Unassociated Document
Proxy
Statement Pursuant to Section 14(a) of the
Securities
Exchange Act of 1934
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Filed
by the Registrant:
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Filed
by a Party other than the Registrant:
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Check
the appropriate box:
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Preliminary
Proxy Statement
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Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material under Rule 14a-12
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China
Education Alliance, Inc.
(Name
of
Registrant as Specified In Its Charter)
N.A.
(Name
of
Person(s) Filing Proxy Statement if other than the Registrant)
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Payment
of Filing Fee (Check the appropriate box):
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ý
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No
fee required.
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Item
22(a)(2) of Schedule 14A.
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
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(1)
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Title
of each class of securities to which transaction
applies:
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(2)
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Aggregate
number of securities to which transaction applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant
to
Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is
calculated and state how it was determined):
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(4)
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Proposed
maximum aggregate value of transaction:
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(5)
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Total
fee paid:
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Fee
paid previously with preliminary materials.
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Check
box if any part of the fee is offset as provided by Exchange Act
Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid
previously. Identify the previous filing by registration statement
number,
or the Form or Schedule and the date of its filing.
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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration Statement No.:
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(3)
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Filing
Party:
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(4)
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Date
Filed:
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Harbin,
The People’s Republic of China 150090
NOTICE
OF SPECIAL MEETING OF STOCKHOLDERS
To
be held on September 27, 2007
NOTICE
IS
HEREBY GIVEN that a Special Meeting of Stockholders of China Education Alliance,
Inc. will be held at the offices of the Corporation, 58 Heng Shan Road, Kun
Lun Shopping Mall, Harbin, The People’s Republic of China 150090, on Thursday,
September 27, 2007, at 9:00 A.M. local time. At the meeting, you will be asked
to vote on:
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(1)
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An
amendment to our articles of incorporation;
and
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(2)
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The
transaction of such other and further business as may properly come
before
the meeting.
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The
board
of directors has fixed the close of business on September 4, 2007 as the record
date for the determination of stockholders entitled to notice of and to vote
at
the special meeting.
The
enclosed proxy statement contains information pertaining to the matters to
be
voted on at the special meeting. A copy of the Corporation’s Annual Report
on Form 10-KSB for the fiscal year ended December 31, 2006 and Quarterly Report
on Form 10-QSB for the quarter ended June 30, 2007 are being mailed with this
proxy statement.
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By
order of the Board of Directors
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Xiqun
Yu
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Chairman
of the Board of Directors
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Harbin,
The People’s Republic of China
September
4, 2007
WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE URGED TO COMPLETE, SIGN,
DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING PRE-ADDRESSED
POSTAGE-PAID ENVELOPE AS DESCRIBED ON THE ENCLOSED PROXY CARD. YOUR PROXY,
GIVEN
THROUGH THE RETURN OF THE ENCLOSED PROXY CARD, MAY BE REVOKED PRIOR TO ITS
EXERCISE BY FILING WITH OUR CORPORATE SECRETARY PRIOR TO THE MEETING A WRITTEN
NOTICE OF REVOCATION OR A DULY EXECUTED PROXY BEARING A LATER DATE, OR BY
ATTENDING THE MEETING AND VOTING IN PERSON.
CHINA
EDUCATION ALLIANCE, INC.
58 Heng
Shan Road, Kun Lun Shopping Mall
Harbin,
The People’s Republic of China 150090
PROXY
STATEMENT
Special
Meeting of Stockholders
To
be held on Thursday, September 27, 2007
The
accompanying proxy and this proxy statement have been prepared by our management
for the board of directors. Your proxy is being solicited by the board of
directors for use at our special meeting of stockholders to be held at the
offices of the Corporation, 58 Heng Shan Road, Kun Lun Shopping Mall,
Harbin, The People’s Republic of China 150090, on Thursday, September 27, 2007
at 9:00 A.M. or at any adjournment thereof. This proxy statement contains
information about the matters to be considered at the meeting or any
adjournments or postponements of the meeting and is first being mailed to
stockholders together with the related proxy, a copy of our annual report on
Form 10-KSB for the fiscal year ended December 31, 2006 and Quarterly Report
on
Form 10-QSB for the quarter ended June 30, 2007 are being mailed on or about
August *, 2007.
ABOUT
THE MEETING
What
is being considered at the meeting?
You
will
be voting for:
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An
amendment to our articles of incorporation;
and
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The
transaction of such other and further business as may properly come
before
the meeting.
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Who
is soliciting your proxy?
Your
proxy is being solicited by our board of directors.
Who
is entitled to vote at the meeting?
You
may
vote if you owned stock as of the close of business on September 4, 2007, which
is the record date for determining who is eligible to vote at the special
meeting. Each share of common stock is entitled to one vote.
How
do I vote?
You
can
vote either by attending the meeting and voting at the meeting or by completing,
signing and returning the enclosed proxy card.
Can
I change my mind after I vote?
Yes,
you
may change your mind at any time before the polls close at the meeting. You
can
change your vote by signing another proxy with a later date and returning it
to
us prior to the meeting or by voting again at the meeting. If your stock is
held
in a brokerage account, you must provide your broker with instructions as to
any
changes in the voting instructions which you previously provide to your
broker.
What
if I sign and return my proxy card but I do not include voting
instructions?
If
you
sign your proxy card and return it to us but you do not include voting
instructions as to any proposal, your proxy will be voted FOR the amendment
to
our articles of incorporation.
What
does it mean if I receive more than one proxy card?
It
means
that you have multiple accounts with brokers and/or our transfer agent. Please
vote all of these shares. We recommend that you contact your broker and/or
our
transfer agent to consolidate as many accounts as possible under the same name
and address. Our transfer agent is Florida Atlantic Stock Transfer, Inc., 7130
Nob Hill Road, Tamarac, FL 33321.
Will
my shares be voted if I do not provide my proxy?
If
you
hold your stock in a brokerage account, you must give your broker instructions
as to how you wish your shares to be voted on the amendment to our articles
of
incorporation. If you do not instruct your broker how to vote your shares,
your
shares will NOT be voted for or against the amendment to our articles of
incorporation. Your broker cannot vote in favor of or against the amendment
to
our articles of incorporation without your express instructions. Because the
approval of the amendment to our articles of incorporation requires the approval
of the holders of a majority of our outstanding shares of common stock, an
abstention or non-vote is equivalent to a vote against the
proposal.
If
you
hold your shares directly in your own name, they will not be voted if you
neither sign and deliver a proxy nor attend and vote at the
meeting.
How
many votes must be present to hold the meeting?
In
order
for us to conduct our meeting, we must have a quorum. We will have a quorum,
and
be able to conduct the meeting, if a majority of our outstanding shares as
of
September 4, 2007, are present at the meeting. Your shares will be counted
as
being present at the meeting if you attend the meeting or if you properly return
a proxy by mail or if you give your broker voting instructions and the broker
votes your shares.
On
September 4, 2007, we had 57,965,000 shares of common stock issued and
outstanding. This number of shares does not include treasury stock.
What
vote is required to approve the matters being brought before the
meeting?
The
proposal to approve an amendment to our articles of incorporation requires
the
approval of a majority of our outstanding shares of common stock. Based on
the
57,965,000 shares of common stock outstanding on the record date, we need the
affirmative vote of the holders of 28,982,501 shares of common stock. Mr. Xiqun
Yu, our chief executive officer, owns 38,050,000 shares of common stock,
representing 65.6% of the outstanding stock. Mr. Yu has agreed to vote in favor
of the amendment to our articles of incorporation.
Who
is paying the cost of the meeting?
The
proxies being solicited hereby are being solicited by our company. The company
will bear the entire cost of solicitation of proxies, including preparation,
assembly, printing and mailing of this Proxy Statement, the Proxy card and
any
additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of common stock beneficially owned
by
others to forward to such beneficial owners. Our officers and regular employees
may, but without compensation other than their regular compensation, solicit
proxies by further mailing or personal conversations, or by telephone, telex,
facsimile or electronic means. We will, upon request, reimburse brokerage firms
and others for their reasonable expenses in forwarding solicitation material
to
the beneficial owners of stock.
APPROVAL
OF AN AMENDMENT
TO OUR ARTICLES OF INCORPORATION
In
May
and June 2007, we sold 3% convertible notes in the aggregate principal amount
of
$3,400,000. The notes automatically convert into 9,189,189 shares of series
A
preferred stock and warrants to purchase an aggregate of 2,206,897 shares of
common stock at $.50 per share, 8,500,000 of common stock at $.69 per share,
2,043,103 shares of common stock at $.80 per share, warrants to purchase an
aggregate of 793,103 shares of common stock at $1.00 per share. Pursuant to
the
agreement with the investors in the private placement, we are required to amend
our articles of incorporation to provide for the creation of a class of
preferred stock, par value $.001 per share, consisting of 20,000,000 shares
with
the directors having the right to determine the rights, preferences, privileges
and limitation of the holders of one or more series of preferred stock, and
the
creation of a series of 20,000,000 shares of preferred stock to be designated
as
the series A preferred stock.
If
the
noteholders convert the notes before the certificate of amendment is filed
with
the Secretary of State of the State of North Carolina, the note can be converted
into 9,189,189 shares of common stock and warrants to purchase an aggregate
of
2,206,897 shares of common stock at $.50 per share, 8,500,000 of common stock
at
$.69 per share, 2,043,103 shares of common stock at $.80 per share, warrants
to
purchase an aggregate of 793,103 shares of common stock at $1.00 per
share.
If
the
certificate of amendment amending the articles of incorporation and the
certificate of designation setting forth the rights, preferences, privileges
and
limitation of the holders of the series A preferred stock are not filed by
September 30, 2007, the notes may be convertible into the 22,732,293 shares
of
common stock
The
certificate of amendment will be filed with the Secretary of State of the State
of North Carolina after the conclusion of the meeting, assuming that the holders
of a majority of our outstanding shares of common stock approve the amendment,
and the certificate of designation for the series A preferred stock will be
filed promptly after the meeting.
The
following discussion is a summary of the certificate of amendment, but this
summary is qualified in its entirety by reference to the full text of the
certificate of amendment, a copy of which is included as Appendix A to this
proxy statement.
We
are
presently authorized to only issue shares of common stock, par value $.001
per
share, and we are not authorized to issue any preferred stock. The certificate
of amendment provides for an authorized capital stock of 170,000,000 shares,
of
which 20,000,000 shares are shares of preferred stock, par value $.001 per
share, and 150,000,000 shares are shares of common stock, par value $.001 per
share. Our board of directors has broad rights to set the rights, preferences,
privileges, limitation and restrictions for one or more series of preferred
stock, including the following:
(i)
the designation of such series;
(ii)
the dividend rate of such series, the conditions and dates upon which
such dividends shall be payable, the preference or relation which such dividends
shall bear to the dividends payable on any other class or classes or of any
other series of capital stock, whether such dividends shall be cumulative or
non-cumulative, and whether such dividends may be paid in shares of any class
or
series of capital stock or other securities of the Corporation;
(iii)
whether the shares of such series shall be subject to redemption by the
Corporation, and, if made subject to such redemption, the times, prices and
other terms and conditions of such redemption;
(iv)
the terms and amount of any sinking fund provided for the purchase or
redemption of the shares of such series;
(v)
whether or not the shares of such series shall be convertible into or
exchangeable for shares of any other class or classes or series of capital
stock
or other securities of the Corporation, and, if provision be made for conversion
or exchange, the times, prices, rates, adjustment and other terms and conditions
of such conversion or exchange;
(vi)
the extent, if any, to which the holders of the shares of such series
shall be entitled to vote, as a class or otherwise, with respect to the election
of the directors or otherwise, and the number of votes to which the holder
of
each share of such series shall be entitled;
(vii)
the restrictions, if any, on the issue or reissue of any additional
shares or series of Preferred Stock; an
(viii)
the rights of the holders of the shares of such series upon the
dissolution of, or upon the distribution of assets of, the
Corporation.
The
certificate of amendment will also add the following provision to our articles
of incorporation.
“The
terms and conditions of any rights, options and warrants approved by the Board
of Directors may provide that any or all of such terms and conditions may not
be
waived or amended or may be waived or amended only with the consent of the
holders of a designated percentage of a designated class or classes of capital
stock of the Corporation (or a designated group or groups of holders within
such
class or classes, including but not limited to disinterested holders), and
the
applicable terms and conditions of any such rights, options or warrants so
conditioned may not be waived or amended or may not be waived or amended absent
such consent. ”
The
adoption of this provision is required by the preferred stock purchase agreement
dated May 8, 2007, as amended, between us and the investors in our private
placement. Pursuant to that agreement, we issued warrants to an aggregate of
13,543,103 shares of common stock. The warrants provide that, except in the
case
of a merger, the holders of the warrant may not exercise the warrants to the
extent that such exercise would result in the holder, together with the holder’s
affiliates, owning beneficially more than 4.9% of our outstanding stock. The
warrant provides that this provision may not be amended. Beneficial ownership
shall be determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended, and Regulation 13d-3 thereunder.
The
amendment gives us the authority to grant rights, warrants and options which
provide that they cannot be amended without the consent a specified percentage
of stockholders or classes or groups of stockholders, and such provisions would
be prohibit us from amending the rights, warrants and options unless the
requisite consent were obtained. With respect to the warrants that were issued
pursuant to the preferred stock purchase agreement, the amendment would prohibit
us from amending the warrants to remove the 4.9% limitation.
Pursuant
to the securities purchase agreement relating to our private placement in May
and June 2007, we agreed that we would create a series of preferred stock,
to be
designated as the series A convertible preferred stock. The following discussion
is a summary of the key provisions of the certificate of designation, but this
summary is qualified in its entirety by reference to the full text of the
certificate of designation, a copy of which is included as Appendix B to this
proxy statement. The certificate of designation provides:
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Each
share of series A preferred stock is initially convertible into one
share
of common stock without the payment of any additional consideration.
The
conversion ratio is subject to adjustment as described
below.
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If,
while investors in the private placement own shares of series A preferred
stock, we issue common stock at a price, or options, warrants or
other
convertible securities with a conversion or exercise price less than
the
conversion price (initially $.37), with certain specified exceptions,
the
number of shares issuable upon conversion of one share of series
A
preferred stock is adjusted to reflect a conversion price equal to
the
lower price.
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No
dividends are payable with respect to the series A preferred
stock.
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While
the series A preferred stock is outstanding, we may not pay dividends
on
or redeem shares of common stock.
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Upon
any voluntary or involuntary liquidation, dissolution or winding-up,
the
holders of the series A preferred stock are entitled to a preference
of
$.37 per share before any distributions or payments may be made with
respect to the common stock or any other class or series of capital
stock
which is junior to the series A preferred stock upon voluntary or
involuntary liquidation, dissolution or
winding-up.
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The
holders of the series A preferred stock have no voting rights. However,
as
long as any shares of series A preferred stock are outstanding, we
shall
not, without the affirmative approval of the holders of 75% of the
outstanding shares of series A preferred stock then outstanding,
(a) alter
or change adversely the powers, preferences or rights given to the
series
A preferred stock or alter the certificate of designation, (b) authorize
or create any class of stock ranking as to dividends or distribution
of
assets upon liquidation senior to or otherwise pari passu with the
series
A preferred stock, or any of preferred stock possessing greater voting
rights or the right to convert at a more favorable price than the
series A
preferred stock, (c) amend its certificate of incorporation or other
charter documents in breach of any of the provisions of the certificate
of
designation, (d) increase the authorized number of shares of series
A
preferred stock, or (e) enter into any agreement with respect to
the
foregoing.
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The
holders of the series A preferred stock may not convert the series
A
preferred stock to the extent that such conversion would result in
the
holders owning more than 4.9% of the outstanding Common Stock. This
limitation may not be amended or
waived.
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The
certificate of amendment will also effect a one-for three reverse split in
our
common stock. As a result of the reverse split, each share of common stock
becomes and is converted into one-third share of common stock, with stockholders
who would receive a fractional share to receive such additional fractional
share
as will result in the holder having a whole number of shares.
This
provision will effect a reverse stock pursuant
to which each three currently outstanding shares of Common Stock (the “Old
Shares”) would be automatically converted into one share of Common Stock (the
“New Shares”). The reverse stock split is intended to increase the per share
stock price. We believe that if we are successful in maintaining a higher stock
price, the stock will generate greater interest among professional investors
and
institutions. If we are successful in generating interest among such entities,
we anticipated that the shares of our common stock would have greater liquidity
and a stronger investor base. We can give no assurance that the market price
of
the New Shares will rise, if at all, in proportion to the ratio of the reverse
stock split. The New Shares issued pursuant to the reverse stock split will
be
fully paid and non-assessable. All New Shares will have the same par value,
voting rights and other rights as Old Shares. Our stockholders do not have
preemptive rights to acquire additional shares of common stock.
The
one
for three reverse stock split is being effectuated by reducing the number of
issued and outstanding shares at the ratio of three to one. As a result of
the
reverse split, the number of shares of common stock will decrease from
57,965,000 shares to approximately 19,321,666. Since additional fractional
shares are being issued in order to round up fractional shares, we do not know
the exact number of shares of common stock that will be outstanding after the
reverse split.
The
reverse stock split will not alter any shareholder's percentage interest in
our
equity, except to the extent that the reverse stock split results in any of
our
shareholders owning a fractional share, which will be rounded up to the next
higher whole number of shares..
In
addition, commencing with the effective date of the reverse stock split, all
outstanding options and warrants entitling the holders thereof to purchase
shares of our common stock will entitle the holders to receive, upon exercise
of
their options or warrants, 1/3 of the number of shares of the Company's common
stock which such holders may purchase upon exercise of their options or warrants
at an exercise price that is three times the exercise price prior to the reverse
split.
At
August
16, 2007, there were outstanding options and warrants to purchase 15,623,103
shares of common stock at exercise prices ranging from $1.00 to
$0.50.
As
a
result of the reverse split which we expect will become effective almost
contemporaneously with the filing of the certificate of amendment that effects
the reverse split, the notes will be automatically adjusted to give effect
to
the reverse split, as follows: The notes automatically convert into 9,189,189
shares of series A preferred stock and warrants to purchase an aggregate of
735,632 shares of common stock at $1.50 per share, 2,833,333 shares of common
stock at $2.07 per share, 681,034 shares of common stock at $2.60 per share,
warrants to purchase an aggregate of 264,368 shares of common stock at $3.00
per
share.
We
believe that the federal income tax consequences of the reverse stock split
to
holders of common stock will be as follows:
(i)
Except as explained in (v) below with respect to fractional shares, no income
gain or loss will be recognized by a shareholder on the surrender of the current
shares or receipt of the certificate representing new post-split shares.
(ii)
Except as explained in (v) below with respect to fractional shares, the tax
basis of the New Shares will equal the tax basis of the Old Shares exchanged
therefore.
(iii)
Except as explained in (v) below, the holding period of the New Shares will
include the holding period of the Old Shares if such Old Shares were held as
capital assets.
(iv)
The
conversion of the Old Shares into the New Shares will produce no taxable income
or gain or loss to us.
(v)
The
federal income tax treatment of the receipt of the additional fractional
interest by a shareholder is not clear and may result in tax liability not
material in amount in view of the low value of such fractional interest.
Our
opinion is not binding upon the Internal Revenue Service or the courts, and
there can be no assurance that the Internal Revenue Service or the courts will
accept the positions expressed above.
THE
ABOVE
REFRENCED IS A BRIEF SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION UPON
THE
PARTICIPANTS AND THE COMPANY WITH RESPECT TO THE REVERSE STOCK SPLIT. THIS
SUMMARY DOES NOT PURPORT TO BE COMPLETE AND DOES NOT ADDRESS THE FEDERAL INCOME
TAX CONSEQUENCES TO TAXPAYERS WITH SPECIAL TAX STATUS. IN ADDITION, THIS SUMMARY
DOES NOT DISCUSS THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY,
STATE OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE, AND DOES NOT
DISCUSS ESTATE, GIFT OR OTHER TAX CONSEQUENCES OTHER THAN INCOME TAX
CONSEQUENCES. THE COMPANY ADVISES EACH PARTICIPANT TO CONSULT HIS OR HER OWN
TAX
ADVISOR REGARDING THE TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT AND FOR
REFERENCE TO APPLICABLE PROVISIONS OF THE CODE.
Vote
Required
The
proposal to approve an amendment to the Company’s Articles of Incorporation,
requires the affirmative vote of a majority of the shares our outstanding share
of common stock.
The
board
of directors recommends a vote FOR
the
proposal.
The
following tables set forth the ownership, as of August 22, 2007, of our common
stock (a) by each person known by us to be the beneficial owner of more than
5%
of our outstanding common stock, and (b) by each of our directors, executive
officers and our officers and directors as a group. To the best of our
knowledge, all persons named have sole voting and investment power with respect
to such shares, except as otherwise noted.
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Name
and Address
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Number
of Shares
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Percent
of Total
Outstanding
Shares
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Xiqun
Yu (1)
58
Heng Shan Rd.
Kun
Lun Shopping Mall Harbin,
P.R.
China 150090
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38,050,000
(1)
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65.6%
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Guilan
Feng
58
Heng Shan Rd.
Kun
Lun Shopping Mall Harbin,
P.R.
China 150090
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4,000,000
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6.9%
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Chunqing
Wang
58
Heng Shan Rd.
Kun
Lun Shopping Mall Harbin,
P.R.
China 150090
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3,000
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*
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Yuhong
Yang
58
Heng Shan Rd.
Kun
Lun Shopping Mall Harbin,
P.R.
China 150090
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--
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--
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Yanzhi
Liu
58
Heng Shan Rd.
Kun
Lun Shopping Mall Harbin,
P.R.
China 150090
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15,000
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*
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Yuzhong
Wu
58
Heng Shan Rd.
Kun
Lun Shopping Mall Harbin,
P.R.
China 150090
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1,017,723
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1.8%
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Officers
and Directors as a group as a group (six individuals)
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43,085,723
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74.3%
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Less
than 1%.
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(1)
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Mr.
Yu has placed 2,833,333 shares of his common stock in escrow pursuant
to
the securities purchase agreement, subject to our meeting certain
levels
of EBITDA for the year ended December 31,
2007.
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OTHER
MATTERS
The
Board
of Directors knows of no other business which will be presented at the meeting.
If any other matters properly come before the meeting, the persons named in
the
enclosed Proxy and will vote the shares represented thereby in accordance with
their judgment on such matters.
FINANCIAL
STATEMENTS
A
copy of
our Form 10-KSB for the year ended December 31, 2006 and quarterly report on
Form 10-QSB for the quarter ended June 30, 2007, without exhibits are being
mailed with this proxy statement. Stockholders are referred to the report for
financial and other information about us.
Additional
copies of our Form 10-KSB for the year ended December 31, 2006 may be obtained
without charge by writing to Xiqun Yu, China Education Alliance, Inc., 58
Heng Shan Road, Kun Lun Shopping Mall, Harbin, The People's Republic of China
150090,. Exhibits will be furnished upon request and upon payment of a handling
charge of $.25 per page, which represents our reasonable cost on furnishing
such
exhibits. The Commission maintains a web site that contains reports, proxy
and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
http//www.sec.gov.
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By
Order of the Board of Directors
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Xiqun
Yu
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Chairman
of the Board of Directors.
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FORM
OF PROXY
China
Education Alliance, Inc.
Special
Meeting of Stockholders to be held on September 27, 2007
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The
undersigned hereby appoints Xiqun Yu and Chunqing Wang or either of them acting
in the absence of the other, with full power of substitution or revocation,
proxies for the undersigned, to vote at the Company’s Special Meeting of
Stockholders of China Education Alliance Inc. (the “Company”), to be held at
9:00 a.m., local time, on Thursday, September 14, 2007, at the offices of the
Corporation at 58 Heng Shan Road, Kun Lun Shopping Mall, Harbin, The People’s
Republic of China 150090, and at any adjournment or adjournments thereof,
according to the number of votes the undersigned might cast and with all powers
the undersigned would possess if personally present.
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(1)
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To
approve the amendment to the Company’s Articles of
Incorporation
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FOR o
AGAINST o
ABSTAIN o
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In
their discretion, upon the transaction of such other business as
may
properly come before the meeting;
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All
of
the above as set forth in the Proxy Statement, dated August *,
2007.
If
you
plan to attend the meeting please indicate below:
I
plan to
attend the meeting o
| Dated: |
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_______________________________
_______________________________
(Signature(s))
Please
sign exactly as name(s) appear hereon. When signing as attorney,
executor,
administrator, trustee or guardian, please give full title as
such.
Please
date, sign and mail this proxy in the enclosed envelope, which requires
no
postage if mailed in the United
States.
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Appendix
A
Certificate
of Amendment
1.
Article 2 of the Articles of Incorporation shall be amended to read as
follows:
(a)
The total number of shares of capital stock which this Corporation is
authorized to issue is one hundred sixty five million (170,000,000) shares,
of
which:
(i)
twenty million (20,000,000) shares shall be designated as Preferred
Stock, and shall have a par value of $.001 per share; and
(ii)
one hundred fifty million (150,000,000) shares shall be designated as
Common Stock, and shall have a par value of $.001 per share.
(b)
Upon the filing of this certificate of amendment, each share of common
stock becomes and is converted into one-third share of common stock, with
stockholders who would receive a fractional share to receive such additional
fractional share as will result in the holder having a whole number of
shares.
(c)
The
Board of Directors is expressly authorized at any time, and from time to time,
to provide for the issuance of shares of Preferred Stock in one or more series,
with such voting powers, full or limited, or without voting powers and with
such
designations, preferences and relative, participating, optional or other special
rights, qualifications, limitations or restrictions thereof, as shall be stated
and expressed in the resolution or resolutions providing for the issue thereof
adopted by the Board of Directors and as are not stated and expressed in these
Articles of Incorporation, or any amendment thereto, including (but without
limiting the generality of the foregoing) the following:
(i)
the designation of such series;
(ii)
the dividend rate of such series, the conditions and dates upon which
such dividends shall be payable, the preference or relation which such dividends
shall bear to the dividends payable on any other class or classes or of any
other series of capital stock, whether such dividends shall be cumulative or
non-cumulative, and whether such dividends may be paid in shares of any class
or
series of capital stock or other securities of the Corporation;
(iii)
whether the shares of such series shall be subject to redemption by the
Corporation, and, if made subject to such redemption, the times, prices and
other terms and conditions of such redemption;
(iv)
the terms and amount of any sinking fund provided for the purchase or
redemption of the shares of such series;
(v)
whether or not the shares of such series shall be convertible into or
exchangeable for shares of any other class or classes or series of capital
stock
or other securities of the Corporation, and, if provision be made for conversion
or exchange, the times, prices, rates, adjustment and other terms and conditions
of such conversion or exchange;
(vi)
the extent, if any, to which the holders of the shares of such series
shall be entitled to vote, as a class or otherwise, with respect to the election
of the directors or otherwise, and the number of votes to which the holder
of
each share of such series shall be entitled;
(vii)
the restrictions, if any, on the issue or reissue of any additional
shares or series of Preferred Stock; and
(viii)
the rights of the holders of the shares of such series upon the
dissolution of, or upon the distribution of assets of, the
Corporation.
(c)
No holder of any stock of the Corporation of any class or series now or
hereafter authorized, shall, as such holder, be entitled as of right to purchase
or subscribe for any shares of stock of the Corporation of any class or any
series now or hereafter authorized, or any securities convertible into or
exchangeable for any such shares, or any warrants, options, rights or other
instruments evidencing rights to subscribe for, or purchase, any such shares,
whether such shares, securities, warrants, options, rights or other instruments
be unissued or issued and thereafter acquired by the Corporation.
(d)
The terms and conditions of any rights, options and warrants approved by
the Board of Directors may provide that any or all of such terms and conditions
may not be waived or amended or may be waived or amended only with the consent
of the holders of a designated percentage of a designated class or classes
of
capital stock of the Corporation (or a designated group or groups of holders
within such class or classes, including but not limited to disinterested
holders), and the applicable terms and conditions of any such rights, options
or
warrants so conditioned may not be waived or amended or may not be waived or
amended absent such consent.
Appendix
B
Form
of Certificate of Designation of Preferences, Rights and
Limitations
CHINA
EDUCATION ALLIANCE, INC.
Statement
of Designations
Section
1
.
Definitions.
Capitalized terms used and not otherwise defined herein that are defined in
the
Purchase Agreement (as defined below) shall have the meanings given such terms
in the Purchase Agreement. For the purposes hereof, the following terms shall
have the following meanings:
“
4.9%
Limitation”
shall
have the meaning set forth in the Purchase Agreement.
“
Bankruptcy
Event”
means
any of the following events: (a) the Company or any Significant Subsidiary
(as
such term is defined in Rule 1.02(s) of Regulation S-X) thereof commences a
case
or other proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation
or
similar law of any jurisdiction relating to the Company or any Significant
Subsidiary thereof; (b) there is commenced against the Company or any
Significant Subsidiary thereof any such case or proceeding that is not stayed
or
dismissed within 90 days after commencement; (c) the Company or any Significant
Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief
or other order approving any such case or proceeding is entered; (d) the Company
or any Significant Subsidiary thereof suffers any appointment of any custodian
or the like for it or any substantial part of its property that is not
discharged or stayed within 90 days; (e) the Company or any Significant
Subsidiary thereof makes a general assignment for the benefit of creditors;
(f)
the Company or any Significant Subsidiary thereof calls a meeting of its
creditors with a view to arranging a composition, adjustment or restructuring
of
its debts; or (g) the Company or any Significant Subsidiary thereof, by any
act
or failure to act, expressly indicates its consent to, approval of or
acquiescence in any of the foregoing or takes any corporate or other action
for
the purpose of effecting any of the foregoing.
“
Closing
Date”
means
the Closing Date, as defined in the Purchase Agreement.
“
Commission”
means
the Securities and Exchange Commission.
“
Common
Stock”
means
the Company’s common stock, par value $.001 per share, and stock of any other
class into which such shares may hereafter have been reclassified or
changed.
“
Common
Stock Equivalents”
means
any securities of the Company or the Subsidiaries which would entitle the holder
thereof to acquire at any time Common Stock, including without limitation,
any
debt, preferred stock, rights, options, warrants or other instrument that is
at
any time convertible into or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock.
“
Conversion
Date”
shall
have the meaning set forth in Section 6(a).
“
Conversion
Ratio”
shall
mean the number of shares of Common Stock issuable upon conversion of one share
of Series A Preferred Stock. Each share of Series A Preferred Stock shall be
convertible into one (1) share of Common Stock (the “Conversion Ratio”), subject
to adjustment as provided in this Statement of Designations.
“
Conversion
Price”
shall
mean thirty seven cents ($.37), subject to adjustment as provided in this
Statement of Designations.
“
Conversion
Shares”
means,
collectively, the shares of Common Stock into which the shares of Series A
Preferred Stock are convertible in accordance with the terms
hereof.
“
Conversion
Shares Registration Statement”
means
a
registration statement that meets the requirements of the Registration Rights
Agreement and registers the resale of the Conversion Shares by the Holder,
who
shall be named as a “selling stockholder” thereunder, all as provided in the
Registration Rights Agreement.
“
Conversion
Value”
means
an amount determined by multiplying the number of Conversion Shares as to which
a value is to be determined by the average of the closing prices of the Common
Stock on the principal market or exchange on which the Common Stock is traded
for the five days prior to the date as of which a Conversion Value is being
determined.
“
Dilutive
Issuance”
shall
have the meaning set forth in Section 7(b) hereof.
“
Effective
Date”
means
the date that the Conversion Shares Registration Statement is declared effective
by the Commission.
“
Exchange
Act”
means
the Securities Exchange Act of 1934, as amended.
“
Exempt
Issuance”
shall
have the meaning set forth in the Purchase Agreement.
“
Fundamental
Transaction”
shall
have the meaning set forth in Section 7(f)(iv) hereof.
“
Holder”
shall
have the meaning given such term in Section 2 hereof.
“
Investors”
shall
mean the persons named in Schedule A to the Purchase Agreement.
“
Net
Income”
shall
have the meaning set forth in the Purchase Agreement.
“
Original
Issue Date”
shall
mean the date of the first issuance of any shares of the Series A Preferred
Stock regardless of the number of transfers of any particular shares of Series
A
Preferred Stock and regardless of the number of certificates which may be issued
to evidence such Series A Preferred Stock.
“
Person”
means
a
corporation, an association, a partnership, a limited liability company, a
business association, an individual, a trust, a government or political
subdivision thereof or a governmental agency.
“
Purchase
Agreement”
means
the Securities Purchase Agreement dated as of May 8, 2007, as amended, relating
to the issuance of the Company’s 3% Convertible Subordinated Notes due September
30, 2007 in the aggregate principal amount of $2,400,000, as amended, modified
or supplemented from time to time in accordance with its terms, including an
amendment dated May , 2007, relating to the issuance of a New Note (as defined
therein) in the principal amount of $1,000,000, a copy of which is on file
at
the principal offices of the Company.
“
Registration
Rights Agreement”
means
the Registration Rights Agreement, dated as of the Closing Date, to which the
Company and the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
“
Securities”
shall
have the meaning set forth in Section 1.3.32 of the Purchase
Agreement.
“
Securities
Act”
means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“
Series
A Preferred Stock”
shall
have the meaning set forth in Section 2.
“
Subsidiary”
shall
mean a corporation, limited liability company, partnership, joint venture or
other business entity of which the Company owns beneficially or of record more
than a majority of the equity interest.
“
Trading
Day”
means
a
day on which the Common Stock is traded on a Trading Market.
“
Trading
Market”
means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the Nasdaq SmallCap Market, the American
Stock Exchange, the New York Stock Exchange, the Nasdaq National Market or
the
OTC Bulletin Board.
“
Transaction
Documents”
shall
have the meaning set forth in the Purchase Agreement.
“
VWAP”
means,
for any date, the price determined by the first of the following clauses that
applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
the daily volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the primary Trading Market on which the Common
Stock is then listed or quoted as reported by Bloomberg Financial L.P. (based
on
a Trading Day from 9:30 a.m. EST to 4:02 p.m. Eastern Time) using the VAP
function; (b) if the Common Stock is not then listed or quoted on the
Trading Market and if prices for the Common Stock are then reported in the
“Pink
Sheets” published by the National Quotation Bureau Incorporated (or a similar
organization or agency succeeding to its functions of reporting prices), the
most recent bid price per share of the Common Stock so reported; or (c) in
all other cases, the fair market value of a share of Common Stock as determined
by a nationally recognized-independent appraiser selected in good faith by
Purchasers holding a majority of the principal amount of Series A Preferred
Stock then outstanding.
“
Warrants”
shall
have the meaning set forth in the Purchase Agreement.
Rank
of Series
. For
purposes of this Statement of Designations, any stock of any series or class
of
the Corporation shall be deemed to rank:
(a)
senior to the shares of Series A Preferred Stock, as to dividends or upon
liquidation, dissolution or winding up, as the case may be, if the holders
of
such class or classes shall be entitled to the receipt of dividends or of
amounts distributable upon dissolution, liquidation or winding up of the
Corporation, as the case may be, in preference or priority to the holders of
shares of Series A Preferred Stock;
(b)
on a
parity with shares of Series A Preferred Stock, as to dividends or upon
liquidation, dissolution or winding up, as the case may be, whether or not
the
dividend rates, dividend payment dates or redemption or liquidation prices
per
share or sinking fund provisions, if any, be different from those of Series
A
Preferred Stock, if the holders of such stock shall be entitled to the receipt
of dividends or of amounts distributable upon dissolution, liquidation or
winding up of the Corporation, as the case may be, in proportion to their
respective dividend rates or liquidation prices, without preference or priority,
one over the other, as between the holders of such stock and the holders of
shares of Series A Preferred Stock;
(c)
junior to shares of Series A Preferred Stock as to dividends or upon
liquidation, dissolution or winding up, as the case may be, if such class shall
be Common Stock or if the holders of shares of Series A Preferred Stock shall
be
entitled to receipt of dividends or of amounts distributable upon dissolution,
liquidation or winding up of the Corporation, as the case may be, in preference
or priority to the holders of shares of such class or classes.
Section
2
.
Designation
and Amount
. The
series of preferred stock, par value $.001 per share (“Preferred Stock”)
consisting of twenty million (20,000,000) shares shall be designated as the
Company’s Series A Convertible Preferred Stock (the “ Series
A Preferred Stock”)
and
the number of shares so designated shall be (which shall not be subject to
increase without the consent of all of the holders of 75% of the then
outstanding shares of Series A Preferred Stock (each a “ Holder”
and
collectively, the “ Holders”).
In
the event of the conversion of shares of Series A Preferred Stock into this
Company’s Common Stock, pursuant to Section 6 hereof, or in the event that the
Company shall otherwise acquire and cancel any shares of Series A Preferred
Stock, the shares of Series A Preferred Stock so converted or otherwise acquired
and canceled shall have the status of authorized but unissued shares of
preferred stock, without designation as to series until such stock is once
more
designated as part of a particular Series by the Company’s Board of Directors.
In addition, if the Company shall not issue the maximum number of shares of
Series A Preferred Stock, the Company may, from time to time, by resolution
of
the Board of Directors and the approval of the holders of a majority of the
outstanding shares of Series A Preferred Stock, reduce the number of shares
of
Series A Preferred Stock authorized, provided, that no such reduction shall
reduce the number of authorized shares to a number which is less than the number
of shares of Series A Preferred Stock then issued or reserved for issuance.
The
number of shares by which the Series A Preferred Stock is reduced shall have
the
status of authorized but unissued shares of Preferred Stock, without designation
as to series, until such stock is once more designated as part of a particular
Series by the Company’s Board of Directors. The Board of Directors shall cause
to be filed with the Secretary of State of the State of North Carolina such
certificate as shall be necessary to reflect any reduction in the number of
shares constituting the Series A Preferred Stock.
Section
3
.
Dividends
and Other Distributions
. No
dividends shall be payable with respect to the Series A Preferred Stock. No
dividends shall be declared or payable with respect to the Common Stock while
the Series A Preferred Stock is outstanding. The Company shall not redeem or
purchase any shares of Common Stock or any other class or series of capital
stock which is junior to or on a parity with the Series A Preferred Stock while
the Series A Preferred Stock is outstanding.
Section
4
.
Voting
Rights
. The
Series A Preferred Stock shall have no voting rights except as required by
law.
However, so long as any shares of Series A Preferred Stock are outstanding,
the
Company shall not, without the affirmative approval of the Holders of 75% of
the
shares of the Series A Preferred Stock then outstanding, (a) alter or change
adversely the powers, preferences or rights given to the Series A Preferred
Stock or alter or amend this Statement of Designations, (b) authorize or create
any class of stock ranking as to dividends or distribution of assets upon a
Liquidation (as defined in Section 5) senior to or otherwise pari passu with
the
Series A Preferred Stock, or any of preferred stock possessing greater voting
rights or the right to convert at a more favorable price than the Series A
Preferred Stock, (c) amend its certificate of incorporation or other charter
documents in breach of any of the provisions hereof, (d) increase the authorized
number of shares of Series A Preferred Stock or the number of authorized shares
of Preferred Stock, or (e) enter into any agreement with respect to the
foregoing. Notwithstanding any other provision of the Statement of Designations;
the provisions of Section 6(c) of this Statement of Designations may not be
amended or waived.
Section
5
.
Liquidation
. Upon
any liquidation, dissolution or winding-up of the Company, whether voluntary
or
involuntary (a “ Liquidation”),
the
Holders shall be entitled to receive out of the assets of the Company, whether
such assets are capital or surplus, for each share of Series A Preferred Stock
an amount equal to thirty seven cents ($.37) per share of Series A Preferred
Stock, which amount is referred to as the “ Liquidation
Value
,”
before any distribution or payment shall be made to the holders of any
securities which are junior to the Series A Preferred Stock upon voluntary
or
involuntary liquidation, dissolution or winding up and after any distributions
or payments made to holders of any class or series of securities which are
senior to the Series A Preferred Stock upon voluntary or involuntary
liquidation, dissolution or winding up, and if the assets of the Company shall
be insufficient to pay in full such amounts, then the entire assets to be
distributed to the Holders shall be distributed among the Holders ratably in
accordance with the respective amounts that would be payable on such shares
if
all amounts payable thereon were paid in full. In the event the assets of the
Company available for distribution to the holders of shares of Series A
Preferred Stock upon dissolution, liquidation or winding up of the Company,
whether voluntary or involuntary, shall be insufficient to pay in full all
amounts to which such holders are entitled pursuant to Section 5, no such
distribution shall be made on account of any shares of any other class or series
of capital stock of the Company ranking on a parity with the shares of Series
A
Preferred Stock upon such dissolution, liquidation or winding up unless
proportionate distributive amounts shall be paid on account of the shares of
Series A Preferred Stock, ratably, in proportion to the full distributable
amounts for which holders of all such parity shares are respectively entitled
upon such dissolution, liquidation or winding up. At the election of a Holder
made by written notice delivered to the Company at least two (2) business days
prior to the effective date of the subject transaction, as to the shares of
Series A Preferred Stock held by such Holder, a Fundamental Transaction
(excluding for purposes of this Section 5 any Fundamental Transaction described
in Section 7(f)(iv)(A) or 7(f)(iv)(B)) or Change of Control shall be treated
as
a Liquidation as to such Holder.
(a)
Conversions
at Option of Holder
. Each
share of Series A Preferred Stock shall be initially convertible (subject to
the
limitations set forth in Section 6(c)), into such number of shares of Common
Stock based on the Conversion Ratio at the option of the Holders, at any time
and from time to time from and after the Original Issue Date. Holders shall
effect conversions by providing the Company with the form of conversion notice
attached hereto as Annex
A
(a “
Notice
of Conversion”)
as
fully and originally executed by the Holder, together with the delivery by
the
Holder to the Company of the stock certificate(s) representing the number of
shares of Series A Preferred Stock so converted, with such stock certificates
being duly endorsed in full for transfer to the Company or with an applicable
stock power duly executed by the Holder in the manner and form as deemed
reasonable by the transfer agent of the Common Stock. Each Notice of Conversion
shall specify the number of shares of Series A Preferred Stock to be converted,
the number of shares of Series A Preferred Stock owned prior to the conversion
at issue, the number of shares of Series A Preferred Stock owned subsequent
to
the conversion at issue, the stock certificate number and the shares of Series
A
Preferred Stock represented thereby which are accompanying the Notice of
Conversion, and the date on which such conversion is to be effected, which
date
may not be prior to the date the Holder delivers such Notice of Conversion
and
the applicable stock certificates to the Company by overnight delivery service
(the “ Conversion
Date”).
If no
Conversion Date is specified in a Notice of Conversion, the Conversion Date
shall be the Trading Day immediately following the date that such Notice of
Conversion and applicable stock certificates are received by the Company. The
calculations and entries set forth in the Notice of Conversion shall control
in
the absence of manifest or mathematical error. Shares of Series A Preferred
Stock converted into Common Stock in accordance with the terms hereof shall
be
canceled and may not be reissued. If the Conversion Price is adjusted pursuant
to Section 7 or as otherwise provided in this Statement of Designations, the
Conversion Ratio shall likewise be adjusted and the new Conversion Ratio shall
determined by multiplying the Conversion Ratio in effect by a fraction, the
numerator of which is the Conversion Price in effect before the adjustment
and
the denominator of which is the new Conversion Price. Thereafter, subject to
any
further adjustments in the Conversion Price, each share of Series A Preferred
Stock shall be initially convertible into Common Stock based on the new
Conversion Ratio.
(b)
Automatic
Conversion Upon Change of Control
.
Subject to Section 5, all of the outstanding shares of Series A Preferred Stock
shall be automatically converted into the Conversion Shares upon the close
of
business on the business day immediately preceding the date fixed for
consummation of any transaction resulting in a Change of Control of the Company
(an “Automatic Conversion Event”). A “Change in Control” means a consolidation
or merger of the Company with or into another company or entity in which the
Company is not the surviving entity or the sale of all or substantially all
of
the assets of the Company to another company or entity not controlled by the
then existing stockholders of the Company in a transaction or series of
transactions. The Company shall not be obligated to issue certificates
evidencing the Conversion Shares unless certificates evidencing the shares
of
Series A Preferred Stock so converted are either delivered to the Company or
its
transfer agent or the holder notifies the Company or its transfer agent in
writing that such certificates have been lost, stolen or destroyed and executes
an agreement satisfactory to the Company to indemnify the Company from any
loss
incurred by it in connection therewith. Upon the conversion of the Series A
Preferred Stock pursuant to this Section 6(b), the Company shall promptly send
written notice thereof, by hand delivery or by overnight delivery, to the
holders of record of all of the Series A Preferred Stock at their addresses
then
shown on the records of the Company, which notice shall state that certificates
evidencing shares of Series A Preferred Stock must be surrendered at the office
of the Company (or of its transfer agent for the Common Stock, if
applicable).
(c)
Beneficial
Ownership Limitation
. Except
as provided in Section 6(b) of this Statement of Designations, which shall
apply
as stated therein if an Automatic Conversion Event shall occur, the right of
the
Holder to convert the Series A Preferred Stock shall be subject to the 4.9%
Limitation, with the result that Company shall not effect any conversion of
the
Series A Preferred Stock, and the Holder shall not have the right to convert
any
portion of the Series A Preferred Stock, to the extent that after giving effect
to such conversion, the Holder (together with the Holder’s affiliates), as set
forth on the applicable Notice of Conversion, would beneficially own in excess
of 4.9% of the number of shares of the Common Stock outstanding immediately
after giving effect to such conversion. For the purposes of this Amendment
beneficial ownership shall be determined in accordance with Section 13(d) of
the
Exchange Act, and Regulation 13d-3 thereunder. For purposes of this Section
6(c), in determining the number of outstanding shares of Common Stock, the
Holder may rely on the number of outstanding shares of Common Stock as reflected
in the most recent of the following: (A) the Company’s most recent quarterly
reports (Form 10-Q or Form 10-QSB), Annual Reports (Form 10-K or Form 10-KSB),
or definitive proxy statement or information statement as filed with the
Commission under the Exchange Act, (B) a more recent public announcement by
the
Company, or (C) any other written notice by the Company or the Company’s
transfer agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of the Holder, the Company
shall within two (2) Trading Days confirm orally and in writing to the Holder
the number of shares of Common Stock then outstanding. In any case, the
number of outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company, including
the
Series A Preferred Stock, by the Holder or its affiliates since the date as
of
which such number of outstanding shares of Common Stock was publicly reported
by
the Company. The 4.9% Limitation may be not be waived or amended.
(d)
Mechanics
of Conversion
(i)
Delivery
of Certificate Upon Conversion
. Except
as otherwise set forth herein, not later than three Trading Days after each
Conversion Date (the “ Share
Delivery Date”),
the
Company shall deliver to the Holder (A) a certificate or certificates which,
after the Effective Date, shall be free of restrictive legends and trading
restrictions (other than those required by the Purchase Agreement) representing
the number of shares of Common Stock being acquired upon the conversion of
shares of Series A Preferred Stock, and (B) a bank check in the amount of
accrued and unpaid dividends (if the Company has elected or is required to
pay
accrued dividends in cash). After the Effective Date, the Company shall, upon
request of the Holder, deliver any certificate or certificates required to
be
delivered by the Company under this Section electronically through the
Depository Trust Company or another established clearing Company performing
similar functions if the Company’s transfer agent has the ability to deliver
shares of Common Stock in such manner. If in the case of any Notice of
Conversion such certificate or certificates are not delivered to or as directed
by the applicable Holder by the third Trading Day after the Conversion Date,
the
Holder shall be entitled to elect by written notice to the Company at any time
on or before its receipt of such certificate or certificates thereafter, to
rescind such conversion, in which event the Company shall immediately return
the
certificates representing the shares of Series A Preferred Stock tendered for
conversion.
(ii)
Obligation
Absolute; Partial Liquidated Damages
. The
Company’s obligations to issue and deliver the Conversion Shares upon conversion
of Series A Preferred Stock in accordance with the terms hereof are absolute
and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation
to
the Company or any violation or alleged violation of law by the Holder or any
other person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to the Holder in connection with the
issuance of such Conversion Shares. In the event a Holder shall elect to convert
any or all of its Series A Preferred Stock, the Company may not refuse
conversion based on any claim that such Holder or any one associated or
affiliated with the Holder of has been engaged in any violation of law,
agreement or for any other reason (other than the inability of the Company
to
issue shares of Common Stock as a result of the limitation set forth in Section
6(c) hereof) unless an injunction from a court, on notice, restraining and
or
enjoining conversion of all or part of this Series A Preferred Stock shall
have
been sought and obtained and the Company posts a surety bond for the benefit
of
the Holder in the amount of 150% of the Conversion Value of Series A Preferred
Stock which is subject to the injunction, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to such Holder to the extent it obtains judgment.
In
the absence of an injunction precluding the same, the Company shall issue
Conversion Shares or, if applicable, cash, upon a properly noticed conversion.
If the Company fails to deliver to the Holder such certificate or certificates
pursuant to Section 6(d)(i) within two Trading Days of the Share Delivery Date
applicable to such conversion, the Company shall pay to such Holder, in cash,
as
liquidated damages and not as a penalty, for each $5,000 of Conversion Value
of
Series A Preferred Stock being converted, $50 per Trading Day (increasing to
$100 per Trading Day after three (3) Trading Days and increasing to $200 per
Trading Day six (6) Trading Days after such damages begin to accrue) for each
Trading Day after the Share Delivery Date until such certificates are delivered.
Nothing herein shall limit a Holder’s right to pursue actual damages for the
Company’s failure to deliver certificates representing shares of Common Stock
upon conversion within the period specified herein and such Holder shall have
the right to pursue all remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief.
(iii)
Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon
Conversion
. If the
Company fails to deliver to the Holder such certificate or certificates pursuant
to Section 6(d)(i) by a Share Delivery Date, and if after such Share Delivery
Date the Holder purchases (in an open market transaction or otherwise) Common
Stock to deliver in satisfaction of a sale by such Holder of the Conversion
Shares which the Holder was entitled to receive upon the conversion relating
to
such Share Delivery Date (a “ Buy-In”),
then
the Company shall pay in cash to the Holder the amount by which (x) the Holder’s
total purchase price (including brokerage commissions, if any) for the Common
Stock so purchased exceeds (y) the product of (1) the aggregate number of shares
of Common Stock that such Holder was entitled to receive from the conversion
at
issue multiplied by (2) the price at which the sell order giving rise to such
purchase obligation was executed. For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect
to
an attempted conversion of shares of Series A Preferred Stock with respect
to
which the aggregate sale price giving rise to such purchase obligation is
$10,000, under clause (A) of the immediately preceding sentence the Company
shall be required to pay the Holder $1,000. The Holder shall provide the Company
written notice indicating the amounts payable to the Holder in respect of the
Buy-In, together with applicable confirmations and other evidence reasonably
requested by the Company. Nothing herein shall limit a Holder’s right to pursue
any other remedies available to it hereunder, at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief
with respect to the Company’s failure to timely deliver certificates
representing shares of Common Stock upon conversion of the shares of Series
A
Preferred Stock as required pursuant to the terms hereof.
(iv)
Reservation
of Shares Issuable Upon Conversion
. The
Company covenants that it will at all times reserve and keep available out
of
its authorized and unissued shares of Common Stock solely for the purpose of
issuance upon conversion of the Series A Preferred Stock, each as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holders, not less than such number of shares
of
the Common Stock as shall (subject to any additional requirements of the Company
as to reservation of such shares set forth in the Purchase Agreement) be
issuable (taking into account the adjustments and restrictions of Section 7)
upon the conversion of all outstanding shares of Series A Preferred Stock.
The
Company covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid,
nonassessable and, if the Conversion Shares Registration Statement is then
effective under the Securities Act, registered for public sale in accordance
with such Conversion Shares Registration Statement provided that the holder
or
its broker delivers confirmation to the Company or its transfer agent to the
effect that the Conversion Shares have been sold pursuant to such registration
statement.
(v)
Fractional
Shares
. Upon a
conversion of the Series A Preferred Stock, the Company shall not be required
to
issue stock certificates representing fractional shares of Common Stock. All
fractional shares shall be carried forward and any fractional shares which
remain after a Holder converts all of his or her Series A Preferred Stock shall
be dropped and eliminated.
(vi)
Transfer
Taxes
. The
issuance of certificates for shares of the Common Stock on conversion of the
Series A Preferred Stock shall be made without charge to the Holders thereof
for
any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not
be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such shares of Series A Preferred Stock so
converted and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been
paid.
(vii)
Absolute
Obligation
. Except
as expressly provided herein, no provision of this Statement of Designations
shall alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the liquidated damages (if any) on, the shares of Series
A
Preferred Stock at the time, place, and rate, and in the coin or currency,
herein prescribed.
Section
7
.
Certain
Adjustments
.
(a)
Stock
Dividends and Stock Splits
. If the
Company, at any time subsequent to the Closing Date as long as the Series A
Preferred Stock is outstanding: (i) shall pay a stock dividend or otherwise
make
a distribution or distributions on shares of its Common Stock or any other
equity or equity equivalent securities payable in shares of Common Stock (which,
for avoidance of doubt, shall not include any shares of Common Stock issued
by
the Company pursuant to this Series A Preferred Stock), (ii) subdivide
outstanding shares of Common Stock into a larger number of shares, (iii) combine
(including by way of reverse stock split) outstanding shares of Common Stock
into a smaller number of shares, or (iv) issue by reclassification of shares
of
the Common Stock any shares of capital stock of the Company, then the Conversion
Price shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding treasury shares, if any) outstanding
before such event and of which the denominator shall be the number of shares
of
Common Stock outstanding after such event. Any adjustment made pursuant to
this
Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case
of a
subdivision, combination or re-classification.
(b)
Price
Adjustment
. From
and after the Closing Date and until such time as the Investors hold no
Securities, except for (i) Exempt Issuances, (ii) issuances covered by Sections
7(a) and 7(c) hereof or (iii) an issuance of Common Stock upon exercise or
upon
conversion of warrants, options or other convertible securities for which an
adjustment has already been made pursuant to this Section 7 , as to all of
which
this Section 7(b) does not apply, if the Company closes on the sale or issuance
of Common Stock at a price, or issues warrants, options, convertible debt or
equity securities with a exercise price per share or conversion price which
is
less than the Conversion Price then in effect (such lower sales price,
conversion or exercise price, as the case may be, being referred to as the
“Lower Price”), the Conversion Price in effect from and after the date of such
transaction shall be reduced to the Lower Price. For purpose of determining
the
exercise price of warrants issued by the Company, the price, if any, paid per
share for the warrants shall be added to the exercise price of the
warrants.
(c)
Pro
Rata Distributions
. If the
Company, at any time from and after the Closing Date and as long as the Series
A
Preferred Stock is outstanding, shall distribute to all holders of Common Stock
(and not to Holders) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security, then in each such case
the
Conversion Price shall be determined by multiplying such Conversion Price in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the VWAP determined as of the record date mentioned above,
and of which the numerator shall be such VWAP on such record date less the
then
fair market value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith. In either case
the
adjustments shall be described in a statement provided to the Holders of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(d)
Calculations
. All
calculations under this Section 7 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held
by or
for the account of the Company or any of its subsidiaries. For purposes of
this
Section 7, the number of shares of Common Stock deemed to be issued and
outstanding as of a given date shall be the sum of the number of shares of
Common Stock (excluding treasury shares and shares owned by subsidiaries, if
any) actually issued and outstanding.
(e)
Notice
to Holders.
(i)
Adjustment
to Conversion Price
.
Whenever the Conversion Price is adjusted pursuant to any of this Section 7,
the
Company shall promptly mail to each Holder a notice setting forth the Conversion
Price after such adjustment and setting forth a brief statement of the facts
requiring such adjustment. If the Company issues a variable rate security,
despite the prohibition thereon in the Purchase Agreement, the Company shall
be
deemed to have issued Common Stock or Common Stock Equivalents at the lowest
possible conversion or exercise price at which such securities may be converted
or exercised in the case of a Variable Rate Transaction (as defined in the
Purchase Agreement), or the lowest possible adjustment price in the case of
an
MFN Transaction (as defined in the Purchase Agreement).
(ii)
Notices
of Other Events
. If (A)
the Company shall declare a dividend (or any other distribution) on the Common
Stock; (B) the Company shall declare a redemption of the Common Stock; (C)
the
Company shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock
or
any Fundamental Transaction, (E) the Company shall authorize the voluntary
or
involuntary dissolution, liquidation or winding up of the affairs of the
Company; then in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of the Series A Preferred
Stock, and shall cause to be mailed to the Holders at their last addresses
as
they shall appear upon the stock books of the Company, at least 30 calendar
days
prior to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not
to
be taken, the date as of which the holders of the Common Stock of record to
be
entitled to such dividend, distributions, redemption, rights or warrants are
to
be determined or (y) the date on which such reclassification is expected to
become effective or close, and the date as of which it is expected that holders
of the Common Stock of record shall be entitled to exchange their shares of
the
Common Stock for securities, cash or other property deliverable upon such
reclassification or Fundamental Transaction; provided
, that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice.
(f)
Exempt
Issuance
.
Notwithstanding the foregoing, no adjustment in the Conversion Price will be
made in respect of an Exempt Issuance.
(g)
Fundamental
Transaction
. If, at
any time while this Series A Preferred Stock is outstanding, (i) the Company
effects any merger or consolidation of the Company with or into another Person,
(ii) the Company effects any sale of all or substantially all of its assets
in
one or a series of related transactions, (iii) any tender offer or exchange
offer (whether by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to tender or exchange their shares for
other securities, cash or property, or (iv) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (in any such case, a “ Fundamental
Transaction”),
then
upon any subsequent conversion of this Series A Preferred Stock, the Holder
shall have the right to receive, for each Conversion Share that would have
been
issuable upon such conversion absent such Fundamental Transaction, the same
kind
and amount of securities, cash or property as it would have been entitled to
receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of one share
of
Common Stock (the “ Alternate
Consideration”).
For
purposes of any such conversion, the determination of the Conversion Price
shall
be appropriately adjusted to apply to such Alternate Consideration based on
the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the
Conversion Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration
it
receives upon any conversion of this Series A Preferred Stock following such
Fundamental Transaction. To the extent necessary to effectuate the foregoing
provisions, any successor to the Company or surviving entity in such Fundamental
Transaction shall file a new Statement of Designations with the same terms
and
conditions and issue to the Holder new preferred stock consistent with the
foregoing provisions and evidencing the Holder’s right to convert such preferred
stock into Alternate Consideration. The terms of any agreement pursuant to
which
a Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this paragraph
(f)(iv) and insuring that this Series A Preferred Stock (or any such replacement
security) will be similarly adjusted upon any subsequent transaction analogous
to a Fundamental Transaction. Notwithstanding the foregoing or any other
provisions of this Statement of Designations, in the event that the agreement
relating to a Fundamental Transaction provides for the conversion or exchange
of
the Series A Preferred Stock into equity or debt securities, cash or other
consideration and the agreement is approved by the holders of a majority of
the.
then-outstanding shares of Series A Preferred Stock, then the holders of the
Series A Preferred Stock shall have only the rights set forth in such
agreement.
(a)
Notices
. Any
and all notices or other communications or deliveries to be provided by the
Holders hereunder, including, without limitation, any Notice of Conversion,
shall be in writing and delivered personally, by facsimile, sent by a nationally
recognized overnight courier service, addressed to the Company, at its principal
address as reflected in its most recent filing with the Commission. Any and
all
notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile, sent
by a
nationally recognized overnight courier service addressed to each Holder at
the
facsimile telephone number or address of such Holder appearing on the books
of
the Company, or if no such facsimile telephone number or address appears, at
the
principal place of business of the Holder. Any notice or other communication
or
deliveries hereunder shall be deemed given when received, and any notice by
telecopier shall be effective if confirmation of receipt is given by the party
to whom the notice is transmitted.
(b)
Lost
or Mutilated Preferred Stock Certificate
. If a
Holder’s Series A Preferred Stock certificate shall be mutilated, lost, stolen
or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated certificate, or in lieu
of
or in substitution for a lost, stolen or destroyed certificate, a new
certificate for the shares of Series A Preferred Stock so mutilated, lost,
stolen or destroyed but only upon receipt of evidence of such loss, theft or
destruction of such certificate, and of the ownership thereof, and indemnity,
if
requested, all reasonably satisfactory to the Company.
(c)
Next
Business Day
.
Whenever any payment or other obligation hereunder shall be due on a day other
than a Business Day, such payment shall be made on the next succeeding Business
Day.
Amendment
. This
Statement of Designations may be amended with the approval of the Company’s
board of directors and the consent of the holders of seventy-five percent (75%)
of the outstanding shares of Series A Preferred Stock, except that the 4.9%
Limitation may not be waived.
ANNEX
A
NOTICE
OF
CONVERSION
(TO
BE
EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF SERIES A
PREFERRED STOCK)
The
undersigned hereby elects to convert the number of shares of Series A
Convertible Preferred Stock indicated below, into shares of common stock, par
value $0.01 per share (the “ Common
Stock”),
of
China Education Alliance, Inc., a North Carolina corporation (the “ Company”),
according to the conditions hereof, as of the date written below. If shares
are
to be issued in the name of a person other than undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by the Company
in accordance therewith. No fee will be charged to the Holder for any
conversion, except for such transfer taxes, if any.
Conversion
calculations:
|
Date
to Effect Conversion:
________________________________________
|
|
Number
of shares of Common Stock owned prior to Conversion:
_______________
|
|
Number
of shares of Series A Preferred Stock to be Converted:
________________
|
|
Value
of shares of Series A Preferred Stock to be Converted:
____________________
|
|
Number
of shares of Common Stock to be Issued:
___________________________
|
|
Certificate
Number of Series A Preferred Stock attached
hereto:_________________
|
|
Number
of Shares of Series A Preferred Stock represented by attached
certificate:_________
|
|
|
|
|
|
Number
of shares of Series A Preferred Stock subsequent to Conversion:
________________
|
|
|
[HOLDER]
By:___________________________________
Name: __________________________________
Title:
___________________________________
|