration Time, the portion of this
Warrant not exercised prior thereto shall be and become void and of no value and
this Warrant shall be terminated and shall no longer be
outstanding.
(b)
The Holder may exercise this Warrant by delivering to the Company: (i) an
exercise notice, in the form attached hereto (the “
Exercise Notice
”), completed
and duly signed, and (ii) payment by wire transfer of immediately available
funds to an account designated by the Company of the Exercise Price for the
number of Warrant Shares as to which this Warrant is being exercised (unless
cashless exercise shall have been elected in accordance with the provisions of
Section 4(c) hereof). The date such items are delivered to the Company (as
determined in accordance with the notice provisions hereof) is an “
Exercise Date
.” The
Holder shall be required to deliver the original Warrant, or any New Warrant
that may have been previously issued, in order to effect an exercise
hereunder. Execution and delivery of the Exercise Notice shall have
the same effect as cancellation of the original Warrant, or any New Warrant that
may have been previously issued, and issuance of a New Warrant evidencing the
right to purchase the remaining number of Warrant Shares.
(c) Notwithstanding
any provisions herein to the contrary, in lieu of exercising this Warrant by
payment of cash, the Holder may exercise this Warrant by a cashless exercise and
shall receive the number of Warrant Shares equal to an amount (as determined
below) by surrender of this Warrant at the principal office of the Company
together with the properly endorsed Exercise Notice in which event the Company
shall issue to the Holder a number of Warrant Shares computed using the
following formula:
Where
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X
=
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the
number of Warrant Shares to be issued to the Holder.
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Y
=
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the
number of Warrant Shares purchasable upon exercise of all of the Warrant
or, if only a portion of the Warrant is being exercised, the portion of
the Warrant being exercised.
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A
=
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the
Exercise Price.
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B
=
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the
average of the Fair Market Value for the five days immediately preceding
the date of the Exercise
Notice.
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For
purposes of this Section 4(c), “Fair Market Value” means (a) if the Common Stock
is then listed or quoted on a national trading market, the volume weighted
average price of the Common Stock for the 20 trading days preceding such
Exercise Date (b) if the Common Stock is not then listed or quoted on a national
trading market and if prices for the Common Stock are then quoted on the OTC
Bulletin Board, the volume weighted average price of the Common Stock for the 20
trading days preceding such Exercise Date on the OTC Bulletin Board, (c) if the
Common Stock is not then listed or quoted on the OTC Bulletin Board and if
prices for the Common Stock are then reported in the “Pink Sheets” published by
Pink Sheets, LLC (or a similar organization or agency succeeding to its
functions of reporting prices), the average bid price per share of the Common
Stock for the 20 trading days preceding such Determination Date as so reported,
or (d) in all other cases, the value of the Common Stock as determined in good
faith by the Company’s Board of Directors.
(d)
The Company will not close its stockholder books
or records in any manner which prevents the timely exercise of this Warrant
pursuant to the terms hereof.
5.
Limitations and Restrictions
on Exercise
. The Company shall not effect any exercise, and
the Holder shall not have the right to exercise any portion of this Warrant,
pursuant to Section 4 hereof or otherwise, to the extent that after giving
effect to such exercise, the Holder (together with the Holder’s affiliates)
would beneficially own in excess of 4.99% of the number of shares of Common
Stock outstanding immediately after giving effect to such conversion unless the
Holder shall have, in its sole discretion, elected to increase such amount to
9.99% of the number of shares of Common Stock outstanding immediately after
giving effect to such exercise. For purposes of the foregoing sentence,
the number of shares of Common Stock beneficially owned by the Holder (together
with the Holder’s affiliates) shall include the number of shares of Common Stock
issuable upon exercise of this Warrant 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) exercise of the remaining, unexercised
portion of the this Warrant beneficially owned by the Holder or any of its
affiliates and (B) exercise or conversion of the unexercised or nonconverted
portion of any other securities of the Company subject to a limitation on
conversion or exercise analogous to the limitation contained herein beneficially
owned by the Holder or any of its affiliates. Except as set forth in the
preceding sentence, for purposes of this Section 5, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Exchange
Act. To the extent that the limitation contained in this section
applies, the determination of whether this Warrant is exercisable (in relation
to other securities owned by the Holder) and of which a portion of this Warrant
shall be in the sole discretion of the Holder. To ensure compliance with this
restriction, the Holder will be deemed to represent to the Company each time it
delivers an Exercise Notice in accordance with Section 4 hereof that the Holder
has not violated the restrictions set forth in this paragraph, and the Company
shall have no obligation to verify or confirm the accuracy of such
determination. For purposes of this Section 5, 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 a Company filing with the
U.S. Securities and Exchange Commission, a public announcement by the Company,
or any other notice by the Company or the Company’s transfer agent setting forth
the number of shares of Common Stock outstanding. The provisions of this
Section 5 may be waived by the Holder upon not less than sixty-one (61) days’
prior notice to the Company, and the provisions of this Section 5 shall continue
to apply until such 61st day (or such later date, as determined by the
Holder.
6.
Delivery of Warrant
Shares
.
(a)
Upon exercise of this Warrant, the Company shall promptly (but in no event later
than three (3) Trading Days after the Exercise Date) issue or cause to be issued
and cause to be delivered to or upon the written order of the Holder and in such
name or names as the Holder may designate, a certificate for the Warrant Shares
issuable upon such exercise, free of restrictive legends. “
Trading Day
” shall mean a date
on which the Company’s Common Stock trades on its principal trading market.
The Holder, or any Person permissibly so designated by the Holder to
receive Warrant Shares, shall be deemed to have become the holder of record of
such Warrant Shares as of the Exercise Date. The Company shall, upon the
written request of the Holder, use its best efforts to deliver, or cause to be
delivered, Warrant Shares hereunder electronically through the Depository Trust
and Clearing Corporation (“
DTCC
”) or another established
clearing corporation performing similar functions, if available;
provided, that,
the Company
may, but will not be required to, change its transfer agent if its current
transfer agent cannot deliver Warrant Shares electronically through DTCC or
another established clearing corporation performing similar functions, if
available. If as of the time of exercise the Warrant Shares constitute
restricted or control securities, the Holder, by exercising, agrees not to
resell them except in compliance with all applicable securities
laws.
(b)
To the extent permitted by law, the Company’s obligations to issue and deliver
Warrant Shares in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation to
the Company or any violation or alleged violation of law by the Holder or any
other Person, and irrespective of any other circumstance that might otherwise
limit such obligation of the Company to the Holder in connection with the
issuance of Warrant Shares. Nothing herein shall limit a Holder’s
right to pursue any other remedies available to it hereunder, at law or in
equity including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver
certificates representing shares of Common Stock upon exercise of the
Warrant as required pursuant to the terms hereof.
(c)
If the Company fails to cause its transfer agent to transmit to the Holder a
certificate or the certificates (or, if electronically, a book-entry position)
representing the Warrant Shares pursuant to the terms hereof by applicable
delivery date, then the Holder will have the right to rescind such
exercise.
7.
Charges, Taxes and
Expenses
. Issuance and delivery of certificates (or, if electronically, a
book-entry position) representing the Warrant Shares shall be made without
charge to the Holder for any issue or transfer tax, withholding tax, transfer
agent fee or other incidental tax or expense in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by the
Company;
provided,
however
,
that
the Company shall not be required to pay any tax that may be payable in respect
of any transfer involved in the registration of any certificates for Warrant
Shares or the Warrants in a name other than that of the Holder. The Holder shall
be responsible for all other tax liability that may arise as a result of holding
or transferring this Warrant or receiving Warrant Shares upon exercise
hereof.
8.
Replacement of
Warrant
. If this Warrant is mutilated, lost, stolen or destroyed,
the Company shall issue or cause to be issued in exchange and substitution for
and upon cancellation hereof, or in lieu of and substitution for this Warrant, a
New Warrant, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. Applicants for a New Warrant under such circumstances
shall also comply with such other reasonable regulations and procedures and pay
such other reasonable third-party costs as the Company may prescribe. If a New
Warrant is requested as a result of a mutilation of this Warrant, then the
Holder shall deliver such mutilated Warrant to the Company as a condition
precedent to the Company’s obligation to issue the New Warrant.
9.
Reservation of Warrant
Shares
. The Company covenants that it will at all times reserve and
keep available out of the aggregate of its authorized but unissued and otherwise
unreserved Common Stock, solely for the purpose of enabling it to issue Warrant
Shares upon exercise of this Warrant as herein provided, the number of Warrant
Shares that are then issuable and deliverable upon the exercise of this entire
Warrant, free from preemptive rights or any other contingent purchase
rights of persons other than the Holder (taking into account the adjustments and
restrictions of Section 10). The Company covenants that all Warrant Shares so
issuable and deliverable shall, upon issuance and the payment of the applicable
Exercise Price in accordance with the terms hereof, be duly and validly
authorized, issued and fully paid and nonassessable.
10.
Certain Adjustments to
Exercise Price
. The Exercise Price and number of Warrant
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 10.
(a)
Adjustments for Stock Splits
and Combinations and Stock Dividends
.
If the Company
shall at any time or from time to time after the date hereof, effect a stock
split or combination of the outstanding Common Stock or pay a stock dividend in
shares of Common Stock, then the Exercise Price shall be proportionately
adjusted. Any adjustments under this Section 10(a) shall be effective
at the close of business on the date the stock split or combination becomes
effective or the date of payment of the stock dividend, as
applicable.
(b)
Merger Sale,
Reclassification, etc.
In case of any: (i)
consolidation or merger (including a merger in which the Company is the
surviving entity), (ii) sale or other disposition of all or substantially all of
the Company’s assets or distribution of property to shareholders (other than
distributions payable out of earnings or retained earnings), or
reclassification, change or conversion of the outstanding securities of the
Company or of any reorganization of the Company (or any other corporation the
stock or securities of which are at the time receivable upon the exercise of
this Warrant) or any similar corporate reorganization on or after the date
hereof, then and in each such case the Holder of this Warrant, upon the exercise
hereof at any time thereafter shall be entitled to receive, in lieu of the stock
or other securities and property receivable upon the exercise hereof prior to
such consolidation, merger, sale or other disposition, reclassification, change,
conversion or reorganization, the stock or other securities or property to which
such Holder would have been entitled upon such consummation if such Holder had
exercised this Warrant immediately prior thereto.
11.
No Fractional Shares
.
No fractional Warrant Shares will be issued in connection with any
exercise of this Warrant. In lieu of any fractional shares that would otherwise
be issuable, the Company shall pay cash equal to the product of such fraction
multiplied by the closing price of the Company’s Common Stock as reported by the
applicable Trading Market on the Exercise Date.
12.
Notices
. Any
and all notices or other communications or deliveries hereunder (including,
without limitation, any Exercise Notice) shall be delivered in accordance with
the procedures set forth in Section 10.2 of the SPA.
13.
Warrant Agent
. The
Company shall serve as warrant agent under this Warrant. Upon thirty (30) days’
notice to the Holder, the Company may appoint a new warrant agent. Any
corporation into which the Company or any new warrant agent may be merged or any
corporation resulting from any consolidation to which the Company or any new
warrant agent shall be a party or any corporation to which the Company or any
new warrant agent transfers substantially all of its corporate trust or
shareholders services business shall be a successor warrant agent under this
Warrant without any further act. Any such successor warrant agent shall
promptly cause notice of its succession as warrant agent to be mailed (by first
class mail, postage prepaid) to the Holder at the Holder’s last address as shown
on the Warrant Register.
14.
Miscellaneous
.
(a)
This Warrant shall be binding on and inure to the benefit of the parties hereto
and their respective successors and assigns. Subject to the preceding sentence,
nothing in this Warrant shall be construed to give to any Person other than the
Company and the Holder any legal or equitable right, remedy or cause of action
under this Warrant. This Warrant may be amended only in writing signed by
the Company and the Holder, or their successors and assigns.
(b)
Each party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Warrant
(whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced exclusively in
the state and federal courts sitting in the City of New York. Each
party hereto hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in the City of New York, New York for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of this Warrant, and hereby irrevocably waives, and agrees not
to assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is improper. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Note and agrees that such service
shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law. EACH PARTY
HERETO (INCLUDING ITS AFFILIATES, AGENTS, OFFICERS, DIRECTORS AND EMPLOYEES)
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(c)
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.
(d)
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 reasonable
substitute therefore, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
(e)
Prior to exercise of this Warrant, the Holder hereof shall not, by reason of by
being a Holder, be entitled to any rights of a stockholder with respect to the
Warrant Shares.
(f)
No provision hereof, in the absence of any affirmative action by Holder to
exercise this Warrant to purchase Warrant Shares, and no enumeration herein of
the rights or privileges of Holder, shall give rise to any liability of Holder
for the purchase price of any Common Stock or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
[Signature
Page Follows]
IN WITNESS WHEREOF
, the
Company has caused this Warrant to be duly executed by its authorized officer as
of the date first indicated above.
CHINA
BROADBAND, INC.
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Signature
Page
Warrant
CHINA
BROADBAND, INC.
EXERCISE
NOTICE
Ladies
and Gentlemen:
The
undersigned, pursuant to the provisions set forth in the attached Warrant hereby
irrevocably elects to purchase ____________ Warrant Shares covered by such
Warrant, and is providing, herewith, the aggregate purchase price for such
shares. Capitalized terms used herein and not otherwise defined
herein have the respective meanings set forth in the Warrant.
The
undersigned intends that payment of the Warrant Price shall be made as (check
one):
Cash
Exercise_______
|
Cashless
Exercise_______
|
If the
Holder has elected a Cash Exercise, the Holder shall pay the sum of $________ by
certified or official bank check (or via wire transfer) to the Company in
accordance with the terms of the Warrant.
If the
Holder has elected a Cashless Exercise, a certificate shall be issued to the
Holder for the number of shares equal to the whole number portion of the product
of the calculation set forth below, which is ___________. The Company
shall pay a cash adjustment in respect of the fractional portion of the product
of the calculation set forth below in an amount equal to the product of the
fractional portion of such product and the VWAP of one share of Common Stock on
the date of exercise, which product is ____________.
Where:
The
number of Warrant Shares to be issued to the Holder
__________________(“X”).
The
number of Warrant Shares purchasable upon exercise of all of the Warrant or, if
only a portion of the Warrant is being exercised, the portion of the Warrant
being exercised ___________________________ (“Y”).
The
Exercise Price ______________ (“A”).
The 5-day
average Fair Market Value of one share of Common Stock _______________________
(“B”).
[Signature
Page to Exercise Notice Follows]
Pursuant
to this Exercise Notice, the Company shall deliver to the Holder the number of
Warrant Shares determined in accordance with the terms of the Warrant and, in
lieu of any fractional shares, cash.
Dated:
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HOLDER:
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CHINA
BROADBAND, INC.
FORM
OF ASSIGNMENT
To be
completed and signed only upon transfer of Warrant
FOR VALUE RECEIVED
, the
undersigned hereby sells, assigns and transfers unto _________________ the right
represented by the within Warrant to purchase _________________ shares of Common
Stock to which the within Warrant relates and appoints __________________
attorney to transfer said right on the books of the Company with full power of
substitution in the premises.
Dated:
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TRANSFEROR:
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WITNESS:
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Exhibit
4.4
REGISTRATION
RIGHTS AGREEMENT
This
REGISTRATION RIGHTS
AGREEMENT
(this “
Agreement
”), dated July 30,
2010, is between China Broadband, Inc., a Nevada corporation (the “
Company
”), and each purchaser
identified on
Schedule
A
hereto (each, including their respective successors and assigns, an
“
Investor
” and
collectively, the “
Investors
”).
WHEREAS,
in connection with
the Securities Purchase Agreement by and among the parties hereto of even date
herewith (the “
Securities
Purchase Agreement
”), the Company has agreed, upon the terms and subject
to the conditions set forth in the Securities Purchase Agreement, to issue and
sell to each Investor Units comprised of (i) up to 300,000,000 shares
(collectively, the “
Shares
”) of the Company’s
common stock, $0.001 par value per share (the “
Common Stock
”) and (ii)
warrants (the “
Warrants
”), which will be
exercisable to purchase shares of Common Stock (as exercised collectively, the
“
Warrant Shares
”);
and
WHEREAS
, in accordance with
the terms of the Securities Purchase Agreement, the Company has agreed to
provide certain registration rights under the Securities Act of 1933, as
amended, and the rules and regulations thereunder, or any similar successor
statute (collectively, the “
Securities Act
”), and
applicable state securities laws.
NOW, THEREFORE,
in
consideration of the premises and the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company and each of the Investors hereby agree as
follows:
1.
Definitions
.
Capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings set forth in the Securities Purchase Agreement. As used in
this Agreement, the following terms shall have the following
meanings:
(a) “
Additional Effectiveness Date
”
means the date the Additional Registration Statement is declared effective by
the SEC.
(b) “
Additional Effectiveness
Deadline
” means the date which is sixty (60) calendar days after the
Additional Filing Date or, in the event that the Registration Statement is
subject to a review by the SEC, one hundred twenty (120) calendar days after the
Additional Filing Date.
(c) “
Additional Filing Date
” means
the date on which the Additional Registration Statement is filed with the
SEC.
(d) “
Additional Filing Deadline
”
means if Cutback Shares are required to be included in the Additional
Registration Statement, one hundred eighty (180) days from the Initial
Effectiveness Date or the last Additional Effectiveness Date, as
applicable.
(e) “
Additional Registrable
Securities
” means, (i) any Cutback Shares not previously included on a
Registration Statement and (ii) any shares of Common Stock of the Company issued
or issuable with respect to the Shares, the Warrants or the Warrant Shares, as
applicable, as a result of any stock split, stock dividend, recapitalization,
exchange or similar event or otherwise, without regard to any limitations on
exercises of the Warrants.
(f) “
Additional Registration
Statement
” means a registration statement or registration statements of
the Company filed under the Securities Act covering any Additional Registrable
Securities.
(g) “
Additional Required Registration
Amount
” means any Cutback Shares not previously included on a
Registration Statement, all subject to adjustment as provided in Section 2(f),
without regard to any limitations on exercises of the Warrants, if
any.
(h) “
Business Day
” means any day
(i) other than (A) Saturday, (B) Sunday or (C) any day on which commercial banks
in New York City are authorized or required by law to remain closed and (ii)
that the SEC is open for business.
(i) “
Closing Date
” shall have the
meaning set forth in the Securities Purchase Agreement.
(j) “
Cutback Shares
” means any of
the Initial Required Registration Amount of Registrable Securities not included
in all Registration Statements previously declared effective hereunder as a
result of a limitation on the maximum number of shares of Common Stock of the
Company permitted to be registered by the staff of the SEC pursuant to Rule
415.
(k) “
Effectiveness Date
” means the
Initial Effectiveness Date and the Additional Effectiveness Date, as
applicable.
(l) “
Effectiveness Deadline
” means
the Initial Effectiveness Deadline and the Additional Effectiveness Deadline, as
applicable.
(m) “
Exchange Act
” means the
Securities and Exchange Act of 1934, as amended, and the rules and regulations
thereunder, or any similar successor statute.
(n) “
Filing Deadline
” means the
Initial Filing Deadline and the Additional Filing Deadline, as
applicable.
(o) “
Initial Effectiveness Date
”
means the date that the Initial Registration Statement has been declared
effective by the SEC.
(p) “
Initial Effectiveness
Deadline
” means the date that is one hundred eighty (180) days following
the final Closing Date;
provided
,
however
, in the event the SEC
informs the Company (i) that the SEC will not review such Registration Statement
or (ii)
that the
Company may request the acceleration of the effectiveness of such Registration
Statement and the Company makes such request, the Initial Effectiveness Deadline
shall mean the date that is within five (5) Business Days the Company is so
informed pursuant to either clause (i) or (ii) hereof;
provided
,
further
, that if the Initial
Effectiveness Date falls on a day other than a Business Day, the Initial
Effectiveness Deadline shall be the following Business Day.
(q) “
Initial Filing Deadline
” means
the date that is forty five (45) calendar days after the final Closing
Date.
(r) “
Initial Registrable
Securities
” means (i) the shares of Common Stock, (ii) the
Warrant Shares and (iii) any capital stock of the Company issued or issuable,
with respect to the Warrant Shares or the Warrants as a result of any stock
split, stock dividend, recapitalization, exchange or similar event or otherwise,
without regard to any limitations on exercises of the Warrants.
(s) “
Initial Required Registration
Amount
” means (i) the sum of (A) the number of shares of Common Stock
issued as of the Trading Day immediately preceding the applicable date of
determination, and (B) the number of Warrant Shares issued and issuable pursuant
to the Warrants as of the Trading Day immediately preceding the applicable date
of determination, all subject to adjustment as provided in Section 2(f), without
regard to any limitations on exercises of the Warrants, if any or (ii) such
other amount as may be required by the staff of the SEC pursuant to Rule
415.
(t) “
Initial Registration
Statement
” means the registration statement of the Company initially
filed under the Securities Act covering the Initial Registrable
Securities.
(u) “
Investor
” means an Investor or
any transferee or assignee thereof to whom a Investor assigns its rights under
this Agreement and who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 and any transferee or assignee thereof to
whom a transferee or assignee assigns its rights under this Agreement and who
agrees to become bound by the provisions of this Agreement in accordance with
Section 9.
(v) “
Person
” means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization and a government or any department or
agency thereof.
(w) “
register
,” “
registered
,” and “
registration
” refer to a
registration effected by preparing and filing one or more Registration
Statements in compliance with the Securities Act and pursuant to Rule 415 and
the declaration or ordering of effectiveness of such Registration Statement(s)
by the SEC.
(x) “
Registrable Securities
” means
the Initial Registrable Securities and the Additional Registrable
Securities.
(y) “
Registration Statement
” means
a registration statement or registration statements, including the Initial
Registration Statement and any Additional Registration Statements, of the
Company filed under the Securities Act covering the Registrable
Securities.
(z) “
Required Holders
” means the
holders of at least a majority of the Registrable Securities or the Investor
Representative acting on behalf of such requisite number of
holders.
(aa) “
Required Registration Amount
”
means either the Initial Required Registration Amount or the Additional Required
Registration Amount, as applicable.
(bb) “
Rule 415
” means Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous or delayed basis.
(cc) “
SEC
” means the United States
Securities and Exchange Commission.
2.
Registration
.
(a)
Mandatory
Registration
. The Company shall prepare, and use its
commercially reasonable efforts to file with the SEC, on or before the Initial
Filing Deadline, the Registration Statement on Form S-3 (or Form S-1 or any
other applicable form, if Form S-3 is not available to the Company) covering the
resale of all of the Registrable Securities. The Registration
Statement prepared pursuant hereto shall register for resale at least the number
of shares of Common Stock equal to the Required Registration Amount determined
as of the date the Registration Statement is initially filed with the
SEC. The Registration Statement shall contain customary “Selling
Stockholders” and “Plan of Distribution” sections. The Company shall
use its commercially reasonable efforts to have the Registration Statement
declared effective by the SEC as soon as practicable, but in no event later than
the Initial Effectiveness Deadline. By 9:30 a.m. New York City time
on the Business Day following the Effective Date, the Company shall file with
the SEC in accordance with Rule 424 under the Securities Act the final
prospectus to be used in connection with sales pursuant to such Registration
Statement.
(b)
Additional Mandatory
Registrations
. The Company shall prepare, and, as soon as
practicable but in no event later than the Additional Filing Deadline, file with
the SEC an Additional Registration Statement on Form S-3 (or Form S-1 or any
other applicable form, if Form S-3 is not available to the Company) covering the
resale of all of the Additional Registrable Securities not previously registered
on an Additional Registration Statement hereunder. To the extent the
staff of the SEC does not permit the Additional Required Registration Amount to
be registered on an Additional Registration Statement, the Company shall file
Additional Registration Statements successively trying to register on each such
Additional Registration Statement the maximum number of remaining Additional
Registrable Securities until the Additional Required Registration Amount has
been registered with the SEC. Each Additional Registration Statement
prepared pursuant hereto shall register for resale at least that number of
shares of Common Stock equal to the Additional Required Registration Amount as
of date the Registration Statement is initially filed with the
SEC. Each Additional Registration Statement shall contain customary
“Selling Stockholders” and “Plan of Distribution” sections. The
Company shall use its commercially reasonable efforts to have each Additional
Registration Statement declared effective by the SEC as soon as practicable, but
in no event later than the Additional Effectiveness Deadline. By 9:30
a.m. New York time on the date following the Additional Effective Date, the
Company shall file with the SEC in accordance with Rule 424 under the Securities
Act the final prospectus to be used in connection with sales pursuant to such
Registration Statement.
(c)
Allocation of Registrable
Securities
. The initial number of Registrable Securities
included in any Registration Statement and any increase in the number of
Registrable Securities included therein shall be allocated pro rata among the
Investors based on the number of Registrable Securities held by each Investor at
the time the Registration Statement covering such initial number of Registrable
Securities or increase thereof is declared effective by the SEC. In
the event that an Investor sells or otherwise transfers any of such Investor’s
Registrable Securities, each transferee shall be allocated a pro rata portion of
the then remaining number of Registrable Securities included in such
Registration Statement for such transferor. Any shares of Common
Stock included in a Registration Statement and which remain allocated to any
Person which ceases to hold any Registrable Securities covered by such
Registration Statement shall be allocated to the remaining Investors, pro rata
based on the number of Registrable Securities then held by such Investors which
are covered by such Registration Statement. In no event shall the
Company include any securities other than Registrable Securities on any
Registration Statement without the prior written consent of the Required Holders
or the Investor Representative.
If the SEC requires that
the Company register less than the amount of Registrable Securities originally
included on any Registration Statement at the time it was filed, the Registrable
Securities on such Registration Statement shall be decreased on a pro rata basis
and, unless otherwise requested by an Investor with respect to its Shares and
Warrant Shares, the Warrant Shares included on such Registration Statement shall
be decreased first.
(d)
Sufficient Number of Shares
Registered
. In the event the number of shares available under
a Registration Statement filed pursuant to Section 2(a) is insufficient to cover
all of the Registrable Securities required to be covered by such Registration
Statement or an Investor’s allocated portion of the Registrable Securities
pursuant to Section 2(c), the Company shall amend the applicable Registration
Statement, or file a new Registration Statement on Form S-3 (or Form S-1 or any
other applicable form, if Form S-3 is not available to the Company), or both, so
as to cover at least the Required Registration Amount as of the Trading Day
immediately preceding the date of the filing of such amendment or new
Registration Statement, in each case, as soon as practicable, but in any event
not later than fifteen (15) Business Days after the necessity therefor
arises. The Company shall use its commercially reasonable efforts to
cause such amendment and/or new Registration Statement to become effective as
soon as practicable following the filing thereof. For purposes of the
foregoing provision, the number of shares available under a Registration
Statement shall be deemed “insufficient to cover all of the Registrable
Securities” if at any time the number of shares of Common Stock available for
resale under the Registration Statement is less than the product determined by
multiplying (i) the Required Registration Amount as of such time by (ii)
0.90.
3.
Related
Obligations
. At such time as the Company is obligated to file
a Registration Statement with the SEC pursuant to Section 2(a) or 2(d) hereof,
the Company will use its commercially reasonable efforts to effect the
registration of the Registrable Securities in accordance with the intended
method of disposition thereof and, pursuant thereto, the Company shall have the
following obligations:
(a) The
Company shall promptly prepare and file with the SEC a Registration Statement
with respect to the Registrable Securities and use its commercially reasonable
efforts to cause such Registration Statement relating to the Registrable
Securities to become effective as soon as practicable after such filing (but in
no event later than the Effectiveness Deadline). The Company shall
keep each Registration Statement effective pursuant to Rule 415 at all times
until the earlier of: (i) the date as of which the Investors may sell all of the
Registrable Securities covered by such Registration Statement without
restriction pursuant to Rule 144 (or any successor thereto) promulgated under
the Securities Act (“
Rule
144
”) or (ii) the date on which the Investors shall have sold all of the
Registrable Securities covered by such Registration Statement (the “
Registration
Period
”). The Company shall ensure that each Registration
Statement (including any amendments or supplements thereto and prospectuses
contained therein) shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein, or necessary to
make the statements therein (in the case of prospectuses, in the light of the
circumstances in which they were made) not misleading.
(b) The
Company shall prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to a Registration Statement and the
prospectus used in connection with such Registration Statement, which prospectus
is to be filed pursuant to Rule 424 promulgated under the Securities Act, as may
be necessary to keep such Registration Statement effective at all times during
the Registration Period, and, during such period, comply with the provisions of
the Securities Act with respect to the disposition of all Registrable Securities
of the Company covered by such Registration Statement until such time as all of
such Registrable Securities shall have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof as set forth in
such Registration Statement.
(c) The
Company shall use its commercially reasonable efforts to: (i) register and
qualify, unless an exemption from registration and qualification applies, the
resale by Investors of the Registrable Securities covered by a Registration
Statement under such other securities or “blue sky” laws of all applicable
jurisdictions in the United States, (ii) prepare and file in those
jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions;
provided
,
however
, that the Company
shall not be required in connection therewith or as a condition thereto to (x)
qualify to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(c), (y) subject itself to general
taxation in any such jurisdiction, or (z) file a general consent to service of
process in any such jurisdiction. The Company shall promptly notify
the Investor Representative of the receipt by the Company of any
notification with respect to the suspension of the registration or qualification
of any of the Registrable Securities for sale under the securities or “blue sky”
laws of any jurisdiction in the United States or its receipt of actual notice of
the initiation or threatening of any proceeding for such purpose.
(d) The
Company shall notify the Investor Representative
in writing of the
happening of any event, as promptly as practicable after becoming aware of such
event, as a result of which the prospectus included in a Registration Statement,
as then in effect, includes an untrue statement of a material fact or omission
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading (provided that in no event shall such notice contain any
material, nonpublic information), and, subject to Section 3(m), promptly prepare
a supplement or amendment to such Registration Statement to correct such untrue
statement or omission. The Company shall also promptly notify the
Investor Representative in writing when a prospectus or any prospectus
supplement or post-effective amendment has been filed, and when a Registration
Statement or any post-effective amendment has become effective.
(e) The
Company shall use its commercially reasonable efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration Statement,
or the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction and, if such an order or suspension is issued, to
obtain the withdrawal of such order or suspension at the earliest possible
moment and to notify the Investor Representative of the issuance of such order
and the resolution thereof or its receipt of actual notice of the initiation or
threat of any proceeding for such purpose.
(f) If
any Investor is required under applicable securities laws to be described in the
Registration Statement as an underwriter, at the reasonable request of such
Investor, the Company shall furnish to such Investor, on the date of the
effectiveness of the Registration Statement and thereafter from time to time on
such dates as an Investor may reasonably request: (i) a letter, dated such date,
from the Company’s independent certified public accountants in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the Investors; and
(ii) an opinion, dated as of such date, of counsel representing the Company for
purposes of such Registration Statement, in form, scope and substance reasonably
acceptable to such counsel and as is customarily given in an underwritten public
offering, addressed to the Investors.
(g) The
Company shall hold in confidence and not make any disclosure of information
concerning an Investor provided to the Company unless: (i) disclosure of such
information is necessary to comply with federal or state securities laws; (ii)
the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement; (iii) the release of
such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction; or (iv) such information has been made available to the public
other than by disclosure in violation of this Agreement or any other Transaction
Document. The Company agrees that it shall, upon learning that
disclosure of such information concerning an Investor is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt written notice to such Investor and allow such Investor, at the
Investor’s expense, to undertake appropriate action to prevent disclosure of, or
to obtain a protective order for, such information.
(h) The
Company shall use its commercially reasonable efforts either to: (i) cause all
of the Registrable Securities covered by a Registration Statement to be listed
on each national securities exchange on which securities of the same class or
series issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such
exchange. The Company shall pay all fees and expenses in connection
with satisfying its obligation under this Section 3(h).
(i) The
Company shall cooperate with the Investors who hold Registrable Securities being
offered and, to the extent applicable, facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the Investors may reasonably request and registered in such names as the
Investors may request.
(j) If
requested by an Investor, the Company shall as soon as practicable: (i)
incorporate in a prospectus supplement or post-effective amendment such
information as an Investor reasonably requests to be included therein relating
to the sale and distribution of Registrable Securities, including, without
limitation, information with respect to the number of Registrable Securities
being offered or sold, the purchase price being paid therefor and any other
terms of the offering of the Registrable Securities to be sold in such offering;
(ii) make all required filings of such prospectus supplement or post-effective
amendment after being notified of the matters to be incorporated in such
prospectus supplement or post-effective amendment; and (iii) supplement or make
amendments to any Registration Statement if reasonably requested by an Investor
holding any Registrable Securities.
(k) The
Company shall use its commercially reasonable efforts to cause the Registrable
Securities covered by a Registration Statement to be registered with or approved
by such other governmental agencies or authorities as may be necessary to
consummate the disposition of such Registrable Securities.
(l)
The Company shall otherwise use its commercially reasonable efforts to comply
with all applicable rules and regulations of the SEC in connection with any
registration hereunder.
(m) Notwithstanding
anything to the contrary herein, at any time after the Effective Date, the
Company may delay the disclosure of material, non-public information concerning
the Company the disclosure of which at the time is not, in the good faith
opinion of the Board of Directors of the Company and its counsel, in the best
interest of the Company and, in the opinion of counsel to the Company, otherwise
required (a “
Grace
Period
”);
provided,
that the Company
shall promptly: (i) notify the Investor Representative in writing of the
existence of material, non-public information giving rise to a Grace Period
(provided that in each notice the Company will not disclose the content of such
material, non-public information to the Investors) and the date on which the
Grace Period will begin, and (ii) notify Investor Representative in writing
of the date on which the Grace Period ends; and
, provided further,
that no
Grace Period shall exceed twenty (20) consecutive days and during any three
hundred sixty five (365) day period such Grace Periods shall not exceed an
aggregate of sixty (60) days and the first day of any Grace Period must be at
least five (5) Trading Days (as defined in the Securities Purchase Agreement)
after the last day of any prior Grace Period (each, an “
Allowable Grace
Period
”). For purposes of determining the length of a Grace
Period above, the Grace Period shall begin on and include the date the Investor
Representative receives the notice referred to in clause (i) and shall end on
and include the later of the date the Investor Representative
receives the notice
referred to in clause (ii) and the date referred to in such
notice. The Company’s obligations under Section 3(f) shall not be
applicable during and Allowable Grace Period.
4.
Obligations of the
Investors
.
(a) At
least five (5) Business Days prior to the first anticipated filing date of a
Registration Statement, the Company shall notify the Investor
Representative
in
writing of the information the Company requires from each Investor if such
Investor elects to have any of such Investor’s Registrable Securities included
in such Registration Statement. It shall be a condition precedent to
the obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor
that such Investor shall, within five (5) Business Days of the Company’s
request, furnish to the Company such information regarding itself, the
Registrable Securities held by it and the intended method of disposition of the
Registrable Securities held by it, as shall be reasonably required to effect and
maintain the effectiveness of the registration of such Registrable Securities
and shall execute such documents in connection with such registration as the
Company may reasonably request.
(b) Each
Investor, by such Investor’s acceptance of the Registrable Securities, agrees to
cooperate with the Company as reasonably requested by the Company in connection
with the preparation and filing of any Registration Statement hereunder, unless
such Investor has notified the Company in writing of such Investor’s election to
exclude all of such Investor’s Registrable Securities from such Registration
Statement.
(c) Each
Investor agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3(d) or 3(e), such
Investor will immediately discontinue disposition of Registrable Securities
pursuant to any Registration Statement(s) covering such Registrable Securities
until such Investor’s receipt of the copies of the supplemented or amended
prospectus or receipt of notice that no supplement or amendment is
required.
(d) Each
Investor covenants and agrees that it will comply with the prospectus delivery
requirements of the Securities Act as applicable to it or an exemption therefrom
in connection with sales of Registrable Securities pursuant to the Registration
Statement.
5.
Expenses of
Registration
. All reasonable expenses, other than underwriting
discounts and commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3 hereof, including, without
limitation, all registration, listing and qualifications fees, printers and
accounting fees, and fees and disbursements of counsel for the Company shall be
paid by the Company.
6.
Indemnification
. In
the event any Registrable Securities are included in a Registration Statement
under this Agreement:
(a) To
the fullest extent permitted by law, the Company will, and hereby does,
indemnify, hold harmless and defend each Investor, the directors, officers,
members, partners, employees, agents, representatives of, and each Person, if
any, who controls any Investor within the meaning of the Securities Act or the
Exchange Act (each, an “
Indemnified Person
”), against
any losses, claims, damages, liabilities, judgments, fines, penalties, charges,
costs, reasonable attorneys’ fees, amounts paid in settlement or expenses, joint
or several, (collectively, “
Claims
”) incurred in
investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto (“
Indemnified Damages
”), to
which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon: (i) any untrue statement or alleged untrue
statement of a material fact in a Registration Statement or any post-effective
amendment thereto or in any filing made in connection with the qualification of
the offering under the securities or other “blue sky” laws of any jurisdiction
in which Registrable Securities are offered (“
Blue Sky Filing
”), or the
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii) any
untrue statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement (the matters in the foregoing
clauses (i) through (iii) being, collectively, “
Violations
”). Subject
to Section 6(c), the Company shall reimburse the Indemnified Persons, promptly
as such expenses are incurred and are due and payable, for any reasonable legal
fees and reasonable expenses incurred by them in connection with investigating
or defending any such Claim. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section
6(a): (i) shall not apply to a Claim by an Indemnified Person arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by such Indemnified Person
for such Indemnified Person expressly for use in connection with the preparation
of the Registration Statement or any such amendment thereof or supplement
thereto, if such prospectus was timely made available by the Company pursuant to
Section 3(d); and (ii) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld or
delayed. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.
(b) In
connection with any Registration Statement in which an Investor is
participating, each such Investor agrees to severally and not jointly indemnify,
hold harmless and defend, to the same extent and in the same manner as is set
forth in Section 6(a), the Company, each of its directors, each of its officers
who signs the Registration Statement and each Person, if any, who controls the
Company within the meaning of the Securities Act or the Exchange Act (each, an
“
Indemnified Party
”),
against any Claim or Indemnified Damages to which any of them may become
subject, under the Securities Act, the Exchange Act or otherwise, insofar as
such Claim or Indemnified Damages arise out of or are based upon any Violation,
in each case to the extent, and only to the extent, that such Violation occurs
in reliance upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with such Registration
Statement; and, subject to Section 6(c), such Investor will reimburse any legal
or other expenses reasonably incurred by an Indemnified Party in connection with
investigating or defending any such Claim;
provided
,
however
, that the indemnity
agreement contained in this Section 6(b) and the agreement with respect to
contribution contained in Section 7 shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of such Investor, which consent shall not be unreasonably withheld or
delayed;
provided
,
further
,
however
, that the Investor
shall be liable under this Section 6(b) for only that amount of a Claim or
Indemnified Damages as does not exceed the net proceeds to such Investor as a
result of the sale of Registrable Securities pursuant to such Registration
Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.
(c) Promptly
after receipt by an Indemnified Person or Indemnified Party under this Section 6
of notice of the commencement of any action or proceeding (including any
governmental action or proceeding) involving a Claim, such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be;
provided
,
however
, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for all such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. In the
case of an Indemnified Person, legal counsel referred to in the immediately
preceding sentence shall be selected by the Investors holding at least a
majority
in
interest of the Registrable Securities included in the Registration Statement to
which the Claim relates. The Indemnified Party or Indemnified Person
shall cooperate reasonably with the indemnifying party in connection with any
negotiation or defense of any such action or Claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the Indemnified Party or Indemnified Person which relates to such action or
Claim. The indemnifying party shall keep the Indemnified Party or
Indemnified Person fully apprised at all times as to the status of the defense
or any settlement negotiations with respect thereto. No indemnifying
party shall be liable for any settlement of any action, claim or proceeding
effected without its prior written consent,
provided
,
however
, that the
indemnifying party shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without the prior written
consent of the Indemnified Party or Indemnified Person, consent to entry of any
judgment or enter into any settlement or other compromise which does not include
as an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party or Indemnified Person of a release from all liability in
respect to such Claim or litigation, and such settlement shall not include any
admission as to fault on the part of the Indemnified Party. Following
indemnification as provided for hereunder, the indemnifying party shall be
subrogated to all rights of the Indemnified Party or Indemnified Person with
respect to all third parties, firms or corporations relating to the matter for
which indemnification has been made. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action shall not relieve such indemnifying party of any liability to
the Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action.
(d) The
indemnification required by this Section 6 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 Indemnified Damages are incurred.
(e) The
indemnity agreements contained herein shall be in addition to: (i) any cause of
action or similar right of the Indemnified Party or Indemnified Person against
the indemnifying party or others, and (ii) any liabilities the indemnifying
party may be subject to pursuant to the law.
7.
Contribution
. To
the extent any indemnification by an indemnifying party is prohibited or limited
by law, the indemnifying party agrees to make the maximum contribution with
respect to any amounts for which it would otherwise be liable under Section 6 to
the fullest extent permitted by law;
provided
,
however
, that: (i) no Person
involved in the sale of Registrable Securities which Person is guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) in connection with such sale shall be entitled to contribution
from any Person involved in such sale of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (ii) contribution by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities pursuant to
such Registration Statement.
8.
Reports Under the Exchange
Act
. With a view to making available to the Investors the
benefits of Rule 144 or any other similar rule or regulation of the SEC that may
at any time permit the Investors to sell securities of the Company to the public
without registration, the Company agrees, for so long as Registrable Securities
are outstanding, to:
(a) make
and keep public information available, as those terms are understood and defined
in Rule 144;
(b) file
with the SEC in a timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act so long as the Company
remains subject to such requirements and the filing of such reports and other
documents is required for the applicable provisions of Rule 144;
and
(c) furnish
to each Investor so long as such Investor owns Registrable Securities, promptly
upon request, such information as may be reasonably and customarily requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9.
Assignment of Registration
Rights
. The rights under this Agreement shall be automatically
assignable by the Investors to any permitted transferee of all or any portion of
such Investor’s Registrable Securities if: (i) the Investor agrees in writing
with the transferee or assignee to assign such rights, and a copy of such
agreement is furnished to the Company within five (5) Business Days after such
assignment; (ii) the Company is, within five (5) Business Days after such
transfer or assignment, furnished with written notice of (a) the name and
address of such transferee or assignee, and (b) the securities with respect to
which such registration rights are being transferred or assigned; (iii)
immediately following such transfer or assignment the further disposition of
such securities by the transferee or assignee is restricted under the Securities
Act or applicable state securities laws; (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein; and (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement.
10.
Amendment of Registration
Rights
. Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the Investor Representative who shall have obtained the consent of the
Required Holders. Any amendment or waiver effected in accordance with
this Section 10 shall be binding upon each Investor and the
Company. No such amendment shall be effective to the extent that it
applies to less than all of the holders of the Registrable
Securities. No consideration shall be offered or paid to any Person
to amend or consent to a waiver or modification of any provision of this
Agreement unless the same consideration also is offered to all of the parties to
this Agreement.
11.
Miscellaneous
.
(a) A
Person is deemed to be a holder of Registrable Securities whenever such Person
owns or is deemed to own of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more Persons with respect to the same Registrable Securities, the Company shall
act upon the basis of instructions, notice or election received from such record
owner of such Registrable Securities.
(b) Any
notices, consents, waivers or other communications required or permitted to be
given under the terms of this Agreement must be in writing and will be deemed to
have been delivered if delivered in accordance with Section 10.2 of the
Securities Purchase Agreement.
(c) Failure
of any party to exercise any right or remedy under this Agreement or otherwise,
or delay by a party in exercising such right or remedy, shall not operate as a
waiver thereof.
(d) All
questions concerning the construction, validity, enforcement and interpretation
of the Transaction Documents shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof.
(e) Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Note (whether
brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced exclusively in
the state and federal courts sitting in the City of New York. Each
party hereto hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in the City of New York, New York for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of this Note, and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is improper. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Note and agrees that such service
shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law. EACH PARTY
HERETO (INCLUDING ITS AFFILIATES, AGENTS, OFFICERS, DIRECTORS AND EMPLOYEES)
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(f)
This Agreement, the other Transaction Documents (as defined in the Securities
Purchase Agreement) and the instruments referenced herein and therein constitute
the entire agreement among the parties hereto with respect to the subject matter
hereof and thereof. There are no restrictions, promises, warranties
or undertakings, other than those set forth or referred to herein and
therein. This Agreement, the other Transaction Documents and the
instruments referenced herein and therein supersede all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof and thereof.
(g) Subject
to the requirements of Section 9, this Agreement shall inure to the benefit of
and be binding upon the permitted successors and assigns of each of the parties
hereto.
(h) The
headings in this Agreement are for convenience of reference only and shall not
limit or otherwise affect the meaning hereof.
(i)
This Agreement may be executed in identical counterparts, each of which shall be
deemed an original but all of which shall constitute one and the same
agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
(j)
Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents as any other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
(k) All
consents and other determinations required to be made by the Investors pursuant
to this Agreement shall be made, unless otherwise specified in this Agreement,
by the Investor Representative.
(l)
The language used in this Agreement will be deemed to be the language chosen by
the parties to express their mutual intent and no rules of strict construction
will be applied against any party.
(m) This
Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person.
(n) The
obligations of each Investor hereunder are several and not joint with the
obligations of any other Investor, and no provision of this Agreement is
intended to confer any obligations on any Investor vis-à-vis any other
Investor. Nothing contained herein, and no action taken by any
Investor pursuant hereto, shall be deemed to constitute the Investors as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Investors are in any way acting in concert or as a
group with respect to such obligations or the transactions contemplated
herein.
(o) The
Lead Placement Agent and any co-placement agent are intended third party
beneficiaries of this Agreement and have all of the rights of an “Investor”
under this Agreement and the shares of Common Stock issuable upon the exercise
of the Warrants issued to the Lead Placement Agent and any co-placement agent,
except for the Warrants issued pursuant to Section 10.1(c) of the Securities
Purchase Agreement, (and any capital stock of the Company issued or issuable,
with respect to the warrants issued to the Lead Placement Agent or any
co-placement agent as a result of any stock split, stock dividend,
recapitalization, exchange, anti-dilution adjustment or similar event or
otherwise, without regard to any limitations on exercises of the warrants, if
any) constitute Registrable Securities for all purposes of this
Agreement. Notwithstanding the foregoing, neither the Lead Placement
Agent nor the co-placement agent are entitled to any Registration Delay
Payments.
[Signature
Page Follows]
IN WITNESS WHEREOF
, the
parties hereto have caused this Registration Rights Agreement to be duly
executed by their respective authorized signatories as of the date first
indicated above.
COMPANY:
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CHINA
BROADBAND, INC.
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By:
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Name:
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Title:
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INVESTORS:
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The
Investors executing the Signature Page in the form attached hereto as
Annex A
and delivering the same to the Company or its agents shall be deemed to
have executed this Agreement and agreed to the terms
hereof.
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LEAD
PLACEMENT AGENT:
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CHARDAN
CAPITAL MARKETS, LLC
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By:
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Name:
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Title:
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Signature
Page
Registration
Rights Agreement
Annex
A
Registration
Rights Agreement
Investor
Counterpart Signature Page
The
undersigned, desiring to: (i) enter into this Registration Rights Agreement,
dated as of _________________, 2010 (the “
Agreement
”), between the
undersigned, China Broadband, Inc., a Nevada corporation (the “
Company
”), and the other
parties thereto, in or substantially in the form furnished to the undersigned
and (ii) purchase the securities of the Company appearing below, hereby agrees
to purchase such securities from the Company as of the Closing and further
agrees to join the Agreement as a party thereto, with all the rights and
privileges appertaining thereto, and to be bound in all respects by the terms
and conditions thereof. Capitalized terms used herein but not
otherwise defined shall have the meaning as set forth in the
Agreement.
IN WITNESS WHEREOF
, the
undersigned has executed the Agreement as of _____________________,
2010.
Name
and Address, Fax No. and Social Security No./EIN of
Investor:
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Fax No.:
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If
a partnership, corporation, trust or other business
entity:
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By:
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Name:
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Title:
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If
an individual:
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Signature
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Schedule
A
SCHEDULE
OF INVESTORS
Investor
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Shares
of
Common
Stock
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Warrants
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TOTAL:
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Exhibit
4.5
REGISTRATION
RIGHTS AGREEMENT
July 30,
2010
To the
Investor named in Securities Purchase Agreement,
dated May
20, 2010
Dear
Sir:
This will confirm that in consideration
of your agreement on the date hereof to purchase 7,000,000 Units
of China Broadband, Inc., a Nevada corporation (the “
Company
”), pursuant
to the Securities Purchase Agreement, dated May 20, 2010 (the “
Purchase Agreement
”)
between the Company and you, and as an inducement to you to consummate the
transactions contemplated by the Purchase Agreement, the Company covenants and
agrees with you as follows:
1.
Certain
Definitions
. Capitalized terms that are used, but not
otherwise defined, herein have the meanings assigned to them in the Purchase
Agreement. As used in this Agreement, the following terms have the
following respective meanings:
“
Commission
” shall
mean the Securities and Exchange Commission, or any other federal agency at the
time administering the Securities Act.
“
Exchange Act
” shall
mean the Securities Exchange Act of 1934, as amended, or any similar federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
“
Registration
Expenses
” shall have the meaning set forth in
Section 8.
“
Restricted Stock
”
shall mean the Shares and the Warrant Shares excluding any such Shares or
Warrant Shares which have been (a) registered under the Securities Act
pursuant to an effective registration statement filed thereunder and disposed of
in accordance with the registration statement covering them or (b) publicly
sold pursuant to Rule 144 under the Securities Act or saleable under Rule
144 without restriction as to volume or otherwise.
“
Securities Act
” shall
mean the Securities Act of 1933, as amended, or any similar federal statute, and
the rules and regulations of the Commission thereunder, all as the same shall be
in effect at the time.
“
Selling Expenses
”
shall have the meaning set forth in Section 8.
Registration
Rights Agreement — Page 2
2.
Restrictive
Legend
. Each certificate representing Restricted Stock shall,
except as otherwise provided in this Section 2 or in Section 3, be
stamped or otherwise imprinted with a legend substantially in the following
form:
|
“THIS
SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED
UNLESS SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS IS AVAILABLE
WITH RESPECT THERETO.”
|
A
certificate shall not bear such legend if in the opinion of counsel satisfactory
to the Company addressed to the Company and any transfer agent for the
securities represented thereby to the effect that such securities may be
publicly sold without registration under the Securities Act and any applicable
state securities laws.
3.
Notice of Proposed
Transfer
. Prior to any proposed transfer of the Restricted
Stock (other than under the circumstances described in Sections 4, 5 or 6),
the holder thereof shall give written notice to the Company of its intention to
effect such transfer. Each such notice shall describe the manner of
the proposed transfer and, if requested by the Company, shall be accompanied by
an opinion of counsel satisfactory to the Company (and at the Company’s sole
expense) to the effect that the proposed transfer may be effected without
registration under the Securities Act and any applicable state securities laws,
whereupon the holder of such Restricted Stock shall be entitled to transfer such
Restricted Stock in accordance with the terms of its notice; provided, however,
that no such opinion of counsel shall be required for a transfer in accordance
with the constituent documents of the entity to one or more partners or members,
or employees of the transferor (in the case of a transferor that is a
partnership or a limited liability company, respectively) or to an affiliated
corporation (in the case of a transferor that is a corporation). Each
certificate for the Restricted Stock transferred as above provided shall bear
the legend set forth in Section 2, except that such certificate shall not
bear such legend if (i) such transfer is in accordance with the provisions
of Rule 144 (or any other rule permitting public sale without registration
under the Securities Act) or (ii) the opinion of counsel referred to above
is to the further effect that the transferee and any subsequent transferee
(other than an affiliate of the Company) would be entitled to transfer such
securities in a public sale without registration under the Securities
Act. The restrictions provided for in this Section 3 shall not
apply to securities which are not required to bear the legend prescribed by
Section 2 in accordance with the provisions of that Section.
4.
Required
Registration
. (a) At any time after the 180
th
day
following the date hereof, the holder of Restricted Stock may request the
Company to register under the Securities Act all or any portion of the shares of
Restricted Stock held by such requesting holder for sale in the manner specified
in such notice.
Registration
Rights Agreement — Page 3
(a)
Following receipt of any notice under this Section 4, the Company shall use
its best efforts to register under the Securities Act, for public sale in
accordance with the method of disposition specified in such notice from
requesting holder, the number of shares of Restricted Stock specified in such
notice. The Company shall be obligated to register Restricted Stock
pursuant to this Section 4 on only three occasions.
(b) The
Company shall be entitled to include in any registration statement referred to
in this Section 4, for sale in accordance with the method of disposition
specified by the requesting holder, shares of Common Stock to be sold by the
Company for its own account, except as and to the extent that, and only to the
extent that, in the opinion of the managing underwriter (if such method of
disposition shall be an underwritten public offering), such inclusion would
adversely affect the marketing of the Restricted Stock to be
sold. Except for registration statements on Form S-4, S-8 or any
successor thereto, the Company will not file with the Commission any other
registration statement with respect to its Common Stock, whether for its own
account or that of other stockholders, from the date of receipt of a notice from
requesting holders pursuant to this Section 4 until the completion of the
period of distribution of the registration contemplated thereby.
5.
Incidental
Registration
. If the Company at any time on or following the
180
th
day
following the date of this Agreement (other than pursuant to Section 4 or
Section 6) proposes to register any of its securities under the Securities
Act for sale to the public, whether for its own account or for the account of
other security holders or both (except with respect to registration statements
on Forms S-4, S-8 or another form not available for registering the
Restricted Stock for sale to the public), each such time it will give written
notice to the holder of outstanding Restricted Stock of its intention so to
do. Upon the written request of such holder, received by the Company
within 10 days after the giving of any such notice by the Company, to
register any of its Restricted Stock, the Company will use its best efforts to
cause the Restricted Stock as to which registration shall have been so requested
to be included in the securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent requisite to permit the
sale or other disposition by the holder of such Restricted Stock so
registered. In the event that any registration pursuant to this
Section 5 shall be, in whole or in part, an underwritten public offering of
Common Stock, the number of shares of Restricted Stock to be included in such an
underwriting may be reduced (if the initial holder made any transfers of
Restricted Stock and related registration rights hereunder, then pro rata among
the initial holder of Restricted Stock and his transferees based upon the number
of shares of Restricted Stock owned by such holder) if and to the extent that,
and only to the extent that, the managing underwriter shall be of the opinion
that such inclusion would adversely affect the marketing of the securities to be
sold by the Company therein,
provided
,
however
, that if any
shares are to be included in such underwriting for the account of any person
other than the Company or the initial holder of Restricted Stock, such number of
shares of Restricted Stock shall be reduced pro rata based on the ownership of
the selling stockholders that include shares in such registration of shares of
Common Stock (determined on a fully-diluted basis); and
provided
,
further
,
however
, that in no
event may less than one-third of the total number of shares of Common Stock to
be included in such underwriting be made available for shares of Restricted
Stock. Notwithstanding the foregoing provisions, the Company may
withdraw any registration statement referred to in this Section 5 without
thereby incurring any liability to the holder of Restricted
Stock.
Registration
Rights Agreement — Page 4
6.
Registration on
Form S-3
. If at any time following the 180
th
day
following the date hereof (i) a holder of Restricted Stock
requests that the Company file a registration statement on Form S-3 or any
successor thereto for a public offering of all or any portion of the shares of
Restricted Stock held by such requesting holder, and (ii) the Company is a
registrant entitled to use Form S-3 or any successor thereto to register
such shares, then the Company shall use its best efforts to register under the
Securities Act on Form S-3 or any successor thereto, for public sale in
accordance with the method of disposition specified in such notice, the number
of shares of Restricted Stock specified in such notice. Whenever the
Company is required by this Section 6 to use its best efforts to effect the
registration of Restricted Stock, each of the procedures and requirements of
Section 4 shall apply to such registration,
provided
,
however
, the Company
shall be obligated to register Restricted Stock pursuant to this Section 6 on
three occasions only.
7.
Registration
Procedures
. If and whenever the Company is required by the
provisions of Sections 4, 5 or 6 to use its best efforts to effect the
registration of any shares of Restricted Stock under the Securities Act, the
Company will, as expeditiously as possible:
(a) prepare
and file with the Commission within sixty (60) days of a written request by the
holder of Restricted Stock pursuant to Section 4 hereof (unless such request
relates to an underwritten offering, in which case, the Company’s obligation
with regard to the timing of the filing shall be to file a registration
statement as soon as practicable) a registration statement (which, in the case
of an underwritten public offering pursuant to Section 4, shall be on Form
S-1 or other form of general applicability satisfactory to the managing
underwriter selected as therein provided) with respect to such securities and
use its best efforts to cause such registration statement to become and remain
effective for the period of the distribution contemplated thereby (determined as
hereinafter provided) and, if the registration statement does not relate to an
underwritten offering, then to cause such registration statement to become
effective within one hundred and eighty (180) days after its filing (it being
understood that if a registration statement is not filed on or prior such 60th
day or does not become effective by such 180th day (any such failure or breach
being referred to as an “Event”, and the date on which such Event occurs being
referred to as “Event Date”), then, in addition to any other rights the holder
of Restricted Stock under applicable law, on each such Event Date and on each
monthly anniversary of each such Event Date (if the applicable Event shall not
have been cured by such date) until the applicable Event is cured, the Company
shall pay to each holder of Restricted Stock included in the request pursuant to
Section 4 hereof an amount in cash, as partial liquidated damages and not as a
penalty, equal to 1.0% of the aggregate purchase price paid by such Holder
pursuant to the Purchase Agreement for any unregistered Restricted Stock then
held by such Holder;
(b) prepare
and file with the Commission 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 for the period specified
in paragraph (a) above and comply with the provisions of the Securities Act
with respect to the disposition of all Restricted Stock covered by such
registration statement in accordance with the sellers’ intended method of
disposition set forth in such registration statement for such
period;
Registration
Rights Agreement — Page 5
(c) furnish
to each seller of Restricted Stock and to each underwriter such number of copies
of the registration statement and the prospectus included therein (including
each preliminary prospectus) as such persons reasonably may request in order to
facilitate the public sale or other disposition of the Restricted Stock covered
by such registration statement;
(d) use
its best efforts to register or qualify the Restricted Stock covered by such
registration statement under the securities or “blue sky” laws of such
jurisdictions as the sellers of Restricted Stock or, in the case of an
underwritten public offering, the managing underwriter reasonably shall request,
provided
,
however
, that the
Company shall not for any such purpose be required to qualify generally to
transact business as a foreign corporation in any jurisdiction where it is not
so qualified or to consent to general service of process in any such
jurisdiction;
(e) use
its best efforts to list the Restricted Stock covered by such registration
statement with any securities exchange on which the Common Stock of the Company
is then listed;
(f) immediately
notify each seller of Restricted Stock and each underwriter under such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
of which the Company has knowledge as a result of which the prospectus contained
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing, and thereafter, use its best efforts to timely
amend the prospectus contained in such registration statement such that the
statements therein are no longer misleading in light of the circumstances then
existing;
(g) if
the offering is underwritten and at the request of any seller of Restricted
Stock, use its best efforts to furnish on the date that Restricted Stock is
delivered to the underwriters for sale pursuant to such
registration: (i) an opinion dated such date of counsel
representing the Company for the purposes of such registration, addressed to the
underwriters and to such seller, stating that such registration statement has
become effective under the Securities Act and that (A) to the best
knowledge of such counsel, no stop order suspending the effectiveness thereof
has been issued and no proceedings for that purpose have been instituted or are
pending or contemplated under the Securities Act, (B) the registration
statement, the related prospectus and each amendment or supplement thereof
comply as to form in all material respects with the requirements of the
Securities Act (except that such counsel need not express any opinion as to
financial statements contained therein) and (C) to such other effects as
reasonably may be requested by counsel for the underwriters or by such seller or
its counsel and (ii) a letter dated such date from the independent public
accountants retained by the Company, addressed to the underwriters and to such
seller, stating that they are independent public accountants within the meaning
of the Securities Act and that, in the opinion of such accountants, the
financial statements of the Company included in the registration statement or
the prospectus, or any amendment or supplement thereof, comply as to form in all
material respects with the applicable accounting requirements of the Securities
Act, and such letter shall additionally cover such other financial matters
(including information as to the period ending no more than five business days
prior to the date of such letter) with respect to such registration as such
underwriters reasonably may request; and
Registration
Rights Agreement — Page 6
(h) make
available for inspection by each seller of Restricted Stock, any underwriter
participating in any distribution pursuant to such registration statement, and
any attorney, accountant or other agent retained by such seller or underwriter,
all financial and other records, pertinent corporate documents and properties of
the Company, and cause the Company’s officers, directors and employees to supply
all information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement.
For purposes of Section 7(a) and
7(b), the period of distribution of Restricted Stock in a firm commitment
underwritten public offering shall be deemed to extend until each underwriter
has completed the distribution of all securities purchased by it, and the period
of distribution of Restricted Stock in any other registration shall be deemed to
extend until all of the Restricted Stock covered by such Registration Statement
have been sold pursuant to such Registration Statement or all of
the Restricted Stock covered by such Registration Statement may be
sold without registration under Rule 144 of the 1933 Act.
In connection with each registration
hereunder, the sellers of Restricted Stock will furnish to the Company in
writing such information with respect to themselves and the proposed
distribution by them as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws.
In connection with each registration
pursuant to Sections 4, 5 or 6 covering an underwritten public offering,
the Company and each seller agree to enter into a written agreement with the
managing underwriter selected in the manner herein provided in such form and
containing such provisions as are customary in the securities business for such
an arrangement between such underwriter and companies of the Company’s size and
investment stature.
8.
Expenses
. All
expenses incurred by the Company in complying with Sections 4, 5 and 6,
including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel and independent public accountants
for the Company, fees and expenses (including counsel fees) incurred in
connection with complying with state securities or “blue sky” laws, fees of the
National Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars, costs of insurance, but excluding any Selling
Expenses, are called “
Registration
Expenses
”. All underwriting discounts and selling commissions
applicable to the sale of Restricted Stock are called “
Selling
Expenses
”.
The Company will pay all Registration
Expenses in connection with each registration statement under Sections 4, 5
or 6. All Selling Expenses in connection with each registration
statement under Sections 4, 5 or 6 shall be borne by the participating
sellers in proportion to the number of shares sold by each, or by such
participating sellers other than the Company (except to the extent the Company
shall be a seller) as they may agree.
Registration
Rights Agreement — Page 7
9.
Indemnification and
Contribution
.
(a) In
the event of a registration of any of the Restricted Stock under the Securities
Act pursuant to Sections 4, 5 or 6, the Company will indemnify and hold
harmless each seller of such Restricted Stock thereunder, each underwriter of
such Restricted Stock thereunder and each other person, if any, who controls
such seller or underwriter within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which such seller,
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions 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 Restricted Stock was registered under the Securities Act
pursuant to Sections 4, 5 or 6, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, or arise
out of or are based upon the 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 will reimburse each such seller, each such
underwriter and each such controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action,
provided
,
however
, that the
Company will not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by any such seller, any such underwriter
or any such controlling person in writing specifically for use in such
registration statement or prospectus.
(b) In
the event of a registration of any of the Restricted Stock under the Securities
Act pursuant to Sections 4, 5 or 6, each seller of such Restricted Stock
thereunder, severally and not jointly, will indemnify and hold harmless the
Company, each person, if any, who controls the Company within the meaning of the
Securities Act, each officer of the Company who signs the registration
statement, each director of the Company, each underwriter and each person who
controls any underwriter within the meaning of the Securities Act, against all
losses, claims, damages or liabilities, joint or several, to which the Company
or such officer, director, underwriter or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the registration statement under which such Restricted Stock was registered
under the Securities Act pursuant to Sections 4, 5 or 6, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the 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 will reimburse the Company and each
such officer, director, underwriter and controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action,
provided
,
however
, that such
seller will be liable hereunder in any such case if and only to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with information pertaining to such
seller, as such, furnished in writing to the Company by such seller specifically
for use in such registration statement or prospectus, and
provided
,
further
,
however
, that the
liability of each seller hereunder shall not in any event exceed the net
proceeds received by such seller from the sale of Restricted Stock covered by
such registration statement.
Registration
Rights Agreement — Page 8
(c) Promptly
after receipt by an indemnified party hereunder of notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party hereunder, notify the indemnifying party in
writing thereof, but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to such indemnified party other
than under this Section 9 and shall only relieve it from any liability
which it may have to such indemnified party under this Section 9 if and to
the extent the indemnifying party is prejudiced by such omission. In
case any such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in and, to the extent it shall wish, to
assume and undertake the defense thereof with counsel satisfactory to such
indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under this Section 9 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected,
provided
,
however
, that, if the
defendants in any such action include both the indemnified party and the
indemnifying party and 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, the indemnified party shall have the right to select
a separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
(d) In
order to provide for just and equitable contribution to joint liability under
the Securities Act in any case in which either (i) any holder of Restricted
Stock exercising rights under this Agreement, or any controlling person of any
such holder, makes a claim for indemnification pursuant to this Section 9
but it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 9 provides
for indemnification in such case, or (ii) contribution under the Securities
Act may be required on the part of any such selling holder or any such
controlling person in circumstances for which indemnification is provided under
this Section 9; then, and in each such case, the Company and such holder
will contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) in such proportion so that
such holder is responsible for the portion represented by the percentage that
the public offering price of its Restricted Stock offered by the registration
statement bears to the public offering price of all securities offered by such
registration statement, and the Company is responsible for the remaining
portion;
provided
,
however
, that, in any
such case, (A) no such holder will be required to contribute any amount in
excess of the public offering price of all such Restricted Stock offered by it
pursuant to such registration statement; and (B) no person or entity guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any person or entity who
was not guilty of such fraudulent misrepresentation.
Registration
Rights Agreement — Page 9
10.
Changes in Common
Stock
. If, and as often as, there is any change in the Common
Stock by way of a stock split, stock dividend, combination or reclassification,
or through a merger, consolidation, reorganization or recapitalization, or by
any other means, appropriate adjustment shall be made in the provisions hereof
so that the rights and privileges granted hereby shall continue with respect to
the Common Stock as so changed.
11.
Rule 144
Reporting
. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Stock to the public without registration, the Company
agrees to:
(a) make
and keep public information available, as those terms are understood and defined
in Rule 144 under the Securities Act;
(b) use
its best efforts to file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(c) furnish
to each holder of Restricted Stock forthwith upon request a written statement by
the Company as to its compliance with the reporting requirements of such
Rule 144 and of the Securities Act and the Exchange Act, a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed by the Company as such holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing such holder
to sell any Restricted Stock without registration.
12.
Representations and
Warranties of the Company
. The Company represents and warrants
to you as follows:
(a) The
execution, delivery and performance of this Agreement by the Company have been
duly authorized by all requisite corporate action and will not violate any
provision of law, any order of any court or other agency of government, the
Charter or By-laws of the Company or any provision of any indenture, agreement
or other instrument to which it or any or its properties or assets is bound,
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other instrument
or result in the creation or imposition of any lien, charge or encumbrance of
any nature whatsoever upon any of the properties or assets of the
Company.
(b) This
Agreement has been duly executed and delivered by the Company and constitutes
the legal, valid and binding obligation of the Company, enforceable in
accordance with its terms.
Registration
Rights Agreement — Page 10
13.
Miscellaneous
.
(a) All
covenants and agreements contained in this Agreement by or on behalf of any of
the parties hereto shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto.
(b) All
notices, requests, consents and other communications hereunder shall be in
writing and shall be delivered in person, mailed by overnight courier service,
certified or registered mail, return receipt requested, or sent by telecopier or
telex, addressed as follows:
if to the
Company or any other party hereto, at the address or telecopier number of such
party set forth in the Purchase Agreement;
if to any
subsequent holder Restricted Stock to it at such address or telecopier number as
may have been furnished to the Company in writing by such
holder;
or, in
any case, at such other address or addresses as shall have been furnished in
writing to the Company (in the case of a holder of Restricted Stock) or to the
holder Restricted Stock (in the case of the Company) in accordance with the
provisions of this paragraph.
(c) This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York, without giving effect to the principles of conflicts of laws
thereof.
(d) This
Agreement may not be amended or modified, and no provision hereof may be waived,
without the written consent of the Company and the holder of Restricted
Stock.
(e) 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
instrument.
(f) The
obligations of the Company to register shares of Restricted Stock under
Sections 4, 5 or 6 shall terminate on the third anniversary of the date of
this Agreement.
(g) If
requested in writing by the underwriters for an underwritten public offering of
securities of the Company, each holder of Restricted Stock who is a party to
this Agreement shall agree not to sell publicly any shares of Restricted Stock
or any other shares of Common Stock (other than shares of Restricted Stock or
other shares of Common Stock being registered in such offering), without the
consent of such underwriters, for a period of not more than 180 days following
the effective date of the registration statement relating to such offering;
provided
,
however
, that all
persons entitled to registration rights with respect to shares of Common Stock
who are not parties to this Agreement, all other persons selling shares of
Common Stock in such offering, all persons holding in excess of 1% of the
capital stock of the Company on a fully diluted basis and all executive officers
and directors of the Company shall also have agreed not to sell publicly their
Common Stock under the circumstances and pursuant to the terms set forth in this
Section 13(g).
Registration
Rights Agreement — Page 11
(h)
Notwithstanding the provisions of Section 7(a), the Company’s obligation to
file a registration statement, or cause such registration statement to become
and remain effective, shall be suspended for a period not to exceed 90 days
in any 12-month period if there exists at the time material non-public
information relating to the Company which, in the reasonable opinion of the
Company, should not be disclosed.
(i)
If any provision of this Agreement shall be held to be illegal, invalid or
unenforceable, such illegality, invalidity or unenforceability shall attach only
to such provision and shall not in any manner affect or render illegal, invalid
or unenforceable any other provision of this Agreement, and this Agreement shall
be carried out as if any such illegal, invalid or unenforceable provision were
not contained herein.
Please indicate your acceptance of the
foregoing by signing and returning the enclosed counterpart of this letter,
whereupon this Agreement shall be a binding agreement between the Company and
you.
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Very
truly yours,
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CHINA
BROADBAND, INC.
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By:
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Name: Marc
Urbach
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Title: President
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AGREED TO
AND ACCEPTED as of the date first
above
written.
Exhibit
4.6
REGISTRATION
RIGHTS AGREEMENT
July 30,
2010
To the
Investor named in Securities Purchase Agreement, dated May 20, 2010
Dear
Sir:
This will confirm that in consideration
of your agreement on the date hereof to purchase 4,800,000 Units
of China Broadband, Inc., a Nevada corporation (the “
Company
”), pursuant
to the Securities Purchase Agreement, dated May 20, 2010 (the “
SPA
”), and 1,200,000
Units of the Company pursuant to a Loan Cancellation Agreement, date May 20,
2010 (the “
LCA
”
and together with the SPA, the “
Purchase Agreements
”)
between the Company and you, and as an inducement to you to consummate the
transactions contemplated by the Purchase Agreements, the Company covenants and
agrees with you as follows:
1.
Certain
Definitions
. Capitalized terms that are used, but not
otherwise defined, herein have the meanings assigned to them in the Purchase
Agreements. As used in this Agreement, the following terms have the
following respective meanings:
“
Commission
” shall
mean the Securities and Exchange Commission, or any other federal agency at the
time administering the Securities Act.
“
Exchange Act
” shall
mean the Securities Exchange Act of 1934, as amended, or any similar federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
“
Registration
Expenses
” shall have the meaning set forth in
Section 8.
“
Restricted Stock
”
shall mean the Shares and the Warrant Shares excluding any such Shares or
Warrant Shares which have been (a) registered under the Securities Act
pursuant to an effective registration statement filed thereunder and disposed of
in accordance with the registration statement covering them or (b) publicly
sold pursuant to Rule 144 under the Securities Act or saleable under Rule
144 without restriction as to volume or otherwise.
“
Securities Act
” shall
mean the Securities Act of 1933, as amended, or any similar federal statute, and
the rules and regulations of the Commission thereunder, all as the same shall be
in effect at the time.
“
Selling Expenses
”
shall have the meaning set forth in Section 8.
Registration
Rights Agreement — Page 2
2.
Restrictive
Legend
. Each certificate representing Restricted Stock shall,
except as otherwise provided in this Section 2 or in Section 3, be
stamped or otherwise imprinted with a legend substantially in the following
form:
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“THIS
SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED
UNLESS SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS IS AVAILABLE
WITH RESPECT THERETO.”
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A
certificate shall not bear such legend if in the opinion of counsel satisfactory
to the Company addressed to the Company and any transfer agent for the
securities represented thereby to the effect that such securities may be
publicly sold without registration under the Securities Act and any applicable
state securities laws.
3.
Notice of Proposed
Transfer
. Prior to any proposed transfer of the Restricted
Stock (other than under the circumstances described in Sections 4, 5 or 6),
the holder thereof shall give written notice to the Company of its intention to
effect such transfer. Each such notice shall describe the manner of
the proposed transfer and, if requested by the Company, shall be accompanied by
an opinion of counsel satisfactory to the Company to the effect that the
proposed transfer may be effected without registration under the Securities Act
and any applicable state securities laws, whereupon the holder of such
Restricted Stock shall be entitled to transfer such Restricted Stock in
accordance with the terms of its notice; provided, however, that no such opinion
of counsel shall be required for a transfer in accordance with the constituent
documents of the entity to one or more partners or members, or employees of the
transferor (in the case of a transferor that is a partnership or a limited
liability company, respectively) or to an affiliated corporation (in the case of
a transferor that is a corporation). Each certificate for the
Restricted Stock transferred as above provided shall bear the legend set forth
in Section 2, except that such certificate shall not bear such legend if
(i) such transfer is in accordance with the provisions of Rule 144 (or
any other rule permitting public sale without registration under the Securities
Act) or (ii) the opinion of counsel referred to above is to the further
effect that the transferee and any subsequent transferee (other than an
affiliate of the Company) would be entitled to transfer such securities in a
public sale without registration under the Securities Act. The
restrictions provided for in this Section 3 shall not apply to securities
which are not required to bear the legend prescribed by Section 2 in
accordance with the provisions of that Section.
4.
Required
Registration
. (a) At any time after the 180
th
day
following the date hereof, the holder of Restricted Stock may request the
Company to register under the Securities Act all or any portion of the shares of
Restricted Stock held by such requesting holder for sale in the manner specified
in such notice.
Registration Rights Agreement — Page
3
(a)
Following receipt of any notice under this Section 4, the Company shall use
its best efforts to register under the Securities Act, for public sale in
accordance with the method of disposition specified in such notice from
requesting holder, the number of shares of Restricted Stock specified in such
notice. The Company shall be obligated to register Restricted Stock
pursuant to this Section 4 on only one occasion.
(b) The
Company shall be entitled to include in any registration statement referred to
in this Section 4, for sale in accordance with the method of disposition
specified by the requesting holder, shares of Common Stock to be sold by the
Company for its own account, except as and to the extent that, in the opinion of
the managing underwriter (if such method of disposition shall be an underwritten
public offering), such inclusion would adversely affect the marketing of the
Restricted Stock to be sold. Except for registration statements on
Form S-4, S-8 or any successor thereto, the Company will not file with the
Commission any other registration statement with respect to its Common Stock,
whether for its own account or that of other stockholders, from the date of
receipt of a notice from requesting holders pursuant to this Section 4
until the completion of the period of distribution of the registration
contemplated thereby.
5.
Incidental
Registration
. If the Company at any time on or following the
180
th
day
following the date of this Agreement (other than pursuant to Section 4 or
Section 6) proposes to register any of its securities under the Securities
Act for sale to the public, whether for its own account or for the account of
other security holders or both (except with respect to registration statements
on Forms S-4, S-8 or another form not available for registering the
Restricted Stock for sale to the public), each such time it will give written
notice to the holder of outstanding Restricted Stock of its intention so to
do. Upon the written request of such holder, received by the Company
within 10 days after the giving of any such notice by the Company, to
register any of its Restricted Stock, the Company will use its best efforts to
cause the Restricted Stock as to which registration shall have been so requested
to be included in the securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent requisite to permit the
sale or other disposition by the holder of such Restricted Stock so
registered. In the event that any registration pursuant to this
Section 5 shall be, in whole or in part, an underwritten public offering of
Common Stock, the number of shares of Restricted Stock to be included in such an
underwriting may be reduced (pro rata among the requesting holder based upon the
number of shares of Restricted Stock owned by such holder) if and to the extent
that the managing underwriter shall be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein,
provided
,
however
, that if any
shares are to be included in such underwriting for the account of any person
other than the Company or requesting holder of Restricted Stock, such number of
shares of Restricted Stock shall be reduced pro rata based on the ownership of
the selling stockholders that include shares in such registration of shares of
Common Stock (determined on a fully-diluted basis); and
provided
,
further
,
however
, that in no
event may less than one-third of the total number of shares of Common Stock to
be included in such underwriting be made available for shares of Restricted
Stock. Notwithstanding the foregoing provisions, the Company may
withdraw any registration statement referred to in this Section 5 without
thereby incurring any liability to the holder of Restricted
Stock.
Registration Rights Agreement — Page 4
6.
Registration on
Form S-3
. If at any time following the 180
th
day
following the date hereof (i) a holder of Restricted Stock
requests that the Company file a registration statement on Form S-3 or any
successor thereto for a public offering of all or any portion of the shares of
Restricted Stock held by such requesting holder, and (ii) the Company is a
registrant entitled to use Form S-3 or any successor thereto to register
such shares, then the Company shall use its best efforts to register under the
Securities Act on Form S-3 or any successor thereto, for public sale in
accordance with the method of disposition specified in such notice, the number
of shares of Restricted Stock specified in such notice. Whenever the
Company is required by this Section 6 to use its best efforts to effect the
registration of Restricted Stock, each of the procedures and requirements of
Section 4 shall apply to such registration,
provided
,
however
, the Company
shall be obligated to register Restricted Stock pursuant to this Section 6 on
one occasion only.
7.
Registration
Procedures
. If and whenever the Company is required by the
provisions of Sections 4, 5 or 6 to use its best efforts to effect the
registration of any shares of Restricted Stock under the Securities Act, the
Company will, as expeditiously as possible:
(a) prepare
and file with the Commission a registration statement (which, in the case of an
underwritten public offering pursuant to Section 4, shall be on Form S-1 or
other form of general applicability satisfactory to the managing underwriter
selected as therein provided) with respect to such securities and use its best
efforts to cause such registration statement to become and remain effective for
the period of the distribution contemplated thereby (determined as hereinafter
provided);
(b) prepare
and file with the Commission 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 for the period specified
in paragraph (a) above and comply with the provisions of the Securities Act
with respect to the disposition of all Restricted Stock covered by such
registration statement in accordance with the sellers’ intended method of
disposition set forth in such registration statement for such
period;
(c) furnish
to each seller of Restricted Stock and to each underwriter such number of copies
of the registration statement and the prospectus included therein (including
each preliminary prospectus) as such persons reasonably may request in order to
facilitate the public sale or other disposition of the Restricted Stock covered
by such registration statement;
(d) use
its best efforts to register or qualify the Restricted Stock covered by such
registration statement under the securities or “blue sky” laws of such
jurisdictions as the sellers of Restricted Stock or, in the case of an
underwritten public offering, the managing underwriter reasonably shall request,
provided
,
however
, that the
Company shall not for any such purpose be required to qualify generally to
transact business as a foreign corporation in any jurisdiction where it is not
so qualified or to consent to general service of process in any such
jurisdiction;
Registration Rights Agreement — Page 5
(e) use
its best efforts to list the Restricted Stock covered by such registration
statement with any securities exchange on which the Common Stock of the Company
is then listed;
(f) immediately
notify each seller of Restricted Stock and each underwriter under such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
of which the Company has knowledge as a result of which the prospectus contained
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing;
(g) if
the offering is underwritten and at the request of any seller of Restricted
Stock, use its best efforts to furnish on the date that Restricted Stock is
delivered to the underwriters for sale pursuant to such
registration: (i) an opinion dated such date of counsel
representing the Company for the purposes of such registration, addressed to the
underwriters and to such seller, stating that such registration statement has
become effective under the Securities Act and that (A) to the best
knowledge of such counsel, no stop order suspending the effectiveness thereof
has been issued and no proceedings for that purpose have been instituted or are
pending or contemplated under the Securities Act, (B) the registration
statement, the related prospectus and each amendment or supplement thereof
comply as to form in all material respects with the requirements of the
Securities Act (except that such counsel need not express any opinion as to
financial statements contained therein) and (C) to such other effects as
reasonably may be requested by counsel for the underwriters or by such seller or
its counsel and (ii) a letter dated such date from the independent public
accountants retained by the Company, addressed to the underwriters and to such
seller, stating that they are independent public accountants within the meaning
of the Securities Act and that, in the opinion of such accountants, the
financial statements of the Company included in the registration statement or
the prospectus, or any amendment or supplement thereof, comply as to form in all
material respects with the applicable accounting requirements of the Securities
Act, and such letter shall additionally cover such other financial matters
(including information as to the period ending no more than five business days
prior to the date of such letter) with respect to such registration as such
underwriters reasonably may request; and
(h) make
available for inspection by each seller of Restricted Stock, any underwriter
participating in any distribution pursuant to such registration statement, and
any attorney, accountant or other agent retained by such seller or underwriter,
all financial and other records, pertinent corporate documents and properties of
the Company, and cause the Company’s officers, directors and employees to supply
all information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement.
For purposes of Section 7(a) and
7(b), the period of distribution of Restricted Stock in a firm commitment
underwritten public offering shall be deemed to extend until each underwriter
has completed the distribution of all securities purchased by it, and the period
of distribution of Restricted Stock in any other registration shall be deemed to
extend until all of the Restricted Stock covered by such Registration Statement
have been sold pursuant to such Registration Statement or all of
the Restricted Stock covered by such Registration Statement may be
sold without registration under Rule 144 of the 1933 Act.
Registration Rights Agreement — Page 6
In connection with each registration
hereunder, the sellers of Restricted Stock will furnish to the Company in
writing such information with respect to themselves and the proposed
distribution by them as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws.
In connection with each registration
pursuant to Sections 4, 5 or 6 covering an underwritten public offering,
the Company and each seller agree to enter into a written agreement with the
managing underwriter selected in the manner herein provided in such form and
containing such provisions as are customary in the securities business for such
an arrangement between such underwriter and companies of the Company’s size and
investment stature.
8.
Expenses
. All
expenses incurred by the Company in complying with Sections 4, 5 and 6,
including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel and independent public accountants
for the Company, fees and expenses (including counsel fees) incurred in
connection with complying with state securities or “blue sky” laws, fees of the
National Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars, costs of insurance, but excluding any Selling
Expenses, are called “
Registration
Expenses
”. All underwriting discounts and selling commissions
applicable to the sale of Restricted Stock are called “
Selling
Expenses
”.
The Company will pay all Registration
Expenses in connection with each registration statement under Sections 4, 5
or 6. All Selling Expenses in connection with each registration
statement under Sections 4, 5 or 6 shall be borne by the participating
sellers in proportion to the number of shares sold by each, or by such
participating sellers other than the Company (except to the extent the Company
shall be a seller) as they may agree.
9.
Indemnification and
Contribution
.
(a) In
the event of a registration of any of the Restricted Stock under the Securities
Act pursuant to Sections 4, 5 or 6, the Company will indemnify and hold
harmless each seller of such Restricted Stock thereunder, each underwriter of
such Restricted Stock thereunder and each other person, if any, who controls
such seller or underwriter within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which such seller,
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions 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 Restricted Stock was registered under the Securities Act
pursuant to Sections 4, 5 or 6, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, or arise
out of or are based upon the 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 will reimburse each such seller, each such
underwriter and each such controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action,
provided
,
however
, that the
Company will not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by any such seller, any such underwriter
or any such controlling person in writing specifically for use in such
registration statement or prospectus.
Registration Rights Agreement — Page 7
(b) In
the event of a registration of any of the Restricted Stock under the Securities
Act pursuant to Sections 4, 5 or 6, each seller of such Restricted Stock
thereunder, severally and not jointly, will indemnify and hold harmless the
Company, each person, if any, who controls the Company within the meaning of the
Securities Act, each officer of the Company who signs the registration
statement, each director of the Company, each underwriter and each person who
controls any underwriter within the meaning of the Securities Act, against all
losses, claims, damages or liabilities, joint or several, to which the Company
or such officer, director, underwriter or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the registration statement under which such Restricted Stock was registered
under the Securities Act pursuant to Sections 4, 5 or 6, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the 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 will reimburse the Company and each
such officer, director, underwriter and controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action,
provided
,
however
, that such
seller will be liable hereunder in any such case if and only to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with information pertaining to such
seller, as such, furnished in writing to the Company by such seller specifically
for use in such registration statement or prospectus, and
provided
,
further
,
however
, that the
liability of each seller hereunder shall not in any event exceed the net
proceeds received by such seller from the sale of Restricted Stock covered by
such registration statement.
(c) Promptly
after receipt by an indemnified party hereunder of notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party hereunder, notify the indemnifying party in
writing thereof, but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to such indemnified party other
than under this Section 9 and shall only relieve it from any liability
which it may have to such indemnified party under this Section 9 if and to
the extent the indemnifying party is prejudiced by such omission. In
case any such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in and, to the extent it shall wish, to
assume and undertake the defense thereof with counsel satisfactory to such
indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under this Section 9 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected,
provided
,
however
, that, if the
defendants in any such action include both the indemnified party and the
indemnifying party and 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, the indemnified party shall have the right to select
a separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
Registration Rights Agreement — Page 8
(d) In
order to provide for just and equitable contribution to joint liability under
the Securities Act in any case in which either (i) any holder of Restricted
Stock exercising rights under this Agreement, or any controlling person of any
such holder, makes a claim for indemnification pursuant to this Section 9
but it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 9 provides
for indemnification in such case, or (ii) contribution under the Securities
Act may be required on the part of any such selling holder or any such
controlling person in circumstances for which indemnification is provided under
this Section 9; then, and in each such case, the Company and such holder
will contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) in such proportion so that
such holder is responsible for the portion represented by the percentage that
the public offering price of its Restricted Stock offered by the registration
statement bears to the public offering price of all securities offered by such
registration statement, and the Company is responsible for the remaining
portion;
provided
,
however
, that, in any
such case, (A) no such holder will be required to contribute any amount in
excess of the public offering price of all such Restricted Stock offered by it
pursuant to such registration statement; and (B) no person or entity guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any person or entity who
was not guilty of such fraudulent misrepresentation.
10.
Changes in Common
Stock
. If, and as often as, there is any change in the Common
Stock by way of a stock split, stock dividend, combination or reclassification,
or through a merger, consolidation, reorganization or recapitalization, or by
any other means, appropriate adjustment shall be made in the provisions hereof
so that the rights and privileges granted hereby shall continue with respect to
the Common Stock as so changed.
11.
Rule 144
Reporting
. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Stock to the public without registration, at all times
after 90 days after any registration statement covering a public offering
of securities of the Company under the Securities Act shall have become
effective, the Company agrees to:
(a) make
and keep public information available, as those terms are understood and defined
in Rule 144 under the Securities Act;
Registration Rights Agreement — Page
9
(b) use
its best efforts to file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(c) furnish
to each holder of Restricted Stock forthwith upon request a written statement by
the Company as to its compliance with the reporting requirements of such
Rule 144 and of the Securities Act and the Exchange Act, a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed by the Company as such holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing such holder
to sell any Restricted Stock without registration.
12.
Representations and
Warranties of the Company
. The Company represents and warrants
to you as follows:
(a) The
execution, delivery and performance of this Agreement by the Company have been
duly authorized by all requisite corporate action and will not violate any
provision of law, any order of any court or other agency of government, the
Charter or By-laws of the Company or any provision of any indenture, agreement
or other instrument to which it or any or its properties or assets is bound,
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other instrument
or result in the creation or imposition of any lien, charge or encumbrance of
any nature whatsoever upon any of the properties or assets of the
Company.
(b) This
Agreement has been duly executed and delivered by the Company and constitutes
the legal, valid and binding obligation of the Company, enforceable in
accordance with its terms.
13.
Miscellaneous
.
(a) All
covenants and agreements contained in this Agreement by or on behalf of any of
the parties hereto shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto.
(b) All
notices, requests, consents and other communications hereunder shall be in
writing and shall be delivered in person, mailed by overnight courier service,
certified or registered mail, return receipt requested, or sent by telecopier or
telex, addressed as follows:
if to the
Company or any other party hereto, at the address or telecopier number of such
party set forth in the Purchase Agreements;
if to any
subsequent holder Restricted Stock to it at such address or telecopier number as
may have been furnished to the Company in writing by such
holder;
Registration Rights Agreement — Page
10
or, in
any case, at such other address or addresses as shall have been furnished in
writing to the Company (in the case of a holder of Restricted Stock) or to the
holder Restricted Stock (in the case of the Company) in accordance with the
provisions of this paragraph.
(c) This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York, without giving effect to the principles of conflicts of laws
thereof.
(d) This
Agreement may not be amended or modified, and no provision hereof may be waived,
without the written consent of the Company and the holder of Restricted
Stock.
(e) 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
instrument.
(f) The
obligations of the Company to register shares of Restricted Stock under
Sections 4, 5 or 6 shall terminate on the third anniversary of the date of
this Agreement.
(g) If
requested in writing by the underwriters for an underwritten public offering of
securities of the Company, each holder of Restricted Stock who is a party to
this Agreement shall agree not to sell publicly any shares of Restricted Stock
or any other shares of Common Stock (other than shares of Restricted Stock or
other shares of Common Stock being registered in such offering), without the
consent of such underwriters, for a period of not more than 180 days following
the effective date of the registration statement relating to such offering;
provided
,
however
, that all
persons entitled to registration rights with respect to shares of Common Stock
who are not parties to this Agreement, all other persons selling shares of
Common Stock in such offering, all persons holding in excess of 1% of the
capital stock of the Company on a fully diluted basis and all executive officers
and directors of the Company shall also have agreed not to sell publicly their
Common Stock under the circumstances and pursuant to the terms set forth in this
Section 13(g).
(h)
Notwithstanding the provisions of Section 7(a), the Company’s obligation to
file a registration statement, or cause such registration statement to become
and remain effective, shall be suspended for a period not to exceed 90 days
in any 12-month period if there exists at the time material non-public
information relating to the Company which, in the reasonable opinion of the
Company, should not be disclosed.
(i) If
any provision of this Agreement shall be held to be illegal, invalid or
unenforceable, such illegality, invalidity or unenforceability shall attach only
to such provision and shall not in any manner affect or render illegal, invalid
or unenforceable any other provision of this Agreement, and this Agreement shall
be carried out as if any such illegal, invalid or unenforceable provision were
not contained herein.
Registration Rights Agreement — Page
11
Please indicate your acceptance of the
foregoing by signing and returning the enclosed counterpart of this letter,
whereupon this Agreement shall be a binding agreement between the Company and
you.
Very
truly yours,
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CHINA
BROADBAND, INC.
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By:
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Name: Marc
Urbach
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Title: President
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AGREED TO
AND ACCEPTED as of the date first above written.
Exhibit
10.1
SECURITIES
PURCHASE AGREEMENT
This
SECURITIES PURCHASE
AGREEMENT
(this “
Agreement
”), dated May 20,
2010, is between China Broadband, Inc., a Nevada corporation (the “
Company
”), and each purchaser
identified on
Schedule
A
hereto (each, including their respective successors and assigns, an
“
Investor
” and
collectively, the “
Investors
”) and, with respect
to certain sections hereof, Chardan Capital Markets, LLC (the “
Lead Placement
Agent
”).
WHEREAS
, this Agreement has
been entered into pursuant to the terms of the Company’s Confidential Private
Placement Memorandum, dated May 18, 2010 (together with any and all amendments
and/or supplements thereto, the “
Memorandum
”);
WHEREAS,
the Investors wish to
purchase from the Company, and the Company wishes to sell and issue to the
Investors, upon the terms and conditions stated in this Agreement, a maximum of
300,000,000 Units (the “
Maximum
Amount
”) at a purchase price of $0.05 per unit (each, a “
Unit
”);
WHEREAS
, each Unit shall
consist of: (i) one (1) share (collectively, the “
Shares
”) of the Company’s
common stock, par value $0.001 per share (the “
Common Stock
”) and (ii) a
common stock purchase warrant (each a “
Warrant
,” and, collectively,
the “
Warrants
”) to
purchase one (1) share (collectively, the “
Warrant Shares
”) of Common
Stock at an exercise price of $0.05 per share (subject to adjustment as set
forth in the Warrants), which Warrants shall be in the form attached hereto as
Exhibit
A
, upon the terms
and conditions set forth in this Agreement;
WHEREAS,
at the Closing,
the parties hereto will execute and deliver a Registration Rights Agreement,
substantially in the form attached hereto as
Exhibit
B
(the “
Registration Rights
Agreement
”), pursuant to which the Company will agree to provide certain
registration rights with respect to the Shares and the Warrant Shares under the
Securities Act and the rules and regulations promulgated thereunder, and
applicable state securities laws; and
WHEREAS
, the Company and the
Investors are executing and delivering this Agreement in reliance upon the
exemption from securities registration afforded by the rules and regulations as
promulgated by the SEC under the Securities Act.
NOW, THEREFORE
, in
consideration of the mutual terms, conditions and other agreements set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, the parties hereto hereby agree to the sale and purchase of the Units as
set forth herein.
1.
DEFINITIONS
. In
addition to the terms defined elsewhere in this Agreement, for all purposes of
this Agreement, the following terms have the meanings indicated in this Section
1.
“
Affiliate
” means, with respect
to any specified Person: (i) if such Person is an individual, the spouse of that
Person and, if deceased or disabled, his heirs, executors, or legal
representatives, if applicable, or any trusts for the benefit of such individual
or such individual’s spouse and/or lineal descendants, or (ii) otherwise,
another Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, the Person
specified. As used in this definition, “control” shall mean the possession,
directly or indirectly, of the power to cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities or by contract or other written instrument.
“
Business Day
” means any day on
which banks located in New York City are not required or authorized by law to
remain closed.
“
Closing
” means each of the
First Closing and any Subsequent Closing.
“
Closing Date
” means each of
the First Closing Date and any Subsequent Closing Date.
“
Closing
Escrow
Agreement
” means the Closing
Escrow Agreement, dated May 20, 2010, by and among the Company, the Lead
Placement Agent and the Escrow Agent.
“
Company
’
s knowledge
” means the
information and/or other items that the executive officers of the Company have
actual knowledge of after due inquiry.
“
Disclosure Sched
ules
” means the disclosure
schedules issued by the Company to the Investors, which schedules correspond to
the representations and warranties of the Company in Section 5
hereof.
“
Escrow Account
” means the
escrow account established by the Escrow Agent pursuant to the Closing Escrow
Agreement where funds representing the Investors’ aggregate Purchase Price shall
be held pending the First Closing.
“
Escrow Agent
” means Collateral
Agents, LLC.
“
Exchange
Act
” means the Securities
Exchange Act of 1934, as amended.
“
First Closing Date
” means the
date of the First Closing;
provided
,
however
, that such
date shall not be prior to the date the stockholders of the Company approve the
issuance of the Shares and Warrant Shares pursuant to the Offering.
“
Governmental Body
” means any:
(a) nation, state, commonwealth, province, territory, county, municipality,
district or other jurisdiction of any nature; (b) federal, state, local,
municipal, foreign or other government; or (c) governmental or
quasi-governmental authority of any nature (including any governmental or
administrative division, department, agency, commission, instrumentality,
official, organization, unit, body or entity) and any court or other
tribunal.
“
Intellectual Property
” means
the Company’s patents, patent applications, provisional patents, trademarks,
service marks, trade names, trademark registrations, service mark registrations,
copyrights, licenses, formulae, mask works, customer lists, internet domain
names, know-how and other intellectual property, including trade secrets and
other unpatented and/or unpatentable proprietary or confidential information,
systems, procedures or registrations or applications relating to the
same.
“
Indebtedness
” means, with
respect to any Person, without duplication, all obligations of such Person: (i)
for borrowed money, (ii) evidenced by notes, bonds, debentures or similar
instruments, (iii) for the deferred purchase price of goods or services (other
than trade payables or accruals incurred in the ordinary course of business),
(iv) under capital leases, and (v) in the nature of guarantees of the
obligations described above in clauses (i) through (iv).
“
Legal Requirement
”
means any federal,
state, local, municipal, foreign or other law, statute, constitution, principle
of common law, resolution, ordinance, code, edict, decree, rule, regulation,
ruling or requirement issued, enacted, adopted, promulgated, implemented or
otherwise put into effect by or under the authority of any Governmental Body (or
under the authority of any national securities exchange upon which the Common
Stock is then listed or traded). Reference to any Legal Requirement
means such Legal Requirement as amended, modified, codified, replaced or
reenacted, in whole or in part, and in effect from time to time, and reference
to any section or other provision of any Legal Requirement means that provision
of such Legal Requirement from time to time in effect and constituting the
substantive amendment, modification, codification, replacement or reenactment of
such section or other provision.
“
Lien(s)
” means any interest in
Property securing an obligation owed to a Person whether such interest is based
on the common law, statute or contract, and including but not limited to a
security interest arising from a mortgage, lien, title claim, assignment,
encumbrance, adverse claim, contract of sale, pledge, conditional sale or trust
receipt or a lease, consignment or bailment for security purposes. The
term “Lien” includes but is not limited to mechanics’, materialmens’,
warehousemens’ and carriers’ liens and other similar encumbrances. For the
purposes hereof, a Person shall be deemed to be the owner of Property which it
has acquired or holds subject to a conditional sale agreement or other
arrangement pursuant to which title to the Property has been retained by or
vested in some other Person for security purposes.
“
Material Adverse Effect
” means
a material adverse effect on, and a “
Material Adverse Change
”
means a material adverse change in: (i) the assets, liabilities, results of
operations, condition (financial or otherwise) or business of the Company taken
as a whole; or (ii) the ability of the Company to perform its obligations under
the Transaction Documents, but, to the extent applicable, shall exclude any
circumstance, change or effect to the extent resulting or arising from: (w) any
change in general economic conditions in the industries or markets in which the
Company and its Subsidiaries operate so long as the Company and its Subsidiaries
are not disproportionately (in a material manner) affected by such changes; (x)
national or international political conditions, including any engagement in
hostilities, whether or not pursuant to the declaration of a national emergency
or war, or the occurrence of any military or terrorist attack so long as the
Company and its Subsidiaries are not disproportionately (in a material manner)
affected by such changes; (y) changes in United States generally accepted
accounting principles, or the interpretation thereof; or (z) the entry into or
announcement of this Agreement, actions contemplated by this Agreement, or the
consummation of the transactions contemplated hereby.
“
OTCBB
” means the
Over-the-Counter Bulletin Board system or any successor system, entity or
organization performing the same or a substantially similar
function.
“
Offering
” means the offering
and sale of the Units pursuant to this Agreement and the
Memorandum.
“
Person
” means an individual,
entity, corporation, partnership, association, limited liability company,
limited liability partnership, joint-stock company, trust or unincorporated
organization.
“
PRC
” means, for the purpose of
this Agreement, the People’s Republic of China, not including Taiwan, Hong Kong
and Macau.
“
Property
” means any interest
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible.
“
Purchase Price
” means an
amount equal to $0.05 per Unit multiplied by the number of Units being purchased
by each Investor.
“
SEC
” means the United States
Securities and Exchange Commission.
“
SEC Reports
” means the
reports, documents and other filings and information made by the Company with
the SEC, including the Company’s last annual report on Form 10-K.
“
Securities
” means the Units,
the Shares, the Warrants and the Warrant Shares.
“
Securities Act
”
means
the Securities Act of
1933, as amended.
“
Subsequent Closing Date
” means
the date of any Subsequent Closing.
“
Subsidiaries
” shall mean any
corporation or other entity or organization, whether incorporated or
unincorporated, in which the Company owns, directly or indirectly, any
controlling equity or other controlling ownership interest or otherwise controls
through contract or otherwise, including, without limitation, any variable
interest entity of the Company.
“
Trading Day
” means: (i) a day
on which the Common Stock is traded on a Trading Market (other than the OTCBB),
or (ii) if the Common Stock is not listed on a Trading Market (other than the
OTCBB), a day on which the Common Stock is traded in the over the counter
market, as reported by the OTCBB, or (iii) if the Common Stock is not quoted on
any Trading Market, a day on which the Common Stock is quoted in the over the
counter market as reported by the Pink Sheets LLC (or any similar organization
or agency succeeding to its functions of reporting prices); provided, that in
the event that the Common Stock is not listed or quoted as set forth in (i),
(ii) and (iii) hereof, then Trading Day shall mean a Business Day.
“
Trading Market
” means
whichever of the New York Stock Exchange, the NYSE AMEX, the NASDAQ Global
Select Market, the NASDAQ Global Market, the NASDAQ Capital Market, or, with
respect to the foregoing exchanges, any successor exchange, entity or
organization performing the same a substantially similar function, or the OTCBB
on which the Common Stock is listed or quoted for trading on the date in
question.
“
Transaction Documents
” means
this Agreement, the Memorandum, the Warrants, the Registration Rights Agreement,
and the Closing Escrow Agreement.
“
Tr
ansfer
” means any sale,
transfer, assignment, conveyance, charge, pledge, mortgage, encumbrance,
hypothecation, security interest or other disposition, or to make or effect any
of the above.
“
WFOE”
means Beijing China
Broadband Network Technology Co., Ltd., the Company’s wholly foreign owned
entity, located in the PRC.
2.
SALE AND PURCHASE OF UNITS.
2.1.
Purchase of
Units by Investors
.
Subject to the terms and conditions of this Agreement, on the Closing
Date, each of the Investors shall severally, and not jointly, purchase, and the
Company shall sell and issue to each Investor, the number of Units specified by
it on its respective signature page attached hereto as consideration for payment
of the applicable Purchase Price by such Investor.
2.2.
Closings
.
(a)
First
Clo
sing
. Subject
to the terms and conditions set forth in this Agreement, the Company shall issue
and sell to each Investor listed on
Schedule
A
, and each such
Investor shall, severally and not jointly, purchase from the Company on the
First Closing Date, such number of Units set forth on the respective signature
pages attached hereto, which will be reflected opposite such Investor’s name on
Schedule
A
(the “
First Closing
”).
(b)
Subsequent
Closing(s)
. In the event that the Maximum Amount is not raised
at the First Closing, the Company and the Lead Placement Agent may mutually
agree to have one or more subsequent closings of the Offering (each, a “
Subsequent Closing
”) until the
Maximum Amount is raised. At each Subsequent Closing, the Company
agrees to issue and sell to each Investor who executes a signature page hereto,
and each such Investor agrees, severally and not jointly, to purchase from the
Company such number of Units set forth on such Investor’s signature pages
attached hereto. There may be more than one Subsequent Closing;
provided
,
however
, that the
final Subsequent Closing shall take place within the time periods set forth in
the Memorandum.
(c)
Closing
. Each
Closing shall occur with the time periods set forth in the Memorandum at the
offices of Pillsbury Winthrop Shaw Pittman LLP, 2300 N Street, N.W., Washington,
DC 20037, or remotely via the exchange of documents and
signatures.
2.3.
Closing Deliveries
. At each
Closing, the Company shall deliver to the Investors purchasing Units at such
Closing, against delivery by the Investor of the Purchase Price (as provided
below), the Shares and the Warrants. At each Closing, each Investor
purchasing Units at such Closing shall deliver or cause to be delivered to the
Company the Purchase Price set forth in its counterpart signature page annexed
hereto by paying United States dollars via bank, certified or personal check
which has cleared prior to the applicable Closing or in immediately available
funds, by wire transfer to the Escrow Account pursuant to the Closing Escrow
Agreement.
2.4.
The Warrants
. The
Warrants
shall have
the terms and conditions and be in the form attached hereto as
Exhibit
A
.
2.5.
The Registration Rights
Agreement
.
The Registration Rights Agreement shall contain the terms and conditions and be
in the form attached hereto as
Exhibit
B
.
2.6.
Use of
Proceeds.
The Company hereby covenants and agrees that the
proceeds from the sale of Units shall be used as provided for in the
Memorandum.
3. ACKNOWLEDGEMENTS
OF THE INVESTORS.
Each
Investor, severally and not jointly, acknowledges that:
3.1.
Resale
Restrictions.
None of the Securities 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, none of the
Securities may be offered or sold by the Investor except 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 only in accordance with
applicable state securities laws.
3.2.
Agreements.
Such
Investor has received, carefully read and acknowledges the terms of the
Transaction Documents, including the Risk Factors set forth in the
Memorandum.
3.3.
Books and Records.
The books
and records of the Company were available upon reasonable notice for
inspection, subject to certain confidentiality restrictions, by the Investor
during reasonable business hours at its principal place of business, that all
documents, records and books in connection with the sale of the Securities
hereunder have been made available for inspection by it and its attorney and/or
advisor(s) and that the Investor and/or its advisor has reviewed all such
documents, records and books to its full satisfaction and all questions it
and/or its advisor may have had been answered to their respective full
satisfaction.
3.4.
Independent Advice.
The Investor has been
advised to consult the Investor’s own legal, tax and other advisors with respect
to the merits and risks of an investment in the Securities and with respect to
applicable resale restrictions, and it is solely responsible (and neither the
Company nor the Lead Placement Agent is in any way, directly and/or indirectly,
responsible) for compliance with:
(a) any
applicable laws of the jurisdiction in which the Investor is resident in
connection with the distribution of the Securities hereunder, and
(b) applicable
resale restrictions.
3.5.
No
Governmental Review or
Insurance.
Neither
the SEC nor any other securities commission, securities regulator or similar
regulatory authority has reviewed or passed on the merits of the Securities or
on any of the documents reviewed or executed by the Investor in connection with
the sale of the Securities, including the Transaction Documents, and there is no
government or other insurance covering any of the Securities.
4. REPRESENTATIONS,
WARRANTIES AND ACKNOWLEDGMENTS OF THE INVESTORS.
Each
Investor, severally and not jointly, represents and warrants to the Company
solely as to such Investor that:
4.1.
Capacity.
The
Investor: (i) if a natural person, represents that the Investor has reached the
age of 21 and has full authority, legal capacity and competence to enter into,
execute and deliver this Agreement and the Transaction Documents to which the
Investor is a party and all other related agreements or certificates and to take
all actions required pursuant hereto and thereto and to carry out the provisions
hereof and thereof; (ii) if a corporation, partnership, or limited liability
company or partnership, or association, joint stock company, trust,
unincorporated organization or other entity, represents that such entity was not
formed for the specific purpose of acquiring the Units, such entity is duly
organized, validly existing and in good standing under the laws of the state of
its organization, such entity has full power and authority to execute and
deliver this Agreement, the Transaction Documents to which it is a party and all
other related agreements or certificates and to take all actions required
pursuant hereto and thereto and to carry out the provisions hereof and thereof
and to purchase and hold the Units, the execution and delivery of this Agreement
and the Transaction Documents to which it is a Party have been duly authorized
by all necessary action; or (iii) if executing this Agreement in a
representative or fiduciary capacity, represents that it has full power and
authority to execute and deliver this Agreement and the Transaction Documents to
which it is a Party in such capacity and on behalf of the subscribing
individual, ward, partnership, trust, estate, corporation, or limited liability
company or partnership, or other entity for whom the Investor is executing this
Agreement and the Transaction Documents, and such individual, partnership, ward,
trust, estate, corporation, or limited liability company or partnership, or
other entity has full right and power to perform pursuant to this Agreement and
the Transaction Documents to which it is a Party and make an investment in the
Company.
4.2.
No Violation of Corporate Governance
Documents.
If the Investor is a corporation, partnership, or limited
liability company or partnership, or association, joint stock company, trust,
unincorporated organization or other entity, the entering into of this Agreement
and the other Transaction Documents to which it is a party and the transactions
contemplated hereby and thereby do not and will not result in the violation of
any of the terms and provisions of any law applicable to, or the charter or
other organizational documents, bylaws or other governing documents of, the
Investor or of any agreement, written or oral, to which the Investor may be a
party or by which the Investor is or may be bound.
4.3.
Binding Agreement.
The
Investor has duly executed and delivered this Agreement and the other
Transaction Documents to which it is a party, and this Agreement and the other
Transaction Documents to which it is a party constitute a valid and binding
agreement of the Investor enforceable against the Investor in accordance with
their respective terms, except as such enforceability may be limited by general
principals of equity, or to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors’ rights and
remedies.
4.4.
Purchase Entirely for Own
Account
. The Securities are being acquired for such Investor’s own
account, not as nominee or agent, for investment purposes only and not with a
view to the resale or distribution of any part thereof in violation of the
Securities Act, and such Investor has no present intention of selling, granting
any participation in, or otherwise distributing the same in violation of the
Securities Act, without prejudice, however, to such Investor’s right at all
times to sell or otherwise dispose of all or any part of such Securities in
compliance with applicable federal and state securities laws.
4.5.
Not a Broker-Dealer.
Such
Investor is neither a registered representative under the Financial Industry
Regulatory Authority (“
FINRA
”), a member of FINRA or
associated or Affiliated with any member of FINRA, nor a broker-dealer
registered with the SEC under the Exchange Act or engaged in a business that
would require it to be so registered, nor is it an Affiliate of a such a
broker-dealer or any Person engaged in a business that would require it to be
registered as a broker-dealer. In the event such Investor is a member of
FINRA, or associated or Affiliated with a member of FINRA, such Investor agrees,
if requested by FINRA, to sign a lock-up, the form of which shall be
satisfactory to FINRA with respect to the Securities.
4.6.
Not an
Underwriter.
Such Investor is not an underwriter of the
Securities, nor is it an Affiliate of an underwriter of the
Securities.
4.7.
Investment Experience
. Such
Investor acknowledges that the purchase of the Securities is a highly
speculative investment and that it can bear the economic risk and complete loss
of its investment in the Securities and has such knowledge and experience in
financial and/or business matters that it is capable of evaluating the merits
and risks of the investment contemplated hereby.
4.8.
Disclosure of Information
.
Such Investor has had an opportunity to receive, and fully and carefully
review, all information related to the Company and the Securities requested by
it and to ask questions of and receive answers from the Company regarding the
Company and its business and the terms and conditions of the offering of the
Securities. Neither such inquiries nor any other due diligence
investigation conducted by such Investor shall modify, amend or affect such
Investor’s right to rely on the Company’s representations and warranties
contained in this Agreement. Such Investor acknowledges that it has
received, and fully and carefully reviewed and understands all of the
Transaction Documents, including, but not limited to, the Memorandum describing,
among other items, the Company, its businesses and risks, the Securities and the
Offering of the Securities. Investor acknowledges that it has received,
and fully and carefully reviewed and understands, copies of the SEC Reports,
either in hard copy or electronically through the SEC’s Electronic Data
Gathering Analysis and Retrieval system. Such Investor understands that
its investment in the Securities involves a high degree of risk. Such
Investor’s decision to enter into this Agreement and the Transaction Documents
to which it is a party, including the Registration Rights Agreement, has been
made based solely on the independent evaluation of the Investor and its
representatives. Such Investor has received such accounting, tax and legal
advice from Persons (other than the Company) as it has considered necessary to
make an informed investment decision with respect to the acquisition of the
Securities.
4.9.
Restricted Securities
.
Such Investor understands that, except as provided in the Registration
Rights Agreement, the sale or re-sale of the Securities has not been and is not
being registered under the Securities Act or any applicable state securities
laws, and the Securities, as applicable, may not be transferred
unless:
(a) they
are sold pursuant to an effective registration statement under the Securities
Act; or
(b) they
are being sold pursuant to a valid exemption from the registration requirements
of the Securities Act; or
(c) they
are sold or transferred to an “affiliate” (as defined in Rule 144, or any
successor rule, promulgated under the Securities Act (“
Rule 144
”) of such Investor
who agrees to sell or otherwise transfer the Securities only in accordance with
this Section 4.9 and who is an accredited investor, or
(d) they
are validly sold pursuant to Rule 144.
Such
Investor shall provide the Company with no less than three (3) Trading Days
notice of its intention to dispose of any Securities and agrees that such
Investor shall only dispose of any Securities in accordance with all applicable
Legal Requirements. Such Investors further understands that any sale
of the Securities made in reliance on Rule 144 may be made only in accordance
with the terms of Rule 144 and other than as provided in the Transaction
Documents, neither the Company nor any other Person is under any obligation to
register the Securities under the Securities Act or any state securities laws.
Notwithstanding the foregoing or anything else contained herein to the
contrary, the Securities may be pledged as collateral in connection with a
bona fide
margin account or
other lending arrangement.
4.10.
Accredited Investor
. Such
Investor is an “accredited investor” as defined in Rule 501(a) of Regulation D,
as amended, under the Securities Act (“
Regulation D
”).
4.11.
No General Solicitation
.
Such Investor did not learn of the investment in the Securities as a
result of any public advertising or general solicitation, and is not aware of
any public advertisement or general solicitation in respect of the Company or
its securities.
4.12.
Brokers and Finders
. No
Investor will have, as a result of the transactions contemplated by the
Transaction Documents, any valid right, interest or claim against or upon the
Company, any Subsidiary or any other Investor for any commission, fee or other
compensation pursuant to any agreement, arrangement or understanding entered
into by or on behalf of such Investor.
4.13.
Prohibited Transactions
.
Other than with respect to the transactions contemplated herein, since the
earlier to occur of: (i) the time that such Investor was first contacted by the
Company, or any other Person regarding an investment in the Company and (ii) the
thirtieth (30
th
) day
prior to the date hereof, neither the Investor nor any Affiliate of the Investor
which (x) had knowledge of the transactions contemplated hereby, (y) has or
shares discretion relating to the Investor’s investments or trading or
information concerning such Investor’s investments, including in respect of the
Securities, or (z) is subject to the Investor’s review or input concerning such
Affiliate’s investments or trading decisions (collectively, “
Trading Affiliates
”) has,
directly or indirectly, nor has any Person acting on behalf of, or pursuant to,
any understanding with such Investor or Trading Affiliate effected or agreed to
effect any transactions in the securities of the Company or involving the
Company’s securities (a “
Prohibited
Transaction
”).
4.14.
Reside
ncy
. Such Investor is a
resident of the jurisdiction set forth on such Investor’s signature page
hereto.
4.15.
Reliance on Exemptions
.
The Investor understands that the Securities are being offered and sold to
it in reliance upon specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is relying
upon the truth and accuracy of, and the Investor’s compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Investor set forth herein in order to determine the availability of such
exemptions and the eligibility of the Investor to acquire the Securities. All of
the information which the Investor has provided to the Company is true, correct
and complete as of the date this Agreement is signed, and if there should be any
change in such information prior to the Closing, the Investor will immediately
provide the Company with such information.
5. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
Except as
set forth in: (i) the SEC Reports, (ii) the Memorandum or (iii), if so stated
below, the corresponding section of the Disclosure Schedules, the Company hereby
makes the following representations and warranties as of the date hereof and as
of the Closing Date to each Investor:
5.1.
Subsidiaries
. A
true and correct structure chart of the Company and its wholly-owned and
consolidated Subsidiaries is included as
Schedule 5.1
to the
Disclosure Schedules. Except as disclosed in
Schedule 5.1
to the
Disclosure Schedules, the Company owns, directly or indirectly, all of the
capital stock, or other equity interests, of each Subsidiary free and clear of
any Liens, and all the issued and outstanding shares of capital stock of each
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights.
5.2.
Organization and
Qualification
. Each of the Company and the Subsidiaries is an
entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization, with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently
conducted. Neither the Company nor any Subsidiary is in violation of
any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational, charter or governing
documents. Each of the Company and the Subsidiaries is duly qualified
to conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, would not
have or reasonably be expected to result in a Material Adverse
Effect.
5.3.
Authorization;
Enforcement
. The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each
of the Transaction Documents and otherwise to carry out its obligations
thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company in
connection therewith. Each Transaction Document has been (or upon
delivery will have been) duly executed by the Company and, when delivered in
accordance with the terms hereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms except: (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other laws of general application
relating to or affecting enforcement of creditors’ rights generally and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies.
5.4.
No Conflicts
. The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated thereby do
not and will not: (i) conflict with or violate any provision of the Company’s or
any Subsidiary’s certificate or articles of incorporation, bylaws or other
organizational, charter or governing documents; (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other understanding to
which the Company or any Subsidiary is a party or by which any property or asset
of the Company or any Subsidiary is bound or affected; or (iii) result in a
violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the Company or
a Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected; except in the case of each of clauses (ii) and (iii), such
as would not have or reasonably be expected to result in a Material Adverse
Effect.
5.5.
Filings, Consents and
Approvals
. Neither the Company nor any Subsidiary is required
to obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other foreign, federal,
state, local or other governmental authority or other Person in connection with
the execution, delivery and performance by the Company of the Transaction
Documents, other than (a) the filing with the SEC of the Registration Statement,
the application(s) to each Trading Market for the listing of the Shares and
Warrant Shares for trading thereon in the time and manner required thereby, and
applicable “blue sky” or other securities law filings, (b) such as have already
been obtained or such exemptive filings as are required to be made under
applicable securities laws, or (c) such other filings that have been made
pursuant to applicable state securities laws and post-sale filings pursuant to
applicable state and federal securities laws which the Company undertakes to
file within the applicable time periods. Subject to the accuracy of
the representations and warranties of each Investor set forth in Section 4
hereof, the Company has taken all action necessary to exempt: (i) the issuance
and sale of the Securities, (ii) the issuance of the Warrant Shares upon due
exercise of the Warrants, and (iii) the other transactions contemplated by the
Transaction Documents from the provisions of any stockholder rights plan or
other “poison pill” arrangement, any anti-takeover, business combination or
control share law or statute binding on the Company or to which the Company or
any of its assets and properties may be subject and any provision of the
Company’s Articles of Incorporation or Bylaws that is or could reasonably be
expected to become applicable to the Investors as a result of the transactions
contemplated hereby, including without limitation, the issuance of the
Securities and the ownership, disposition or voting of the Securities by the
Investors or the exercise of any right granted to the Investors pursuant to this
Agreement or the other Transaction Documents.
5.6.
Issuance of the
Securities
. The Shares are duly authorized and, when issued
and paid for in accordance with the Transaction Documents, will be duly and
validly issued, fully paid and nonassessable, free and clear of all
Liens. The Warrants have been duly and validly
authorized. Upon the due exercise of the Warrants, the Warrant Shares
will be validly issued, fully paid and non-assessable free and clear of all
Liens. The Company has reserved from its duly authorized capital
stock the maximum number of shares of Common Stock issuable pursuant to this
Agreement and the Warrants;
provided
,
however
, with respect
to the Warrants, the Company has only reserved from its duly authorized capital
stock the shares of Common Stock issuable as of the Closing Date, assuming the
valid exercise of all of the Warrants by the Investors and the Lead Placement
Agent.
5.7.
Capitalization
.
Schedule 5.7
to the
Disclosure Schedules sets forth as of the date hereof (a) the authorized capital
stock of the Company; (b) the number of shares of capital stock issued and
outstanding; (c) the number of shares of capital stock issuable pursuant to the
Company’s stock plans; and (d) the number of shares of capital stock issuable
and reserved for issuance pursuant to securities (other than the Warrants)
exercisable for, or convertible into or exchangeable for any shares of capital
stock of the Company. All of the issued and outstanding shares of the
Company’s capital stock have been duly authorized and validly issued and are
fully paid, nonassessable and free of pre-emptive rights and were issued in full
compliance with applicable state and federal securities law and any rights of
third parties. No Person has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents. Except as
described on
Schedule
5.7
to the Disclosure Schedules, there are no outstanding options,
warrants, script rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock, other than in connection with the
Company’s stock option plans. The issue and sale of the Securities
will not obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Investors) and will not result in a
right of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under such securities. Except as described on
Schedule 5.7
to
the Disclosure Schedules and except for the Registration Rights Agreement, there
are no voting agreements, buy-sell agreements, option or right of first purchase
agreements or other agreements of any kind among the Company and any of the
securityholders of the Company relating to the securities of the Company held by
them. Except as described on
Schedule 5.7
to the
Disclosure Schedules, and except as provided in the Registration Rights
Agreement, no Person has the right to require the Company to register any
securities of the Company under the Securities Act, whether on a demand basis or
in connection with the registration of securities of the Company for its own
account or for the account of any other Person.
5.8.
SEC Reports; Financial
Statements
. The Company has filed with the SEC all SEC Reports
for the two years preceding the date hereof (or such shorter period as the
Company was required by law to file such material) on a timely basis or has
received a valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied in all material respects with the
requirements of the Securities Act and the Exchange Act, as applicable, and the
rules and regulations promulgated thereunder, and none of the SEC Reports, when
filed, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in
the SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the SEC with respect thereto as in
effect at the time of filing. Such financial statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved (“
GAAP
”), except as may be
otherwise specified in such financial statements or the notes thereto and except
that unaudited financial statements may not contain all footnotes required by
GAAP, and fairly present in all material respects the financial position of the
Company and its consolidated subsidiaries as of and for the dates thereof and
the results of operations and cash flows for the periods then ended, subject, in
the case of unaudited statements, to normal, immaterial, year-end audit
adjustments.
5.9.
Material
Changes
. Since the date of the latest audited financial
statements included within the SEC Reports, the Company and its Subsidiaries
have not:
(a) suffered
any Material Adverse Change;
(b) suffered
any damage, destruction or loss, whether or not covered by insurance, in an
amount in excess of $100,000;
(c) granted or
agreed to make any increase in the compensation payable or to become payable by
the Company or any of its Subsidiaries to any officer or employee, except for
normal raises for nonexecutive personnel made in the ordinary course of business
that are usual and normal in amount;
(d) declared,
set aside or paid any dividend or made any other distribution on or in respect
of the shares of capital stock of the Company or any of its Subsidiaries, or
declared or agreed to any direct or indirect redemption, retirement, purchase or
other acquisition by the Company or any of its Subsidiaries of such
shares;
(e) issued any
shares of capital stock of the Company or any of its Subsidiaries, or any
warrants, rights or options thereof, or entered into any commitment relating to
the shares of capital stock of the Company or any of its
Subsidiaries;
(f) adopted or
proposed the adoption of any change in the Company’s charter, bylaws or other
organizational or governing documents;
(g) made any
change in the accounting methods or practices they follow, whether for general
financial or tax purposes, or any change in depreciation or amortization
policies or rates adopted therein, or any tax election;
(h) sold,
leased, abandoned or otherwise disposed of any real property or any machinery,
equipment or other operating property other than in the ordinary course of their
business;
(i) sold,
assigned, transferred, licensed or otherwise disposed of any of the Company’s
Intellectual Property or interest thereunder or other intangible asset except in
the ordinary course of their business;
(j) been
involved in any dispute involving any employee which would reasonably be
expected to result in a Material Adverse Change;
(k) entered
into, terminated or modified any employment, severance, termination or similar
agreement or arrangement with, or granted any bonuses (or bonus opportunity) to,
or otherwise increased the compensation of any executive officer;
(l) entered
into any material commitment or transaction (including without limitation any
borrowing or capital expenditure);
(m) amended or
modified, or waived any default under, any Material Contract;
(n) to the
Company’s knowledge, incurred any material liabilities, contingent or otherwise,
either matured or unmatured (whether or not required to be reflected in
financial statements in accordance with GAAP, and whether due or to become due),
except for accounts payable or accrued salaries that have been incurred by the
Company since the date of the latest audited financial statements included
within the SEC Reports, in the ordinary course of its business and consistent
with the Company’s past practices;
(o) permitted
or allowed any of their material property or assets to be subjected to any
Lien;
(p) settled any
claim, litigation or action, whether now pending or hereafter made or
brought;
(q) made any
capital expenditure or commitment for additions to property, plant or equipment
individually in excess of $100,000, or in the aggregate, in excess of
$250,000;
(r) paid,
loaned or advanced any amount to, or sold, transferred or leased any properties
or assets to, or entered into any agreement or arrangement with any of their
Affiliates, officers, directors or stockholders or, to the Company’s knowledge,
any Affiliate or associate of any of the foregoing;
(s) made any
amendment to, or terminated any agreement that, if not so amended or terminated,
would be material to the business, assets, liabilities, operations or financial
performance of the Company or any of its Subsidiaries;
(t) compromised
or settled any claims relating to taxes, any tax audit or other tax proceeding,
or filed any amended tax returns;
(u) merged or
consolidated with any other Person, or acquired a material amount of assets of
any other Person;
(v) entered
into any agreement in contemplation of the transactions specified herein other
than this Agreement and the other Transaction Documents; or
(w) agreed to
take any action described in this Section 5.9 or which would reasonably be
expected to otherwise constitute a breach of any of the representations or
warranties contained in this Agreement or any other Transaction
Documents.
5.10.
Litigation
. Except
as described on
Schedule 5.10
to the
Disclosure Schedules, there is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the Company’s knowledge, threatened
against or affecting the Company, any Subsidiary or any of their respective
properties before or by any court, arbitrator, governmental or administrative
agency or regulatory authority (federal, state, county, local or foreign)
(collectively, an “
Action
”) which: (i) adversely
affects or challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect. Neither the Company nor any Subsidiary, nor any
director or officer thereof, is or has been the subject of any Action involving
a claim of violation of or liability under federal or state securities laws or a
claim of breach of fiduciary duty. There has not been, and to the
Company’s knowledge, there is not pending or contemplated, any investigation by
the SEC involving the Company or any current or former director or officer of
the Company. The SEC has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the Company
or any Subsidiary under the Exchange Act or the Securities Act.
5.11.
Labor
Relations
. Except as set forth on
Schedule 5.11
to the
Disclosure Schedules, neither the Company nor any Subsidiary is a party to or
bound by any collective bargaining agreements or other agreements with labor
organizations. Neither the Company nor any Subsidiary has violated in
any material respect any laws, regulations, orders or contract terms, affecting
the collective bargaining rights of employees, labor organizations or any laws,
regulations or orders affecting employment discrimination, equal opportunity
employment, or employees’ health, safety, welfare, wages and
hours. No material labor dispute exists or, to the Company’s
knowledge, is imminent with respect to any of the employees of the Company which
could reasonably be expected to result in a Material Adverse
Effect.
5.12.
Compliance
. Except
as set forth on
Schedule 5.12
to the
Disclosure Schedules, neither the Company nor any Subsidiary: (i) is in default
under or in violation of (and no event has occurred that has not been waived
that, with notice or lapse of time or both, would result in a default by the
Company or any Subsidiary under), nor has the Company or any Subsidiary received
notice of a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound (whether or
not such default or violation has been waived), (ii) is in violation of any
order of any court, arbitrator or Governmental Body, or (iii) is or has been in
violation of any statute, rule or regulation of any governmental authority,
including without limitation all foreign, federal, state and local laws
applicable to its business, except in the case of clauses (i), (ii) and (iii) as
would not have or reasonably be expected to result in a Material Adverse
Effect.
5.13.
Regulatory
Permits
. Except as disclosed in
Schedule 5.13
to the
Disclosure Schedules, the Company and the Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state, local or
foreign regulatory authorities necessary to conduct their respective businesses
as described in the SEC Reports and the Memorandum, except where the failure to
possess such permits would not have or reasonably be expected to result in a
Material Adverse Effect (“
Material Permits
”), and
neither the Company nor any Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
5.14.
Title to
Assets
. Except as set forth on
Schedule 5.14
to the
Disclosure Schedules, the Company and the Subsidiaries have good and marketable
title in fee simple or the right under PRC law, as the case may be, to all real
property owned by them that is material to the business of the Company and the
Subsidiaries and good and marketable title in all personal property owned by
them that is material to the business of the Company and the Subsidiaries, in
each case free and clear of all Liens, except for Liens as do not materially
affect the value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company and the
Subsidiaries and Liens for the payment of federal, state or other taxes, the
payment of which is neither delinquent nor subject to penalties. Any
real property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and enforceable leases of
which the Company and the Subsidiaries are in compliance.
5.15.
Contracts
.
(a) Neither the Company nor
any of its Subsidiaries is party or subject to, or bound by:
(i) any
agreements, contracts or commitments that call for prospective fixed and/or
contingent payments or expenditures by or to the Company or any of its
Subsidiaries of more than $100,000, or which is otherwise material and not
entered into in the ordinary course of business;
(ii) any
contract, lease or agreement involving payments in excess of $100,000, which is
not cancelable by the Company or any of its Subsidiaries, as applicable, without
penalty on not less than sixty (60) days notice;
(iii) any
contract, including any distribution agreements, containing covenants directly
or explicitly limiting the freedom of the Company or any of its Subsidiaries to
compete in any line of business or with any Person or to offer any of its
products or services;
(iv) any
indenture, mortgage, promissory note, loan agreement, guaranty or other
agreement or commitment for the borrowing of money or pledging or granting a
security interest in any assets;
(v) any
employment contracts, non-competition agreements, invention assignments,
severance or other agreements with officers, directors, employees, stockholders
or consultants of the Company or any of its Subsidiaries or Persons related to
or affiliated with such Persons;
(vi) any
stock redemption or purchase agreements or other agreements affecting or
relating to the capital stock of the Company or any of its Subsidiaries,
including, without limitation, any agreement with any stockholder of the Company
or any of its Subsidiaries which includes, without limitation, antidilution
rights, voting arrangements or operating covenants;
(vii) any
pension, profit sharing, retirement, stock option or stock ownership
plans;
(viii)
any royalty, dividend or similar arrangement based on the revenues or profits of
the Company or any of its Subsidiaries or based on the revenues or profits
derived from any Material Contract;
(ix) any
acquisition, merger, asset purchase or other similar agreement;
(x) any
sales agreement which entitles any customer to a right of set-off, or right to a
refund after acceptance thereof;
(xi) any
agreement with any supplier or licensor containing any provision permitting such
supplier or licensor to change the price or other terms upon a breach or failure
by the Company or any of its Subsidiaries, as applicable, to meet its
obligations under such agreement; or
(xii) any
agreement under which the Company or any of its Subsidiaries has granted any
Person registration rights for securities.
(b)
Schedule 5.15(b)
to
the Disclosure Schedules contains a listing or description of all agreements,
contracts or instruments, including all amendments thereto, to which the Company
or its Subsidiaries are bound which meet the criteria set forth in Section
5.15(a) (such agreements, contracts or instruments, collectively, the “
Material
Contracts
”). The Company has made available to the Investors
copies of the Material Contracts. Neither the Company nor any of its
Subsidiaries has entered into any oral contracts which, if written, would
qualify as a Material Contract. Each of the Material Contracts is
valid and in full force and effect, is enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, fraudulent
transfer, moratorium or similar laws affecting creditors’ rights generally and
general principles of equity, and will continue to be so immediately following
the Closing Date.
(c) Actions
with Respect to Material Contracts.
(i) Neither
the Company nor any of its Subsidiaries has violated or breached, or committed
any default under, any Material Contract in any material respect, and, to the
Company’s knowledge, no other Person has violated or breached, or committed any
default under any Material Contract, except for violations, breaches of defaults
which would not have a Material Adverse Effect; and
(ii) To
the Company’s knowledge, no event has occurred, and no circumstance or condition
exists, that (with or without notice or lapse of time) will, or would reasonably
be expected to: (A) result in a material violation or breach of any of the
provisions of any Material Contract, (B) give any Person the right to declare a
default or exercise any remedy under any Material Contract, (C) give any Person
the right to accelerate the maturity or performance of any Material Contract or
(D) give any Person the right to cancel, terminate or modify any Material
Contract, except, in each case, as would not have a Material Adverse
Effect.
5.16.
Taxes
.
(a) The
Company and its Subsidiaries have timely and properly filed all tax returns
required to be filed by them for all years and periods (and portions thereof)
for which any such tax returns were due
, except where the failure
to so file would not have a
Material Adverse
Effect
. All such filed tax returns are accurate in all
material respects. The Company has timely paid all taxes due and
payable (whether or not shown on filed tax returns)
, except where the failure
to so pay would not have a
Material Adverse
Effect
. There are no pending assessments, asserted
deficiencies or claims for additional taxes that have not been
paid. The reserves for taxes, if any, reflected in the SEC Reports or
in the Memorandum are adequate, and there are no Liens for taxes on any property
or assets of the Company and any of its Subsidiaries (other than Liens for taxes
not yet due and payable). There have been no audits or examinations
of any tax returns by any Governmental Body, and the Company or its Subsidiaries
have not received any notice that such audit or examination is pending or
contemplated. No claim has been made by any Governmental Body in a
jurisdiction where the Company or any of its Subsidiaries does not file tax
returns that it is or may be subject to taxation by that
jurisdiction. To the Company’s knowledge, no state of facts exists or
has existed which would constitute grounds for the assessment of any penalty or
any further tax liability beyond that shown on the respective tax
returns. There are no outstanding agreements or waivers extending the
statutory period of limitation for the assessment or collection of any
tax.
(b) Neither
the Company nor any of its Subsidiaries is a party to any tax-sharing agreement
or similar arrangement with any other Person.
(c) The
Company has made all necessary disclosures required by Treasury Regulation
Section 1.6011-4. The Company has not been a participant in a
“reportable transaction” within the meaning of Treasury Regulation Section
1.6011-4(b).
(d) No
payment or benefit paid or provided, or to be paid or provided, to current or
former employees, directors or other service providers of the Company will fail
to be deductible for federal income tax purposes under Section 280G of the
Internal Revenue Code of
1986, as amended (the “
Code
”)
.
5.17.
Employees
.
(a) The
Company and its Subsidiaries are not party to any collective bargaining
agreements and, to the Company’s knowledge, there are no attempts to organize
the employees of the Company or any of its Subsidiaries.
(b) Except
as set forth on
Schedule 5.17
to the
Disclosure Schedules, the Company and its Subsidiaries have no policy, practice,
plan or program of paying severance pay or any form of severance compensation in
connection with the termination of employment services.
(c) Each
Person who performs services for the Company or any of its Subsidiaries has
been, and is, properly classified by the Company or its Subsidiaries as an
employee or an independent contractor (or its PRC equivalent).
(d) To
the Company’s knowledge, no employee or advisor of the Company or any of its
Subsidiaries is or is alleged to be in violation of any term of any employment
contract, disclosure agreement, proprietary information and inventions agreement
or any other contract or agreement or any restrictive covenant or any other
common law obligation to a former employer relating to the right of any such
employee to be employed by the Company or any of its Subsidiaries because of the
nature of the business conducted or to be conducted by the Company or any of its
Subsidiaries or to the use of trade secrets or proprietary information of
others, and the employment of the employees of the Company and its Subsidiaries
does not subject the Company or the Company's stockholders to any
liability. There is neither pending nor, to the Company’s knowledge,
threatened any actions, suits, proceedings or claims, or, to the Company’s
knowledge, any basis therefor or threat thereof with respect to any contract,
agreement, covenant or obligation referred to in the preceding
sentence.
5.18.
Employee Benefit
Plans
. No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan (as defined below) by the
Company or any of its Subsidiaries which is or would be materially adverse to
the Company and its Subsidiaries. The execution and delivery of this
Agreement and the issuance and sale of the Securities will not involve any
transaction which is subject to the prohibitions of Section 406 of the Employee
Retirement Income Security Act of 1974, as amended (“
ERISA
”), or in connection with
which a tax could be imposed pursuant to Section 4975 of the Code, provided
that, if any of the Investors, or any person or entity that owns a beneficial
interest in any of the Investors, is an “employee pension benefit plan” (within
the meaning of Section 3(2) of ERISA) with respect to which the Company is a
“party in interest” (within the meaning of Section 3(14) of ERISA), the
requirements of Sections 407(d)(5) and 408(e) of ERISA, if applicable, are
met. As used in this Section 2.1(ac), the term “
Plan
” shall mean an “employee
pension benefit plan” (as defined in Section 3 of ERISA) which is or has been
established or maintained, or to which contributions are or have been made, by
the Company or any subsidiary or by any trade or business, whether or not
incorporated, which, together with the Company or any subsidiary, is under
common control, as described in Section 414(b) or (c) of the Code.
5.19.
Patents and
Trademarks
. Except as set forth on
Schedule 5.19
to the
Disclosure Schedules, to the Company’s knowledge and each Subsidiary, the
Company and the Subsidiaries have, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights that are necessary or material for
use in connection with their respective businesses as described in the SEC
Reports and the Memorandum and which the failure to so have could have or
reasonably be expected to result in a Material Adverse Effect (collectively, the
“
Intellectual Property
Rights
”). Neither the Company nor any Subsidiary has received
a written notice that the Intellectual Property Rights used by the Company or
any Subsidiary violates or infringes upon the rights of any
Person. To the Company’s knowledge, all such Intellectual Property
Rights are enforceable. The Company and its Subsidiaries have taken
reasonable steps to protect the Company’s and its Subsidiaries’ rights in their
Intellectual Property Rights and confidential information (the “
Confidential
Information”
). Each employee, consultant and contractor who
has had access to Confidential Information which is necessary for the conduct of
Company’s and each of its Subsidiaries’ respective businesses as currently
conducted or as currently proposed to be conducted has executed an agreement to
maintain the confidentiality of such Confidential Information and has executed
appropriate agreements that are substantially consistent with the Company’s
standard forms thereof. Except under confidentiality obligations,
there has been no material disclosure of any of the Company’s or its
Subsidiaries’ Confidential Information to any third party.
5.20.
Environmental
Matters
. Neither the Company nor any Subsidiary is in
violation of any statute, rule, regulation, decision or order of any
Governmental Body relating to the use, disposal or release of hazardous or toxic
substances or relating to the protection or restoration of the environment or
human exposure to hazardous or toxic substances (collectively, “
Environmental Laws
”), owns or
operates any real property contaminated with any substance that is subject to
any Environmental Laws, is liable for any off-site disposal or contamination
pursuant to any Environmental Laws, or is subject to any claim relating to any
Environmental Laws, which violation, contamination, liability or claim has had
or could reasonably be expected to have a Material Adverse Effect, individually
or in the aggregate; and there is no pending or, to the Company’s knowledge,
threatened investigation that might lead to such a claim.
5.21.
Insurance
. The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries are
engaged as described in the SEC Reports and/or the
Memorandum. Neither the Company nor any Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business without a significant increase in
cost.
5.22.
Transactions With Affiliates and
Employees
. Except as set forth on
Schedule 5.22
to the
Disclosure Schedules, none of the officers or directors of the Company and, to
the Company’s knowledge, none of the employees of the Company is presently a
party to any transaction with the Company or any Subsidiary (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
Company’s knowledge, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner, in each case in excess of $120,000 other than (a) for payment of salary
or consulting fees for services rendered, (b) reimbursement for expenses
incurred on behalf of the Company and (c) for other employee benefits, including
stock option agreements under any stock option plan of the Company.
5.23.
Private Placement
. Assuming
the accuracy of each of the Investors’ representations and warranties set forth
in Section 4, no registration under the Securities Act is required for the offer
and sale of the Securities by the Company to the Investors as contemplated
hereby.
5.24.
No Integrated
Offering
. Neither the Company, nor any of its affiliates, nor
any Person acting on its or their behalf has, directly or indirectly, made any
offers or sales of any security or solicited any offers to buy any security,
under circumstances that would cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the Securities
Act or any applicable shareholder approval provisions, including, without
limitation, under the rules and regulations of any Trading Market on which any
of the securities of the Company are listed or designated.
5.25.
Brokers and
Finders
. No Person will have, as a result of the transactions
contemplated by the Transaction Documents, any valid right, interest or claim
against or upon the Company, any Subsidiary or an Investor for any commission,
fee or other compensation pursuant to any agreement, arrangement or
understanding entered into by or on behalf of the Company.
5.26.
No Directed Selling Efforts or
General Solicitation
. Neither the Company nor any Person
acting on its behalf has conducted any general solicitation or general
advertising (as those terms are used in Regulation D) in connection with the
offer or sale of any of the Securities.
5.27.
Questionable Payments.
Neither
the Company nor any of its Subsidiaries nor, to the Company’s knowledge, any of
their respective current or former stockholders, directors, officers, employees,
agents or other Persons acting on behalf of the Company or any Subsidiary, has
on behalf of the Company or any Subsidiary or in connection with their
respective businesses: (a) used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political activity;
(b) made any direct or indirect unlawful payments to any governmental officials
or employees from corporate funds; (c) established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; (d) made any false or
fictitious entries on the books and records of the Company or any Subsidiary; or
(e) made any unlawful bribe, rebate, payoff, influence payment, kickback or
other unlawful payment of any nature.
5.28.
Disclosures
. Neither
the Company nor any Person acting on its behalf has provided the Investors or
their agents or counsel with any information that constitutes or might
constitute material, non-public information, other than the terms of the
transactions contemplated hereby. The written materials delivered to
the Investors in connection with the transactions contemplated by the
Transaction Documents do not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading
5.29.
Solvency
. The
Company has not: (a) made a general assignment for the benefit of creditors; (b)
filed any voluntary petition in bankruptcy or suffered the filing of any
involuntary petition by its creditors; (c) suffered the appointment of a
receiver to take possession of all, or substantially all, of its assets; (d)
suffered the attachment or other judicial seizure of all, or substantially all,
of its assets; (e) admitted in writing its inability to pay its debts as they
come due; or (f) made an offer of settlement, extension or composition to its
creditors generally.
5.30.
Related
Party Transactions
. Except as set
forth in
Schedule
5.30
to the
Disclosure Schedules: (a) none of the Company or any of its Affiliates,
officers, directors, stockholders or employees, or any Affiliate of any of such
Person, has any material interest in any property, real or personal, tangible or
intangible, including the Company’s Intellectual Property used in or pertaining
to the business of the Company, except for the normal rights of a stockholder,
or, to the Company’s knowledge, any supplier, distributor or customer of the
Company; (b)
there are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, employees,
Affiliates, or, to the Company’s knowledge, any Affiliate thereof; (c)
to the Company’
s
knowledge, no employee, officer or director of the Company or any of its
Subsidiaries has any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation that competes with the
Company; (d) to the
Company’
s
knowledge, no member of the immediate family of any officer or director of the
Company is directly or indirectly interested in any Material Contract; or (e)
there are no amounts owed (cash and stock) to officers, directors and
consultants (salary, bonuses or other forms of compensation).
5.31.
Foreign Corrupt Practices
Act
. None of the Company or any of its Subsidiaries, nor to
the Company’s knowledge, any agent or other person acting on behalf of the
Company or any of its Subsidiaries, has, directly or indirectly: (a) used any
funds, or will use any proceeds from the sale of the Units, for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity; (b) made any unlawful payment to foreign
or domestic government officials or employees or to any foreign or domestic
political parties or campaigns from corporate funds; (c) failed to disclose
fully any contribution made by the Company or any of its Subsidiaries (or made
by any Person acting on their behalf of which the Company is aware) or any
members of their respective management which is in violation of any Legal
Requirement; or (d) has violated in any material respect any provision of the
Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations
thereunder which was applicable to the Company or any of its
Subsidiaries.
5.32.
PFIC
. None of the
Company or any of its Subsidiaries is or intends to become a “passive foreign
investment company” within the meaning of Section 1297 of the Code of
1986.
5.33.
OFAC
. None of the Company or
any of its Subsidiaries nor, to the Company’s knowledge, any director, officer,
agent, employee, Affiliate or Person acting on behalf of the Company or any of
its Subsidiaries, is currently subject to any U.S. sanctions administered by the
Office of Foreign Assets Control of the U.S. Treasury Department (“
OFAC
”); and the Company will
not directly or indirectly use the proceeds of the sale of the Units, or lend,
contribute or otherwise make available such proceeds to any of the Company’s
Subsidiaries, joint venture partner or other Person or entity, towards any sales
or operations in Cuba, Iran, Syria, Sudan, Myanmar or any other country
sanctioned by OFAC or for the purpose of financing the activities of any Person
currently subject to any U.S. sanctions administered by OFAC.
5.34.
Money Laundering
Laws
. The operations of each of the Company or any of its
Subsidiaries are and have been conducted at all times in compliance with the
money laundering Legal Requirements of all applicable Governmental Bodies of the
PRC and any related or similar rules, regulations or guidelines, issued,
administered or enforced by any PRC Governmental Body (collectively, the “
Money Laundering Laws
”) and no
action, suit or proceeding by or before any PRC court or PRC Governmental Body
or any arbitrator involving the Company or any of its Subsidiaries with respect
to the Money Laundering Laws is pending or, to the best of the Company’s
knowledge, threatened.
5.35.
Other Representations and Warranties
Relating to WFOE
.
(a) All
material consents, approvals, authorizations or licenses requisite under PRC
Legal Requirements for the due and proper establishment and operation of WFOE
have been duly obtained from the relevant PRC Governmental Bodies and are in
full force and effect.
(b) All
filings and registrations with the PRC Governmental Bodies required in respect
of WFOE and its capital structure and operations including, without limitation,
the registration with the PRC Ministry of Commerce or its local counterpart, the
PRC the State Administration of Industry and Commerce or its local counterpart,
the PRC State Administration of Foreign Exchange and applicable PRC tax bureau
and customs authorities have been duly completed in accordance with the relevant
PRC Legal Requirements, except where, the failure to complete such filings and
registrations does not, and would not, individually or in the aggregate, have a
Material Adverse Effect.
(c) WFOE
has complied with all relevant PRC Legal Requirements regarding the contribution
and payment of its registered share capital, the payment schedule of which has
been approved by the relevant PRC Governmental Bodies. There are no
outstanding commitments made by the Company or any Subsidiary (or any of their
shareholders) to sell any equity interest in WFOE.
(d) WFOE
has not received any letter or notice from any relevant PRC Governmental Body
notifying it of revocation of any licenses or qualifications issued to it or any
subsidy granted to it by any PRC Governmental Body for non-compliance with the
terms thereof or with applicable PRC Legal Requirements, or the lack of
compliance or remedial actions in respect of the activities carried out by WFOE,
except such revocation as does not, and would not, individually or in the
aggregate, have a Material Adverse Effect.
(e) WFOE
has conducted its business activities within the permitted scope of business or
has otherwise operated its business in compliance with all relevant Legal
Requirements and with all requisite licenses and approvals granted by competent
PRC Governmental Bodies other than such non-compliance that do not, and would
not, individually or in the aggregate, have a Material Adverse
Effect. As to licenses, approvals and government grants and
concessions requisite or material for the conduct of any material part of WFOE’s
business which is subject to periodic renewal, to the Company’s knowledge, there
is no reason related to the WFOE for which such requisite renewals will not be
granted by the relevant PRC Governmental Bodies.
(f) With
regard to employment and staff or labor, WFOE has complied with all applicable
PRC Legal Requirements in all material respects, including without limitation,
those pertaining to welfare funds, social benefits, medical benefits, insurance,
retirement benefits, pensions or the like, other than such non-compliance that
do not, and would not, individually or in the aggregate, have a Material Adverse
Effect.
6. CONDITIONS
TO EACH CLOSING OF THE INVESTORS.
The
obligation of the Investors to purchase the Units at any Closing is subject to
the fulfillment to the satisfaction of the Lead Placement Agent, on or prior to
such applicable Closing Date, of the following conditions, any of which may be
waived by the Lead Placement Agent:
6.1.
Representations and
Warranties
. The representations and warranties made by the Company in
Section 5 hereof qualified as to materiality shall be true and correct at all
times prior to and on the applicable Closing Date, except to the extent any such
representation or warranty expressly speaks as of an earlier date, in which case
such representation or warranty shall be true and correct as of such earlier
date, and, the representations and warranties made by the Company in Section 5
hereof not qualified as to materiality shall be true and correct in all material
respects at all times prior to and on the applicable Closing Date, except to the
extent any such representation or warranty expressly speaks as of an earlier
date, in which case such representation or warranty shall be true and correct in
all material respects as of such earlier date.
6.2.
Performance
of Agreements
. The
Company shall have performed in all material respects all obligations and
covenants herein required to be performed by it on or prior to the applicable
Closing Date.
6.3.
Approvals
. The Company shall
have obtained any and all consents, permits, approvals, registrations and
waivers necessary or appropriate for consummation of the purchase and sale of
the Securities and the consummation of the other transactions contemplated by
the Transaction Documents, all of which shall be in full force and
effect.
6.4.
Judgments,
e
tc.
No judgment, writ, order,
injunction, award or decree of or by any court, or judge, justice or magistrate,
including any bankruptcy court or judge, or any order of or by any governmental
authority, shall have been issued, and no action or proceeding shall have been
instituted by any governmental authority, enjoining or preventing the
consummation of the transactions contemplated hereby or in the other Transaction
Documents.
6.5.
Stop Orders
. No stop
order or suspension of trading shall have been imposed by the SEC or any other
governmental or regulatory body having jurisdiction over the Company or the
market(s) where the Common Stock is listed or quoted, with respect to public
trading in the Common Stock.
6.6.
Adverse
Changes
. Since the date of execution of this Agreement, no
event or series of events shall have occurred that reasonably could have or
result in a Material Adverse Effect or a material adverse change with respect to
the Company or any of its Subsidiaries;
6.7.
Company
Officer
Certificate
. The Company
shall have delivered a certificate, executed on behalf of the Company by its
Chief Executive Officer or its Chief Financial Officer, dated as of the
applicable Closing Date, certifying to the fulfillment of the conditions
specified in this Section 6.
6.8.
Company Secretary Certificate
.
The Company shall have delivered a certificate, executed on behalf of the
Company by its Secretary, dated as of the First Closing Date, certifying the
resolutions adopted by the Board of Directors of the Company approving the
transactions contemplated by this Agreement and the other Transaction Documents
and the issuance of the Securities, certifying the current versions of the
charter and bylaws of the Company, as the same may be amended and/or restated,
and certifying as to the signatures and authority of persons signing the
Transaction Documents and related documents on behalf of the Company. The
foregoing certificate shall only be required to be delivered on the First
Closing Date, unless any material information contained in the certificate has
changed.
6.9.
Opi
nion of Counsel
. The
Investors and the Lead Placement Agent shall have received an opinion from
Pillsbury Winthrop Shaw Pittman, LLP, the Company’s U.S. legal counsel, dated as
of each Closing Date, in such form and substance as agreed to by the Company and
the Lead Placement Agent (it being agreed that such counsel shall not be
required to deliver a “10b-5” or negative assurances letter or
opinion).
6.10.
Common Stock
and Warrants
. The
Company shall have delivered the Shares and Warrants being sold at the
applicable Closing.
6.11.
Registration Rights Agreement
.
The Company shall have executed and delivered the Registration Rights
Agreement.
6.12.
Amendment to Articles of
Incorporation
. The Company shall have filed with the Secretary
of State of the State of Nevada an amendment to its Articles of Incorporation
increasing the number of authorized shares of Common Stock of the Company from
95,000,000 to 1,500,000,000.
6.13.
Joint Venture Operating
Agreements
. The Company shall have entered into definitive
operating agreements with its partners in the PRC with respect to the operation
and funding of two joint ventures in the PRC.
6.14.
Consummation of Series A
Financing
.
The
consummation of the sale of 7,000,000 shares of Series A Preferred Stock of the
Company to Shane McMahon shall occur simultaneous with the First
Closing.
6.15.
Consummation of Series B
Financing
.
The
consummation of the sale of 6,000,000 shares of Series B Preferred Stock of the
Company to Steven Oliviera shall occur simultaneous with the First
Closing.
7. CONDITIONS
TO EACH CLOSING OF THE COMPANY.
The
obligations, with respect to each Investor, of the Company to effect the
transactions contemplated by this Agreement are subject to the fulfillment at or
prior to the applicable Closing Date of the conditions listed
below.
7.1.
Representations and
Warranties
. The representations and warranties in Section 4 hereof made
by such Investor shall be true and correct in all material respects at the time
of Closing as if made on and as of such date.
7.2.
Corporate Proceedings
. All
corporate and other proceedings required to be undertaken by such Investor in
connection with the transactions contemplated hereby shall have occurred and all
documents and instruments incident to such proceedings shall be reasonably
satisfactory in substance and form to the Company.
7.3.
Agreements
. Such
Investor shall have completed and executed this Agreement, the Registration
Rights Agreement and an investor questionnaire as provided by the Lead Placement
Agent, and delivered the same to the Company.
7.4.
Purcha
se Price
. Such
Investor shall have delivered or caused to be delivered the Purchase Price to
the Escrow Account.
8. OTHER
AGREEMENTS
8.1.
Integration
. The
Company shall not, and shall use its best efforts to ensure that no Affiliate of
the Company shall, sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Securities in a
manner that would require the registration under the Securities Act of the sale
of the Securities to the Investors, or that would be integrated with the offer
or sale of the Securities for purposes of the rules and regulations of any
Trading Market in a manner that would require stockholder approval of the sale
of the Securities to the Investors.
8.2.
Securities Laws Disclosure;
Publicity
. By 9:00 a.m. (New York City time) on the Trading
Day following the First Closing Date, the Company shall issue a press release
disclosing the transactions contemplated hereby and the Closing. By
no later than the fourth Trading Day following the First Closing Date (and on
each Subsequent Closing Date if required by applicable law) the Company will
file a Current Report on Form 8-K disclosing the material terms of this
Agreement and the other Transaction Documents (and attach as exhibits thereto
the Transaction Documents) and the Closing. In addition, the Company
will make such other filings and notices in the manner and time required by the
SEC and the Trading Market on which the Common Stock is
listed. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Investor, or include the name of any Investor in any
filing with the SEC (other than the Registration Statement and any exhibits to
filings made in respect of this transaction in accordance with periodic filing
requirements under the Exchange Act) or any regulatory agency or Trading Market,
without the prior written consent of the Investor Representative, except to the
extent such disclosure is required by law or Trading Market
regulations.
8.3.
Limitation on Issuance of Future
Priced Securities
. During the six months following the Closing
Date, the Company shall not issue any “Future Priced Securities” as such term is
described by the rules and regulations of FINRA.
8.4.
Reservation of
Shares
. The Company shall maintain a reserve from its duly
authorized shares of Common Stock to comply with its obligations to issue the
Warrant Shares upon exercise of the Warrants.
9.
FURTHER
ASSURANCES
. The Company will, and will cause all of its
Subsidiaries to, and their management to, use their best efforts to satisfy all
of the closing conditions under Section 7, and will not take any action which
could frustrate or delay the satisfaction of such conditions. In
addition, either prior to or following the Closing, the Company will, and will
cause each of its Subsidiaries to, and its and their management to, perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as any other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
10. MISCELLANEOUS.
10.1.
Compensation of Lead Placement Agent,
Brokers, etc
. Each Investor acknowledges that it is fully aware that the
Lead Placement Agent will receive from the Company, in consideration of its
services as placement agent in respect of the offer and sale of the Units
contemplated hereby:
(a) a
commission of ten percent (10%) of the aggregate Purchase Price of the
Units sold at each Closing, payable in cash; and
(b) a
Warrant to purchase an aggregate of ten percent (10%) of the Units sold in the
Offering.
It is
acknowledged that the Lead Placement Agent may share such fees and compensation
with other placement agents or brokers participating in the transactions
contemplated hereby. In addition, each Investor acknowledges that it
is aware that the Lead Placement Agent will receive from the Company payment of
all of its accountable fees and expenses including, but not limited to, all
legal fees and expenses incurred in connection with the Offering.
10.2.
Notices
. All notices,
requests, demands and other communications provided in connection with this
Agreement shall be in writing and shall be deemed to have been duly given at the
time when hand delivered, delivered by express courier, or sent by facsimile
(with receipt confirmed by the sender’s transmitting device) in accordance with
the contact information provided below or such other contact information as the
parties may have duly provided by notice.
(a)
The Company
:
c/o China Broadband Inc.
1900 Ninth Street, 3rd Floor
Boulder, Colorado 80302
Attention: Marc Urbach
Fax Number: (303) 449.7799
With a copy to:
Pillsbury Winthrop Shaw Pittman LLP
2300 N Street, N.W.
Washington, DC 20037
Attention: Louis A. Bevilacqua, Esq.
Fax
Number: (202) 663.8007
(b)
The Inves
tors
:
As per the contact information provided on the signature page
hereof.
(c)
The Lead Placement Agent:
Chardan
Capital Markets, LLC
17 State
Street, Suite 1600
New York,
NY 10004
Attention:
646-465-9000
Fax
Number: 646-465-9039
10.3.
Amendments;
Waivers
. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and the Investor Representative or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought (and if such party
is the Investors, then by the Investor Representative). No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such
right.
10.4.
Construction
. The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.
10.5.
Successors and
Assigns
. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Investor
Representative. Any Investor may assign any or all of its rights
under this Agreement to any Person to whom such Investor assigns or transfers
any Securities, provided such transferee agrees in writing to be bound, with
respect to the transferred Securities, by the provisions hereof that apply to
the “Investors”.
10.6.
No Third-Party
Beneficiaries
. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person.
10.7.
Governing Law, Consent to
Jurisdiction, etc.
All questions concerning the construction,
validity, enforcement and interpretation of the Transaction Documents shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereto hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, New York for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of the any
of the Transaction Documents), and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is improper. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law. EACH PARTY
HERETO (INCLUDING ITS AFFILIATES, AGENTS, OFFICERS, DIRECTORS AND EMPLOYEES)
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
10.8.
Survival
. The
representations, warranties, agreements and covenants contained herein shall
survive for two (2) years after the Closing of the transactions contemplated by
this Agreement.
10.9.
Indemnification
.
(a) The Company
agrees to indemnify and hold harmless each Investor and its Affiliates and their
respective directors, officers, employees and agents from and against any and
all losses, claims, damages, liabilities and expenses (including without
limitation reasonable attorney fees and disbursements and other expenses
incurred in connection with investigating, preparing or defending any action,
claim or proceeding, pending or threatened and the costs of enforcement thereof)
(collectively, “
Losses
”)
to which such Person may become subject as a result of any breach of
representation, warranty, covenant or agreement made by or to be performed on
the part of the Company under the Transaction Documents, and will reimburse any
such Person for all such amounts as they are incurred by such
Person.
(b) Promptly
after receipt by any Person (the “
Indemnified Person
”) of notice
of any demand, claim or circumstances which would or might give rise to a claim
or the commencement of any action, proceeding or investigation in respect of
which indemnity may be sought pursuant to this Section 10.9, such Indemnified
Person shall promptly notify the Company in writing and the Company shall assume
the defense thereof, including the employment of counsel reasonably satisfactory
to such Indemnified Person, and shall assume the payment of all fees and
expenses; provided, however,
that the failure of any
Indemnified Person so to notify the Company shall not relieve the Company of its
obligations hereunder except to the extent that the Company is materially
prejudiced by such failure to notify. In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless: (i) the Company and the Indemnified Person shall have mutually agreed to
the retention of such counsel; or (ii) in the reasonable judgment of counsel to
such Indemnified Person representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between
them. The Company shall not be liable for any settlement of any
proceeding effected without its written consent, which consent shall not be
unreasonably withheld, but if settled with such consent, or if there be a final
judgment for the plaintiff, the Company shall indemnify and hold harmless such
Indemnified Person from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. Without the prior
written consent of the Indemnified Person, which consent shall not be
unreasonably withheld, the Company shall not effect any settlement of any
pending or threatened proceeding in respect of which any Indemnified Person is
or could have been a party and indemnity could have been sought hereunder by
such Indemnified Party, unless such settlement includes an unconditional release
of such Indemnified Person from all liability arising out of such
proceeding.
10.10.
Execution
. This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by
facsimile transmission or other electronic transmission, such signature shall
create a valid and binding obligation of the party executing (or on whose behalf
such signature is executed) with the same force and effect as if such facsimile
or other electronic signature page were an original thereof.
10.11.
Severability
. If
any provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the
parties will attempt to agree upon a valid and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
10.12.
Replacement of
Securities
. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or
instrument under such circumstances shall also pay any reasonable third-party
costs associated with the issuance of such replacement Securities.
10.13.
Remedies
. In
addition to being entitled to exercise all rights provided herein or granted by
law, including recovery of damages, each of the Investors and the Company will
be entitled to specific performance under the Transaction
Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
10.14.
Payment Set
Aside
. To the extent that the Company makes a payment or
payments to any Investor pursuant to any Transaction Document or a Investor
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
10.15.
Independent Nature of Investors’
Obligations and Rights
. The obligations of each Investor under
any Transaction Document are several and not joint with the obligations of any
other Investor, and no Investor shall be responsible in any way for the
performance of the obligations of any other Investor under any Transaction
Document. Nothing contained herein or in any Transaction Document,
and no action taken by any Investor pursuant thereto, shall be deemed to
constitute the Investors as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Investors are in any
way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Document. Each Investor
shall be entitled to independently protect and enforce its rights, including
without limitation, the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Investor to
be joined as an additional party in any proceeding for such
purpose. Each Investor has been represented by its own separate legal
counsel in their review and negotiation of the Transaction
Documents. The Company has elected to provide all Investors with the
same terms and Transaction Documents for the convenience of the Company and not
because it was required or requested to do so by the Investors.
10.16.
Irrevocable
Offer
. Each Investor agrees that this Agreement constitutes an
irrevocable offer to purchase the Securities of the Company and that Investor
cannot cancel, terminate or revoke this Agreement or any agreement of Investor
made hereunder. This Agreement shall survive the death or legal
disability of Investor and shall be binding upon Investor’s heirs, executors,
administrators and successors.
[Signature
Pages Follow]
IN WITNESS WHEREOF
, the
parties hereto have caused this Securities Purchase Agreement to be duly
executed by their respective authorized signatories as of the date first
indicated above.
|
COMPANY:
|
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CHINA
BROADBAND INC.
|
|
|
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By:
|
_________________________________
|
|
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Name:
|
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Title:
|
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INVESTORS:
|
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The
Investors executing the Signature Page in the form attached hereto as
Annex A
and delivering the same to the Company or its agents shall be deemed to
have executed this Agreement and agreed to the terms
hereof.
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LEAD
PLACEMENT AGENT:
|
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CHARDAN
CAPITAL MARKETS, LLC
|
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By:
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_________________________________
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Name:
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Title:
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Signature
Page
Securities
Purchase Agreement
Annex
A
Securities
Purchase Agreement
Investor
Counterpart Signature Page
The
undersigned, desiring to: (i) enter into this Securities Purchase Agreement,
dated as of _________________, 2010 (the “
Agreement
”), between the
undersigned, China Broadband, Inc., a Nevada corporation (the “
Company
”), and the other
parties thereto, in or substantially in the form furnished to the undersigned
and (ii) purchase the securities of the Company appearing below, hereby agrees
to purchase such securities from the Company as of the Closing and further
agrees to join the Agreement as a party thereto, with all the rights and
privileges appertaining thereto, and to be bound in all respects by the terms
and conditions thereof. Capitalized terms used herein but not
otherwise defined shall have the meaning as set forth in the
Agreement.
IN WITNESS WHEREOF
, the
undersigned has executed the Agreement as of _____________________,
2010.
|
Name
and Address, Fax No. and Social Security No./EIN of
Investor:
|
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________________________________________________
________________________________________________
________________________________________________
Fax
No.: _________________________________________
Soc.
Sec. No./EIN: _________________________________
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If
a partnership, corporation, trust or other business entity:
|
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By:
__________________________________
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Name:
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Title:
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If
an individual:
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__________________________
Signature
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Total Purchase Price:
_________________________
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Number of Units:
___________________________
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Number of Warrants:
______________________
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Schedule
A
Schedule
of Investors
Investor
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Shares
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Warrants
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Total Purchase Price
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TOTAL:
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$
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Exhibit
A
Form
of Warrant
[attached
hereto]
Exhibit
B
Form
of Registration Rights Agreement
[attached
hereto]
Exhibit
10.2
SECURITIES
PURCHASE AGREEMENT
This
SECURITIES PURCHASE
AGREEMENT
(this “
Agreement
”), dated May 20,
2010, is between China Broadband, Inc., a Nevada corporation (the “
Company
”) and Shane McMahon
(including his respective successors and assigns, the “
Investor
”).
WHEREAS
, this Agreement has
been entered into pursuant to the terms of the Company’s Confidential Private
Placement Memorandum, dated May 18, 2010 (together with any and all amendments
and/or supplements thereto, the “
Memorandum
”);
W
HEREAS,
the Investor desires
to purchase from the Company, and the Company desires to sell and issue to the
Investor, upon the terms and conditions stated in this Agreement, 7,000,000
units at a purchase price of $0.50 per unit (each, a “
Unit
”);
WHEREAS
, each Unit shall
consist of: (i) one share (collectively, the “
Shares
”) of the Company’s
Series A Preferred Stock, par value $0.001 per share (the “
Series A Preferred Stock
”; and
(ii) a common stock purchase warrant (each a “
Warrant
,” and, collectively,
the “
Series A
Warrants
”) to purchase 34.2857
shares (collectively, the “
Warrant Shares
”) of Common
Stock at an exercise price of $0.05 per share (subject to adjustment as set
forth in the Series A Warrants), which Series A Warrants shall be in the form
attached hereto as
Exhibit A
, upon the
terms and conditions set forth in this Agreement; and
WHEREAS
, the Company and the
Investor are executing and delivering this Agreement in reliance upon the
exemption from securities registration afforded by the rules and regulations as
promulgated by the SEC under the Securities Act.
NOW, THEREFORE
, in
consideration of, and subject to, the mutual terms, conditions and other
agreements set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound by the terms and conditions hereof, the parties hereto hereby
agree as follows:
1.
DEFINITIONS
. In
addition to the terms defined elsewhere in this Agreement, for all purposes of
this Agreement, the following terms have the meanings indicated in this Section
1.
“
Adnet”
means Wanshi Wangjing
Media Technologies (Beijing) Co., Ltd. (a/k/a Adnet Media Technologies (Beijing)
Co., Ltd.), a PRC company controlled by CB Cayman through a Trustee Arrangement
under which a PRC individual holds a controlling interest in the company for the
benefit of CB Cayman.
“
Affiliate
” means, with respect
to any specified Person: (i) if such Person is an individual, the spouse of that
Person and, if deceased or disabled, his heirs, executors, or legal
representatives, if applicable, or any trusts for the benefit of such individual
or such individual’s spouse and/or lineal descendants, or (ii) otherwise,
another Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, the Person
specified. As used in this definition, “control” shall mean the possession,
directly or indirectly, of the power to cause the direction of the management
and policies of a Person, whether through the ownership of voting securities or
by contract or other written instrument.
“
Business Day
” means any day on
which banks located in New York City are not required or authorized by law to
remain closed.
“
CB Cayman”
means China
Broadband Ltd., a Cayman Islands company 100% owned by the Company.
“
Closing
” has the meaning set
forth in Section 2.2 hereof.
“
Closing Date
” means the date
of the Closing.
“
Company
’
s knowledge
” means the
information and/or other items that the executive officers of the Company and
its Subsidiaries have actual knowledge of after due inquiry.
“
Contingent Obligation
” means,
as to any Person, any direct or indirect liability, contingent or otherwise, of
that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto.
“
Debt Conversion
” means the
conversion of (i) $600,000 of debt owed by the Company to Steven Oliviera that
is being cancelled and exchanged for $600,000 worth of Units (as defined in the
Series B Purchase Agreement) and warrants to purchase 24 million shares of the
Company’s common stock at an exercise price of $0.05 per share, all pursuant to
the Loan Cancellation Agreement between the Company and the Investor in the form
attached as
Exhibit
B-1
hereto,
(ii) at least $4,846,250 of the $4,971,250 of principal amount of promissory
notes issued in January 2008 into shares of Common Stock at a conversion price
of $0.05 and one five-year warrant to purchase a share of Common Stock, at a per
share exercise price of $0.05, for each share of Common Stock received upon such
conversion all in accordance with the Waiver, Amendment and Agreement to Convert
in the form attached as
Exhibit B-2
, and
(iii) $304,902 of principal amount of promissory notes issued in June 2009 into
shares of Common Stock at a conversion price of $0.05 and one five-year warrant
to purchase a share of Common Stock, at a per share exercise price of $0.05, for
each share of Common Stock received upon such conversion all in accordance with
the Waiver, Amendment and Agreement to Convert in the form attached as
Exhibit
B-3
.
“
Debt Conversion Documents
”
means the agreements and instruments attached hereto as
Exhibits B-1
,
B-2
and
B-3
.
“
Disclosure Schedule Date
”
means that date on which the Company shall have delivered the Disclosure
Schedules in compliance with Section 6.6 hereof.
“
Disclosure Schedules
” means
the disclosure schedules issued by the Company to the Investor (pursuant to
Section 6.6 hereof), which schedules correspond to the representations and
warranties of the Company in Section 5 hereof.
“
Exchange Act
” means the
Securities Exchange Act of 1934, as amended.
“
Framework Agreement
” means
that certain Framework Agreement, dated as of December 2009, by and among Hua
Cheng Film and Television Digital Program Co., Ltd., Beijing Husen Technology
Co., Ltd. and Beijing Sino Top Scope Technology Co., Ltd.
“
Governmental Body
” means any:
(a) nation, state, commonwealth, province, territory, county, municipality,
district or other jurisdiction of any nature; (b) federal, state, local,
municipal, foreign or other government; or (c) governmental or
quasi-governmental authority of any nature (including any governmental or
administrative division, department, agency, commission, instrumentality,
official, organization, unit, body or entity) and any court or other
tribunal.
“
Intellectual Property
” means
the Company’s patents, patent applications, provisional patents, trademarks,
service marks, trade names, trademark registrations, service mark registrations,
copyrights, licenses, formulae, mask works, customer lists, internet domain
names, know-how and other intellectual property, including trade secrets and
other unpatented and/or unpatentable proprietary or confidential information,
systems, procedures or registrations or applications relating to the
same.
“
Indebtedness
” means, with
respect to any Person, without duplication, all obligations of such Person: (a)
for borrowed money; (b) issued, undertaken or assumed as the deferred purchase
price of property or services (including, without limitation, "capital leases"
in accordance with generally accepted accounting principles) (other than trade
payables entered into in the ordinary course of business); (c) with respect to
letters of credit, surety bonds and other similar instruments; (d) evidenced by
notes, bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets or
businesses; (e) created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property); (f)
under any leasing or similar arrangement which, in connection with generally
accepted accounting principles, consistently applied for the periods covered
thereby, is classified as a capital lease; (g) referred to in clauses (a)
through (f) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien upon or
in any property or assets (including accounts and contract rights) owned by any
Person, even though the Person which owns such assets or property has not
assumed or become liable for the payment of such indebtedness; and (h) in
respect of Contingent Obligations for indebtedness or obligations of others of
the kinds referred to in clauses (a) through (g) above.
“
Insolvent
” means, (a) with
respect to the Company and its Subsidiaries, on a consolidated basis, (i) the
present fair saleable value of the Company's and its Subsidiaries' assets is
less than the amount required to pay the Company's and its Subsidiaries' total
Indebtedness, (ii) the Company and its Subsidiaries are unable to pay their
debts and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured or (iii) the Company and its
Subsidiaries intend to incur or believe that they will incur debts that would be
beyond their ability to pay as such debts mature; and (b) with respect to the
Company and each Subsidiary, individually, (i) the present fair saleable value
of the Company's or such Subsidiary's (as the case may be) assets is less than
the amount required to pay its respective total Indebtedness, (ii) the Company
or such Subsidiary (as the case may be) is unable to pay its respective debts
and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured or (iii) the Company or such Subsidiary
(as the case may be) intends to incur or believes that it will incur debts that
would be beyond its respective ability to pay as such debts mature.
“Jinan Broadband”
means Jinan
Guangdian Jiahe Broadband Co., Ltd., a PRC equity joint venture owned 51% by CB
Cayman, 25.48% by Jinan Parent, and 23.52% by Networks Center.
“Jinan Parent”
means Jinan
Guangdian Jiahe Digital Television Co., Ltd., a PRC company.
“Jinan Zhongkuan”
means Jinan
Zhongkuan Dian Guang Information Technology Co., Ltd., a PRC company owned at
least 90% by Pu Yue, a PRC individual and controlled by CB Cayman pursuant to
the terms of a Loan Agreement between CB Cayman and Pu Yue dated as of January
22, 2008.
“
Legal Requirement
”
means any federal,
state, local, municipal, foreign or other law, statute, constitution, principle
of common law, resolution, ordinance, code, edict, decree, rule, regulation,
ruling or requirement issued, enacted, adopted, promulgated, implemented or
otherwise put into effect by or under the authority of any Governmental Body (or
under the authority of any national securities exchange upon which the Common
Stock is then listed or traded). Reference to any Legal Requirement
means such Legal Requirement as amended, modified, codified, replaced or
reenacted, in whole or in part, and in effect from time to time, and reference
to any section or other provision of any Legal Requirement means that provision
of such Legal Requirement from time to time in effect and constituting the
substantive amendment, modification, codification, replacement or reenactment of
such section or other provision.
“
Lien(s)
” means any interest in
Property securing an obligation owed to a Person whether such interest is based
on the common law, statute or contract, and including but not limited to a
security interest arising from a mortgage, lien, title claim, assignment,
encumbrance, adverse claim, contract of sale, pledge, conditional sale or trust
receipt or a lease, consignment or bailment for security
purposes. The term “Lien” includes but is not limited to mechanics’,
materialmens’, warehousemens’ and carriers’ liens and other similar
encumbrances. For the purposes hereof, a Person shall be deemed to be the owner
of Property which it has acquired or holds subject to a conditional sale
agreement or other arrangement pursuant to which title to the Property has been
retained by or vested in some other Person for security purposes.
“
Material Adverse Effect
” means
a material adverse effect on, and a “
Material Adverse Change
”
means a material adverse change in: (i) the assets, liabilities, results of
operations, condition (financial or otherwise), business or prospects of the
Company or any Subsidiary individually or taken as a whole; or (ii) the ability
of the Company or any of its Subsidiaries to perform their respective
obligations under the Transaction Documents, but, to the extent applicable,
shall exclude any circumstance, change or effect to the extent resulting or
arising from: (w) any change in general economic conditions in the industries or
markets in which the Company and its Subsidiaries operate so long as the Company
and its Subsidiaries are not disproportionately (in a material manner) affected
by such changes; (x) changes in United States generally accepted accounting
principles, or the interpretation thereof; or (y) the entry into or announcement
of this Agreement, actions contemplated by this Agreement, or the consummation
of the transactions contemplated hereby.
“
Memorandum
” means the
Confidential Private Placement Memorandum, dated May 18, 2010, in the form
attached hereto as
Exhibit
E
.
“
McMahon Employment Agreement
”
means the Employment Agreement, dated as of the Closing Date, by and between the
Company and the Investor, in the form attached as
Exhibit C
hereto.
“
McMahon Indemnification
Agreement
” means the Indemnification Agreement, dated as of the Closing
Date, by and between the Company and the Investor, in the form attached as
Exhibit D
hereto.
“
Network Center”
means Jinan
Broadcasting and Television Information Networks Center.
“
Offering
” means the offering
and sale of the Units pursuant to this Agreement and pursuant to the
Memorandum.
“
Offering Documents
” means the
Memorandum and the securities purchase agreement relating to the purchases of
the units of Common Stock and warrants described in the Memorandum, and the
registration rights agreement contemplated thereby.
“
Person
” means an individual,
entity, corporation, partnership, association, limited liability company,
limited liability partnership, joint-stock company, trust or unincorporated
organization.
“
PRC
” means, for the purpose of
this Agreement, the People’s Republic of China, not including Taiwan, Hong Kong
and Macau.
“
Property
” means any interest
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible.
“
Purchase Price
” means
$3,500,000.
“
Recent SEC Reports
” means all
SEC Reports filed since and including November 23, 2009 through and including
the Disclosure Schedule Date.
“
Registration Rights Agre
ement
” means the Registration
Rights Agreement, dated as of the Closing Date, by and between the Company and
the Investor, in the form attached as
Exhibit F
hereto.
“
SEC
” means the United States
Securities and Exchange Commission.
“
SEC Reports
” means the
reports, documents and other filings and information made by the Company with
the SEC, including the Company’s last annual report on Form 10-K.
“
Securities
” means the Units,
the Shares, the Series A Warrants and the Warrant Shares.
“
Securities Act
”
means
the Securities Act of
1933, as amended.
“
Series A
Certificate of
Designation
” has the meaning set forth in Section
6.2(b).
“
Series A Transaction
Documents
” means this Agreement, the Memorandum, the Series A Warrants,
the Series A Certificate of Designations, the Registration Rights Agreement, the
McMahon Employment Agreement and the McMahon Indemnification
Agreement.
“
Series A
Warrants
” has the meaning
set forth in the recitals hereof.
“
Series B Preferred Stock
”
means the Company’s Series B Preferred Stock, par value $0.001 per
share.
“
Series B Purchase Agreement
”
means the Securities Purchase Agreement, dated May 18, 2010, by and between the
Company and Steven Oliviera or an Affiliate of Steven Oliviera, pursuant to
which, at Closing, Mr. Oliviera or his Affiliate will purchase 4,800,000 Units
consisting of an aggregate of 4,800,000 shares of Series B Preferred Stock and a
warrant to purchase 48,000,000 shares of Common Stock for an aggregate purchase
price of $2,400,000.
“
Series B Transaction Docu
ments
” means the Series B
Securities Purchase Agreement, the Series B Warrants and the Series B
Certificate of Designations, each in the form attached as
Exhibits G-1
,
G-2
and
G-3
hereto,
respectively.
“
Series B Warrants
” means the
Common Stock Purchase Warrant issued by the Company to Mr. Oliviera or his
Affiliate pursuant to the Series B Purchase Agreement.
“Shandong Publishing”
means
Shandong Rushi Media Co., Ltd., a PRC equity joint venture owned 50% by Jinan
Zhongkuan, 30% by Shandong Broadcast & TV Weekly Press, a PRC company
unaffiliated with the Company, and 20% by Modern Movie and TV Biweekly Press, a
PRC company unaffiliated with the Company.
“
SinoTop Acquisition”
means
the acquisition by the
Company or an affiliate of 100% of the issued and outstanding shares of SinoTop
HK in exchange for common stock of the Company.
“
SinoTop Acquisition
Documents”
means an agreement or
agreements pursuant to which the Company shall consummate the SinoTop
Acquisition.
“
SinoTop Beijing
” means Beijing
Sino Top Scope Technology Co., Ltd., a limited liability company established
under the laws of the PRC wholly owned by Zhang Yan, a PRC
individual.
“
SinoTop Beijing Documents”
means those agreements contemplated by the Framework Agreement and as more
particularly described in Section 7.14 hereof.
“
SinoTop Convertible Loan”
means the purchase by CB Cayman of that certain Convertible Promissory Note of
SinoTop HK dated as of March 9, 2010, in the principal amount of $580,000,
pursuant to a Note Purchase Agreement of even date therewith.
“
SinoTop HK”
means SinoTop
Group Limited, a company limited by shares incorporated under the laws of Hong
Kong.
“
SinoTop VIE Agreements”
means
the following agreements:
|
·
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Management
Services Agreement, dated as of March 9, 2010, by and between Beijing Sino
Top Scope Technology Co., Ltd. and SinoTop Group
Limited.
|
|
·
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Option
Agreement, dated as of March 9, 2101, between and among Beijing Sino Top
Scope Technology Co., Ltd., SinoTop Group Limited, and Zhang Yan as the
sold shareholder of Beijing Sino Top Scope Technology Co.,
Ltd.
|
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·
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Equity
Pledge Agreement, dated as of March 9, 2010, between and among Beijing
Sino Top Scope Technology Co., Ltd., SinoTop Group Limited, and Zhang Yan
as the sold shareholder of Beijing Sino Top Scope Technology Co.,
Ltd.
|
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·
|
Voting
Rights Proxy Agreement, dated as of March 9, 2010, between and among
Beijing Sino Top Scope Technology Co., Ltd., SinoTop Group Limited, and
Zhang Yan as the sold shareholder of Beijing Sino Top Scope Technology
Co., Ltd.
|
“
Sub
sidiaries
” means any
corporation or other entity or organization, whether incorporated or
unincorporated, in which the Company owns, directly or indirectly, any
controlling equity or other controlling ownership interest or otherwise controls
through contract or otherwise, including, without limitation, any
VIE.
“
Trading Day
” means: (i) a day
on which the Common Stock is traded on a Trading Market (other than the OTCBB),
or (ii) if the Common Stock is not listed on a Trading Market (other than the
OTCBB), a day on which the Common Stock is traded in the over the counter
market, as reported by the OTCBB, or (iii) if the Common Stock is not quoted on
any Trading Market, a day on which the Common Stock is quoted in the over the
counter market as reported by the Pink Sheets LLC (or any similar organization
or agency succeeding to its functions of reporting prices); provided, that in
the event that the Common Stock is not listed or quoted as set forth in (i),
(ii) and (iii) hereof, then Trading Day shall mean a Business
Day.
“
Trading Market
” means
whichever of the New York Stock Exchange, the NYSE AMEX, the NASDAQ Global
Select Market, the NASDAQ Global Market, the NASDAQ Capital Market, or, with
respect to the foregoing exchanges, any successor exchange, entity or
organization performing the same a substantially similar function, or the OTCBB
on which the Common Stock is listed or quoted for trading on the date in
question.
“
Transaction Documents
” means
(a) on the date hereof, the Series A Transaction Documents and the Offering
Documents and (b) on the Closing Date, the Offering Documents, the Series A
Transaction Documents, the Series B Transaction Documents, the Debt Conversion
Documents, the VIE Structure Documents, the SinoTop Acquisition Documents and
the SinoTop Beijing Documents.
“
Transfer
” means any sale,
transfer, assignment, conveyance, charge, pledge, mortgage, encumbrance,
hypothecation, security interest or other disposition, or to make or effect any
of the above.
“
VIE Structure Documents
” means
the following agreements, each as may be amended in accordance
herewith:
|
·
|
The
SinoTop VIE Agreements.
|
|
·
|
Cooperation
Agreement, dated as of December 2006, by and between China Broadband Ltd.
and Jinan Guangdian Jiahe Digital Television Co.,
Ltd.
|
|
·
|
Exclusive
Service Agreement, dated as of December 2006, between and among Beijing
China Broadband Network Technology Co., Ltd., Jinan Guangdian Jiahe
Digital Television Co., Ltd., and Jinan Broadcasting and Television
Information Networks Center.
|
|
·
|
Loan
Agreement, dated as of January 22, 2008, by and between China Broadband
Ltd. and Pu Yue.
|
|
·
|
Cooperation
Agreement, dated as of March 2008, between and among Shandong Broadcast
& TV Weekly Press, Modern Movie and TV Biweekly Press and Jinan
Zhongkuan Dian Guang Information Technology Co.,
Ltd.
|
|
·
|
Exclusive
Advertising Agency Agreement, between and among Shandong Rushi Media Co.,
Ltd., Shandong Broadcast & TV Weekly Press, Modern Movie and TV
Biweekly Press.
|
|
·
|
Exclusive
Consulting Service Agreement, between and among Shandong Rushi Media Co.,
Ltd., Shandong Broadcast & TV Weekly Press, Modern Movie and TV
Biweekly Press.
|
|
·
|
Trustee
Arrangement, dated as of April 2009, by and between CB Cayman and Wang
Ying Qi.
|
“
WFOE”
means Beijing China
Broadband Network Technology Co., Ltd., a PRC company owned 100% by CB
Cayman.
“
VIE
” means variable interest
entity, and herein refers to Jinan Broadband, Jinan Parent, Shandong Publishing,
Adnet, and SinoTop Beijing, together with other variable interest entities both
the Company and the Investor agree to set up from time to time.
2. SALE
AND PURCHASE OF UNITS.
2.1.
Purchase of Units by
Investor
. Subject to the terms and conditions of this
Agreement, on the Closing Date, the Investor shall purchase, and the Company
shall sell and issue to the Investor, Units as consideration for payment of the
Purchase Price.
2.2.
Closing
. Subject to
the terms and conditions set forth in this Agreement, the Company shall issue
and sell to the Investor and the Investor shall purchase from the Company on the
Closing Date, the Units (the “
Closing
”). The
Closing shall occur with the time periods set forth in the Memorandum at the
offices of Pillsbury Winthrop Shaw Pittman LLP, 2300 N Street, N.W., Washington,
DC 20037, or remotely via the exchange of documents and
signatures. The Company shall provide the Investor with written notice not
less than two
Business Days of the
scheduled date of the Closing.
2.3.
Closing Deliveries
. At the
Closing, the Company shall deliver to the Investor, against delivery by the
Investor of the Purchase Price (as provided below), the Shares and the Series A
Warrants. At the Closing, the Investor shall deliver or cause to be
delivered to the Company the Purchase Price by paying United States dollars via
bank, certified or personal check which has cleared prior to the Closing or in
immediately available funds, by wire transfer to an account designated in
writing by the Company at least two (2) Business Days prior to the Closing
Date.
2.4.
The Warrants
. The
Series A Warrants
shall have the terms and
conditions and be in the form attached hereto as
Exhibit
A
.
2.5.
Use of
Proceeds.
The Company hereby covenants and agrees that the
proceeds from the sale of Units and the sale of securities in the financings
contemplated by Sections 7.15 and 7.16 hereof shall be used as provided for in
the Memorandum as more fully set forth in
Schedule
2.5
.
3. ACKNOWLEDGEMENTS
OF THE INVESTOR.
The
Investor acknowledges that:
3.1.
Resale
Restrictions.
None of the Securities 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, none of the
Securities may be offered or sold by the Investor except 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 only in accordance with
applicable state securities laws.
3.2.
Agreements.
The
Investor has received, carefully read and acknowledges the terms of the Series A
Transaction Documents, including the Risk Factors set forth in the
Memorandum.
3.3.
Books and Records.
As a
condition to the Company’s obligations to close hereunder, at Closing, the
Investor will be required to acknowledge that the books and records of the
Company were available upon reasonable notice for inspection, subject to certain
confidentiality restrictions, by the Investor during reasonable business hours
at its principal place of business, that all documents, records and books in
connection with the sale of the Securities hereunder have been made available
for inspection by it and its attorney and/or advisor(s) and that the Investor
and/or its advisor has reviewed all such documents, records and books to its
full satisfaction and all questions it and/or its advisor may have had been
answered to their respective full satisfaction.
3.4.
Independent Advice.
The
Investor has been advised to consult the Investor’s own legal, tax and other
advisors with respect to the merits and risks of an investment in the Securities
and with respect to applicable resale restrictions, and it is solely responsible
for compliance with:
(a) any
applicable laws of the jurisdiction in which the Investor is resident in
connection with the distribution of the Securities hereunder, and
(b) applicable
resale restrictions.
3.5.
No Governmental Review or
Insurance.
Neither the SEC nor any other securities
commission, securities regulator or similar regulatory authority has reviewed or
passed on the merits of the Securities or on any of the documents reviewed or
executed by the Investor in connection with the sale of the Securities,
including the Transaction Documents, and there is no government or other
insurance covering any of the Securities.
4. REPRESENTATIONS,
WARRANTIES AND ACKNOWLEDGMENTS OF THE INVESTOR.
The
Investor represents and warrants to the Company that:
4.1.
Capacity.
The
Investor represents that the Investor has reached the age of 21 and has full
authority, legal capacity and competence to enter into, execute and deliver this
Agreement and the Transaction Documents to which the Investor is a party and all
other related agreements or certificates and to take all actions required
pursuant hereto and thereto and to carry out the provisions hereof and
thereof.
4.2.
Binding Agreement.
The
Investor has duly executed and delivered this Agreement and will execute and
deliver on the Closing Date the other Transaction Documents to which it is a
party, and this Agreement and the other Transaction Documents to which it is a
party constitute, subject to Section 11 hereof, a valid and binding agreement of
the Investor enforceable against the Investor in accordance with their
respective terms, except as such enforceability may be limited by general
principals of equity, or to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors’ rights and
remedies.
4.3.
Purchase Entirely for Own
Account
. The Securities are being acquired for the Investor’s
own account, not as nominee or agent, for investment purposes only and not with
a view to the resale or distribution of any part thereof in violation of the
Securities Act, and the Investor has no present intention of selling, granting
any participation in, or otherwise distributing the same in violation of the
Securities Act, without prejudice, however, to the Investor’s right at all times
to sell or otherwise dispose of all or any part of such Securities in
compliance with applicable federal and state securities laws.
4.4.
Not a
Broker-Dealer.
The Investor is neither a registered
representative under the Financial Industry Regulatory Authority (“
FIN
RA
”), a member of FINRA or
associated or Affiliated with any member of FINRA, nor a broker-dealer
registered with the SEC under the Exchange Act or engaged in a business that
would require the Investor to be so registered, nor is the Investor an Affiliate
of a such a broker-dealer or any Person engaged in a business that would require
it to be registered as a broker-dealer. In the event the Investor is
a member of FINRA, or associated or Affiliated with a member of FINRA, the
Investor agrees, if requested by FINRA, to sign a lock-up, the form of
which shall be satisfactory to FINRA with respect to the
Securities.
4.5.
Not an
Underwriter.
The Investor is not an underwriter of the
Securities, nor is it an Affiliate of an underwriter of the
Securities.
4.6.
Investment Experience
. The
Investor acknowledges that the purchase of the Securities is a highly
speculative investment and that it can bear the economic risk and complete loss
of its investment in the Securities and has such knowledge and experience in
financial and/or business matters that it is capable of evaluating the merits
and risks of the investment contemplated hereby.
4.7.
Disclosure of
Information
. As a condition to the Company’s obligations to
close hereunder, at Closing, the Investor will be required to represent and
warrant as follows: The Investor has had an opportunity to receive,
and fully and carefully review, all information related to the Company and the
Securities requested by it and to ask questions of and receive answers from the
Company regarding the Company and its business and the terms and conditions of
the offering of the Securities. Neither such inquiries nor any other
due diligence investigation conducted by the Investor shall modify, amend or
affect the Investor’s right to rely on the Company’s representations and
warranties contained in this Agreement. The Investor acknowledges
that it has received, and fully and carefully reviewed and understands all of
the Series A Transaction Documents, including, but not limited to,
the Memorandum describing, among other items, the Company, its businesses and
risks, the Securities and the Offering of the Securities. Investor
acknowledges that it has received, and fully and carefully reviewed and
understands, copies of the Recent SEC Reports, either in hard copy or
electronically through the SEC’s Electronic Data Gathering Analysis and
Retrieval system. The Investor understands that its investment in the
Securities involves a high degree of risk. The Investor’s decision to
enter into this Agreement and the Transaction Documents to which it is a
party has been made based solely on the independent evaluation of the Investor
and its representatives. The Investor has received such accounting,
tax and legal advice from Persons (other than the Company) as it has
considered necessary to make an informed investment decision with respect to the
acquisition of the Securities.
4.8.
Restricted
Securities
. The Investor understands that the sale or re-sale
of the Securities has not been and is not being registered under the Securities
Act or any applicable state securities laws, and the Securities, as applicable,
may not be transferred unless:
(a) they
are sold pursuant to an effective registration statement under the Securities
Act; or
(b) they
are being sold pursuant to a valid exemption from the registration requirements
of the Securities Act; or
(c) they are
sold or transferred to an “affiliate” (as defined in Rule 144, or any successor
rule, promulgated under the Securities Act (“
Rule 144
”) of the Investor who
agrees to sell or otherwise transfer the Securities only in accordance with this
Section 4.9 and who is an accredited investor, or
(d) they are
validly sold pursuant to Rule 144.
The
Investor shall provide the Company with no less than three (3) Trading Days
notice of its intention to dispose of any Securities and agrees that the
Investor shall only dispose of any Securities in accordance with all applicable
Legal Requirements. The Investor further understands that any sale of
the Securities made in reliance on Rule 144 may be made only in accordance with
the terms of Rule 144 and other than as provided in the Transaction Documents,
neither the Company nor any other Person is under any obligation to register the
Securities under the Securities Act or any state securities
laws. Notwithstanding the foregoing or anything else contained herein
to the contrary, the Securities may be pledged as collateral in connection with
a
bona fide
margin
account or other lending arrangement.
4.9.
Acc
redited
Investor
. The Investor is an “accredited investor” as defined
in Rule 501(a) of Regulation D, as amended, under the Securities Act (“
Regulation D
”).
4.10.
No General
Solicitation
. The Investor did not learn of the investment in
the Securities as a result of any public advertising, and is not aware of any
public advertisement or general solicitation in respect of the Company or its
securities.
4.11.
Brokers and
Finders
. The Investor will not have, as a result of the
transactions contemplated by the Transaction Documents, any valid right,
interest or claim against or upon the Company or any Subsidiary for any
commission, fee or other compensation pursuant to any agreement, arrangement or
understanding entered into by or on behalf of the Investor.
4.12.
Prohibited
Transactions
. Other than with respect to the transactions
contemplated herein, since the earlier to occur of: (i) the time that the
Investor was first contacted by the Company, or any other Person regarding an
investment in the Company and (ii) the thirtieth (30
th
) day
prior to the date hereof, neither the Investor nor any Affiliate of the Investor
which (x) had knowledge of the transactions contemplated hereby, (y) has or
shares discretion relating to the Investor’s investments or trading or
information concerning the Investor’s investments, including in respect of the
Securities, or (z) is subject to the Investor’s review or input concerning such
Affiliate’s investments or trading decisions (collectively, “
Trading Affiliates
”) has,
directly or indirectly, nor has any Person acting on behalf of, or pursuant to,
any understanding with the Investor or Trading Affiliate effected or agreed to
effect any transactions in the securities of the Company or involving the
Company’s securities (a “
Pro
hibited
Transaction
”).
4.13.
Residency
. The
Investor is a resident of the jurisdiction set forth on the Investor’s signature
page hereto.
4.14.
Reliance on
Exemptions
. The Investor understands that the Securities are
being offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the Investor’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Investor set forth herein in order to determine the
availability of such exemptions and the eligibility of the Investor to acquire
the Securities.
5. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
Except as
set forth in the Recent SEC Reports, the Company hereby makes the following
representations and warranties as of the Disclosure Schedule Date and as of the
Closing Date to the Investor:
5.1.
Subsidiaries
. A
true and correct structure chart of the Company and its Subsidiaries is included
as
Schedule 5.1
to the Disclosure Schedules. Except as disclosed in
Schedule 5.1
to the
Disclosure Schedules, the Company owns, directly or indirectly, all of the
capital stock, or other equity interests, of each Subsidiary free and clear of
any Liens, and all the issued and outstanding shares of capital stock of each
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights. The Company, directly or through one of its
Subsidiaries, controls all of the VIEs from a financial perspective. As a
result, the financial statements of all of the VIEs can be consolidated with
those of the Company. The legal relationships evidenced by the VIE
Structure Documents , taken as a whole, are valid and will not be challenged by
any Governmental Body as constituting unpermitted foreign investment in the
PRC. Each of the VIE Structure Documents is valid and
binding.
5.2.
Organization and
Qualification
. Each of the Company and each Subsidiary is an
entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
(as set forth on
Schedule 5.1
), with
the requisite power and authority to own and use its properties and assets and
to carry on its business as currently conducted and as presently proposed to be
conducted. Neither the Company nor any Subsidiary is in violation of
any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational, charter or governing
documents. Each of the Company and the Subsidiaries is duly qualified
to conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, would not
have or reasonably be expected to result in a Material Adverse
Effect.
5.3.
Authorization;
Enforcement
. The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each
of the Transaction Documents and otherwise to carry out its obligations
thereunder and to issue the Securities in accordance with the terms
thereof. Each Subsidiary has the requisite power and authority to
enter into and perform its obligations under the Transaction Documents to which
it is a party. The execution and delivery of each of the Transaction
Documents by the Company and its Subsidiaries and the consummation by the
Company and its Subsidiaries of the transactions contemplated thereby have been
duly authorized by all necessary action on the part of the Company and its
Subsidiaries and no further action is required by the Company and its
Subsidiaries in connection therewith. Each Transaction Document has
been (or upon delivery will have been) duly executed by the Company and, when
delivered in accordance with the terms hereof, will constitute the valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms except: (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other laws of general application
relating to or affecting enforcement of creditors’ rights generally and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies. Each Transaction Document to
which each Subsidiary is a party has been (or upon delivery will have been) duly
executed by each such Subsidiary and, when delivered in accordance with the
terms hereof, will constitute the valid and binding obligation of each such
Subsidiary enforceable against it in accordance with its terms except: (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other laws of general application relating to or affecting
enforcement of creditors’ rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.
5.4.
No Conflicts
. The
execution, delivery and performance of the Transaction Documents by the Company
and its Subsidiaries and the consummation by the Company and its Subsidiaries of
the transactions contemplated thereby do not and will not: (i) conflict with or
violate any provision of the Company’s or any Subsidiary’s certificate or
articles of incorporation, bylaws or other organizational, charter or governing
documents; (ii) conflict, in any material respect, with, or constitute a default
(or an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any agreement,
credit facility, debt or other instrument (evidencing a Company or Subsidiary
debt or otherwise) or other understanding to which the Company or any Subsidiary
is a party or by which any property or asset of the Company or any Subsidiary is
bound or affected; or (iii) result in a violation, in any material respect, of
any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company or a
Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected.
5.5.
Filings, Consents and
Approvals
. Neither the Company nor any Subsidiary is required
to obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other foreign, federal,
state, local or other governmental authority or other Person in connection with
the execution, delivery and performance by it of any of its obligations under or
contemplated by the Transaction Documents, other than (a) the filing with the
SEC of the Registration Statement, the application(s) to each Trading Market for
the listing of the Shares and Warrant Shares for trading thereon in the time and
manner required thereby, and applicable “blue sky” or other securities law
filings, (b) such as have already been obtained or such exemptive filings as are
required to be made under applicable securities laws, or (c) such other filings
that have been made pursuant to applicable state securities laws and post-sale
filings pursuant to applicable state and federal securities laws which the
Company undertakes to file within the applicable time
periods. Subject to the accuracy of the representations and
warranties of the Investor set forth in Section 4 hereof, the Company has taken
all action necessary to exempt: (i) the issuance and sale of the Securities,
(ii) the issuance of the Warrant Shares upon due exercise of the Series A
Warrants, and (iii) the other transactions contemplated by the Transaction
Documents from the provisions of any stockholder rights plan or other “poison
pill” arrangement, any anti-takeover, business combination or control share law
or statute binding on the Company or to which the Company or any of its assets
and properties may be subject and any provision of the Company’s Articles of
Incorporation or Bylaws that is or could reasonably be expected to become
applicable to the Investor as a result of the transactions contemplated hereby,
including without limitation, the issuance of the Securities and the ownership,
disposition or voting of the Securities by the Investor or the exercise of any
right granted to the Investor pursuant to this Agreement or the other
Transaction Documents.
5.6.
Issuance of the
Securities
. The Shares are duly authorized and, when issued
and paid for in accordance with the Series A Transaction Documents, will be duly
and validly issued, fully paid and nonassessable, free and clear of all
Liens. The Series A Warrants have been duly and validly
authorized. Upon the due exercise of the Series A Warrants, the
Warrant Shares will be validly issued, fully paid and non-assessable free and
clear of all Liens. The Company has reserved from its duly authorized
capital stock the maximum number of shares of Common Stock issuable pursuant to
this Agreement and the Series A Warrants;
provided
,
however
, with respect
to the Series A Warrants, the Company has only reserved from its duly authorized
capital stock the shares of Common Stock issuable as of the Closing Date,
assuming the valid exercise of all of the Series A Warrants by the
Investor.
5.7.
Capitalization
.
Schedule 5.7
to the
Disclosure Schedules sets forth as of the date hereof and as of the Closing (a)
the authorized capital stock of the Company; (b) the number of shares of capital
stock issued and outstanding; (c) the number of shares of capital stock issuable
pursuant to the Company’s stock plans; and (d) the number of shares of capital
stock issuable and reserved for issuance pursuant to securities (other than the
Series A Warrants) exercisable for, or convertible into or exchangeable for any
shares of capital stock of the Company. All of the issued and
outstanding shares of the Company’s capital stock have been duly authorized and
validly issued and are fully paid, nonassessable and free of pre-emptive rights
and were issued in full compliance with applicable state and federal securities
law and any rights of third parties. No Person has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction Documents,
except for the seller in the SinoTop Acquisition pursuant to the SinoTop
Acquisition Documents. Except as described on
Schedule 5.7
to the
Disclosure Schedules, there are no outstanding options, warrants, script rights
to subscribe to, calls or commitments of any character whatsoever relating to,
or securities, rights or obligations convertible into or exchangeable for, or
giving any Person any right to subscribe for or acquire, any shares of Common
Stock, stockholder rights plan or “poison pill” arrangement or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock,
other than in connection with the Company’s stock option plans. The
issue and sale of the Securities will not obligate the Company to issue shares
of Common Stock or other securities to any Person (other than the Investor) and
will not result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under such
securities. Except as described on
Schedule 5.7
to the
Disclosure Schedules, there are no voting agreements, buy-sell agreements,
option or right of first purchase agreements or other agreements of any kind
among the Company and any of the securityholders of the Company relating to the
securities of the Company held by them. Except as described on
Schedule 5.7
to the
Disclosure Schedules, no Person has the right to require the Company to register
any securities of the Company under the Securities Act, whether on a demand
basis or in connection with the registration of securities of the Company for
its own account or for the account of any other Person.
5.8.
SEC Reports; Financial
Statements
. The Company has filed with the SEC all SEC Reports
for the two years preceding the date hereof (or such shorter period as the
Company was required by law to file such material) on a timely basis or has
received a valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied in all material respects with the
requirements of the Securities Act and the Exchange Act, as applicable, and the
rules and regulations promulgated thereunder, and none of the SEC Reports, when
filed, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the SEC
Reports comply in all material respects with applicable accounting requirements
and the rules and regulations of the SEC with respect thereto as in effect at
the time of filing. Such financial statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (“
GAAP
”), except as may be
otherwise specified in such financial statements or the notes thereto and except
that unaudited financial statements may not contain all footnotes required by
GAAP, and fairly present in all material respects the financial position of the
Company and its Subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit
adjustments.
5.9.
Material
Changes
. Since the date of the latest audited financial
statements included within the Recent SEC Reports, the Company and its
Subsidiaries have not:
(a) suffered
any Material Adverse Change;
(b) suffered
any damage, destruction or loss, whether or not covered by insurance, in an
amount in excess of $100,000 in the aggregate;
(c) granted or
agreed to make any increase in the compensation payable or to become payable by
the Company or any of its Subsidiaries to any officer or employee, except for
normal raises for nonexecutive personnel made in the ordinary course of business
that are usual and normal in amount;
(d) declared,
set aside or paid any dividend or made any other distribution on or in respect
of the shares of capital stock of the Company or any of its Subsidiaries, or
declared or agreed to any direct or indirect redemption, retirement, purchase or
other acquisition by the Company or any of its Subsidiaries of such
shares;
(e) issued any
shares of capital stock of the Company or any of its Subsidiaries, or any
warrants, rights or options thereof, or entered into any commitment relating to
the shares of capital stock of the Company or any of its
Subsidiaries;
(f) adopted or
proposed the adoption of any change in the Company’s charter, bylaws or other
organizational or governing documents;
(g) made any
change in the accounting methods or practices they follow, whether for general
financial or tax purposes, or any change in depreciation or amortization
policies or rates adopted therein, or any tax election;
(h) sold,
leased, abandoned or otherwise disposed of any real property or any machinery,
equipment or other operating property other than in the ordinary course of their
business;
(i) sold,
assigned, transferred, licensed or otherwise disposed of any of the Company’s
Intellectual Property or interest thereunder or other intangible asset except in
the ordinary course of their business;
(j) been
involved in any disputes involving any employees which would reasonably be
expected to involve in excess of $50,000 in the aggregate;
(k) entered
into, terminated or modified any employment, severance, termination or similar
agreement or arrangement with, or granted any bonuses (or bonus opportunity) to,
or otherwise increased the compensation of any executive officer;
(l) entered
into any material commitment or transaction (including without limitation any
borrowing or capital expenditure), except the SinoTop Acquisition
Documents;
(m) amended or
modified, or waived any default under, any Material Contract (as defined
below);
(n) incurred
any material liabilities, contingent or otherwise, either matured or unmatured
(whether or not required to be reflected in financial statements in accordance
with GAAP, and whether due or to become due), except for accounts payable or
accrued salaries that have been incurred by the Company since the date of the
latest audited financial statements included within the SEC Reports, in the
ordinary course of its business and consistent with the Company’s past
practices;
(o) permitted
or allowed any of their material property or assets to be subjected to any
Lien;
(p) settled any
claim, litigation or action, whether now pending or hereafter made or
brought;
(q) made any
capital expenditure or commitment for additions to property, plant or equipment
individually in excess of $50,000, or in the aggregate, in excess of
$100,000;
(r) paid,
loaned or advanced any amount to, or sold, transferred or leased any properties
or assets to, or entered into any agreement or arrangement with any of their
Affiliates, officers, directors or stockholders or, to the Company’s knowledge,
any Affiliate or associate of any of the foregoing, except for the SinoTop
Convertible Loan;
(s) made any
amendment to, or terminated any agreement that, if not so amended or terminated,
would be material to the business, assets, liabilities, operations or financial
performance of the Company or any of its Subsidiaries;
(t) compromised
or settled any claims relating to taxes, any tax audit or other tax proceeding,
or filed any amended tax returns;
(u) merged or
consolidated with any other Person, or acquired a material amount of assets of
any other Person;
(v) entered
into any agreement in contemplation of the transactions specified herein other
than this Agreement and the other Transaction Documents; or
(w) agreed to
take any action described in this Section 5.9 or which would reasonably be
expected to otherwise constitute a breach of any of the representations or
warranties contained in this Agreement or any other Transaction
Documents.
5.10.
Litigation
. Except
as described on Schedule 5.10 to the Disclosure Schedules, there is no action,
suit, inquiry, notice of violation, proceeding or investigation pending or, to
the Company’s knowledge, threatened against or affecting the Company, any
Subsidiary or any of their respective properties, the Common Stock or any of the
Company's or its Subsidiaries' officers or directors before or by any court,
arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “
Action
”) which is outside of
the ordinary course of business or involves in excess of
$50,000. Neither the Company nor any Subsidiary, nor any director or
officer thereof, is or has been the subject of any Action involving a claim of
violation of or liability under federal or state securities laws or a claim of
breach of fiduciary duty. There has not been, and to the Company’s
knowledge, there is not pending or contemplated, any investigation by the SEC
involving the Company, any of its Subsidiaries or any current or former director
or officer of the Company or any of its Subsidiaries. The SEC has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the Exchange
Act or the Securities Act.
5.11.
Labor
Relations
. Except as set forth on
Schedule 5.11
to the
Disclosure Schedules, neither the Company nor any Subsidiary is a party to or
bound by any collective bargaining agreements or other agreements with labor
organizations. The Company believes that its and its Subsidiaries'
relations with their respective employees are good. Neither the
Company nor any Subsidiary has violated in any material respect any federal,
state, local or foreign laws, regulations, orders or contract terms, affecting
the collective bargaining rights of employees, labor organizations or any
federal, state, local or foreign laws, regulations or orders affecting
employment discrimination, equal opportunity employment, or employees’ health,
safety, welfare, wages and hours. No material labor dispute exists
or, to the Company’s knowledge, is imminent with respect to any of the employees
of the Company which could reasonably be expected to result in a Material
Adverse Effect.
5.12.
Compliance
. Except
as set forth on
Schedule 5.12
to the
Disclosure Schedules, neither the Company nor any Subsidiary: (i) in any
material respect, is in default under or in violation of (and no event has
occurred that has not been waived that, with notice or lapse of time or both,
would result in a default by the Company or any Subsidiary under), nor has the
Company or any Subsidiary received notice of a claim that it is in default under
or that it is in violation of, any indenture, loan or credit agreement or any
other agreement or instrument to which it is a party or by which it or any of
its properties is bound (whether or not such default or violation has been
waived), (ii) is in violation of any order of any court, arbitrator or
Governmental Body, or (iii) is or has been in violation, in any material
respect, of any statute, rule or regulation of any governmental authority,
including, without limitation, all foreign, federal, state and local laws
applicable to its business.
5.13.
Regulatory
Permits
. Except as disclosed in
Schedule 5.13
to the
Disclosure Schedules, the Company and the Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state, local or
foreign regulatory authorities necessary to conduct their respective businesses
(a) as described in the Recent SEC Reports and the Memorandum, except where the
failure to possess such permits would not have or reasonably be expected to
result in a Material Adverse Effect (“
Material Permits
”), and (b) as
contemplated by the Transaction Documents, and neither the Company nor any
Subsidiary has received any notice of proceedings relating to the revocation or
modification of any Material Permit.
5.14.
Title to
Assets
. Neither the Company nor any of its Subsidiaries owns
any real estate or PRC land use rights. Except as set forth on
Schedule 5.14
to the
Disclosure Schedules, the Company and the Subsidiaries have good and marketable
title in all personal property owned by them that is material to the business of
the Company and the Subsidiaries (including such business as is contemplated by
the Transaction Documents), in each case free and clear of all Liens, except for
Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property
by the Company and the Subsidiaries and Liens for the payment of federal, state
or other taxes, the payment of which is neither delinquent nor subject to
penalties. Any real property and facilities held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases of which the Company and the Subsidiaries are in
compliance.
5.15.
Contracts
.
(a) Neither the
Company nor any of its Subsidiaries is party or subject to, or bound
by:
(i) any
agreements, contracts or commitments that call for prospective fixed and/or
contingent payments or expenditures by or to the Company or any of its
Subsidiaries of more than $50,000, or which is otherwise material and not
entered into in the ordinary course of business;
(ii) any
contract, lease or agreement involving payments in excess of $50,000, which is
not cancelable by the Company or any of its Subsidiaries, as applicable, without
penalty on not less than sixty (60) days notice;
(iii) any
contract, including any distribution agreements, containing covenants directly
or explicitly limiting the freedom of the Company or any of its Subsidiaries to
compete in any line of business or with any Person or to offer any of its
products or services;
(iv) any
indenture, mortgage, promissory note, loan agreement, guaranty or other
agreement or commitment for the borrowing of money or pledging or granting a
security interest in any assets;
(v) any
employment contracts, non-competition agreements, invention assignments,
severance or other agreements with officers, directors, employees, stockholders
or consultants of the Company or any of its Subsidiaries or Persons related to
or affiliated with such Persons;
(vi) any
stock redemption or purchase agreements or stockholders rights plan or “poison
pill” arrangement or other agreements affecting or relating to the capital stock
of the Company or any of its Subsidiaries, including, without limitation, any
agreement with any stockholder of the Company or any of its Subsidiaries which
includes, without limitation, antidilution rights, voting arrangements or
operating covenants;
(vii) any
pension, profit sharing, retirement, stock option or stock ownership
plans;
(viii) any
royalty, dividend or similar arrangement based on the revenues or profits of the
Company or any of its Subsidiaries or based on the revenues or profits derived
from any Material Contract;
(ix) any
acquisition, merger, asset purchase or other similar agreement;
(x) any
sales agreement which entitles any customer to a right of set-off, or right to a
refund after acceptance thereof;
(xi) any
agreement with any supplier or licensor containing any provision permitting such
supplier or licensor to change the price or other terms upon a breach or failure
by the Company or any of its Subsidiaries, as applicable, to meet its
obligations under such agreement; or
(xii) any
agreement under which the Company or any of its Subsidiaries has granted any
Person registration rights for securities.
(b)
Schedule 5.15(b)
to
the Disclosure Schedules contains a listing or description of all agreements,
contracts or instruments, including all amendments thereto, to which the Company
or its Subsidiaries are bound which meet the criteria set forth in Section
5.15(a) (such agreements, contracts or instruments, collectively, the “
Material
Contracts
”). The Company has made available to the Investor
copies of the Material Contracts. Neither the Company nor any of its
Subsidiaries has entered into any oral contracts which, if written, would
qualify as a Material Contract. Each of the Material Contracts is
valid and in full force and effect, is enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, fraudulent
transfer, moratorium or similar laws affecting creditors’ rights generally and
general principles of equity, and will continue to be so immediately following
the Closing Date.
(c) Actions
with Respect to Material Contracts.
(i) Neither
the Company nor any of its Subsidiaries has violated or breached, or committed
any default under, any Material Contract in any material respect, and, to the
Company’s knowledge, no other Person has violated or breached, or committed any
default under any Material Contract; and
(ii) To
the Company’s knowledge, no event has occurred, and no circumstance or condition
exists, that (with or without notice or lapse of time) will, or would reasonably
be expected to: (A) result in a material violation or breach of any of the
provisions of any Material Contract, (B) give any Person the right to declare a
default or exercise any remedy under any Material Contract, (C) give any Person
the right to accelerate the maturity or performance of any Material Contract or
(D) give any Person the right to cancel, terminate or modify any Material
Contract.
5.16.
Taxes.
(a) The Company
and its Subsidiaries have timely and properly filed all tax returns required to
be filed by them for all years and periods (and portions thereof) for which any
such tax returns were due. All such filed tax returns are accurate in
all material respects. The Company has timely paid all taxes due and
payable (whether or not shown on filed tax returns). There are no
pending assessments, asserted deficiencies or claims for additional taxes that
have not been paid. The reserves for taxes, if any, reflected in the
Recent SEC Reports or in the Memorandum are adequate, and there are no Liens for
taxes on any property or assets of the Company and any of its Subsidiaries
(other than Liens for taxes not yet due and payable). There have been
no audits or examinations of any tax returns by any Governmental Body, and the
Company or its Subsidiaries have not received any notice that such audit or
examination is pending or contemplated. No claim has been made by any
Governmental Body in a jurisdiction where the Company or any of its Subsidiaries
does not file tax returns that it is or may be subject to taxation by that
jurisdiction. To the Company’s knowledge, no state of facts exists or
has existed which would constitute grounds for the assessment of any penalty or
any further tax liability beyond that shown on the respective tax
returns. There are no outstanding agreements or waivers extending the
statutory period of limitation for the assessment or collection of any
tax.
(b) Neither the
Company nor any of its Subsidiaries is a party to any tax-sharing agreement or
similar arrangement with any other Person.
(c) The Company
has made all necessary disclosures required by Treasury Regulation Section
1.6011-4. The Company has not been a participant in a “reportable
transaction” within the meaning of Treasury Regulation Section
1.6011-4(b).
(d) No payment
or benefit paid or provided, or to be paid or provided, to current or former
employees, directors or other service providers of the Company will fail to be
deductible for federal income tax purposes under Section 280G of the
Internal Revenue Code of
1986, as amended (the “Code”)
.
5.17.
Employees
.
(a) The Company
and its Subsidiaries are not party to any collective bargaining agreements and,
to the Company’s knowledge, there are no attempts to organize the employees of
the Company or any of its Subsidiaries.
(b) Except as
set forth on
Schedule
5.17
to the Disclosure Schedules, the Company and its Subsidiaries have
no policy, practice, plan or program of paying severance pay or any form of
severance compensation in connection with the termination of employment
services.
(c) Each Person
who performs services for the Company or any of its Subsidiaries has been, and
is, properly classified by the Company or its Subsidiaries as an employee or an
independent contractor (or its PRC equivalent). Each of the Company’s
PRC Subsidiaries, including, without limitation, WFOE and VIEs, have
respectively executed valid employment contracts with all of its employees who
work in the PRC, and such contracts are valid and in force. Each of
the Company’s PRC Subsidiaries, including, without limitation, WFOE and VIEs, is
in compliance with all mandatory social benefit and welfare benefit plans with
respect to its employees in the PRC, has made full payments to the mandatory
employee social benefits and welfare benefits in a timely manner, and is not or
has not been in default of any of the payments.
(d) To the
Company’s knowledge, no employee or advisor of the Company or any of its
Subsidiaries is or is alleged to be in violation of any term of any employment
contract, disclosure agreement, proprietary information and inventions agreement
or any other contract or agreement or any restrictive covenant or any other
common law obligation to a former employer relating to the right of any such
employee to be employed by the Company or any of its Subsidiaries because of the
nature of the business conducted or to be conducted by the Company or any of its
Subsidiaries or to the use of trade secrets or proprietary information of
others, and the employment of the employees of the Company and its Subsidiaries
does not subject the Company or the Company's stockholders to any
liability. There is neither pending nor, to the Company’s knowledge,
threatened any actions, suits, proceedings or claims, or, to the Company’s
knowledge, any basis therefor or threat thereof with respect to any contract,
agreement, covenant or obligation referred to in the preceding
sentence. To the Company’s knowledge, no key employee or advisor of
the Company or any of its Subsidiaries intends to terminate or otherwise not
extend his or her employment with the Company or a Subsidiary, as
applicable.
5.18.
Employee Benefit
Plans
. No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan (as defined below) by the
Company or any of its Subsidiaries which is or would be materially adverse to
the Company and its Subsidiaries. The execution and delivery of the
Transaction Documents and the consummation of the transactions contemplated
thereby will not involve any transaction which is subject to the prohibitions of
Section 406 of the Employee Retirement Income Security Act of 1974, as amended
(“
ERISA
”), or in
connection with which a tax could be imposed pursuant to Section 4975 of the
Code. As used in this Section 5.18, the term “
Plan
” shall mean an “employee
pension benefit plan” (as defined in Section 3 of ERISA) which is or has been
established or maintained, or to which contributions are or have been made, by
the Company or any subsidiary or by any trade or business, whether or not
incorporated, which, together with the Company or any subsidiary, is under
common control, as described in Section 414(b) or (c) of the Code.
5.19.
Patents and
Trademarks
. Except as set forth on
Schedule 5.19
to the
Disclosure Schedules, the Company and the Subsidiaries have, or have rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and other similar rights that are
necessary or material for use in connection with their respective businesses as
described in the SEC Reports and the Memorandum and as contemplated by the
Transaction Documents (collectively, the “
Intellectual Property
Rights
”). None of the Company's or its Subsidiaries'
Intellectual Property Rights have expired, terminated or been abandoned, or are
expected to expire, terminate or be abandoned, within three years from the date
of this Agreement. Neither the Company nor any Subsidiary has
received a written notice that any of the Intellectual Property Rights used by
the Company or any Subsidiary violates or infringes upon the rights of any
Person. To the Company’s knowledge, all such Intellectual Property
Rights are enforceable. There is no claim, action or proceeding being
made or brought, or to the knowledge of the Company or any of its Subsidiaries,
being threatened, against the Company or any of its Subsidiaries regarding their
Intellectual Property Rights. The Company is not aware of any facts or
circumstances which might give rise to any of the foregoing infringements or
claims, actions or proceedings. The Company and its Subsidiaries have
taken reasonable steps to protect the Company’s and its Subsidiaries’ rights in
their Intellectual Property Rights and confidential information (the “
Confidential
Information”
). Each employee, consultant and contractor who
has had access to Confidential Information which is necessary for the conduct of
Company’s and each of its Subsidiaries’ respective businesses as currently
conducted or as currently proposed to be conducted has executed an agreement to
maintain the confidentiality of such Confidential Information and has executed
appropriate agreements that are substantially consistent with the Company’s
standard forms thereof. Except under confidentiality obligations,
there has been no material disclosure of any of the Company’s or its
Subsidiaries’ Confidential Information to any third party.
5.20.
Environmental
Matters
. Neither the Company nor any Subsidiary is in
violation of any statute, rule, regulation, decision or order of any
Governmental Body relating to the use, disposal or release of hazardous or toxic
substances or relating to the protection or restoration of the environment or
human exposure to hazardous or toxic substances (collectively, “
Environmental Laws
”), owns or
operates any real property contaminated with any substance that is subject to
any Environmental Laws, is liable for any off-site disposal or contamination
pursuant to any Environmental Laws, or is subject to any claim relating to any
Environmental Laws, which violation, contamination, liability or claim has had
or could reasonably be expected to involve an amount in excess of $25,000 in the
aggregate; and there is no pending or, to the Company’s knowledge, threatened
investigation that might lead to such a claim.
5.21.
Insurance
. The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries are
engaged as described in the SEC Reports and/or the
Memorandum. Neither the Company nor any Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business without a significant increase in
cost.
5.22.
Transactions With Affiliates and
Employees
. Except as set forth on
Schedule 5.22
to the
Disclosure Schedules, none of the officers, directors or employees of the
Company or any of its Subsidiaries is presently a party to any
transaction with the Company or any Subsidiary (other than for ordinary course
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
Company’s knowledge, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner, in each case in excess of $25,000 other than (a) for payment of salary
or consulting fees for services rendered, (b) reimbursement for expenses
incurred on behalf of the Company and (c) for other employee benefits, including
stock option agreements under any stock option plan of the Company.
5.23.
Private Placement
. Assuming
the accuracy of each of the Investor’ representations and warranties set forth
in Section 4, no registration under the Securities Act is required for the offer
and sale of the Securities by the Company to the Investor as contemplated
hereby.
5.24.
No Integrated
Offering
. Neither the Company, nor any of its Affiliates, nor
any Person acting on its or their behalf has, directly or indirectly, made any
offers or sales of any security or solicited any offers to buy any security,
under circumstances that would require registration of the issuance of any of
the Securities under the Securities Act, whether through integration with prior
offerings or otherwise, or cause this offering of the Securities to require
approval of shareholders of the Company under any applicable shareholder
approval provisions, including, without limitation, under the rules and
regulations of any Trading Market on which any of the securities of the Company
are listed or designated, except for the shareholder approval of the Common
Stock Amendment and the Preferred Stock Amendment contemplated by Section 6.2 of
this Agreement.
5.25.
Brokers and
Finders
. Other than as set forth on
Schedule 5.25
, no
Person will have, as a result of the transactions contemplated by the
Transaction Documents, any valid right, interest or claim against or upon the
Company, any Subsidiary or an Investor for any commission, fee or other
compensation pursuant to any agreement, arrangement or understanding entered
into by or on behalf of the Company or any Subsidiary.
5.26.
No Directed Selling Efforts or
General Solicitation; Disclosure
. Neither the Company, any
Subsidiary or Affiliates, nor any Person acting on its or their behalf has
conducted any general solicitation or general advertising (as those terms are
used in Regulation D) in connection with the offer or sale of any of the
Securities. No offering materials were used in connection with the
Offering other than the Offering Documents.
5.27.
Questionable Payments.
Neither
the Company nor any of its Subsidiaries nor, to the Company’s knowledge, any of
their respective current or former stockholders, directors, officers, employees,
agents or other Persons acting on behalf of the Company or any Subsidiary, has
on behalf of the Company or any Subsidiary or in connection with their
respective businesses: (a) used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political activity;
(b) made any direct or indirect unlawful payments to any foreign or domestic
governmental officials or employees from corporate funds; (c) established or
maintained any unlawful or unrecorded fund of corporate monies or other assets;
(d) made any false or fictitious entries on the books and records of the Company
or any Subsidiary; or (e) made any unlawful bribe, rebate, payoff, influence
payment, kickback or other unlawful payment of any nature.
5.28.
Disclosures
. Neither
the Company nor any Person acting on its behalf has provided the Investor or
their agents or counsel with any information that constitutes or might
constitute material, non-public information, other than the terms of the
transactions contemplated hereby. The Company understands and
confirms that each of the Investors will rely on the foregoing representations
in effecting transactions in securities of the Company. The written
materials delivered to the Investor in connection with the transactions
contemplated by the Transaction Documents do not contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading. No event or circumstance has occurred or
information exists with respect to the Company or any of its Subsidiaries or its
or their business, properties, liabilities, prospects, operations (including
results thereof) or conditions (financial or otherwise), which, under applicable
law, rule or regulation, requires public disclosure at or before the date hereof
or announcement by the Company but which has not been so publicly announced or
disclosed.
5.29.
Solvency
. Neither
the Company nor any of its Subsidiaries has: (a) made a general assignment for
the benefit of creditors; (b) filed any voluntary petition in bankruptcy or
suffered the filing of any involuntary petition by its creditors; (c) suffered
the appointment of a receiver to take possession of all, or substantially all,
of its assets; (d) suffered the attachment or other judicial seizure of all, or
substantially all, of its assets; (e) admitted in writing its inability to pay
its debts as they come due; or (f) made an offer of settlement, extension or
composition to its creditors generally. Neither the Company nor any of its
Subsidiaries has engaged in business or in any transaction, and is not about to
engage in business or in any transaction, for which the Company's or such
Subsidiary's remaining assets constitute unreasonably small capital. Neither the
Company nor any of its Subsidiaries has any knowledge or reason to believe that
any of their respective creditors intend to initiate involuntary bankruptcy
proceedings or any actual knowledge of any fact which would reasonably lead a
creditor to do so. The Company and its Subsidiaries, individually and
on a consolidated basis, are not as of the date hereof, and after giving effect
to the transactions contemplated hereby to occur at the Closing will not be
Insolvent.
5.30.
Related
Party Transactions
. Except as set
forth in
Schedule
5.30
to the
Disclosure Schedules: (a) none of the Company or any of its Affiliates,
officers, directors, stockholders or employees, or any Affiliate of any of such
Person, has any material interest in any property, real or personal, tangible or
intangible, including the Company’s Intellectual Property used in or pertaining
to the business of the Company, except for the normal rights of a stockholder,
or, to the Company’s knowledge, any supplier, distributor or customer of the
Company; (b)
there are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, employees,
Affiliates, or, to the Company’s knowledge, any Affiliate thereof; (c)
to the Company’
s
knowledge, no employee, officer or director of the Company or any of its
Subsidiaries has any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation that competes with the
Company; (d) to the
Company’
s
knowledge, no member of the immediate family of any officer or director of the
Company is directly or indirectly interested in any Material Contract; or (e)
there are no amounts owed (cash and stock) to officers, directors and
consultants (salary, bonuses or other forms of compensation).
5.31.
Foreign Corrupt Practices
Act
. None of the Company or any of its Subsidiaries, nor to
the Company’s knowledge, any agent or other person acting on behalf of the
Company or any of its Subsidiaries, has, directly or indirectly: (a) used any
funds, or will use any proceeds from the sale of the Units, for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity; (b) made any unlawful payment to foreign
or domestic government officials or employees or to any foreign or domestic
political parties or campaigns from corporate funds; (c) failed to disclose
fully any contribution made by the Company or any of its Subsidiaries (or made
by any Person acting on their behalf of which the Company is aware) or any
members of their respective management which is in violation of any Legal
Requirement; or (d) has violated in any material respect any provision of the
Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations
thereunder which was applicable to the Company or any of its
Subsidiaries.
5.32.
PFIC
. None of the
Company or any of its Subsidiaries is or intends to become a “passive foreign
investment company” within the meaning of Section 1297 of the Code.
5.33.
OFAC
. None of the Company or
any of its Subsidiaries nor, to the Company’s knowledge, any director, officer,
agent, employee, Affiliate or Person acting on behalf of the Company or any of
its Subsidiaries, is currently subject to any U.S. sanctions administered by the
Office of Foreign Assets Control of the U.S. Treasury Department (“
OFAC
”); and the Company will
not directly or indirectly use the proceeds of the sale of the Units, or lend,
contribute or otherwise make available such proceeds to any of the Company’s
Subsidiaries, joint venture partner or other Person or entity, towards any sales
or operations in Cuba, Iran, Syria, Sudan, Myanmar or any other country
sanctioned by OFAC or for the purpose of financing the activities of any Person
currently subject to any U.S. sanctions administered by OFAC.
5.34.
Money Laundering
Laws
. The operations of each of the Company or any of its
Subsidiaries are and have been conducted at all times in compliance with the
money laundering Legal Requirements of all applicable Governmental Bodies of the
PRC and any related or similar rules, regulations or guidelines, issued,
administered or enforced by any PRC Governmental Body (collectively, the “
Money Laundering Laws
”) and no
action, suit or proceeding by or before any PRC court or PRC Governmental Body
or any arbitrator involving the Company or any of its Subsidiaries with respect
to the Money Laundering Laws is pending or, to the best of the Company’s
knowledge, threatened.
5.35.
Subsidiary
Rights
. The Company or one of its Subsidiaries has the
unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or such Subsidiary.
5.36.
Sarbanes-Oxley
Act
. The Company and each Subsidiary is in compliance with all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as
of the date hereof, and all applicable rules and regulations promulgated by the
SEC thereunder that are effective as of the date hereof.
5.37.
Internal Accounting and Disclosure
Controls
. The Company and each of its Subsidiaries maintains
internal control over financial reporting (as such term is defined in Rule
13a-15(f) under the Securities Act) that is effective to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles, including that (a) transactions are executed in
accordance with management's general or specific authorizations, (b)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset and liability accountability, (c) access to assets or incurrence
of liabilities is permitted only in accordance with management's general or
specific authorization and (d) the recorded accountability for assets and
liabilities is compared with the existing assets and liabilities at reasonable
intervals and appropriate action is taken with respect to any difference. The
Company maintains disclosure controls and procedures (as such term is defined in
Rule 13a-15(e) under the Securities Act) that are effective in ensuring that
information required to be disclosed by the Company in the reports that it files
or submits under the Securities Act is recorded, processed, summarized and
reported, within the time periods specified in the rules and forms of the SEC,
including, without limitation, controls and procedures designed to ensure that
information required to be disclosed by the Company in the reports that it files
or submits under the Securities Act is accumulated and communicated to the
Company's management, including its principal executive officer or officers and
its principal financial officer or officers, as appropriate, to allow timely
decisions regarding required disclosure. Neither the Company nor any
of its Subsidiaries has received any notice or correspondence from any
accountant or other Person relating to any potential material weakness or
significant deficiency in any part of the internal controls over financial
reporting of the Company or any of its Subsidiaries.
5.38.
Off Balance Sheet
Arrangements
. There is no transaction, arrangement, or other
relationship between the Company or any of its Subsidiaries and an
unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its Securities Act filings and is not so disclosed
or that otherwise could be reasonably likely to have a Material Adverse
Effect.
5.39.
Investment Company
Status
. The Company is not, and upon consummation of the sale
of the Securities will not be, an "investment company," an affiliate of an
"investment company," a company controlled by an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company" as such terms are defined in the Investment Company Act of
1940, as amended.
5.40.
Manipulation of
Price
. Neither the Company nor any of its Subsidiaries has,
and, to the knowledge of the Company, no Person acting on their behalf has, (a)
taken, directly or indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the Company or any
of its Subsidiaries to facilitate the sale or resale of any of the Securities,
(b) sold, bid for, purchased, or paid any compensation for soliciting purchases
of, any of the Securities (other than the lead placement agent), or (b) paid or
agreed to pay to any person any compensation for soliciting another to purchase
any other securities of the Company or any of its Subsidiaries.
5.41.
U.S Real Property Holding
Corporation
. Neither the Company nor any of its Subsidiaries
is, or has ever been, and so long as any of the Securities are held by any of
the Investors, shall become, a U.S. real property holding corporation within the
meaning of Section 897 of the Code, and the Company and each Subsidiary shall so
certify upon the Investor’s request.
5.42.
Transfer Taxes
. On
the Closing Date, all stock transfer or other taxes (other than income or
similar taxes) which are required to be paid in connection with the sale and
transfer of the Securities to be sold to each Investor hereunder will be, or
will have been, fully paid or provided for by the Company, and all laws imposing
such taxes will be or will have been complied with.
5.43.
No Additional
Agreements
. The Company does not have any agreement or
understanding with the Investor with respect to the transactions contemplated by
the Transaction Documents other than as specified in the Transaction
Documents.
5.44.
Other Representations and Warranties
Relating to WFOE
.
(a) All
material consents, approvals, authorizations or licenses requisite under PRC
Legal Requirements for the due and proper establishment and operation of WFOE
have been duly obtained from the relevant PRC Governmental Bodies and are in
full force and effect.
(b) All filings
and registrations with the PRC Governmental Bodies required in respect of WFOE
and its capital structure and operations including, without limitation, the
registration with the PRC Ministry of Commerce or its local counterpart, the PRC
the State Administration of Industry and Commerce or its local counterpart, the
PRC State Administration of Foreign Exchange and applicable PRC tax bureau and
customs authorities have been duly completed in accordance with the relevant PRC
Legal Requirements, except where, the failure to complete such filings and
registrations does not, and would not, individually or in the aggregate, have a
Material Adverse Effect.
(c) WFOE has
complied with all relevant PRC Legal Requirements regarding the contribution and
payment of its registered share capital, the payment schedule of which has been
approved by the relevant PRC Governmental Bodies. There are no
outstanding commitments made by the Company or any Subsidiary (or any of their
shareholders) to sell any equity interest in WFOE. . The conversion
and use of the capital contribution received by WFOE is legal and permitted
under PRC Legal Requirements.
(d) WFOE has
not received any letter or notice from any relevant PRC Governmental Body
notifying it of revocation of any licenses or qualifications issued to it or any
subsidy granted to it by any PRC Governmental Body for non-compliance with the
terms thereof or with applicable PRC Legal Requirements, or the lack of
compliance or remedial actions in respect of the activities carried out by WFOE,
except such revocation as does not, and would not, individually or in the
aggregate, have a Material Adverse Effect.
(e) WFOE has
conducted its business activities within the permitted scope of business or has
otherwise operated its business in compliance with all relevant Legal
Requirements and with all requisite licenses and approvals granted by competent
PRC Governmental Bodies other than such non-compliance that do not, and would
not, individually or in the aggregate, have a Material Adverse
Effect. As to licenses, approvals and government grants and
concessions requisite or material for the conduct of any material part of WFOE’s
business which is subject to periodic renewal, to the Company’s knowledge, there
is no reason related to the WFOE for which such requisite renewals will not be
granted by the relevant PRC Governmental Bodies.
(f) With regard
to employment and staff or labor, WFOE has complied with all applicable PRC
Legal Requirements in all material respects, including without limitation, those
pertaining to welfare funds, social benefits, medical benefits, insurance,
retirement benefits, pensions, housing funds or the like, other than such
non-compliance that do not, and would not, individually or in the aggregate,
have a Material Adverse Effect.
6. CERTAIN
PRE-CLOSING CONDITIONS.
6.1.
Carry on in Ordinary
Course
. From the date hereof until the earlier of the Closing
Date or the termination of this Agreement in accordance with its terms, (a) the
Company shall, and shall cause each Subsidiary to, conduct the business and
operations of the Company and the Subsidiaries diligently and as heretofore
conducted; and (b) the Company shall not, and the Company shall cause each
Subsidiary to not, take any action which would reasonably be expected to cause
the representations and warranties of the Company contained in this Agreement to
be untrue at Closing. Notwithstanding the foregoing, the Company may consummate
the SinoTop Acquisition prior to the Closing Date.
6.2.
Charter Amendments; Certificates of
Designation
. On or prior to the Closing Date, the Company
shall file with the Secretary of State of the State of Nevada (a) an amendment
to its Articles of Incorporation (i) increasing the number of
authorized shares of Preferred Stock of the Company from 5,000,000 to
50,000,000 (the “
Preferred
Stock Amendment
”) in the form attached as
Exhibit I
, (ii)
increasing the number of authorized shares of Common Stock of the Company from
95,000,000 to 1,500,000,000 (the “
Common Stock Amendment
”), (b)
a certificate of designations, in the form of
Exhibit H
hereto,
establishing the relative rights, preferences and other features of the Shares
(“
Series A Certificate of
Designation
”) and (c) the Series B Certificate of
Designation.
6.3.
Amending Certain
Documents
. From the date hereof until the earlier of the
Closing Date and the termination of this Agreement in accordance with its terms,
the Company shall not amend the Offering Documents, the Series B Transaction
Documents or the Debt Conversion Documents, without the prior written consent of
the Investor, which may be given or withheld in his sole
discretion.
6.4.
Satisfaction of Conditions and
Covenants
. The Company will use its best efforts to take all action and
to do all things necessary, proper, or advisable in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in Section 7
below).
6.5.
Full Access
. The
Company will permit, and the Investor, and his representatives to have full
access at all reasonable times, to all premises, properties, personnel,
accountants, customers, suppliers, third party lenders and other third parties,
books, records (including tax records), contracts, and documents of or
pertaining to each of the Company and its Subsidiaries.
6.6.
Disclosure
Schedules
. On or before June 21, 2010, the Company shall
deliver the Disclosure Schedules to the Investor in form and
substance satisfactory to the Investor in his sole discretion. TIME
SHALL BE OF THE ESSENCE.
6.7.
Compliance with
Documents
. At all times, the Company shall remain in
compliance with all terms and conditions of the Offering Documents, the Series A
Transaction Documents, the Series B Transaction Documents, the Debt Conversion
Documents, the VIE Structure Documents, the SinoTop Acquisition Documents and
the SinoTop Beijing Documents.
7. CONDITIONS
TO THE CLOSING OF THE INVESTOR.
The
obligation of the Investor to purchase the Units at any Closing is subject to
the fulfillment to the satisfaction of the Investor, on or prior to the Closing
Date, of the following conditions, any of which may be waived by the Investor in
his sole discretion pursuant to Section 12.2:
7.1.
Representations and
Warranties
. The representations and warranties made by the Company in
Section 5 hereof shall be true and correct at all times prior to and on the
Closing Date, except to the extent any such representation or warranty expressly
speaks as of an earlier date, in which case such representation or warranty
shall be true and correct as of such earlier date.
7.2.
Performance of
Agreements
. The Company shall have performed all obligations
and covenants herein required to be performed by it on or prior to the Closing
Date.
7.3.
Approvals
. The Company shall
have obtained any and all consents, permits, approvals, registrations and
waivers necessary or appropriate for consummation of the purchase and sale of
the Securities and the consummation of the other transactions contemplated by
the Transaction Documents, all of which shall be in full force and
effect.
7.4.
Judgments, etc.
No
judgment, writ, order, injunction, award or decree of or by any court, or judge,
justice or magistrate, including any bankruptcy court or judge, or any order of
or by any governmental authority, shall have been issued, and no action or
proceeding shall have been instituted by any governmental authority, enjoining
or preventing the consummation of the transactions contemplated hereby or in the
other Transaction Documents.
7.5.
S
top Orders
. No stop
order or suspension of trading shall have been imposed by the SEC or any other
governmental or regulatory body having jurisdiction over the Company or the
market(s) where the Common Stock is listed or quoted, with respect to public
trading in the Common Stock.
7.6.
Adverse
Changes
. Since the date of execution of this Agreement, no
event or series of events shall have occurred that reasonably could have or
result in a Material Adverse Effect or a material adverse change with respect to
the Company or any of its Subsidiaries;
7.7.
Company Officer Certificate
.
The Company shall have delivered a certificate, executed on behalf of the
Company by its Chief Executive Officer or its Chief Financial Officer, dated as
of the Closing Date, certifying to the fulfillment of the conditions specified
in this Section 7.
7.8.
Company Secretary Certificate
.
The Company shall have delivered a certificate, executed on behalf of the
Company by its Secretary, dated as of the Closing Date, certifying the
resolutions adopted by the Board of Directors of the Company approving the
transactions contemplated by this Agreement and the other Transaction Documents
and the issuance of the Securities, certifying the current versions of the
charter and bylaws of the Company, as the same may be amended and/or restated,
and certifying as to the signatures and authority of persons signing the
Transaction Documents and related documents on behalf of the
Company.
7.9.
Certificates of
Status
. The Company shall have delivered the Investors (a) a
certificate evidencing the formation and good standing of the Company and each
of its Subsidiaries in each such entity’s jurisdiction of formation issued by
the Secretary of State (or comparable office) of such jurisdiction of formation
as of a date within ten (10) days of the Closing Date and (b) a certificate
evidencing the Company’s and each Subsidiary’s qualification as a foreign
corporation and good standing issued by the Secretary of State (or comparable
office) of each jurisdiction in which the Company and each Subsidiary conducts
business and is required to so qualify, as of a date within ten (10) days of the
Closing Date.
7.10.
Opinion
s
of Counsel
. The
Investor shall have received an opinion from Pillsbury Winthrop Shaw Pittman,
LLP, the Company’s U.S. legal counsel, dated as of the Closing Date, and an
opinion from TranAsia Lawyers, the Company’s PRC legal counsel, dated as of the
Closing Date, each in such form and substance as agreed to by the Company and
the Investor (it being agreed that such U.S. and PRC counsel shall not be
required to deliver a “10b-5” or negative assurances letter or
opinion).
7.11.
Preferred Stock and
Warrants
. The Company shall have delivered the Shares and the
Series A Warrants being sold at the Closing.
7.12.
Amendment to Articles of
Incorporation
. The Company shall have filed the Common Stock
Amendment, the Preferred Stock Amendment, the Series A Certificate of
Designation and the Series B Certificate of Designation with the Secretary of
State of the State of Nevada and delivered filed, stamped copies thereof from
such Secretary of State pursuant to Section 7.8 hereof.
7.13.
Increase Size of Board; Appointment
as Director
. The board of directors of the Company (the “
Board
”) shall have (a)
increased the number of directors serving on the Board by one and (b) appointed
the Investor as a director to fill the vacancy.
7.14.
Joint Venture Operating
Agreements
. The various agreements and other steps
contemplated by the Framework Agreement with respect to the formation,
management, operation and funding of the two joint ventures in the PRC referred
to in that Agreement shall have been executed and/or completed in form and
substance satisfactory to the Investor in his sole discretion and copies thereof
duly executed by the parties thereto shall have been delivered to the Investor,
certified as true and complete by a duly authorized officer of the
Company.
7.15.
Consummation of Common Stock
Financing
.
The consummation of the sale of not less than $11,129,000 and up to
$15,000,000 worth of shares of Common Stock of the Company and warrants to
certain investors shall occur simultaneous with the Closing (including in such
amount the gross proceeds received from the sale of Shares and the Series A
Warrants hereunder and the Series B Transaction Documents) pursuant to the
Offering Documents (which shall be in form and substance satisfactory to the
Investor in his sole discretion) and the Series B Transaction Documents and
copies of all such agreements, documents and instruments, duly executed by the
parties thereto, shall have been delivered to the Investor, certified as true
and complete by a duly authorized officer of the Company.
7.16.
Consummation of Series B
Financing
.
The
consummation of the sale of 6,000,000 shares of Series B Preferred Stock of the
Company to Steven Oliviera or his Affiliate shall occur simultaneous with the
Closing pursuant to the Series B Transaction Documents.
7.17.
VIE Structure Documents
.
The VIE Structure Documents shall have been revised in form
and substance satisfactory to the Investor in his sole
discretion. Additional VIE structure contracts shall have been
entered into by WFOE and VIEs that are satisfactory to the Investor in his sole
discretion. Copies of all VIE Structure Documents, duly executed by
the parties thereto, shall have been delivered to the Investor, certified as
true and complete by a duly authorized officer of the Company. If
requested by the Investor, the existing shareholders of the VIEs, shall have
been replaced by the Person nominated by the Investor. For this
purpose, the such shareholders of the VIEs shall have executed appropriate
equity transfer agreements and the registration of the new equity holders with
the competent office(s) of the State Administration for Industry and Commerce
shall have been completed.
7.18.
Change of Management
.
Resignations, letters of removal/appointment,
shareholder/board resolutions, agreements, certificates, instruments or other
documents under PRC Legal Requirement and/or reasonably requested by the
Investor, effective immediately at the date of change of WFOE’s or the VIEs’
registration with the competent office(s) of the State Administration of
Industry and Commerce, shall have been duly signed. If requested by
the Investor, the removal of such directors and legal representatives of the
Subsidiaries or other Persons having positions with the Subsidiaries and
corresponding changes, as necessary, made to registrations filed with the
competent office(s) of the State Administration of Industry and Commerce shall
have been made and completed to the Investor’s satisfaction.
7.19.
Debt Conversion Documents.
The
Company, Mr. Oliviera and the other holders of the promissory notes referred to
in the Debt Conversion Documents and any of their affiliates, if necessary,
shall have entered into the Debt Conversion Documents and consummated the
transactions contemplated thereby.
7.20.
SinoTop
Documents
. The Company shall have consummated the SinoTop
Acquisition pursuant to the SinoTop Acquisition Documents, and the parties to
the SinoTop VIE Agreements shall have entered into the SinoTop VIE Agreements,
in each case in form and substance satisfactory to the Investor in his sole
discretion, copies of which shall have been delivered to the Investor, certified
as true and complete by a duly authorized officer of the Company.
7.21.
Weicheng
Liu
Employment
Agreement
. The Company and Weicheng Liu shall have entered
into an employment in form and substance satisfactory to the
Investor.
7.22.
Other Documents
.
The
Company and its Subsidiaries shall have delivered to the Investor true and
complete and fully executed copies of each of the Offering Documents, the Series
A Transaction Documents, the Series B Transaction Documents, the Sino Top
Acquisition Documents, the Debt Conversion Documents, the VIE Structure
Documents and the SinoTop Beijing Documents and such other documents relating to
the transactions contemplated by this Agreement as the Investor or his counsel
may reasonably request.
7.23.
Due Diligence
. The
Investor shall have completed its due diligence investigation of the Company and
its Subsidiaries and the results thereof shall be satisfactory to the Investor
in his sole discretion.
8. CONDITIONS
TO THE CLOSING OF THE COMPANY.
The
obligations, with respect to the Investor, of the Company to effect the
transactions contemplated by this Agreement are subject to the fulfillment at or
prior to the Closing Date of the conditions listed below.
8.1.
Representations an
d Warranties
. The
representations and warranties in Section 4 hereof made by the Investor shall be
true and correct in all material respects at the time of Closing as if made on
and as of such date.
8.2.
Corporate Proceedings
. All
corporate and other proceedings required to be undertaken by the Investor in
connection with the transactions contemplated hereby shall have occurred and all
documents and instruments incident to such proceedings shall be reasonably
satisfactory in substance and form to the Company.
8.3.
Agreements
. The
Investor shall have completed and executed this Agreement, the Escrow Agreement
and an investor questionnaire as provided by the Company, and delivered the same
to the Company.
8.4.
Certain Acknowledgements,
Representations, Etc
.
The Investor
shall have made the acknowledgements, representations and warranties referred to
in Sections 3.3 and 4.7 hereof.
8.5.
Purchase Price
. The
Investor shall have delivered or caused to be delivered the Purchase Price to
the Escrow Account.
9. OTHER
AGREEMENTS
9.1.
Integration
. The
Company shall not, and shall use its best efforts to ensure that no Affiliate of
the Company shall, sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Securities in a
manner that would require the registration under the Securities Act of the sale
of the Securities to the Investor, or that would be integrated with the offer or
sale of the Securities for purposes of the rules and regulations of any Trading
Market in a manner that would require stockholder approval of the sale of the
Securities to the Investor.
9.2.
Securities Laws Disclosure;
Publicity
. By 9:00 a.m. (New York City time) on the Trading
Day following the Closing Date, the Company shall issue a press release
disclosing the transactions contemplated hereby and the Closing. By
no later than the fourth Trading Day following the Closing Date the Company will
file a Current Report on Form 8-K disclosing the material terms of this
Agreement and the other Transaction Documents (and attach as exhibits thereto
the Transaction Documents) and the Closing. In addition, the Company
will make such other filings and notices in the manner and time required by the
SEC and the Trading Market on which the Common Stock is
listed. Notwithstanding the foregoing, the Company shall not, at any
time, publicly disclose the name of the Investor or the terms of the Series A
Transaction Documents, or include the name of the Investor or the terms of the
Series A Transaction Documents in any filing with the SEC (other than the
Registration Statement and any exhibits to filings made in respect of this
transaction in accordance with periodic filing requirements under the Exchange
Act) or any regulatory agency or Trading Market, without the prior written
consent of the Investor, except to the extent such disclosure is required by law
or Trading Market regulations.
9.3.
Limitation on Issuance
of Future Priced
Securities
. During the six months following the Closing Date,
the Company shall not issue any “Future Priced Securities” as such term is
described by the rules and regulations of FINRA.
9.4.
Reservation of
Shares
. The Company shall maintain a reserve from its duly
authorized shares of Common Stock to comply with its obligations to issue the
shares of Common Stock upon conversion of the Shares and the Warrant Shares upon
exercise of the Series A Warrants.
9.5.
Form D and Blue Sky
Filings
. The Company agrees to file a Form D with respect to
the Securities as required under Regulation D and to provide a copy thereof to
the Investor promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary in order to obtain an exemption for, or to, qualify the securities
(including, the Shares and the Series A Warrants) for sale to the investors
(including the Investor) at the Closing pursuant to the Transaction Documents
under applicable securities or “Blue Sky” laws of the states of the United
States (or to obtain an exemption from such qualification), and shall provide
evidence of any such action so taken to the Investor on or prior to the Closing
Date. The Company shall make all filings and reports relating to the
offer and sale of the Securities required under applicable securities or “Blue
Sky” laws of the states of the United States following the Closing
Date.
9.6.
Passive Foreign Investment
Company
. The Company shall conduct its business in such a
manner to ensure that it will not be deemed to constitute a passive foreign
investment company within the meaning of Section 1297 of the Code.
10.
FURTHER
ASSURANCES
. The Company shall, and shall cause all of its
Subsidiaries to, and their management to, use their best efforts to satisfy all
of the closing conditions under Section 8, and shall not take any action which
could frustrate or delay the satisfaction of such conditions. In
addition, either prior to or following the Closing, the Company shall, and shall
cause each of its Subsidiaries to, and its and their management to, perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as any other party may reasonably request in order to carry out the
intent and accomplish the purposes of the Transaction Documents and the
consummation of the transactions contemplated thereby.
11.
TERMINATION
.
(a) In
the event that the Closing shall not have occurred by July 15, 2010, the
Investor shall have the right to terminate its obligations under this Agreement
at any time on or after the close of business on such date without liability to
any other party.
(b) Notwithstanding
any provision to the contrary contained herein, the Investor, in his sole
discretion, shall have the absolute, unqualified and unconditional right to
terminate this Agreement for any reason or for no reason. The Company
hereby covenants and agrees that it shall not contest, challenge or seek to
delay the exercise of such Investor’s right and hereby waives any right to claim
promissory estoppel or other detrimental reliance, unconscionability or any
requirement of good faith or fair dealing. The Investor’s right to
terminate this Agreement shall not affect the Investor’s rights with respect to
a breach hereof prior to such termination.
12. MISCELLANEOUS.
12.1.
Notices
. All notices,
requests, demands and other communications provided in connection with this
Agreement shall be in writing and shall be deemed to have been duly given at the
time when hand delivered, delivered by express courier, or sent by facsimile
(with receipt confirmed by the sender’s transmitting device) in accordance with
the contact information provided below or such other contact information as the
parties may have duly provided by notice.
c/o China
Broadband Inc.
1900
Ninth Street, 3
rd
Floor
Boulder,
Colorado 80302
Attention: Marc
Urbach
Fax
Number: (303) 449.7799
With
a copy to:
Pillsbury
Winthrop Shaw Pittman LLP
2300 N
Street, N.W.
Washington,
DC 20037
Attention :
Louis A. Bevilacqua, Esq.
Fax
Number: (202) 663.8007
As per
the contact information provided on the signature page hereof.
With
copies to:
K&L
Gates LLP
K&L
Gates Center, 210 Sixth Avenue
Pittsburgh,
PA 15222
Attention:
Jerry S. McDevitt, Esq.
Fax:
(412) 355.6501
K&L
Gates LLP
599
Lexington Avenue
New York,
NY 10022
Attention:
John D. Vaughan, Esq.
Fax:
(212) 536.3901
12.2.
Amendments;
Waivers
. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and the Investor or, in the case of a waiver, by the party against
whom enforcement of any such waiver is sought. Any amendment or
waiver by the Investor shall also be executed by his legal counsel to be
effective. No waiver of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any subsequent default or a waiver of any
other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right.
12.3.
Construction
. The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.
12.4.
Successors and
Assigns
. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Investor
Representative. The Investor may assign any or all of its rights
under this Agreement to any Person to whom the Investor assigns or transfers any
Securities, provided such transferee agrees in writing to be bound, with respect
to the transferred Securities, by the provisions hereof that apply to the
“Investor”.
12.5.
No Third-Party
Beneficiaries
. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person.
12.6.
Governing Law, Consent to
Jurisdiction, etc.
All questions concerning the construction,
validity, enforcement and interpretation of the Transaction Documents shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York, without regard to the principles of conflicts of law
thereof (except Section 5-1401 of New York’s General Obligations
Law). Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereto hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, New York for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of the any
of the Transaction Documents), and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is improper. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law.
12.7.
Survival
. The
representations, warranties, agreements and covenants contained herein shall
survive the Closing of the transactions contemplated by this Agreement for a
period of three years.
12.8.
Indemnification
.
(a) The Company
agrees to defend, indemnify and hold harmless each Investor and its Affiliates
and their respective directors, officers, employees and agents from and against
any and all losses, claims, damages, liabilities and expenses (including without
limitation reasonable attorney fees and disbursements and other expenses
incurred in connection with investigating, preparing or defending any action,
claim or proceeding, pending or threatened and the costs of enforcement thereof)
(collectively, “Losses”) to which such Person may become subject as a result of
any breach of representation, warranty, covenant or agreement made by or to be
performed on the part of the Company or any of its Subsidiaries under the
Transaction Documents, and shall reimburse any such Person for all such amounts
as they are incurred by such Person.
(b) Promptly
after receipt by any Person (the “
Indemnified Person
”) of notice
of any demand, claim or circumstances which would or might give rise to a claim
or the commencement of any action, proceeding or investigation in respect of
which indemnity may be sought pursuant to this Section 12, such Indemnified
Person shall promptly notify the Company in writing and the Company shall assume
the defense thereof, including the employment of counsel reasonably satisfactory
to such Indemnified Person, and shall assume the payment of all fees and
expenses; provided, however,
that the failure of any
Indemnified Person so to notify the Company shall not relieve the Company of its
obligations hereunder except to the extent that the Company is materially
prejudiced by such failure to notify. In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless: (i) the Company and the Indemnified Person shall have mutually agreed to
the retention of such counsel; or (ii) in the reasonable judgment of counsel to
such Indemnified Person representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between
them. The Company shall not be liable for any settlement of any
proceeding effected without its written consent, which consent shall not be
unreasonably withheld, but if settled with such consent, or if there be a final
judgment for the plaintiff, the Company shall indemnify and hold harmless such
Indemnified Person from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. Without the prior
written consent of the Indemnified Person, which consent shall not be
unreasonably withheld, the Company shall not effect any settlement of any
pending or threatened proceeding in respect of which any Indemnified Person is
or could have been a party and indemnity could have been sought hereunder by
such Indemnified Party, unless such settlement includes an unconditional release
of such Indemnified Person from all liability arising out of such
proceeding.
12.9.
Execution
. This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by
facsimile transmission or other electronic transmission, such signature shall
create a valid and binding obligation of the party executing (or on whose behalf
such signature is executed) with the same force and effect as if such facsimile
or other electronic signature page were an original thereof.
12.10.
Severability
. If
any provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the
parties will attempt to agree upon a valid and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
12.11.
Replacement of
Securities
. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or
instrument under such circumstances shall also pay any reasonable third-party
costs associated with the issuance of such replacement Securities.
12.12.
Payment Set
Aside
. To the extent that the Company makes a payment or
payments to the Investor pursuant to any Series A Transaction Document or the
Investor enforces or exercises his rights thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
12.13.
Expenses
. The
Company shall pay all costs and expenses, including the fees and disbursements
of any counsel and accountants retained by the Investor, incurred by the
Investor in connection with the preparation, execution, delivery and performance
of the Series A Transaction Documents and the transactions contemplated thereby,
whether or not such transactions are consummated up to a maximum amount, or cap,
of $35,000. Notwithstanding the foregoing, in the event that the
Company shall fail to deliver the Disclosure Schedules, in form and substance
reasonably satisfactory to the Investor and otherwise in accordance with Section
6.6 hereof, the Company shall pay the Investor, as a non-accountable expense
reimbursement, an additional sum of $35,000.
[Signature
Pages Follow]
IN WITNESS WHEREOF
, the
parties hereto have caused this Securities Purchase Agreement to be duly
executed by their respective authorized signatories as of the date first
indicated above.
COMPANY:
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CHINA
BROADBAND INC.
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By:
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Name:
Marc Urbach
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Title:
President
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Name
and Address, Fax No. and Social Security No. of
Investor:
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Shane McMahon
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295 Greenwich St., Apartment
301
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New York, NY 10007
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Fax No.: (212) 625-9442
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Soc. Sec. No.:
042-78-7029
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Signature
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Total Purchase
Price:
$3,500,000
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Number of
Units:
7,000,000
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Number of
Warrants:
240,000,000
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EXHIBIT
A
Form of Series A
Warrant
(See
Attached)
EXHIBIT
B-1
Form
of
$600,000 Debt Conversion
Documentation
(See
Attached)
EXHIBIT
B-2
Form
of
$4,971,250 Debt Conversion
Documentation
(See
Attached)
EXHIBIT
B-3
Form
of
$304,902 Debt Conversion
Documentation
(See
Attached)
EXHIBIT
C
Form of McMahon Employment
Agreement
(See
Attached)
EXHIBIT
D
Form of McMahon
Indemnification Agreement
(See
Attached)
EXHIBIT
E
Offering
Documents
(See
Attached)
EXHIBIT
F
Form of Registration Rights
Agreement
(See
Attached)
EXHIBIT
G-1
Series B Securities Purchase
Agreement
(See
Attached)
EXHIBIT
G-2
Series B
Warrant
(See
Attached)
EXHIBIT
G-3
Series B Certificate of
Designations
(See
Attached)
EXHIBIT
H
Series A Certificate of
Designations
(See
Attached)
Exhibit
10.3
SECURITIES
PURCHASE AGREEMENT
This
SECURITIES PURCHASE
AGREEMENT
(this “
Agreement
”), dated May 20,
2010, is between China Broadband, Inc., a Nevada corporation (the “
Company
”) and Chardan SPAC
Asset Management LLC (including his respective successors and assigns, an, the
“
Investor
”).
WHEREAS
, this Agreement has
been entered into pursuant to the terms of the Company’s Confidential Private
Placement Memorandum, dated May 18, 2010 (together with any and all amendments
and/or supplements thereto, the “
Memorand
um
”);
WHEREAS,
the Investor desires
to purchase from the Company, and the Company desires to sell and issue to the
Investor, upon the terms and conditions stated in this Agreement, 4,800,000
units at a purchase price of $0.50 per unit (each, a “
Unit
”);
W
HEREAS
, each Unit shall
consist of: (i) one share (collectively, the “
Shares
”) of the Company’s
Series B Preferred Stock, par value $0.001 per share (the “
Series B Preferred Stock
”; and
(ii) a common stock purchase warrant (each a “
Warrant
,” and, collectively,
the “
Warrants
”) to
purchase ten (10) shares (collectively, the “
Warrant Shares
”) of Common
Stock at an exercise price of $0.05 per share (subject to adjustment as set
forth in the Warrants), which Warrants shall be in the form attached hereto as
Exh
ibit
A
, upon the terms
and conditions set forth in this Agreement; and
WHEREAS
, the Company and the
Investor are executing and delivering this Agreement in reliance upon the
exemption from securities registration afforded by the rules and regulations as
promulgated by the SEC under the Securities Act.
NOW, THEREFORE
, in
consideration of the mutual terms, conditions and other agreements set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, the parties hereto hereby agree to the sale and purchase of the Units as
set forth herein.
1.
DEFINITIONS
. In
addition to the terms defined elsewhere in this Agreement, for all purposes of
this Agreement, the following terms have the meanings indicated in this Section
1.
“
Affiliate
” means, with respect
to any specified Person: (i) if such Person is an individual, the spouse of that
Person and, if deceased or disabled, his heirs, executors, or legal
representatives, if applicable, or any trusts for the benefit of such individual
or such individual’s spouse and/or lineal descendants, or (ii) otherwise,
another Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, the Person
specified. As used in this definition, “control” shall mean the possession,
directly or indirectly, of the power to cause the direction of the management
and policies of a Person, whether through the ownership of voting securities or
by contract or other written instrument.
“
Business Day
” means any day on
which banks located in New York City are not required or authorized by law to
remain closed.
“
Closing
” means the date on
which the funds representing the Purchase Price are released from the Escrow
Account to the Company and the Shares and Warrants are issued to the
Investor.
“
Closing Date
” means the date
of the Closing.
“
Closing
Escrow
Agreement
” means the Closing
Escrow Agreement, dated May 18, 2010, by and among the Company, the Investor and
the Escrow Agent.
“
Company
’
s knowledge
” means the
information and/or other items that the executive officers of the Company have
actual knowledge of after due inquiry.
“
Disclosure Schedules
” means
the disclosure schedules issued by the Company to the Investor, which schedules
correspond to the representations and warranties of the Company in Section 5
hereof.
“
Escrow Account
” means the
escrow account established by the Escrow Agent pursuant to the Closing Escrow
Agreement where funds representing the Investor’ aggregate Purchase Price shall
be held pending the Closing.
“
Escrow Agent
” means Collateral
Agents, LLC.
“
Exchange
Act
” means the Securities
Exchange Act of 1934, as amended.
“
Governmental Body
” means any:
(a) nation, state, commonwealth, province, territory, county, municipality,
district or other jurisdiction of any nature; (b) federal, state, local,
municipal, foreign or other government; or (c) governmental or
quasi-governmental authority of any nature (including any governmental or
administrative division, department, agency, commission, instrumentality,
official, organization, unit, body or entity) and any court or other
tribunal.
“
Intellectual Property
” means
the Company’s patents, patent applications, provisional patents, trademarks,
service marks, trade names, trademark registrations, service mark registrations,
copyrights, licenses, formulae, mask works, customer lists, internet domain
names, know-how and other intellectual property, including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems, procedures or registrations or applications
relating to the same.
“
Indebtedness
” means, with
respect to any Person, without duplication, all obligations of such Person: (i)
for borrowed money, (ii) evidenced by notes, bonds, debentures or similar
instruments, (iii) for the deferred purchase price of goods or services (other
than trade payables or accruals incurred in the ordinary course of business),
(iv) under capital leases, and (v) in the nature of guarantees of the
obligations described above in clauses (i) through (iv).
“
Legal Requirement
”
means any federal,
state, local, municipal, foreign or other law, statute, constitution, principle
of common law, resolution, ordinance, code, edict, decree, rule, regulation,
ruling or requirement issued, enacted, adopted, promulgated, implemented or
otherwise put into effect by or under the authority of any Governmental Body (or
under the authority of any national securities exchange upon which the Common
Stock is then listed or traded). Reference to any Legal Requirement
means such Legal Requirement as amended, modified, codified, replaced or
reenacted, in whole or in part, and in effect from time to time, and reference
to any section or other provision of any Legal Requirement means that provision
of such Legal Requirement from time to time in effect and constituting the
substantive amendment, modification, codification, replacement or reenactment of
such section or other provision.
“
Lien(s)
” means any interest in
Property securing an obligation owed to a Person whether such interest is based
on the common law, statute or contract, and including but not limited to a
security interest arising from a mortgage, lien, title claim, assignment,
encumbrance, adverse claim, contract of sale, pledge, conditional sale or trust
receipt or a lease, consignment or bailment for security purposes. The
term “Lien” includes but is not limited to mechanics’, materialmens’,
warehousemens’ and carriers’ liens and other similar encumbrances. For the
purposes hereof, a Person shall be deemed to be the owner of Property which it
has acquired or holds subject to a conditional sale agreement or other
arrangement pursuant to which title to the Property has been retained by or
vested in some other Person for security purposes.
“
Material Adverse Effect
” means
a material adverse effect on, and a “
Material Adverse Change
”
means a material adverse change in: (i) the assets, liabilities, results of
operations, condition (financial or otherwise) or business of the Company taken
as a whole; or (ii) the ability of the Company to perform its obligations under
the Transaction Documents, but, to the extent applicable, shall exclude any
circumstance, change or effect to the extent resulting or arising from: (w) any
change in general economic conditions in the industries or markets in which the
Company and its Subsidiaries operate so long as the Company and its Subsidiaries
are not disproportionately (in a material manner) affected by such changes; (x)
national or international political conditions, including any engagement in
hostilities, whether or not pursuant to the declaration of a national emergency
or war, or the occurrence of any military or terrorist attack so long as the
Company and its Subsidiaries are not disproportionately (in a material manner)
affected by such changes; (y) changes in United States generally accepted
accounting principles, or the interpretation thereof; or (z) the entry into or
announcement of this Agreement, actions contemplated by this Agreement, or the
consummation of the transactions contemplated hereby.
“
OTCBB
” means the
Over-the-Counter Bulletin Board system or any successor system, entity or
organization performing the same or a substantially similar
function.
“
Offering
” means the offering
and sale of the Units pursuant to this Agreement and the
Memorandum.
“
Person
” means an individual,
entity, corporation, partnership, association, limited liability company,
limited liability partnership, joint-stock company, trust or unincorporated
organization.
“
PRC
” means, for the purpose of
this Agreement, the People’s Republic of China, not including Taiwan, Hong Kong
and Macau.
“
Property
” means any interest
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible.
“
Purchase Price
” means
$2,400,000.
“
Registration Rights Agreement
”
means the Registration Rights Agreement, dated as of the Closing Date, by and
between the Company and the Investor, in the form attached as
Exhibit
B
hereto.
“
SEC
” means the United States
Securities and Exchange Commission.
“
SEC Reports
” means the
reports, documents and other filings and information made by the Company with
the SEC, including the Company’s last annual report on Form 10-K.
“
Securities
” means the Units,
the Shares, the Warrants and the Warrant Shares.
“
Securities Act
”
means
the Securities Act of
1933, as amended.
“
Subsidiaries
” shall mean any
corporation or other entity or organization, whether incorporated or
unincorporated, in which the Company owns, directly or indirectly, any
controlling equity or other controlling ownership interest or otherwise controls
through contract or otherwise, including, without limitation, any variable
interest entity of the Company.
“
Trading Day
” means: (i) a day
on which the Common Stock is traded on a Trading Market (other than the OTCBB),
or (ii) if the Common Stock is not listed on a Trading Market (other than the
OTCBB), a day on which the Common Stock is traded in the over the counter
market, as reported by the OTCBB, or (iii) if the Common Stock is not quoted on
any Trading Market, a day on which the Common Stock is quoted in the over the
counter market as reported by the Pink Sheets LLC (or any similar organization
or agency succeeding to its functions of reporting prices); provided, that in
the event that the Common Stock is not listed or quoted as set forth in (i),
(ii) and (iii) hereof, then Trading Day shall mean a Business Day.
“
Trading Market
” means
whichever of the New York Stock Exchange, the NYSE AMEX, the NASDAQ Global
Select Market, the NASDAQ Global Market, the NASDAQ Capital Market, or, with
respect to the foregoing exchanges, any successor exchange, entity or
organization performing the same a substantially similar function, or the OTCBB
on which the Common Stock is listed or quoted for trading on the date in
question.
“
Transaction Documents
” means
this Agreement, the Memorandum, the Warrants, the Registration Rights
Agreement and the Closing Escrow Agreement.
“
Transfer
” means any sale,
transfer, assignment, conveyance, charge, pledge, mortgage, encumbrance,
hypothecation, security interest or other disposition, or to make or effect any
of the above.
“
WFOE”
means Beijing China
Broadband Network Technology Co., Ltd., the Company’s wholly foreign owned
entity, located in the PRC.
2.
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SALE
AND PURCHASE OF UNITS.
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2.1.
Purchase of
Units by
Investor
. Subject to the
terms and conditions of this Agreement, on the Closing Date, the Investor shall
purchase, and the Company shall sell and issue to the Investor, Units as
consideration for payment of the Purchase Price.
2.2.
Closing
. Subject to the
terms and conditions set forth in this Agreement, the Company shall issue and
sell to the Investor and the Investor shall purchase from the Company on
the Closing Date, the Units (the “
Closing
”). The Closing
shall occur with the time periods set forth in the Memorandum at the offices of
Pillsbury Winthrop Shaw Pittman LLP, 2300 N Street, N.W., Washington,
DC 20037, or remotely via the exchange of documents and
signatures.
2.3.
Closing Deliveries
. At the
Closing, the Company shall deliver to the Investor, against delivery by the
Investor of the Purchase Price (as provided below), the Shares and the
Warrants. At the Closing, the Investor shall deliver or cause to be
delivered to the Company the Purchase Price by paying United States dollars via
bank, certified or personal check which has cleared prior to the Closing or in
immediately available funds, by wire transfer to the Escrow Account pursuant to
the Closing Escrow Agreement.
2.4.
The Warrants
. The
Warrants
shall have
the terms and conditions and be in the form attached hereto as
Exhibit
A
.
2.5.
Use of
Proceeds.
The Company hereby covenants and agrees that the
proceeds from the sale of Units shall be used as provided for in the
Memorandum.
3.
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ACKNOWLEDGEMENTS
OF THE INVESTOR.
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The
Investor acknowledges that:
3.1.
Resale
Restrictions.
None of the Securities 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, none of the
Securities may be offered or sold by the Investor except 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 only in accordance with
applicable state securities laws.
3.2.
Agreements.
The
Investor has received, carefully read and acknowledges the terms of the
Transaction Documents, including the Risk Factors set forth in the
Memorandum.
3.3.
Books and Records.
The books
and records of the Company were available upon reasonable notice for
inspection, subject to certain confidentiality restrictions, by the Investor
during reasonable business hours at its principal place of business, that all
documents, records and books in connection with the sale of the Securities
hereunder have been made available for inspection by it and its attorney and/or
advisor(s) and that the Investor and/or its advisor has reviewed all such
documents, records and books to its full satisfaction and all questions it
and/or its advisor may have had been answered to their respective full
satisfaction.
3.4.
Independent Advice.
The Investor has been
advised to consult the Investor’s own legal, tax and other advisors with respect
to the merits and risks of an investment in the Securities and with respect to
applicable resale restrictions, and it is solely responsible for compliance
with:
(a) any applicable laws of
the jurisdiction in which the Investor is resident in connection with the
distribution of the Securities hereunder, and
(b) applicable resale
restrictions.
3.5.
No
Governmental Review or
Insurance.
Neither
the SEC nor any other securities commission, securities regulator or similar
regulatory authority has reviewed or passed on the merits of the Securities or
on any of the documents reviewed or executed by the Investor in connection with
the sale of the Securities, including the Transaction Documents, and there is no
government or other insurance covering any of the Securities.
4.
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REPRESENTATIONS,
WARRANTIES AND ACKNOWLEDGMENTS OF THE
INVESTOR.
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The
Investor represents and warrants to the Company that:
4.1.
Capacity.
The
Investor represents that the Investor has reached the age of 21 and has full
authority, legal capacity and competence to enter into, execute and deliver this
Agreement and the Transaction Documents to which the Investor is a party and all
other related agreements or certificates and to take all actions required
pursuant hereto and thereto and to carry out the provisions hereof and
thereof.
4.2.
Binding Agreement.
The
Investor has duly executed and delivered this Agreement and the other
Transaction Documents to which it is a party, and this Agreement and the other
Transaction Documents to which it is a party constitute a valid and binding
agreement of the Investor enforceable against the Investor in accordance with
their respective terms, except as such enforceability may be limited by general
principals of equity, or to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors’ rights and
remedies.
4.3.
Purchase Entirely for Own
Account
. The Securities are being acquired for the Investor’s own
account, not as nominee or agent, for investment purposes only and not with a
view to the resale or distribution of any part thereof in violation of the
Securities Act, and the Investor has no present intention of selling, granting
any participation in, or otherwise distributing the same in violation of the
Securities Act, without prejudice, however, to the Investor’s right at all times
to sell or otherwise dispose of all or any part of such Securities in compliance
with applicable federal and state securities laws.
4.4.
Not a Broker-Dealer.
The
Investor is neither a registered representative under the Financial Industry
Regulatory Authority (“
FINRA
”), a member of FINRA or
associated or Affiliated with any member of FINRA, nor a broker-dealer
registered with the SEC under the Exchange Act or engaged in a business that
would require the Investor to be so registered, nor is the Investor an Affiliate
of a such a broker-dealer or any Person engaged in a business that would require
it to be registered as a broker-dealer. In the event the Investor is a
member of FINRA, or associated or Affiliated with a member of FINRA, the
Investor agrees, if requested by FINRA, to sign a lock-up, the form of which
shall be satisfactory to FINRA with respect to the Securities.
4.5.
Not an
Underwriter.
The Investor is not an underwriter of the
Securities, nor is it an Affiliate of an underwriter of the
Securities.
4.6.
Investment Experience
. The
Investor acknowledges that the purchase of the Securities is a highly
speculative investment and that it can bear the economic risk and complete loss
of its investment in the Securities and has such knowledge and experience in
financial and/or business matters that it is capable of evaluating the merits
and risks of the investment contemplated hereby.
4.7.
Disclosure of Information
.
The Investor has had an opportunity to receive, and fully and carefully
review, all information related to the Company and the Securities requested by
it and to ask questions of and receive answers from the Company regarding the
Company and its business and the terms and conditions of the offering of the
Securities. Neither such inquiries nor any other due diligence
investigation conducted by the Investor shall modify, amend or affect the
Investor’s right to rely on the Company’s representations and warranties
contained in this Agreement. The Investor acknowledges that it has
received, and fully and carefully reviewed and understands all of the
Transaction Documents, including, but not limited to, the Memorandum describing,
among other items, the Company, its businesses and risks, the Securities and the
Offering of the Securities. Investor acknowledges that it has received,
and fully and carefully reviewed and understands, copies of the SEC Reports,
either in hard copy or electronically through the SEC’s Electronic Data
Gathering Analysis and Retrieval system. The Investor understands that its
investment in the Securities involves a high degree of risk. The
Investor’s decision to enter into this Agreement and the Transaction Documents
to which it is a party has been made based solely on the independent evaluation
of the Investor and its representatives. The Investor has received such
accounting, tax and legal advice from Persons (other than the Company) as it has
considered necessary to make an informed investment decision with respect to the
acquisition of the Securities.
4.8.
Restricted Securities
.
The Investor understands that the sale or re-sale of the Securities
has not been and is not being registered under the Securities Act or any
applicable state securities laws, and the Securities, as applicable, may not be
transferred unless:
(a) they are sold pursuant
to an effective registration statement under the Securities Act; or
(b) they are being sold
pursuant to a valid exemption from the registration requirements of the
Securities Act; or
(c) they are sold or
transferred to an “affiliate” (as defined in Rule 144, or any successor rule,
promulgated under the Securities Act (“
Rule 144
”) of the Investor who
agrees to sell or otherwise transfer the Securities only in accordance with this
Section 4.9 and who is an accredited investor, or
(d) they are validly sold
pursuant to Rule 144.
The
Investor shall provide the Company with no less than three (3) Trading Days
notice of its intention to dispose of any Securities and agrees that the
Investor shall only dispose of any Securities in accordance with all applicable
Legal Requirements. The Investor further understands that any sale of
the Securities made in reliance on Rule 144 may be made only in accordance with
the terms of Rule 144 and other than as provided in the Transaction Documents,
neither the Company nor any other Person is under any obligation to register the
Securities under the Securities Act or any state securities laws.
Notwithstanding the foregoing or anything else contained herein to the
contrary, the Securities may be pledged as collateral in connection with a
bona fide
margin account or
other lending arrangement.
4.9.
Accredited Investor
. The
Investor is an “accredited investor” as defined in Rule 501(a) of Regulation D,
as amended, under the Securities Act (“
Regulation D
”).
4.10.
No General Solicitation
.
The Investor did not learn of the investment in the Securities as a result
of any public advertising or general solicitation, and is not aware of any
public advertisement or general solicitation in respect of the Company or its
securities.
4.11.
Brokers and Finders
. The
Investor will not have, as a result of the transactions contemplated by the
Transaction Documents, any valid right, interest or claim against or upon the
Company or any Subsidiary for any commission, fee or other compensation pursuant
to any agreement, arrangement or understanding entered into by or on behalf of
the Investor.
4.12.
Prohibited Tran
sactions
. Other than
with respect to the transactions contemplated herein, since the earlier to occur
of: (i) the time that the Investor was first contacted by the Company, or any
other Person regarding an investment in the Company and (ii) the thirtieth
(30
th
) day
prior to the date hereof, neither the Investor nor any Affiliate of the Investor
which (x) had knowledge of the transactions contemplated hereby, (y) has or
shares discretion relating to the Investor’s investments or trading or
information concerning the Investor’s investments, including in respect of the
Securities, or (z) is subject to the Investor’s review or input concerning such
Affiliate’s investments or trading decisions (collectively, “
Trading Affiliates
”) has,
directly or indirectly, nor has any Person acting on behalf of, or pursuant to,
any understanding with the Investor or Trading Affiliate effected or agreed to
effect any transactions in the securities of the Company or involving the
Company’s securities (a “
Prohibited
Transaction
”).
4.13.
Residency
. The Investor
is a resident of the jurisdiction set forth on the Investor’s signature page
hereto.
4.14.
Reliance on Exemptions
.
The Investor understands that the Securities are being offered and sold to
it in reliance upon specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is relying
upon the truth and accuracy of, and the Investor’s compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Investor set forth herein in order to determine the availability of such
exemptions and the eligibility of the Investor to acquire the Securities. All of
the information which the Investor has provided to the Company is true, correct
and complete as of the date this Agreement is signed, and if there should be any
change in such information prior to the Closing, the Investor will immediately
provide the Company with such information.
5.
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REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
|
Except as
set forth in: (i) the SEC Reports, (ii) the Memorandum or (iii), if so stated
below, the corresponding section of the Disclosure Schedules, the Company hereby
makes the following representations and warranties as of the date hereof and as
of the Closing Date to the Investor:
5.1.
Subsidiaries
. A
true and correct structure chart of the Company and its wholly-owned and
consolidated Subsidiaries is included as
Schedule 5.1
to the
Disclosure Schedules. Except as disclosed in
Schedule 5.1
to the
Disclosure Schedules, the Company owns, directly or indirectly, all of the
capital stock, or other equity interests, of each Subsidiary free and clear of
any Liens, and all the issued and outstanding shares of capital stock of each
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights.
5.2.
Organization and
Qualification
. Each of the Company and the Subsidiaries is an
entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization, with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently
conducted. Neither the Company nor any Subsidiary is in violation of
any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational, charter or governing
documents. Each of the Company and the Subsidiaries is duly qualified
to conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, would not
have or reasonably be expected to result in a Material Adverse
Effect.
5.3.
Authorization;
Enforcement
. The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each
of the Transaction Documents and otherwise to carry out its obligations
thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company in
connection therewith. Each Transaction Document has been (or upon
delivery will have been) duly executed by the Company and, when delivered in
accordance with the terms hereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms except: (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other laws of general application
relating to or affecting enforcement of creditors’ rights generally and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies.
5.4.
No Conflicts
. The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated thereby do
not and will not: (i) conflict with or violate any provision of the Company’s or
any Subsidiary’s certificate or articles of incorporation, bylaws or other
organizational, charter or governing documents; (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other understanding to
which the Company or any Subsidiary is a party or by which any property or asset
of the Company or any Subsidiary is bound or affected; or (iii) result in a
violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the Company or
a Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected; except in the case of each of clauses (ii) and (iii), such
as would not have or reasonably be expected to result in a Material Adverse
Effect.
5.5.
Filings, Consents and
Approvals
. Neither the Company nor any Subsidiary is required
to obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other foreign, federal,
state, local or other governmental authority or other Person in connection with
the execution, delivery and performance by the Company of the Transaction
Documents, other than (a) the filing with the SEC of the Registration Statement,
the application(s) to each Trading Market for the listing of the Shares and
Warrant Shares for trading thereon in the time and manner required thereby, and
applicable “blue sky” or other securities law filings, (b) such as have already
been obtained or such exemptive filings as are required to be made under
applicable securities laws, or (c) such other filings that have been made
pursuant to applicable state securities laws and post-sale filings pursuant to
applicable state and federal securities laws which the Company undertakes to
file within the applicable time periods. Subject to the accuracy of
the representations and warranties of the Investor set forth in Section 4
hereof, the Company has taken all action necessary to exempt: (i) the issuance
and sale of the Securities, (ii) the issuance of the Warrant Shares upon due
exercise of the Warrants, and (iii) the other transactions contemplated by the
Transaction Documents from the provisions of any stockholder rights plan or
other “poison pill” arrangement, any anti-takeover, business combination or
control share law or statute binding on the Company or to which the Company or
any of its assets and properties may be subject and any provision of the
Company’s Articles of Incorporation or Bylaws that is or could reasonably be
expected to become applicable to the Investor as a result of the transactions
contemplated hereby, including without limitation, the issuance of the
Securities and the ownership, disposition or voting of the Securities by the
Investor or the exercise of any right granted to the Investor pursuant to this
Agreement or the other Transaction Documents.
5.6.
Issuance of the
Securities
. The Shares are duly authorized and, when issued
and paid for in accordance with the Transaction Documents, will be duly and
validly issued, fully paid and nonassessable, free and clear of all
Liens. The Warrants have been duly and validly
authorized. Upon the due exercise of the Warrants, the Warrant Shares
will be validly issued, fully paid and non-assessable free and clear of all
Liens. The Company has reserved from its duly authorized capital
stock the maximum number of shares of Common Stock issuable pursuant to this
Agreement and the Warrants;
provided
,
however
, with respect
to the Warrants, the Company has only reserved from its duly authorized capital
stock the shares of Common Stock issuable as of the Closing Date, assuming the
valid exercise of all of the Warrants by the Investor.
5.7.
Capitalization
.
Schedule 5.7
to the
Disclosure Schedules sets forth as of the date hereof (a) the authorized capital
stock of the Company; (b) the number of shares of capital stock issued and
outstanding; (c) the number of shares of capital stock issuable pursuant to the
Company’s stock plans; and (d) the number of shares of capital stock issuable
and reserved for issuance pursuant to securities (other than the Warrants)
exercisable for, or convertible into or exchangeable for any shares of capital
stock of the Company. All of the issued and outstanding shares of the
Company’s capital stock have been duly authorized and validly issued and are
fully paid, nonassessable and free of pre-emptive rights and were issued in full
compliance with applicable state and federal securities law and any rights of
third parties. No Person has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents. Except as
described on
Schedule
5.7
to the Disclosure Schedules, there are no outstanding options,
warrants, script rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock, other than in connection with the
Company’s stock option plans. The issue and sale of the Securities
will not obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Investor) and will not result in a
right of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under such securities. Except as described on
Schedule 5.7
to
the Disclosure Schedules, there are no voting agreements, buy-sell agreements,
option or right of first purchase agreements or other agreements of any kind
among the Company and any of the securityholders of the Company relating to the
securities of the Company held by them. Except as described on
Schedule 5.7
to the
Disclosure Schedules, and no Person has the right to require the Company to
register any securities of the Company under the Securities Act, whether on a
demand basis or in connection with the registration of securities of the Company
for its own account or for the account of any other Person.
5.8.
SEC Reports; Financial
Statements
. The Company has filed with the SEC all SEC Reports
for the two years preceding the date hereof (or such shorter period as the
Company was required by law to file such material) on a timely basis or has
received a valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied in all material respects with the
requirements of the Securities Act and the Exchange Act, as applicable, and the
rules and regulations promulgated thereunder, and none of the SEC Reports, when
filed, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in
the SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the SEC with respect thereto as in
effect at the time of filing. Such financial statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved (“
GAAP
”), except as may be
otherwise specified in such financial statements or the notes thereto and except
that unaudited financial statements may not contain all footnotes required by
GAAP, and fairly present in all material respects the financial position of the
Company and its consolidated subsidiaries as of and for the dates thereof and
the results of operations and cash flows for the periods then ended, subject, in
the case of unaudited statements, to normal, immaterial, year-end audit
adjustments.
5.9.
Material
Changes
. Since the date of the latest audited financial
statements included within the SEC Reports, the Company and its Subsidiaries
have not:
(a) suffered
any Material Adverse Change;
(b) suffered
any damage, destruction or loss, whether or not covered by insurance, in an
amount in excess of $100,000;
(c)
granted or agreed to make any increase in the compensation payable or to become
payable by the Company or any of its Subsidiaries to any officer or employee,
except for normal raises for nonexecutive personnel made in the ordinary course
of business that are usual and normal in amount;
(d)
declared, set aside or paid any dividend or made any other
distribution on or in respect of the shares of capital stock of the Company or
any of its Subsidiaries, or declared or agreed to any direct or indirect
redemption, retirement, purchase or other acquisition by the Company or any of
its Subsidiaries of such shares;
(e) issued
any shares of capital stock of the Company or any of its Subsidiaries, or any
warrants, rights or options thereof, or entered into any commitment relating to
the shares of capital stock of the Company or any of its
Subsidiaries;
(f) adopted
or proposed the adoption of any change in the Company’s charter, bylaws or other
organizational or governing documents;
(g) made
any change in the accounting methods or practices they follow, whether for
general financial or tax purposes, or any change in depreciation or amortization
policies or rates adopted therein, or any tax election;
(h)
sold, leased, abandoned or otherwise disposed of any real property or any
machinery, equipment or other operating property other than in the ordinary
course of their business;
(i) sold,
assigned, transferred, licensed or otherwise disposed of any of the Company’s
Intellectual Property or interest thereunder or other intangible asset except in
the ordinary course of their business;
(j) been
involved in any dispute involving any employee which would reasonably be
expected to result in a Material Adverse Change;
(k) entered
into, terminated or modified any employment, severance, termination or similar
agreement or arrangement with, or granted any bonuses (or bonus opportunity) to,
or otherwise increased the compensation of any executive officer;
(l) entered
into any material commitment or transaction (including without limitation any
borrowing or capital expenditure);
(m) amended
or modified, or waived any default under, any Material Contract;
(n)
to the Company’s knowledge, incurred any material liabilities, contingent or
otherwise, either matured or unmatured (whether or not required to be reflected
in financial statements in accordance with GAAP, and whether due or to become
due), except for accounts payable or accrued salaries that have been incurred by
the Company since the date of the latest audited financial statements included
within the SEC Reports, in the ordinary course of its business and consistent
with the Company’s past practices;
(o) permitted
or allowed any of their material property or assets to be subjected to any
Lien;
(p) settled
any claim, litigation or action, whether now pending or hereafter made or
brought;
(q) made
any capital expenditure or commitment for additions to property, plant or
equipment individually in excess of $100,000, or in the aggregate, in excess of
$250,000;
(r) paid,
loaned or advanced any amount to, or sold, transferred or leased any properties
or assets to, or entered into any agreement or arrangement with any of their
Affiliates, officers, directors or stockholders or, to the Company’s knowledge,
any Affiliate or associate of any of the foregoing;
(s) made
any amendment to, or terminated any agreement that, if not so amended or
terminated, would be material to the business, assets, liabilities, operations
or financial performance of the Company or any of its Subsidiaries;
(t) compromised
or settled any claims relating to taxes, any tax audit or other tax proceeding,
or filed any amended tax returns;
(u) merged
or consolidated with any other Person, or acquired a material amount of assets
of any other Person;
(v) entered
into any agreement in contemplation of the transactions specified herein other
than this Agreement and the other Transaction Documents; or
(w)
agreed to take any action described in this Section 5.9 or which would
reasonably be expected to otherwise constitute a breach of any of the
representations or warranties contained in this Agreement or any other
Transaction Documents.
5.10.
Litigation
. Except
as described on
Schedule 5.10
to the
Disclosure Schedules, there is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the Company’s knowledge, threatened
against or affecting the Company, any Subsidiary or any of their respective
properties before or by any court, arbitrator, governmental or administrative
agency or regulatory authority (federal, state, county, local or foreign)
(collectively, an “
Action
”) which: (i) adversely
affects or challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect. Neither the Company nor any Subsidiary, nor any
director or officer thereof, is or has been the subject of any Action involving
a claim of violation of or liability under federal or state securities laws or a
claim of breach of fiduciary duty. There has not been, and to the
Company’s knowledge, there is not pending or contemplated, any investigation by
the SEC involving the Company or any current or former director or officer of
the Company. The SEC has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the Company
or any Subsidiary under the Exchange Act or the Securities Act.
5.11.
Labor
Relations
. Except as set forth on
Schedule 5.11
to the
Disclosure Schedules, neither the Company nor any Subsidiary is a party to or
bound by any collective bargaining agreements or other agreements with labor
organizations. Neither the Company nor any Subsidiary has violated in
any material respect any laws, regulations, orders or contract terms, affecting
the collective bargaining rights of employees, labor organizations or any laws,
regulations or orders affecting employment discrimination, equal opportunity
employment, or employees’ health, safety, welfare, wages and
hours. No material labor dispute exists or, to the Company’s
knowledge, is imminent with respect to any of the employees of the Company which
could reasonably be expected to result in a Material Adverse
Effect.
5.12.
Compliance
. Except
as set forth on
Schedule 5.12
to the
Disclosure Schedules, neither the Company nor any Subsidiary: (i) is in default
under or in violation of (and no event has occurred that has not been waived
that, with notice or lapse of time or both, would result in a default by the
Company or any Subsidiary under), nor has the Company or any Subsidiary received
notice of a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound (whether or
not such default or violation has been waived), (ii) is in violation of any
order of any court, arbitrator or Governmental Body, or (iii) is or has been in
violation of any statute, rule or regulation of any governmental authority,
including without limitation all foreign, federal, state and local laws
applicable to its business, except in the case of clauses (i), (ii) and (iii) as
would not have or reasonably be expected to result in a Material Adverse
Effect.
5.13.
Regulatory
Permits
. Except as disclosed in
Schedule 5.13
to the
Disclosure Schedules, the Company and the Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state, local or
foreign regulatory authorities necessary to conduct their respective businesses
as described in the SEC Reports and the Memorandum, except where the failure to
possess such permits would not have or reasonably be expected to result in a
Material Adverse Effect (“
Material Permits
”), and
neither the Company nor any Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material
Permit.
5.14.
Title to
Assets
. Except as set forth on
Schedule 5.14
to the
Disclosure Schedules, the Company and the Subsidiaries have good and marketable
title in fee simple or the right under PRC law, as the case may be, to all real
property owned by them that is material to the business of the Company and the
Subsidiaries and good and marketable title in all personal property owned by
them that is material to the business of the Company and the Subsidiaries, in
each case free and clear of all Liens, except for Liens as do not materially
affect the value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company and the
Subsidiaries and Liens for the payment of federal, state or other taxes, the
payment of which is neither delinquent nor subject to penalties. Any
real property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and enforceable leases of
which the Company and the Subsidiaries are in compliance.
5.15.
Contracts
.
(a) Neither the Company nor
any of its Subsidiaries is party or subject to, or bound by:
(i) any
agreements, contracts or commitments that call for prospective fixed and/or
contingent payments or expenditures by or to the Company or any of its
Subsidiaries of more than $100,000, or which is otherwise material and not
entered into in the ordinary course of business;
(ii) any
contract, lease or agreement involving payments in excess of $100,000, which is
not cancelable by the Company or any of its Subsidiaries, as applicable, without
penalty on not less than sixty (60) days notice;
(iii) any
contract, including any distribution agreements, containing covenants directly
or explicitly limiting the freedom of the Company or any of its Subsidiaries to
compete in any line of business or with any Person or to offer any of its
products or services;
(iv)
any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for the borrowing of money or pledging
or granting a security interest in any assets;
(v)
any employment contracts, non-competition agreements, invention assignments,
severance or other agreements with officers, directors, employees, stockholders
or consultants of the Company or any of its Subsidiaries or Persons related to
or affiliated with such Persons;
(vi) any
stock redemption or purchase agreements or other agreements affecting or
relating to the capital stock of the Company or any of its Subsidiaries,
including, without limitation, any agreement with any stockholder of the Company
or any of its Subsidiaries which includes, without limitation, antidilution
rights, voting arrangements or operating covenants;
(vii) any
pension, profit sharing, retirement, stock option or stock ownership
plans;
(viii) any royalty, dividend or similar arrangement
based on the revenues or profits of the Company or any of its Subsidiaries or
based on the revenues or profits derived from any Material
Contract;
(ix) any acquisition, merger,
asset purchase or other similar agreement;
(x) any sales agreement
which entitles any customer to a right of set-off, or right to a refund after
acceptance thereof;
(xi) any agreement with any supplier
or licensor containing any provision permitting such supplier or licensor to
change the price or other terms upon a breach or failure by the Company or any
of its Subsidiaries, as applicable, to meet its obligations under such
agreement; or
(xii) any agreement under which the
Company or any of its Subsidiaries has granted any Person registration rights
for securities.
(b)
Schedule 5.15(b)
to
the Disclosure Schedules contains a listing or description of all agreements,
contracts or instruments, including all amendments thereto, to which the Company
or its Subsidiaries are bound which meet the criteria set forth in Section
5.15(a) (such agreements, contracts or instruments, collectively, the “
Material
Contracts
”). The Company has made available to the Investor
copies of the Material Contracts. Neither the Company nor any of its
Subsidiaries has entered into any oral contracts which, if written, would
qualify as a Material Contract. Each of the Material Contracts is
valid and in full force and effect, is enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, fraudulent
transfer, moratorium or similar laws affecting creditors’ rights generally and
general principles of equity, and will continue to be so immediately following
the Closing Date.
(c) Actions
with Respect to Material Contracts.
(i) Neither the
Company nor any of its Subsidiaries has violated or breached, or committed any
default under, any Material Contract in any material respect, and, to the
Company’s knowledge, no other Person has violated or breached, or committed any
default under any Material Contract, except for violations, breaches of defaults
which would not have a Material Adverse Effect; and
(ii) To the Company’s
knowledge, no event has occurred, and no circumstance or condition exists, that
(with or without notice or lapse of time) will, or would reasonably be expected
to: (A) result in a material violation or breach of any of the provisions of any
Material Contract, (B) give any Person the right to declare a default or
exercise any remedy under any Material Contract, (C) give any Person the right
to accelerate the maturity or performance of any Material Contract or (D) give
any Person the right to cancel, terminate or modify any Material Contract,
except, in each case, as would not have a Material Adverse
Effect.
5.16.
Taxes
.
(a) The Company and its
Subsidiaries have timely and properly filed all tax returns required to be filed
by them for all years and periods (and portions thereof) for which any such tax
returns were due
,
except where the failure to so file would not have a
Material Adverse
Effect
. All such filed tax returns are accurate in all
material respects. The Company has timely paid all taxes due and
payable (whether or not shown on filed tax returns)
, except where the failure
to so pay would not have a
Material Adverse
Effect
. There are no pending assessments, asserted
deficiencies or claims for additional taxes that have not been
paid. The reserves for taxes, if any, reflected in the SEC Reports or
in the Memorandum are adequate, and there are no Liens for taxes on any property
or assets of the Company and any of its Subsidiaries (other than Liens for taxes
not yet due and payable). There have been no audits or examinations
of any tax returns by any Governmental Body, and the Company or its Subsidiaries
have not received any notice that such audit or examination is pending or
contemplated. No claim has been made by any Governmental Body in a
jurisdiction where the Company or any of its Subsidiaries does not file tax
returns that it is or may be subject to taxation by that
jurisdiction. To the Company’s knowledge, no state of facts exists or
has existed which would constitute grounds for the assessment of any penalty or
any further tax liability beyond that shown on the respective tax
returns. There are no outstanding agreements or waivers extending the
statutory period of limitation for the assessment or collection of any
tax.
(b) Neither the Company nor
any of its Subsidiaries is a party to any tax-sharing agreement or similar
arrangement with any other Person.
(c) The Company has made all necessary
disclosures required by Treasury Regulation Section 1.6011-4. The
Company has not been a participant in a “reportable transaction” within the
meaning of Treasury Regulation Section 1.6011-4(b).
(d) No payment or benefit
paid or provided, or to be paid or provided, to current or former employees,
directors or other service providers of the Company will fail to be deductible
for federal income tax purposes under Section 280G of the
Internal Revenue Code of
1986, as amended (the “
Code
”)
.
5.17.
Employees
.
(a) The Company and its
Subsidiaries are not party to any collective bargaining agreements and, to the
Company’s knowledge, there are no attempts to organize the employees of the
Company or any of its Subsidiaries.
(b) Except as set forth on
Schedule 5.17
to the
Disclosure Schedules, the Company and its Subsidiaries have no policy, practice,
plan or program of paying severance pay or any form of severance compensation in
connection with the termination of employment services.
(c) Each Person who
performs services for the Company or any of its Subsidiaries has been, and is,
properly classified by the Company or its Subsidiaries as an employee or an
independent contractor (or its PRC equivalent).
(d) To the Company’s
knowledge, no employee or advisor of the Company or any of its Subsidiaries is
or is alleged to be in violation of any term of any employment contract,
disclosure agreement, proprietary information and inventions agreement or any
other contract or agreement or any restrictive covenant or any other common law
obligation to a former employer relating to the right of any such employee to be
employed by the Company or any of its Subsidiaries because of the nature of the
business conducted or to be conducted by the Company or any of its Subsidiaries
or to the use of trade secrets or proprietary information of others, and the
employment of the employees of the Company and its Subsidiaries does not subject
the Company or the Company's stockholders to any liability. There is
neither pending nor, to the Company’s knowledge, threatened any actions, suits,
proceedings or claims, or, to the Company’s knowledge, any basis therefor or
threat thereof with respect to any contract, agreement, covenant or obligation
referred to in the preceding sentence.
5.18.
Employee Benefit
Plans
. No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan (as defined below) by the
Company or any of its Subsidiaries which is or would be materially adverse to
the Company and its Subsidiaries. The execution and delivery of this
Agreement and the issuance and sale of the Securities will not involve any
transaction which is subject to the prohibitions of Section 406 of the Employee
Retirement Income Security Act of 1974, as amended (“
ERISA
”), or in connection with
which a tax could be imposed pursuant to Section 4975 of the Code, provided
that, if any of the Investor, or any person or entity that owns a beneficial
interest in any of the Investor, is an “employee pension benefit plan” (within
the meaning of Section 3(2) of ERISA) with respect to which the Company is a
“party in interest” (within the meaning of Section 3(14) of ERISA), the
requirements of Sections 407(d)(5) and 408(e) of ERISA, if applicable, are
met. As used in this Section 2.1(ac), the term “
Plan
” shall mean an “employee
pension benefit plan” (as defined in Section 3 of ERISA) which is or has been
established or maintained, or to which contributions are or have been made, by
the Company or any subsidiary or by any trade or business, whether or not
incorporated, which, together with the Company or any subsidiary, is under
common control, as described in Section 414(b) or (c) of the Code.
5.19.
Patents and
Trademarks
. Except as set forth on
Schedule 5.19
to the
Disclosure Schedules, to the Company’s knowledge and each Subsidiary, the
Company and the Subsidiaries have, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights that are necessary or material for
use in connection with their respective businesses as described in the SEC
Reports and the Memorandum and which the failure to so have could have or
reasonably be expected to result in a Material Adverse Effect (collectively, the
“
Intellectual Property
Rights
”). Neither the Company nor any Subsidiary has received
a written notice that the Intellectual Property Rights used by the Company or
any Subsidiary violates or infringes upon the rights of any
Person. To the Company’s knowledge, all such Intellectual Property
Rights are enforceable. The Company and its Subsidiaries have taken
reasonable steps to protect the Company’s and its Subsidiaries’ rights in their
Intellectual Property Rights and confidential information (the “
Confidential
Information”
). Each employee, consultant and contractor who
has had access to Confidential Information which is necessary for the conduct of
Company’s and each of its Subsidiaries’ respective businesses as currently
conducted or as currently proposed to be conducted has executed an agreement to
maintain the confidentiality of such Confidential Information and has executed
appropriate agreements that are substantially consistent with the Company’s
standard forms thereof. Except under confidentiality obligations,
there has been no material disclosure of any of the Company’s or its
Subsidiaries’ Confidential Information to any third party.
5.20.
Environmental
Matters
. Neither the Company nor any Subsidiary is in
violation of any statute, rule, regulation, decision or order of any
Governmental Body relating to the use, disposal or release of hazardous or toxic
substances or relating to the protection or restoration of the environment or
human exposure to hazardous or toxic substances (collectively, “
Environmental Laws
”), owns or
operates any real property contaminated with any substance that is subject to
any Environmental Laws, is liable for any off-site disposal or contamination
pursuant to any Environmental Laws, or is subject to any claim relating to any
Environmental Laws, which violation, contamination, liability or claim has had
or could reasonably be expected to have a Material Adverse Effect, individually
or in the aggregate; and there is no pending or, to the Company’s knowledge,
threatened investigation that might lead to such a claim.
5.21.
Insurance
. The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries are
engaged as described in the SEC Reports and/or the
Memorandum. Neither the Company nor any Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business without a significant increase in
cost.
5.22.
Transactions With Affiliates and
Employees
. Except as set forth on
Schedule 5.22
to the
Disclosure Schedules, none of the officers or directors of the Company and, to
the Company’s knowledge, none of the employees of the Company is presently a
party to any transaction with the Company or any Subsidiary (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
Company’s knowledge, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner, in each case in excess of $120,000 other than (a) for payment of salary
or consulting fees for services rendered, (b) reimbursement for expenses
incurred on behalf of the Company and (c) for other employee benefits, including
stock option agreements under any stock option plan of the Company.
5.23.
Private Placement
. Assuming
the accuracy of each of the Investor’ representations and warranties set forth
in Section 4, no registration under the Securities Act is required for the offer
and sale of the Securities by the Company to the Investor as contemplated
hereby.
5.24.
No Integrated
Offering
. Neither the Company, nor any of its affiliates, nor
any Person acting on its or their behalf has, directly or indirectly, made any
offers or sales of any security or solicited any offers to buy any security,
under circumstances that would cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the Securities
Act or any applicable shareholder approval provisions, including, without
limitation, under the rules and regulations of any Trading Market on which any
of the securities of the Company are listed or designated.
5.25.
Brokers and
Finders
. No Person will have, as a result of the transactions
contemplated by the Transaction Documents, any valid right, interest or claim
against or upon the Company, any Subsidiary or an Investor for any commission,
fee or other compensation pursuant to any agreement, arrangement or
understanding entered into by or on behalf of the Company.
5.26.
No Directed Selling Efforts or
General Solicitation
. Neither the Company nor any Person
acting on its behalf has conducted any general solicitation or general
advertising (as those terms are used in Regulation D) in connection with the
offer or sale of any of the Securities.
5.27.
Questionable Payments.
Neither
the Company nor any of its Subsidiaries nor, to the Company’s knowledge, any of
their respective current or former stockholders, directors, officers, employees,
agents or other Persons acting on behalf of the Company or any Subsidiary, has
on behalf of the Company or any Subsidiary or in connection with their
respective businesses: (a) used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political activity;
(b) made any direct or indirect unlawful payments to any governmental officials
or employees from corporate funds; (c) established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; (d) made any false or
fictitious entries on the books and records of the Company or any Subsidiary; or
(e) made any unlawful bribe, rebate, payoff, influence payment, kickback or
other unlawful payment of any nature.
5.28.
Disclosures
. Neither
the Company nor any Person acting on its behalf has provided the Investor or
their agents or counsel with any information that constitutes or might
constitute material, non-public information, other than the terms of the
transactions contemplated hereby. The written materials delivered to
the Investor in connection with the transactions contemplated by the Transaction
Documents do not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading
5.29.
Solvency
. The
Company has not: (a) made a general assignment for the benefit of creditors; (b)
filed any voluntary petition in bankruptcy or suffered the filing of any
involuntary petition by its creditors; (c) suffered the appointment of a
receiver to take possession of all, or substantially all, of its assets; (d)
suffered the attachment or other judicial seizure of all, or substantially all,
of its assets; (e) admitted in writing its inability to pay its debts as they
come due; or (f) made an offer of settlement, extension or composition to its
creditors generally.
5.30.
Related
Party Transactions
. Except as set
forth in
Schedule
5.30
to the
Disclosure Schedules: (a) none of the Company or any of its Affiliates,
officers, directors, stockholders or employees, or any Affiliate of any of such
Person, has any material interest in any property, real or personal, tangible or
intangible, including the Company’s Intellectual Property used in or pertaining
to the business of the Company, except for the normal rights of a stockholder,
or, to the Company’s knowledge, any supplier, distributor or customer of the
Company; (b)
there are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, employees,
Affiliates, or, to the Company’s knowledge, any Affiliate thereof; (c)
to the Company’
s
knowledge, no employee, officer or director of the Company or any of its
Subsidiaries has any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation that competes with the
Company; (d) to the
Company’
s
knowledge, no member of the immediate family of any officer or director of the
Company is directly or indirectly interested in any Material Contract; or (e)
there are no amounts owed (cash and stock) to officers, directors and
consultants (salary, bonuses or other forms of compensation).
5.31.
Foreign Corrupt Practices
Act
. None of the Company or any of its Subsidiaries, nor to
the Company’s knowledge, any agent or other person acting on behalf of the
Company or any of its Subsidiaries, has, directly or indirectly: (a) used any
funds, or will use any proceeds from the sale of the Units, for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity; (b) made any unlawful payment to foreign
or domestic government officials or employees or to any foreign or domestic
political parties or campaigns from corporate funds; (c) failed to disclose
fully any contribution made by the Company or any of its Subsidiaries (or made
by any Person acting on their behalf of which the Company is aware) or any
members of their respective management which is in violation of any Legal
Requirement; or (d) has violated in any material respect any provision of the
Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations
thereunder which was applicable to the Company or any of its
Subsidiaries.
5.32.
PFIC
. None of the
Company or any of its Subsidiaries is or intends to become a “passive foreign
investment company” within the meaning of Section 1297 of the Code of
1986.
5.33.
OFAC
. None of the Company or
any of its Subsidiaries nor, to the Company’s knowledge, any director, officer,
agent, employee, Affiliate or Person acting on behalf of the Company or any of
its Subsidiaries, is currently subject to any U.S. sanctions administered by the
Office of Foreign Assets Control of the U.S. Treasury Department (“
OFAC
”); and the Company will
not directly or indirectly use the proceeds of the sale of the Units, or lend,
contribute or otherwise make available such proceeds to any of the Company’s
Subsidiaries, joint venture partner or other Person or entity, towards any sales
or operations in Cuba, Iran, Syria, Sudan, Myanmar or any other country
sanctioned by OFAC or for the purpose of financing the activities of any Person
currently subject to any U.S. sanctions administered by OFAC.
5.34.
Money Laundering
Laws
. The operations of each of the Company or any of its
Subsidiaries are and have been conducted at all times in compliance with the
money laundering Legal Requirements of all applicable Governmental Bodies of the
PRC and any related or similar rules, regulations or guidelines, issued,
administered or enforced by any PRC Governmental Body (collectively, the “
Money Laundering Laws
”) and no
action, suit or proceeding by or before any PRC court or PRC Governmental Body
or any arbitrator involving the Company or any of its Subsidiaries with respect
to the Money Laundering Laws is pending or, to the best of the Company’s
knowledge, threatened.
5.35.
Other Representations and Warranties
Relating to WFOE
.
(a) All material consents,
approvals, authorizations or licenses requisite under PRC Legal Requirements for
the due and proper establishment and operation of WFOE have been duly obtained
from the relevant PRC Governmental Bodies and are in full force and
effect.
(b) All filings and registrations
with the PRC Governmental Bodies required in respect of WFOE and its capital
structure and operations including, without limitation, the registration with
the PRC Ministry of Commerce or its local counterpart, the PRC the State
Administration of Industry and Commerce or its local counterpart, the PRC State
Administration of Foreign Exchange and applicable PRC tax bureau and customs
authorities have been duly completed in accordance with the relevant PRC Legal
Requirements, except where, the failure to complete such filings and
registrations does not, and would not, individually or in the aggregate, have a
Material Adverse Effect.
(c) WFOE has complied with
all relevant PRC Legal Requirements regarding the contribution and payment of
its registered share capital, the payment schedule of which has been approved by
the relevant PRC Governmental Bodies. There are no outstanding
commitments made by the Company or any Subsidiary (or any of their shareholders)
to sell any equity interest in WFOE.
(d) WFOE has not received
any letter or notice from any relevant PRC Governmental Body notifying it of
revocation of any licenses or qualifications issued to it or any subsidy granted
to it by any PRC Governmental Body for non-compliance with the terms thereof or
with applicable PRC Legal Requirements, or the lack of compliance or remedial
actions in respect of the activities carried out by WFOE, except such revocation
as does not, and would not, individually or in the aggregate, have a Material
Adverse Effect.
(e) WFOE has conducted its
business activities within the permitted scope of business or has otherwise
operated its business in compliance with all relevant Legal Requirements and
with all requisite licenses and approvals granted by competent PRC Governmental
Bodies other than such non-compliance that do not, and would not, individually
or in the aggregate, have a Material Adverse Effect. As to licenses,
approvals and government grants and concessions requisite or material for the
conduct of any material part of WFOE’s business which is subject to periodic
renewal, to the Company’s knowledge, there is no reason related to the WFOE for
which such requisite renewals will not be granted by the relevant PRC
Governmental Bodies.
(f) With regard to
employment and staff or labor, WFOE has complied with all applicable PRC Legal
Requirements in all material respects, including without limitation, those
pertaining to welfare funds, social benefits, medical benefits, insurance,
retirement benefits, pensions or the like, other than such non-compliance that
do not, and would not, individually or in the aggregate, have a Material Adverse
Effect.
6.
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CONDITIONS
TO THE CLOSING OF THE INVESTOR.
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The
obligation of the Investor to purchase the Units at any Closing is subject to
the fulfillment to the satisfaction of the Investor, on or prior to the Closing
Date, of the following conditions, any of which may be waived by the
Investor:
6.1.
Representations and
Warranties
. The representations and warranties made by the Company in
Section 5 hereof qualified as to materiality shall be true and correct at all
times prior to and on the Closing Date, except to the extent any such
representation or warranty expressly speaks as of an earlier date, in which case
such representation or warranty shall be true and correct as of such earlier
date, and, the representations and warranties made by the Company in Section 5
hereof not qualified as to materiality shall be true and correct in all material
respects at all times prior to and on the Closing Date, except to the extent any
such representation or warranty expressly speaks as of an earlier date, in which
case such representation or warranty shall be true and correct in all material
respects as of such earlier date.
6.2.
Performance
of A
greements
. The
Company shall have performed in all material respects all obligations and
covenants herein required to be performed by it on or prior to the Closing
Date.
6.3.
Approvals
. The Company shall
have obtained any and all consents, permits, approvals, registrations and
waivers necessary or appropriate for consummation of the purchase and sale of
the Securities and the consummation of the other transactions contemplated by
the Transaction Documents, all of which shall be in full force and
effect.
6.4.
Judg
ments,
e
tc.
No judgment,
writ, order, injunction, award or decree of or by any court, or judge, justice
or magistrate, including any bankruptcy court or judge, or any order of or by
any governmental authority, shall have been issued, and no action or proceeding
shall have been instituted by any governmental authority, enjoining or
preventing the consummation of the transactions contemplated hereby or in the
other Transaction Documents.
6.5.
Stop Orders
. No stop
order or suspension of trading shall have been imposed by the SEC or any other
governmental or regulatory body having jurisdiction over the Company or the
market(s) where the Common Stock is listed or quoted, with respect to public
trading in the Common Stock.
6.6.
Adverse
Changes
. Since the date of execution of this Agreement, no
event or series of events shall have occurred that reasonably could have or
result in a Material Adverse Effect or a material adverse change with respect to
the Company or any of its Subsidiaries;
6.7.
Company
Officer
Certificate
. The Company
shall have delivered a certificate, executed on behalf of the Company by its
Chief Executive Officer or its Chief Financial Officer, dated as of the Closing
Date, certifying to the fulfillment of the conditions specified in this Section
6.
6.8.
Compan
y Secretary Certificate
. The
Company shall have delivered a certificate, executed on behalf of the Company by
its Secretary, dated as of the Closing Date, certifying the resolutions adopted
by the Board of Directors of the Company approving the transactions contemplated
by this Agreement and the other Transaction Documents and the issuance of the
Securities, certifying the current versions of the charter and bylaws of the
Company, as the same may be amended and/or restated, and certifying as to the
signatures and authority of persons signing the Transaction Documents and
related documents on behalf of the Company.
6.9.
Opinion of Counsel
. The
Investor shall have received an opinion from Pillsbury Winthrop Shaw Pittman,
LLP, the Company’s U.S. legal counsel, dated as of the Closing Date, in such
form and substance as agreed to by the Company and the Investor (it being agreed
that such counsel shall not be required to deliver a “10b-5” or negative
assurances letter or opinion).
6.10.
Common Stock
and Warrants
. The
Company shall have delivered the Shares and Warrants being sold at the
Closing.
6.11.
Amendment to Articles of
Incorporation
. The Company shall have filed with the Secretary
of State of the State of Nevada an amendment to its Articles of Incorporation
increasing the number of authorized shares of Preferred Stock of the Company
from 5,000,000 to 50,000,000.
6.12.
Joint Venture Operating
Agreements
. The Company shall have entered into definitive
operating agreements with its partners in the PRC with respect to the operation
and funding of two joint ventures in the PRC.
6.13.
Consummation of
Common Stock
Financing
.
The
consummation of the sale of up to $15,000,000 worth of shares of Common Stock of
the Company to certain investors shall occur simultaneous with the Closing
(including in such amount the gross proceeds received from the sale of Shares
and Warrants hereunder and the sale of Series A Preferred Shares and Warrants to
Shane McMahon.
6.14.
Consummation of Series
A
Financing
.
The
consummation of the sale of 7,000,000 shares of Series A Preferred Stock of
the Company to Shane McMahon shall occur simultaneous with the
Closing.
6.15.
Waiver of Certain Accrued
Salaries
. Clive Ng, the
Company’s Chairman, and Pu Yue, the Company’s Vice Chairman and Principal
Financial and Accounting Officer, shall each discharge and waive all amounts of
accrued but unpaid salary owed to them by the Company as of the date of
Closing.
6.16.
Registration Rights
Agreement
. The Company shall have delivered to the Investor
the duly executed Registration Rights Agreement.
7.
CONDITIONS
TO THE CLOSING OF THE COMPANY.
The
obligations, with respect to the Investor, of the Company to effect the
transactions contemplated by this Agreement are subject to the fulfillment at or
prior to the Closing Date of the conditions listed below.
7.1.
Representations and
Warranties
. The representations and warranties in Section 4 hereof made
by the Investor shall be true and correct in all material respects at the time
of Closing as if made on and as of such date.
7.2.
Corporate Procee
dings
. All corporate and other
proceedings required to be undertaken by the Investor in connection with the
transactions contemplated hereby shall have occurred and all documents and
instruments incident to such proceedings shall be reasonably satisfactory in
substance and form to the Company.
7.3.
Agreements
. The Investor
shall have completed and executed this Agreement, the Escrow Agreement and an
investor questionnaire as provided by the Company, and delivered the same to the
Company.
7.4.
Purchase Price
. The
Investor shall have delivered or caused to be delivered the Purchase Price to
the Escrow Account.
7.5.
Loan Cancellation
Agreement
. The execution of a Loan Cancellation Agreement, in
the form of
Exhibit
C
hereto, by the Company and the Investor shall occur simultaneous with
the Closing.
8.1.
Integration
. The
Company shall not, and shall use its best efforts to ensure that no Affiliate of
the Company shall, sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Securities in a
manner that would require the registration under the Securities Act of the sale
of the Securities to the Investor, or that would be integrated with the offer or
sale of the Securities for purposes of the rules and regulations of any Trading
Market in a manner that would require stockholder approval of the sale of the
Securities to the Investor.
8.2.
Securities Laws Disclosure;
Publicity
. By 9:00 a.m. (New York City time) on the Trading
Day following the Closing Date, the Company shall issue a press release
disclosing the transactions contemplated hereby and the Closing. By
no later than the fourth Trading Day following the Closing Date the Company will
file a Current Report on Form 8-K disclosing the material terms of this
Agreement and the other Transaction Documents (and attach as exhibits thereto
the Transaction Documents) and the Closing. In addition, the Company
will make such other filings and notices in the manner and time required by the
SEC and the Trading Market on which the Common Stock is
listed. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Investor, or include the name of any Investor in any
filing with the SEC (other than the Registration Statement and any exhibits to
filings made in respect of this transaction in accordance with periodic filing
requirements under the Exchange Act) or any regulatory agency or Trading Market,
without the prior written consent of the Investor Representative, except to the
extent such disclosure is required by law or Trading Market
regulations.
8.3.
Limitation on Issuance of Future
Priced Securities
. During the six months following the Closing
Date, the Company shall not issue any “Future Priced Securities” as such term is
described by the rules and regulations of FINRA.
8.4.
Reservation of
Shares
. The Company shall maintain a reserve from its duly
authorized shares of Common Stock to comply with its obligations to issue the
shares of Common Stock upon conversion of the Shares and the Warrant Shares upon
exercise of the Warrants.
8.5.
Certificate of
Designations
. The Company shall file with the Secretary of
State of the State of Nevada, at the Closing, a certificate of designations, in
the form of
Exhibit
D
hereto, establishing
the relative rights, preferences and other features of the Shares.
9.
FURTHER
ASSURANCES
. The Company will, and will cause all of its
Subsidiaries to, and their management to, use their best efforts to satisfy all
of the closing conditions under Section 7, and will not take any action which
could frustrate or delay the satisfaction of such conditions. In
addition, either prior to or following the Closing, the Company will, and will
cause each of its Subsidiaries to, and its and their management to, perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as any other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
10. MISCELLANEOUS.
10.1.
Notices
. All notices,
requests, demands and other communications provided in connection with this
Agreement shall be in writing and shall be deemed to have been duly given at the
time when hand delivered, delivered by express courier, or sent by facsimile
(with receipt confirmed by the sender’s transmitting device) in
accordance with the contact information provided below or such other
contact information as the parties may have duly provided by
notice.
c/o China
Broadband Inc.
1900
Ninth Street, 3rd Floor
Boulder,
Colorado 80302
Attention: Marc
Urbach
Fax
Number: (303) 449.7799
With
a copy to:
Pillsbury
Winthrop Shaw Pittman LLP
2300 N
Street, N.W.
Washington,
DC 20037
Attention:
Louis A. Bevilacqua, Esq.
Fax
Number: (202) 663.8007
As per
the contact information provided on the signature page hereof.
10.2.
Amendments;
Waivers
. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and the Investor or, in the case of a waiver, by the party against
whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such
right.
10.3.
Construction
. The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.
10.4.
Successors and
Assigns
. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Investor
Representative. Any Investor may assign any or all of its rights
under this Agreement to any Person to whom the Investor assigns or transfers any
Securities, provided such transferee agrees in writing to be bound, with respect
to the transferred Securities, by the provisions hereof that apply to the
“Investor”.
10.5.
No Third-Party
Beneficiaries
. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person.
10.6.
Governing Law, Consent to
Jurisdiction, etc.
All questions concerning the construction,
validity, enforcement and interpretation of the Transaction Documents shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereto hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, New York for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of the any
of the Transaction Documents), and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is improper. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law. EACH PARTY
HERETO (INCLUDING ITS AFFILIATES, AGENTS, OFFICERS, DIRECTORS AND EMPLOYEES)
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
10.7.
Survival
. The
representations, warranties, agreements and covenants contained herein shall
survive for two (2) years after the Closing of the transactions contemplated by
this Agreement.
10.8.
Indemnification
.
(a) The Company agrees to
indemnify and hold harmless the Investor and its Affiliates and their respective
directors, officers, employees and agents from and against any and all losses,
claims, damages, liabilities and expenses (including without limitation
reasonable attorney fees and disbursements and other expenses incurred in
connection with investigating, preparing or defending any action, claim or
proceeding, pending or threatened and the costs of enforcement thereof)
(collectively, “
Losses
”)
to which such Person may become subject as a result of any breach of
representation, warranty, covenant or agreement made by or to be performed on
the part of the Company under the Transaction Documents, and will reimburse any
such Person for all such amounts as they are incurred by such
Person.
(b) Promptly after receipt
by any Person (the “
Indemnified
Person
”) of notice of any demand, claim or circumstances which would or
might give rise to a claim or the commencement of any action, proceeding or
investigation in respect of which indemnity may be sought pursuant to this
Section 10.9, such Indemnified Person shall promptly notify the Company in
writing and the Company shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified Person, and
shall assume the payment of all fees and expenses; provided, however,
that the failure of any
Indemnified Person so to notify the Company shall not relieve the Company of its
obligations hereunder except to the extent that the Company is materially
prejudiced by such failure to notify. In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless: (i) the Company and the Indemnified Person shall have mutually agreed to
the retention of such counsel; or (ii) in the reasonable judgment of counsel to
such Indemnified Person representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between
them. The Company shall not be liable for any settlement of any
proceeding effected without its written consent, which consent shall not be
unreasonably withheld, but if settled with such consent, or if there be a final
judgment for the plaintiff, the Company shall indemnify and hold harmless such
Indemnified Person from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. Without the prior
written consent of the Indemnified Person, which consent shall not be
unreasonably withheld, the Company shall not effect any settlement of any
pending or threatened proceeding in respect of which any Indemnified Person is
or could have been a party and indemnity could have been sought hereunder by
such Indemnified Party, unless such settlement includes an unconditional release
of such Indemnified Person from all liability arising out of such
proceeding.
10.9.
Execution
. This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by
facsimile transmission or other electronic transmission, such signature shall
create a valid and binding obligation of the party executing (or on whose behalf
such signature is executed) with the same force and effect as if such facsimile
or other electronic signature page were an original thereof.
10.10.
Severability
. If
any provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the
parties will attempt to agree upon a valid and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
10.11.
Replacement of
Securities
. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or
instrument under such circumstances shall also pay any reasonable third-party
costs associated with the issuance of such replacement Securities.
10.12.
Remedies
. In
addition to being entitled to exercise all rights provided herein or granted by
law, including recovery of damages, each of the Investor and the Company will be
entitled to specific performance under the Transaction Documents. The
parties agree that monetary damages may not be adequate compensation for any
loss incurred by reason of any breach of obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance of
any such obligation the defense that a remedy at law would be
adequate.
10.13.
Payment Set
Aside
. To the extent that the Company makes a payment or
payments to any Investor pursuant to any Transaction Document or a Investor
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
10.14.
Irrevocable
Offer
. The Investor agrees that this Agreement constitutes an
irrevocable offer to purchase the Securities of the Company and that Investor
cannot cancel, terminate or revoke this Agreement or any agreement of Investor
made hereunder. This Agreement shall survive the death or legal
disability of Investor and shall be binding upon Investor’s heirs, executors,
administrators and successors.
[Signature
Pages Follow]
IN WITNESS WHEREOF
, the
parties hereto have caused this Securities Purchase Agreement to be duly
executed by their respective authorized signatories as of the date first
indicated above.
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COMPANY:
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CHINA
BROADBAND INC.
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By:
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Name:
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Title:
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INVESTOR:
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Name
and Address, Fax No. and Social Security No. of
Investor:
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Fax No.:
_________________________________________
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Soc.
Sec. No.:
_________________________________
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_____________________________
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Signature
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Total Purchase Price:
_________________________
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Number of Units:
___________________________
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Number of Warrants:
______________________
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Exhibit
A
Form
of Warrant
[attached
hereto]
Exhibit
B
Registration
Rights Agreement
[attached
hereto]
Exhibit
C
Loan
Cancellation Agreement
[attached
hereto]
Exhibit
D
Certificate
of Designations of Series B Preferred Stock
[attached
hereto]
WAIVER,
AMENDMENT AND AGREEMENT TO CONVERT
THIS
WAIVER, AMENDMENT AND AGREEMENT TO CONVERT (this “
Waiver
”)
is dated as of May 20, 2010, by and among CHINA BROADBAND, INC., a Nevada
corporation, (the “
Company
”)
and the holders of Notes and Class A Warrants (each as defined below) named on
the signature page hereto (each a “
Holder
”
and collectively, the “
Holders
”).
BACKGROUND
The
Company issued Promissory Notes dated as of January 11, 2008 in the aggregate
principal amount of $4,971,250, (as amended, restated, supplemented or otherwise
modified from time to time, the “
Notes
”)
pursuant to a Subscription Agreement dated as of January 11, 2008 (the “
Subscription
Agreement
”). In addition, in connection to the Subscription
Agreement, the Company issued the Holders warrants to purchase an aggregate of
6,628,333 shares of the Company’s common stock at a per share purchase price of
$0.60 (the “
Class A
Warrants
”).
The
Company intends to raise up to $15,000,000 through the sale of its securities at
a price per share (including a conversion or exercise price per share in the
case of securities of the Company that are convertible into or exercisable for
common stock of the Company) of no lower than $0.05 per share (the “
Financing
”).
The
Company has requested that the Holder consent to the Financing and waive its
rights under Section 12 of the Subscription Agreement as it relates to this
Financing only and in connection therewith make the amendments to the Notes and
Class A Warrants described below. The Holder is willing to do so on
the terms and conditions hereinafter set forth.
In
addition, the Company has requested that each Holder consent to the conversion
of at least fifty percent (50%) of the outstanding principal and interest owing
on the Notes into shares of the Company’s common stock at a per share conversion
price of $0.05.
AGREEMENT
NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged by the parties, the parties hereto hereby agree as
follows:
1. All
capitalized terms not otherwise defined herein shall have the meanings given to
them in the Subscription Agreement, the Note and the Class A
Warrants.
2. Each
Holder hereby consents to the Financing and, concurrent with the closing of the
Financing, waives all rights to the anti-dilution protection under Section
12(a)-(d) of the Subscription Agreement, applicable only to the Notes, arising
as a result of the Financing.
3. Each
Holder hereby waives, concurrent with the closing of the Financing, all rights
to the anti-dilution protection under Section 12(a)-(d) of the Subscription
Agreement, applicable only to the Class A Warrants, arising as a result of the
Financing or any other transaction or event at any time in the future which
would otherwise result in anti-dilution adjustments to the Class A
Warrants. In connection with the waiver contained in this Section 3,
the Holders, by signing below, agree that all Class A Warrants shall be,
concurrent with the closing of the Financing, modified to delete Section 3.4 of
the Class A Warrants in its entirety.
4. The
Company hereby acknowledges that the Holder is not waiving any other rights
under the Subscription Agreement, including, without limitation, any future
application of the anti-dilution provisions contained in Section 12 applicable
to the Notes.
5. Section
4 of that certain Waiver, dated May __, 2009, provided in pertinent part that if
a Holder acquired securities in the Financing (as defined in such Waiver), then
such Holder’s Conversion Price in the Notes would be further reduced to $0.20
(down from $0.25) or such lower price as may result from the application of the
provisions of Section 12 of the Subscription Agreement. Through this
Waiver, the Holders, by signing below, agree that all Notes, including those
Notes held by Holders who did not participate in the 2009 Financing, shall be
modified such that they shall, immediately upon the closing of the Financing,
bear a Conversion Price of $0.10 (or such lower price as may result from the
application of the provisions of Section 12 of the Subscription Agreement), so
that all outstanding Notes shall thereafter have the same Conversion
Price.
6. Each
Holder hereby consents and agrees to the automatic conversion, immediately upon
the closing of the Financing, of such percentage (as indicated on the Holder’s
signature page hereto) of the outstanding principal and interest owing, as of
the date thereof, on the Notes held by each Holder into shares of the Company’s
common stock at a per share conversion price of $0.05; provided, however, that
the percentage of Notes converted into shares the Company’s common stock shall
not be less than fifty percent (50%). The mechanics of such
conversion shall be in accordance with Section 2.3 of the Notes; provided
however, that the Company is only obligated to issue the shares of common stock
upon such conversion on or before the fifth (5
th
)
business day following the closing of the Financing. The Company
hereby acknowledges that the shares issued upon any conversion pursuant to this
Section 6 by a Holder who is not an affiliate, and has not been an affiliate at
any time during the three months prior to the date of conversionm, as defined by
Rule 144 of the Securities Act of 1933, as amended (the ”
1933 Act
”), will not contain
a restrictive legend referring to the restrictions on transferability
under the 1933 Act and no stop transfer restrictions will be places against any
such shares.
7. In
order to induce the Holders to provide the waivers contained herein and consent
to the conversion of at least 50% of the outstanding principal and interest
owing on the Notes in accordance with Section 6 hereof, the Company and the
Holders hereby agree, effective concurrent with the closing of the Financing,
(i) to amend the definition of “Maturity Date” contained in the Notes so that
the “Maturity Date” of the Notes is now December 31, 2012; (ii) to amend the
definition of “Purchase Price” contained in the Class A Warrants so that the
“Purchase Price” of the Class A warrants is $0.20 (down from $0.60) (or such
lower price as may result from the application of the provisions of Section 12
of the Subscription Agreement); and (iii) that each Holder will receive a
five-year warrant to purchase such number of shares of the Company’s common
stock, at a per share price of $0.05, equal to the number of shares issued to
such Holder in connection with the conversion of the Holder’s Notes in
accordance with Section 6 hereof.
8. The
Company hereby represents, warrants and covenants as follows:
(a) This
Waiver constitutes legal, valid and binding obligations of the Company and is
enforceable against the Company in accordance with its respective
terms.
(b) Except
as set forth in this Waiver or as disclosed in the Company’s reports or other
documents filed with the Securities and Exchange Commission on or prior to the
date hereof, the Company hereby reaffirms, as of the date hereof (or if any such
representation, covenant or warranty is expressly stated to have been made as of
a specific date, as of such specific date), all covenants, representations and
warranties made in the Subscription Agreement, the Notes, the Class A Warrants
and all documents, instruments and agreements entered into in connection with
the transactions contemplated thereby (collectively, the “
Purchase
Documents
”).
(c) Except
as set forth in this Waiver, all terms and conditions of the Purchase Documents
shall continue unchanged and in full force and effect, including, without
limitation, the provisions set forth in Section 12 of the Subscription
Agreement.
(d) No
Event of Default has occurred and is continuing or would exist after giving
effect to this Waiver.
9. The
Holder hereby represents and warrants as follows:
(a) It
has the power and authority to execute, deliver and perform this Waiver and that
this Waiver is a legal, valid and binding obligation, enforceable against
it.
(b) It
owns, of record and beneficially, and has valid title to, the Note, free and
clear of any and all liens.
(c) It
owns, of record and beneficially, and has valid title to, the Class A Warrant,
free and clear of any and all liens
10. Each
Holder hereby acknowledges that any conversion of Notes pursuant to Section 6
hereof by Mr. Steven Oliviera, a Holder of $2,000,000 in principal amount of the
Notes, will convert into shares of the Company’s Series B Preferred Stock at a
per share conversion price of $0.50. Each share of Series B Preferred
Stock is convertible into 10 shares of the Company’s common stock, however,
prior to any such conversion into the Company’s common stock, the shares of the
Series B Preferred Stock will not have full voting rights and powers equal to
the voting rights and powers of holders of the Company’s common
stock.
11. The
execution, delivery and effectiveness of this Waiver shall not operate as a
waiver of any right, power or remedy of the Holder, nor constitute a waiver of
any provision of any Purchase Documents.
12. Each
party agrees to execute and deliver promptly any and all such further reasonable
documents, instruments and certificates, and to undertake all such further acts,
as may be necessary, desirable or appropriate to effectuate the terms of this
Waiver, including, without limitation, the execution of an amendment to the Note
and Class A Warrant, if such amendments are deemed necessary or desirable by
legal counsel to the Company, to effectuate the intention of the foregoing
provisions.
13. Each
party agrees that it will reasonably cooperate with the other party to
effectuate the intention of this Waiver. The waivers and other
agreements contained herein by the Holder are irrevocable.
14. This
Waiver constitutes the entire understanding of the parties relating to the
subject matter hereof and supersedes all prior agreements and understandings,
whether oral or written.
15. This
Waiver shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns and shall be governed by and construed
in accordance with the laws of the State of New York.
16. Section
headings in this Waiver are included herein for convenience of reference only
and shall not constitute a part of this Waiver for any other
purpose.
17.
This Waiver may be executed by the parties hereto in one or more counterparts,
each of which shall be deemed an original and all of which when taken together
shall constitute one and the same agreement. Any signature delivered
by a party by facsimile transmission shall be deemed to be an original signature
hereto.
[Signature
Page Follows]
IN
WITNESS WHEREOF, this Waiver has been duly executed as of the day and year first
written above.
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COMPANY
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CHINA
BROADBAND, INC.
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By:
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Name:
Marc Urbach
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Title:
President
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HOLDER
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For
Entities
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Name
of Entity
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By:
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Name:
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Title:
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For
Individuals
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Name:
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$
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Amount
of outstanding principal and interest owing on the Notes converted in
accordance with Section 6 of this Waiver
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%
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Percentage
of outstanding principal and interest owing on the Notes converted in
accordance with Section 6 of this
Waiver
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Exhibit
10.5
WAIVER,
AMENDMENT AND AGREEMENT TO CONVERT
THIS
WAIVER, AMENDMENT AND AGREEMENT TO CONVERT (this “
Waiver
”)
is dated as of May 20, 2010, by and among CHINA BROADBAND, INC., a Nevada
corporation, (the “
Company
”)
and the holders of Notes (as defined below) named on the signature page hereto
(each a “
Holder
”
and collectively, the “
Holders
”).
BACKGROUND
The
Company issued Promissory Notes dated as of June 30, 2009 in the aggregate
principal amount of $304,902, (as amended, restated, supplemented or otherwise
modified from time to time, the “
Notes
”)
pursuant to a Note Purchase Agreement dated as of June 30, 2009 (the “
NPA
”).
The
Company intends to raise up to $15,000,000 through the sale of its securities at
a price per share (including a conversion or exercise price per share in the
case of securities of the Company that are convertible into or exercisable for
common stock of the Company) of no lower than $0.05 per share (the “
Financing
”).
The
Company has requested that the Holders consent to the Financing and waive their
rights under Section 4.5 of the NPA as it relates to this Financing only and in
connection therewith make the amendments to the Notes described
below. The Holder is willing to do so on the terms and conditions
hereinafter set forth.
In
addition, the Company has requested that each Holder consent to the conversion
of at least fifty percent (50%) of the outstanding principal and interest owing
on the Notes into shares of the Company’s common stock at a per share conversion
price of $0.05.
AGREEMENT
NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged by the parties, the parties hereto hereby agree as
follows:
1. All
capitalized terms not otherwise defined herein shall have the meanings given to
them in the NPA, the Notes.
2. Each
Holder hereby consents to the Financing and, effective as of the closing of the
Financing, waives all rights to the anti-dilution protection under Section 4.5
of the NPA arising as a result of the Financing.
3. The
Company hereby acknowledges that the Holder is not waiving any other rights
under the NPA, including, without limitation, any future application of the
anti-dilution provisions contained in Section 4.5 applicable to the
Notes.
4. Each
Holder hereby consents and agrees to the automatic conversion, concurrent with
the closing of the Financing, of such percentage (as indicated on the Holder’s
signature page hereto) of the outstanding principal and interest owing, as of
the date thereof, on the Notes held by each Holder into shares of the Company’s
common stock at a per share conversion price of $0.05; provided, however, that
the percentage of Notes converted into shares the Company’s common stock shall
not be less than fifty percent (50%). The mechanics of such
conversion shall be in accordance with Section 4.2 of the Notes; provided,
however, that the Company is only obligated to issue the shares of common stock
upon such conversion on or before the fifth (5
th
)
business day following filing of an amendment to the Company’s Articles of
Incorporation with the Secretary of State of the State of Nevada thereby
increasing the capital stock of the Company to 1,550,000,000 shares, consisting
of 1,500,000,000 shares of common stock and 50,000,000 shares of preferred
stock.
5. In
order to induce the Holders to provide the waivers contained herein and consent
to the conversion of at least 50% of the outstanding principal and interest
owing on the Notes in accordance with this Waiver, the Company and the Holders
hereby agree, concurrent with the closing of the Financing, (i) to amend the
definition of “Maturity Date” contained in the Notes so that the “Maturity Date”
of the Notes is now December 31, 2012; and (ii) that each Holder will receive a
five-year warrant to purchase such number of shares of the Company’s common
stock, at a per share price of $0.05, equal to the number of shares issued to
such Holder in connection with the conversion of the Holder’s Notes in
accordance with this Waiver.
6. The
Company hereby represents, warrants and covenants as follows:
(a) This
Waiver constitutes legal, valid and binding obligations of the Company and is
enforceable against the Company in accordance with its respective
terms.
(b) Except
as set forth in this Waiver or as disclosed in the Company’s reports or other
documents filed with the Securities and Exchange Commission on or prior to the
date hereof, the Company hereby reaffirms, as of the date hereof (or if any such
representation, covenant or warranty is expressly stated to have been made as of
a specific date, as of such specific date), all covenants, representations and
warranties made in the NPA, the Notes and all documents, instruments and
agreements entered into in connection with the transactions contemplated thereby
(collectively, the “
Purchase
Documents
”).
(c) Except
as set forth in this Waiver, all terms and conditions of the Purchase Documents
shall continue unchanged and in full force and effect, including, without
limitation, the provisions set forth in Section 4.5 of the NPA.
(d) No
Event of Default has occurred and is continuing or would exist after giving
effect to this Waiver.
7. The
Holder hereby represents and warrants as follows:
(a) It
has the power and authority to execute, deliver and perform this Waiver and that
this Waiver is a legal, valid and binding obligation, enforceable against
it.
(b) It
owns, of record and beneficially, and has valid title to, the Note, free and
clear of any and all liens.
8. Each
Holder hereby acknowledges that any conversion of Notes pursuant to Section 4
hereof by Mr. Steven Oliviera, a Holder of $133,400 in principal amount of the
Notes, will convert into shares of the Company’s Series B Preferred Stock at a
per share conversion price of $0.50. Each share of Series B Preferred
Stock is convertible into 10 shares of the Company’s common stock, however,
prior to any such conversion into the Company’s common stock, the shares of the
Series B Preferred Stock will not have full voting rights and powers equal to
the voting rights and powers of holders of the Company’s common
stock.
9. The
execution, delivery and effectiveness of this Waiver shall not operate as a
waiver of any right, power or remedy of the Holder, nor constitute a waiver of
any provision of any Purchase Documents.
10. Each
party agrees to execute and deliver promptly any and all such further reasonable
documents, instruments and certificates, and to undertake all such further acts,
as may be necessary, desirable or appropriate to effectuate the terms of this
Waiver, including, without limitation, the execution of an amendment to the
Note, if such amendment is deemed necessary or desirable by legal counsel to the
Company, to effectuate the intention of the foregoing provisions.
11. Each
party agrees that it will reasonably cooperate with the other party to
effectuate the intention of this Waiver. The waivers and other
agreements contained herein by the Holder are irrevocable.
12. This
Waiver constitutes the entire understanding of the parties relating to the
subject matter hereof and supersedes all prior agreements and understandings,
whether oral or written.
13. This
Waiver shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns and shall be governed by and construed
in accordance with the laws of the State of New York.
14. Section
headings in this Waiver are included herein for convenience of reference only
and shall not constitute a part of this Waiver for any other
purpose.
15.
This Waiver may be executed by the parties hereto in one or more counterparts,
each of which shall be deemed an original and all of which when taken together
shall constitute one and the same agreement. Any signature delivered
by a party by facsimile transmission shall be deemed to be an original signature
hereto.
[Signature
Page Follows]
IN
WITNESS WHEREOF, this Waiver has been duly executed as of the day and year first
written above.
COMPANY
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CHINA
BROADBAND, INC.
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By:
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Name: Marc
Urbach
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Title:
President
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HOLDER
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For
Entities
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Name
of Entity
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By:
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Name:
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Title:
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For
Individuals
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Name:
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$
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Amount
of outstanding principal and interest owing on the Notes converted in
accordance with Section 6 of this Waiver
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%
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Percentage
of outstanding principal and interest owing on the Notes converted in
accordance with Section 4 of this
Waiver
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Exhibit
10.6
LOAN
CANCELLATION AND NOTE ASSIGNMENT AGREEMENT
This
LOAN CANCELLATION AND NOTE
ASSIGNMENT AGREEMENT
(this “
Agreement
”), dated as of July
30, 2010, is by and among China Broadband, Inc, a Nevada corporation (the “
Company
”) and Steven Oliveira,
an individual (the “
Investor
”; together with the
Company, the “
Parties
”). Capitalized
terms not otherwise defined herein shall have the meanings set forth in that
certain Series B Preferred Stock Purchase Agreement, dated as of even date
herewith, between the Company and the Investor (the “
Purchase
Agreement
”).
BACKGROUND
On March 9, 2010, the Investor loaned
to the Company Six Hundred Thousand Dollars ($600,000) (the “
Loan
”). In June
2010, the Company repaid $580,000 of the Loan to the
Investor. Subsequent to the repayment, the Investor loaned $580,000
to Sinotop Group Limited, a Hong Kong corporation (“
Sinotop
”), as evidenced by the
issuance of a note to the investor (the “
Sinotop Note
”). The
Company desires to sell Units to the Investor pursuant to the terms and
conditions set forth in the Purchase Agreement. In addition, the
Company desires that the Investor purchase an additional $600,000 worth of Units
pursuant to the Purchase Agreement through (i) the cancellation of the remaining
$20,000 worth of indebtedness evidenced by the Loan (the “
Loan Cancellation
”) and (ii)
the assignment of the Sinotop Note to the Company (the “
Note
Assignment
”). As further inducement for the Investor to enter
into this Agreement, the Company has agreed to issue the Investor, an additional
Warrant to purchase twenty-four million (24,000,000) shares of the Company’s
Common Stock at an exercise price of $0.05 per share.
It is a condition precedent to the
closing under the Purchase Agreement that the Investor and the Company enter
into the present Agreement.
AGREEMENT
In
consideration of the mutual representations, warranties and covenants contained
herein, and intending to be legally bound hereby, and subject to the
satisfaction of the conditions set forth in Section 5 hereof, the Parties hereto
agree as follows:
1.
Loan
Cancellation
. The Investor hereby agrees that all
amounts owed and outstanding under Loan are hereby cancelled and that the
Company has no further obligations under the Loan whatsoever and that the Loan
and all evidences thereof are hereby terminated and forever
discharged.
2.
Note
Assignment
. The Investor hereby assigns, grants, transfers,
conveys and relinquishes to the Company, and the Company hereby accepts from the
Investor, all of the right, title and interest of the Investor in the Sinotop
Note. The Investor represents and warrants to the Company that (i)
the Investor owns the Sinotop Note free and clear of any lien, encumbrance,
claim or interest of any kind, and (ii) there are no restrictions or conditions
to the transfer of the Sinotop Note. The Investor agrees that, except
for the foregoing representations and warranties, the Sinotop Notes are
transferred without any warranties or representations of any kind, express or
implied.
3.
Purchase of
Units
. As consideration for the Loan Cancellation and the Note
Assignment, the Company hereby agrees to (i) issue to the Investor 1,200,000
Units and (ii) a Warrant to purchase 24,000,000 Warrant Shares, on terms and
conditions identical those contained in the Purchase Agreement, which terms and
conditions are incorporated herein by reference.
4.
Representations and Warranties of the
Company
. The Company hereby represents and warrants that the
representations and warranties made by the Company in Section 5 of the Purchase
Agreement qualified as to materiality shall be true and correct at all times
prior to and on the Closing Date, except to the extent any such representation
or warranty expressly speaks as of an earlier date, in which case such
representation or warranty shall be true and correct as of such earlier date,
and, the representations and warranties made by the Company in Section 5 of the
Purchase Agreement not qualified as to materiality shall be true and correct in
all material respects at all times prior to and on the Closing Date, except to
the extent any such representation or warranty expressly speaks as of an earlier
date, in which case such representation or warranty shall be true and correct in
all material respects as of such earlier date
5.
Representations and Warranties of the
Company
. The Investor hereby represents and warrants that the
representations and warranties in Section 4 of the Purchase Agreement made by
the Investor shall be true and correct in all material respects at the time of
Closing as if made on and as of such date.
6.
Governing Law
. All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the
principles of conflicts of law thereof, and in accordance with Section 10.6 of
the Purchase Agreement.
7.
Severability
. If
any provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the
parties will attempt to agree upon a valid and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
8.
Successors
. This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The Company may not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the Investor. The Investor may assign any or all of its
rights under this Agreement to any Person to whom the Investor assigns or
transfers any Securities, provided such transferee agrees in writing to be
bound, with respect to the transferred Securities, by the provisions hereof that
apply to the Investor.
9.
Entire
Agreement
. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof and no party shall be liable or bound to any other in any
manner by any representations, warranties, covenants and agreements except as
specifically set forth herein and therein.
10.
Counterparts
. 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
instrument.
[Signature
Page Follows]
IN WITNESS WHEREOF
, the
parties hereto have caused this Loan Cancellation and Note Assignment Agreement
to be duly executed by their respective authorized signatories as of the date
first indicated above.
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COMPANY:
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CHINA
BROADBAND INC.
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By:
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Name:
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Title:
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INVESTOR:
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Steven
Oliveira
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Exhibit
10.7
NOTE
ASSIGNMENT AGREEMENT
This
NOTE ASSIGNMENT
AGREEMENT
(this “
Agreement
”), dated as of July
30, 2010, is by and among China Broadband, Inc, a Nevada corporation (the “
Company
”) and Chardan SPAC
Asset Management, LLC (the “
Investor
”; together with the
Company, the “
Parties
”). Capitalized
terms not otherwise defined herein shall have the meanings set forth in that
certain Series B Preferred Stock Purchase Agreement, dated May 20, 2010, between
the Company and the Investor (the “
Purchase
Agreement
”).
BACKGROUND
On May 20, 2010, the Parties executed
the Purchase Agreement whereby the Investor agreed to purchase from the Company
$2,400,000 (the “
Purchase
Price
”) of Units consisting of shares of the Company’s Series B Preferred
Stock and warrants to purchase shares of the Company’s common stock. In June
2010, the Investor loaned $2,000,000 to Sinotop Group Limited, a Hong Kong
corporation (“
Sinotop
”),
as evidenced by the issuance of a note to the Investor (the “
Sinotop Note
”). The
Parties desire that $2,000,000 of the Purchase Price be paid through
the assignment of the Sinotop Note to the Company (the “
Note
Assignment
”).
It is a condition precedent to the
closing under the Purchase Agreement that the Investor and the Company enter
into the present Agreement.
AGREEMENT
In
consideration of the mutual representations, warranties and covenants contained
herein, and intending to be legally bound hereby, and subject to the
satisfaction of the conditions set forth in Section 4 hereof, the Parties hereto
agree as follows:
1.
Note
Assignment
. The Investor hereby assigns, grants, transfers,
conveys and relinquishes to the Company, and the Company hereby accepts from the
Investor, all of the right, title and interest of the Investor in the Sinotop
Note. The Investor represents and warrants to the Company that (i)
the Investor owns the Sinotop Note free and clear of any lien, encumbrance,
claim or interest of any kind, and (ii) there are no restrictions or conditions
to the transfer of the Sinotop Note. The Company agrees that, except
for the foregoing representations and warranties, the Sinotop Note is
transferred without any warranties or representations of any kind, express or
implied.
2.
Consideration
. The
Parties hereby agree and acknowledge that the Note Assignment shall constitute
$2,000,000 of the Purchase Price under the Purchase Agreement;
3.
Representations and Warranties of the
Company
. The Company hereby represents and warrants that the
representations and warranties made by the Company in Section 5 of the Purchase
Agreement qualified as to materiality shall be true and correct at all times
prior to and on the Closing Date, except to the extent any such representation
or warranty expressly speaks as of an earlier date, in which case such
representation or warranty shall be true and correct as of such earlier date,
and, the representations and warranties made by the Company in Section 5 of the
Purchase Agreement not qualified as to materiality shall be true and correct in
all material respects at all times prior to and on the Closing Date, except to
the extent any such representation or warranty expressly speaks as of an earlier
date, in which case such representation or warranty shall be true and correct in
all material respects as of such earlier date
4.
Representations and Warranties of the
Investor
. The Investor hereby represents and warrants that the
representations and warranties in Section 4 of the Purchase Agreement made by
the Investor shall be true and correct in all material respects at the time of
Closing as if made on and as of such date.
5.
Governing Law
. All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the
principles of conflicts of law thereof, and in accordance with Section 10.6 of
the Purchase Agreement.
6.
Severability
. If
any provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the
parties will attempt to agree upon a valid and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
7.
Successors
. This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The Company may not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the Investor. The Investor may assign any or all of its
rights under this Agreement to any Person to whom the Investor assigns or
transfers any Securities, provided such transferee agrees in writing to be
bound, with respect to the transferred Securities, by the provisions hereof that
apply to the Investor.
8.
Entire
Agreement
. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof and no party shall be liable or bound to any other in any
manner by any representations, warranties, covenants and agreements except as
specifically set forth herein and therein.
9.
Counterparts
. 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
instrument.
[Signature
Page Follows]
IN WITNESS WHEREOF
, the
parties hereto have caused this Note Assignment Agreement to be duly executed by
their respective authorized signatories as of the date first indicated
above.
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COMPANY:
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CHINA
BROADBAND INC.
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By:
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Name:
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Title:
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INVESTOR:
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CHARDAN
SPAC ASSET MANAGEMENT, LLC
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By:
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Name: Steven
Oliveira
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Title:
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Exhibit
10.8
FIRST
AMENDMENT TO
SECURITIES
PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO SECURITIES
PURCHASE AGREEMENT
(this “
First
Amendment
”) is made as of July 9, 2010, between China Broadband, Inc., a
Nevada corporation (the “
Company
”) and Shane McMahon
(including his successors and assigns, the “
Investor
”). Capitalized terms
not defined herein have the meanings assigned to them in the Securities Purchase
Agreement, as defined below.
WHEREAS
, the Company and the
Investor are parties to that certain Securities Purchase Agreement dated as of
May 20, 2010 (the “
Securities
Purchase Agreement
”); and
WHEREAS
, concurrently with the
Closing under the Securities Purchase Agreement, the Company and the Investor
desire to amend that Agreement as set forth herein;
NOW, THEREFO
RE
, in consideration of, and
subject to, the mutual terms, conditions and other agreements set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and intending to be legally bound by the terms
and conditions hereof, the parties hereto hereby agree as follows:
1.
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Other
Agreements.
Section 9 of the Securities Purchase
Agreement is amended to add the
following:
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9.7
Formation of
Sinotop WFOE
.
As soon as reasonably
practicable after the Closing, the Company will cause the formation of Sinotop
WFOE.
9.8
Sinotop VIE
Agreements.
Within ten (10) days after the issuance of a
business license for the Sinotop WFOE by the competent office of the PRC State
Administration of Industry and Commerce, the Company ensure the
following:
(a) Sinotop
HK, SinoTop Beijing, Sinotop WFOE and Zhang Yan will execute and deliver to one
another a Termination, Assignment and Assumption Agreement in the form attached
as Exhibit A (the “
Assignment
Agreement
”);
(b) In
accordance with the Assignment Agreement, the Equity Pledge included as part of
the Sinotop VIE Agreements will be terminated, and the parties to the Assignment
Agreement will enter into a replacement Equity Pledge Agreement (the “
New Equity
Pledge
”), for the benefit of Sinotop WFOE, in the form attached to the
Assignment Agreement; and
(c) As
soon as practicable after the execution and delivery of the New Equity Pledge,
the parties will register that pledge with the competent office of the PRC State
Administration of Industry and Commerce and/or any other governmental authority
necessary to ensure the effectiveness and enforceability of the
pledge.
9.9
Segregated U.S.
Account
.
The Company shall hold
all funds of the Investor that the Company receives as consideration for the
Purchase Price in an account located in the United States and shall not further
fund, directly or indirectly,
[Opco]
until such time that
(a) the Sinotop WFOE has been duly organized under applicable law and (b) the
Company has received an opinion in respect of
[Opco]
from TranAsia Lawyers,
dated as of the date of the closing of the Sinotop Acquisition, in such form and
substance as agreed to by the Company and the Investor.
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2.1
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Section
12.8(a) of the Securities Purchase Agreement is hereby amended by adding
the following sentence immediately prior to the sentence of such
Section:
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“The
representations, warranties and covenants of the Company, and the Investor’s
right to indemnification with respect thereto, shall not be affected or deemed
waived by reason of any investigation made by or on behalf of the Investor
(including by any of his representatives) or by reason of the fact that the
Investor or any of his representatives knew or should have known that any such
representation or warranty is, was or might be inaccurate or by reason of the
Investor’s waiver of any condition set forth in Section 7.”
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2.2
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Section
12.8(a) of the Securities Purchase Agreement is hereby further amended by
adding the following sentence immediately after the last sentence of such
Section:
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“Notwithstanding
anything to the contrary contained in this Agreement, the Company agrees to
defend, indemnify and hold harmless each Investor and its Affiliates and their
respective directors, officers, employees and agents from and against any and
all Losses to which such Person may become subject that relate to any of the
matters disclosed on Schedule 5.12, and shall reimburse any such Person for all
such amounts as they are incurred by such Person.”
3.
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Expenses
. Section
12.13 of the Securities Purchase Agreement is hereby amended by deleting
the first sentence of such Section in its entirety and replacing such
sentence with the following:
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“The
Company shall pay all costs and expenses, including the fees and disbursements
of any counsel and accountants retained by the Investor, incurred by the
Investor in connection with the preparation, execution, delivery and performance
of the Series A Transaction Documents and the transactions contemplated thereby,
whether or not such transactions are consummated up to a maximum amount, or cap,
of $50,000”.
4.
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Certain
Exhibits.
Exhibit B-1 (Loan Cancellation Agreement) to
the Securities Purchase Agreement is herby removed in its entirety and
replaced with the Loan Cancellation and Note Assignment Agreement, which
is attached hereto as
Annex
1
,
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5.
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Amendment.
This
First Amendment is intended to be in full compliance with the requirements
for an amendment to the Securities Purchase Agreement as required by
Section 12.2 of that Agreement, and every defect in fulfilling such
requirements for an effective amendment to the that Agreement is hereby
ratified, intentionally waived and relinquished by all parties
hereto.
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6.
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Miscellaneous.
Sections
12.1-12.6 inclusive, 12.9 and 12.10 of the Securities Purchase Agreement
are incorporated by reference herein and each provision of that Section
will apply
pari passu
to this First Amendment as if fully set forth
herein.
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[Signature
Page Follows]
IN WITNESS WHEREOF
, the
parties hereto have caused this First Amendment to Securities Purchase Agreement
to be duly executed by their respective authorized signatories as of the date
first indicated above.
“THE
COMPANY”
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“INVESTOR”
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CHINA
BROADBAND, INC.
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By:
_______________________________
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_______________________________
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Name: Marc
Urbach
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Name: Shane
McMahon
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Title: President
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EXHIBIT
A
Termination,
Assignment and Assumption Agreement
1
For
reference, this is doc. “Sinotop Assignment and Assumption Agreement –
VIE.”
EXHIBIT
B
Loan
Cancellation and Note Assignment Agreement
(attached)
Exhibit
10.9
EMPLOYMENT
AGREEMENT
EMPLOYMENT AGREEMENT, dated
[*]
, 2010
(this “
Employment
Agreement
”), between CHINA BROADBAND, INC., a Nevada corporation (the
“
Company
”), and SHANE
MCMAHON, an individual having an address as specified on the signature page
hereto (the “
Executive”
).
BACKGROUND
The Company has entered into a
Securities Purchase Agreement, dated as of May 20, 2010 (the “
Purchase Agreement
”), with the
Executive, pursuant to which the Company has agreed to sell $3,500,000 of Units
(as defined in the Purchase Agreement) to the Executive and the Executive has
agreed to purchase those Units. The execution and delivery of this
Employment Agreement by the Executive and the Company is a condition precedent
to the consummation of the transactions contemplated by the Purchase
Agreement.
The Company wishes to secure the
services of the Executive as Chief Executive Officer of the Company upon the
terms and conditions hereinafter set forth, and the Executive wishes to render
such services to the Company upon the terms and conditions hereinafter set
forth.
AGREEMENT
NOW, THEREFORE, in consideration of the
foregoing and the mutual covenants herein contained and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1.
Employment by the
Company
. The Company agrees to employ the Executive in the
position of Chief Executive Officer of the Company and the Executive accepts
such employment and agrees to perform such duties. The Executive
agrees to devote a majority of his business time and energies to the business of
the Company and/or its Subsidiaries and/or Affiliates and to faithfully and
diligently perform his duties hereunder.
2.
Term of
Employment
. The term of this Employment Agreement (the “
Term
”) shall be for the
initial period commencing on the Closing Date (as defined in the Purchase
Agreement) and ending on the first anniversary of the Closing Date, at which
point it shall be automatically renewed for additional one year periods unless
(a) either party hereto provides written notice to the other party that it
elects not to renew the Term or (b) the Executive is earlier terminated as
provided in Section 4 hereof (provided that the provisions of Section 6 hereof
shall survive any such termination).
3.
Compensation
. As
full compensation for all services to be rendered by the Executive to the
Company and/or its Subsidiaries and/or Affiliates in all capacities during the
Term, the Executive shall receive the following compensation and
benefits:
3.1
Salary
. An
annual base salary of $250,000 (the “
Base Salary
”) payable not less
frequently than monthly or at more frequent intervals in accordance with the
then customary payroll practices of the Company.
3.2
Bonus
. An
annual bonus if, as and when determine by the Board in its sole
discretion.
3.3
Participation in Employee
Benefit Plans; Other Benefits
. The Executive shall be
permitted during the Term to participate in all employee benefit plans, policies
and practices now or hereafter maintained by or on behalf of the Company
commensurate with the Executive's position with the Company. Nothing
in this Employment Agreement shall preclude the Company from terminating or
amending any such plans or coverage so as to eliminate, reduce or otherwise
change any benefit payable thereunder, so long as such change similarly affects
all Company employees. During the Term, the Company will maintain a
group health program for its employees.
3.4
Expenses
. The
Company shall pay or reimburse the Executive for all reasonable and necessary
expenses actually incurred or paid by the Executive during the Term in the
performance of the Executive's duties under this Employment Agreement, upon
submission and approval of expense statements, vouchers or other supporting
information in accordance with the then customary practices of the
Company.
3.5
Withholding of
Taxes
. The Company may withhold from any benefits payable
under this Employment Agreement all federal, state, city and other taxes as
shall be required pursuant to any law or governmental regulation or
ruling.
4.
Termination
.
4.1
Termination upon
Death
. If the Executive dies during the Term, this Employment
Agreement shall terminate as of the date of his death.
4.2
Termination upon
Disability
. If during the Term the Executive becomes
physically or mentally disabled, whether totally or partially, so that the
Executive is unable to perform his essential job functions hereunder for a
period aggregating 180 days during any twelve-month period, and it is determined
by a physician acceptable to both the Company and the Executive that, by reason
of such physical or mental disability, the Executive shall be unable to perform
the essential job functions required of him hereunder for such period or
periods, the Company may, by written notice to the Executive, terminate this
Employment Agreement, in which event the Term shall terminate 10 days after the
date upon which the Company shall have given notice to the Executive of its
intention to terminate this Employment Agreement because of the
disability.
4.3
Termination for
Cause
. The Company may at any time by written notice to the
Executive terminate this Employment Agreement immediately and, except as
provided in Section 5.2 hereof, the Executive shall have no right to receive any
compensation or benefit hereunder on and after the date of such notice, in the
event that an event of “Cause” occurs. For purposes of this
Employment Agreement “Cause” shall mean:
4.3.1 the
Executive breaches any material term of this Employment Agreement and fails to
cure such breach (where capable of cure) within 14 days after the receipt of
notice from the Board of such breach, which notice shall state in reasonable
detail the facts and circumstances claimed to be a breach and of the intent of
the Company to terminate the Executive's employment upon the failure of the
Executive to cure such breach; or
4.3.2 a
good faith determination by the Board that the Executive has committed a
felonious act of fraud, misappropriation, embezzlement, or theft or a breach of
fiduciary duty involving personal profit; or
4.3.3 the
Executive is indicted for any criminal offense constituting a felony or a crime
involving moral turpitude.
4.4
Termination without
Cause
. The Company may terminate this Employment Agreement at
any time, without cause, upon 30 days' written notice by the Company to the
Executive and, except as provided in Section 5.1 hereof, the Executive shall
have no right to receive any compensation or benefit hereunder after such
termination.
5.
Severance
Payments
.
5.1
Certain Severance
Payments
. If during the Term the Company terminates this
Employment Agreement pursuant to Section 4.4 hereof (Termination without Cause),
all compensation payable to the Executive under Section 3 hereof shall cease as
of the date of termination specified in the Company's notice (the “
Termination Date
”), and the
Company shall pay to the Executive, subject to Section 6 hereof, the following
sums: (i) the Base Salary on the Termination Date for the shorter of
(x) six months and (y) the remainder of the Term (the applicable period being
referred to as the “
Severance
Period
”), payable in monthly installments; (ii) benefits under group
health and life insurance plans in which the Executive participated prior to
termination through the Severance Period; (iii) all unpaid expenses described in
Section 3.4 and (iv) all previously earned, accrued, and unpaid benefits from
the Company and its employee benefit plans, including any such benefits under
the Company's pension, disability, and life insurance plans, policies, and
programs, if any. If, prior to the date on which the Company's
obligations under clause (i) of this Section 5.1 cease, the Executive violates
Section 6 hereof, then the Company shall have no obligation to make any of the
payments that remain payable by the Company under clauses (i) and (ii) of this
Section 5.1 on or after the date of such violation. Notwithstanding
the foregoing, payments of the amounts described in clauses (i) and (ii) of this
Section 5.1 shall be conditioned on the delivery by the executive of a release
of any and all claims that the Executive may have against the Company through
the date of termination, which release shall be in form and substance
satisfactory to the Company.
5.2
Severance Payments upon
Termination for Cause, Death or Disability
. If this Employment
Agreement is terminated by the Company pursuant to Sections 4.1 (Termination
upon Death), 4.2 (Termination upon Disability) or 4.3 (Termination for Cause)
hereof, the Executive shall receive only the amounts specified in clause (iii)
of Section 5.1 hereof.
6.
Certain Covenants of the
Executive
.
6.1
Covenants Against
Competition
. The Executive acknowledges that: (i) he is one of
the limited number of persons who will develop the pay-per-view business of the
Company (the “
Company's Current
Lines of Business
”); (ii) the Company conducts such business in the
People’s Republic of China; (iii) his work for the Company and its Subsidiaries
and Affiliates, will bring him into close contact with many confidential affairs
not readily available to the public; and (iv) the covenants contained in this
Section 6 will not involve a substantial hardship upon his future
livelihood. In order to induce the Company to enter into this
Employment Agreement, the Executive covenants and agrees that:
6.1.1
Non-Compete
. During
the Term and for a period of six months following the termination of the
Executive's employment with the Company (or, if longer, for the Severance Period
(the “
Restricted
Period
”), the Executive shall not, in the People’s Republic of China
(including all Special Administrative Regions thereof), (i) in any manner
whatsoever engage in any capacity with any business competitive with the
Company's Current Lines of Business for the Executive's own benefit or for the
benefit of any person or entity other than the Company or any Subsidiary or
Affiliate of the Company; or (ii) have any interest as owner, sole proprietor,
shareholder, partner, lender, director, officer, manager, employee, consultant,
agent or otherwise in any business competitive with the Company's Current Lines
of Business;
provided
,
however
, that the
Executive may hold, directly or indirectly, solely as an investment, not more
than two percent (2%) of the outstanding securities of any person or entity
which are listed on any national securities exchange or regularly traded in the
over-the-counter market notwithstanding the fact that such person or entity is
engaged in a business competitive with the Company's Current Lines of
Business. In addition, during the Restricted Period, the Executive
shall not develop any property for use in the Company's Current Lines of
Business on behalf of any person or entity other than the Company, its
Subsidiaries and Affiliates.
6.1.2
Confidential
Information
. During, and for a period of one year after, the
Restricted Period, the Executive shall not, directly or indirectly, disclose to
any person or entity who is not authorized by the Company or any Subsidiary or
Affiliate of the Company to receive such information, or use or appropriate for
his own benefit or for the benefit of any person or entity other than the
Company or any Subsidiary or Affiliate of the Company, any documents or other
papers relating to the Company's Current Lines of Business or the customers of
the Company or any Subsidiary or Affiliate of the Company, including, without
limitation, files, business relationships and accounts, pricing policies,
customer lists, computer software and hardware, or any other materials relating
to the Company's Current Lines of Business or the customers of the Company or
any Subsidiary or Affiliate of the Company or any trade secrets or confidential
information, including, without limitation, any business or operational methods,
drawings, sketches, designs or product concepts, know-how, marketing plans or
strategies, product development techniques or plans, business acquisition plans,
financial or other performance data, personnel and other policies of the Company
or any Subsidiary or Affiliate of the Company, whether generated by the
Executive or by any other person, except as required in the course of performing
his duties hereunder or with the express written consent of the Company;
provided
,
however
, that the
confidential information shall not include any information readily ascertainable
from public or published information, or trade sources (other than as a direct
or indirect result of unauthorized disclosure by the
Executive).
6.1.3
Employees of and Consultants
to the Company
. During the Restricted Period, the Executive
shall not, directly or indirectly (other than in furtherance of the business of
the Company), initiate communications with, solicit, persuade, entice, induce or
encourage any individual who is then or who has been within the preceding
12-month period, an employee of or consultant to the Company or any of its
Subsidiaries or Affiliates to terminate employment with, or a consulting
relationship with, the Company or such Subsidiary or Affiliate, as the case may
be, or to become employed by or enter into a contract or other agreement with
any other person, and the Executive shall not approach any such employee or
consultant for any such purpose or authorize or knowingly approve the taking of
any such actions by any other person.
6.1.4
Solicitation of
Customers
. During the Restricted Period, the Executive shall
not, directly or indirectly, initiate communications with, solicit, persuade,
entice, induce, encourage (or assist in connection with any of the foregoing)
any person who is then or has been within the preceding 12-month period a
customer or account of the Company or its Subsidiaries or Affiliates, or any
actual customer leads whose identity the Executive learned during the course of
his employment with the Company, to terminate or to adversely alter its
contractual or other relationship with the Company or its Subsidiaries or
Affiliates.
6.1.5
Business
Opportunities
. During the Term or the Severance Period,
whichever is applicable, the Executive shall promptly disclose to the Company
any business idea or opportunity which falls within the meaning of the Company's
Current Lines of Business, which business idea or opportunity shall become the
sole property of the Company.
6.2
Rights and Remedies Upon
Breach
. If the Executive breaches, or threatens to commit a
breach of, any of the provisions of Section 6.1 hereof (collectively, the “
Restrictive Covenants”
), the
Company and its Subsidiaries and Affiliates shall, in addition to the rights set
forth in Section 5.1 hereof, have the right and remedy to seek from any court of
competent jurisdiction specific performance of the Restrictive Covenants or
injunctive relief against any act which would violate any of the Restrictive
Covenants, it being acknowledged and agreed that any such breach or threatened
breach will cause irreparable injury to the Company and its Subsidiaries and
Affiliates and that money damages will not provide an adequate remedy to the
Company and its Subsidiaries and Affiliates.
6.3
Severability of
Covenants
. If any of the Restrictive Covenants, or any part
thereof, is held by a court of competent jurisdiction or any foreign, federal,
state, county or local government or other governmental, regulatory or
administrative agency or authority to be invalid, void, unenforceable or against
public policy for any reason, the remainder of the Restrictive Covenants shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated, and such court, government, agency or authority shall be empowered
to substitute, to the extent enforceable, provisions similar thereto or other
provisions so as to provide to the Company and its Subsidiaries and Affiliates,
to the fullest extent permitted by applicable law, the benefits intended by such
provisions.
7.
Other
Provisions
.
7.1
Notices
. Any
notice or other communication required or which may be given hereunder shall be
in writing and shall be delivered personally, telecopied, telegraphed or
telexed, or sent by certified, registered or express mail, postage prepaid, to
the parties at the addresses of the respective parties as specified in the
Purchase Agreement, or at such other addresses as shall be specified by the
parties by like notice, and shall be deemed given when so delivered personally,
telecopied, telegraphed or telexed, or if mailed, two days after the date of
mailing, as follows.
7.2
Entire
Agreement
. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior contracts and other agreements, written or oral, with respect
thereto.
7.3
Waivers and
Amendments
. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by the parties or, in the
case of a waiver, by the party waiving compliance. No delay on the
part of any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any waiver on the part of any party of
any right, power or privilege hereunder, nor any single or partial exercise of
any right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege
hereunder.
7.4
Governing Law, Consent to
Jurisdiction, etc
. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof (except
Section 5-1401 of New York’s General Obligations Law). Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement (whether brought
against a party hereto or its respective affiliates, directors, officers,
shareholders, employees or agents) shall be commenced exclusively in the state
and federal courts sitting in the City of New York. Each party hereto
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, New York for the adjudication of
any dispute hereunder, and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper. Each party hereto hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law.
7.5
Binding Effect;
Benefit
. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and any successors and assigns permitted or
required by Section 7.6 hereof. Nothing in this Agreement, expressed
or implied, is intended to confer on any person other than the parties hereto or
such successors and assigns, any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
7.6
Assignment
. This
Agreement, and the Executive's rights and obligations hereunder, may not be
assigned by the Executive. The Company may assign this Agreement and
its rights, together with its obligations, hereunder in connection with any
sale, transfer or other disposition of all or substantially all of its assets or
business, whether by merger, consolidation or otherwise.
7.7
Definitions
. For
purposes of this Agreement:
7.7.1 “
Affiliate
” means a person
that, directly or indirectly, controls or is controlled by, or is under common
control with the Company;
7.7.2 “
control
” (including, with
correlative meaning, the terms “controlled by” and “under common control with”)
as used with respect to any person or entity, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such person or entity, whether through ownership of voting
securities or by contract or other agreement or otherwise; and
7.7.3 “
Subsidiary
” means any person
or entity as to which the Company, directly or indirectly, owns or has the power
to vote, or to exercise a controlling influence with respect to, fifty percent
(50%) or more of the securities of any class of such person, the holders of
which class are entitled to vote for the election of directors (or persons
performing similar functions) of such person and shall specifically include any
variable interest entity of the Company whose financial results are consolidated
with those of the Company under U.S. generally accepted accounting
principles.
7.8
Counterparts
. 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
instrument.
7.9
Headings
. The
headings in this Agreement are for reference purposes only and shall not in any
way affect the meaning or interpretation of this Agreement.
[Signature
page follows]
IN WITNESS WHEREOF, the parties have
executed this Agreement as of the date first above written.
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COMPANY:
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CHINA
BROADBAND, INC.
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By:
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Name:
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Title:
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Address:
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EXECUTIVE:
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SHANE
MCMAHON
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Address:
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Exhibit 10.10
EMPLOYMENT
AGREEMENT
EMPLOYMENT AGREEMENT, dated
___________, 2010 (this “
Employment Agreement
”),
between CHINA BROADBAND, INC., a Nevada corporation (the “
Company
”), and WEICHENG LIU,
an individual having an address as specified on the signature page hereto (the
“
Executive”
).
BACKGROUND
The Company wishes to secure the
services of the Executive as a senior executive of the Company upon the terms
and conditions hereinafter set forth, and the Executive wishes to render such
services to the Company upon the terms and conditions hereinafter set
forth.
AGREEMENT
NOW, THEREFORE, in consideration of the
foregoing and the mutual covenants herein contained and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1.
Employment by the
Company
. The Company agrees to employ the Executive in a
senior executive position in the Company and its Affiliates (which definition
shall include any variable interest entities) as directed by the Company’s Board
of Directors from time to time and the Executive accepts such employment and
agrees to perform the duties commonly associated with his
position. Except as set forth in the attached Disclosure to this
Employment Agreement, the Executive agrees to devote all of his business time
and energies to the business of the Company and/or its Subsidiaries and/or
Affiliates and to faithfully and diligently perform his duties
hereunder. The Executive acknowledges and agrees that such services
shall be performed primarily in the Peoples Republic of China (“PRC”) and
Executive warrants that he has all necessary governmental authorizations in PRC
to perform such services in accordance herewith. The Executive hereby
consents to his secondment to Beijing Sino Top Scope Technology Co., Ltd. and
any other Affiliate as the Company deems necessary or desirable, and any such
secondment shall be in a form of the substantially similar to Exhibit A
hereto.
2.
Term of
Employment
. The term of this Employment Agreement (the “
Term
”) shall be for the
initial period commencing on the date of signing this Employment Agreement (the
“
Employment Date
”) and
ending on the first anniversary of the Employment Date, at which point it shall
be automatically renewed for additional one year periods unless (a) either party
hereto provides written notice to the other party that it elects not to renew
the Term by giving not less than thirty (30) days prior notice or (b) the
Executive is earlier terminated as provided in Section 4 hereof (provided that
the provisions of Section 6 hereof shall survive any such
termination).
3.
Compensation
. As
full compensation for all services to be rendered by the Executive to the
Company and/or its Subsidiaries and/or Affiliates in all capacities during the
Term, the Executive shall receive the following compensation and
benefits:
3.1
Salary
. An
annual base salary of RMB 1,693,750
(the
“
Base Salary
”) payable
not less frequently than monthly or at more frequent intervals in accordance
with the then customary payroll practices of the Company.
3.2
Bonus
. An
annual bonus if, as and when determined by the Board in its sole
discretion.
3.3
Participation in Employee
Benefit Plans; Other Benefits
. The Executive shall be
permitted during the Term to participate in all employee benefit plans, policies
and practices now or hereafter maintained by or on behalf of the Company
commensurate with the Executive's position with the Company. Nothing
in this Employment Agreement shall preclude the Company from terminating or
amending any such plans or coverage so as to eliminate, reduce or otherwise
change any benefit payable thereunder, so long as such change similarly affects
all Company employees. During the Term, the Company will maintain a
group health program for its employees.
3.4
Expenses
. The
Company shall pay or reimburse the Executive for all reasonable and necessary
expenses actually incurred or paid by the Executive during the Term in the
performance of the Executive's duties under this Employment Agreement, upon
submission and approval of expense statements, vouchers or other supporting
information in accordance with the then customary practices of the Company. The
Company shall pay the Executive past owed consulting fees, equal to $6,000 per
month, since September 2009 and the expenses incurred since then on developing
the business which do not exceed $________.
3.5
Withholding of
Taxes
. The Company may withhold from any benefits payable
under this Employment Agreement all federal, state, city and other taxes as
shall be required pursuant to any law or governmental regulation or
ruling.
4.
Board Seat
. The
executive shall take one seat on a 5-seat board of directors.
5.
Termination
.
5.1
Termination upon
Death
. If the Executive dies during the Term, this Employment
Agreement shall terminate as of the date of his death.
5.2
Termination upon
Disability
. If during the Term the Executive becomes
physically or mentally disabled, whether totally or partially, so that the
Executive is unable to perform his essential job functions hereunder for a
period aggregating 180 days during any twelve-month period, and it is determined
by a physician acceptable to both the Company and the Executive that, by reason
of such physical or mental disability, the Executive shall be unable to perform
the essential job functions required of him hereunder for such period or
periods, the Company may, by written notice to the Executive, terminate this
Employment Agreement, in which event the Term shall terminate 10 days after the
date upon which the Company shall have given notice to the Executive of its
intention to terminate this Employment Agreement because of the
disability.
5.3
Termination for
Cause
. The Company may at any time by written notice to the
Executive terminate this Employment Agreement immediately and, except as
provided in Section 5.2 hereof, the Executive shall have no right to receive any
compensation or benefit hereunder on and after the date of such notice, in the
event that an event of “Cause” occurs. For purposes of this
Employment Agreement “Cause” shall mean:
5.3.1 the
Executive breaches any material term of this Employment Agreement and fails to
cure such breach (where capable of cure) within 14 days after the receipt of
notice from the Board of such breach, which notice shall state in reasonable
detail the facts and circumstances claimed to be a breach and of the intent of
the Company to terminate the Executive's employment upon the failure of the
Executive to cure such breach; or
5.3.2 a
good faith determination by the Board that the Executive has committed a
felonious act of fraud, misappropriation, embezzlement, or theft or a breach of
fiduciary duty involving personal profit; or
5.3.3 the
Executive is indicted for any criminal offense constituting a felony or a crime
involving moral turpitude.
5.4
Termination without
Cause
. The Company may terminate this Employment Agreement at
any time, without cause, upon 30 days' written notice by the Company to the
Executive and, except as provided in Section 6.1 hereof, the Executive shall
have no right to receive any compensation or benefit hereunder after such
termination.
5.5
Termination By Executive for
Good Reason
. The Executive may, upon 30 days’ written notice
by the Executive to the Company for “Good Reason”, or immediately upon a “Change
of Control,” terminate this Employment Agreement and, except as provided in
Section 5.6 hereof, the Executive shall have no right to receive any
compensation or benefit hereunder following such termination.
5.6
Certain Severance
Payments
. If during the Term the Company terminates this
Employment Agreement pursuant to Section 5.4 hereof (Termination without Cause),
or the Executive terminates this Employment pursuant to Section 5.5 hereof
(Termination By Executive for Good Reason), all compensation payable to the
Executive under Section 3 hereof shall cease as of the date of termination
specified in the Company's notice (the “
Termination Date
”), and the
Company shall pay to the Executive, subject to Section 6 hereof, the
Base Salary on the Termination Date for six months, payable in monthly
installments; (ii) benefits under group health and life insurance plans in which
the Executive participated prior to termination for twelve months; (iii) all
unpaid expenses described in Section 3.4 and (iv) all previously earned,
accrued, and unpaid benefits from the Company and its employee benefit plans,
including any such benefits under the Company's pension, disability, and life
insurance plans, policies, and programs, if any. If, prior to the
date on which the Company's obligations under clause (i) of this Section 5.1
cease, the Executive violates Section 6 hereof, then the Company shall have no
obligation to make any of the payments that remain payable by the Company under
clauses (i) and (ii) of this Section 5.1 on or after the date of such
violation. Notwithstanding the foregoing, payments of the amounts
described in clauses (i) and (ii) of this Section 5.1 shall be conditioned on
the delivery by the executive of a release of any and all claims that the
Executive may have against the Company through the date of termination, which
release shall be in form and substance satisfactory to the Company. In addition,
if during the Term the Company terminates this Employment Agreement pursuant to
Section 5.4 hereof, or the Executive terminates this Employment pursuant to
Section 5.5 hereof, all Warrants and Options issued to the Executive shall vest
in full and become immediately convertible or exercisable in accordance with
their respective terms.
5.7
Severance Payments upon
Termination for Cause, Death or Disability
. If this Employment
Agreement is terminated by the Company pursuant to Sections 4.1 (Termination
upon Death), 4.2 (Termination upon Disability) or 4.3 (Termination for Cause)
hereof, the Executive shall receive only the amounts specified in clause (iii)
of Section 5.1 hereof.
6. Certain
Covenants of the Executive.
6.1
Covenants Against
Competition
. The Executive acknowledges that: (i) he is one of
the limited number of persons who will develop the pay-per-view business of the
Company and its Affiliates (the “
Company's Current Lines of
Business
”); (ii) the Company conducts such business in the People’s
Republic of China (including Hong Kong and all Special Administrative Region
thereof); (iii) his work for the Company and its Subsidiaries and Affiliates,
will bring him into close contact with many confidential affairs not readily
available to the public; and (iv) the covenants contained in this Section 6 will
not involve a substantial hardship upon his future livelihood. In
order to induce the Company to enter into this Employment Agreement, the
Executive covenants and agrees that:
6.1.1
Non-Compete
. During
the Term and for a period of six months following the termination of the
Executive's employment with the Company (or, if longer, for the Severance Period
(the “
Restricted
Period
”), the Executive shall not, in the People’s Republic of China
(including Hong Kong and all Special Administrative Regions thereof), (i) in any
manner whatsoever engage in any capacity with any business competitive with the
Company's Current Lines of Business for the Executive's own benefit or for the
benefit of any person or entity other than the Company or any Subsidiary or
Affiliate of the Company; or (ii) have any interest as owner, sole proprietor,
shareholder, partner, lender, director, officer, manager, employee, consultant,
agent or otherwise in any business competitive with the Company's Current Lines
of Business;
provided
,
however
, that the
Executive may hold, directly or indirectly, solely as an investment, not more
than two percent (2%) of the outstanding securities of any person or entity
which are listed on any national securities exchange or regularly traded in the
over-the-counter market notwithstanding the fact that such person or entity is
engaged in a business competitive with the Company's Current Lines of
Business. In addition, except as stated in the attached Disclosure to
this Employment Agreement, during the Restricted Period, the Executive shall not
develop any property for use in the Company's Current Lines of Business on
behalf of any person or entity other than the Company, its Subsidiaries and
Affiliates.
6.1.2
Confidential
Information
. During, and for a period of one year after, the
Restricted Period, the Executive shall not, directly or indirectly, disclose to
any person or entity who is not authorized by the Company or any Subsidiary or
Affiliate of the Company to receive such information, or use or appropriate for
his own benefit or for the benefit of any person or entity other than the
Company or any Subsidiary or Affiliate of the Company, any documents or other
papers relating to the Company's Current Lines of Business or the customers of
the Company or any Subsidiary or Affiliate of the Company, including, without
limitation, files, business relationships and accounts, pricing policies,
customer lists, computer software and hardware, or any other materials relating
to the Company's Current Lines of Business or the customers of the Company or
any Subsidiary or Affiliate of the Company or any trade secrets or confidential
information, including, without limitation, any business or operational methods,
drawings, sketches, designs or product concepts, know-how, marketing plans or
strategies, product development techniques or plans, business acquisition plans,
financial or other performance data, personnel and other policies of the Company
or any Subsidiary or Affiliate of the Company, whether generated by the
Executive or by any other person, except as required in the course of performing
his duties hereunder or with the express written consent of the Company;
provided
,
however
, that the
confidential information shall not include any information readily ascertainable
from public or published information, or trade sources (other than as a direct
or indirect result of unauthorized disclosure by the Executive).
6.1.3
Employees of and Consultants
to the Company
. During the Restricted Period, the Executive
shall not, directly or indirectly (other than in furtherance of the business of
the Company and its Subsidiaries and Affiliates), initiate communications with,
solicit, persuade, entice, induce or encourage any individual who is then or who
has been within the preceding 12-month period, an employee of or consultant to
the Company or any of its Subsidiaries or Affiliates to terminate employment
with, or a consulting relationship with, the Company or such Subsidiary or
Affiliate, as the case may be, or to become employed by or enter into a contract
or other agreement with any other person, and the Executive shall not approach
any such employee or consultant for any such purpose or authorize or knowingly
approve the taking of any such actions by any other person.
6.1.4
Solicitation of
Customers
. During the Restricted Period, the Executive shall
not, directly or indirectly, initiate communications with, solicit, persuade,
entice, induce, encourage (or assist in connection with any of the foregoing)
any person who is then or has been within the preceding 12-month period a
customer or account of the Company or its Subsidiaries or Affiliates, or any
actual customer leads whose identity the Executive learned during the course of
his employment with the Company, to terminate or to adversely alter its
contractual or other relationship with the Company or its Subsidiaries or
Affiliates.
6.1.5
Business
Opportunities
. During the Term or the Severance Period,
whichever is applicable, the Executive shall promptly disclose to the Company
any business idea or opportunity which falls within the meaning of the Company's
Current Lines of Business, which business idea or opportunity shall become the
sole property of the Company.
6.2
Rights and Remedies Upon
Breach
. If the Executive breaches, or threatens to commit a
breach of, any of the provisions of Section 6.1 hereof (collectively, the “
Restrictive Covenants”
), the
Company and its Subsidiaries and Affiliates shall, in addition to the rights set
forth in Section 5.1 hereof, have the right and remedy to seek from any court of
competent jurisdiction specific performance of the Restrictive Covenants or
injunctive relief against any act which would violate any of the Restrictive
Covenants, it being acknowledged and agreed that any such breach or threatened
breach will cause irreparable injury to the Company and its Subsidiaries and
Affiliates and that money damages will not provide an adequate remedy to the
Company and its Subsidiaries and Affiliates.
6.3
Severability of
Covenants
. If any of the Restrictive Covenants, or any part
thereof, is held by a court of competent jurisdiction or any foreign, federal,
state, county or local government or other governmental, regulatory or
administrative agency or authority to be invalid, void, unenforceable or against
public policy for any reason, the remainder of the Restrictive Covenants shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated, and such court, government, agency or authority shall be empowered
to substitute, to the extent enforceable, provisions similar thereto or other
provisions so as to provide to the Company and its Subsidiaries and Affiliates,
to the fullest extent permitted by applicable law, the benefits intended by such
provisions.
7.
Indemnification and
Insurance
. The Company shall agree to indemnify the
Executive and hold him harmless for all acts or decisions made by him in good
faith while performing services for the Company and Company Subsidiaries and
affiliates in a separate agreement in the form provided to other directors. The
Company shall also use its best efforts to obtain coverage for him under any
insurance policy now in force or hereinafter obtained during the term of this
Agreement covering the other officers and directors of the Company and Company
Subsidiaries and affiliates against lawsuits. The agreement will provide that
the Company shall pay all expenses including attorney's fees, actually and
necessarily incurred by the Executive in connection with the defense of such
act, suit or proceeding, and in connection with any related appeal, including
the cost of court settlements.
8.
Other
Provisions
.
8.1
Notices
. Any
notice or other communication required or which may be given hereunder shall be
in writing and shall be delivered personally, telecopied, telegraphed or
telexed, or sent by certified, registered or express mail, postage prepaid, to
the parties at the addresses of the respective parties as specified in that
certain Ordinary Share Purchase Agreement, dated of equal date herewith, among
the Company, China Broadband, Ltd. and the Executive (the “
Purchase Agreement
”), or at
such other addresses as shall be specified by the parties by like notice, and
shall be deemed given when so delivered personally, telecopied, telegraphed or
telexed, or if mailed, two days after the date of mailing, as
follows.
8.2
Entire
Agreement
. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior contracts and other agreements, written or oral, with respect
thereto. Notwithstanding the foregoing, the parties acknowledge that
the provisions and ongoing obligations under the Purchase Agreement shall remain
in full force and effect.
8.3
Waivers and
Amendments
. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by the parties or, in the
case of a waiver, by the party waiving compliance. No delay on the
part of any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any waiver on the part of any party of
any right, power or privilege hereunder, nor any single or partial exercise of
any right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege
hereunder.
8.4
Governing Law, Consent to
Jurisdiction, etc
. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof (except
Section 5-1401 of New York’s General Obligations Law). Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement (whether brought
against a party hereto or its respective affiliates, directors, officers,
shareholders, employees or agents) shall be commenced exclusively in the state
and federal courts sitting in the City of New York. Each party hereto
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, New York for the adjudication of
any dispute hereunder, and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper. Each party hereto hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law.
8.5
Binding Effect;
Benefit
. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and any successors and assigns permitted or
required by Section 7.6 hereof. Nothing in this Agreement, expressed
or implied, is intended to confer on any person other than the parties hereto or
such successors and assigns, any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
8.6
Assignment
. This
Agreement, and the Executive's rights and obligations hereunder, may not be
assigned by the Executive. The Company may assign this Agreement and
its rights, together with its obligations, hereunder in connection with any
sale, transfer or other disposition of all or substantially all of its assets or
business, whether by merger, consolidation or otherwise.
8.7
Definitions
. For
purposes of this Agreement:
8.7.1 “
Affiliate
” means a person
that, directly or indirectly, controls or is controlled by, or is under common
control with the Company;
8.7.2
“Change of Control”
means:
(i) the sale of substantially all of the assets of the Company; (ii) a
merger or consolidation in which the Company is not the surviving corporation
(other than a merger or consolidation in which shareholders immediately before
the merger or consolidation have, immediately after the merger or consolidation,
greater stock voting power); (iii) a reverse merger in which the Company is
the surviving corporation but the shares of the Company’s common stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or otherwise
(other than a reverse merger in which shareholders immediately before the merger
have, immediately after the merger, greater stock voting power); or
(iv) any transaction or series of related transactions in which in excess
of 50% of the Company’s voting power is transferred, other than the sale by the
Company of stock in transactions the primary purpose of which is to raise
capital for the Company’s operations and activities.
8.7.3 “
control
” (including, with
correlative meaning, the terms “controlled by” and “under common control with”)
as used with respect to any person or entity, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such person or entity, whether through ownership of voting
securities or by contract or other agreement or otherwise; and
8.7.4
“Good Reason”
means any of the
following actions taken by the Company without Executive’s consent: (i) a
substantial reduction in Executive’s Base Salary or benefits (except such
reductions that are part of and proportional to a Company-wide reduction in
compensation or benefits); (ii) a material reduction in Executive’s duties,
provided, however, that a change in job position (including a change in title)
shall not be deemed a “material reduction” unless Executive’s new duties are
substantially reduced from the prior duties; or (iii) relocation of
Executive’s principal place of employment to a place greater than 50 miles from
the then-current principal place of employment
8.7.5 “
Subsidiary
” means any person
or entity as to which the Company, directly or indirectly, owns or has the power
to vote, or to exercise a controlling influence with respect to, fifty percent
(50%) or more of the securities of any class of such person, the holders of
which class are entitled to vote for the election of directors (or persons
performing similar functions) of such person and shall specifically include any
variable interest entity of the Company whose financial results are consolidated
with those of the Company under U.S. generally accepted accounting principles,
and Subsidiaries of the Company shall include without limitation Beijing Sino
Top Scope Technology Co., Ltd. (
北京中海通成科技有限责任公司
) and
Zhonghaishixun Information Technology Co., Ltd. (
中海视讯信息技术有限公司
).
8.8
Counterparts
. 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
instrument.
8.9
Headings
. The
headings in this Agreement are for reference purposes only and shall not in any
way affect the meaning or interpretation of this Agreement.
[Signature
page follows]
IN WITNESS WHEREOF, the parties have
executed this Agreement as of the date first above written.
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COMPANY:
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CHINA
BROADBAND, INC.
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By:
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______________________________
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Name:
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Title:
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Address:__________________________
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_________________________________
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_________________________________
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EXECUTIVE:
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WEICHENG
LIU
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_________________________________
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Address:__________________________
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_________________________________
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_________________________________
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Disclosure
to the Employment Agreement
I am the
sole shareholder of Codent Networks (Shanghai) Co. Ltd. (“
科顿网络通讯技术(上海)有限公司
”),
a wholly foreign owned enterprise incorporated in Shanghai, China with a
registered capital of USD$710,000. The company’s main business is to develop and
market mobile software solutions and services. It is engaging with Xinhua Mobile
TV Co. on mobile streaming video service and with China Telecom on mobile
payment and other mobile phone based services to mobile consumers and enterprise
customers.
Codent’s
business exists prior to my Employment Agreement with CBBD. Some of Codent’s
business, for example, the mobile streaming video and mobile payment, may be
considered similar in nature with CBBD’s video-on-demand and pay-per-view
services in the mobile space.
I am not
involved in Codent’s operation or management, and less than 10% of my time is
spent serving as the sole shareholder, legal representative and chairperson of
the company.
Exceptions to Section
6.1.1
:
Exhibit 10.11
EMPLOYMENT
AGREEMENT
EMPLOYMENT AGREEMENT, dated
[*]
, 2010
(this “
Employment
Agreement
”), between CHINA BROADBAND, INC., a Nevada corporation (the
“
Company
”), and MARC
URBACH, an individual having an address as specified on the signature page
hereto (the “
Executive”
).
BACKGROUND
The Company wishes to secure the
services of the Executive as President of the Company upon the terms and
conditions hereinafter set forth, and the Executive wishes to render such
services to the Company upon the terms and conditions hereinafter set
forth.
AGREEMENT
NOW, THEREFORE, in consideration of the
foregoing and the mutual covenants herein contained and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1.
Employment by the
Company
. The Company agrees to employ the Executive in the
position of President of the Company and the Executive accepts such employment
and agrees to perform such duties. The Executive agrees to devote a
majority of his business time and energies to the business of the Company and/or
its Subsidiaries and/or Affiliates and to faithfully and diligently perform his
duties hereunder.
2.
Term of
Employment
. The term of this Employment Agreement (the “
Term
”) shall be for the
initial period commencing on the Closing Date (as defined in the Purchase
Agreement) and ending on the first anniversary of the Closing Date, at which
point it shall be automatically renewed for additional one year periods unless
(a) either party hereto provides written notice to the other party that it
elects not to renew the Term or (b) the Executive is earlier terminated as
provided in Section 4 hereof (provided that the provisions of Section 6 hereof
shall survive any such termination).
3.
Compensation
. As
full compensation for all services to be rendered by the Executive to the
Company and/or its Subsidiaries and/or Affiliates in all capacities during the
Term, the Executive shall receive the following compensation and
benefits:
3.1
Salary
. An
annual base salary of $215,000
(the
“
Base Salary
”) payable
not less frequently than monthly or at more frequent intervals in accordance
with the then customary payroll practices of the Company.
3.2
Bonus
. An
annual bonus if, as and when determine by the Board in its sole
discretion.
3.3
Participation in Employee
Benefit Plans; Other Benefits
. The Executive shall be
permitted during the Term to participate in all employee benefit plans, policies
and practices now or hereafter maintained by or on behalf of the Company
commensurate with the Executive's position with the Company. Nothing
in this Employment Agreement shall preclude the Company from terminating or
amending any such plans or coverage so as to eliminate, reduce or otherwise
change any benefit payable thereunder, so long as such change similarly affects
all Company employees. During the Term, the Company will maintain a
group health program for its employees.
3.4
Expenses
. The
Company shall pay or reimburse the Executive for all reasonable and necessary
expenses actually incurred or paid by the Executive during the Term in the
performance of the Executive's duties under this Employment Agreement, upon
submission and approval of expense statements, vouchers or other supporting
information in accordance with the then customary practices of the
Company.
3.5
Withholding of
Taxes
. The Company may withhold from any benefits payable
under this Employment Agreement all federal, state, city and other taxes as
shall be required pursuant to any law or governmental regulation or
ruling.
4.
Termination
.
4.1
Termination upon
Death
. If the Executive dies during the Term, this Employment
Agreement shall terminate as of the date of his death.
4.2
Termination upon
Disability
. If during the Term the Executive becomes
physically or mentally disabled, whether totally or partially, so that the
Executive is unable to perform his essential job functions hereunder for a
period aggregating 180 days during any twelve-month period, and it is determined
by a physician acceptable to both the Company and the Executive that, by reason
of such physical or mental disability, the Executive shall be unable to perform
the essential job functions required of him hereunder for such period or
periods, the Company may, by written notice to the Executive, terminate this
Employment Agreement, in which event the Term shall terminate 10 days after the
date upon which the Company shall have given notice to the Executive of its
intention to terminate this Employment Agreement because of the
disability.
4.3
Termination for
Cause
. The Company may at any time by written notice to the
Executive terminate this Employment Agreement immediately and, except as
provided in Section 5.2 hereof, the Executive shall have no right to receive any
compensation or benefit hereunder on and after the date of such notice, in the
event that an event of “Cause” occurs. For purposes of this
Employment Agreement “Cause” shall mean:
4.3.1 the
Executive breaches any material term of this Employment Agreement and fails to
cure such breach (where capable of cure) within 14 days after the receipt of
notice from the Board of such breach, which notice shall state in reasonable
detail the facts and circumstances claimed to be a breach and of the intent of
the Company to terminate the Executive's employment upon the failure of the
Executive to cure such breach; or
4.3.2 a
good faith determination by the Board that the Executive has committed a
felonious act of fraud, misappropriation, embezzlement, or theft or a breach of
fiduciary duty involving personal profit; or
4.3.3 the
Executive is indicted for any criminal offense constituting a felony or a crime
involving moral turpitude.
4.4
Termination without
Cause
. The Company may terminate this Employment Agreement at
any time, without cause, upon 30 days' written notice by the Company to the
Executive and, except as provided in Section 5.1 hereof, the Executive shall
have no right to receive any compensation or benefit hereunder after such
termination.
5.
Severance
Payments
.
5.1
Certain Severance
Payments
. If during the Term the Company terminates this
Employment Agreement pursuant to Section 4.4 hereof (Termination without Cause),
all compensation payable to the Executive under Section 3 hereof shall cease as
of the date of termination specified in the Company's notice (the “
Termination Date
”), and the
Company shall pay to the Executive, subject to Section 6 hereof, the following
sums: (i) the Base Salary on the Termination Date for the shorter of
(x) six months and (y) the remainder of the Term (the applicable period being
referred to as the “
Severance
Period
”), payable in monthly installments; (ii) benefits under group
health and life insurance plans in which the Executive participated prior to
termination through the Severance Period; (iii) all unpaid expenses described in
Section 3.4 and (iv) all previously earned, accrued, and unpaid benefits from
the Company and its employee benefit plans, including any such benefits under
the Company's pension, disability, and life insurance plans, policies, and
programs, if any. If, prior to the date on which the Company's
obligations under clause (i) of this Section 5.1 cease, the Executive violates
Section 6 hereof, then the Company shall have no obligation to make any of the
payments that remain payable by the Company under clauses (i) and (ii) of this
Section 5.1 on or after the date of such violation. Notwithstanding
the foregoing, payments of the amounts described in clauses (i) and (ii) of this
Section 5.1 shall be conditioned on the delivery by the executive of a release
of any and all claims that the Executive may have against the Company through
the date of termination, which release shall be in form and substance
satisfactory to the Company.
5.2
Severance Payments upon
Termination for Cause, Death or Disability
. If this Employment
Agreement is terminated by the Company pursuant to Sections 4.1 (Termination
upon Death), 4.2 (Termination upon Disability) or 4.3 (Termination for Cause)
hereof, the Executive shall receive only the amounts specified in clause (iii)
of Section 5.1 hereof.
6.
Certain Covenants of the
Executive
.
6.1
Covenants Against
Competition
. The Executive acknowledges that: (i) he is one of
the limited number of persons who will develop the pay-per-view business of the
Company (the “
Company's Current
Lines of Business
”); (ii) the Company conducts such business in the
People’s Republic of China; (iii) his work for the Company and its Subsidiaries
and Affiliates, will bring him into close contact with many confidential affairs
not readily available to the public; and (iv) the covenants contained in this
Section 6 will not involve a substantial hardship upon his future
livelihood. In order to induce the Company to enter into this
Employment Agreement, the Executive covenants and agrees that:
6.1.1
Non-Compete
. During
the Term and for a period of six months following the termination of the
Executive's employment with the Company (or, if longer, for the Severance Period
(the “
Restricted
Period
”), the Executive shall not, in the People’s Republic of China
(including all Special Administrative Regions thereof), (i) in any manner
whatsoever engage in any capacity with any business competitive with the
Company's Current Lines of Business for the Executive's own benefit or for the
benefit of any person or entity other than the Company or any Subsidiary or
Affiliate of the Company; or (ii) have any interest as owner, sole proprietor,
shareholder, partner, lender, director, officer, manager, employee, consultant,
agent or otherwise in any business competitive with the Company's Current Lines
of Business;
provided
,
however
, that the
Executive may hold, directly or indirectly, solely as an investment, not more
than two percent (2%) of the outstanding securities of any person or entity
which are listed on any national securities exchange or regularly traded in the
over-the-counter market notwithstanding the fact that such person or entity is
engaged in a business competitive with the Company's Current Lines of
Business. In addition, during the Restricted Period, the Executive
shall not develop any property for use in the Company's Current Lines of
Business on behalf of any person or entity other than the Company, its
Subsidiaries and Affiliates.
6.1.2
Confidential
Information
. During, and for a period of one year after, the
Restricted Period, the Executive shall not, directly or indirectly, disclose to
any person or entity who is not authorized by the Company or any Subsidiary or
Affiliate of the Company to receive such information, or use or appropriate for
his own benefit or for the benefit of any person or entity other than the
Company or any Subsidiary or Affiliate of the Company, any documents or other
papers relating to the Company's Current Lines of Business or the customers of
the Company or any Subsidiary or Affiliate of the Company, including, without
limitation, files, business relationships and accounts, pricing policies,
customer lists, computer software and hardware, or any other materials relating
to the Company's Current Lines of Business or the customers of the Company or
any Subsidiary or Affiliate of the Company or any trade secrets or confidential
information, including, without limitation, any business or operational methods,
drawings, sketches, designs or product concepts, know-how, marketing plans or
strategies, product development techniques or plans, business acquisition plans,
financial or other performance data, personnel and other policies of the Company
or any Subsidiary or Affiliate of the Company, whether generated by the
Executive or by any other person, except as required in the course of performing
his duties hereunder or with the express written consent of the Company;
provided
,
however
, that the
confidential information shall not include any information readily ascertainable
from public or published information, or trade sources (other than as a direct
or indirect result of unauthorized disclosure by the Executive).
6.1.3
Employees of and Consultants
to the Company
. During the Restricted Period, the Executive
shall not, directly or indirectly (other than in furtherance of the business of
the Company), initiate communications with, solicit, persuade, entice, induce or
encourage any individual who is then or who has been within the preceding
12-month period, an employee of or consultant to the Company or any of its
Subsidiaries or Affiliates to terminate employment with, or a consulting
relationship with, the Company or such Subsidiary or Affiliate, as the case may
be, or to become employed by or enter into a contract or other agreement with
any other person, and the Executive shall not approach any such employee or
consultant for any such purpose or authorize or knowingly approve the taking of
any such actions by any other person.
6.1.4
Solicitation of
Customers
. During the Restricted Period, the Executive shall
not, directly or indirectly, initiate communications with, solicit, persuade,
entice, induce, encourage (or assist in connection with any of the foregoing)
any person who is then or has been within the preceding 12-month period a
customer or account of the Company or its Subsidiaries or Affiliates, or any
actual customer leads whose identity the Executive learned during the course of
his employment with the Company, to terminate or to adversely alter its
contractual or other relationship with the Company or its Subsidiaries or
Affiliates.
6.1.5
Business
Opportunities
. During the Term or the Severance Period,
whichever is applicable, the Executive shall promptly disclose to the Company
any business idea or opportunity which falls within the meaning of the Company's
Current Lines of Business, which business idea or opportunity shall become the
sole property of the Company.
6.2
Rights and Remedies Upon
Breach
. If the Executive breaches, or threatens to commit a
breach of, any of the provisions of Section 6.1 hereof (collectively, the “
Restrictive Covenants”
), the
Company and its Subsidiaries and Affiliates shall, in addition to the rights set
forth in Section 5.1 hereof, have the right and remedy to seek from any court of
competent jurisdiction specific performance of the Restrictive Covenants or
injunctive relief against any act which would violate any of the Restrictive
Covenants, it being acknowledged and agreed that any such breach or threatened
breach will cause irreparable injury to the Company and its Subsidiaries and
Affiliates and that money damages will not provide an adequate remedy to the
Company and its Subsidiaries and Affiliates.
6.3
Severability of
Covenants
. If any of the Restrictive Covenants, or any part
thereof, is held by a court of competent jurisdiction or any foreign, federal,
state, county or local government or other governmental, regulatory or
administrative agency or authority to be invalid, void, unenforceable or against
public policy for any reason, the remainder of the Restrictive Covenants shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated, and such court, government, agency or authority shall be empowered
to substitute, to the extent enforceable, provisions similar thereto or other
provisions so as to provide to the Company and its Subsidiaries and Affiliates,
to the fullest extent permitted by applicable law, the benefits intended by such
provisions.
7.
Other
Provisions
.
7.1
Notices
. Any
notice or other communication required or which may be given hereunder shall be
in writing and shall be delivered personally, telecopied, telegraphed or
telexed, or sent by certified, registered or express mail, postage prepaid, to
the parties at the addresses of the respective parties as specified in the
Purchase Agreement, or at such other addresses as shall be specified by the
parties by like notice, and shall be deemed given when so delivered personally,
telecopied, telegraphed or telexed, or if mailed, two days after the date of
mailing, as follows.
7.2
Entire
Agreement
. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior contracts and other agreements, written or oral, with respect
thereto.
7.3
Waivers and
Amendments
. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by the parties or, in the
case of a waiver, by the party waiving compliance. No delay on the
part of any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any waiver on the part of any party of
any right, power or privilege hereunder, nor any single or partial exercise of
any right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege
hereunder.
7.4
Governing Law, Consent to
Jurisdiction, etc
. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof (except
Section 5-1401 of New York’s General Obligations Law). Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement (whether brought
against a party hereto or its respective affiliates, directors, officers,
shareholders, employees or agents) shall be commenced exclusively in the state
and federal courts sitting in the City of New York. Each party hereto
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, New York for the adjudication of
any dispute hereunder, and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper. Each party hereto hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law.
7.5
Binding Effect;
Benefit
. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and any successors and assigns permitted or
required by Section 7.6 hereof. Nothing in this Agreement, expressed
or implied, is intended to confer on any person other than the parties hereto or
such successors and assigns, any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
7.6
Assignment
. This
Agreement, and the Executive's rights and obligations hereunder, may not be
assigned by the Executive. The Company may assign this Agreement and
its rights, together with its obligations, hereunder in connection with any
sale, transfer or other disposition of all or substantially all of its assets or
business, whether by merger, consolidation or otherwise.
7.7
Definitions
. For
purposes of this Agreement:
7.7.1 “
Affiliate
” means a person
that, directly or indirectly, controls or is controlled by, or is under common
control with the Company;
7.7.2 “
control
” (including, with
correlative meaning, the terms “controlled by” and “under common control with”)
as used with respect to any person or entity, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such person or entity, whether through ownership of voting
securities or by contract or other agreement or otherwise; and
7.7.3 “
Subsidiary
” means any person
or entity as to which the Company, directly or indirectly, owns or has the power
to vote, or to exercise a controlling influence with respect to, fifty percent
(50%) or more of the securities of any class of such person, the holders of
which class are entitled to vote for the election of directors (or persons
performing similar functions) of such person and shall specifically include any
variable interest entity of the Company whose financial results are consolidated
with those of the Company under U.S. generally accepted accounting
principles.
7.8
Counterparts
. 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
instrument.
7.9
Headings
. The
headings in this Agreement are for reference purposes only and shall not in any
way affect the meaning or interpretation of this Agreement.
[Signature
page follows]
IN WITNESS WHEREOF, the parties have
executed this Agreement as of the date first above written.
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COMPANY:
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CHINA
BROADBAND, INC.
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By:______________________________
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Name:
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Title:
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Address:_________________________
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________________________________
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________________________________
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EXECUTIVE:
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MARC
URBACH
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________________________________
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Address:_________________________
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________________________________
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________________________________
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Exhibit 10.12
EMPLOYMENT
AGREEMENT
EMPLOYMENT AGREEMENT, dated July 30,
2010 (this “
Employment
Agreement
”), between CHINA BROADBAND, INC., a Nevada corporation (the
“
Company
”), and CLIVE
NG, an individual having an address as specified on the signature page hereto
(the “
Executive”
).
BACKGROUND
The Company wishes to secure the
services of the Executive in such position with respect to the Company as shall
be determined by the Board of Directors
of
the Company upon the terms and conditions hereinafter set forth, and the
Executive wishes to render such services to the Company upon the terms and
conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the
foregoing and the mutual covenants herein contained and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1.
Employment by the
Company
. The Company agrees to employ the Executive in such
position with respect to the Company as shall be determined by the Board of
Directors
of
the Company and the Executive accepts such employment and agrees to perform such
duties. The Executive agrees to devote a majority of his business
time and energies to the business of the Company and/or its Subsidiaries and/or
Affiliates and to faithfully and diligently perform his duties
hereunder. Notwithstanding anything to the contrary contained herein,
the Company acknowledges and agrees that the Executive may, during the Term (as
defined below), (i) continue to serve as an officer and/or director of China
Cablecom, Ltd. and China Networks International Holdings, Ltd., (ii) manage
personal and family investments, and (iii) serve as a director, board or other
committee member or trustee or in any other advisory capacity to any companies
or entities if such activities do not materially interfere with his services to
the Company.
2.
Term of
Employment
. The term of this Employment Agreement (the “
Term
”) shall be for the
initial period commencing on the Closing Date (as defined in the Purchase
Agreement) and ending on the first anniversary of the Closing Date, at which
point it shall be automatically renewed for additional one year periods unless
(a) either party hereto provides written notice to the other party that it
elects not to renew the Term or (b) the Executive is earlier terminated as
provided in Section 4 hereof (provided that the provisions of Section 6 hereof
shall survive any such termination).
3.
Compensation
. As
full compensation for all services to be rendered by the Executive to the
Company and/or its Subsidiaries and/or Affiliates in all capacities during the
Term, the Executive shall receive the following compensation and
benefits:
3.1
Salary
. An
annual base salary of $225,000
(the
“
Base Salary
”) payable
not less frequently than monthly or at more frequent intervals in accordance
with the then customary payroll practices of the Company.
3.2
Bonus
. An
annual bonus if, as and when determine by the Board in its sole
discretion.
3.3
Participation in Employee
Benefit Plans; Other Benefits
. The Executive shall be
permitted during the Term to participate in all employee benefit plans, policies
and practices now or hereafter maintained by or on behalf of the Company
commensurate with the Executive's position with the Company. Nothing
in this Employment Agreement shall preclude the Company from terminating or
amending any such plans or coverage so as to eliminate, reduce or otherwise
change any benefit payable thereunder, so long as such change similarly affects
all Company employees. During the Term, the Company will maintain a
group health program for its employees.
3.4
Expenses
. The
Company shall pay or reimburse the Executive for all reasonable and necessary
expenses actually incurred or paid by the Executive during the Term in the
performance of the Executive's duties under this Employment Agreement, upon
submission and approval of expense statements, vouchers or other supporting
information in accordance with the then customary practices of the
Company.
3.5
Withholding of
Taxes
. The Company may withhold from any benefits payable
under this Employment Agreement all federal, state, city and other taxes as
shall be required pursuant to any law or governmental regulation or
ruling.
4.
Termination
.
4.1
Termination upon
Death
. If the Executive dies during the Term, this Employment
Agreement shall terminate as of the date of his death.
4.2
Termination upon
Disability
. If during the Term the Executive becomes
physically or mentally disabled, whether totally or partially, so that the
Executive is unable to perform his essential job functions hereunder for a
period aggregating 180 days during any twelve-month period, and it is determined
by a physician acceptable to both the Company and the Executive that, by reason
of such physical or mental disability, the Executive shall be unable to perform
the essential job functions required of him hereunder for such period or
periods, the Company may, by written notice to the Executive, terminate this
Employment Agreement, in which event the Term shall terminate 10 days after the
date upon which the Company shall have given notice to the Executive of its
intention to terminate this Employment Agreement because of the
disability.
4.3
Termination for
Cause
. The Company may at any time by written notice to the
Executive terminate this Employment Agreement immediately and, except as
provided in Section 5.2 hereof, the Executive shall have no right to receive any
compensation or benefit hereunder on and after the date of such notice, in the
event that an event of “Cause” occurs. For purposes of this
Employment Agreement “Cause” shall mean:
4.3.1 the
Executive breaches any material term of this Employment Agreement and fails to
cure such breach (where capable of cure) within 14 days after the receipt of
notice from the Board of such breach, which notice shall state in reasonable
detail the facts and circumstances claimed to be a breach and of the intent of
the Company to terminate the Executive's employment upon the failure of the
Executive to cure such breach; or
4.3.2 a
good faith determination by the Board that the Executive has committed a
felonious act of fraud, misappropriation, embezzlement, or theft or a breach of
fiduciary duty involving personal profit; or
4.3.3 the
Executive is indicted for any criminal offense constituting a felony or a crime
involving moral turpitude.
4.4
Termination without
Cause
. The Company may terminate this Employment Agreement at
any time, without cause, upon 30 days' written notice by the Company to the
Executive and, except as provided in Section 5.1 hereof, the Executive shall
have no right to receive any compensation or benefit hereunder after such
termination.
5.
Severance
Payments
.
5.1
Certain Severance
Payments
. If during the Term the Company terminates this
Employment Agreement pursuant to Section 4.4 hereof (Termination without Cause),
all compensation payable to the Executive under Section 3 hereof shall cease as
of the date of termination specified in the Company's notice (the “
Termination Date
”), and the
Company shall pay to the Executive, subject to Section 6 hereof, the following
sums: (i) the Base Salary on the Termination Date for the shorter of
(x) six months and (y) the remainder of the Term (the applicable period being
referred to as the “
Severance
Period
”), payable in monthly installments; (ii) benefits under group
health and life insurance plans in which the Executive participated prior to
termination through the Severance Period; (iii) all unpaid expenses described in
Section 3.4 and (iv) all previously earned, accrued, and unpaid benefits from
the Company and its employee benefit plans, including any such benefits under
the Company's pension, disability, and life insurance plans, policies, and
programs, if any. If, prior to the date on which the Company's
obligations under clause (i) of this Section 5.1 cease, the Executive violates
Section 6 hereof, then the Company shall have no obligation to make any of the
payments that remain payable by the Company under clauses (i) and (ii) of this
Section 5.1 on or after the date of such violation. Notwithstanding
the foregoing, payments of the amounts described in clauses (i) and (ii) of this
Section 5.1 shall be conditioned on the delivery by the executive of a release
of any and all claims that the Executive may have against the Company through
the date of termination, which release shall be in form and substance
satisfactory to the Company.
5.2
Severance Payments upon
Termination for Cause, Death or Disability
. If this Employment
Agreement is terminated by the Company pursuant to Sections 4.1 (Termination
upon Death), 4.2 (Termination upon Disability) or 4.3 (Termination for Cause)
hereof, the Executive shall receive only the amounts specified in clause (iii)
of Section 5.1 hereof.
6. Certain
Covenants of the Executive.
6.1
Covenants Against
Competition
. The Executive acknowledges that: (i) he is one of
the limited number of persons who will develop the pay-per-view business of the
Company (the “
Company's Current
Lines of Business
”); (ii) the Company conducts such business in the
People’s Republic of China; (iii) his work for the Company and its Subsidiaries
and Affiliates, will bring him into close contact with many confidential affairs
not readily available to the public; and (iv) the covenants contained in this
Section 6 will not involve a substantial hardship upon his future
livelihood. In order to induce the Company to enter into this
Employment Agreement, the Executive covenants and agrees that:
6.1.1
Non-Compete
. During
the Term and for a period of six months following the termination of the
Executive's employment with the Company (or, if longer, for the Severance Period
(the “
Restricted
Period
”), the Executive shall not, in the People’s Republic of China
(including all Special Administrative Regions thereof), (i) in any manner
whatsoever engage in any capacity with any business competitive with the
Company's Current Lines of Business for the Executive's own benefit or for the
benefit of any person or entity other than the Company or any Subsidiary or
Affiliate of the Company; or (ii) have any interest as owner, sole proprietor,
shareholder, partner, lender, director, officer, manager, employee, consultant,
agent or otherwise in any business competitive with the Company's Current Lines
of Business;
provided
,
however
, that the
Executive may hold, directly or indirectly, solely as an investment, not more
than two percent (2%) of the outstanding securities of any person or entity
which are listed on any national securities exchange or regularly traded in the
over-the-counter market notwithstanding the fact that such person or entity is
engaged in a business competitive with the Company's Current Lines of
Business. In addition, during the Restricted Period, the Executive
shall not develop any property for use in the Company's Current Lines of
Business on behalf of any person or entity other than the Company, its
Subsidiaries and Affiliates.
6.1.2
Confidential
Information
. During, and for a period of one year after, the
Restricted Period, the Executive shall not, directly or indirectly, disclose to
any person or entity who is not authorized by the Company or any Subsidiary or
Affiliate of the Company to receive such information, or use or appropriate for
his own benefit or for the benefit of any person or entity other than the
Company or any Subsidiary or Affiliate of the Company, any documents or other
papers relating to the Company's Current Lines of Business or the customers of
the Company or any Subsidiary or Affiliate of the Company, including, without
limitation, files, business relationships and accounts, pricing policies,
customer lists, computer software and hardware, or any other materials relating
to the Company's Current Lines of Business or the customers of the Company or
any Subsidiary or Affiliate of the Company or any trade secrets or confidential
information, including, without limitation, any business or operational methods,
drawings, sketches, designs or product concepts, know-how, marketing plans or
strategies, product development techniques or plans, business acquisition plans,
financial or other performance data, personnel and other policies of the Company
or any Subsidiary or Affiliate of the Company, whether generated by the
Executive or by any other person, except as required in the course of performing
his duties hereunder or with the express written consent of the Company;
provided
,
however
, that the
confidential information shall not include any information readily ascertainable
from public or published information, or trade sources (other than as a direct
or indirect result of unauthorized disclosure by the Executive).
6.1.3
Employees of and Consultants
to the Company
. During the Restricted Period, the Executive
shall not, directly or indirectly (other than in furtherance of the business of
the Company), initiate communications with, solicit, persuade, entice, induce or
encourage any individual who is then or who has been within the preceding
12-month period, an employee of or consultant to the Company or any of its
Subsidiaries or Affiliates to terminate employment with, or a consulting
relationship with, the Company or such Subsidiary or Affiliate, as the case may
be, or to become employed by or enter into a contract or other agreement with
any other person, and the Executive shall not approach any such employee or
consultant for any such purpose or authorize or knowingly approve the taking of
any such actions by any other person.
6.1.4
Solicitation of
Customers
. During the Restricted Period, the Executive shall
not, directly or indirectly, initiate communications with, solicit, persuade,
entice, induce, encourage (or assist in connection with any of the foregoing)
any person who is then or has been within the preceding 12-month period a
customer or account of the Company or its Subsidiaries or Affiliates, or any
actual customer leads whose identity the Executive learned during the course of
his employment with the Company, to terminate or to adversely alter its
contractual or other relationship with the Company or its Subsidiaries or
Affiliates.
6.1.5
Business
Opportunities
. During the Term or the Severance Period,
whichever is applicable, the Executive shall promptly disclose to the Company
any business idea or opportunity which falls within the meaning of the Company's
Current Lines of Business, which business idea or opportunity shall become the
sole property of the Company.
6.2
Rights and Remedies Upon
Breach
. If the Executive breaches, or threatens to commit a
breach of, any of the provisions of Section 6.1 hereof (collectively, the “
Restrictive Covenants”
), the
Company and its Subsidiaries and Affiliates shall, in addition to the rights set
forth in Section 5.1 hereof, have the right and remedy to seek from any court of
competent jurisdiction specific performance of the Restrictive Covenants or
injunctive relief against any act which would violate any of the Restrictive
Covenants, it being acknowledged and agreed that any such breach or threatened
breach will cause irreparable injury to the Company and its Subsidiaries and
Affiliates and that money damages will not provide an adequate remedy to the
Company and its Subsidiaries and Affiliates.
6.3
Severability of
Covenants
. If any of the Restrictive Covenants, or any part
thereof, is held by a court of competent jurisdiction or any foreign, federal,
state, county or local government or other governmental, regulatory or
administrative agency or authority to be invalid, void, unenforceable or against
public policy for any reason, the remainder of the Restrictive Covenants shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated, and such court, government, agency or authority shall be empowered
to substitute, to the extent enforceable, provisions similar thereto or other
provisions so as to provide to the Company and its Subsidiaries and Affiliates,
to the fullest extent permitted by applicable law, the benefits intended by such
provisions.
7.
Other
Provisions
.
7.1
Notices
. Any
notice or other communication required or which may be given hereunder shall be
in writing and shall be delivered personally, telecopied, telegraphed or
telexed, or sent by certified, registered or express mail, postage prepaid, to
the parties at the addresses of the respective parties as specified in the
Purchase Agreement, or at such other addresses as shall be specified by the
parties by like notice, and shall be deemed given when so delivered personally,
telecopied, telegraphed or telexed, or if mailed, two days after the date of
mailing, as follows.
7.2
Entire
Agreement
. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior contracts and other agreements, written or oral, with respect
thereto.
7.3
Waivers and
Amendments
. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by the parties or, in the
case of a waiver, by the party waiving compliance. No delay on the
part of any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any waiver on the part of any party of
any right, power or privilege hereunder, nor any single or partial exercise of
any right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege
hereunder.
7.4
Governing Law, Consent to
Jurisdiction, etc
. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof (except
Section 5-1401 of New York’s General Obligations Law). Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement (whether brought
against a party hereto or its respective affiliates, directors, officers,
shareholders, employees or agents) shall be commenced exclusively in the state
and federal courts sitting in the City of New York. Each party hereto
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, New York for the adjudication of
any dispute hereunder, and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper. Each party hereto hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law.
7.5
Binding Effect;
Benefit
. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and any successors and assigns permitted or
required by Section 7.6 hereof. Nothing in this Agreement, expressed
or implied, is intended to confer on any person other than the parties hereto or
such successors and assigns, any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
7.6
Assignment
. This
Agreement, and the Executive's rights and obligations hereunder, may not be
assigned by the Executive. The Company may assign this Agreement and
its rights, together with its obligations, hereunder in connection with any
sale, transfer or other disposition of all or substantially all of its assets or
business, whether by merger, consolidation or otherwise.
7.7
Definitions
. For
purposes of this Agreement:
7.7.1 “
Affiliate
” means a person
that, directly or indirectly, controls or is controlled by, or is under common
control with the Company;
7.7.2 “
control
” (including, with
correlative meaning, the terms “controlled by” and “under common control with”)
as used with respect to any person or entity, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such person or entity, whether through ownership of voting
securities or by contract or other agreement or otherwise; and
7.7.3 “
Subsidiary
” means any person
or entity as to which the Company, directly or indirectly, owns or has the power
to vote, or to exercise a controlling influence with respect to, fifty percent
(50%) or more of the securities of any class of such person, the holders of
which class are entitled to vote for the election of directors (or persons
performing similar functions) of such person and shall specifically include any
variable interest entity of the Company whose financial results are consolidated
with those of the Company under U.S. generally accepted accounting
principles.
7.8
Counterparts
. 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
instrument.
7.9
Headings
. The
headings in this Agreement are for reference purposes only and shall not in any
way affect the meaning or interpretation of this Agreement.
[Signature
page follows]
IN WITNESS WHEREOF, the parties have
executed this Agreement as of the date first above written.
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COMPANY:
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CHINA
BROADBAND, INC.
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By:
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______________________________
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Name:
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Title:
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Address:_________________________
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________________________________
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________________________________
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EXECUTIVE:
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CLIVE
NG
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________________________________
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Address:_________________________
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________________________________
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________________________________
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Exhibit
10.13
ORDINARY
SHARE PURCHASE AGREEMENT
This
Ordinary Share Purchase Agreement
(“
Agreement
”)
is made as of ________________, 2010 (the “
Effective
Date
”), between and among (i)
China
Broadband, Inc.,
a Nevada corporation (“
CBBD
”);
(ii)
China
Broadband, Ltd.,
a company established and existing under the laws of the
Cayman Islands (the “
Buyer
”)
and a wholly-owned subsidiary of CBBD; and (iii)
Weicheng
Liu,
an individual citizen of Canada (the “
Seller
”).
Capitalized terms not otherwise defined have the meanings assigned to them in
Appendix A. Each of the parties indicated in this preamble is referred to as a
“
Party
” and
collectively as the “
Parties
.”
RECITALS
A.
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The
Seller is the sole legal and beneficial owner of one (1) ordinary share
(the “
Share
”)
of Sinotop Group Limited, a Hong Kong company (the “
Company
”),
representing one hundred percent (100%) of the issued and outstanding
shares of the Company.
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B.
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CBBD
is a company whose shares are publicly traded in the United States and the
100% owner of the Buyer.
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C.
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The
Buyer desires to purchase, and the Seller desires to sell the Share on the
terms and conditions set forth herein. The consideration for the purchase
of the Share will take the form of common stock of CBBD. CBBD intends to
account for the issuance of its shares as a contribution to the capital of
the Buyer.
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AGREEMENT
The
Parties to this Agreement, intending to be bound thereby, in consideration for
the mutual promises and covenants contained herein and for other good and
valuable consideration, the receipt and sufficiency of which is acknowledged by
the Parties, agree as follows.
ARTICLE
I
PURCHASE
AND SALE OF SHARES; CLOSING
1.1
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Sale and
Purchase of Shares
. On the terms and subject to
the conditions set forth in this Agreement, at the Closing, Seller will
sell, transfer and assign to Buyer free and clear of all Encumbrances, and
Buyer will purchase, acquire and accept from Seller, all of Seller’s
right, title and interest in the Share for the consideration set forth in
Section 1.2.
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1.2
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Consideration.
In
consideration of, and in payment for, the sale of the Share as
contemplated by Section 1.2, the Buyer will deliver to Seller, within
ten (10) days after Closing, one or more certificates representing such
number of shares of the common stock of CBBD as is equal to 20.0% of the
outstanding common stock of CBBD (including the shares of common stock of
CBBD issuable upon conversion of the outstanding Series A Preferred Shares
and Series B Preferred Shares of CBBD, but not including any shares of
common stock of CBBD that are issuable upon the conversion, exercise or
exchange of any other securities of CBBD that are convertible into or
exercisable or exchangeable for, common stock of CBBD) immediately
following the closing (the “
CBBD
Financing Closing
”) of the financing referenced in Section 4.1(a)
hereof (the “
CBBD
Shares
”). In addition, (A) the Seller will receive a
three-year warrant to purchase a number of shares of CBBD common stock
that is equal to 20.0% of the total number of shares of CBBD common stock
underlying all outstanding warrants of CBBD as of immediately following
the CBBD Financing Closing, (B) the Seller will receive a three-year
option to purchase a number of shares of CBBD common stock that is equal
to 20.0% of the total number of shares of CBBD common stock underlying all
outstanding options of CBBD as of immediately following the CBBD Financing
Closing, and (C) the Seller will be entitled to earn up to (I) an
additional 5.0% of the outstanding common stock of CBBD (determined as
aforesaid), (II) three-year warrants to purchase a number of
shares of common stock of CBBD that is equal to 5.0% of all outstanding
shares underlying outstanding warrants of CBBD as of immediately following
the CBBD Financing Closing, and (III) a three-year option to purchase a
number of shares of CBBD common stock that is equal to 5% of the total
number of shares of CBBD common stock underlying all outstanding options
of CBBD as of immediately following the CBBD Financing Closing
(collectively, the securities referred to in clauses (I), (II), and (III)
are referred to herein as the “
Earn-Out
Securities
”), if specified performance milestones, to be adopted by
the Board of Directors of CBBD within thirty (30) days following the
Closing, have been achieved. The Board of Directors of CBBD
will designate an earn-out period of no longer than two years following
the Closing and will adopt earn-out milestones relating to net income
targets or other measures of financial performance that must be achieved
in order for Seller to receive the Earn-Out Securities and the Board of
Directors of CBBD shall also indicate how many Earn-Out Securities are to
be issued to the Seller upon the achievements of a given
milestone.
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1.3
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Closing
. The
closing of the sale and purchase of the Share under this Agreement (the
“
Closing
”)
will take place at the offices of Pillsbury Winthrop Shaw Pittman, 2475
Hanover Street, Palo Alto, California, on June 30, 2010, local time, or at
such other time and/or place as the Seller and the Buyer may mutually
agree in writing (such date is referred to in this Agreement as the “
Clo
s
ing
Date
”).
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1.4
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Deliveries
at Closing
.
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(a)
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At
the Closing, the Parties will deliver to one another three (3) fully
executed originals of this Agreement, unless delivered prior to
Closing.
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(b)
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The
Buyer will deliver to the Seller:
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(i)
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at
the Closing, an original duly executed bought note and an original duly
executed instrument of transfer in the forms attached as Exhibit
1.1(a)(i);
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(ii)
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within
ten (10) days after the Closing, one or more certificates representing the
CBBD Shares; and
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(iii)
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at
the Closing, an employment agreement regarding the employment of Weicheng
Liu by CBBD, duly executed by Weicheng Liu and CBBD, in substantially the
form attached as Exhibit
1.1(a)(iii).
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(c)
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At
the Closing, the Seller will deliver to the
Buyer:
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(iv)
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an
original duly executed sold note and an original duly executed instrument
of transfer in the forms attached as part of Exhibit
1.1(a)(iv);
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(v)
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the
original share certificate(s) (1) issued to the Seller and (2) to be
issued to the Buyer in respect of the Share, if any, assigning the Shares
to Buyer;
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(vi)
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A
certified true copy of resolutions of the board of directors of the
Company approving the Transactions in the form attached as Exhibit
1.1(a)(vi);
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(vii)
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all
books and records of the Company (including its company chop and
seal);
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(viii)
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where
required by the Buyer, duly completed and executed documents required for
the change in the bank account signatories of all bank accounts of the
Company to the person designated by the
Buyer;
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(ix)
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where
applicable, all powers of attorney or other authorities under which the
transfer of the Share has been
executed;
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(x)
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such
waivers, consents and other documents as the Seller may require to give
the Buyer good title to the Share free from all claims, liens, charges,
equities and encumbrances and third party rights of any kind and to enable
the Buyer to become the registered holders
thereof;
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(xi)
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a
duly executed Consent of Spouse in the form attached as Exhibit
1.1(a)(xi); and
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(xii)
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Such
documents as may be acceptable to the Buyer evidencing the satisfaction of
the Conditions to the Buyer’s Obligation to Close set forth in Section
4.1.
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1.5
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Registration
of Transfer of Share
.
Seller
will ensure that the transfer of the Share pursuant to this Agreement is
registered with the competent Governmental Authorities, including, without
limitation, preparing and executing or causing to be executed any other
documents necessary for the Transactions contemplated by this Agreement,
and submitting or causing to be submitted the same with the Hong Kong
Companies Registry and/or any other competent authority and ensure all
stamp duties are duly paid in accordance with applicable
laws.
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1.6
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Transfer
Expenses
.
Any taxes,
duties, charges and fees payable in respect of the transfer and sale of
the Share contemplated by this Agreement will be borne by Seller and
Buyer, respectively, pursuant to the allocation of responsibilities as
provided under relevant Hong Kong laws and regulations. In the
event such laws and regulations do not provide clearly whether certain
taxes, charges and fees should be paid by Seller or Buyer, Seller and
Buyer will share such taxes, charges and fees, including any stamp duty,
equally.
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ARTICLE
II
REPRESENTATIONS
AND WARRANTIES OF THE SELLER
The
Seller hereby represents and warrants to the Buyer, as of the date of this
Agreement and as of the Closing Date, as set forth below.
2.1
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Seller.
The Seller is an
individual citizen of Canada and has legal capacity to enter into this
Agreement and perform his obligations hereunder. The Seller is not
insolvent, has not declared bankruptcy, has not been the subject of the
filing of a voluntary or involuntary petition in bankruptcy or any similar
proceedings, and has not been party to any assignment for the benefit of
creditors. All acts required to be taken by the Seller to enter into this
Agreement and to carry out the Transactions have been properly
taken. This Agreement constitutes a legal, valid and binding
obligation of the Seller, enforceable against the Seller in accordance
with the terms hereof
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2.2
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Title to
the Share.
Seller is the sole owner of and has
good title to the Share, free and clear of all Encumbrances and transfer
restrictions, other than restrictions on transferability under securities
laws of general applicability or as set out in the charter documents of
the Company. Seller has not previously assigned or purported to assign the
Share (or any part thereof) to any Person. Seller has made no general
solicitation in connection with the
Share.
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2.3
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Consents
and Approvals
. To the best of the Seller’s
knowledge, no consent, action, approval or authorization of, or
registration, declaration or filing with, any Governmental Authority or
other third party is required to be obtained by Seller to authorize the
execution and delivery by Seller of this Agreement or the other
Transaction Documents, the performance by Seller of the terms hereof and
thereof or the consummation of the transactions contemplated hereby and
thereby.
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2.4
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Other
Instruments.
At the Closing, the Seller, to the
best of his knowledge will have executed any and all instruments necessary
to effectuate the sale, transfer and assignment of the Share to
Buyer.
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2.5
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Company
.
The Company is
duly organized, validly existing and in good standing under the laws of
Hong Kong and has full corporate power and authority to own and hold its
properties and to carry on its business as now conducted and as proposed
to be conducted. The Company is not insolvent, has not been the subject of
the filing of a voluntary or involuntary petition to wind-up or any
proceedings placing it in receivership, and has not been party to any
assignment for the benefit of creditors. The Company, to the best of the
Seller’s knowledge, is not required to be qualified, authorized,
registered or licensed to do business as a foreign corporation in any
jurisdiction other than the jurisdiction of its incorporation. The Company
does not own, beneficially or otherwise, any shares or other securities
of, or any direct or indirect interest of any nature in, any other Entity.
The Company has never conducted any business under or otherwise used, for
any purpose or in any jurisdiction, any fictitious name, assumed name,
trade name or other name, other than “Sinotop Group
Limited.”
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2.6
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Subsidiaries
. Except
as evidenced by the Sinotop VIE Agreements, (a) the Company does not own
or control any equity security or other interest of any other corporation,
partnership, limited liability company or other business entity; and (b)
the Company is not a participant in any joint venture, partnership,
limited liability company or similar arrangement. Since its inception, the
Company has not consolidated or merged with, acquired all or substantially
all of the assets of, or acquired the stock of or any interest in any
corporation, partnership, limited liability company or other business
entity.
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2.7
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Charter
Documents; Records
.
The Seller has delivered to (or made available for inspection by) the
Buyer accurate and complete copies of: (a) the memorandum and articles of
association or other comparable charter documents of the Company,
including all amendments thereto; and (b) the minutes and other records of
the meetings and other proceedings (including any actions taken by written
consent or otherwise without a meeting) of the stockholders of the
Company, the board of directors of the Company and all committees of the
board of directors of the Company. There have been no meetings or other
proceedings of the stockholders of the Company, the board of directors of
the Company or any committee of the board of directors of the Company that
are not fully reflected in such minutes or other records. All
of the records of the Company are maintained in accordance with sound and
prudent business practices and in the actual possession and direct control
of the Company.
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2.8
|
Capitalization
.
The total
authorized share capital of the Company is Ten Thousand Hong Kong Dollars
(HK$10,000) consisting of Ten Thousand (10,000) ordinary shares
of one Hong Kong Dollar (HK$1.00) each, of which one (1) share
is issued and outstanding. The Seller is the sole shareholder of the
Company. There is no: (a) outstanding subscription, option, call, warrant
or right (whether or not currently exercisable) to acquire any shares of
the capital stock or other securities of the Company; (b) outstanding
security, instrument or obligation that is or may become convertible into
or exchangeable for any shares of the capital stock or other securities of
the Company; or (c) contract or other agreement or arrangement under which
the Company is or may become obligated to sell or otherwise issue any
shares of its capital stock or any other securities. There are no
outstanding obligations of the Company, actual or contingent, to issue or
deliver or to repurchase, redeem or otherwise acquire any shares of the
Company. No Person other than the Seller has any right to vote with
respect to the sale of the Share to the Buyer or any of the other
Transactions.
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2.9
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Title To
Assets
.
Except for the
Sinotop VIE Agreements, the Company owns no assets individually or in the
aggregate having a value in excess of US$5,000, including accounts, notes
or other amounts receivable, except for cash in an amount no greater than
the aggregate principal amount of the loans evidenced by the Convertible
Note Agreements.
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2.10
|
Bank
Accounts.
Each account maintained by or for the benefit
of the Company at any bank or other financial institution, including the
name of the institution, the name in which the account is maintained, and
the names of all individuals authorized to draw on or make withdrawals
from such account, are identified on Exhibit
2.10
. There are no safe deposit boxes or similar
arrangements maintained by or for the benefit of the
Company.
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2.11
|
Intellectual
Property
. The Company does not own or license any
Intellectual Property other than commercially available software having an
aggregate value of less than US$1,000. The Company has not received any
communications alleging that it has violated or, by conducting its
Business, would violate any of the intellectual property rights of any
other Person.
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2.12
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Contracts
.
The Company is
not a party to any material contracts or other agreements, except for the
Sinotop VIE Agreements and the Convertible Note
Agreements.
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2.13
|
Liabilities
. The
Company has no Liabilities except as may be reflected in the Sinotop VIE
Agreements and the Convertible Note
Agreements.
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2.14
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Compliance
with Legal Requirements
.
The
Company has not received, at any time, any notice or other communication
(in writing or otherwise) from any Governmental Authority or any other
Person regarding any actual, alleged, possible or potential violation of,
or failure to comply with, any Legal Requirement. To the knowledge of the
Seller, the Company has complied with all applicable Legal Requirements in
the conduct of its Business.
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2.15
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Governmental
Authorizations
.
There
are no authorizations or permits issued by any Governmental
Authority which are required for the Company to conduct its business
except for routine business licenses under Hong Kong
law.
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2.16
|
Tax
Matters
.
The Seller has
delivered to (or made available for inspection by) the Buyer accurate and
complete copies of all Tax Returns, if any, that have been filed on behalf
of or with respect to the Company since its formation. The information
contained in such Tax Returns is accurate and complete in all respects.
The Company has timely paid all Taxes required to be paid by it and has
received no notice or other communication from any Governmental Authority
indicating any default, deficiency, penalty or other adverse matter with
regard to any Tax owed or purported to be owed by it. The Company has made
provision on its books for all Taxes payable by it relating to periods for
which no Tax Returns have been
filed.
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2.17
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Employee
and Labor Matters
.
The
Company has no employees and has never had any
employees.
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2.18
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Performance
of Services
.
The
Company has never provided services for compensation to any other
Person.
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2.19
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Insurance
.
There
is no insurance policy maintained by or at the expense of, or for the
direct or indirect benefit of, the
Company.
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2.20
|
Related
Party Transactions
.
No
Related Party, including the Seller, (a) has any direct or indirect
interest of any nature in any of the assets of the Company except for
Seller’s ownership of the Share; (b) is, or has at any time been, indebted
to the Company; and (c) has any claim or right against the Company; except
for the Seller’s spouse’s marital interest, if any, in the assets of the
Company and her indirect interest in the rights under the Sinotop VIE
Agreements held by reason of her ownership of Beijing Sino Top Scope
Technology Co., Ltd., which is a part to the Sinotop VIE Agreements. No
event has occurred, and no condition or circumstance exists, that might
(with or without notice or lapse of time) directly or indirectly give rise
to or serve as a basis for any claim or right in favor of any Related
Party against the Company.
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2.21
|
Proceedings
.
There
is no pending Proceeding, and to Seller’s knowledge, no Person has
threatened to commence any Proceeding that involves the Company, or which
reasonably could be anticipated to prevent, delay, make illegal or
otherwise interfere with the consummation of the Transactions, and no
condition or circumstance exists which might reasonably be expected to
give rise to or serve as a basis for any such Proceeding. No Proceeding
has ever been commenced by or against the Company in the past.
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2.22
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Investment
Representations.
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(a)
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Purchase
Entirely for Own Account
. The Seller is acquiring
the CBBD Shares for his own account and not with a view to the resale or
distribution of any part thereof, and the Seller has no present intention
of selling or otherwise distributing such CBBD Shares, except in
compliance with applicable securities
laws.
|
|
(b)
|
Available
Information.
The Seller has such knowledge and
experience in financial and business matters that it is capable of
evaluating the merits and risks of an investment in CBBD and has had full
access to all the information he considers necessary or appropriate to
make an informed investment decision with respect to the CBBD
Shares.
|
|
(c)
|
Non-Registration.
The
Seller understands that the CBBD Shares have not been registered under the
Securities Act and, if issued in accordance with the provisions of this
Agreement, will be issued by reason of a specific exemption from the
registration provisions of the United States Federal Securities Act of
1933, as amended (the “
Securities
Act
”) which depends upon, among other things, the bona fide nature
of the investment intent and the accuracy of the Seller’s representations
as expressed herein.
|
|
(d)
|
Restricted
Securities.
The Seller understands that the CBBD
Shares are characterized as “restricted securities” under the Securities
Act inasmuch as this Agreement contemplates that, if acquired by the
Seller pursuant hereto, the CBBD Shares would be acquired in a transaction
not involving a public offering. The Seller further acknowledges that if
the CBBD Shares are issued to the Seller in accordance with the provisions
of this Agreement, such Shares may not be resold without registration
under the Securities Act or the existence of an exemption
therefrom. The Seller represents that he is familiar with Rule
144 promulgated under the Securities Act, as presently in effect, and
understands the resale limitations imposed thereby and by the Securities
Act.
|
|
(e)
|
Accredited
Investor.
The Seller is an “accredited Investor” within
the meaning of Rule 501 under the Securities
Act.
|
|
(f)
|
Legends.
It
is understood that the CBBD Shares will bear the following legend or one
that is substantially similar to the following
legend:
|
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE
SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED EXCEPT (1) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS, IN WHICH CASE THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE
COMPANY AN OPINION OF COUNSEL, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED,
ASSIGNED OR OTHERWISE TRANSFERRED IN THE MANNER CONTEMPLATED PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS.
[THE
SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED PURSUANT TO REGULATION S OF
SECURITIES ACT, AND MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE THEREWITH, PURSUANT TO A REGISTRATION
UNDER THE ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION. THE
ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. IN ADDITION, NO HEDGING TRANSACTION MAY BE CONDUCTED
WITH RESPECT TO THESE SECURITIES UNLESS SUCH TRANSACTION IS IN COMPLIANCE WITH
THE ACT.
2.23
|
Orders.
There
is no Order in effect relating to the Business or assets of the Company to
which the Seller, the Company, any Related Party, or any of the assets
owned or used by the Company, is subject.
|
2.24
|
Non-Contravention;
Consents
.
To the best
knowledge of the Seller, neither the Company nor the Seller was, is or
will be, required to make any filing with or give any notice to, or to
obtain any Consent or authorization from any Governmental Authority from,
any Person or Governmental Authority in connection with the execution and
delivery of any of the Transaction Documents or the consummation or
performance of any of the
Transactions.
|
2.25
|
Certain
Payments.
Neither the Seller nor any Person acting
for or on behalf of the Company or the Seller has, at any time, directly
or indirectly, with respect to the Business of the Company, (a) used the
funds of the Seller or the Company, or will use any proceeds from the sale
of the Share, to make any unlawful gift or payment to any Governmental
Authority, governmental official or employee; or (b) made any payment or
given any thing of value to any other Person for the purpose of obtaining
business or favorable treatment in securing
business.
|
2.26
|
Brokers
.
The Company and
the Seller have not agreed or become obligated to pay, and have not taken
any action that might result in any Person claiming to be entitled to
receive, any brokerage commission, finder’s fee or similar commission or
fee in connection with any of the
Transactions.
|
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF THE BUYER
The Buyer
represents and warrants, to and for the benefit of the Seller, as
follows:
3.1
|
Authority;
Binding Nature of Agreements
.
The Buyer has the
absolute and unrestricted right, power and authority to enter into and
perform its obligations under this Agreement, and the execution and
delivery of this Agreement by the Buyer have been duly authorized by all
necessary action on the part of the Buyer and its board of directors. The
Buyer has the absolute and unrestricted right, power and authority to
enter into and perform its obligations under this Agreement and the other
Transaction Documents, all of which have been duly authorized by all
necessary action on the part of the Buyer and its board of directors
and/or stockholders. This Agreement constitutes the legal, valid and
binding obligation of the Buyer, enforceable against it in accordance with
its terms. The execution and delivery of this Agreement and the other
Transaction Documents will constitute the legal, valid and binding
obligations of the Buyer, enforceable against the Buyer in accordance with
their terms.
|
3.2
|
CBBD
Shares.
When delivered to the Seller at the Closing, the
CBBD Shares will be fully paid and non-assessable and free of any
Encumbrances. Buyer has the legal authority to convey to Seller, at the
Closing, good and marketable title to the CBBD
Shares.
|
3.3
|
Brokers
.
The Buyer has not
become obligated to pay, and has not taken any action that might result in
any Person claiming to be entitled to receive any brokerage commission,
finder’s fee or similar commission or fee in connection with any of the
Transactions.
|
3.4
|
Capitalization
.
Attached hereto as
Schedule 3.4 is a capitalization table that reflects the capitalization of
CBBD as of immediately following the closing of the financing transactions
contemplated by Section 4.1(a)
hereof.
|
ARTICLE
IV
CONDITIONS
TO CLOSING
4.1
|
Conditions
to the Buyer’s Obligation to Close.
The Buyer’s
obligation to purchase the Share at the Closing is conditioned on the
following, unless earlier waived in writing by the
Buyer:
|
|
(a)
|
Closing of
financing.
CBBD will have closed, or will close
concurrently with the Closing, one or more equity financings resulting in
gross proceeds to CBBD of at least
US$9,000,000.
|
|
(b)
|
No
Liabilities.
As of the Closing Date, the Company
will have no Liabilities other than as may be created by the Sinotop VIE
Agreements.
|
|
(c)
|
Representations
Accurate.
All of the representations made by the
Seller herein will be materially accurate and correct as of the Closing
Date.
|
|
(d)
|
Delivery of
Equity Transfer Documents.
The Seller shall have
delivered
to
the Buyer the following undated documents in respect of the transfer of
100% equity interest in Beijing Sino Top Scope Technology Co., Ltd. from
Zhang Yan, the sole existing shareholder of Beijing Sino Top Scope
Technology Co., Ltd., to nominee(s) designated by the Buyer (“
SinoTop BJ
Transfer
”),
|
|
(i)
|
three
originals of duly executed equity transfer agreement in respect of SinoTop
BJ Transfer in the form attached as Exhibit
4.1(d)(i);
|
|
(ii)
|
one
original of the resolution of the sole shareholder of Beijing Sino Top
Scope Technology Co., Ltd. approving the SinoTop BJ Transfer in the form
attached as Exhibit 4.1(d)(ii);
|
|
(iii)
|
one
original of Application Form of Change of Industry and Commerce
Registration (
工商登记变更申请表
) in
respect of SinoTop BJ Transfer and other related application documents to
effect SinoTop BJ Transfer duly executed by the legal representative of
Beijing Sino Top Scope Technology Co., Ltd. and affixed with the company
seal of Beijing Sino Top Scope Technology Co., Ltd., to the satisfaction
of the Buyer.
|
ARTICLE
V
COVENANTS
5.1
|
Post-Closing
Covenants of the Buyer.
As soon as practicable
after the Closing, the Buyer will contribute an amount equal to at least
40,000,000 Renminbi (approximately US$6,000,000) to the capital of the
Company in exchange for the issuance of additional shares of the Company
to the Buyer.
|
5.2
|
Post-Closing
Covenants of the Seller.
|
|
(a)
|
Establishment
of WFOE.
The Seller will in good faith assist the
Buyer and the Company to establish or complete the establishment of a new
wholly foreign-owned enterprise in the People’s Republic of China (the
“
Sinotop
WFOE
”) owned 100% by the Company or an affiliate of the Company or
the Buyer.
|
|
(b)
|
Assignment
of Sinotop VIE Agreements.
The Seller will in good
faith assist the Company in the assignment of the Sinotop VIE Agreements
from the Company to the Sinotop WFOE or to another Person designated by
Buyer, on the terms contained in the Termination, Assignment and
Assumption Agreement in substantially the form attached as Exhibit 5.2(b),
or on other terms acceptable to the Buyer and CBBD, and in the completion
of the other transactions contemplated by that Agreement, and will procure
the execution, delivery and performance thereof by Beijing Sino Top Scope
Technology Co., Ltd. and its
owner(s).
|
|
(c)
|
Covenant
Not to Compete.
For a period of five years from and
after the Closing Date (the “
Noncompetition
Period
”), except as specified in
Schedule 5.2
,
the Seller will not engage directly or indirectly in any business that the
Company, the Buyer or any Affiliate of the Company or the Buyer conducts
as of the Closing Date in any geographic area in which the Company, the
Buyer or any Affiliate of the Company or the Buyer conducts or plans to
conduct business as of the Closing Date;
provided
,
however
, that
the Seller’s ownership of less than 1% of the outstanding stock of any
publicly-traded corporation shall not deem the Seller to be engaged,
solely by reason thereof, in any of its businesses. During the
Noncompetition Period, the Seller shall not induce or attempt to induce
any customer or supplier or Affiliate of the Buyer to terminate its
relationship with the Buyer or any Affiliate of the Buyer or to enter into
any business relationship to provide or purchase the same or substantially
the same services as are provided to or purchased from the business of the
Company, the Buyer or any Affiliate of the Company or the Buyer which
might harm the Buyer or any Affiliate of the Buyer. During the
Noncompetition Period, the Seller shall not, on behalf of any Entity other
than the Buyer or an Affiliate of the Buyer, hire or retain, or attempt to
hire or retain, in any capacity any person who is, or was at any time
during the preceding twelve (12) months, an employee or officer of the
Buyer or an Affiliate of the Buyer. If the final judgment of a court
of competent jurisdiction declares that any term or provision of this
Section 5.2(c) is invalid or unenforceable, the Parties agree that the
court making the determination of invalidity or unenforceability shall
have the power to reduce the scope, duration, or area of the term or
provision, to delete specific words or phrases, or to replace any invalid
or unenforceable term or provision with a term or provision that is valid
and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision, and this Agreement shall be
enforceable as so modified after the expiration of the time within which
the judgment may be appealed.
|
|
(d)
|
Confidentiality
and Non-Use
. All information and materials relating to
the business or operations of CBBD or any of its subsidiaries or
Affiliates (the "Group"), including but not limited to any information
regarding the Group's business activities, personnel and compensation,
financial condition, assets and liabilities, products, services,
client identity and information, technical knowledge, trade secrets
or confidential information respecting inventions, designs, methods,
show-how, know-how, techniques, systems, processes, software, works of
authorship, plans and proposals (collectively, the “
Confidential
Information
”), shall be kept strictly secret and confidential by
the Seller. The Seller agrees to regard and preserve as
confidential, all Confidential Information, whether or not it has such
Confidential Information in writing, other physical or magnetic form, or
such Confidential Information is contained in the Seller's memory.
The Seller shall not, and shall cause its agents not to, without written
authority from CBBD to do so, directly or indirectly, use for any purpose,
nor disclose to any other person or entity, at any time following the
Effective Date, except as required by the conditions of the Seller's
business relationship with the Group, any Confidential Information.
The Seller understands and acknowledges that any disclosure or
misappropriation of the Confidential Information in violation of this
Section 5.2(d) may cause irreparable harm to the Group, the amount of
which may be difficult to ascertain, and therefore agrees that the Group
shall have the right to apply to a court of competent jurisdiction for
specific performance and/or an order restraining and enjoining any
such further disclosure or breach and for such relief as the Group shall
deem appropriate. Such right of the Group is to be in addition to
the remedies otherwise available to the Group at law or in
equity.
|
|
(e)
|
Resignation
of Existing Sole Director.
At the request of the
Buyer, the Seller, as the existing sole director of the Company, will
resign from any directorship position in the Company and sign a letter of
resignation from the existing sole director of the Company in a form
satisfactory to the Buyer.
|
|
(f)
|
Completion
of SinoTop BJ Transfer.
The Seller shall procure
Zhang Yan, the sole shareholder and legal representative of Beijing Sino
Top Scope Technology Co., Ltd., and/or other related people to execute and
deliver such instruments and other documents, and to take such other
actions, as the Buyer may reasonably request for the purpose of carrying
out, effecting and completing SinoTop BJ Transfer and the relevant change
of management of Beijing Sino Top Scope Technology Co., Ltd., including
but not limited to a letter of resignation from the existing director of
Beijing Sino Top Scope Technology Co., Ltd. in a form satisfactory to the
Buyer.
|
ARTICLE
VI
DISPUTE
RESOLUTION
6.1
|
Friendly
Negotiations.
The parties will attempt in the first
instance to resolve all disputes arising out of or relating to this
Agreement (“
Disputes
”)
through friendly consultations.
|
6.2
|
Commencement
of Arbitration.
If no mutually acceptable settlement of
the dispute is made within the sixty (60) days from the commencement of
the settlement negotiation or if any Party refuses to engage in any
settlement negotiation, any Party may submit the dispute for
arbitration.
|
6.3
|
Arbitration.
If a Dispute is not resolved by consultations within
sixty (60) days after one Party has served written notice on the other
Party for the commencement of such consultations, then such dispute will
be finally settled and determined by arbitration in Hong Kong under the
Arbitration Rules of the United Nations Commission on International Trade
Law by arbitrators appointed in accordance with such rules. The
arbitration and appointing authority will be the Hong Kong International
Arbitration Centre (“
HKIAC
”).
The arbitration will be conducted by a panel of three arbitrators, one
chosen by Buyer, one chosen by Seller, and the third by agreement of the
Parties; failing agreement within 30 days of commencement of the
arbitration proceeding, the HKIAC will appoint the third arbitrator. The
proceedings will be confidential and conducted in English. The arbitral
tribunal will have the authority to grant any equitable and legal remedies
that would be available in any judicial proceeding instituted to resolve a
disputed matter, and its award will be final and binding on the parties.
The arbitral tribunal will determine how the parties will bear the costs
of the arbitration. Notwithstanding the foregoing, each party will have
the right at any time to immediately seek injunctive relief, an award of
specific performance or any other equitable relief against the other party
in any court or other tribunal of competent jurisdiction. During the
pendency of any arbitration or other proceeding relating to a Dispute
between the parties, the parties will continue to exercise their remaining
respective rights and fulfill their remaining respective obligations under
this Agreement, except with regard to the matters under
dispute.
|
ARTICLE
VII
MISCELLANEOUS
7.1
|
Further
Assurances
.
Each Party will
execute and/or cause to be delivered to each other Party such instruments
and other documents, and will take such other actions, as such other Party
may reasonably request (prior to, at or after the Closing) for the purpose
of carrying out or evidencing any of the
Transactions.
|
7.2
|
Survival.
The
representations, warranties, covenants and agreements made herein shall
survive any investigation made by Buyer and the closing of the
Transactions. All statements as to factual matters contained in
any certificate or other instrument delivered by or on behalf of the
Seller pursuant hereto in connection with the Transactions shall be deemed
to be representations and warranties by the Seller solely as of the date
of such certificate or instrument.
|
7.3
|
Fees and
Expenses
.
Without prejudice
to Section 1.6, each
Party
will bear its own fees and expenses incurred in connection with the
negotiation, execution and performance of its obligations under the
Transaction Documents.
|
7.4
|
Notices
.
Any
notice or other communication required or permitted to be delivered to any
Party will be in writing and will be deemed properly delivered, given and
received upon dispatch by hand, registered mail, courier or express
delivery service with receipt confirmed by signature of the addressee, to
the address set forth beneath the name of such Party below (or to such
other address as such Party may specify in a written notice given to the
other Parties):
|
If
to Seller:
|
|
Weicheng
Liu
88
East 4th Ring Road North
Greenlake
Place
Building
8, Unit 2-1003
Beijing,
China 100025
Fax
number: +86 10 5928 2120
|
If
to the Buyer:
|
|
China
Broadband Ltd.
c/o
China Broadband, Inc.
1900
Ninth Street, 3
rd
Floor
Boulder,
Colorado 80302
Attention: Marc
Urbach
Fax
Number: (303) 449.7799
|
|
|
|
With
Copies to:
|
|
Pillsbury
Winthrop Shaw Pittman LLP
2300
N Street, N.W.
Washington,
DC 20037
Attention :
Louis A. Bevilacqua, Esq.
Fax
Number: (202)
663.8007
|
7.5
|
Time of The
Essence
.
Time is of the
essence of this Agreement.
|
7.6
|
Headings
and Usage
.
The
headings contained in this Agreement are for convenience of reference
only, will not be deemed to be a part of this Agreement and will not be
referred to in connection with the construction or interpretation of this
Agreement. For purposes of this Agreement: (a) the words “include” and
“including” will be taken to include the words, “without limitation;” (b)
a Person will be deemed to have “knowledge” of a particular fact or other
matter if any Representative of such Person has knowledge of such fact or
other matter; and (c) whenever the context requires, the singular number
will include the plural, and vice versa; and each of the masculine,
feminine and neuter genders will refer to the
others.
|
7.7
|
Counterparts
.
This
Agreement may be executed in several counterparts, each of which will
constitute an original and all of which, when taken together, will
constitute one agreement.
|
7.8
|
Governing
Law
.
This
Agreement, including all matters of construction, validity and
performance, will in all respects be governed by, and construed in
accordance with, the laws of Hong Kong (without giving effect to
principles relating to conflict of laws). This Agreement is
written in English and the English language will govern this
Agreement.
|
7.9
|
Successors
and Assigns; Parties in Interest
.
Except as
otherwise expressly provided herein, the provisions hereof shall inure to
the benefit of, and be binding upon, the successors, assigns, heirs,
executors and administrators of the parties hereto and shall inure to the
benefit of and be enforceable by each Person who shall be a holder of the
Share from time to time.
|
7.10
|
Assignment.
Neither
Party may assign any of its rights or delegate any of their obligations
under this Agreement without the other Party’s prior written
consent.
|
7.11
|
Amendments
.
This
Agreement may not be amended, modified, altered or supplemented other than
by means of a written instrument duly executed and delivered on behalf of
all Parties.
|
7.12
|
Severability.
In
case any provision of the Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired
thereby.
|
7.13
|
Entire
Agreement.
The Transaction Documents set forth the
entire understanding of the parties relating to the subject matter thereof
and supersede all prior agreements and understandings among or between any
of the parties relating to the subject matter
thereof.
|
7.14
|
Confidentiality
.
Each
Party agrees that, except with the prior written consent of the other
Party, it shall at all times keep confidential and not divulge, furnish or
make accessible to anyone any confidential information, knowledge or data
concerning or relating to the business or financial affairs of the other
Parties to which such Party has been or shall become privy by reason of
this Agreement, discussions or negotiations relating to this Agreement,
the performance of its obligations hereunder or the ownership of the Share
purchased hereunder. The provisions of this Section 7.14 shall be in
addition to, and not in substitution for, the provisions of any separate
nondisclosure agreement executed by the
Parties.
|
[Remainder
of Page Intentionally Left Blank]
In
Witness Whereof
, the Parties have caused this Ordinary Share Purchase
Agreement to be executed and delivered as of the date first set forth
above.
“SELLER”
|
|
“BUYER”
|
|
|
|
|
Weicheng
Liu,
an individual
|
|
China
Broadband, Ltd.,
a Cayman Islands company
|
|
|
|
|
|
|
By:
|
|
|
|
Name: Marc
Urbach
|
|
|
Its: President
|
|
|
|
|
|
|
“CBBD”
|
|
|
China
Broadband, Inc.,
a Nevada company
|
|
|
|
|
|
|
By:
|
|
|
|
Name: Marc
Urbach
|
|
|
Its: President
|
Appendix
A
CERTAIN
DEFINITIONS
For
purposes of the Agreement (including this Appendix A):
“Agreement”
means the Ordinary Share Purchase Agreement to which this Appendix A is
attached, as it may be amended from time to time.
“
A
ffiliate
”
means,
as to any Person, any other Person which directly or indirectly controls, or is
under common control with, or is controlled by, such Person. As used
in this definition, "control" shall mean possession, directly or indirectly, of
power to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership interests, by
contract or otherwise);
provided
, that,
beneficial ownership of 10% or more of the voting securities (or the
equivalents) of a Person shall be deemed to be control. With respect
to any Person who is an individual, "Affiliates" shall mean such individual's
spouse and descendants (whether natural or adopted) and any trust solely for the
benefit of such individual and/or such individual's spouse, their respective
ancestors and/or descendants (whether natural or adopted).
“Business”
means the business or commercial activities carried out by the Company as of the
Effective Date.
“Buyer”
is
defined in the Preamble to the Agreement.
“CBBD”
is
defined in the Preamble to the Agreement.
“CBBD
Shares”
is defined in Section 1.2.
“Closing” and
“Closing Date”
are defined in Section 1.3.
“Company”
is defined in Recital A.
“Convertible Note
Agreements”
means (a) that certain Note Purchase Agreement dated as of
March 9, 2010, by and between the Buyer and the Company, and the other documents
and instruments contemplated therein; and (b) that certain Note Purchase
Agreement dated as of June 24, 2010, between and among the Company, Chardan SPAC
Asset Management LLC, and Steven Oliveira, and the other documents and
instruments contemplated therein.
“Disputes”
is defined in Section 6.1.
“Effective
Date”
is defined in the Preamble to the Agreement.
“Encumbrance”
means any lien, pledge, hypothecation, charge, mortgage, security interest,
encumbrance, equity, trust, equitable interest, claim, preference, right of
possession, lease, tenancy, license, encroachment, covenant, infringement,
interference, Order, proxy, option, right of first refusal, preemptive right,
community property interest, legend, defect, impediment, exception, reservation,
limitation, impairment, imperfection of title, condition or restriction of any
nature (including any restriction on the transfer of any asset, any restriction
on the receipt of any income derived from any asset, any restriction on the use
of any asset and any restriction on the possession, exercise or transfer of any
other attribute of ownership of any asset).
“Entity”
means any corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture,
estate, trust, cooperative, foundation, society, political party, union, company
(including any limited liability company or joint stock company), firm or other
enterprise, association, organization or entity.
“
Governmental
Authority
”
means
any: (a) nation, principality, state, commonwealth, province, territory, county,
municipality, district or other jurisdiction of any nature; (b) federal, state,
local, municipal, foreign or other government; (c) governmental or
quasi-governmental authority of any nature (including any governmental division,
subdivision, department, agency, bureau, branch, office, commission, council,
board, instrumentality, officer, official, representative, organization, unit,
body or Entity and any court or other tribunal); (d) multi-national organization
or body; or (e) individual, Entity or body exercising, or entitled to exercise,
any executive, legislative, judicial, administrative, regulatory, police,
military or taxing authority or power of any nature.
“Intellectual
Property”
means any patent, patent application, trademark (whether
registered or unregistered and whether or not relating to a published work),
trademark application, trade name, fictitious business name, service mark
(whether registered or unregistered), service mark application, copyright
(whether registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, franchise, system, computer software,
invention, design, blueprint, proprietary product, technology, proprietary
right, and improvement on or to any of the foregoing, or any other intellectual
property right or intangible asset.
“Legal
Requirement”
means any national (or
federal), provincial, state, local, municipal, foreign or other constitution,
law, statute, legislation, principle of common law, resolution, ordinance, code,
edict, decree, proclamation, treaty, convention, rule, regulation, ruling,
directive, pronouncement, requirement, specification, determination, decision,
opinion or interpretation issued, enacted, adopted, passed, approved,
promulgated, made, implemented or otherwise put into effect by or under the
authority of any Governmental Authority.
“Liability”
means any debt, obligation, duty or liability of any nature (including
any unknown, undisclosed, unmatured, unaccrued, unasserted, contingent,
indirect, conditional, implied, vicarious, derivative, joint, several or
secondary liability), regardless of whether such debt, obligation, duty or
liability would be required to be disclosed on a balance sheet prepared in
accordance with generally accepted accounting principles and regardless of
whether such debt, obligation, duty or liability is immediately due and
payable.
“Order”
means any: (a) order, judgment, injunction, edict, decree, ruling,
pronouncement, determination, decision, opinion, verdict, sentence, subpoena,
writ or award issued, made, entered, rendered or otherwise put into effect by or
under the authority of any court, administrative agency or other Governmental
Body or any arbitrator or arbitration panel; or (b) Contract with any
Governmental Body entered into in connection with any Proceeding.
“Party” and
“Parties”
are defined in the Preamble to the Agreement.
“Person”
means any individual, Entity or Governmental Authority.
“Proceeding”
means any action, suit, litigation, arbitration, proceeding (including any
civil, criminal, administrative, investigative or appellate proceeding and any
informal proceeding), prosecution, contest, hearing, inquiry, inquest, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any Governmental Authority or any arbitrator or
arbitration panel.
“Related
Party”
–
each of the following is a “Related Party”: (a) each individual who is, or who
has at any time been, an officer of the Company; (b) each member of the family
of each of the individuals referred to in clause “(a)” above; and (c) any Entity
(other than the Company) in which any one of the individuals referred to in
clauses “(a)” and “(b)” above holds or held (or in which more than one of such
individuals collectively hold or held), beneficially or otherwise, a controlling
interest or a material voting, proprietary or equity interest.
“Securities
Act”
is defined in Section 2.22(c).
“Seller”
is defined in the Preamble to the Agreement.
“Share”
is
defined in Recital A.
“Sinotop VIE
Agreements”
means the following agreements:
|
·
|
Management
Services Agreement, dated as of March 9, 2010, by and between Beijing Sino
Top Scope Technology Co., Ltd. and Sinotop Group
Limited.
|
|
·
|
Option
Agreement, dated as of March 9, 2101, between and among Beijing Sino Top
Scope Technology Co., Ltd., Sinotop Group Limited, and Zhang Yan as the
sole shareholder of Beijing Sino Top Scope Technology Co.,
Ltd.
|
|
·
|
Equity
Pledge Agreement, dated as of March 9, 2010, between and among Beijing
Sino Top Scope Technology Co., Ltd., Sinotop Group Limited, and Zhang Yan
as the sole shareholder of Beijing Sino Top Scope Technology Co.,
Ltd.
|
|
·
|
Voting
Rights Proxy Agreement, dated as of March 9, 2010, between and among
Beijing Sino Top Scope Technology Co., Ltd., Sinotop Group Limited, and
Zhang Yan as the sole shareholder of Beijing Sino Top Scope Technology
Co., Ltd.
|
“Sinotop
WFOE”
is defined in Section 5.2(a).
“Taxes”
means with respect to any Person, (a) all income taxes (including any tax on or
based upon net income, gross income, income as specially defined, earnings,
profits or selected items of income, earnings or profits) and all gross
receipts, sales, use, ad valorem, transfer, franchise, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property or
windfall profits taxes, alternative or add-on minimum taxes, customs duties and
other taxes, fees, assessments or charges of any kind whatsoever, together with
all interest and penalties, additions to tax and other additional amounts
imposed by any taxing authority (domestic or foreign) on such Person (if any)
and (b) any liability for the payment of any amount of the type described in the
clause (a) above as a result of being a “transferee” of another entity or a
member of an affiliated or combined group, and “
Tax
” will
have the correlative meaning.
“Tax
Return”
means any return
(including any information return), report, statement, declaration, estimate,
schedule, notice, notification, form, election, certificate or other document or
information that is, has been or may in the future be filed with or submitted
to, or required to be filed with or submitted to, any Governmental Body in
connection with the determination, assessment, collection or payment of any Tax
or in connection with the administration, implementation or enforcement of or
compliance with any Legal Requirement relating to any Tax.
“Transactions”
means the sale and purchase of the Share and the other transactions contemplated
by this Agreement.
“Transaction
Documents”
means this Agreement and all other agreements, instruments and
other documents contemplated to be executed, delivered or performed as set forth
herein.
Exhibit
1.1(a)(iii)
EMPLOYMENT
AGREEMENT
(attached)
Exhibit
1.1(a)(iv)
FORM
OF
INSTRUMENT
OF TRANSFER
Weicheng
Liu (hereinafter called the “Transferor”), in consideration of Ninety Million
Seven Hundred Seventy Seven Thousand Two Hundred Ninety Eight (90,777,298)
shares of common stock of China Broadband, Inc. delivered to him by China
Broadband Ltd. (hereinafter called “the said Transferee”), does hereby transfer
to the said Transferee the one (1) share numbered 1 standing in his name in the
Register of Sinotop Group Limited, to hold unto the said Transferee or its
Assigns, subject to the several conditions upon which it holds the same at the
time of execution hereof. And the said Transferee does hereby agree to take the
said Share subject to the same conditions.
Witness
our hands this date,
June
30
, 2010:
Witness
to the signature of the Transferor
|
|
)
|
|
|
|
Signature:
|
|
|
)
|
Name:
|
|
|
)
|
Address:
|
|
|
)
|
Witness
to the signature of the Transferee
|
|
)
|
|
|
|
Signature:
|
|
|
)
|
Name:
|
|
|
)
|
Address:
|
|
|
)
|
Exhibit
1.1(a)(iv)
FORM
OF SOLD NOTE
The
undersigned hereby confirms having this day sold to China Broadband Ltd., one
(1) share of Sinotop Group Limited in consideration for Ninety Million Seven
Hundred Seventy Seven Thousand Two Hundred Ninety Eight (90,777,298) shares of
the common stock of China Broadband, Inc.
Dated:
June 30, 2010
FORM
OF BOUGHT NOTE
The
undersigned hereby confirms having this day bought from Weicheng Liu one (1)
share of Sinotop Group Limited, in consideration for Ninety Million
Seven Hundred Seventy Seven Thousand Two Hundred Ninety Eight (90,777,298)
shares of the common stock of China Broadband, Inc.
Dated: June
30, 2010
|
|
|
|
|
|
|
CHINA
BROADBAND LTD.
|
|
|
|
|
By:
|
|
|
Name:
Marc Urbach
|
|
Title:
|
Exhibit
1.1(a)(vi)
Board
Resolutions
Exhibit
1.1(a)(xi)
Consent
of Spouse
(attached)
Exhibit
2.10
Bank
Accounts
(to be
supplied by Seller)
Exhibit
5.2(b)
Termination,
Assignment and Assumption Agreement
(attached)
SCHEDULE
3.4
CAPITALIZATION
The
authorized capital stock of the Company consists of 95,000,000 shares of common
stock, $0.001 par value, and 5,000,000 shares of undesignated preferred stock,
$0.001 par value. As of the date hereof (a) 65,086,152 shares of the
Company’s common stock are issued and outstanding, (b) no shares of preferred
stock are issued and outstanding, (c) no shares of the Company’s common stock or
preferred stock are held by the Company in its treasury, (d) no shares of the
Company’s common stock or preferred stock area issuable pursuant to a Company
stock plan, (e) an aggregate of 17,192,300 shares of the Company’s common stock
are issuable and reserved for issuance pursuant to outstanding options and
warrants.
Attention
is called to the Common Stock Financing referred to in Section 7.15, the Debt
Conversion, and the Series B Financing referred to in Section 7.16.
Current
Capitalization Table
|
|
|
|
|
Common
|
|
|
Warrants*
|
|
|
Options
|
|
|
Fully
Diluted
|
|
|
Common%
|
|
Current
Shareholders
|
|
|
|
|
|
61,986,152
|
|
|
|
10,246,467
|
|
|
|
317,500
|
|
|
|
72,550,119
|
|
|
|
95.2
|
%
|
Oliveira
Common
|
|
|
|
|
|
3,100,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,100,000
|
|
|
|
4.8
|
%
|
Oliveira
Convertible Debt
|
|
|
2,133,400
|
|
|
|
|
|
|
|
2,666,667
|
|
|
|
-
|
|
|
|
2,666,667
|
|
|
|
0.0
|
%
|
Convertible
Debt
|
|
|
3,142,752
|
|
|
|
|
|
|
|
3,961,666
|
|
|
|
-
|
|
|
|
3,961,666
|
|
|
|
0.0
|
%
|
Total
|
|
$
|
5,276,152
|
|
|
|
65,086,152
|
|
|
|
16,874,800
|
|
|
|
317,500
|
|
|
|
82,278,452
|
|
|
|
100
|
%
|
Post
Raise Capitalization Table
|
|
|
|
|
Common
|
|
|
Warrants
|
|
|
Options
|
|
|
Fully
Diluted
|
|
|
|
|
Common%
|
|
Current
Shareholders
|
|
|
|
|
|
61,986,152
|
|
|
|
10,246,467
|
|
|
|
317,500
|
|
|
|
72,550,119
|
|
|
|
|
|
13.7
|
%
|
Converted
Debt
|
|
|
3,142,752
|
|
|
|
62,855,040
|
|
|
|
66,816,706
|
|
|
|
-
|
|
|
|
129,671,746
|
|
b
|
|
|
|
13.8
|
%
|
New
Investors
|
|
|
2,625,000
|
|
|
|
52,500,000
|
|
|
|
52,500,000
|
|
|
|
-
|
|
|
|
105,000,000
|
|
c
|
|
|
|
11.6
|
%
|
Preffered
A
|
|
|
3,500,000
|
|
|
|
70,000,000
|
|
|
|
240,000,000
|
|
|
|
40,000,000
|
|
|
|
350,000,000
|
|
a
|
|
|
|
15.4
|
%
|
SM
Deal Terms
|
|
|
500,000
|
|
|
|
10,000,000
|
|
|
|
10,000,000
|
|
|
|
-
|
|
|
|
20,000,000
|
|
|
|
|
|
2.2
|
%
|
Preffered
B
|
|
|
2,400,000
|
|
|
|
48,000,000
|
|
|
|
48,000,000
|
|
|
|
-
|
|
|
|
96,000,000
|
|
|
|
|
|
10.6
|
%
|
Oliveira
Loan Conversion
|
|
|
600,000
|
|
|
|
12,000,000
|
|
|
|
36,000,000
|
|
|
|
-
|
|
|
|
48,000,000
|
|
a
|
|
|
|
2.6
|
%
|
Oliveira
Converted Debt
|
|
|
2,133,400
|
|
|
|
42,666,000
|
|
|
|
42,666,000
|
|
|
|
-
|
|
|
|
85,336,000
|
|
b
|
|
|
|
9.4
|
%
|
Oliveira
Common
|
|
|
|
|
|
|
3,100,000
|
|
|
|
2,666,667
|
|
|
|
-
|
|
|
|
5,766,667
|
|
|
|
|
|
0.7
|
%
|
Officers
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
80,000,000
|
|
|
|
80,000,000
|
|
|
|
|
|
0.0
|
%
|
Agents
|
|
|
|
|
|
|
-
|
|
|
|
5,250,000
|
|
|
|
-
|
|
|
|
5,250,000
|
|
a
|
|
|
|
0.0
|
%
|
Sinotop
|
|
|
|
|
|
|
90,777,298
|
|
|
|
128,536,960
|
|
|
|
30,079,375
|
|
|
|
249,393,633
|
|
d
|
|
|
|
20.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,901,152
|
|
|
|
453,886,490
|
|
|
|
642,684,800
|
|
|
|
150,396,875
|
|
|
|
1,246,968,165
|
|
|
|
|
|
100
|
%
|
b
|
assumes
100% debt conversion (50% required)
|
c
|
assumes
$9,625,000 raise
|
d
|
This
capitalization table reflects the maximum number of shares that will be
issuable immediately upon consummation of the offering. While a
final determination has not been made regarding the number of shares
issuable to Sinotop, the number above reflects the maximum possible
number. In addition, Sinotop requires that the Sinotop
Acquisition Agreements number above include and earn-out provision such
that, in the event that Sinotop achieves certain mutually agreed upon
milestones, Sinotop could receive additional shares of common stock and
warrants equal to a maximum of 5% of the number of shares of common stock
and warrants identified above. Based on the above maximum
numbers, the earn-out would result in the issuance of an additional
22,694,325 shares of common stock and 32,134,240 warrants to
Sinotop.
|
SCHEDULE
5.2
EXCEPTIONS
TO NON-COMPETE
The
Seller is the sole shareholder of Codent Networks (Shanghai) Co. Ltd. (“
科顿网络通讯技术(上海)有限公司
”),
a wholly foreign owned enterprise incorporated in Shanghai, China with a
registered capital of USD$710,000. The company’s main business is to develop and
market mobile software solutions and services. It is engaging with Xinhua Mobile
TV Co. on mobile streaming video service and with China Telecom on mobile
payment and other mobile phone based services to mobile consumers and enterprise
customers.
Codent’s
business existed prior to the Seller employment agreement with CBBD. Some of
Codent’s business, for example, the mobile streaming video and mobile payment,
may be considered similar in nature with CBBD’s video-on-demand and pay-per-view
services in the mobile space.
The
Seller is not involved in Codent’s operation or management, and less than 10% of
the Seller’s time is spent serving as the sole shareholder, legal representative
and chairperson of the company.
EXHIBIT
31.1
CERTIFICATION
I, Marc
Urbach, certify that:
1. I have
reviewed this quarterly report on Form 10-Q of China Broadband, Inc. for the
period ended June 30, 2010.
2. Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The
registrant's other certifying officer(s) and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The
registrant's other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All
significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and
report financial information; and
(b) Any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant's internal control over financial
reporting.
August
23, 2010
|
|
/s/
Marc Urbach
|
|
|
Marc
Urbach
(Principal
Executive
Officer)
|
EXHIBIT 31.2
CERTIFICATION
I, Marc
Urbach, certify that:
1. I have
reviewed this quarterly report on Form 10-Q of China Broadband, Inc. for the
period ended June 30, 2010.
2. Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The
registrant's other certifying officer(s) and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed
such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The
registrant's other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All
significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and
report financial information; and
(b) Any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant's internal control over financial
reporting.
August
23, 2010
|
|
/s/
Marc Urbach
|
|
|
Marc
Urbach
(President,
Principal Accounting Officer and Principal
Financial
Officer)
|
EXHIBIT 32.1
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report of China Broadband, Inc. (the "Company") on
Form 10-Q for the period ended June 30, 2010 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Marc Urbach, Principal
Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as
adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The
Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities and Exchange Act of 1934; and
(2) The
information contained in the Report fairly presents, in all material respects,
the financial condition and result of operations of the Company.
A signed
original of this written statement required by Section 906 has been provided to
China Broadband, Inc. and will be retained by China Broadband, Inc. and
furnished to the Securities and Exchange Commission or its staff upon
request.
August
23, 2010
|
|
/s/
Marc Urbach
|
|
|
Marc
Urbach
(Principal
Executive
Officer)
|
EXHIBIT
32.2
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report of China Broadband, Inc. (the "Company") on
Form 10-Q for the period ended June 30, 2010 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Marc Urbach, Principal
Accounting Officer and Principal Financial Officer of the Company, certify,
pursuant to 18 U.S.C. 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The
Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities and Exchange Act of 1934; and
(2) The
information contained in the Report fairly presents, in all material respects,
the financial condition and result of operations of the Company.
A signed
original of this written statement required by Section 906 has been provided to
China Broadband, Inc. and will be retained by China Broadband, Inc. and
furnished to the Securities and Exchange Commission or its staff upon
request.
August
23, 2010
|
|
/s/
Marc Urbach
|
|
|
Marc
Urbach
(Principal
Accounting Officer and Principal
Financial
Officer
)
|