Document:

f8k011811ex10ii_chinabct.htm

Exhibit 10.2

 

REGISTRATION RIGHTS AGREEMENT

 

REGISTRATION RIGHTS AGREEMENT (the “Agreement”), dated as of [•], 2011, by and between MILESTONE LONGCHENG LIMITED, a company organized under the laws of the British Virgin Islands (the “Investor”), and CHINA BCT PHARMACY GROUP, INC., a company organized under the laws of Delaware (the “Company” and together with the Investor, the “Parties” and each a “Party”).

 

W I T N E S S E T H:

 

WHEREAS, the Company and the Investor have entered into that certain Series A Convertible Preferred Shares Purchase Agreement dated as of January 18, 2011 (the “Shares Purchase Agreement”), pursuant to which the Investor is acquiring certain Preferred Shares (as defined below) of the Company, and the Company agreed to provide certain registration rights to the Investor;

 

WHEREAS, the Company’s Common Shares are traded on the OTC Bulletin Board (“OTCBB”); and

 

WHEREAS, the Parties desire to set forth the Investor’s rights and the Company’s obligation to cause the registration of the Registrable Securities (as defined below) pursuant to the Securities Act (as defined below).

 

NOW, THEREFORE, In consideration of the premises and the mutual covenants and the agreements herein set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

 

ARTICLE I

DEFINITIONS AND INTERPRETATION

 

Section 1.01. Definitions.  As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined).

 

“Action” against a Person means an action, suit, litigation, arbitration, investigation, complaint, contest, hearing, inquiry, inquest, audit, examination or other proceeding threatened or pending against or affecting the Person or its property, whether civil, criminal, administrative, investigative or appellate, in law or equity before any arbitrator or Governmental Body.

 

“Authorized Officer” means, as applied to any Person, any individual holding the position of chairman of the board (if an office), chief executive officer, president or one of its vice presidents (or the equivalent thereof), and such Person’s chief financial officer or treasurer.

 

“Board” means the Board of Directors of the Company.

 

  

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“Business Day” means any day other than Saturday, Sunday or a day on which banking institutions in the State of New York or Hong Kong are authorized by law or executive order to close.

 

“Common Shares” means (a) any Common Shares in the Company with a par value of US$0.001 per share held by the Investor at any time, including any Common Shares issued or issuable upon conversion of any Preferred Shares held by the Investor at any time, (b) any securities of the Company which the Investor (or any transferee) shall be entitled to receive, or shall have received, in connection with any stock splits, stock dividends or similar events with respect to the Company’s Common Shares, and (c) any other securities into which or for which any of the Common Shares described in clause (a) or (b) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise.

 

“Company” has the meaning set forth in the preamble hereof.

 

“Company Indemnified Persons” has the meaning set forth in Section 2.07(b).

 

“Demanding Holders” has the meaning set forth in Section 2.01(a).

 

“Demand Notice” has the meaning set forth in Section 2.01(a).

 

“Demand Notice Date” has the meaning set forth in Section 2.01(a).

 

“Demand Registration” has the meaning set forth in Section 2.01(a).

 

“Designated Offshore Securities Market” means a Designated Offshore Securities Market as defined in Section 230.902(b) of Regulation S of the Securities Act.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder.

 

“F-3 or S-3 Holders” has the meaning set forth in Section 2.03(a).

 

“F-3 or S-3 Notice” has the meaning set forth in Section 2.03(a).

 

“F-3 or S-3 Notice Date” has the meaning set forth in Section 2.03(a).

 

“Governmental Body” means any agency, bureau, commission, court, department, official, political subdivision, tribunal or other instrumentality of any administrative, judicial, legislative, executive, regulatory, police or taxing authority of any government, whether supranational, national, federal, state, regional, provincial, local, domestic or foreign.

 

“Holder Indemnified Persons” has the meaning set forth in Section 2.07(a)(i).

 

“Hong Kong” means the Special Administrative Region of Hong Kong.

 

“Indemnitee” has the meaning set forth in Section 2.07(c).

 

“Indemnitor” has the meaning set forth in Section 2.07(c).

 

  

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“Investor” has the meaning set forth in the preamble hereof.

 

“Losses” has the meaning set forth in Section 2.07(a)(i).

 

“Parties” has the meaning set forth in the preamble hereof.

 

“Person” means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, other legal entities and Governmental Bodies.

 

“Potential Material Event” means either (a) the possession by the Company of material information not ripe for disclosure in a registration statement, or (b) any material engagement or activity by the Company which would be adversely affected by disclosure in a registration statement at such time, in each case, which shall be evidenced by a written good faith determination by the Board that both (x) disclosure of such information, engagement or activity in a registration statement would be detrimental to the business and affairs of the Company, and (y) a registration statement would be materially misleading absent the inclusion of such information, engagement or activity.

 

“Preferred Shares” means the Series A Convertible Preferred Shares of the Company, each with a par value of US$0.001 per share.

 

“Register”, “registered” and “registration” means a registration effected through the preparation and filing of a registration statement or similar document in compliance with the Securities Act and the declaration or ordering of effectiveness of such registration statement or document.

 

“Registrable Securities” means any Common Shares held by the Investor at any time; provided, however, that Registrable Securities shall cease to be Registrable Securities upon the consummation of any sale of such securities pursuant to a Registration Statement or Rule 144.

 

“Registrable Securities Holder” means any Person (including the Investor) who holds Registrable Securities or the rights to hold Registrable Securities, or any Person to whom any Registrable Securities Holder shall Transfer its Registrable Securities pursuant to Section 2.08 of this Agreement.

 

“Registration Expenses” means all expenses incurred by the Company in effecting any registration pursuant to this Agreement, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, the expense of any special audits incident to or required by any such registration and the reasonable fees and disbursements of special legal counsel to represent the Registrable Securities Holders, as the case may be.  Registration Expenses do not include compensation of regular employees of the Company which shall be paid in any event by the Company, underwriting discounts and commissions and stock transfer taxes.

 

  

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“Registration Statement” means a registration statement on Form F-1 or S-1, Form F-3 or S-3 (or such similar or successor forms as may be appropriate) prepared and filed with the SEC by the Company pursuant to Article II of this Agreement.

 

“Regulation” means each applicable law, rule, regulation, order, guidance or recommendation (or any change in its interpretation or administration) by any Governmental Body, central bank or comparable agency and any request or directive (whether or not having the force of law) of any of those Persons and each judgment, injunction, order, writ, decree or award of any Governmental Body, arbitrator or other Person.

 

“Required Effectiveness Date” has the meaning set forth in Section 2.01(b).

 

“Required F-3 or S-3 Effectiveness Date” has the meaning set forth in Section 2.03(b).

 

“Rule 144” means Rule 144 promulgated under the Securities Act, as such rule shall be in effect from time to time.

 

“SEC” means the United States Securities and Exchange Commission and includes any Governmental Body succeeding to the functions thereof.

 

“Securities” means any stock, shares, limited liability company membership interests, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as “securities” or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing.

 

“Securities Act” means the Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder.

 

“Selling Expenses” means all underwriting discounts, selling commissions and stock transfer taxes applicable to the Registrable Securities registered by the Registrable Securities Holders, as the case may be.

 

“Shares Purchase Agreement” has the meaning set forth in the preamble hereof.

 

“Transfer” means any sale, assignment, transfer, exchange, pledge, grant of security interest in, hypothecation, encumbrance or other disposition or conveyance of any interest in.

 

“USD,” “Dollars” or “US$” means the lawful currency of the United States of America.

 

“Violation” has the meaning set forth in Section 2.07(a)(i).

 

Section 1.02. Interpretation.

 

  

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(a) Headings.  The headings to the Articles, Sections and Subsections of this Agreement are inserted for convenience of reference only and shall not affect the meaning or interpretation of this Agreement.

 

(b) Usage.  In this Agreement, unless the context requires otherwise:  (i) the singular number includes the plural number and vice versa;  (ii) reference to any gender includes each other gender; (iii) the Exhibits to this Agreement are hereby incorporated into, and shall be deemed to be a part of, this Agreement; (iv) the terms “hereunder”, “hereof”, “hereto” and words of similar import shall be deemed references to this Agreement as a whole and not to any particular section or other provision hereof; (v) the words “include”, “includes” and “including” shall be deemed to be followed by the words “without limitation”; and (vi) a reference to any Article, Section or Subsection shall be deemed to refer to the corresponding Article, Section, or Subsection of this Agreement.

 

ARTICLE II    

REGISTRATION RIGHTS

 

Section 2.01. Demand Registration.

 

(a) Request for Registration.  If Registrable Securities Holders holding at least fifty percent (50%) of the outstanding Registrable Securities at any time shall provide the Company with a written request (a “Demand Notice”) requesting that the Company file a Registration Statement under the Securities Act registering for resale Registrable Securities (the date on which the Company receives the Demand Notice being the “Demand Notice Date” and the registration requested in such Demand Notice being a “Demand Registration”), the Company shall promptly (but in any event within five (5) calendar days) after the Demand Notice Date, forward a copy of the Demand Notice to all of the Registrable Securities Holders.  Each of the Registrable Securities Holders shall have a period of 20 calendar days after receiving the Demand Notice from the Company in which to elect to include some or all of such Registrable Securities Holder’s Registrable Securities in such Demand Registration.  The Registrable Securities Holders shall exercise their right to include Registrable Securities in such Registration Statement by delivering a written notice to the Company within such 20 calendar day period specifying the number of Registrable Securities such Registrable Securities Holder wishes to include in such Registration (such electing Registrable Securities Holders, together with the Registrable Securities Holders delivering the Demand Notice to the Company being the “Demanding Holders”).

 

(b) Filing and Effectiveness of Registration Statement.  The Company shall prepare and file with the SEC, no later than 90 calendar days after the Demand Notice Date, a Registration Statement registering for resale by the Demanding Holders a sufficient number of Common Shares for such Demanding Holders to sell the Registrable Securities requested to be registered.  The Company shall use its reasonable best efforts to cause such Registration Statement to be declared effective no later than the earlier of (i) five (5) calendar days after the date on which the Company receives notice from the SEC that such Registration Statement may be declared effective and (ii) the date which is 120 calendar days after the Demand Notice Date (such date being the “Required Effectiveness Date”).  The Company shall use its reasonable best efforts to cause the Registration Statement filed pursuant to this Section 2.01 to remain effective until the earlier of (A) the date on which all Registrable Securities registered pursuant to such Registration Statement shall have been sold to the public and (B) the date which is 180 calendar days after the date on which such Registration Statement is declared effective by the SEC.

 

  

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(c) Underwritten Offering.

 

(i) If the Demanding Holders intend to distribute the Registrable Securities covered by their Demand Notice by means of an underwriting, they shall so advise the Company as a part of their Demand Notice.  In connection with such underwritten offering, the Demanding Holders shall have the right to select the managing underwriter or underwriters, subject to the reasonable approval of the Company.  In connection with such underwritten offering, the Demanding Holders shall enter into an underwriting agreement in customary form with the underwriter or underwriters, subject to the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters, shall also be made to and for the benefit of such Demanding Holders.

 

(ii) Notwithstanding any other provision of this Section 2.01, if the underwriter advises the Company that in the opinion of such underwriter, the distribution of all of the Registrable Securities requested to be registered would materially and adversely affect the distribution of all of the securities to be underwritten, then (x) the Company shall deliver to such Demanding Holders a copy of such underwriter’s opinion, which opinion shall be in writing and shall state the reasons for such opinion and (y) the number of equity Securities (including the Registrable Securities) that may be included in such registration shall be allocated in the order listed below:

 

(A) first, to the Demanding Holders; and

 

(B) second, to the other Persons proposing to register securities in such registration.

 

Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration.

(d) Limitations on Registration.  The Company shall not be required to effect a registration pursuant to this Section 2.01:

 

(i) after the Company has effected two (2) registrations pursuant to this Section 2.01, and such registrations have been declared or ordered effective; provided, however, that in the event that the number of Registrable Securities included in any registration pursuant to this Section 2.01 is reduced by more than 50% of the number of Registrable Securities proposed to be registered pursuant to Section 2.01(a) in any registration, then such registration shall not count as a registration for purposes of this Section 2.01;

 

(ii) during the period starting with the date which is 60 calendar days prior to the Company’s good faith estimate of the date of the filing of, and ending on a date 180 calendar days following the effective date of, a Company-initiated registration subject to Section 2.02 below, provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective;

 

  

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(iii) if the Company shall furnish to the Demanding Holders a certificate signed by the Company’s Authorized Officer stating that a Potential Material Event exists, in which event the Company shall have the right to defer such filing for a period of not more than 90 calendar days after the Demand Notice Date, provided that such right to delay a request may not be exercised by the Company more than twice in any 12-month period with at least a 60 calendar day interval between such “black-out” periods;

 

(iv) if the Demanding Holders, together with the holders of any other Securities of the Company entitled to inclusion in such registration statement, propose to sell Registrable Securities and such other Securities (if any) whereby the aggregate proceeds of which (after deduction for underwriter’s discounts and expenses related to the issuance) are less than US$5,000,000;

 

(v) if all of the Registrable Securities identified in the Demand Notice may be transferred, sold, or otherwise disposed of without any volume limitations under the Securities Act in accordance with the provisions of Rule 144; or

 

(vi) after the tenth anniversary of this Agreement.

 

Section 2.02. Piggyback Registration.

 

(a) Company Registration.  If the Company proposes to register (including for this purpose a registration effected by the Company for shareholders other than the Registrable Securities Holders) any of its equity Securities under the Securities Act in connection with the public offering of such securities, the Company shall promptly give all Registrable Securities Holders written notice of such registration at least 30 calendar days prior to the filing of such Registration Statement with the SEC.  Such Registrable Securities Holders shall have a period of 20 calendar days after receiving such written notice from the Company in which to elect to include some or all of such Registrable Securities Holders’s Registrable Securities in such Registration Statement.  Such Registrable Securities Holders shall exercise their right to include Registrable Securities in such Registration Statement by delivering a written notice to the Company within such 20 calendar day period specifying the number of Registrable Securities such Registrable Securities Holders wish to include in such Registration Statement.  Subject to the provisions of Sections 2.01(c) and 2.02(c) hereof, the Company shall use its reasonable best efforts to include the Registrable Securities requested to be included by such Registrable Securities Holders in the Company Registration Statement.  Registrable Securities Holders shall not, however, be entitled to include any Registrable Securities in the Company’s registration statement which is under review with the SEC at December 31, 2010.

 

(b) Underwritten Offerings.

 

(i) If the registration for which the Company gives notice to the Registrable Securities Holders under Section 2.02(a) is an underwritten offering, the Company shall not be required under this Section 2.02 to include any of such Registrable Securities Holders’ Registrable Securities in such underwriting unless such Registrable Securities Holders accept the terms of the underwriting as agreed upon between the Company and the underwriters.  In connection with such an underwritten offering, the Company (or other Persons who may be entitled to select the underwriters) shall have the right to select the managing underwriter or underwriters.  If such Registrable Securities Holders wish to distribute their Registrable Securities through such underwriting, such Registrable Securities Holders shall enter into an underwriting agreement in customary form with the underwriter or underwriters, subject to the limitations set forth in Section 2.07 hereof.  If such Registrable Securities Holders do not approve of the terms of such underwriting, such Registrable Securities Holders may elect to withdraw from such offering by providing written notice to the Company and the underwriter.

 

  

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(ii) Notwithstanding any other provision of this Section 2.02, if the underwriter advises the Company that in the opinion of such underwriter, the distribution of all of the Registrable Securities requested to be registered would materially and adversely affect the distribution of all of the securities to be underwritten, then (x) the Company shall deliver to the Registrable Securities Holders who requested inclusion of Registrable Securities held by them in the offering a copy of such underwriter’s opinion, which opinion shall be in writing and shall state the reasons for such opinion and (y) the number of equity Securities (including the Registrable Securities) that may be included in such registration shall be allocated in the order listed below:

 

(A) first, to the Company;

 

(B) second, to such Registrable Securities Holders; and

 

(C) third, to the other Persons proposing to register securities in such registration, if any.

 

If so determined by the underwriter, all Registrable Securities may be excluded from such registration and underwritten offering.  Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration.

 

Section 2.03. F-3 or S-3 Registration.

 

(a) F-3 or S-3 Registration.  If, at any time after the first date on which the Company is eligible to file a registration statement under the Securities Act on Form F-3 or S-3 (or such similar or successor form as may be appropriate), the Company shall receive from Registrable Securities Holders holding at least five percent (5%) of the outstanding Registrable Securities a written request (an “F-3 or S-3 Notice”) that the Company effect a short-form registration on Form F-3 or S-3 (or such similar or successor form as may be appropriate), and any related qualification or compliance with respect to the Registrable Securities (the date on which the Company receives the F-3 or S-3 Notice being the “F-3 or S-3 Notice Date”), the Company shall promptly (but in any event within five (5) calendar days) after the F-3 or S-3 Notice Date, forward a copy of the F-3 or S-3 Notice to all of the Registrable Securities Holders.  Each of the Registrable Securities Holders shall have a period of 20 calendar days after receiving the F-3 or S-3 Notice from the Company in which to elect to include some or all of such Registrable Securities Holder’s Registrable Securities in such Registration Statement.  The Registrable Securities Holders shall exercise their right to include Registrable Securities in such Registration Statement by delivering a written notice to the Company within such 20 calendar day period specifying the number of Registrable Securities such Registrable Securities Holder wishes to include in such Registration Statement (such electing Registrable Securities Holders, together with the Registrable Securities Holders delivering the F-3 or S-3 Notice to the Company being the “F-3 or S-3 Holders”).

 

  

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(b) Filing and Effectiveness of Registration Statement.  The Company shall prepare and file with the SEC, no later than 30 calendar days after the F-3 or S-3 Notice Date, a Registration Statement on Form F-3 or S-3 (or such similar or successor form as may be appropriate), covering, and shall obtain all such qualifications and compliances as may be required and as would permit the sale and distribution of, all Registrable Securities.  The Company shall use its reasonable best efforts to cause such Registration Statement to be declared effective no later than the earlier of (i) five (5) calendar days after the date on which the Company receives notice from the SEC that such Registration Statement may be declared effective and (ii) 60 calendar days after the F-3 or S-3 Notice Date (such date being the “Required F-3 or S-3 Effectiveness Date”).  The Company shall use its reasonable best efforts to cause the Registration Statement filed pursuant to this Section 2.03 to remain effective until the earlier of (A) the date on which all Registrable Securities registered pursuant to such Registration Statement shall have been sold to the public and (B) the date on which all of the Registrable Securities requested to be registered by the F-3 or S-3 Holders can be freely sold to the public pursuant to Rule 144 without any volume limitations.

 

(c) Limitations on Registration.  The Company shall not be required to effect a registration pursuant to this Section 2.03:

 

(i) if at the time of the request, Form F-3 or S-3 (or such similar or successor form as may be applicable) is not available to the Company for such offering;

 

(ii) if the Company shall furnish to the F-3 or S-3 Holders requesting a registration pursuant to this Section 2.03 a certificate signed by the Company’s Authorized Officer stating that a Potential Material Event exists, in which event the Company shall have the right to defer such filing for a period of not more than 90 calendar days after the F-3 or S-3 Notice Date, provided that such right to delay a request may not be exercised by the Company more than twice in any 12-month period with at least a 60 calendar day interval between such “black-out” periods; or

 

(iii) if the Registrable Securities Holders propose to sell Registrable Securities and other such Securities (if any) whereby the aggregate proceeds of which (after deduction for underwriter’s discounts and expenses related to the issuance) are less than US$1,000,000.

 

Section 2.04. Expenses of Registration.  All Registration Expenses incurred in connection with any registration, filing, qualification or compliance pursuant to Sections 2.01, 2.02 or 2.03 shall be borne by the Company.  Unless otherwise stated, all Selling Expenses relating to any Registrable Securities registered on behalf of the Registrable Securities Holders shall be borne by such Registrable Securities Holders either wholly or, if such Registrable Securities Holder is participating in a registration as one of the Registrable Securities Holders, on a pro rata on the basis of the number of Registrable Securities so registered.

 

  

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Section 2.05. Further Obligations of the Company.  Whenever the Company is required to effect the registration of any Registrable Securities pursuant to this Article II, the Company shall:

 

(a) Filing and Effectiveness of Registration Statement.  With respect to a Registration Statement required by Section 2.01 or 2.03, the Company shall (i) prepare and file with the SEC a Registration Statement, (ii) cause such Registration Statement to become effective, and (iii) maintain the effectiveness of such Registration Statement, in each case, as of the dates and for the periods required by Section 2.01 or 2.03, as the case may be, which Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading.

 

(b) Filing of Amendments and Supplements.  Prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement and the prospectus used in connection with the Registration Statement as may be necessary to keep the Registration Statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities and other securities of the Company covered by the Registration Statement at all times during the period for which the Company is required to maintain the effectiveness of such Registration Statement pursuant to the terms of this Agreement.

 

(c) Copies of Documents.  Furnish to each Registrable Securities Holder selling such Registrable Securities by means of such Registration Statement, without charge, such number of conformed copies of such Registration Statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such Registration Statement (including each preliminary prospectus and any summary prospectus), in conformity with the requirements of the Securities Act, such documents incorporated by reference in such Registration Statement or prospectus, and such other documents, as such Registrable Securities Holders may reasonably request.

 

(d) Opinion and Comfort Letter.  Furnish to such Registrable Securities Holders (i) an opinion of the counsel representing the Company for purposes of such registration, dated the effective date of such Registration Statement (or, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement with respect to both the effective date of the Registration Statement and the date of the closing under the underwriting agreement), in form and substance as is customarily given by counsel for the issuer to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to such Registrable Securities Holders, and (ii) a “cold comfort” letter, dated the effective date of such Registration Statement (and, if such Registration Statement includes an underwritten public offering, dated the date of the closing under the underwriting agreement) signed by the independent certified public accountants who have certified the Company’s financial statements included in such Registration Statement, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to such Registrable Securities Holders.

 

  

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(e) “Blue Sky” Qualification.  Register or qualify all Registrable Securities and other securities covered by such Registration Statement under the securities or blue sky laws of such jurisdictions as the applicable Registrable Securities Holders (or in an underwritten offering, the managing underwriter) shall reasonably request, and do any and all other acts and things which may be necessary or advisable to enable such Registrable Securities Holders to consummate the disposition in such jurisdictions of its Registrable Securities covered by such Registration Statement, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it is not so qualified, or to subject itself to taxation in any such jurisdiction, or to consent to general service of process in any such jurisdiction.

 

(f) Notification of Certain Events.  As promptly as practicable after becoming aware thereof, notify such Registrable Securities Holders of the happening of any event of which the Company has knowledge, as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and promptly prepare and file with the SEC a supplement or amendment to the Registration Statement or other appropriate filing with the SEC to correct such untrue statement or omission, and deliver a number of copies of such supplement or amendment to such Registrable Securities Holders as such Registrable Securities Holders may reasonably request.

 

(g) SEC Stop Orders.  As promptly as practicable after becoming aware thereof, notify such Registrable Securities Holders (and, in the event of an underwritten offering, the managing underwriters) of the issuance by the SEC of any notice of effectiveness or any stop order or other suspension of the effectiveness of the Registration Statement at the earliest possible time.

 

(h) Potential Material Event.  As promptly as practicable after becoming aware thereof, notify such Registrable Securities Holders (and, in the event of an underwritten offering, the managing underwriters) of the existence of a Potential Material Event, in which case, such Registrable Securities Holders shall not offer or sell any Registrable Securities, or engage in any other transaction involving or relating to the Registrable Securities, from the time of the giving of notice with respect to a Potential Material Event until such Registrable Securities Holders receives written notice from the Company that such Potential Material Event either has been disclosed to the public or no longer constitutes a Potential Material Event; provided, however, that such Registrable Securities Holders may only be required to cease offering and selling Registrable Securities pursuant to this clause (h) for a period of not more than 90 calendar days after receiving notice from the Company that a Potential Material Event exists; provided, further, however, that the Company may only exercise its rights under this clause (h) twice in any 12-month period with at least a 60 calendar day interval between such “black-out” periods.

 

(i) Listing Requirements.  Use its reasonable best efforts to maintain the trading of such Registrable Securities on the OTCBB until listing of such Registrable Securities on a nationally recognized stock exchange approved by the Board.

 

  

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(j) Certificate Preparation.  Cooperate with such Registrable Securities Holders to facilitate the timely preparation and delivery of certificates for the Registrable Securities to be offered pursuant to the Registration Statement and enable such certificates for the Registrable Securities to be in such denominations or amounts as the case may be, as such Registrable Securities Holders may reasonably request, and, within two (2) Business Days after a Registration Statement which includes Registrable Securities is ordered effective by the SEC, the Company shall deliver, or shall cause legal counsel selected by the Company to deliver, to the transfer agent for the Registrable Securities (with copies to such Registrable Securities Holders) an appropriate instruction and opinion of such counsel.

 

(k) Underwriting Agreement.  In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form and complying with the provisions of Section 2.07, with the managing underwriter of such offering.

 

(l) Section 11 Information.  Make available to such Registrable Securities Holders, as soon as reasonably practicable, an earnings statement covering the period of at least 12 months, but not more than 18 months, beginning with the first month of the first fiscal quarter after the effective date of such Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act, including, without limitation, Rule 158 promulgated thereunder.

 

(m) Other Actions.  Take all other reasonable actions necessary to expedite and facilitate disposition by such Registrable Securities Holders of the Registrable Securities pursuant to the Registration Statement.

 

Section 2.06. Preparation; Reasonable Investigation; Review by Counsel.  In connection with the preparation and filing of each Registration Statement registering Registrable Securities under the Securities Act, such Registrable Securities Holders, its underwriters, if any, and counsel for such Registrable Securities Holders shall:

 

(a) be permitted to review such Registration Statement, each prospectus included therein or filed with the SEC, and each amendment thereof or supplement thereto a reasonable period of time (but not less than three (3) Business Days) prior to their filing with the SEC; and

 

(b) be given reasonable access to the Company’s books and records and such opportunities to discuss the business of the Company with its officers, counsels and the independent public accountants who have certified its financial statements as shall be necessary, in the opinion of such Registrable Securities Holders, such underwriters, if any, or their respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act.

 

  

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Section 2.07. Indemnification.  In the event any Registrable Securities are included in a Registration Statement under this Article II, the following indemnification provisions shall apply.

 

(a) Indemnification by the Company.

 

(i) Indemnification.  To the extent permitted by law, the Company shall indemnify and hold harmless the Registrable Securities Holders, each of the employees, officers, directors, partners, members, managers, legal counsel and agents of such Registrable Securities Holders, any underwriter (as defined in the Securities Act) for such Registrable Securities Holders and each Person, if any, who controls such Registrable Securities Holders or underwriter within the meaning of the Securities Act or Exchange Act (collectively, the “Holder Indemnified Persons”) against and hold each Holder Indemnified Person harmless from any and all liabilities, obligations, losses, damages, lawsuits, investigations, arbitrations, actions, judgments, costs, expenses or claims, including, without limitation, reasonable attorneys’ fees and expenses incurred in investigation or defending any of the foregoing (collectively, “Losses”), that the Holder Indemnified Persons may suffer or sustain arising out of or due to any of the following (any of the following being a “Violation”):

 

(A) any untrue statement or alleged untrue statement of a material fact contained in such Registration Statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto;

 

(B) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or

 

(C) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law, or any applicable securities laws or Regulations of a jurisdiction outside the United States.

 

(ii) Limitations on Indemnification.  Notwithstanding the foregoing, the Company shall not be liable for:

 

(A) any amounts paid in settlement of any such Losses if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed); or

 

(B) any Losses to the extent that such Losses arise out of or are based upon a Violation which occurs in reliance upon and in strict conformity with written information furnished by such Registrable Securities Holders expressly for use in connection with such registration.

 

(b) Indemnification by the Registrable Securities Holders.

 

(i) Indemnification.  To the extent permitted by law, each Registrable Securities Holder participating in any registration pursuant to this Agreement shall indemnify and hold harmless the Company, each of the Company’s employees, officers, directors, legal counsel and other agents, any underwriter (as defined in the Securities Act) for the Company and each Person, if any, who controls the Company or underwriter within the meaning of the Securities Act or Exchange Act (collectively, the “Company Indemnified Persons”), against and hold each Company Indemnified Person harmless from any and all Losses that the Company Indemnified Persons may suffer or sustain arising out of or due to any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in strict conformity with written information furnished by such Registrable Securities Holder expressly for use in connection with such registration.

 

  

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(ii) Limitations on Indemnification.  Notwithstanding the foregoing, no Registrable Securities Holder shall not be liable for:

 

(A) indemnification pursuant to this Agreement in excess of the aggregate net cash proceeds received by such Registrable Securities Holder from the offering of Registrable Securities in such registration;

 

(B) any amounts paid in settlement of any such Losses if such settlement is effected without the consent of such Registrable Securities Holder; or

 

(C) any Losses to the extent that such Losses do not arise out of or are not based upon a Violation which occurs in reliance upon and in strict conformity with written information furnished by such Registrable Securities Holder expressly for use in connection with such registration.

 

(c) Indemnification Mechanics.  If there occurs an event which a Company Indemnified Person or a Holder Indemnified Person (any such Person being the “Indemnitee”) hereto asserts is an indemnifiable event pursuant to this Section, the Indemnitee shall promptly notify the party obligated to provide indemnification hereunder (the “Indemnitor”) in writing of such event.  Delay or failure to so notify the Indemnitor shall only relieve the Indemnitor of its obligations to the extent, if at all, that it is actually prejudiced by reason of such delay or failure.  The Indemnitor shall have a period of 20 calendar days in which to respond thereto.  If the Indemnitor accepts responsibility within such 20 calendar day period, then the Indemnitor shall be obligated to compromise or defend, at its own expense, such matter, and the Indemnitor shall provide the Indemnitee with such assurances as may be reasonably required by the Indemnitee to assure that the Indemnitor shall assume and be responsible for the Losses at issue (subject to the limitations set forth in this Agreement).  If the Indemnitor fails to assume the defense of such matter within such 20 calendar day period or does not respond within such 20 calendar day period, the Indemnitee against which such matter has been asserted shall (upon delivering notice to such effect to the Indemnitor) have the right to undertake, at the Indemnitor’s cost and expense, the defense, compromise or settlement of such matter on behalf of the Indemnitee.  In any event, the Indemnitee shall have the right to participate at its own expense in the defense of such asserted liability; provided, however, that the Indemnitor shall pay the expenses of such defense if the Indemnitee is advised by counsel in writing that there are one or more legal defenses available to the Indemnitee that are different from or additional to those available to the Indemnitor (in which case, if the Indemnitee notifies the Indemnitor in writing, the Indemnitor shall not have the right to assume the defense of such asserted liability on behalf of the Indemnitee).

 

  

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(d) Contribution.  If the indemnification provided for in this Section is held by a court of competent jurisdiction to be unavailable to an Indemnitee with respect to any Losses, then the Indemnitor, in lieu of indemnifying such Indemnitee hereunder, shall contribute to the amount paid or payable by such Indemnitee as a result of such Losses in such proportion as is appropriate to reflect the relative fault of the Indemnitor on the one hand and of the Indemnitee on the other in connection with the Violation that resulted in such Losses, as well as any other relevant equitable considerations; provided, however, that in no event shall any contribution under this Section 2.07(d) from such Registrable Securities Holders, together with the amount of any indemnification payments made by such Holder pursuant to Section 2.07(b) above, exceed the net proceeds from the offering received by such Registrable Securities Holders.  The relative fault of the Indemnitor and of the Indemnitee shall be determined by reference to, among other things, whether the Violation relates to information supplied by the Indemnitor or the Indemnitee and the parties relative intent, knowledge, access to information, and opportunity to correct or prevent such Violation.

 

(e) No Inconsistent Underwriting Agreements.  Notwithstanding any provision of this Agreement to the contrary, the Registrable Securities Holders shall not be required to enter into an underwriting agreement that contains indemnification and contribution provisions which, in the sole discretion of such Registrable Securities Holders, materially differ from those contained in this Section 2.07.

 

Section 2.08. Transfer of Registration Rights.  The rights to cause the Company to register Registrable Securities pursuant to this Article II may be assigned by the Investor (or any assignee permitted hereunder) to a transferee or assignee of any of the Registrable Securities held by the Investor (or such assignee), provided that (x) the Company is furnished a written notice of the name and address of such transferee or assignee and the Registrable Securities with respect to which such registration rights are being assigned and (y) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement.

 

Section 2.09. Subsequent Registration Rights.  From and after the date of this Agreement, the Company shall not, without the prior written consent of holders of a majority of the outstanding Registrable Securities, enter into any agreement with any holder or prospective holder of any Securities of the Company which provides such holder or prospective holder of Securities of the Company the right (a) to include such Securities in any registration filed under Sections 2.01, 2.02 or 2.03 hereof, unless under the terms of such agreement, such holder or prospective holder may include such Securities in any such registration only to the extent that the inclusion of such securities shall not reduce the amount of the Registrable Securities that are included or (b) to demand registration of their Securities.

 

Section 2.10. Registration in Non-U.S. Jurisdictions.  In the event that the Common Shares cease to be listed on the OTCBB and are not listed on a nationally recognized stock exchange in the United States, but the Company has listed its Common Shares on any Designated Offshore Securities Market or other internationally recognized securities exchange, then the Company shall use its reasonable best efforts, to the extent permitted by applicable law, to provide the Registrable Securities Holders with substantially the same rights and benefits in such jurisdiction as are provided for in this Agreement, and to take such steps, if any, consistent with customary market practice at the time so that the Registrable Securities are freely transferable in such listed market without transfer restrictions imposed by the securities or similar laws of such jurisdiction.

 

  

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ARTICLE III

MISCELLANEOUS

 

Section 3.01. Notices.  All notices, requests, demands and other communications to any Party or given under this Agreement shall be in writing and delivered personally, by overnight delivery or courier, by e-mail, by registered mail or by telecopier (with confirmation received) to the Parties at the address, the e-mail address or telecopy number specified for such Parties below (or at such other address, e-mail address or telecopy number as may be specified by a Party in writing given at least five business days prior thereto).  All notices, requests, demands and other communications shall be deemed delivered when actually received:

 

(a) If to the Company, at:

 

China BCT Pharmacy Group, Inc.

No 102, Chengzhan Road

Liuzhou City, Guangxi Province

PRC

Phone:  +86 772 3638318

Fax:       +86 772 3611763

Attn:       Mr. Hui Tian Tang, Chairman & CEO

e-mail:     huitian.tang@china-bct.com

with a copy by fax or messenger or courier or e-mail to:

 

McKenna Long & Aldridge LLP

303 Peachtree Street, NE, Suite 5300

Atlanta, GA  30308  USA

Phone:   (404) 527-4990

Fax:        (404) 527-4198 and (404) 527-8890

Attn:      Mr. Thomas Wardell, Esq.

e-mail:    twardell@mckennalong.com

 

(b) If to the Investor, at:

 

Milestone Longcheng Limited

318 Hu Nan Road

Shanghai 200031, PRC

Fax:           (8621) 6437-9590

Attn:         Ms. Yunli Lou

e-mail:       yunli@mcmchina.com

 

  

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with a copy by fax or messenger or courier to:

 

Latham & Watkins

41st Floor, One Exchange Square

8 Connaught Place, Central

Hong King

Fax:      +852.2522.7006

Attn:     Mr. David T. Zhang, Esq

e-mail:   david.zhang@lw.com

 

Section 3.02. Counterparts.  This Agreement may be executed simultaneously in one or more counterparts, and by different Parties in separate counterparts, each of which when executed shall be deemed an original, but all of which taken together shall constitute one and the same instrument.

 

Section 3.03. Modification or Amendment of Agreement.  This Agreement may not be modified or amended except by an instrument in writing signed by both of the Parties.

 

Section 3.04. Successors and Assigns.  This Agreement shall be binding upon and inures to the benefit of and is enforceable by the respective successors and permitted assigns of the Parties hereto.

 

Section 3.05. GOVERNING LAW.

 

THIS AGREEMENT SHALL BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS PRINCIPLES OF CONFLICTS OF LAWS THAT WOULD APPLY THE LAW OF ANY OTHER JURISDICTION.

 

Section 3.06. Arbitration.

 

Any dispute, controversy, claim or difference of any kind whatsoever arising out of, relating to or in connection with this Agreement, or the breach, termination or invalidity hereof (including the validity, scope and enforceability of this arbitration provision) (the “Dispute”) shall first be attempted to be resolved through discussions and consultations between the parties in good faith for a period of thirty (30) days after written notice has been sent by any Party to the other Party pursuant to the notice provisions set out in Section 3.01 (the “Consultation Period”).

 

(a) If the Dispute remains unresolved upon expiration of the Consultation Period, any Party may in its sole discretion elect to submit the matter to arbitration with notice to any other Party or Parties (the “Arbitration Notice”). The arbitration shall be conducted in Hong Kong and shall be administered by the Hong Kong International Arbitration Centre (the “HKIAC”) in accordance with the HKIAC Administered Arbitration Rules in force at the time of the commencement of the arbitration. However, if such rules are in conflict with the provisions of this Section 3.06, the provisions of this Section 3.06 shall prevail.

 

  

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(b) The language of the arbitration proceedings and written decisions or correspondence shall be in English.

 

(c) The number of arbitrators shall be three. Each opposing party to a dispute shall be entitled to appoint one arbitrator, and the third arbitrator shall be jointly appointed by the disputing parties or, failing such agreement by thirty (30) days after the appointment by each party of its arbitrator, the HKIAC shall appoint the third arbitrator in accordance with the HKIAC Administered Arbitration Rules in force at the time of the commencement of the arbitration.

 

(d) Any party to the Dispute shall be entitled to seek preliminary injunctive relief, if possible, from any court of competent jurisdiction pending the constitution of the arbitration tribunal.

 

(e) The arbitrators shall decide any Dispute submitted by the parties to the arbitration strictly in accordance with the substantive laws of New York and shall not apply any other substantive law.

 

(f) The award of the arbitration tribunal shall be final and binding upon the disputing parties, and the prevailing party or parties may apply to a court of competent jurisdiction for enforcement of such award.

 

Section 3.07. Waiver of Jury.  THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT THAT THEY MAY HAVE TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION, OR IN ANY LEGAL PROCEEDING, DIRECTLY OR INDIRECTLY BASED UPON OR ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT (WHETHER BASED ON CONTRACT, TORT, OR ANY OTHER THEORY).  EACH PARTY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT, OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTIES WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

Section 3.08. Integration.  This Agreement and the Shares Purchase Agreement contain and constitute the entire agreement of the Parties with respect to the subject matter hereof and supersede all prior negotiations, agreements and understandings, whether written or oral, of the Parties.

 

Section 3.09. Severability.  If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any Party.  Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

 

  

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Section 3.10. Ambiguities.  This Agreement was negotiated between legal counsel for the Parties and any ambiguity in this Agreement shall not be construed against the Party who drafted this Agreement.

 

Section 3.11. Further Assurances.  In order to (a) carry out more effectively the purposes of this Agreement, (b) enable the Parties to exercise and enforce their rights and remedies hereunder, promptly upon the reasonable request by any Party, the Company and the Investor shall (with the expenses paid by the Party responsible as provided in this Agreement) shall (i) correct any defect or error that may be discovered in this Agreement or in the execution, delivery, acknowledgment or recordation of this Agreement and (ii) execute, acknowledge, deliver, record, file and register, any and all such further acts, conveyances, assignments, notices of assignment, transfers, certificates, assurances and other instruments, in each case, as such requesting Party may require from time to time.

 

Section 3.12. No Third-Party Rights.  This Agreement is not intended, and shall not be construed, to create any rights in any Person other than the Parties and their respective successors and permitted assigns, and no Person may assert any rights as third-party beneficiary hereunder, except as provided in Section 2.07.

 

Section 3.13. No Waiver; Remedies.  No failure or delay by any Party in exercising any right, power or privilege under this Agreement shall operate as a waiver of the right, power or privilege.  A single or partial exercise of any right, power or privilege shall not preclude any other or further exercise of the right, power or privilege or the exercise of any other right, power or privilege.

 

 [SIGNATURE PAGE FOLLOWS]

 

  

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IN WITNESS WHEREOF, the Parties have executed and delivered this Agreement as of the date first written above.

 

 

	
COMPANY:

	
CHINA BCT PHARMACY GROUP, INC.

 

By: /s/ Tian Hui Tang                                                    

Name: Tian Hui Tang

Title: Chief Executive Officer

 

	
INVESTOR:

	
MILESTONE LONGCHENG LIMITED

 

By /s/ MILESTONE LONGCHENG LIMITED                    

Name: MILESTONE LONGCHENG LIMITED

Title:

 

 

20f8k011811ex10iii_chinabct.htm

Exhibit 10.3

SHAREHOLDERS AGREEMENT

 

THIS SHAREHOLDERS AGREEMENT (this “Agreement”), dated as of [•], 2011, by and among Milestone Longcheng Limited, a company organized under the laws of the British Virgin Islands (the “Investor”), CHINA BCT PHARMACY GROUP, INC., a company organized under the laws of Delaware (the “Company”), the Persons listed on Schedule 1 hereto (the “Shareholders”), and Mr. Tian Hui Tang as representative for the Shareholders (“Shareholders’ Representative” and together with the Investor, the Company and the Shareholders, the “Parties” and each individually sometimes referred to herein as a “Party”).

 

W I T N E S S E T H:

 

WHEREAS, the Company has created a new series of preferred shares designated as Series A Convertible Preferred Shares (the “Preferred Shares”) which are convertible into Common Shares of the Company, par value US$0.001 per share (“Common Shares”);

 

WHEREAS, pursuant to that certain Series A Convertible Preferred Shares Purchase Agreement, dated as of January 18, 2011 (the “Preferred Shares Purchase Agreement”), the Company is issuing certain Preferred Shares to the Investor; and

 

WHEREAS, the Parties desire to enter into this Agreement to set forth certain rights and obligations among them (it being acknowledged that the Shareholders and the Company are entering into this Agreement to induce the Investor to consummate the transactions contemplated by the Preferred Shares Purchase Agreement).

 

NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties, covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

 

Section 1. Definitions and Interpretation.

 

(a) Definitions.  As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined).

 

“Affiliate” of a Person means any other Person (a) that directly or indirectly controls, is controlled by or is under common control with, the Person or any of its Subsidiaries, (b) that directly or indirectly beneficially owns or holds 5% or more of any class of equity security or other similar interests of the Person or any of its Subsidiaries or (c) 5% or more of the equity securities of which is directly or indirectly beneficially owned or held by the Person or any of its Subsidiaries.  For purposes of this definition, the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, agreement or otherwise.

 

  

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“Arbitration Notice” has the meaning set forth in Section 7(f).

 

“Business Day” means a day other than Saturday or Sunday or other day on which commercial banks in New York City, New York, Hong Kong or PRC are authorized or required by law or other governmental action to close and a day on which dealings are carried on for deposits in Dollars by and among banks in the London interbank market.

 

“Certificate of Designation” means the Certificate of Designation signed by the Company on the Closing Date.

 

“Closing Date” means [•], 2011.

 

“Common Shares” has the meaning set forth in the Recitals above.

 

“Company” has the meaning set forth in the Preamble to this Agreement.

 

“Competing Business” means any provision of services or goods that would be reasonably considered to be competitive with any services or goods now being offered or hereafter offered by the Company and its Subsidiaries.

 

“Consultation Period” has the meaning set forth in Section 7(f).

 

“Co-Sale Offered Shares” has the meaning set forth in Section 3(d)(i).

 

“Co-Sale Preferred Shareholder” has the meaning set forth in Section 3(d)(i).

 

“Co-Sale Shareholder” has the meaning set forth in Section 3(d)(i).

 

“Covenanter” has the meaning set forth in Section 4(a).

 

“Dispute” has the meaning set forth in Section 7(f).

 

“Earn-in Agreement” means the Earn-in Agreement dated December 30, 2009, as amended on May 19, 2010, by and among the Shareholders.

 

“Election Notice” has the meaning set forth in Section 3(d)(i).

 

“Entity” means any corporation, partnership, limited liability company, joint venture, association, partnership, business trust or other entity.

 

“Exempt Transfer” shall have the meaning set forth in Section 3(e).

 

“First Refusal Allotment” has the meaning set forth in Section 3(c)(i).

 

“First Refusal Expiration Notice” has the meaning set forth in Section 3(c)(ii).

 

“First Refusal Notice” has the meaning set forth in Section 3(c).

 

“First Refusal Period” has the meaning set forth in Section 3(c).

 

  

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“Governmental Authority” means any government or political subdivision or department thereof, any governmental or regulatory body, commission, board, bureau, agency or instrumentality, or any court or arbitrator or alternative dispute resolution body, in each case whether federal, state, local, foreign or supranational, as well as any applicable self regulatory body.

 

“HKIAC” has the meaning set forth in Section 7(f).

 

“Hong Kong” means the Special Administrative Region of Hong Kong.

 

“Investor” has the meaning set forth in the Preamble to this Agreement.

 

“Investor Director” has the meaning ascribed to it in the Preferred Shares Purchase Agreement.

 

“Law” means any judgment, order (whether temporary, preliminary or permanent), writ, injunction, decree, statute, rule, regulation, notice, law or ordinance and shall also include any regulations of any applicable self regulatory organizations.

 

“Material Adverse Effect” has the meaning ascribed to it in the Preferred Shares Purchase Agreement.

 

“Non-compete Period” has the meaning set forth in Section 4(a).

 

“Notice of Sale” has the meaning set forth in Section 3(b).

 

“Offered Shares” has the meaning set forth in Section 3(b).

 

“Party” and “Parties” have the meanings set forth in the Preamble to this Agreement.

 

“Person” means any individual, Entity, unincorporated association or Governmental Authority.

 

“PRC” means the People’s Republic of China.

 

“Preferred Shareholders” has the meaning set forth in Section 3(c).

 

“Preferred Shareholder Co-Sale Pro Rata Portion” has the meaning set forth in Section 3(d)(i).

 

“Preferred Shareholder Pro Rata Percentage” has the meaning set forth in Section 3(d)(i).

 

“Preferred Shares” has the meaning set forth in the Recitals above.

 

“Preferred Shares Purchase Agreement” has the meaning set forth in the Recitals above.

 

  

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“Purchase Price” has the meaning ascribed to it in the Preferred Shares Purchase Agreement.

 

“Purchaser” has the meaning set forth in Section 3(a).

 

“Qualified Public Offering” means a firmly committed underwritten public offering of the Common Shares (or equity securities of an entity that holds all or substantially all the share capital of the Company) pursuant to an effective registration statement filed under the United States Securities Act of 1933, as amended or under other comparable applicable Law for jurisdictions outside of the United States in which (a) the Common Share is listed on the NASDAQ Global Market, the New York Stock Exchange or an internationally recognized exchange approved by the holders of majority of the Preferred Shares, (b) the gross proceeds received by the Company and the shareholders participating in the offering are no less than US$60,000,000, (c) the market capitalization of the offering entity immediately after the offering is no less than US$300,000,000, and (d) the number of securities of the offering entity which are publicly traded immediately after the offering is no less than 20% of the total issued share capital of the offering entity.

 

“Selling Shareholder” has the meaning set forth in Section 3(b).

 

“Selling Shareholder Co-Sale Pro Rata Portion” has the meaning set forth in Section 3(d)(i).

 

“Selling Shareholder Pro Rata Percentage” has the meaning set forth in Section 3(d)(i).

 

“Service Termination Date” means with respect to any Person, the date on which such Person ceases to be an employee, a director or a consultant, as the case may be, of the Company or any of its Subsidiaries, for any reason (other than by reason of death or disability), with or without cause.

 

“Shareholders” has the meaning set forth in the Preamble to this Agreement.

 

“Shareholders’ Representative” has the meaning set forth in the Preamble to this Agreement.

 

“Subsidiary” means with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof.

 

  

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“Tax” means any tax, governmental fee or other like assessment or charge of any kind whatsoever (including any tax imposed under Subtitle A of the U.S. Internal Revenue Code of 1986, as amended, and any net income, alternative or add-on minimum tax, gross income, gross receipts, sale, bulk sales, use, real property, personal property, ad valorem, value added, transfer, franchise, profits, license, withholding tax on amounts paid, withholding, payroll, employment, excise severance, stamp, capital stock, occupation, property, environmental or windfall profits tax, premium, custom, duty or other tax or assessment), together with any interest, penalty, addition to tax or additional amount thereto, imposed by any Governmental Authority.

 

“Transaction Documents” has the meaning ascribed to it in the Preferred Shares Purchase Agreement.

 

“Transfer” of a security means any sale, assignment, transfer, exchange, pledge, grant of a security or participation interest in, hypothecation, encumbrance or other disposition or conveyance of any interest in such security.

 

(b) Interpretation.

 

(i) Headings.  The headings to the Sections and Subsections of this Agreement are inserted for convenience of reference only and shall not affect the meaning or interpretation of this Agreement.

 

(ii) Usage.  In this Agreement, unless the context requires otherwise:  (i) the singular number includes the plural number and vice versa;  (ii) reference to any gender includes each other gender; (iii) the Exhibits and Schedules to this Agreement are hereby incorporated into, and shall be deemed to be a part of, this Agreement; (iv) the terms “hereunder”, “hereof”, “herein”, “hereto” and words of similar import shall be deemed references to this Agreement as a whole and not to any particular section or other provision hereof; (v) the words “include”, “includes” and “including” shall be deemed to be followed by the words “without limitation”; and (vi) a reference to any Article, Section or Subsection shall be deemed to refer to the corresponding Article, Section, or Subsection of this Agreement.

 

Section 2. Investor Board Representation.  Each Shareholder agrees to vote all voting securities held by it in the Company from time to time and to take all other necessary actions within its control (whether in its capacity as shareholder or otherwise, including without limitation, causing its directors and officers to take all such necessary actions), and shall cause the Company to take all necessary actions, in order to effect the appointment, election, reelection or removal as contemplated in Section 5.7 of the Preferred Shares Purchase Agreement of any Investor Director at the direction of the Investor.

 

Section 3. Share Transfers.

 

(a) Restrictions on Transfer. No Shareholder shall Transfer any Common Shares held directly or indirectly by it to any prospective transferee (the “Purchaser”) without first requesting the prior written consent of the holders of majority of the then outstanding Preferred Shares. Any purported Transfer by any Shareholder in violation of this Section 3(a) shall be null and void and shall have no force and effect. In the event that the consent is not received within ten (10) days of the request, the Selling Shareholder may only transfer in accordance with the remaining provisions of this Section 3.

 

  

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(b) Notice of Sale.  In the event that any Shareholder proposes to undertake a Transfer of Common Shares held directly or indirectly by it at the time of the proposed Transfer, such Shareholder (the “Selling Shareholder”) shall deliver or cause to be delivered a written notice (the “Notice of Sale”) to each Preferred Shareholder at least fifteen (15) days prior to making any such Transfer.  The Notice of Sale shall state (i) the number of Common Shares to be Transferred (the “Offered Shares”) and the percentage that such Common Shares represent of all Common Shares then held by such Shareholder, (ii) such Shareholder’s bona fide intention to Transfer such Common Shares and (iii) the terms and conditions of the contemplated Transfer, including the price.

 

(c) Right of First Refusal. Each of the Investor and its permitted assigns to whom its rights under this Section 3 have been duly assigned in accordance with this Agreement (collectively, the “Preferred Shareholders” and each, a “Preferred Shareholder”) will have the right, exercisable upon written notice (the “First Refusal Notice”) to the Selling Shareholder, the Company and each other Preferred Shareholder within twenty (20) days after receipt of the Notice of Sale (the “First Refusal Period”) of its election to exercise its right of first refusal hereunder. The First Refusal Notice shall set forth the number of Offered Shares that such Preferred Shareholder wishes to purchase, which amount shall not exceed the First Refusal Allotment (as defined below) of such Preferred Shareholder.  Such right of first refusal may be exercised as follows:

 

(i) First Refusal Allotment. Each Preferred Shareholder shall have the right to purchase that number of the Offered Shares (the “First Refusal Allotment”) equivalent to the product obtained by multiplying the aggregate number of the Offered Shares by a fraction, the numerator of which is the number of Common Shares (calculated on an as converted and fully-diluted basis) held by such Preferred Shareholder at the time of the transaction and the denominator of which is the total number of Common Shares (calculated on an as converted and fully-diluted basis) owned by all Preferred Shareholders at the time of the transaction.  To the extent that any Preferred Shareholder does not exercise its right of first refusal to the full extent of its First Refusal Allotment, the Selling Shareholder and the exercising Preferred Shareholders shall, within five (5) days after the end of the First Refusal Period, make such adjustments to the First Refusal Allotment of each exercising Preferred Shareholder so that any remaining Offered Shares may be allocated to those Preferred Shareholders exercising their rights of first refusal on a pro rata basis.

 

(ii) Expiration Notice.  Within ten (10) days after expiration of the First Refusal Period the Company will give written notice (the “First Refusal Expiration Notice”) to the Selling Shareholder specifying either (A) that all of the Offered Shares were subscribed by the Preferred Shareholders exercising their rights of first refusal or (B) that the Preferred Shareholders have not subscribed for all of the Offered Shares in which case the First Refusal Expiration Notice will specify the Preferred Shareholder Co-Sale Pro Rata Portion (as defined below) and the Selling Shareholder Co-Sale Pro Rata Portion (as defined below) of the remaining Offered Shares for the purpose of their co-sale right described in Section 3(d) below.

 

(iii) Purchase Price. The purchase price for the Offered Shares to be purchased by the Preferred Shareholders exercising their right of first refusal will be the price set forth in the Notice of Sale, but will be payable as set forth in Section 3(c)(iv) below. If the purchase price in the Notice of Sale includes consideration other than cash, the cash equivalent value of the non-cash consideration will be as previously determined by the Board in good faith, which determination will be binding upon the Company, the Preferred Shareholders and the Selling Shareholder, absent fraud or error.

 

  

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(iv) Payment. Payment of the purchase price for the Offered Shares purchased by the Preferred Shareholders shall be made within thirty (30) days following the date of the First Refusal Expiration Notice.  Payment of the purchase price will be made by wire transfer or check as directed by the Selling Shareholder.

 

(v) Rights of a Selling Shareholder.  If any Preferred Shareholder exercises its right of first refusal to purchase the Offered Shares, then, upon the date the notice of such exercise is given by such Preferred Shareholders, the Selling Shareholder’s rights as a holder of such Offered Shares shall be suspended until the Selling Shareholder receives payment for such Offered Shares from such Preferred Shareholder in accordance with the terms of this Agreement, and the Selling Shareholder will forthwith cause all certificate(s) evidencing such Offered Shares to be surrendered to the Company for transfer to such Preferred Shareholder.

 

(vi) Application of Co-Sale Right.  In the event that the Preferred Shareholders have not elected to purchase any or all of the Offered Shares, then the sale of the remaining Offered Shares will become subject to the co-sale right of the Preferred Shareholders as set forth in Section 3(d) below.

 

(d) Co-Sale Right.  To the extent that the Preferred Shareholders have not exercised their right of first refusal with respect to any or all the Offered Shares, then each Preferred Shareholder shall have the right to exercise its co-sale right hereunder. Such co-sale right may be exercised as follows:

 

(i) Participation Procedures.

 

(A)           Within ten (10) Business Days after receipt of the First Refusal Expiration Notice, upon written notice (an “Election Notice”) to the Selling Shareholder, the Company and each other Preferred Shareholder, each Preferred Shareholder may elect to include in such proposed Transfer up to the number of Preferred Shares that is equal to the product obtained by multiplying (x) the aggregate number of the Offered Shares subject to the co-sale right hereunder as set forth in the First Refusal Expiration Notice (the “Co-Sale Offered Shares”) by (y) a fraction (the “Preferred Shareholder Pro Rata Percentage”), the numerator of which is the number of Common Shares (calculated on an as converted and fully-diluted basis) held by such Preferred Shareholder (the “Co-Sale Preferred Shareholder”) at the time of the transaction and the denominator of which is the total number of Common Shares (calculated on an as converted and fully-diluted basis) of the Selling Shareholder and the Co-Sale Preferred Shareholder (collectively, the “Co-Sale Shareholders”) at the time of the transaction (the “Preferred Shareholder Co-Sale Pro Rata Portion”).

 

  

7

  

 

(B)           To the extent one or more of the Preferred Shareholders exercise such right of participation in accordance with Section 3(d)(i)(A), the maximum number of Co-Sale Offered Shares that the Selling Shareholder may sell in the proposed Transfer shall be equal to the product obtained by multiplying (x) the Co-Sale Offered Shares by (y) a fraction (the “Selling Shareholder Pro Rata Percentage”), the numerator of which is the number of Common Shares held by such Selling Shareholder at the time of the transaction and the denominator of which is the total number of Common Shares (calculated on an as converted and fully-diluted basis) of the Co-Sale Shareholders at the time of the transaction (the “Selling Shareholder Co-Sale Pro Rata Portion”).

(C)           The Selling Shareholder shall not consummate any proposed Transfer unless the Purchaser purchases all of the Preferred Shares in the Election Notice upon the same terms and conditions as those contained in the Notice of Sale; provided, that if the number of Common Shares (calculated on an as converted and fully-diluted basis) which the Purchaser elects to purchase is more or less than the Co-Sale Offered Shares, the number of Common Shares (calculated on an as converted and fully-diluted basis) to be sold by each Co-Sale Shareholder shall be reduced on a pro rata basis in accordance with the Preferred Shareholder Pro Rata Percentage (in the case of the Preferred Shareholder(s)) and the Selling Shareholder Pro Rata Percentage (in the case of the Selling Shareholder), respectively. For the purpose of determining the terms and conditions on which any Preferred Shares are to be sold to the Purchaser hereunder, each Preferred Share being deemed to be equivalent to the number of Common Shares into which such Preferred Share is then convertible pursuant to Article 4 of the Certificate of Designation.

 

(ii) Single Closing.  All Common Shares and Preferred Shares to be Transferred by the Selling Shareholder and the Preferred Shareholder(s) with respect to a single Notice of Sale and any related Election Notice shall be Transferred to the Purchaser in a single closing on the terms and conditions described in such Notice of Sale.  The Company agrees not to register any Transfer of Common Shares by the Selling Shareholder to which the Preferred Shareholder’s co-sale right apply unless the Selling Shareholder is in full compliance with the applicable provisions of this Agreement.

 

(e) Exempt Transfers.  The right of first refusal and co-sale right of the Preferred Shareholders shall not apply to (i) any sale by the Selling Shareholder of Common Shares in a Qualified Public Offering or (ii) any Transfer among the Shareholders pursuant to the Earn-in Agreement (in either case, an “Exempt Transfer”).

 

(f) Right to Transfer. To the extent the Preferred Shareholders do not elect to purchase, or to participate in the sale of, the Offered Shares subject to the Notice of Sale, the Selling Shareholder shall have the right, for ninety (90) days following delivery of the First Refusal Expiration Notice, undertake a transfer of the Offered Shares covered by the Notice of Sale and not elected to be purchased by the Preferred Shareholders, which in each case shall be on the same terms and conditions as those described in the Notice of Sale.  Any proposed transfer on terms and conditions which are materially different from those described in the Notice of Sale, as well as any subsequent proposed transfer of any Common Shares held directly or indirectly by the Selling Shareholder (including without limitation any Common Shares held directly or indirectly by the Selling Shareholder which are proposed to be sold to the Purchaser in the event the Purchaser elects to purchase more than the Co-Sale Offered Shares), shall again be subject to the right of first refusal and the co-sale right of the Preferred Shareholders and shall require compliance by the Selling Shareholder with the procedures described in Section 3.

 

  

8

  

 

(g) Term.  The provisions under this Section 3 shall terminate upon the occurrence a Qualified Public Offering.

 

(h) Assignment.  The rights of the Preferred Shareholders under Section 3 are fully assignable in connection with a transfer of shares of the Company by the Preferred Shareholders; provided, however, that no party may be assigned any of the foregoing rights unless the Company is given written notice by such Preferred Shareholder stating the name and address of the assignee and identifying the securities of the Company as to which the rights in question are being assigned; and provided further, that any such assignee shall receive such assigned rights subject to all the terms and conditions of this Agreement.

 

Section 4. Non-competition

 

(a) In consideration of the Investor entering into the transactions contemplated by the Preferred Shares Purchase Agreement and performing its obligations thereunder, each Shareholder (each a “Covenanter”) severally but not jointly hereby agrees that:

 

(i) During the period from the Service Termination Date to and including the second anniversary of the Service Termination Date (the “Non-compete Period”), each Covenanter shall not, and shall procure that each of his or her Affiliates do not, directly or indirectly, own any interest in, manage, control, participate in (whether as an owner, operator, manager, consultant, officer, director, employee, investor, agent, representative or otherwise), consult with, render services (including through outsourcing, or as an intermediary or agent or otherwise) for or otherwise engage in or provide assistance to any Competing Business in the PRC, Hong Kong and any other country in which the Company or its Subsidiaries engage in business; provided, however, nothing in this Section 4 shall prohibit such Covenanter from being passive owners of not more than one percent (1%) of the outstanding shares of any corporation which is publicly traded, so long as such Covenanter has no active participation in the business of such corporation.

 

(ii) During the Non-compete Period, such Covenanter shall not, directly or indirectly through another entity, (A) induce or attempt to induce any employee of the Company or any of its Subsidiaries to leave the employ of the Company or any of its Subsidiaries, or in any way interfere with the relationship between the Company or any of its Subsidiaries and any of its employees, (B) hire any person who was an employee of the Company or any of its Subsidiaries within one hundred and eighty (180) days prior to the time such employee is hired by such covenanter or such entity, (C) induce or attempt to induce any customer, supplier, licensee, licensor, franchisee, lessor or other business relation of the Company or any of its Subsidiaries to cease or refrain from doing business with the Company or any of its Subsidiaries, or in any way interfere with the relationship between any such customer, supplier, licensee, licensor, franchisee or other business relation and the Company or any of its Subsidiaries (including, without limitation, making any negative statements or communications about the Company or any of its Subsidiaries) or (D) directly or indirectly acquire or attempt to acquire an interest in any Competing Business or any business with which the Company or any of its Subsidiaries has entertained discussions or has requested and received information relating to the acquisition of such business by the Company or any of its Subsidiaries (regardless of whether such business is a Competing Business); provided that none of the foregoing shall apply with respect to or limit any Covenanter in the performance of his or her duties as an executive or employee of the Company or any Subsidiary thereof.

 

  

9

  

 

(b) The Investor and each of the Covenanters agree that the covenants set forth in this Section 4 are reasonable with respect to period, geographical area and scope.  Notwithstanding anything in this Section 4 to the contrary, if at any time, in any arbitral proceeding, any of the restrictions stated in this Section 4 are found pursuant to Section 7(f) to be unreasonable or otherwise unenforceable under circumstances then existing, each Covenanter agrees that the period, scope and/or geographical area, as the case may be, shall be reduced to the extent necessary to enable the arbitral tribunal to enforce the restrictions to the extent such provisions are allowable under Law, giving effect to the agreement and intent of the Parties that the restrictions contained herein shall be effective to the fullest extent permissible.  Each of the Covenanters acknowledges and agrees that monetary damages may not be an adequate remedy for any breach or threatened breach of the provisions of this Section 4 and that, in such event, the Investor and/or its respective successors or assigns shall, in addition to any other rights and remedies existing in their favor, be entitled to specific performance, injunctive and/or other relief from any arbitral tribunal of competent jurisdiction in order to enforce or prevent any violations of the provisions of this Section 4 (including the extension of the Non-compete Period applicable to such Covenanter by a period equal to the length of the arbitral proceedings necessary to stop such violation); provided that such Covenanter is found to have been in violation of the provisions of this Section 4.  Any injunction shall be available without the posting of any bond or other security.  In the event of an alleged breach or violation by any Covenanter of any of the provisions of this Section 4, the Non-compete Period will be tolled for such Covenanter until such alleged breach or violation is resolved if such Covenanter is found to have not violated the provisions of this Section 4, then the Non-compete Period will not be deemed to have been tolled.  Each Covenanter agrees that the restrictions contained in this Section 4 are reasonable in all respects and are necessary to protect the goodwill of the business of the Company and its Subsidiaries and are an integral part of the Purchase Price to be paid under the Preferred Shares Purchase Agreement.

 

Section 5. Tax Matters. Each Shareholder shall pay all Tax required to be paid by it or cause the Company and each of its Subsidiaries to withhold and pay all Taxes required to be withheld in connection with such Shareholder’s tax liability so that any failure to pay or withhold would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, and each of the Shareholders agree to, several and not jointly, indemnify the Company against any losses arising out of its failure to pay such Taxes.

 

Section 6. Shareholders’ Representative

 

(a) Mr. Hui Tian Tang shall be constituted and appointed as agent for and on behalf of all Shareholders as their attorney-in-fact and representative, (i) to do any and all things and to execute any and all documents or other papers, in each such Shareholder’s name, place and stead, in any way in which each such Shareholder could do if personally present, in connection with this Agreement and the applicable Transaction Documents and the transactions contemplated hereby and thereby, and (ii) to amend, cancel or extend, or waive the terms of, this Agreement and any of the Transaction Documents in a manner that would not disproportionately affect such Shareholder as compared to the other Shareholders, The power of attorney granted hereby is coupled with an interest. The Shareholders shall be bound by all actions taken and documents executed by the Shareholders’ Representative pursuant hereto, and the Investor shall be entitled to rely on any action or decision of the Shareholders’ Representative.

 

  

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(b) The Shareholders’ Representative may, by giving not less than thirty (30) days written notice to the other Parties, resign as the Shareholders’ Representative under this Agreement. In the event that the Shareholders’ Representative becomes unable or unwilling to continue in his capacity as the Shareholders’ Representative under this Agreement, the Shareholders shall (by majority-in-interest) promptly appoint a successor Shareholders’ Representative by written notice to the Investor, and the appointment of such successor Shareholders’ Representative shall become effective only upon the Investor’s receipt of such written notice.  Each Shareholder hereby agrees that any successor Shareholders’ Representative so selected by such Shareholder shall be entitled to act as such under this Agreement on behalf of such Shareholder.  All references herein to the Shareholders’ Representative shall include any such successor Shareholders’ Representative.  Except as otherwise expressly set forth herein, each Shareholder hereby consents to the taking by the Shareholders’ Representative of any and all actions and the making of any decisions required or permitted to be taken by such Shareholders under this Agreement.  The Shareholders shall be bound by all actions taken by the Shareholders’ Representative in his capacity as the Shareholders’ Representative.

 

(c) In performing the functions specified in this Agreement, the Shareholders’ Representative shall not be liable to any Shareholder in the absence of gross negligence or willful misconduct on the part of the Shareholders’ Representative.  Each Shareholder shall severally and not jointly, indemnify and hold harmless the Shareholders’ Representative from and against any loss, liability or expense incurred without gross negligence or willful misconduct on the part of the Shareholders’ Representative and arising out of or in connection with the acceptance or administration of his duties hereunder, including any out-of-pocket costs and expenses and legal fees and other legal costs reasonably incurred by the Shareholders’ Representative.

 

Section 7. Miscellaneous.

 

(a) Notices.  All notices, requests, demands and other communications to any Party or given under this Agreement shall be in writing and delivered personally, by overnight delivery or courier, by e-mail, by registered mail or by telecopier (with confirmation received) to the Parties at the address, the e-mail address or telecopy number specified for such Parties below (or at such other address, e-mail address or telecopy number as may be specified by a Party in writing given at least five Business Days prior thereto).  All notices, requests, demands and other communications shall be deemed delivered when actually received:

 

  

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(i) If to the Company, at:

 

China BCT Pharmacy Group, Inc.

No 102, Chengzhan Road

Liuzhou City, Guangxi Province, PRC

China

Phone:  +86 772 3638318

Fax:      +86 772 3611763

Attn:      Mr. Hui Tian Tang, Chairman & CEO

e-mail:   huitian.tang@china-bct.com

with a copy by fax or messenger or courier or e-mail to:

 

McKenna Long & Aldridge LLP

303 Peachtree Street, NE, Suite 5300

Atlanta, GA  30308  USA

Phone:  (404) 527-4990

Fax:      (404) 527-4198 and (404) 527-8890

Attn:      Mr. Thomas Wardell, Esq.

e-mail:   twardell@mckennalong.com

 

(ii) If to the Shareholders, to the Shareholders’ Representative at:

 

Mr. Hui Tian Tang

China BCT Pharmacy Group, Inc.

No 102, Chengzhan Road

Liuzhou City, Guangxi Province, PRC

Phone:  +86 772 3638318

Fax:      +86 772 3611763

e-mail:   huitian.tang@china-bct.com

 

(iii) If to the Investor, at:

 

Milestone Longcheng Limited

318 Hu Nan Road

Shanghai 200031, PRC

Fax: (8621) 6437-9590

Attn: Ms. Yunli Lou

e-mail: yunli@mcmchina.com

With a copy by fax or messenger or courier or e-mail to:

Latham & Watkins

41St Floor, One Exchange Square

8 Connaught Place, Central

Hong Kong

Fax: +852.2522.7006

Attn: Mr. David T. Zhang, Esq.

e-mail:  david.zhang@lw.com

 

  

12

  

 

(iv)                 If to a Preferred Shareholder (other than the Investor), at such holder's last address as shown on the stock ledger of the Company.

(b) Counterparts.  This Agreement may be executed simultaneously in one or more counterparts, and by different Parties hereto in separate counterparts, each of which when executed shall be deemed an original, but all of which taken together shall constitute one and the same instrument.

 

(c) Modification or Amendment of Agreement.  This Agreement may not be modified or amended except by an instrument in writing signed by all of the Parties.

 

(d) Successors and Assigns.  This Agreement shall be binding upon and inures to the benefit of and is enforceable by the respective successors and permitted assigns of the Parties hereto.

 

(e) Governing Law.  This Agreement, and all claims, disputes and matters arising hereunder or thereunder or related hereto or thereto, shall be governed by, and construed in accordance with, the laws of the state of New York applicable to contracts executed in and to be performed entirely within that state, without reference to conflicts of laws provisions.

 

(f) Arbitration. Any dispute, controversy, claim or difference of any kind whatsoever arising out of, relating to or in connection with this Agreement, or the breach, termination or invalidity hereof (including the validity, scope and enforceability of this arbitration provision) (the “Dispute”) shall first be attempted to be resolved through discussions and consultations between the parties in good faith for a period of thirty (30) days after written notice has been sent by any Party to the other Party pursuant to the notice provisions set out in Section 7 (the “Consultation Period”).

 

(i) If the Dispute remains unresolved upon expiration of the Consultation Period, any Party may in its sole discretion elect to submit the matter to arbitration with notice to any other Party or Parties (the “Arbitration Notice”). The arbitration shall be conducted in Hong Kong and shall be administered by the Hong Kong International Arbitration Centre (the “HKIAC”) in accordance with the HKIAC Administered Arbitration Rules in force at the time of the commencement of the arbitration. However, if such rules are in conflict with the provisions of this Section 7(f), the provisions of this Section 7(f) shall prevail.

 

(ii) The language of the arbitration proceedings and written decisions or correspondence shall be in English.

 

(iii) The number of arbitrators shall be three. Each opposing party to a dispute shall be entitled to appoint one arbitrator, and the third arbitrator shall be jointly appointed by the disputing parties or, failing such agreement by thirty (30) days after the appointment by each party of its arbitrator, the HKIAC shall appoint the third arbitrator in accordance with the HKIAC Administered Arbitration Rules in force at the time of the commencement of the arbitration.

 

  

13

  

 

(iv) Any party to the Dispute shall be entitled to seek preliminary injunctive relief, if possible, from any court of competent jurisdiction pending the constitution of the arbitration tribunal.

 

(v) The arbitrators shall decide any Dispute submitted by the parties to the arbitration strictly in accordance with the substantive laws of New York and shall not apply any other substantive law.

 

(vi) The award of the arbitration tribunal shall be final and binding upon the disputing parties, and the prevailing party or parties may apply to a court of competent jurisdiction for enforcement of such award.

 

(g) Integration.  This Agreement, together with the Preferred Shares Purchase Agreement and the other Transaction Documents, contains and constitutes the entire agreement of the Parties with respect to the subject matter hereof and supersedes all prior negotiations, agreements and understandings, whether written or oral, of the Parties hereto.

 

(h) Severability.  If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any Party.  Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

 

(i) Ambiguities.  This Agreement was negotiated between legal counsel for the Parties and any ambiguity in this Agreement shall not be construed against the Party who drafted this Agreement.

 

(j) No Third-Party Rights.  This Agreement is not intended, and shall not be construed, to create any rights in any parties other than the Company, the Shareholders and the Investor, and no Person may assert any rights as third-party beneficiary hereunder.

 

(k) No Waiver; Remedies.  No failure or delay by any Party in exercising any right, power or privilege under this Agreement shall operate as a waiver of the right, power or privilege.  A single or partial exercise of any right, power or privilege shall not preclude any other or further exercise of the right, power or privilege or the exercise of any other right, power or privilege.

 

[SIGNATURE PAGE FOLLOWS]

 

  

14

  

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed and delivered by their duly authorized representatives as of the day and year first written above.

 

	
COMPANY:

	
CHINA BCT PHARMACY GROUP, INC.

 

 

By: /S/ TIAN HUI TANG                              

Name: TIAN HUI TANG

Title: CHIEF EXECUTIVE OFFICER

 

 

 

 

 

 

  

15

  

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed and delivered by their duly authorized representatives as of the day and year first written above.

	
 

SHAREHOLDERS:

	
 

XIAO YAN ZHANG

 

/S/ XIAO YAN ZHANG                               

 

 

HUITIAN TANG

 

/S/ HUITIAN TANG                                     

 

 

JIANG YOU RU

 

/S/ JIANG YOU RU                                       

 

 

LIU CHUN LIN

 

/S/ LIU CHUN LIN                                        

 

 

WEI WEN DE

 

/S/ WEI WEN DE                                          

 

 

WANG BANG FU

 

/S/ WANG BANG FU                                   

 

 

ZHAO MING AN

 

/S/ ZHAO MING AN                                    

 

 

 

 

  

16

  

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed and delivered by their duly authorized representatives as of the day and year first written above.

	
 

SHAREHOLDERS:

	
 

ZHANG QING QIU

 

/S/ ZHANG QING QIU                                  

 

 

YANG XIAO JIAN

 

/S/ YANG XIAO JIAN                                  

 

 

MENG YUAN GANG

 

/S/ MENG YUAN GANG                             

 

 

JIANG QI FENG

 

/S/ JIANG QI FENG                                      

 

 

HE WEN HENG

 

/S/ HE WEN HENG                                       

 

 

LIU GONG CHUN

 

/S/ LIU GONG CHUN                                   

 

 

JIA JUN WEN

 

/S/ JIA JUN WEN                                         

 

 

 

  

17

  

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed and delivered by their duly authorized representatives as of the day and year first written above.

	
 

SHAREHOLDERS:

	
 

TAN YU JING

 

/S/ TAN YU JING                                          

 

 

LI JING HUA

 

/S/ LI JING HUA                                            

 

 

YE YUAN JIAN

 

/S/ YE YUAN JIAN                                      

 

 

 

 

  

18

  

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed and delivered by their duly authorized representatives as of the day and year first written above.

	
INVESTOR:

	
MILESTONE LONGCHENG LIMITED

 

 

By: /S/ MILESTONE LONGCHENG LIMITED       

Name: MILESTONE LONGCHENG LIMITED

Title:

 

 

 

 

 

  

19

  

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed and delivered by their duly authorized representatives as of the day and year first written above.

	
SHAREHOLDERS’ REPRESENTATIVE:

	
Mr. Tian Hui Tang

(in his capacity as the Shareholders’ Representive)

 

 

 

/s/ Tian Hui Tang                                          

 

 

 

 

 

 

  

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SCHEDULE 1

 

LIST OF SHAREHOLDERS

 

	 	
Name

	 	
PRC ID/Passport number

	 	
Xiao Yang Zhang

	 	 
	 	
Hui Tian Tang(唐恢天)

	 	 
	 	
Jiang You Ru(江有如)

	 	 
	 	
Liu Chun Lin(刘春林)

	 	 
	 	
Wei Wen De(韦文德)

	 	 
	 	
Wang Bang Fu(王邦福)

	 	 
	 	
Zhao Ming An(赵明安)

	 	 
	 	
Zhang Qing Qiu(张庆秋)

	 	
 

	 	
Yang Xiao Jian(杨晓俭)

	 	
 

	 	
Meng Yuan Gang(蒙源钢)

	 	
 

	 	
Jiang Qi Feng(蒋旗峰)

	 	
 

	 	
He Wen Heng(何文亨)

	 	 
	 	
Liu Gong Chun(刘功纯)

	 	
 

	 	
Jia Jun Wen(贾俊文)

	 	
 

	 	
Tan Yu Jing(谭钰菁)

	 	
 

	 	
Li Jing Hua(李景华)

	 	
 

	 	
Ye Yuan Jian(叶远箭)

	 	
 

 

 

 

21

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