Document:

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (this “Agreement”) is made and entered into as of May 2, 2011, by and among World Surveillance Group Inc., a Delaware corporation (the “Company”), and the investors signatory hereto (each a “Purchaser” and collectively, the “Purchasers”).

This Agreement is made pursuant to the Securities Purchase Agreement, dated as of May 2, 2011, among the Company and the Purchasers (the “Purchase Agreement”).

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Purchasers agree as follows:

1. Definitions. Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the respective meanings set forth in this Section 1:

“Advice” shall have the meaning set forth in Section 7(c).

“Commission” means the United States Securities and Exchange Commission, or any successor entity or entities, including, if applicable, the staff of the Commission.

“Common Stock” means the common stock, par value $0.00001 per share, of the Company.

“Effectiveness Period” shall have the meaning set forth in Section 2(a).

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Filing Date” means: (a) with respect to the initial Registration Statement required to be filed to cover the resale by the Holders of the Registrable Securities, as promptly as reasonably practicable following the Closing but in no event later than July 1, 2011, and (b) with respect to any additional Registration Statements that may be required pursuant to Section 2 hereof, the 60th day following the date on which the Company first knows, or reasonably should have known, that such additional Registration Statement is required under such Section.

 

 “Holder” or “Holders” means the holder or holders, as the case may be, from time to time of Registrable Securities.

“Indemnified Party” shall have the meaning set forth in Section 6(c).

 

“Indemnifying Party” shall have the meaning set forth in Section 6(c).

 

  

  

  

 

“Initial Registration Statement” shall mean the initial Registration Statement required to be filed to cover the resale by the Holders of the Registrable Securities pursuant to Section 2(a).

“Losses” shall have the meaning set forth in Section 6(a).

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Prospectus” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A or Rule 430B promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

“Reduction Securities” shall have the meaning set forth in Section 2(b).

“Registrable Securities” means (i) the Shares issued pursuant to the Purchase Agreement and (ii) any other shares of Common Stock issued as (or issuable upon conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, in exchange for or in replacement of the Shares; provided, that the securities referred to in (i)-(ii) above shall cease to be Registrable Securities upon the sale of such securities pursuant to a Registration Statement or Rule 144 under the Securities Act.

 

“Registration Statement” means each of the following: (i) an initial registration statement which is required to register the resale of the Registrable Securities and (ii) each additional registration statement, if any, contemplated by Section 2, and including, in each case, the Prospectus, amendments and supplements to each such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

 

  

  

  

 

“Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Securities Act” means the Securities Act of 1933, as amended.

“Shares” shall have the meaning set forth in the Purchase Agreement.

“Trading Day” shall have the meaning set forth in the Purchase Agreement.

“Trading Market” shall have the meaning set forth in the Purchase Agreement.

 “Transaction Documents” shall have the meaning set forth in the Purchase Agreement.

2. Registration.

(a) On or prior to each Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of all Registrable Securities not already covered by an existing and effective Registration Statement to be made on a continuous basis pursuant to Rule 415. The Registration Statement shall be on Form S-1 (or such other appropriate form as shall be available to the Company for such purpose) and shall contain (except if otherwise required pursuant to written comments received from the Commission upon a review of such Registration Statement) the “Plan of Distribution” in substantially the form attached hereto as Annex A. The Company shall use its commercially reasonable efforts to cause each Registration Statement to be declared effective under the Securities Act as soon as reasonably possible, and shall, subject Section 7(c) hereof, use its commercially reasonable efforts to keep the Registration Statement continuously effective under the Securities Act until the earlier of (i) the date that is one year after the Closing Date and (ii) the date on which all securities under such Registration Statement have ceased to be Registrable Securities (the “Effectiveness Period”), so long as the Company has not been advised by the SEC that it is unable to register the Registrable Shares for resale under Rule 415. Notwithstanding the foregoing, the Company shall be entitled to suspend the effectiveness of the Registration Statement at any time prior to the expiration of the Effectiveness Period for up to an aggregate of 60 consecutive Trading Days or an aggregate of 90 Trading Days (which need not be consecutive) in any given 360-day period.  It is agreed and understood that the Company may, from time to time, be obligated to file one or more additional Registration Statements to cover any Registrable Securities that are not registered for resale pursuant to a pre-existing Registration Statement.

 

  

  

  

 

(b) Notwithstanding anything contained herein to the contrary, in the event that the Commission limits the amount of Registrable Securities that may be included and sold by Holders in any Registration Statement, including the Initial Registration Statement, pursuant to Rule 415 or any other basis, the Company may reduce the number of Registrable Securities included in such Registration Statement on behalf of the Holders in whole or in part (in case of an exclusion as to a portion of such Registrable Securities, such portion shall be allocated pro rata among such Holders in proportion to the respective numbers of Registrable Securities represented by Shares requested to be registered by each such Holder over the total amount of Registrable Securities represented by Shares (such Registrable Securities, the “Reduction Securities”)). In such event the Company shall give the Holders prompt notice of the number of such Reduction Securities excluded and the Company will not be liable for any damages under this Agreement in connection with the exclusion of such Reduction Securities. The Company shall use its commercially reasonable efforts at the first opportunity that is permitted by the Commission to register for resale the Reduction Securities. Such new Registration Statement shall be on Form S-1 (or such other appropriate form as shall be available to the Company for such purpose) and shall contain (except if otherwise required pursuant to written comments received from the Commission upon a review of such Registration Statement) the “Plan of Distribution” in substantially the form attached hereto as Annex A. The Company shall use its commercially reasonable efforts to cause each such Registration Statement to be declared effective under the Securities Act as soon as reasonably possible, and shall use its commercially reasonable efforts to keep such Registration Statement continuously effective under the Securities Act during the entire Effectiveness Period, subject to Section 7(c) hereof. Notwithstanding the foregoing, the Company shall be entitled to suspend the effectiveness of such Registration Statement at any time prior to the expiration of the Effectiveness Period for an aggregate of no more than 60 consecutive Trading Days or an aggregate of 90 Trading Days (which need not be consecutive) in any given 360-day period.

 

3. Registration Procedures

In connection with the Company’s registration obligations hereunder, the Company shall:

(a) So long as the Company is able to register the Registrable Shares for resale under Rule 415, the Company shall (i) Prepare and file with the Commission such amendments, including post-effective amendments, to each Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement continuously effective as to the applicable Registrable Securities for its Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to each Registration Statement or any amendment thereto and, as promptly as reasonably possible provide the Holders true and complete copies of all correspondence from and to the Commission relating to such Registration Statement that pertains to the Holders as Selling Stockholders but not any comments that would result in the disclosure to the Holders of material and non-public information concerning the Company; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the Registration Statements and the disposition of all Registrable Securities covered by each Registration Statement.

 

  

  

  

 

(b) Notify the Holders as promptly as reasonably possible: (i)(A) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement (in which case the Company shall provide true and complete copies thereof and all written responses thereto to each of the Holders that pertain to the Holders as a Selling Stockholder or to the Plan of Distribution, but not information which the Company believes would constitute material and non-public information); and (B) with respect to each Registration Statement or any post-effective amendment, when the same has been declared effective; (ii) of any request by the Commission or any other Federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information that pertains to the Holders as Selling Stockholders or the Plan of Distribution; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; (v) of the occurrence of any event or passage of time that makes the financial statements included or incorporated by reference in a Registration Statement ineligible for inclusion or incorporation by reference therein or any statement made in such Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to such Registration Statement, Prospectus or other documents so that, in the case of such Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and (vi) of the occurrence or existence of any pending corporate development with respect to the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the best interest of the Company to allow continued availability of a Registration Statement or Prospectus; provided, that any and all of such information shall remain confidential to each Holder until such information otherwise becomes public, unless disclosure by a Holder is required by law.

(c) Use its commercially reasonable efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.

 

  

  

  

 

(d) Furnish to each Holder, without charge, at least one conformed copy of each Registration Statement and each amendment thereto and all exhibits to the extent reasonably requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission; provided, that the Company shall have no obligation to provide any document pursuant to this clause that is available on the EDGAR system.

(e) Promptly deliver to each Holder, without charge, as many copies of each Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons may reasonably request. Subject to Section 7(c) hereof, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto.

 

(f) Prior to any public offering of Registrable Securities, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of those jurisdictions within the United States as any Holder reasonably requests in writing to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the Registration Statements; provided, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any tax in any such jurisdiction where it is not then so subject, file a general consent to service of process in any jurisdiction, provide any undertakings that cause the Company undue expense or burden, or make any change in its Certificate of Incorporation of By-laws.

(g) Cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to the Registration Statements, which certificates shall be free, to the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holders may request.

(h) Upon the occurrence of any event contemplated by Section 3(b)(v), as promptly as reasonably possible, prepare a supplement or amendment, including a post-effective amendment, to the affected Registration Statements or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, no Registration Statement nor any Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

 

  

  

  

 

(i) The Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holder and any Affiliate thereof, the natural persons thereof that have voting and dispositive control over the shares and any other information with respect to such Holder as the Commission requests.

4. Holder’s Obligations. Each Holder agrees, by acquisition of the Registrable Securities, that no Holder shall be entitled to sell any of such Registrable Securities pursuant to a Registration Statement or to receive a Prospectus relating thereto, unless such Holder has furnished the Company with the information set forth in the Purchaser Questionnaire and Selling Stockholder Questionnaire pursuant to the Purchase Agreement and has executed all documents in connection with the registration as the Company may reasonably request. Any sale of any Registrable Securities by any Holder shall constitute a representation and warranty by such Holder that the information relating to such Holder is as set forth in the Prospectus delivered by such Holder in connection with such disposition, that such Prospectus does not as of the time of such sale contain any untrue statement of a material fact relating to or provided by such Holder and that such Prospectus does not as of the time of such sale omit to state any material fact relating to or provided by such Holder necessary to make the statements in such Prospectus, in the light of the circumstances under which they were made, not misleading.

 

5. Registration Expenses. All fees and expenses incident to the Company’s performance of or compliance with its obligations under this Agreement (excluding any underwriting discounts and selling commissions and all legal fees and expenses of legal counsel for any Holder) shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with the Trading Market on which the Common Stock is then listed for trading, and (B) in compliance with applicable state securities or Blue Sky laws), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is reasonably requested by the holders of two thirds (2/3) of the Registrable Securities included in the Registration Statement), (iii) messenger, telephone and delivery expenses, (iv) reasonable fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) reasonable fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. In no event shall the Company be responsible for any broker or similar commissions of any Holder or any legal fees or other costs of the Holders.

 

  

  

  

 

6. Indemnification.

(a) Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, agents, partners, members, and employees of each Holder, and each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act), to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable costs of preparation and reasonable attorneys’ fees) and expenses (collectively, “Losses”), arising out of or relating to any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A hereto for this purpose), or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except to the extent that (1) such untrue statements, alleged untrue statements, omissions or alleged omissions are based upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved by such Holder expressly for use in the Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A hereto for this purpose) or (2) the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of an Advice (as defined below) or an amended or supplemented Prospectus, but only if and to the extent that following the receipt of the Advice or the amended or supplemented Prospectus the misstatement or omission giving rise to such Loss would have been corrected. The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding of which the Company is aware in connection with the transactions contemplated by this Agreement.

 

  

  

  

 

(b) Indemnification by Holders. Each Holder shall, notwithstanding any termination of this Agreement, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the other stockholders selling securities pursuant to the Registration Statement or any of its directors, officers of persons who control such stockholder, to the fullest extent permitted by applicable law, from and against all Losses arising out of or relating to: (x) for so long as the prospectus delivery requirements of the Securities Act apply to sales by such Holder, such Holder’s failure to comply with the prospectus delivery requirements of the Securities Act or (y) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus, or any form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except to the extent that (1) such untrue statements, alleged untrue statements, omissions or alleged omissions are based upon or relate to information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved by such Holder expressly for use in the Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A hereto for this purpose) or (2)  the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of an Advice or an amended or supplemented Prospectus, but only if and to the extent that following the receipt of the Advice or the amended or supplemented Prospectus the misstatement or omission giving rise to such Loss would have been corrected. In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.  Such indemnification shall remain in full force and effect regardless of any transfer of the Registrable Shares by the Purchaser or any Holder.

(c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party.

An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Party); provided, that the Indemnifying Party shall not be liable for the fees and expenses of more than one separate firm of attorneys at any time for all Indemnified Parties pursuant to this Section 6(c). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.

 

  

  

  

 

(d) Contribution. If a claim for indemnification under Section 6(a) or 6(b) is unavailable to an Indemnified Party (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations; provided, no contribution shall be made under circumstances where the party would not have been lible for indemnification under the fault standards set forth in Sections 6(a) and (b). The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 6(c), any reasonable attorneys’ or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 6(d), no Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

 

  

  

  

 

7. Miscellaneous.

(a) Remedies. In the event of a breach by the Company or by a Holder, of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agree that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.

(b) Compliance. Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement.

(c) Discontinued Disposition. Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(b), such Holder will immediately discontinue disposition of such Registrable Securities under the Registration Statement until such Holder’s receipt of the copies of the supplemented Prospectus and/or amended Registration Statement or until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. The Company may provide appropriate stop orders to enforce the provisions of this paragraph.

(d) Furnishing of Information. Each Holder shall furnish in writing to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it, as shall be reasonably requested by the Company to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request.

(e) Piggy-Back Registrations. If at any time during the Effectiveness Period, except as contemplated by Section 2(b) hereof, there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with the stock option or other employee benefit plans, then the Company shall send to each Holder a written notice of such determination and, if within 10 days after the date of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such Holder requests to be registered; provided, however, that the Company shall not be required to register any Registrable Securities pursuant to this Section 7(e) that are eligible for resale pursuant to Rule 144 promulgated under the Securities Act without volume limitation or that are the subject of a then effective Registration Statement.

  

  

  

 

(f) Amendments and Waivers. No provision of this Agreement may be waived or amended except in a written instrument signed by the Company and the Holder or Holders (as applicable) of no less than a majority in interest of the then outstanding Registrable Securities. The Company shall provide prior notice to all Holders of any proposed waiver or amendment. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right.

(g) Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be sent by confirmed facsimile or electronic mail, or mailed by first-class registered or certified airmail, or nationally recognized overnight express courier, postage prepaid, and shall be deemed given when so sent in the case of facsimile or electronic mail transmission, or when so received in the case of mail or courier, and addressed as follows:

 

	
If to the Company:

	
 

(if by hand or courier delivery)

World Surveillance Group Inc.

State Road 405, Building M6-306A

Room 1400

Kennedy Space Center, FL 32815

 

(if by mail delivery)

World Surveillance Group Inc.

Mail Code: SWC

Kennedy Space Center, FL 32899

 

	
Attention: Barbara M. Johnson

	
    Vice President and General Counsel

Fax: 321-452-8965

Email: bjohnson@wsgi.com

	  
	
If to a Purchaser:

	
 

To the address set forth under such

Purchaser’s name on the signature pages

of the Purchase Agreement

 

  

  

  

 

	
If to any other Person who is then a 

registered Holder:

	  
	
To the address of such Holder as it appears

in the stock transfer books of the Company

 

or such other address as may be designated in writing hereafter, in the same manner, by such Person.

(i) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. Each Holder may assign its respective rights hereunder in the manner and to the Persons as permitted under the Purchase Agreement.

 

 (j) Execution and Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by .pdf or facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

(k) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in Brevard County, Florida. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in Brevard County, Florida for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

 

  

  

  

 

(l) Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any remedies provided by law.

(m) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

(n) Use of Terms. The parties agree and acknowledge that when, in this Agreement, the Company is required to use its commercially reasonable efforts to perform any covenant under this Agreement, such requirement shall not obligate the Company, in the reasonable judgment of the disinterested members of its Board of Directors, to perform any act that will have a material adverse effect on the Company.

 

(o) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

(p) Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser hereunder is several and not joint with the obligations of any other Purchaser hereunder, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser hereunder. The decision of each Purchaser to purchase Securities pursuant to the Transaction Documents has been made independently of any other Purchaser. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert with respect to such obligations or the transactions contemplated by this Agreement. Each Purchaser acknowledges that no other Purchaser has acted as agent for such Purchaser in connection with making its investment under the Purchase Agreement and that no Purchaser will be acting as agent of such Purchaser in connection with monitoring its investment in the Shares or enforcing its rights under the Transaction Documents. Each Purchaser shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. 

 

[Remainder of Page Intentionally Left Blank]

 

  

  

  

 

IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be duly executed by their authorized signatories as of the date first written above.

	
WORLD SURVEILLANCE GROUP INC.

	  	  
	
By:

	
/s/ Glenn D. Estrella

	
Name:

	
Glenn D. Estrella

	
Title:

	
President and Chief Executive Officer

 

  

  

  

 

IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be duly executed by their authorized signatories as of the date first written above.

 

	
PURCHASER NAME:

	  	  
	
By:

	  
	  	  
	
Name:

	  
	  	  
	
Title:

	  

 

  

  

  

 

ANNEX A

PLAN OF DISTRIBUTION

The selling stockholders and any of their pledgees, donees, transferees, assignees or other successors-in-interest may, from time to time, sell, transfer or otherwise dispose of any or all of their shares of common stock or interests in shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices. Each selling stockholder will act independently in making decisions with respect to the timing, size and manner of each sale of shares of common stock covered by this prospectus.  The selling stockholders may use one or more of the following methods when disposing of the shares or interests therein:

 

	
  

	
•

	
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

	
  

	
•

	
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

	
  

	
•

	
through brokers, dealers or underwriters that may act solely as agents;

	
  

	
•

	
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

	
  

	
•

	
an exchange distribution in accordance with the rules of the applicable exchange;

	
  

	
•

	
privately negotiated transactions;

	
  

	
•

	
short sales;

	
  

	
•

	
through the writing or settlement of options or other hedging transactions entered into after the effective date of the registration statement of which this prospectus is a part, whether through an options exchange or otherwise;

	
  

	
•

	
broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;

	
  

	
•

	
a combination of any such methods of disposition; and

	
  

	
•

	
any other method permitted pursuant to applicable law.

The selling stockholders may also sell shares under Rule 144 under the Securities Act of 1933, as amended,  if available, rather than under this prospectus.

 

  

  

  

 

Broker-dealers engaged by the selling stockholders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.

The selling stockholders may from time to time pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell shares of common stock from time to time under this prospectus, or under a supplement or amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.

Upon being notified in writing by a selling stockholder that any material arrangement has been entered into with a broker-dealer for the sale of common stock through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, we will file a supplement to this prospectus, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of each such selling stockholder and of the participating broker-dealer(s), (ii) the number of shares involved, (iii) the price at which such shares of common stock were sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, and (vi) other facts material to the transaction. In addition, upon being notified in writing by a selling stockholder that a donee or pledge intends to sell more than 500 shares of common stock, we will file a supplement to this prospectus if then required in accordance with applicable securities law.

The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

In connection with the sale of the shares of common stock or interests in shares of common stock, the selling stockholders may enter into hedging transactions after the effective date of the registration statement of which this prospectus is a part with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of common stock short after the effective date of the registration statement of which this prospectus is a part and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions after the effective date of the registration statement of which this prospectus is a part with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

 

  

  

  

 

The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. The maximum commission or discount to be received by any member of the Financial Industry Regulatory Authority (FINRA) or independent broker-dealer will not be greater than 15% of the initial gross proceeds from the sale of any security being sold.

We have advised the selling stockholders that they are required to comply with Regulation M promulgated under the Securities and Exchange Act during such time as they may be engaged in a distribution of the shares. The foregoing may affect the marketability of the common stock.

The aggregate proceeds to the selling securityholders from the sale of the common stock offered by them will be the purchase price of the common stock less discounts or commissions, if any. Each of the selling securityholders reserves the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly or through agents. We will not receive any of the proceeds from this offering.

We are required to pay all fees and expenses incident to the registration of the shares. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act or otherwise.

We have agreed with the selling stockholders to keep the registration statement of which this prospectus constitutes a part effective until the earlier of (a) such time as all of the shares covered by this prospectus have been disposed of pursuant to and in accordance with the registration statement or (b) the date on which the shares of common stock covered by this prospectus may be sold by non-affiliates without any volume limitations pursuant to Rule 144 of the Securities Act.Loan Number: HHHT(2011)LDZJ0010

Working Capital Loan Contract

(Summary Translation)

China Everbright Bank

  

1

  

Table of Contents

	
Article I

	
Generals

	
4

	
Article II

	
Purpose of the Loan

	
4

	
Article III

	
Currency, Amount, Term and Disbursement of the Loan

	
4

	
Article IV

	
Interest of the Loan and Calculation Method

	
4

	
Article V

	
Release and Use of the Loan

	
5

	
Article VI

	
Repayment of the Loan

	
6

	
Article VII

	
Guarantee

	
7

	
Article VIII

	
Assumption of Fees and Reimbursement

	
7

	
Article IX

	
The Borrower’s Representations, Warranties and Promises

	
7

	
Article X

	
Events of Breach

	
9

	
Article XI

	
Others

	
11

	
Article XII

	
Governing Law and Resolution of Dispute

	
12

	
Article XIII

	
Effectuation, Revision and Dissolution of the Contract

	
12

	
Article XIV

	
Attachments

	
12

	
Article XV

	
Supplemental Provisions

	
12

  

2

  

	
Borrower:

	
Inner Mongolia Yongye Nongfeng Biotech Co., Ltd.

	
Address:

	
Yongye Industrial Park, Jinshan Boulevard,

	  	
Jinshan Development Zone, Hohhot

	
Postal Code:

	
010050

	
Legal Representative:

	
WU Zishen

	
Authorized Agent:

	  
	
Processing Person:

	  
	
Telephone:

	  
	
Fax:

	  
	
Account Bank:

	
China Everbright Bank Holdings. Co., Ltd., Hohhot Branch

	
Account Number:

	
50120188000016391

	  	  
	
Lender:

	
China Everbright Bank Holdings. Co., Ltd., Hohhot Branch

	
Address:

	
78 Xinhua Road East, Saihan District, Hohhot

	
Postal Code:

	
010020

	
Legal Representative:

	
ZHANG Ling

	
Authorized Agent:

	
HUANG Zhangren

	
Processing Person:

	
YUN Jiaqi

	
Telephone:

	
0471-4955854

	
Fax:

	
0471-4955894

  

3

  

 

Article I  Generals

Because of the need of business operations,  the Borrower applies to the Lending Bank for a loan, and the Lending Bank, upon review, agrees to issue a loan to the Borrower on the terms and conditions set forth in this contract.

Now, pursuant to the relevant law and the policies of the regulatory authorities of our country, the two parties, after reaching consensus through consultation, have reached the agreement on the following provisions, which are to be adhered to by both parties.

 

Article II  Purpose of the Loan

1.           The two parties agree that:

1.1         The loan amount hereunder is to be used as revolving liquid capital, for the specific purpose of ___________.

1.2         The Borrower shall not change the purpose of the loan specified herein without prior written consent from the Lending Bank.

 

Article III  Currency, Amount, Term and Disbursement of the Loan

2.           The currency of the loan hereunder is Renminbi and the amount is 52,500,000.00

3.           The term of the loan hereunder is from April 2, 2011 to April 1, 2012

4.           Upon complete satisfaction of the preconditions set forth in Section 11 below, the Lending Bank must disburse the loan amount in one sum in full and have it deposited into the Borrower's account established with the Lending Bank on April 2, 2011.

 

Article IV  Interest of the Loan and Calculation Method

5.           The Borrower must make interest payments on the loan amount to the Lending Bank in accordance with the provisions herein.  The interest rate of the loan hereunder is fixed annual rate of 7.878%.

6.           The two parties agree that, in the event that the People's Bank of China adjusts loan base rate or the calculation method thereof and the said loan base rate is applicable to the loan hereunder, the Lending Bank has the right to determine the contract's new loan interest rate on the basis of the said adjusted loan base rate or the calculation method.  The Lending Bank shall not be required to obtain prior consent from the Borrower before making such adjustment and shall have the right to assess interest according to the adjusted loan rate or calculation method.

  

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7.           The interest on the loan hereunder is settled quarterly and the settlement date is the 20th of the last month of each quarter.

8.           The loan interest calculation hereunder is based on 360 days a year, starting on the date when the loan is disbursed.

9.           If the Borrower fails to repay the loan in accordance with the provisions herein, the Lending Bank shall have the right to charge past-due penalty rate; the past-due penalty rate is 50% of the loan interest rate specified in Section 5 herein in addition to the said loan interest rate starting from the past-due date, until the loan principal and interest are repaid in full.

If the Borrower uses the loan for any purpose other than that specified herein, the Lending Bank shall have the right to charge loan misappropriation penalty rate; misappropriation penalty rate is 100% of the loan interest rate specified in Section 5 herein in addition to the said loan interest rate starting from the date when the loan is misappropriated, until the loan principal and interest are repaid in full.

10.         If the Borrower fails to make interest payment on time, the Lending Bank shall have the right to assess compound interest at the penalty rate.

 

Article V  Release and Use of the Loan

11.         The Lending Bank shall have no obligation to provide the loan hereunder to the Borrower unless the following preconditions are satisfied:

11.1       The Borrower has provided all the documents requested by the Lending Bank;

11.2       The Borrower has filled all the forms and notes required for the withdrawal of the loan; such forms and notes are the component part of this contract and have the same legal effect;

11.3       The Borrower has obtained all the government permits, licenses and registrations in accordance with the relevant law and statutes;

11.4       If the loan hereunder is guaranteed, the Borrower has processed all the certification and registration of, and obtained the insurance on, the security properties provided as guarantee and such certification, registration and insurance remain effective and valid;

11.5       The Borrower has committed no acts of breach specified herein;

Upon satisfaction of the above preconditions, the Lending Bank will arrange the disbursement of the loan in accordance with Section 4 herein and have the loan amount deposited into the Borrower's bank account.

  

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12.         The loan payment methods hereunder are entrusted payment by the Lending Bank and the payment by the Borrower at its own discretion.

13.         The Borrower agrees that the Lending Bank shall have the right to use the entrusted payment method in accordance with the relevant State law and policies of regulatory authorities if:

13.1       The loan relationship with the Borrower is new and the Borrower's credit is just average;

13.2       The recipient of the payment is very clear and the amount of single loan payment is large;

13.3       Other situations that the Lending Bank deems appropriate.

The Borrower agrees that the starting amount of single payment under the entrusted payment method is RMB 30,000,000.00.

14.         If the method of payment by the Borrower at its own discretion is used, the Borrower must submit loan fund payment plan to the Lending Bank for approval.

15.         During the course of paying the loan amount, if the Borrower experiences any of the following, the Lending Bank shall have the right to discuss with the Borrower to supplement the conditions for loan release and payment or change the loan payment method or even suspend the release and payment of the loan amount: (a) the credit situation of the Borrower deteriorates, (b) the Borrower’s profit-making ability is weak, and (c) there is abnormalities in the use of the loan funds.

The Lending Bank has the right to request that the Borrower provide records and documentation on the use of the loan funds.  If the Lending Bank finds that the Borrower fails to use the loan for the purpose specified or has other acts in violation of the provisions herein, the Lending Bank shall have the right to declare the loan due in advance and pursue the Borrower for the corresponding liability for breach, including but not limited to restricting or suspending the payment of the loan funds.

 

Article VI  Repayment of the Loan

16.         The Borrower must make interest payments in accordance with the provisions herein and repay the principal in full and in one lump sum on April 1, 2012.

17.         The Borrower must ensure that there is sufficient amount in the account set up with the Lending Bank on the interest settlement dates or on the loan principal repayment date to repay interest, loan principal and other fees and must authorize the Lending Bank to deduct automatically from that account on the said dates.

  

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18.         The Borrower must repay the loan principal in full and on time to the Lending Bank.  If the Borrower fails to repay the loan principal or to make interest payment on time, the Lending Bank shall have the right to deduct the corresponding amounts, in the order of fees payable, loan interest and compound interest and loan principal, from any accounts set up with the Lending Bank or within the banking system of the Lending Bank’s branch organizations.

19.         If the Borrower desires to repay the loan ahead of the schedule, the Borrower must submit an application to the Lending Bank 30 business days in advance for approval.

20.         If the Borrower is unable to repay the loan hereunder on time and desires to extend the term of the loan, the Borrower must submit an application for extension in writing to the Lending Bank.  Upon the Lending Bank’s approval, the two parties must execute a loan extension contract as a supplement hereto.

 

Article  VII Guarantee

21.         The guarantee method for the loan hereunder is maximum natural person guarantee.  The guarantee is provided by WU Zishen and the guarantee is several liability guarantee (Guarantee Contract No. is HHHT(2011)ZGXRRBZ0010)

22.         The Lending Bank and the guarantor must enter into a guarantee contract and process necessary certification and registration of and insurance on the security property.

23.         If the term of the loan is extended, the Borrower and the guarantor must continue to bear responsibility to provide guarantee for the loan during the extended term.

 

Article VIII Assumption of Fees and Reimbursement

24.         The Borrower must bear all the fees paid by the Lending Bank in connection with this contract and the corresponding guarantee contract, including but not limited to fees for legal service, accounting service, audits, insurance, certification, appraisal and evaluation and registration.

25.         Upon request by the Lending Bank, the Borrower must immediately reimburse the Lending Bank in full for all the fees incurred by the Lending Bank in exercising its rights hereunder, including but not limited to litigation expenses, attorney fees, travel and lodging expenses and other fees.

 

Article IX The Borrower’s Representations, Warranties and Promises

26.         The Borrower is a valid and existing legal person entity incorporated in accordance with the PRC law, has the ability to conduct independent civil activities and has the full power, authorization and assets to bear civil responsibilities and conduct business activities.

  

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27.         The Borrower has the full power and authorization to execute this contract and conduct the transactions hereunder and has taken all actions necessary for the execution and performance of this contract.

28.         The Borrower has obtained all the government approval and third party consent required for the execution of this contract and the execution and performance of this contract will not violate any of the Borrower’s incorporation documents or any other contracts to which  the Borrower is a party.

29.         All the documents, material and certificates provided by the Borrower in connection with the execution of this contract and the transaction hereunder are authentic, complete, accurate and valid and the financial reports provided by the Borrower truthfully reflect the financial situation of the Borrower as of the time of the issuance of such reports.

30.         This contract is legally effective and is legally binding to the Borrower.

31.         The Borrower must set up an account with the Lending Bank according to the Lending Bank’s requirements to be used as the settlement account for the loan hereunder.

32.         The Borrower has completed or will complete all the required registration, filing and certification procedures to ensure the validity, effectiveness and enforceability of this contract.

33.         The Borrower has no pending litigation, arbitration or administrative proceedings that will have a substantively adverse effect on the Borrower’s ability to perform its obligations hereunder.

34.         The Borrower’s representations, warranties and promises must remain true and accurate before the full repayment of the loan principal and interest and the Borrower will provide any relevant documents at the Lending Bank’s request.

35.         The Borrower has committed no act of breach.

36.         The Borrower has carefully read, and fully understands and accepts, the contents herein and the execution and performance of this contract is voluntary; the Borrower acknowledges that the intents expressed herein are the Borrower’s true intents.

37.         The Borrower has provided truthful, complete and effective documents according to the Lending Bank’s request.

  

8

  

38.         The Borrower promises to cooperate with the Lending Bank in the management of the loan payment, and in the management thereafter and the relevant examination.

39.         The Borrower must accept, and actively cooperate with, the Lending Bank’s investigation of, enquiries about and supervision on its production, operation and financial situation and has the obligation to provide, on the monthly basis, the balance sheet and profit/loss statement for the latest month or other documents that reflect the Borrower’s credit situation.

40.         During the effective period of the contract, the Borrower must notify the Lending Bank in writing 30 days in advance in the event of any changes in the name of the Borrower, its legal representative or its address.

41.         If, before the full repayment of the all the debt hereunder, the Borrower desires to engage in external investment or financing that will substantially increase its debts, or to undertake merger, spin-off, reduction of capital, transfer of equity, transfer of assets, filing for suspension of business for rectification, filing for dissolution or bankruptcy or any other actions sufficient to cause any changes to the creditor/debtor relationship hereunder or to affect the rights of the Lending Bank, the Borrower must notify the Lending Bank in writing 30 business days and obtain the Lending Bank’s written approval.  Otherwise, none of the transactions mentioned above can be conducted.

42.         The Borrower promises that, with the Lending Bank’s written approval, the Borrower will not assume, for any other enterprise legal person or individual, debt obligations, provide guarantee or establish pledges or liens on its assets that will affect the Borrower’s ability to repay the loan hereunder.

43.         If the Borrower experiences any other events, other than those mentioned above, that will adversely affect the Borrower’s ability to fulfill its repayment obligations, the Borrower must immediately notify the Lending Bank in writing.

44.         The Lending Bank has the right to demand that the Borrower set up a special account with the Lending Bank as the account for the return of the funds.

 

Article X Events of Breach

45.         Any of the following events constitutes an event of breach:

45.1       The Borrower fails to make interest payments or repay the loan principal in accordance with the provisions herein;

45.2       The Borrower fails to use the loan for the purpose specified herein;

45.3       The Borrower fails to pay loan funds according to the method specified;

45.4       The Borrower fails to reach the financial targets specified;

45.5       The Borrower commits any act of cross-breach;

  

9

  

45.6       The Borrower provides false balance sheet, profit/loss statements or other financial reports or withholds material facts therein, or refuses to accept the Lending Bank’s supervision over and examination of the Borrower’s use of the loan and its production operation and financial activities;

45.7       The representations, warranties or promises made herein by the Borrower or the guarantor, or those made by the guarantor made in the relevant guarantee contract, prove to be false or misleading;

45.8       The Borrower or the guarantor violates other contract to which the Borrower or the guarantor is a party;

45.9       The Borrower’s or the guarantor’s operation or financial situation materially deteriorates;

45.10     The value of the pledged or mortgaged property in connection with the loan hereunder decreases or such property is damaged or lost;

45.11     The Borrower or the guarantor fails to make arrangement to repay its debts to the satisfaction of the Lending Bank at the time of its merger, spin-off or reorganization of share structure.

45.12     The Borrower or the guarantor files bankruptcy, is dissolved or shut down, or its business permit is revoked, cancelled or voided;

45.13     The Borrower fails to notify the Lending Bank promptly of any major revision of its charter, any changes in its operation activities, major revision of its accounting principles, or any material changes in the financial, economic or other situation of the Borrower or of its subsidiaries or parent;

45.14     The Borrower is involved in any litigation, arbitration or administrative proceeding that will adversely affect its ability to fulfill its obligations hereunder;

45.15     The Borrower’s assets is frozen, seized, withheld or put into receivership in accordance with the law and such that the Borrower’s performance of its obligations hereunder has been or will be materially affected;

45.16     The Borrower has violated any other provision herein and fails to take any remedial actions to the satisfaction of the Lending Bank;

45.17     Any other event or situation that will have a substantive adverse effect on the rights of the Lending Bank hereunder.

46.         The Lending Bank shall make determination as to whether any event of breach mentioned above has occurred and notify the Borrower.  Upon the occurrence of any of the events of breach, the Lending Bank shall have the right to take one or more of the measures below:

46.1       Suspend the disbursement of the loan amount hereunder;

46.2       Declare that the loan already released immediately due and demand that the Borrower repay the loan principal, interest and other fees immediately;

46.3       Demand that the Borrower provide additional pledge or lien or replace the guarantor;

46.4       Deduct directly any outstanding amount payable hereunder from the account established with the Lending Bank or any of the Lending Bank’s branches;

46.5       Declare the exercise of its rights under the guarantee contract for the loan;

46.6       Other measured deemed appropriate by the Lending Bank.

  

10

  

 

Article XI  Others

47.         During the effective period of this contract, the Lending Bank shall have the right to examine the Borrower’s use of the loan and the Borrower must provide explanation and documents to the Lending Bank at the Lending Bank’s request.

48.         Both parties hereto must maintain confidentiality on the debts, financial, production and operation situation and other information obtained for the purpose of executing and performing this contract from the other party; however, the situation of any inquiry on the Borrower’s situation in accordance with the law is excepted.

49.         Without prior consent from the Lending Bank, the Borrower shall not transfer or dispose of all or part of its obligations hereunder.

50.         The Lending Bank may transfer the creditor’s right hereunder to any third party without the need to obtain prior consent from the Borrower, provided, however, that the Borrower is notified in writing at the time of such transfer.

51.         The Borrower must pay all the amount due hereunder in full and shall not make offsets, deductions or withholdings of any nature or use any debt owed by the Lending Bank to the Borrower to offset any debt obligations.

52.         Any grace period, favorable treatment or extension granted by the Lending Bank to the Borrower shall not affect, damage or restrict any other rights to which the Lending Bank is entitled in accordance with the provisions herein and with the law and statutes, nor shall they be considered a waiver by the Lending Bank of its rights and interests hereunder or affect the Lending Bank's responsibilities and obligations hereunder.

53.         If, at any time, any of the provisions herein becomes illegal, invalid or unenforceable in any aspect, the legality, validity or enforceability of other provisions herein shall not be affected or diminished.

54.         Any revisions of or supplement to this contract must be in writing and be signed by both parties.

55.         The titles and headings herein are inserted for reference only.

56.         All notices or requests regarding this contract must be sent in writing to the addresses or fax numbers listed on the first page of this contract.  One party must notify the other party promptly of any changes of addresses or fax numbers.

  

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57.         The documents sent by one party to the other shall be considered delivered  if sent by courier, three days after its being sent if by registered mail, and immediately if by fax.

 

Article XII  Governing Law and Resolution of Dispute

58.         This contract is governed by the Chinese law and must be interpreted accordingly.  Any dispute in connection with this contract must be settled through consultation; if consultation fails, the dispute should be submitted to legal proceedings at the local court where the Lending Bank resides.

 

Article XIII  Effectuation, Revision and Dissolution of the Contract

59.         This contract must be signed by the representatives of both parties before it can become effective.

60.         No party can revise or dissolve this contract without authorization, unless otherwise stipulated or by law.  Any revision or dissolution must be agreed to by both parties in a signed written agreement.

 

Article XIV  Attachments

61.         Other matters not covered herein may be provided in a written agreement to be attached hereto.

 

Article XV Supplemental Provisions

62          This contract has to two copies, with one to each, and both have the same legal effect.

63.         This contract is executed on April 2, 2011 in Hohhot.

64.         The parties hereto agree that this contract must be certified (optional provision; not applicable to this contract.)

	
Borrower:

	
/seal/ Inner Mongolia Yongye Nongfeng Biotech Co., Ltd.

	
Legal Representative:

	
/s/ WU Zishen

	  	  
	
Lender:

	
/seal/ China Everbright Bank Holdings. Co., Ltd., Hohhot Branch

	
Authorized Agent:

	
/s/ HUANG Zhangren

  

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