Unassociated Document
SHARE SUBSCRIPTION AGREEMENT
SHARE SUBSCRIPTION AGREEMENT (the “Agreement”), dated as of 18 April, 2011, by and among Semiconductor Manufacturing International Corporation (the “Company”), and Country Hill Limited (the “Investor”).
WHEREAS
A. The Investor wishes to subscribe, and the Company wishes to issue, upon the terms and conditions stated in this Agreement:
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(a)
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an aggregate of 360,589,053 convertible preferred shares, with a nominal value of US$0.0004 per share, of the Company, the rights of which are set out in Schedule A to this Agreement (“Convertible Preferred Shares”) at a subscription price of HK$5.3900 per share; and
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(b)
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72,117,810 warrants for the subscription of 72,117,810 Convertible Preferred Shares (the “Warrants”), the rights relating to which are contained in the warrant agreement set out in Schedule C to this Agreement, in consideration for the agreement by the Investor to enter into this Agreement to subscribe for the Convertible Preferred Shares (the “Warrant Agreement”).
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The aggregate subscription price of the 360,589,053 Convertible Preferred Shares subscribed hereunder (the “Initial Convertible Preferred Shares”) shall be US$250 million based on an exchange rate of US$1=HK$7.7743 (the “Aggregate Subscription Price”). Unless the context otherwise requires, the Initial Convertible Preferred Shares and the Warrants subscribed for shall be referred to herein as the “Securities”.
B. The Company and the Investor are executing and delivering this Agreement in reliance upon the exemption from securities registration under the U.S. Securities Act of 1933, as amended (the “1933 Act”) afforded by Regulation S (“Regulation S”) as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the 1933 Act.
NOW, THEREFORE, the Company and the Investor hereby agree as follows:
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1.
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SUBSCRIPTION OF THE INITIAL CONVERTIBLE PREFERRED SHARES AND THE WARRANTS
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Subscription of the Initial Convertible Preferred Shares. Subject to the satisfaction or waiver of the conditions set forth in Sections 5, 6 and 7 below, the Company shall issue to the Investor, and the Investor shall subscribe for, on the Closing Date (as defined in Section 1(b)(i) below), 360,589,053 Initial Convertible Preferred Shares and 72,117,810 Warrants (the “Closing”).
(a) Subscription Price. The Aggregate Subscription Price for the Initial Convertible Preferred Shares shall be US$250 million.
(b) Closing.
(i) Date and Time. The date and time of the Closing (the “Closing Date”) shall be 10:00 a.m., Hong Kong time, on such date as is specified by the Company and the Investor, which date shall be no later than the first Business Day after the satisfaction or waiver of the conditions to the Closing set forth in Sections 5, 6 and 7 below, at the offices of Slaughter and May, 47th Floor, Jardine House, One Connaught Place, Central, Hong Kong or at such other time, date and location as is mutually agreed in writing by the Company and the Investor.
(ii) Payment and Delivery. On or before the Closing Date:
(A) the Investor shall:
(1) pay the Aggregate Subscription Price to the Company for the Initial Convertible Preferred Shares to be issued to the Investor at the Closing, by electronic bank transfer, in immediately available funds. The payment shall be made to the bank account, bank and bank address as specified by the Company in writing prior to the Closing Date; and
(2) deliver to the Company the Warrant Agreement duly executed by the Investor;
(B) the Company shall deliver to the Investor:
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(1)
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certificates in respect of the Initial Convertible Preferred Shares, respectively, duly executed on behalf of the Company and registered in the name of the Investor;
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(2)
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a certified register of members of the Convertible Preferred Shares of the Company, reflecting the Investor’s ownership of the relevant Convertible Preferred Shares, respectively;
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(3)
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copies of the board resolutions of the Company approving the entering into and execution of this Agreement and all transactions contemplated herein;
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(4)
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a copy of the resolution of the shareholders of the Company pursuant to Section 5(a) below;
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(5)
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a certificate, executed on behalf of the Company by the Secretary of the Company and dated as of the Closing Date, as to (i) the resolutions consistent with Section 3A(b) as adopted by the Board, and (ii) the Articles, in the form attached hereto as Schedule B;
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(6)
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a certificate, executed on behalf of the Company by an authorised officer of the Company and dated as of the Closing Date, as to the conditions precedent set forth in Section 7(b) and (d) hereof;
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(7)
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an opinion of Conyers Dill & Pearman, Cayman Islands counsel to the Company, in a form reasonably satisfactory to the Investor, covering due authorisation, valid issuance of shares, capitalisation opinion, no governmental restrictions and no conflicts with law or charter documents and legality and enforceability of the rights of the Convertible Preferred Shares;
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(8)
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an opinion of Slaughter and May, Hong Kong counsel to the Company, in a form reasonably satisfactory to the Investor, covering the enforceability of this Agreement and the approval by The Stock Exchange of Hong Kong Limited (the “SEHK”) of listing of the ordinary shares of par value US$0.0004 each of the Company (the “Common Shares”) issuable upon conversion of the Initial Convertible Preferred Shares (including those Common Shares issuable as a result of any adjustment to the conversion rate pursuant to the rights of the Convertible Preferred Shares as set out in Schedule A);
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(9)
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an opinion of M & A Law Firm, the People’s Republic of China (the “PRC”) counsel to the Company, in a form reasonably satisfactory to the Investor, covering compliance with PRC laws; and
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(10)
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the Warrant Agreement duly executed by the Company and the certificate for the Warrants.
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2.
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INVESTOR’S REPRESENTATIONS AND WARRANTIES.
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The Investor hereby represents and warrants to the Company that:
(a) Regulation S.
(i) The Investor (A) is domiciled and has its principal place of business outside the United States, (B) certifies that it is not a U.S. Person as defined under Rule 902 of Regulation S and is not acquiring the Securities for the account or benefit of any U.S. Person, (C) at the time of offering to the Investor and communication of the Investor’s order to subscribe for the Securities and at the time of the Investor’s execution of this Agreement, the Investor was located outside the United States, and (D) at the time of the Closing the Investor, or persons acting on the Investor’s behalf in connection therewith, will be located outside the United States.
(ii) The Investor has been advised and acknowledges that: (A) the Securities issued pursuant to this Agreement and the Warrant Agreement have not been, and when issued, will not be registered under the 1933 Act or the securities laws of any state of the United States, (B) in issuing the Securities to the Investor pursuant hereto, the Company is relying upon the exemption from registration provided by Regulation S of the 1933 Act, and (C) it is a condition to the availability of the Regulation S safe harbor that the Securities not be offered or sold in the United States or to a U.S. Person until the expiration of a period of 40 days after the Closing Date (the “Distribution Compliance Period”).
(iii) The Investor acknowledges and covenants that until the expiration of the Distribution Compliance Period: (A) it and its agents or representatives have not and will not solicit offers to buy, offer for sale or sell any of the Securities or any beneficial interest therein in the United States or to or for the account of a U.S. Person, and (B) notwithstanding the foregoing, prior to the expiration of the Distribution Compliance Period, the Securities may be offered and sold by the holder thereof only if such offer and sale is made in compliance with the terms of this Agreement and either, (X) the offer or sale is within the United States or to or for the account of a U.S. Person and pursuant to an effective registration statement, Rule 144 promulgated under the 1933 Act or an exemption from the registration requirements of the 1933 Act, or (Y) the offer and sale is outside the United States and to other than a U.S. Person. The foregoing restrictions are binding upon subsequent transferees of the Securities, except for transferees pursuant to an effective registration statement. The Investor agrees that after the Distribution Compliance Period, the Securities may be offered or sold within the United States or to or for the account of a U.S. Person only in accordance with this Agreement and pursuant to applicable securities laws.
(iv) The Investor hereby acknowledges that during the Distribution Compliance Period, no deposit of the Securities issued hereunder will be accepted into its American Depositary Shares (“ADS”) program, and the Securities may not be offered or sold in the United States or to U.S. Persons unless the Securities are registered under the 1933 Act, or an exemption from the registration requirements of the 1933 Act is available. The Investor further acknowledges that, for so long as the Securities are held by “affiliates” within the meaning of Rule 144(a)(1) under the 1933 Act or are “restricted securities” within the meaning of Rule 144(a)(3) under the 1933 Act, the Securities will not be eligible for deposit under any unrestricted depositary receipt facility.
(b) No Public Sale or Distribution. Subject to the potential transfer to the Permitted Transferee (as defined in Section 4(e)(iii)), the Investor is acquiring the Securities for its own account and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the 1933 Act. The Investor does not presently have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Securities. “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization or a government or any department or agency thereof.
(c) Reliance on Exemptions. The Investor understands that the Securities are being offered and sold to it in reliance on 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.
(d) Investment Risk; Knowledge and Experience. The Investor recognizes that its investment in the Securities involves a high degree of risk, and the Investor has considered whether an investment in the Securities is appropriate for the Investor. In this regard, the Investor has such knowledge and experience in financial and business matters that it is capable of evaluating the risks and merits of prospective investment in the Securities.
(e) Transfer or Resale. The Investor understands that: (i) the Securities have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred within the United States or to or for the account or benefit of a U.S. Person unless (A) subsequently registered thereunder, (B) the Investor shall have delivered to the Company an opinion of counsel, in form, scope and substance reasonably acceptable to the Company, to the effect that such Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration, or (C) the Investor provides the Company with reasonable assurance that such Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act, as amended, (or a successor rule thereto) (collectively, “Rule 144”); (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller (or the Person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other Person is under any obligation to register the Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder.
(f) Legends. The Investor understands that the certificates or other instruments representing the Securities, until such time as the resale of the Securities have been registered under the 1933 Act, shall bear any legend as required by the “blue sky” laws of any state and a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such stock certificates):
“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE ACT, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER, IF NOT A U.S. PERSON: (1) REPRESENTS THAT IT IS NOT A U.S. PERSON AND IS ACQUIRING THESE SHARES IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THESE SHARES EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (C) INSIDE THE UNITED STATES, TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE ACT, (D) INSIDE THE UNITED STATES, TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE COMPANY A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THESE SHARES (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE COMPANY), (E) OUTSIDE THE UNITED STATES, IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULES 904 AND 905 UNDER THE ACT, OR (F) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE ACT (IF AVAILABLE); AND (3) EXCEPT FOR THE RESALE OR TRANSFER AS DESCRIBED IN CLAUSES 2(A), (B), (E) AND (F), AGREES THAT IT WILL, IF APPLICABLE, GIVE EACH PERSON TO WHOM THESE SHARES ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THESE SHARES PURSUANT TO CLAUSES (2)(C), (D) OR (F) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS, OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION OR IN A TRANSACTION NOT SUBJECT TO THE REGISTRATION REQUIREMENTS OF THE ACT. AS USED HEREIN, THE TERMS ‘OFFSHORE TRANSACTION’, ‘UNITED STATES’, AND ‘U.S. PERSON’ HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE ACT.”
(g) Validity; Enforcement. The Investor is duly organised, validly existing and in good standing under the laws of its jurisdiction of formation, and has all requisite corporate power and authority to enter into and perform this Agreement and consummate the transactions contemplated hereby. This Agreement has been duly and validly authorised, executed and delivered on behalf of the Investor and shall constitute the legal, valid and binding obligations of the Investor enforceable against the Investor in accordance with its terms, except as such enforceability may be limited by general principles of equity or to applicable bankruptcy, insolvency, reorganisation, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.
(h) No Conflicts. The execution, delivery and performance by the Investor of this Agreement and the consummation by the Investor of the transactions contemplated hereby will not (i) result in a violation of the organisational or constitutional documents of the Investor, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Investor is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws) applicable to the Investor, except in the case of clauses (ii) and (iii) above, for such conflicts, defaults, rights or violations which would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of the Investor to perform its obligations hereunder; and no authorisation, approval, consent and license from any supranational, national, state, municipal, local or foreign government, any instrumentality, subdivision, court, administrative agency or commission or other governmental authority or regulatory body or instrumentality, or any quasi-governmental or private body exercising any regulatory, taxing, importing or other governmental or quasi-governmental authority (a “Governmental Entity”) is required for the entering into by the Investor of this Agreement and the performance by the Investor of its obligations under this Agreement, except for such as have already been obtained and are in full force and effect.
(i) Brokers and Finders. Subject to Section 4(d), no Person will have, as a result of the transactions contemplated by the Transaction Documents (as defined in Section 3A(b) below), any valid right, interest or claim against or upon the Company for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding with a placement agent entered into by or on behalf of the Investor.
(j) Acknowledgement. The Investor acknowledges and agrees that the foregoing representations, warranties, covenants and acknowledgments are made by it with the intention that they may be relied upon by the Company. The Investor further agrees that by accepting delivery of the Initial Convertible Preferred Shares at the Closing Date, it shall be representing and warranting that the foregoing representations and warranties are true and correct as at the Closing Date with the same force and effect as if they had been made by the Investor at the Closing Date.
(k) Ownership. The Investor is a wholly-owned subsidiary of China Investment Corporation.
3. A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Investor that, except as set forth in its Public Documents (as defined in Section 3A(j) below) (excluding disclosures of non-specific risks faced by the Company and its subsidiaries (the “Group”) included in any forward-looking statement, disclaimer, risk factor disclosure or other similarly non-specific statements that are similarly predictive or forward-looking in nature; provided, however that (i) any historical facts related to the Group and (ii) any specific exposure or effect faced by the Group emanating from specifically disclosed facts contained within any such disclosure shall be deemed disclosed for purposes of the representations and warranties set forth in this Article 3A):
(a) Organisation and Qualification. The Company is a corporation duly incorporated and validly existing in good standing under the laws of the jurisdiction in which it is incorporated, and has the requisite corporate power and authorisation to own its properties and to carry on its business as now being conducted. The Company is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not reasonably be expected to have a Material Adverse Effect. As used in this Agreement, “Material Adverse Effect” means (1) any material adverse effect on (i) the business, properties, assets, liabilities, operations, results of operations or financial condition of the Company and its subsidiaries, taken as a whole, or (ii) the authority or ability of the Company to perform its obligations under the Transaction Documents (as defined in Section 3A(b) below) or (2) the delisting of the Common Shares from the SEHK and the American Depository Receipts over the Common Shares from the NYSE; provided, however, that for purposes of clause (i) above, in no event shall any of the following exceptions, alone or in combination with the other enumerated exceptions below, be deemed to constitute, nor shall be taken into account in determining whether there has been or will be, a Material Adverse Effect: (A) any effect resulting from compliance with the terms and conditions of, or from the announcement of the transactions contemplated by this Agreement, (B) any effect that results from changes affecting any of the industries in which the Company operates generally or the economy generally, (C) any effect that results from changes affecting general worldwide economic or capital market conditions, provided that any such changes in (B) and (C) do not substantially disproportionately affect the Company in any material respect (as otherwise such changes in (B) and (C) shall be regarded as having a Material Adverse Effect under this Section 3A(a)), or (D) any change in the Company’s stock price or trading volume, in and of itself, primarily resulting from any of the effects or changes described in the foregoing clauses (A), (B) or (C). Each subsidiary of the Company has been duly organised and is validly existing in good standing under the laws of its jurisdiction of organisation except to the extent that the failure to be in good standing would not reasonably be expected to have a Material Adverse Effect.
(b) Authorisation; Enforcement; Validity. Other than the approvals set out in Section 5(a) below, the Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement and each of the other agreements entered into by the parties hereto in connection with the transactions contemplated by this Agreement and the Warrant Agreement (collectively, the “Transaction Documents”) and to issue the Securities in accordance with the terms hereof and thereof. The execution and delivery of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby, including, without limitation, the issuance of the Securities has been duly authorised by the Board and no further filing, consent or authorisation is required by the Board, except for the filing, consent or authorisation in connection with the satisfaction of the conditions in Section 5(a) below and any required filings regarding the issuance or listing of additional securities with The Stock Exchange of Hong Kong Limited (the “SEHK”) or the New York Stock Exchange (the “NYSE”). This Agreement and the other Transaction Documents when duly executed and delivered by the Company constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganisation, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.
(c) Issuance of Securities. The Securities are duly authorised and, when issued and paid for in accordance with the terms hereof, shall be validly issued and free from all preemptive or similar rights, taxes, liens and charges with respect to the issue thereof. The Convertible Preferred Shares issued or to be issued under this Agreement and upon the exercise of the Warrants shall be fully paid with the holders being entitled to all rights accorded to a holder of the Convertible Preferred Shares. Assuming the accuracy of each of the representations and warranties set forth in Section 2 of this Agreement, the offer and issuance by the Company of the Securities is exempt from registration under the 1933 Act.
(d) No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Securities) will not (i) result in a violation of the Articles, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, or (iii) subject to the terms of this Agreement, result in a violation of any law, rule, regulation, order, judgment or decree (including the Hong Kong Codes on Takeovers and Mergers, foreign, U.S. federal and state securities laws and regulations and the rules and regulations of the SEHK or of the NYSE applicable to the Company or by which any property or asset of the Company or any of its subsidiaries is bound or affected), except in the case of clauses (ii) and (iii) above, for such conflicts, defaults, rights or violations which would not reasonably be expected to result in a Material Adverse Effect.
(e) No Consents or Approvals. Save as otherwise disclosed to the Investor in the disclosure letter from the Company to the Investor dated the date hereof (the “Disclosure Letter”), the Company is not required to obtain any consent, approval, authorisation or order of, or make any filing or registration with or give prior notification to (i) any court, Governmental Entity or any regulatory or self-regulatory agency in order for it to execute, deliver or perform any of its obligations under or contemplated by the Transaction Documents or (ii) any third party pursuant to any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party (except for such requirements in either (i) or (ii) above the non-fulfilment of which would not result in a Material Adverse Effect), in each case in accordance with the terms hereof or thereof other than such as have been made or obtained, and except for the filings or notifications in connection with the satisfaction of the conditions set forth in Section 5(a) below and any required filings or notifications regarding the issuance or listing of additional securities with the SEHK or the NYSE or such consents as will be obtained by the Company on or before Closing. The Company has no knowledge of any facts or circumstances that might prevent the Company from obtaining or effecting any of the filings or notifications described in the preceding sentence. The Company is not in violation of the listing requirements of the SEHK or the NYSE and has no knowledge of any facts that would reasonably lead to delisting or suspension of its Common Shares from the SEHK or of its American depository receipts from the NYSE in the foreseeable future, apart from such suspension from SEHK and/or NYSE in connection with or resulting from the entering into of this Agreement. As used herein, “knowledge” shall mean actual knowledge of the executive officers (as defined in Rule 405 under the 1933 Act) of the Company after due inquiry.
(f) No Directed Selling Efforts. Neither the Company nor any of its affiliates or any other person acting on its or their behalf has engaged or will engage in any directed selling efforts within the meaning of Regulation S under the 1933 Act, as amended, and all such persons have complied with the offering requirements of Regulation S under the 1933 Act.
(g) Foreign Private Issuer. The Company is a “foreign private issuer” (as such term is defined in the rules and regulations under the 1933 Act and the U.S. Securities Exchange Act of 1934 (“1934 Act”), as amended).
(h) No General Solicitation; Agent. Neither the Company, nor any of its affiliates, nor any Person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Securities. The Company acknowledges that it has engaged Bank of America Merrill Lynch as financial advisor (the “Agent”) in connection with the issue of the Securities. Other than the Agent, 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 or the Investor for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding with a placement agent entered into by or on behalf of the Company.
(i) No Integrated Offering. Assuming the accuracy of the Investor’s representations and warranties set forth in Section 2 hereof, none of the Company, any of its affiliates, or any Person acting on 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 1933 Act, whether through integration with prior offerings or otherwise, or cause the offering of Securities hereunder to require approval of shareholders of the Company for purposes of any applicable shareholder approval provisions (except those set out in Section 5(a) below), including, without limitation, under the rules and regulations of the SEHK and the NYSE. None of the Company, their affiliates and any Person acting on their behalf will take any action or steps referred to in the preceding sentence that would require registration of the issuance of any of the Securities under the 1933 Act or cause the offering of the Securities to be integrated with other offerings for purposes of any such applicable shareholder approval provisions.
(j) Public Documents. The Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the 1934 Act or with the SEHK and has timely issued all announcements, returns, notices, financial statements and circulars required to be issued by it by the SEHK or the NYSE (all of the foregoing filed or announced prior to the date of this Agreement and all exhibits included therein and financial statements, notes and schedules thereto and documents and incorporated by reference therein being hereinafter referred to as the “Public Documents”). As of their respective filing or issuance dates, the Public Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder and the rules and regulations of the SEHK and the NYSE, as applicable, to the respective Public Documents, and, other than as corrected or clarified in a subsequent Public Document, none of the Public Documents, at the time they were filed or issued, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(k) Financial Statements. The consolidated financial statements (including any related notes thereto) included or incorporated by reference in the Public Documents fairly presented in all material respects the consolidated financial position of the Company and its consolidated subsidiaries as of the dates indicated therein and the consolidated results of their operations for the periods specified therein, other than as corrected or clarified in a subsequent Public Document. Such financial statements were prepared in material conformity with accounting principles generally accepted in the United States of America (“GAAP”) applied on a materially consistent basis (except as may be noted therein). The financial statements of the Company as of and for the year ended December 31, 2010 included in the Public Documents are hereinafter referred to as the “Results”. Since December 31, 2010, the Company and its subsidiaries do not have any material liabilities or obligations required under GAAP to be set forth on a consolidated balance sheet (accrued, absolute, contingent or otherwise), other than (i) liabilities or obligations that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, and (ii) liabilities incurred since December 31, 2010 in the ordinary course of business consistent with past practices and any liabilities incurred pursuant to this Agreement.
(l) Internal Controls and Procedures. The Company maintains disclosure controls and procedures as such terms are defined in, and required by, Rule 13a-15 and Rule 15d-15 under the 1934 Act. Such disclosure controls and procedures are effective to ensure that all material information required to be disclosed by the Company in the reports that it files or furnishes under the 1934 Act is recorded, processed, summarised and reported within the time periods specified in the rules and forms of the SEC. The Company maintains a system of internal controls over financial reporting sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorisations; and (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP. The Company’s management has completed an assessment of the effectiveness of the Company’s system of internal controls over financial reporting for the fiscal year ended December 31, 2010 in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act, and such assessment concluded that such controls were effective and the Company’s independent registered accountant has issued (and not subsequently withdrawn or qualified) an attestation report concluding that the Company maintained effective internal control over financial reporting as of December 31, 2010. As of the date hereof, to the knowledge of the Company, there is no reason that its chief executive officer and chief financial officer will not be able to give the certifications and attestations required pursuant to the rules and regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, without qualification, when next due.
(m) No Material Adverse Effect. Since December 31, 2010, no event or circumstance has occurred that, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect. Neither the Company nor any of its subsidiaries has taken any steps to seek protection pursuant to any bankruptcy law nor does the Company have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings or any fact which would reasonably lead a creditor to do so.
(n) Litigation. Save as disclosed in the Disclosure Letter, there are no claims, suits, investigation, actions or proceedings pending or, to the Company’s knowledge, threatened against the Company or any of its subsidiaries or, to the best of the knowledge of the Company, any of their respective directors, officers, employees (such employees performing managerial functions in departments of the Company concerning research and development, manufacturing, finance and marketing) or properties before any court, governmental department, commission, agency, instrumentality or authority, or any arbitrator that seeks to restrain or enjoin the consummation of the transactions contemplated by this Agreement or which could reasonably be expected, to have, individually or in the aggregate, a Material Adverse Effect. No existing facts or developments related to the Company's pending litigation, taken as a whole, have been omitted from the Public Documents that would reasonably be expected to have a Material Adverse Effect (it being understood that this representation and warranty shall not be taken as a guarantee as to the outcome of such litigation).
(o) Compliance with Applicable Laws. Save as disclosed in the Disclosure Letter, to the best of the knowledge of the Company, the Company and each of its subsidiaries have conducted their businesses in compliance with all applicable federal, state and foreign laws, regulations and applicable stock exchange requirements, except where the failure to be in compliance could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. The Company will use its best efforts to maintain its corporate existence and conduct its business in compliance in all respects with all applicable laws, regulations and rules so as not to cause a Material Adverse Effect to occur on the Company.
Save as disclosed in the Disclosure Letter, the Company and each of its subsidiaries have all permits, licenses, authorisations, orders and approvals of, and have made all filings, applications and registrations with, any Governmental Entities that are required in order to carry on their business as presently conducted, except where the failure to have such permits, licenses, authorisations, orders and approvals or the failure to make such filings, applications and registrations, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect; and all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and, to the knowledge of the Company, no suspension or cancellation of any of them is threatened, and all such filings, applications and registrations are current, except where such absence, suspension or cancellation, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.
(p) Equity Capitalisation. As of 31 March, 2011, the authorised share capital of the Company consists of (A) 50,000,000,000 Common Shares, of which as of such date, 27,396,956, 059 shares are issued, (as at 31 March, 2011, 1,340,050,102 shares may be issued pursuant to the Company’s employee incentive plan, and 488,730 and 759,521,230 shares may be issued pursuant to outstanding warrants held by ZXZY Inc. and Taiwan Semiconductor Manufacturing Company Ltd., respectively) and no agreement or commitment outstanding which calls for the allotment or issue or accords to any person the right to call for the allotment or issue of any shares (including shares issued pursuant to securities exercisable or exchangeable for, or convertible into, or agreements relating to the issuance of Common Shares), and (B) 5,000,000,000 Preferred Shares, of which none are issued. All of such issued shares have been validly issued and are fully paid. Save as disclosed in the Disclosure Letter and other than those set out above and pursuant to this Agreement, the Warrant Agreement, or any rights created as a consequence of this Agreement or the Warrant Agreement (including without limitation any pre-emption rights of the existing shareholders of the Company as disclosed in the Disclosure Letter) to subscribe for securities in the Company, there are no outstanding securities issued by the Company or its subsidiaries (including shares issuable pursuant to securities exercisable or exchangeable for, or convertible into, or agreements related to the issuance of Common Shares or preferred shares (together, “Shares”)), or warrants, rights or options to purchase Shares from the Company or its subsidiaries, nor are there any agreement, arrangement or commitment outstanding which calls for the allotment or issue or accords to any person the right to call for the allotment or issue of any Shares (including Shares issuable pursuant to securities exercisable or exchangeable for, or convertible into, or agreements relating to the issuance of Shares).
The Company, on or prior to the Closing Date, will have, and undertakes thereafter to use its best efforts to keep from time to time, sufficient authorised share capital to satisfy the issue of (i) the Initial Convertible Preferred Shares and the Convertible Preferred Shares issuable under the Warrants, (ii) such number of new Common Shares as would be required to be issued on conversion in full of the Initial Convertible Preferred Shares and the Convertible Preferred Shares issuable under the Warrants (subject to adjustment to the conversion rate pursuant to the rights of the Convertible Preferred Shares as set out in Schedule A); (iii) subject to compliance with applicable laws and regulations (including without limitation the rules of the SEHK in respect of shareholders’ approval), such additional Convertible Preferred Shares (the “Additional Convertible Preferred Shares”) pursuant to Section 4(i) below and such number of new Common Shares as would be required to be issued on conversion in full of the Additional Convertible Preferred Shares; and (iv) subject to compliance with applicable laws and regulations (including without limitation the rules of the SEHK in respect of shareholders’ approval), such number of Relevant Securities (as defined in Section 4(i)(i) below) pursuant to Section 4(i) below.
(q) Information provided. All information given in connection with the transactions contemplated by this Agreement by the Company or on its behalf by the Company's advisers, to the Investor or the Investor's advisers, relating to the Company, its subsidiaries or their respective business, activities, affairs, or assets or liabilities (including all documents attached thereto) was, when given, and is now accurate in all material respects and not misleading in any material respect, and there is no material omission that would render the information given misleading in any material respect, provided that nothing herein shall constitute any obligation on the Company to disclose any information over and above what is required to be disclosed by the Company under the requirements of applicable laws and regulations (including, but not limited to, the Hong Kong Listing Rules) or requirements of regulatory bodies (including, but not limited to the SEHK and the SEC).
(r) Ownership of assets. Save as disclosed in the Disclosure Letter, as may be updated by the Company in writing prior to Closing, so far as the Company is aware, there are no mortgages, charges, pledges, liens (other than liens arising in the ordinary course of trading) or other forms of security or encumbrances, over or affecting the whole or any part of the material assets of the Company or any of its subsidiaries. Other than as disclosed, the Company and its subsidiaries have title to all properties and to all assets necessary to conduct the business now operated by them in each case few from liens, encumbrances and title defects that would materially affect the value thereof or materially interfere with the use made or to be made thereof by them and any real property or building held under lease by the Company or any of its subsidiaries are held by it under valid, existing and enforceable leases, in each case except to the extent that any failure of the above would not have a Material Adverse Effect.
(s) Intellectual Property. To the knowledge of the Company, the Company owns or possesses sufficient legal rights including but not limited to trade secrets, licenses, trade mark, confidential information and proprietary rights and manufacturing processes and all copyrights, mask work rights, all patents and patent rights, as are necessary to the conduct of the business as now conducted or presently proposed to be conducted by the Company and its subsidiaries, including but not limited to the manufacturing of such products of 0.13um, 45nm, 90nm, and/or 65nm processes (or as presently proposed to be conducted on products) by the Company or any of its subsidiaries, without any known conflict with, or known infringement of, the rights of others except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. To the knowledge of the Company, no products manufactured, marketed or sold (or products proposed to be manufactured, marketed or sold) by the Company or any of its subsidiaries violates any license or infringes any intellectual property rights of any other party which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. Notwithstanding the definition of “knowledge,” the Company has not, nor shall the definition of “knowledge” be interpreted to require an analysis of the Company’s freedom to operate in a particular field with respect to ownership and use of intellectual property rights.
(t) United States Export Control. The Company is in compliance with, and undertakes to use its reasonable endeavours to comply with, all applicable laws, regulations, practices, policies, rules and any other governmental requirements of the United States and other countries or regions in relation to any export or supply of technology, equipment or any information in connection with the Group’s business operation, the omission of which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
(u) Tax Return. Each of the Company and its subsidiaries has duly and timely filed all tax returns that are required to be filed in all jurisdictions or has duly requested extensions thereof and has paid all taxes required to be paid by any of them in all jurisdictions and any related assessments, fines or penalties, except for any such tax, assessment, fine or penalty that is being contested in good faith and by appropriate proceedings or where the failure to file or make payment would not, singly or in the aggregate, have a Material Adverse Effect. Adequate charges, accruals and reserves have been provided for in the Results referred to in Section 3A(k) in respect of all taxes for all periods as to which the tax liability of the Company or any of its subsidiaries has not been finally determined or remains open to examination by an applicable taxing authority.
(v) Environmental Laws. The Company and its subsidiaries (i) have been and are in compliance with any and all applicable foreign, national and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (the “Environmental Laws”), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except where such non-compliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, have a Material Adverse Effect on the Company and its subsidiaries taken as a whole.
(w) Foreign Corrupt Practices. To the best of the knowledge of the Company, no member of the Group nor any director, officer, agent, employee (such agent or employee acting under the direction of the Company) or Affiliate of any member of the Group, has, directly or indirectly, made or authorised (A) any contribution, payment or gift of funds or property to any official, employee or agent of any authority, or any candidate for public office, in Hong Kong, the Cayman Islands, the United States, the PRC or any other jurisdiction, where either the payment or the purpose of such contribution, payment or gift was, is, or would be prohibited under any applicable law, rule, or regulation, or (B) any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any government officials or employees for the purpose of obtaining favours or undue influence, and without prejudice to the foregoing, neither any member of the Group nor any director, officer agent, employee (such agent or employee acting under the direction of the Company) or Affiliate of any member of the Group, to the best knowledge of the Company, has taken any action, directly or indirectly, that would result in a violation by such persons of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder, and the Company and the other members of the Group have instituted and maintain policies and procedures designed to ensure compliance with applicable laws relating to anti-bribery in the jurisdictions in which the Group conducts its business.
(x) Money Laundering Laws. To the best of the knowledge of the Company, the operations of each member of the Group are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting and other requirements of the money laundering laws of all jurisdictions, including the United States Currency and Foreign Transactions Reporting Act of 1970, as amended (collectively, the “Money Laundering Laws”), and no action, suit, proceeding, investigation or inquiry by or before any authority involving any member of the Group with respect to the Money Laundering Laws is pending or threatened.
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3.
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B. LIMITATIONS ON REPRESENTATIONS AND WARRANTIES.
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The maximum aggregate liability of the Company in respect of all claims made by the Investor under any of the representations and warranties set out in Section 3A above shall not, whether individually or in the aggregate, exceed the Aggregate Subscription Price (it being understood that any assessment of damages shall not include any special, consequential or punitive damages and shall only be limited to actual damages suffered including any diminution in the value of the Securities subscribed as a result of any breaches). For the avoidance of doubt, the aforementioned limitation shall not affect claims made by the Investor pursuant to other agreements between the Investor and the Company, including but not limited to the subscription agreements referred to under Section 4(i)(iii) and Section 4(i)(iv) below.
(a) Best Efforts. Each party shall use its best efforts to satisfy each of the covenants and conditions to be satisfied by it as provided in Sections 5, 6 and 7 of this Agreement on a timely basis.
(b) Regulatory Filings. The Investor shall use best endeavors to furnish such information, supply such documents, give such undertakings and do all such acts and things as may reasonably be required by the SEHK and/or any other Governmental Entity in relation to or arising out of the transactions contemplated hereby.
(c) Listing. The Company shall use its best efforts to promptly secure the approval for the issue of the Initial Convertible Preferred Shares the Convertible Preferred Shares issuable upon the exercise of the Warrants and the Warrants (and, immediately after the Investor elects to subscribe for the Additional Convertible Preferred Shares pursuant to this Agreement, the Additional Convertible Preferred Shares) and the listing of, and permission to deal in, all of the Common Shares to be issued to the Investor upon the conversion of the Initial Convertible Preferred Shares (and, if the Investor elects to subscribe for the Additional Convertible Preferred Shares pursuant to this Agreement and/or exercises the Warrants, the Common Shares issuable upon the conversion of the Additional Convertible Preferred Shares and/or the Convertible Preferred Shares to be issued pursuant to any exercise of the Warrants) (subject to adjustment to the conversion rate pursuant to the rights of the Convertible Preferred Shares as set out in Schedule A) on the SEHK and shall use reasonable best efforts to maintain at all times and from time to time a listing on SEHK of and permission to deal in all Common Shares issued or to be issued. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 4(c).
(d) Fees. Each party to this Agreement shall bear its own expenses and the fees relating to or arising out of the transactions contemplated hereby.
(e) Lock-Up.
(i) The Investor (and to the extent any Securities are transferred to the Permitted Transferee in accordance with the provisions of Section 4(e)(iii), the Permitted Transferee) shall not offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly (each a “Disposal”), any of the Initial Convertible Preferred Shares, any Convertible Preferred Shares issued upon the exercise of the Warrants and any Additional Convertible Preferred Shares (the “Investor Convertible Preferred Shares”) or the Warrants subscribed hereunder or any of the Common Shares issuable upon conversion of such Convertible Preferred Shares or enter into any swap, hedging or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any of such securities (any of the foregoing, a “Transfer”) without the prior written consent of the Company for a period of two (2) years from the Closing Date (the “Lock-Up Period”), provided that nothing herein shall restrict the Investor from a Disposal of any of the Investor Convertible Preferred Shares or the Warrants subscribed hereunder or any of the Common Shares issuable upon conversion of the Investor Convertible Preferred Shares to the Permitted Transferee and the rights of the Investor under this Agreement shall not be affected by such Disposal, provided that this paragraph shall cease to apply if any of Mr. David N.K. Wang (chief executive officer and president of the Company), Mr. Gary Tseng, Mr. Simon Yang, Mr. Chris Keh-Fei Chi and Mr. Barry Quan, shall not continue their respective employment with the Company for a minimum period of two (2) years commencing from the Closing Date, except:
(1) as a result of the misconduct of any of the said individuals; or
(2) where the health condition of any of the said individuals is such that the relevant individual is not able to continue his employment with the Company.
(ii) The Investor (and, to the extent any Securities are transferred to the Permitted Transferee in accordance with the provisions of Section 4(e)(iii), the Permitted Transferee) shall refrain at all times (including with respect to time periods after the expiration of the Lock-Up Period) from selling the Investor Convertible Preferred Shares and the Warrants or any Common Shares issued upon conversion of the Investor Convertible Preferred Shares to any person or entity that in any manner, directly or indirectly, is a Competitor, except:
(1) in a genuine open market sale where the identity of the purchaser is not known to, and cannot reasonably be determined by, the Investor or its agent effecting such sale;
(2) with the written consent of the Board (which shall, for the purposes of this Section 4(e)(ii), exclude the Investor Nominee); or
(3) accepting an offer (as defined in the Code on Takeovers and Mergers in Hong Kong (the “Hong Kong Takeovers Code”)) under a general offer for the Company where the offer has become unconditional (meaning that the offeror has received acceptances in respect of voting rights in the Company which, together with voting rights acquired or agreed to be acquired before or during the offer, will result in the offeror and any person acting in concert with it holding more than 50% (or such other percentage level as contained in the terms of such offer or as otherwise required from time to time in the Hong Kong Takeovers Code) of the voting rights in the Company), or where the offeror has become entitled to compulsorily acquire the securities held by the Investor (and/or the Permitted Transferee) under applicable laws and regulations.
“Competitor” shall mean any entity that provides or that has the capability to provide, directly or indirectly through any subsidiary or affiliate, semiconductor wafer fabrication or foundry services to third parties.
(iii) Notwithstanding the foregoing, the Company hereby agrees that the Investor may, subject to compliance with the rules (including the Hong Kong Listing Rules), regulations, laws of Hong Kong and the requirements of the SEHK, transfer all or part of the Investor Convertible Preferred Shares, the Warrants or the Common Shares issuable upon conversion of the Investor Convertible Preferred Shares held by it to a wholly-owned subsidiary of China Investment Corporation (the “Permitted Transferee”) provided, that, as a condition to any such transfer:
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(A)
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the Investor shall inform the Company in writing of the proposed Transfer to the Permitted Transferee before effecting it;
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(B)
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the Permitted Transferee shall furnish the Company with a written agreement in a form reasonably satisfactory to the Company:
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(1)
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agreeing, as if the Permitted Transferee was a party to the Transaction Documents, to be bound by the obligations under the Transaction Documents applicable to the Securities, including without limitation, the lockup provisions set forth in Section 4(e) and the public disclosure provisions set forth in Section 4(f);
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(2)
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giving representations and warranties to the Company in the form set forth in Section 2(a), 2(b), 2(c), 2(d), 2(e), 2(f), 2(g), 2(h), 2(i), 2(j) and 2(k), and agree to the provisions set forth in Section 9 (except that references to the “Investor” shall be replaced with references to the “Permitted Transferee”), and provided that the terms of the Confidentiality Agreement (as defined in Section 9(h)) shall be incorporated fully into such agreement); and
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(3)
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without prejudice to the rights of the Investor under this Agreement (which rights shall remain with the Investor not withstanding the Disposal to the Permitted Transferee), acknowledging that the Permitted Transferee shall not have any right or understanding or arrangement (whether formal or informal) to nominate any person as a director of the Company, or exercise any other rights relating to the Securities that are not contained in the Memorandum of Association and Articles of Association of the Company as in effect as of the Closing Date (the “Articles”) or under any applicable laws;
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(C)
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the Permitted Transferee shall be entitled to further transfer the Securities to another Permitted Transferee during the remaining period of the Lock-up Period on the condition that the provision relating to transfer to “Permitted Transferee” in Section 4(e) shall not have been complied with).
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(f) Public Disclosure. Without limiting any other provision of this Agreement, the Company and Investor (and to the extent any Securities are Transferred to the Permitted Transferee in accordance with the provisions of this Section 4(e), the Permitted Transferee), to the extent permitted by applicable law, will consult with each other before issuance, and provide each other the opportunity to review, comment upon and concur with, and use all reasonable efforts to agree on any press release or public statement with respect to this Agreement, the Warrant Agreement and the transactions contemplated thereunder, and will not (to the extent practicable) issue any such press release or make any such public statement prior to such consultation and agreement, except as may be required by law, rules, regulations or any listing agreement with or requirement of the NYSE, SEHK or any other applicable securities exchange, provided that the disclosing party shall, to the extent permitted by applicable law, rules, regulations or any listing agreement with or requirement of the NYSE, SEHK or any other applicable securities exchange and if reasonably practicable, inform the other parties about the disclosure to be made pursuant to such requirements prior to the disclosure.
(g) Conduct of Business. Save as disclosed in this Agreement or any public disclosure made by the Company prior to the date of this Agreement, or consented in writing by the Investor, during the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement pursuant to Section 8(a) hereof or the Closing, the Company shall and shall cause its subsidiaries to, except as expressly permitted by the terms of this Agreement or disclosed in any public disclosure made by the Company prior to the date of this Agreement, carry on its business, in all material respects, in the ordinary and normal course and, not (i) undertake any construction of any new plants and buildings, (ii) enter into any notifiable transactions (as such term is defined under the Hong Kong Listing Rules) ; (iii) save as required by applicable laws, rules or regulations, make or propose to make any amendments to its memorandum or articles of association or (iv) agree to, either verbally or in writing, authorise or approve any of the foregoing.
For the avoidance of doubt, the Company may continue to be involved in the existing construction of plants and buildings, as the Board may consider appropriate from time to time.
(h) Use of Proceeds. The Company shall use the proceeds received from the issue of the Securities hereunder for the purpose of capital expenditure and debt repayment.
(i) Pre-emptive Rights.
(i) If the Company proposes, on or after the date of this Agreement, to issue (the “Proposed Issue”) (a) any new Common Shares or preferred shares, (b) any securities convertible into or exchangeable into Common Shares or preferred shares (which preferred shares referred to in (a) and (b) above carry voting rights in general meetings of the Company) or (c) any warrants or other rights to subscribe for Common Shares or preferred shares (which preferred shares carry voting rights in general meetings of the Company) (“Relevant Securities”), the Company shall notify the Investor in writing of such proposal (an “Issue Notice”). The Issue Notice shall specify the number and type of Relevant Securities to be offered by the Company and the material terms of the proposed offer (including the proposed completion date of such issue and the proposed price per Relevant Security to be paid by the proposed third party purchaser(s)).
(ii) Subject to sub-paragraph (viii) below, the Investor shall have the right but not the obligation, at its option, to subscribe for:
(1) whilst any Investor Convertible Preferred Shares issued to and beneficially held by the Investor (and/or the Permitted Transferee) remain unconverted, and to the extent that the percentage (the “Original Percentage”) of the issued share capital of the Company held by the Investor on a fully-diluted basis through such Investor Convertible Preferred Shares immediately prior to the Proposed Issue is reduced as a result of the issue of the Relevant Securities (having taken into account the adjustment (the “Resulting Adjustment”) to the conversion rate of the Convertible Preferred Shares as a result of the issuance of the Relevant Securities in accordance with Schedule A), such number of Additional Convertible Preferred Shares (bearing the same conversion rate as the existing issued Convertible Preferred Shares having reflected the Resulting Adjustment) so as to enable the Investor to hold, after the issue of the Relevant Securities, a pro rata portion of the issued share capital of the Company (on a fully-diluted basis) equal to the Original Percentage. For the purpose of this paragraph, the Warrants and any Convertible Preferred Shares issuable thereunder shall be disregarded to the extent that the Warrants have not been exercised and Convertible Preferred Shares have not been issued thereunder; and
(2) to the extent that any of the Investor Convertible Preferred Shares have been converted and the Investor is holding Common Shares issued as a result of the said conversion (the “Converted Common Shares”), such number of additional Relevant Securities so as to enable the Investor to hold, after the issue of the Relevant Securities, a pro rata portion of the Relevant Securities equal to the percentage of the issued share capital of the Company represented by the Converted Common Shares then beneficially owned by the Investor immediately prior to the issuance of the Relevant Securities,
by giving written notice to the Company of the exercise of this right within ten (10) Business Days (as defined below) of the giving of the Issue Notice. If such notice is not given by the Investor within such ten (10) Business Days, the Investor shall be deemed to have elected not to exercise its rights under this Section 4(i)(ii) with respect to the issuance described in that specific Issue Notice. The parties acknowledge that any rights of the Investor to subscribe for pursuant to this Section 4(i)(ii) will lapse if completion thereof does not occur simultaneously with the completion of the issue of Relevant Securities by the Company to third party purchaser(s) or at such other time and place as shall be mutually agreed by the Company and the Investor (which agreement shall not be unreasonably withheld), provided that if the reason for the Investor’s failure to complete by the time specified above is solely due to a delay of the Governmental Entity in granting the relevant authorisations, approvals, permits, qualifications or exemptions, the Investor shall notify the Company in writing at least seven (7) days prior to the completion of the issue of the Relevant Securities to extend the completion date for the Investor’s subscription to a date within three (3) months or such other reasonable period as may be mutually agreed between the parties following the completion of the issue of the Relevant Securities, after such period the right of the Investor to subscribe for securities pursuant to this Section 4(i)(ii) shall lapse. A notice given by the Investor pursuant to this section shall be irrevocable.
(iii) For the purpose of Section 4(i)(ii)(1), the subscription price of each Additional Convertible Preferred Share to be issued to the Investor shall be equal to the subscription price of each Convertible Preferred Share issued at the Closing. The Investor shall enter into a subscription agreement for the subscription of the Additional Convertible Securities containing the same terms and conditions as the agreement entered into by the Company with the relevant investor(s) or the relevant issue documents (where applicable) in relation to the issue of the Relevant Securities.
(iv) For the purpose of Section 4(i)(ii)(2), the subscription price and other terms and conditions applicable to the issue of the Relevant Securities to the Investor shall be the same as those applicable to the Proposed Issue. The Investor shall enter into a subscription agreement for the subscription of the Relevant Securities containing the same terms and conditions as the agreement to be entered into by the Company with the relevant investor(s) or the relevant issue documents (where applicable) in relation to the issue of the Relevant Securities.
(v) Subject to Section 4(i)(ii) above, the completion of the Investor’s subscription of the Additional Convertible Preferred Shares or the Relevant Securities (as the case may be) pursuant to section 4(i)(ii) above shall occur simultaneously with the completion of the issue of Relevant Securities. For the avoidance of doubt, the completion by the Company of the issue of the Relevant Securities shall not be affected by the timing of the completion of any issue of the Additional Convertible Preferred Shares or the Relevant Securities (as the case may be) to the Investor. The Investor shall execute and deliver to the Company all transaction documents related to the Investor’s subscription of the Additional Convertible Preferred Shares or the Relevant Securities (as the case may be) as may be reasonably requested by the Company prior to the completion of the Investor’s subscription of the Additional Convertible Preferred Shares or the Relevant Securities (as the case may be). At such completion, the Investor shall deliver the aggregate subscription price for the Additional Convertible Preferred Shares or the Relevant Securities (as the case may be) to be subscribed by the Investor pursuant to Section 4(i)(ii) above.
(vi) The provisions of Sections 4(i)(i) to 4(i)(v) shall not apply to:
(1) the grant of any options, or the issue of any Relevant Securities pursuant to the exercise of share options granted (whether prior to or after the date of this Agreement), pursuant to any share purchase or share option plans of the Company in effect from time to time;
(2) the issue of any Relevant Securities pursuant to any share incentive scheme operated by the Company from time to time;
(3) the issue of any Common Shares or other securities pursuant to the conversion, exchange or exercise of any securities that were previously offered and/or issued to the Investor (including its Permitted Transferee, if applicable) as Relevant Securities;
(4) any offer of the Relevant Securities open for a period fixed by the Board to holders of Common Shares on the register of members on a fixed record date in proportion to their then holdings of Common Shares; provided that such offer of Relevant Securities is also made to the Investor;
(5) an issue of Common Shares as fully paid to holders of Common Shares (including without limitation, Common Shares paid up out of distributable profits or reserves and/or share premium account issued in lieu of the whole or any part of any cash dividend and free distributions or bonus issue of Common Shares); provided that such issuance of Common Shares is also made to the Investor;
(6) an issue of the Relevant Securities pursuant to the acquisition of another corporation by the Company by merger, purchase of substantially all of the assets or other reorganisation or to a joint venture agreement; provided, that such issuance is approved by the Board;
(7) an issue of the Relevant Securities to banks, equipment lessors or other financial institutions pursuant to a commercial leasing or commercial loan transaction approved by at least two-thirds (2/3) of the Board (which shall, for the purposes of this Section 4(i)(vi)(7), exclude the Investor Nominee);
(8) an issue of Relevant Securities in connection with sponsored research, collaboration, technology license, development, OEM, marketing or other similar agreements or strategic partnerships approved by at least two-thirds (2/3) of the Board (which shall, for the purposes of this Section 4(i)(vi)(8), exclude the Investor Nominee);
(9) an issue of Relevant Securities to suppliers or third party service providers in connection with the provisions of goods or services pursuant to transactions approved by at least two-thirds (2/3) of the Board (which shall, for the purposes of this Section 4(i)(vi)(9), exclude the Investor Nominee);
(10) the issue of any Relevant Securities the issuance of which is specifically excluded from the provisions of this Section 4(i) by unanimous vote or unanimous written consent of the Board .
(vii) The rights set forth in this Section 4(i) shall not apply with respect to and shall expire immediately prior to a transaction that would result in a change of control (as such term is defined under the Hong Kong Takeovers Code).
“Business Day” shall mean a day that is not a Saturday, Sunday or a public holiday in Hong Kong or the People’s Republic of China.
(viii) The Company and the Investor acknowledge and agree that the Investor’s exercise of the rights in this Section 4(i) shall in all cases be subject to compliance with the rules, regulations, laws and requirements of applicable government and regulatory bodies, including the Hong Kong Listing Rules, the Hong Kong Takeovers Code, the Stock Exchange of Hong Kong Limited and the Securities and Futures Commission of Hong Kong (including, where applicable any requirements to obtain the approval of the shareholders of the Company), and shall take such steps reasonably necessary to give effect to the rights contained in this Section 4(i) in compliance with rules, regulations, laws and requirements of applicable government and regulatory bodies, provided that all costs and expenses (including, without limitation, reasonable legal fees and expenses) incurred by the Company shall be resolved in a manner consistent with any terms agreed to by the Company and the other potential investor(s) with respect to the issuance described in the relevant Issue Notice.
(j) Discussion. Subject to applicable law, rules, regulations and requirements (including the Hong Kong Listing Rules and the requirements of the SEHK and NYSE), during the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement pursuant to Section 8(a) hereof or the Closing, the Company will use its reasonable efforts to meet with, and/or communicate with representatives of the Investor upon reasonable request and to discuss any material operational matters in good faith and to consider whether and how to exercise its discretion to implement any reasonable suggestions from the Investor.
(k) Board Nominee.
(i) The Investor shall have the right to nominate one member of the Board (the “Investor Nominee”); provided that
(1) the nomination and appointment of the Investor Nominee is considered by the Board (which shall, for the purposes of this Section 4(k), exclude the Investor Nominee) to be in the best interest of the Company and its shareholders as a whole; and
(2) the Investor Nominee shall pass the Company’s conflict and background check in accordance with common and usual standards and policies generally applicable to the appointment and nomination of a director of the Company.
The Company shall use its reasonable efforts to complete all applicable internal procedures and to give effect to the appointment of Investor Nominee as the member of the Board as soon as practicable following the Closing, and in any event not later than 31 August 2011.
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5.
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CONDITIONS TO THE COMPANY’S OBLIGATION TO ISSUE AND TO THE INVESTOR’S OBLIGATION TO SUBSCRIBE.
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The obligation of the Company hereunder to issue the Initial Convertible Preferred Shares and the Warrants to the Investor at the Closing and the obligation of the Investor hereunder to subscribe for the Initial Convertible Preferred Shares and the Warrants from the Company hereunder are each subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions may be waived, in whole or in part, by either party hereto only as regards the obligations of the other party to procure the relevant conditions, at any time in its sole discretion by providing the other party hereto with prior written notice thereof:
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(a)
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Shareholder’s approval for the issue of Initial Convertible Preferred Shares and the Warrants. The Company having obtained the approval of the shareholders of the Company in general meeting of a special mandate to the issue of the Initial Convertible Preferred Shares and the Warrants issuable at Closing pursuant to this Agreement, the Convertible Preferred Shares issuable upon the exercise of the Warrants and the Common Shares upon conversion of the Initial Convertible Preferred Shares and the Convertible Preferred Shares issuable upon the exercise of the Warrants (including those Common Shares issuable as a result of any adjustment to the Conversion Rate pursuant to the rights of the Convertible Preferred Shares as set out in Schedule A).
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(b)
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SEHK Listing. Approval for the issue of the Initial Convertible Preferred Shares and the Warrants issuable at Closing, the Convertible Preferred Shares issuable upon the exercise of the Warrants and the listing of, and permission to deal in, the Common Shares to be issued upon conversion of such Convertible Preferred Shares (including those Common Shares issuable as a result of any adjustment to the Conversion Rate pursuant to the rights of the Convertible Preferred Shares as set out in Schedule A) shall have been duly obtained from the SEHK and such approval not subsequently being revoked prior to Closing.
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(c)
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No Governmental Prohibition. The issue of the Securities by the Company and the subscription of the Securities by the Investor shall not be prohibited by any law or governmental order or regulation.
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6.
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CONDITIONS TO THE COMPANY’S OBLIGATION TO ISSUE.
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The obligation of the Company hereunder to issue the Initial Convertible Preferred Shares and the Warrants to the Investor is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Company’s sole benefit and may be waived by the Company, in whole or in part, at any time in its sole discretion by providing the Investor with prior written notice thereof:
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(a)
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Representations and Warranties; Covenants. The representations and warranties of the Investor shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specified date), and the Investor shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Investor at or prior to the Closing Date.
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7.
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CONDITIONS TO THE INVESTOR’S OBLIGATION TO SUBSCRIBE.
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The obligation of the Investor hereunder to subscribe for the Initial Convertible Preferred Shares and the Warrants at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Investor’s sole benefit and may be waived by the Investor, in whole or in part, at any time in its sole discretion by providing the Company with prior written notice thereof:
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(a)
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Completion of due diligence by Investor. The Investor shall have completed to its reasonable satisfaction its inspection and investigation as to the Group, including, without limitation, the financial and legal aspects of the Group.
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(b)
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No occurrence of an event with Material Adverse Effect. There shall not have occurred any event which may have any Material Adverse Effect in respect of the Company and its subsidiaries taken as a whole.
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(c)
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Execution of other documents. The Company shall have duly executed and delivered to the Investor the documents set forth in Section 1(b)(ii)(B).
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(d)
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Representations and Warranties; Covenants. The representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specified date), and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the Closing Date.
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(a)
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Subject to Section 8(b) below, this Agreement may be terminated and the transactions contemplated by this Agreement abandoned at any time prior to the Closing:
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(i) by mutual agreement of the Company and the Investor;
(ii) by the Company or the Investor if the Closing Date shall not have occurred by 31 July, 2011 or any other date as may be agreed between the parties; provided, however, that the right to terminate this Agreement under this Section 8(a)(ii) shall not be available to a party if such party’s action or failure to act has been a principal cause of or resulted in the failure of the Closing to occur on or before such date and such action or failure to act constitutes breach of this Agreement;
(iii) by the Company or the Investor if any legislative body, court, administrative agency or commission or other governmental authority, instrumentality, agency or commission shall have enacted, issued, promulgated, enforced or entered any law or governmental regulation or order which has the effect of prohibiting the issuance of the Securities;
(iv) by the Investor if there has been a material breach of any representation or warranty of the Company hereunder that would have a Material Adverse Effect on the Company or any material breach of any covenant or agreement of the Company hereunder; and
(v) by the Company if there has been a material breach of any representation, warranty, covenant or agreement of the Investor contained in this Agreement.
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(b)
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In the event of termination of this Agreement as provided in Section 8(a) above, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of the parties hereto and, as applicable, the officers, directors and shareholders of each party; provided that each party hereto shall remain liable for any breaches of this Agreement or of any certificate or other instruments delivered pursuant to this Agreement prior to its termination; and provided further that the provisions of Sections 8 and 9 hereof shall remain in full force and effect and survive any termination of this Agreement pursuant to the terms of this Section 8.
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(a)
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Governing Law; Arbitration. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed in accordance with the laws of Hong Kong. Any dispute, controversy or claim arising out of or relating to this Agreement, or the interpretation, breach, termination or validity hereof, shall be submitted to arbitration upon the request of any party with notice to the other parties. The arbitration shall be conducted in Hong Kong under the auspices of the Hong Kong International Arbitration Centre (the “HKIAC”) in accordance with the UNCITRAL Arbitration Rules (“UNCITRAL Rules”) in effect, which rules are deemed to be incorporated by reference into this Section 9(a). There shall be three (3) arbitrators. The complainant and the respondent to such dispute shall each select one arbitrator within thirty (30) days after giving or receiving the demand for arbitration. The Chairman of the HKIAC shall select the third arbitrator, who shall be qualified to practice law in Hong Kong. If either party to the arbitration does not appoint an arbitrator who has consented to participate within thirty (30) days after selection of the first arbitrator, the relevant appointment shall be made by the Chairman of the HKIAC. The arbitration proceedings shall be conducted in English. Neither party shall be required to give general discovery of documents, but may be required to produce specific, identified documents that are relevant to the dispute. Each party irrevocably waives, to the fullest extent it may effectively do so, any objection which it may now or hereafter have to the laying of venue of any such arbitration in Hong Kong and the HKIAC, and hereby submits to the exclusive jurisdiction of HKIAC in any such arbitration. The award of the arbitration tribunal shall be conclusive and binding upon the disputing parties, and any party to the dispute may apply to a court of competent jurisdiction for enforcement of such award. Any party to the dispute shall be entitled to seek preliminary injunctive relief in aid of arbitration, if possible, from any court of competent jurisdiction pending the constitution of the arbitral tribunal.
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(b)
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Effect of Completion. Without prejudice to other provisions of this Agreement, the representation, warranty, covenant or undertaking (the “Warranties”) contained in this Agreement shall remain in full force and effect notwithstanding Closing except as terminated pursuant to the terms hereof or by a waiver or release by the party entitled to enforce such Warranties.
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(c)
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Remedies and waivers. No delay or omission by any party to this Agreement in exercising any right, power or remedy provided by law or under this Agreement or any other documents referred to in it shall: (i) affect that right, power or remedy; or (ii) operate as a waiver thereof. The single or partial exercise of any right, power or remedy provided by law or under this Agreement shall not preclude any other or further exercise or any other right, power or remedy. Except as otherwise expressly provided in this Agreement, the rights, powers and remedies provided in this Agreement are cumulative and not exclusive of any rights, powers and remedies provided by law.
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(d)
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Counterparts. This Agreement may be executed in two or more identical counterparts, all of which 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. A facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature.
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(e)
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Languages. This Agreement is being executed in English only.
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(f)
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Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.
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(g)
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Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.
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(h)
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Confidentiality. The parties hereto acknowledge that the Company and the Investor have previously executed a Confidentiality Agreement and the executed Confidentiality Agreement was delivered by email by the Investor to the Company on 17 March, 2011 (the “Confidentiality Agreement”), which Confidentiality Agreement will continue in full force and effect in accordance with its terms and shall survive any termination of this Agreement. The Investor shall procure that and its Permitted Transferee shall observe the terms of the Confidentiality Agreement.
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(i)
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Entire Agreement; Amendments. This Agreement, the other Transaction Documents and the Confidentiality Agreement supersede all other prior oral or written agreements between the Investor, the Company, their affiliates and Persons acting on their behalf with respect to the matters discussed herein, and this Agreement, the other Transaction Documents and the instruments referenced herein and therein contain the entire understanding of and agreement between the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Investor makes any representation, warranty, covenant or undertaking with respect to such matters. In entering into this Agreement and the other Transaction Documents, each part to such agreements acknowledges that it is not relying upon any pre-contractual statement which is not expressly set out in them. No provision of this Agreement may be amended other than by an instrument in writing signed by the Company and the Investor. No provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought.
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Without prejudice to Section 3A(o) above pursuant to which the Company represents and warrants that all information given in connection with the transactions contemplated by this Agreement by the Company or on its behalf by the Company's advisers, to the Investor or the Investor's advisers, relating to the Company, its subsidiaries or their respective business, activities, affairs, or assets or liabilities (including all documents attached thereto) was, when given, and is now accurate in all material respects and not misleading in any material respect, and there is no material omission that would render the information given misleading in any material respect, except in the case of fraud, no party shall have any right of action against any other party to this Agreement or the other Transaction Documents arising out of or in connection with any pre-contractual statement except to the extent that it is repeated in this Agreement and/or the other Transaction Documents.
For the purposes of this section, “pre-contractual statement” means any draft, agreement, undertaking, representation, warranty, promise, assurance or arrangement of any nature whatsoever, whether or not in writing, relating to the matters covered in this Agreement and/or the other Transaction Documents made or given by any person at any time prior to the date of this Agreement or the other Transaction Documents.
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(j)
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Notices. 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: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one Business Day after deposit with an overnight courier service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:
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If to the Company:
Semiconductor Manufacturing International Corporation
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Address:
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18, Zhangjiang Road
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Pudong New Area, Shanghai
People’s Republic of China
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Telephone:
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(86-21) 3861-0000
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Facsimile:
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(86-21) 5080 4000
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Attention:
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Barry Quan/Chief Administration Officer
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with a copy to:
Semiconductor Manufacturing International Corporation
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Address:
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Suite 3003, 30th Floor
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No. 9 Queen's Road Central
Hong Kong
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Telephone:
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(852) 2537-8588
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Facsimile:
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(852) 2537 8206
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Attention:
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Anne Chen/Blondie Poon
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If to the Investor:
Country Hill Limited
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Address:
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Room 2501, New Poly Plaza
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No. 1 Chaoyangmen Beidajie
Dongcheng District
Beijing 100010
People's Republic of China
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Telephone:
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Bai Xiaoqing: tel: (86-10) 8409-6969
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Li Tao: tel: (86-10) 8409-6741
Li Yang: tel: (86-10) 8409-6743
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Facsimile:
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(86-10) 6408-6710
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Attention:
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Bai Xiaoqing/Li Tao/Li Yang
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(k)
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Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. Neither party hereto shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the other party hereto.
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(l)
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No Third Party Beneficiaries. 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.
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(m)
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Non-Survival. Unless this Agreement is terminated under Section 8, the representations and warranties of the Company and the Investor in Sections 2 and 3, or in any instrument delivered pursuant to this Agreement, shall survive the Closing until the expiration of the applicable statute of limitations, it being understood that no claim may be brought for a breach of representations or warranties following such time. Only the agreements and covenants set forth in Section 4(b), (c), (e), (f), (h), (i), (j) and (k) survive the Closing and this Section 9 shall survive the Closing.
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(n)
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Further Assurances. 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.
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[Signature Page Follows]
IN WITNESS WHEREOF, the Investor and the Company have caused its respective signature page to this Share Subscription Agreement to be duly executed as of the date first written above.
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COMPANY:
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Semiconductor Manufacturing International Corporation
By:_____________________________
Name: Jiang Shang Zhou
Title: Chairman of the Board
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IN WITNESS WHEREOF, the Investor and the Company have caused their respective signature page to this Share Subscription Agreement to be duly executed as of the date first written above.
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INVESTOR:
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Country Hill Limited
By:_____________________________
Name: Gao Xiqing
Title: Executive Director and President
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SCHEDULES
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Schedule A
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Rights attaching to the Convertible Preferred Shares
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Schedule B
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Form of Secretary’s Certificate
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Schedule C
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Form of the Warrant Agreement
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