As filed with the U.S. Securities and Exchange Commission on August
19, 2024
Registration
No. 333-[●]
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
S-3
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SMART
POWERR CORP.
(Exact
name of registrant as specified in its charter)
Nevada |
|
90-0093373 |
(State
or other jurisdiction of |
|
(I.R.S.
Employer |
incorporation
or organization) |
|
Identification
No.) |
4/F,
Tower C
Rong
Cheng Yun Gu Building Keji 3rd Road, Yanta District
Xi
An City, Shaan Xi Province
China
710075
(011)
86-29-8765-1098
(Address,
including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Vcorp
Services, LLC
701
S Carson St Suite #200,
Carson
City, NV 89701
(Name,
address including zip code, and telephone number, including area code, of agent for service)
Copies
to:
William
S. Rosenstadt, Esq.
Mengyi
“Jason” Ye, Esq.
Yarona
L. Yieh, Esq.
Ortoli
Rosenstadt LLP
366
Madison Avenue, 3rd Floor
New
York, NY 10017
+1-212-588-0022
– telephone
+1-212-826-9307
– facsimile
Approximate
date of commencement of proposed sale to the public: From time to time after this registration statement becomes effective.
If
the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check
the following box. ☐
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following
box. ☒
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the earlier effective registration statement for the same
offering. ☐
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If
this Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective
upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box. ☐
If
this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional
securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box. ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer |
☐ |
|
Accelerated
filer |
☐ |
Non-accelerated
filer |
☐ |
|
Smaller
reporting company |
☒ |
|
|
|
Emerging
growth company |
☐ |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of Securities Act. ☐
The
Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective
in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date
as the Commission, acting pursuant to said Section 8(a), may determine.
The
information in this preliminary prospectus is not complete and may be changed. The securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities
and is not soliciting offers to buy these securities in any state where the offer or sale is not permitted.
PRELIMINARY
PROSPECTUS |
SUBJECT
TO COMPLETION |
DATED
August 19, 2024 |
SMART
POWERR CORP.
$50,000,000
Common
Stock
Debt
Securities
Warrants
Rights
Units
We
may offer, from time to time, in one or more offerings, common stock, debt securities, warrants to purchase our common stock or debt
securities, debt securities consisting of debentures, notes or other evidence of indebtedness, units consisting of a combination of the
foregoing securities, or any combination of these securities, which we collectively refer to as the “securities”. The aggregate
offering price of the securities that we may offer and sell under this prospectus will not exceed $50,000,000.
We
may offer and sell any combination of the securities described in this prospectus in different series, at times, in amounts, at prices
and on terms to be determined at, or prior to, the time of each offering. This prospectus describes the general terms of these securities
and the general manner in which these securities will be offered. We will provide the specific terms of these securities in supplements
to this prospectus. The prospectus supplements will also describe the specific manner in which these securities will be offered and may
also supplement, update or amend information contained in this prospectus. This prospectus may not be used to consummate a sale of securities
unless accompanied by the applicable prospectus supplement. You should read this prospectus and any applicable prospectus supplement
before you invest.
We
may offer and sell the securities from time to time at fixed prices, at market prices, or at negotiated prices, to or through underwriters,
to other purchasers, through agents, or through a combination of these methods. If any underwriters are involved in the sale of any securities
with respect to which this prospectus is being delivered, the names of such underwriters and any applicable commissions or discounts
will be set forth in a prospectus supplement. The offering price of such securities and the net proceeds we expect to receive from such
sale will also be set forth in a prospectus supplement. See “Plan of Distribution” elsewhere in this prospectus for a more
complete description of the ways in which the securities may be sold.
As of August 15, 2024, the aggregate market value of our common stock
held by non-affiliates pursuant to General Instruction I.B.6 of Form S-3 was $8,448,631, which is based on 7,611,380 shares of our common
stock outstanding held by non-affiliates and a price of $1.11 per share, the closing price of our common stock on July 3, 2024 which
is the highest closing sale price of our common stock on the Nasdaq Capital Market within the sixty (60) days prior to the date of this
prospectus. Pursuant to General Instruction I.B.6 of Form S-3, in no event will we sell the securities described in this prospectus in
a public primary offering with an aggregate market value exceeding more than one-third of the aggregate market value of our common stock
held by non-affiliates in any 12-month period, so long as the aggregate market value of our outstanding common stock held by non-affiliates
remains below $75 million.
The
applicable prospectus supplement will contain information, where applicable, as to other listings, if any, on the Nasdaq Capital Market
or other securities exchange of the securities covered by the prospectus supplement. We may experience price volatility in our stock.
See related risk factors in the “Risk Factors” section of this prospectus and as set forth in our most recent annual report
on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 Annual Report”), which is incorporated herein by reference.
Unless
otherwise specified in an applicable prospectus supplement, our warrants, debt securities, rights and units will not be listed on any
securities or stock exchange or on any automated dealer quotation system.
Smart
Powerr Corp., or the Company or CREG, is a holding company incorporated in the state of Nevada. As a holding company with no material
operations, CREG conducts a substantial majority of its operations through its subsidiaries established in the People’s Republic
of China, or the PRC or China. Investors are cautioned that you are not buying shares of a China-based operating company but instead
are buying shares of a Nevada company with operations primarily conducted by our subsidiaries based in China and that this structure
involves unique risks to investors. Furthermore, shareholders may face difficulties enforcing
their legal rights under United States securities laws against our directors and officers who are located outside of the United States.
See “Risk Factors - Risks Related to Doing Business in China - Uncertainties with respect to the PRC legal system could adversely
affect us” in our 2023 Annual Report, which is incorporated herein by reference.
Our
equity structure is a direct holding structure. Within our direct holding structure, the cross-border transfer of funds within our corporate
entities is legal and compliant with the laws and regulations of the PRC. After the foreign investors’ funds enter CREG, the funds
can be directly transferred to the PRC operating companies through its subsidiaries. Specifically, CREG is permitted under the Nevada
laws to provide funding to our subsidiary, Sifang Holdings, in the Cayman Islands through loans or capital contributions without restrictions
on the amount of the funds, subject to satisfaction of applicable government registration, approval and filing requirements. Sifang Holdings
is also permitted under the laws of Cayman Islands to provide funding to CREG through dividend distribution without restrictions on the
amount of the funds. Current PRC regulations permit our PRC subsidiaries to pay dividends to the Company only out of their accumulated
profits, if any, determined in accordance with Chinese accounting standards and regulations. As of the date hereof, there have not been
any transfers, dividends or distributions made between the holding company, its subsidiaries, and to investors. Furthermore, as of the
date hereof, no cash generated from one subsidiary is used to fund another subsidiary’s operations and we do not anticipate any
difficulties or limitations on our ability to transfer cash between subsidiaries. We have also not installed any cash management policies
that dictate the amount of such funds or how such funds are transferred. For the foreseeable future, we intend to use the earnings for
our business operations and as a result, we do not intend to distribute earnings or pay any cash dividends. See “Transfers of Cash
to and from Our Subsidiaries” on page 10 of this prospectus.
Because
our operations are primarily located in the PRC through our subsidiaries, we are subject to certain legal and operational risks associated
with our operations in China, including changes in the legal, political and economic policies of the Chinese government, the relations
between China and the U.S, or Chinese or U.S regulations may materially and adversely affect our business, financial condition and results
of operations. PRC laws and regulations governing our current business operations are sometimes vague and uncertain, and therefore, these
risks may result in a material change in our operations and the value of our common stock, or could significantly limit or completely
hinder our ability to offer or continue to offer our securities to investors and cause the value of such securities to significantly
decline or be worthless. The PRC government initiated a series of regulatory actions and statements to regulate business operations in
China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over
China-based companies listed overseas using a variable interest entity structure, adopting new measures to extend the scope of cybersecurity
reviews, and expanding the efforts in anti-monopoly enforcement. As confirmed by our PRC counsel, Shaanxi Yan Tan Law Firm (“Yan
Tan”), we will not be subject to cybersecurity review with the Cyberspace Administration of China, or the “CAC,” after
the Cybersecurity Review Measures became effective on February 15, 2022, since we currently do not have over one million users’
personal information and do not anticipate that we will be collecting over one million users’ personal information in the foreseeable
future, which we understand might otherwise subject us to the Cybersecurity Review Measures. We do not believe that our subsidiaries
are directly subject to these regulatory actions or statements, as we have not implemented any monopolistic behavior and our business
does not involve the collection of user data or implicate cybersecurity. As of the date hereof, no relevant laws or regulations in the
PRC explicitly require us to seek approval from the China Securities Regulatory Commission, or the CSRC, or any other PRC governmental
authorities for future offerings, nor has our Nevada holding company or any of our subsidiaries received any inquiry, notice, warning
or sanctions regarding previous offerings from the CSRC or any other PRC governmental authorities. However, on February 17, 2023, the
CSRC promulgated Trial Administrative Measures of the Overseas Securities Offering and Listing by Domestic Companies (the “Overseas
Listing Trial Measures”) and five relevant guidelines, which became effective on March 31, 2023. According to the Overseas Listing
Trial Measures, PRC domestic companies that seek to offer and list securities in overseas markets, either in direct or indirect means,
are required to fulfill the filing procedure with the CSRC and report relevant information. The Overseas Listing Trial Measures provides
that an overseas listing or offering is explicitly prohibited, if any of the following: (1) such securities offering and listing is explicitly
prohibited by provisions in laws, administrative regulations and relevant state rules; (2) the intended securities offering and listing
may endanger national security as reviewed and determined by competent authorities under the State Council in accordance with law; (3)
the domestic company intending to make the securities offering and listing, or its controlling shareholder(s) and the actual controller,
have committed relevant crimes such as corruption, bribery, embezzlement, misappropriation of property or undermining the order of the
socialist market economy during the latest three years; (4) the domestic company intending to make the securities offering and listing
is currently under investigations for suspicion of criminal offenses or major violations of laws and regulations, and no conclusion has
yet been made thereof; or (5) there are material ownership disputes over equity held by the domestic company’s controlling shareholder(s)
or by other shareholder(s) that are controlled by the controlling shareholder(s) and/or actual controller.
The
Overseas Listing Trial Measures also provides that if the issuer meets both the following criteria, the overseas securities offering
and listing conducted by such issuer will be deemed as indirect overseas offering by PRC domestic companies: (1) 50% or more of any of
the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements
for the most recent fiscal year is accounted for by domestic companies; and (2) the issuer’s main business activities are conducted
in China, or its main place(s) of business are located in China, or the majority of senior management staff in charge of its business
operations and management are PRC citizens or have their usual place(s) of residence located in China. Where an issuer submits an application
for initial public offering to competent overseas regulators, such issuer must file with the CSRC within three business days after such
application is submitted. In addition, the Overseas Listing Trial Measures provide that the direct or indirect overseas listings of the
assets of domestic companies through one or more acquisitions, share swaps, transfers or other transaction arrangements shall be subject
to filing procedures in accordance with the Overseas Listing Trial Measures. The Overseas Listing Trial Measures also requires subsequent
reports to be filed with the CSRC on material events, such as change of control or voluntary or forced delisting of the issuer(s) who
have completed overseas offerings and listings.
At
a press conference held for these new regulations (“Press Conference”), officials from the CSRC clarified that the domestic
companies that have already been listed overseas on or before March 31, 2023 shall be deemed as existing issuers (the “Existing
Issuers”). Existing Issuers are not required to complete the filling procedures immediately, and they shall be required to file
with the CSRC upon occurrences of certain subsequent matters such as follow-on offerings of securities. According to the Overseas Listing
Trial Measures and the Press Conference, the existing domestic companies that have completed overseas offering and listing before March
31, 2023, such as us, shall not be required to perform filing procedures for the completed overseas securities issuance and listing.
However, from the effective date of the regulation, any of our subsequent securities offering in the same overseas market or subsequent
securities offering and listing in other overseas markets shall be subject to the filing requirement with the CSRC within three working
days after the offering is completed or after the relevant application is submitted to the relevant overseas authorities, respectively.
If it is determined that any approval, filing or other administrative procedures from other PRC governmental authorities is required
for any future offering or listing, we cannot assure you that we can obtain the required approval or accomplish the required filings
or other regulatory procedures in a timely manner, or at all. If we fail to fulfill filing procedure as stipulated by the Trial Measures
or offer and list securities in an overseas market in violation of the Trial Measures, the CSRC may order rectification, issue warnings
to us, and impose a fine of between RMB1,000,000 and RMB10,000,000. Persons-in-charge and other persons that are directly liable for
such failure shall be warned and each imposed a fine from RMB500,000 to RMB5,000,000. Controlling shareholders and actual controlling
persons of us that organize or instruct such violations shall be imposed a fine from RMB1,000,000 and RMB10,000,000.
On
February 24, 2023, the CSRC published the Provisions on Strengthening the Confidentiality and Archives Administration Related to the
Overseas Securities Offering and Listing by Domestic Enterprises (the “Provisions on Confidentiality and Archives Administration”),
which came into effect on March 31, 2023. The Provisions on Confidentiality and Archives Administration requires that, in the process
of overseas issuance and listing of securities by domestic entities, the domestic entities, and securities companies and securities service
institutions that provide relevant securities service shall strictly implement the provisions of relevant laws and regulations and the
requirements of these provisions, establish and improve rules on confidentiality and archives administration. Where the domestic entities
provide with or publicly disclose documents, materials or other items related to the state secrets and government work secrets to the
relevant securities companies, securities service institutions, overseas regulatory authorities, or other entities or individuals, the
companies shall apply for approval of competent departments with the authority of examination and approval in accordance with law and
report the matter to the secrecy administrative departments at the same level for record filing. Where there is unclear or controversial
whether or not the concerned materials are related to state secrets, the materials shall be reported to the relevant secrecy administrative
departments for determination. However, there remain uncertainties regarding the further interpretation and implementation of the Provisions
on Confidentiality and Archives Administration.
As
of the date of this prospectus, we and our PRC subsidiaries have obtained the requisite licenses and permits from the PRC government
authorities that are material for the business operations of our PRC subsidiaries. In addition, as of the date of this prospectus, we
and our PRC subsidiaries are not required to obtain approval or permission from the CSRC or the CAC or any other entity that is required
to approve our PRC subsidiaries’ operations or required for us to offer securities to foreign investors under any currently effective
PRC laws, regulations, and regulatory rules. If it is determined that we are subject to filing requirements imposed by the CSRC under
the Overseas Listing Regulations or approvals from other PRC regulatory authorities or other procedures, including the cybersecurity
review under the revised Cybersecurity Review Measures, for our future offshore offerings, it would be uncertain whether we can or how
long it will take us to complete such procedures or obtain such approval and any such approval could be rescinded. Any failure to obtain
or delay in completing such procedures or obtaining such approval for our offshore offerings, or a rescission of any such approval if
obtained by us, would subject us to sanctions by the CSRC or other PRC regulatory authorities for failure to file with the CSRC or failure
to seek approval from other government authorization for our offshore offerings. These regulatory authorities may impose fines and penalties
on our operations in China, limit our ability to pay dividends outside of China, limit our operating privileges in China, delay or restrict
the repatriation of the proceeds from our offshore offerings into China or take other actions that could materially and adversely affect
our business, financial condition, results of operations, and prospects, as well as the trading price of our common stock. The CSRC or
other PRC regulatory authorities also may take actions requiring us, or making it advisable for us, to halt our offshore offerings before
settlement and delivery of the securities offered. Consequently, if investors engage in market trading or other activities in anticipation
of and prior to settlement and delivery, they do so at the risk that settlement and delivery may not occur. In addition, if the CSRC
or other regulatory authorities later promulgate new rules or explanations requiring that we obtain their approvals or accomplish the
required filing or other regulatory procedures for our prior offshore offerings, we may be unable to obtain a waiver of such approval
requirements, if and when procedures are established to obtain such a waiver. Any uncertainties or negative publicity regarding such
approval requirement could materially and adversely affect our business, prospects, financial condition, reputation, and the trading
price of our common stock.
Since
these statements and regulatory actions by the PRC government are newly published and official guidance and related implementation rules
have not been issued, it is not highly uncertain how soon legislative or administrative regulation making bodies will respond and what
existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the
potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments
and list on an U.S. or other foreign exchange. The Standing Committee of the National People’s Congress, or the SCNPC, or other
PRC regulatory authorities may in the future promulgate laws, regulations or implementing rules that requires our company or any of our
subsidiaries to obtain regulatory approval from Chinese authorities before future offerings in the U.S. In other words, although the
Company is currently not required to obtain permission from any of the PRC federal or local government to obtain such permission and
has not received any denial to list on the U.S. exchange, our operations could be adversely affected, directly or indirectly; our ability
to offer, or continue to offer, securities to investors would be potentially hindered and the value of our securities might significantly
decline or be worthless, by existing or future laws and regulations relating to its business or industry or by intervene or interruption
by PRC governmental authorities, if we or our subsidiaries (i) do not receive or maintain such permissions or approvals, (ii) inadvertently
conclude that such permissions or approvals are not required, (iii) applicable laws, regulations, or interpretations change and we are
required to obtain such permissions or approvals in the future, or (iv) any intervention or interruption by PRC governmental with little
advance notice.
On
March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements
of the HFCAA. An identified issuer will be required to comply with these rules if the SEC identifies it as having a “non-inspection”
year under a process to be subsequently established by the SEC. On June 22, 2021, U.S Senate passed the Accelerating Holding Foreign
Companies Accountable Act, which was signed into law on December 29, 2022, amending the HFCAA and requiring the SEC to prohibit an issuer’s
securities from trading on any U.S. stock exchange if its auditor is not subject to PCAOB inspections for two consecutive years instead
of three consecutive years. If our auditor cannot be inspected by the PCAOB, PCAOB, for two consecutive years, the trading of our securities
on any U.S. national securities exchanges, as well as any over-the-counter trading in the U.S., will be prohibited. On September 22,
2021, the PCAOB adopted a final rule implementing the HFCAA, which provides a framework for the PCAOB to use when determining, as contemplated
under the HFCAA, whether the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign
jurisdiction because of a position taken by one or more authorities in that jurisdiction. On December 2, 2021, the SEC issued amendments
to finalize rules implementing the submission and disclosure requirements in the HFCA Act. The rules apply to registrants that the SEC
identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign
jurisdiction and that PCAOB is unable to inspect or investigate completely because of a position taken by an authority in foreign jurisdictions.
On December 16, 2021, the PCAOB issued a report on its determinations that it is unable to inspect or investigate completely PCAOB-registered
public accounting firms headquartered in mainland China and in Hong Kong, because of positions taken by PRC authorities in those jurisdictions.
Kreit
& Chiu CPA LLP (“Kreit & Chiu,” formerly Paris Kreit & Chiu CPA LLP), the independent registered public account
firm that issued the audit report for the fiscal years ended December 31, 2022 and 2021 included elsewhere in this prospectus, as an
auditor of companies that are traded publicly in the U.S. and a firm registered with the PCAOB, is subject to laws in the U.S pursuant
to which the PCAOB conducts regular inspections to assess such auditor’s compliance with the applicable professional standards.
Kreit & Chiu is headquartered in New York, New York, and is subject to inspection by the PCAOB on a regular basis. Enrome LLP, our
independent registered public accounting firm for the fiscal year ended December 31, 2023, is based in Singapore and is registered with
PCAOB and subject to PCAOB inspection. Therefore, we believe neither Kreit & Chiu, our previous auditor, nor Enrome LLP, our current
auditor, is subject to the determinations as to the inability to inspect or investigate registered firms completely announced by the
PCAOB on December 16, 2021. However, as more stringent criteria have been imposed by the SEC and the PCAOB, recently, which would add
uncertainties to future offerings, and we cannot assure you whether Nasdaq or other regulatory authorities would apply additional and
more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures,
adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial
statements. On August 26, 2022, the CSRC, the Ministry of Finance of the PRC (the “MOF”), and the PCAOB signed a Statement
of Protocol (the “Protocol”), governing inspections and investigations of audit firms based in China and Hong Kong. The Protocol
remains unpublished and is subject to further explanation and implementation. Pursuant to the fact sheet with respect to the Protocol
disclosed by the U.S. Securities and Exchange Commission (the “SEC”), the PCAOB shall have independent discretion to select
any issuer audits for inspection or investigation and has the unfettered ability to transfer information to the SEC. See “The
recent joint statement by the SEC and PCAOB, proposed rule changes submitted by Nasdaq, and the HFCAA all call for additional and more
stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S.
auditors which are not inspected by the PCAOB. These developments could add uncertainties to the trading of our common stock”
in our 2023 Annual Report, which is incorporated herein by reference.
Smart
Powerr Corp. is a holding company with no operations of its own. We conduct our operations in China primarily through our subsidiaries
in China. We may rely on dividends to be paid by our subsidiaries in China to fund our cash and financing requirements, including the
funds necessary to pay dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating
expenses. If our subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict its ability
to pay dividends or make other distributions to us.
We
currently intend to retain all available funds and future earnings, if any, for the operation and expansion of our business and do not
anticipate declaring or paying any dividends in the foreseeable future. Any future determination related to our dividend policy will
be made at the discretion of our Board of Directors after considering our financial condition, results of operations, capital requirements,
contractual requirements, business prospects and other factors the Board of Directors deems relevant, and subject to the restrictions
contained in any future financing instruments.
Subject
to the Nevada Business Corporation Act and our bylaws, our Board of Directors may authorize and declare a dividend to shareholders at
such time and of such an amount as it thinks fit if they are satisfied, on reasonable grounds, that immediately following the dividend
the value of our assets will exceed our liabilities and we will be able to pay our debts as they become due.
To
address persistent capital outflows and the RMB’s depreciation against the U.S. dollar in the fourth quarter of 2016, the People’s
Bank of China and the State Administration of Foreign Exchange, or SAFE, have implemented a series of capital control measures in the
subsequent months, including stricter vetting procedures for China-based companies to remit foreign currency for overseas acquisitions,
dividend payments and shareholder loan repayments. The PRC government may continue to strengthen its capital controls and our PRC subsidiaries’
dividends and other distributions may be subject to tightened scrutiny in the future. The PRC government also imposes controls on the
conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties
in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits,
if any. Furthermore, if our subsidiaries in the PRC incur debt on their own in the future, the instruments governing the debt may restrict
their ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive all of the revenues from our operations,
we may be unable to pay dividends on our common stock.
Cash
dividends, if any, on our common stock will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise for tax purposes,
any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding
tax at up to 10%.
To
pay dividends to our shareholders, we will rely on payments made from our PRC subsidiaries, i.e., Shanghai Yinghua Financial Leasing
Co., Ltd, Shanghai TCH Energy Technology Co., Ltd., Huahong New Energy Technology Co., Ltd., Xi’an TCH Energy Technology Co., Ltd.,
Erdos TCH Energy Saving Development Co., Ltd., Xi’an Zhonghong New Energy Technology Co., Ltd., and Zhongxun Energy Investment
(Beijing) Co., Ltd., to Smart Powerr Corp. As of the date hereof, our PRC subsidiaries have not made any transfers or distributions.
As of the date hereof, no cash or asset transfers have occurred between the Company and its subsidiaries. We do not expect to pay any
cash dividends in the foreseeable future. Furthermore, as of the date hereof, no cash generated from one subsidiary is used to fund another
subsidiary’s operations and we do not anticipate any difficulties or limitations on our ability to transfer cash between subsidiaries.
We have also not installed any cash management policies that dictate the amount of such funds and how such funds are transferred.
See
“Prospectus Summary – Transfers of Cash to and from Our Subsidiaries.” See also “Risk Factors — We are
a holding company, and will rely on dividends paid by our subsidiaries for our cash needs. Any limitation on the ability of our subsidiaries
to make dividend payments to us, or any tax implications of making dividend payments to us, could limit our ability to pay our parent
company expenses or pay dividends to holders of our common stock.” on page 29 of this prospectus, and “Risk Factors
— Risks Related to Doing Business in China — “PRC regulation of loans to and direct investment by offshore holding
companies in PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC operating companies,
which could materially and adversely affect our liquidity and ability to fund and expand our business.” on page 38 of this
prospectus. See also the consolidated financial statements contained in our latest annual report on Form 10-K and incorporated herein
by reference.
This
prospectus may not be used to offer or sell our securities unless accompanied by a prospectus supplement. The information contained or
incorporated in this prospectus or in any prospectus supplement is accurate only as of the date of this prospectus, or such prospectus
supplement, as applicable, regardless of the time of delivery of this prospectus or any sale of our securities.
Investing
in our securities being offered pursuant to this prospectus involves a high degree of risk. You should carefully read and consider the
‘‘Risk Factors’’ section of this prospectus, and risk factors set forth
in our most recent annual report on Form 10-K, in other reports incorporated herein by reference, and in the applicable prospectus
supplement before you make your investment decision.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined
if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is August 19,
2024
TABLE
OF CONTENTS
You
should rely only on the information contained or incorporated by reference in this prospectus or any prospectus supplement. We have not
authorized any person to provide you with different or additional information. If anyone provides you with different or inconsistent
information, you should not rely on it. This prospectus is not an offer to sell securities, and it is not soliciting an offer to buy
securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus
or any prospectus supplement, as well as information we have previously filed with the SEC and incorporated by reference, is accurate
as of the date on the front of those documents only. Our business, financial condition, results of operations and prospects may have
changed since those dates.
ABOUT
THIS PROSPECTUS
This
prospectus is a part of a registration statement that we have filed with the SEC utilizing a “shelf” registration process.
Under this shelf registration process, we may sell any combination of the securities described in this prospectus in one or more offerings
up to an aggregate offering price of $50,000,000.
Each
time we sell securities, we will provide a supplement to this prospectus that contains specific information about the securities being
offered and the specific terms of that offering. The supplement may also add, update or change information contained in this prospectus.
If there is any inconsistency between the information in this prospectus and any prospectus supplement, you should rely on the prospectus
supplement.
We
may offer and sell securities to, or through, underwriting syndicates or dealers, through agents or directly to purchasers.
The
prospectus supplement for each offering of securities will describe in detail the plan of distribution for that offering.
In
connection with any offering of securities (unless otherwise specified in a prospectus supplement), the underwriters or agents may over-allot
or effect transactions which stabilize or maintain the market price of the securities offered at a higher level than that which might
exist in the open market. Such transactions, if commenced, may be interrupted or discontinued at any time. See “Plan of Distribution.”
Please
carefully read both this prospectus and any prospectus supplement together with the documents incorporated herein by reference under
“Incorporation of Documents by Reference” and the additional information described below under “Where You Can Get More
Information.”
You
should rely only on the information contained or incorporated by reference in this prospectus and any prospectus supplement. We have
not authorized anyone to provide you with different information. The distribution or possession of this prospectus in or from certain
jurisdictions may be restricted by law. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy
these securities in any jurisdiction where the offer or sale is not permitted or where the person making the offer or sale is not qualified
to do so or to any person to whom it is not permitted to make such offer or sale. The information contained in this prospectus is accurate
only as of the date of this prospectus and any information incorporated by reference is accurate as of the date of the applicable document
incorporated by reference, regardless of the time of delivery of this prospectus or of any sale of the securities. Our business, financial
condition, results of operations and prospects may have changed since those dates.
COMMONLY
USED DEFINED TERMS
Unless otherwise
indicated or the context requires otherwise, references in this prospectus to:
|
● |
“PRC” or “China”
are to the People’s Republic of China, including Hong Kong SAR and Macau, but excluding, for the purpose of this prospectus,
Taiwan; |
|
● |
“RMB” or “Renminbi”
are to the legal currency of China; and |
|
● |
“Yinghua” is
to Shanghai Yinghua Financial Leasing Co., Ltd., a PRC company, which is wholly owned by us; |
|
● |
“Sifang Holdings”
is to Sifang Holdings Co., Ltd., a Cayman Islands company, which is wholly owned by us; |
|
● |
“Huahong” is
to Shaanxi Huahong New Energy Technology Co., Ltd., a PRC company, which is wholly owned by Sifang Holdings; |
|
● |
“Xi’an TCH”
is to Xi’an TCH Energy Technology Co., Ltd., a PRC company, which is wholly owned by Shanghai TCH; |
|
● |
“Erdos TCH”
is to Erdos TCH Energy Saving Development Co., Ltd., a PRC company, which is wholly owned by Xi’an TCH; |
|
● |
“Zhongxun”
is to Zhongxun Energy Investment (Beijing) Co., Ltd., a PRC company, which is wholly owned by Xi’an TCH; |
|
● |
“Beijing Hongyuan”
is to Beijing Hongyuan Recycling Energy Investment Center, a PRC limited partner, of which Xi’an TCH owns 16.3% of the total
equity interest; |
|
● |
“Xi’an Zhonghong”
is to Xi’an Zhonghong Energy Technology Co., Ltd., a PRC company, of which Xi’an TCH and Shanghai TCH owns
90% and 10% of the equity interest, respectively; |
|
● |
“we”, “our”,
“us” and “the Company” are to Smart Powerr Corp. and its subsidiaries; |
|
● |
“$”, “US$”
or “U.S. Dollars” are to the legal currency of the United States. |
SPECIAL
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus, the applicable prospectus supplement or amendment and the information incorporated by reference in this prospectus contain
various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities
Act”) and Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), which represent
our expectations or beliefs concerning future events. Forward-looking statements include statements that are predictive in nature, which
depend upon or refer to future events or conditions, and/or which include words such as “believes,” “plans,”
“intends,” “anticipates,” “estimates,” “expects,” “may,” “will”
or similar expressions. In addition, any statements concerning future financial performance, ongoing strategies or prospects, and possible
future actions, which may be provided by our management, are also forward-looking statements. Forward-looking statements are based on
current expectations and projections about future events and are subject to risks, uncertainties, and assumptions about our Company,
economic and market factors, and the industry in which we do business, among other things. These statements are not guarantees of future
performance, and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information,
future events, or otherwise, except as required by law. Actual events and results may differ materially from those expressed or forecasted
in forward-looking statements due to a number of factors. Factors that could cause our actual performance, future results and actions
to differ materially from any forward-looking statements include, but are not limited to, those discussed under the heading “Risk
Factors” in any of our filings with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act. The forward-looking
statements in this prospectus, the applicable prospectus supplement or any amendments thereto and the information incorporated by reference
in this prospectus represent our views as of the date such statements are made. These forward-looking statements should not be relied
upon as representing our views as of any date subsequent to the date such statements are made.
PROSPECTUS
SUMMARY
Business Overview
Smart
Powerr Corp. is a holding company incorporated in the state of Nevada. As a holding company with no material operations of our own, we
conduct a substantial majority of our operations through our subsidiaries established in the PRC.
We
are a pioneer in waste energy recycling and a developer of energy efficiency solutions for various energy intensive industries in China.
We use Build-Operate-Transfer (“BOT”) model to provide energy saving and recovery facilities for multiple energy intensive
industries in China. Our waste energy recycling projects allow customers which use substantial amounts of electricity to recapture previously
wasted pressure, heat, and gas from their manufacturing processes to generate electricity. We currently offer waste energy recycling
systems to companies for use in nonferrous metal plants. We construct our projects at our customer’s facility and the electricity
produced is used on-site by the customer.
We
develop fully customized projects across several verticals to better meet customer’s energy recovery needs. We provide a clean-technology
and energy-efficient solution aimed at reducing the air pollution and energy shortage problems in China. Our projects capture industrial
waste energy to produce low-cost electricity, enabling industrial manufacturers to reduce their energy costs by 5% to 20%, lower their
operating costs, and in optimal circumstances, extend the life of primary manufacturing equipment, while still complying with government
regulations on emissions. Specifically, our power generation systems use the waste heat and pressure of flue gas generated during customers’
daily course of energy usage, such as manufacturing, and carry out necessary dust removal and desulfurization process afterwards, before
putting the renewed energy back into use. The purified flue gas can reduce the wear and corrosion of pipes, valves and fans on the original
production line, so as to improve the service life of these equipment. In addition, our waste energy recycling projects allow our industrial
customers to reduce their reliance on China’s centralized national power grid, which is prone to black-outs or brown-outs or is
completely inaccessible from certain remote areas. Our projects generally produce lower carbon dioxide emissions and other pollutants,
and are designed to be more environmentally friendly than other forms of power generation.
Since
2007, we have primarily used the BOT model to serve our customers. For each project, we design, finance, construct and install the waste
energy recycling projects for our customers, operate the projects for five to 20 years, and then transfer the projects to the owners.
The BOT model creates a win-win solution for both our customers and us. We provide the capital expenditure financing in exchange for
attractive returns on each project; our customers can focus their capital resources on their core businesses, do not need to invest additional
capitals to comply with government environmental regulations, reduce noise and emissions and reduce their energy costs. We in turn recapture
our costs through the stream of lease payments.
We
are headquartered in China. Our principal executive offices are located at 4/F, Tower C, Rong Cheng Yun Gu Building, Keji 3rd Road, Yanta
District, Xi’an City, Shaanxi Province, China, and our telephone number at this location is +86-29-8765-1097.
Corporate
History and Structure
Investors
are cautioned that you are buying shares of CREG a Nevada company with operations conducted through its subsidiaries in China and that
this structure involves unique risks to investors.
Smart
Powerr Corp. (the “Company” or “SPC”) was incorporated in Nevada, and was formerly known as China Recycling Entergy
Corporation. The Company, through its subsidiaries, provides energy saving solutions and services, including selling and leasing energy
saving systems and equipment to customers, and project investment in the People’s Republic of China (“PRC”).
Our
business is primarily conducted through our wholly-owned subsidiaries, Yinghua and Sifang, Sifang’s wholly-owned subsidiaries,
Huahong and Shanghai TCH, Shanghai TCH’s wholly-owned subsidiaries, Xi’an TCH, Xi’an TCH’s wholly-owned subsidiary
Erdos TCH and Xi’an TCH’s 90% owned and Shanghai TCH’s 10% owned subsidiary Xi’an Zhonghong New Energy Technology
Co., Ltd., and Zhongxun. Shanghai TCH was established as a foreign investment enterprise in Shanghai under the laws of the PRC on May
25, 2004, and currently has registered capital of $29.80 million. Xi’an TCH was incorporated in Xi’an, Shaanxi Province under
the laws of the PRC in November 2007. Erdos TCH was incorporated in April 2009. Huahong was incorporated in February 2009. Xi’an
Zhonghong New Energy Technology Co., Ltd. was incorporated in July 2013. Xi’an TCH owns 90% and Shanghai TCH owns 10% of Zhonghong.
Zhonghong provides energy saving solutions and services, including constructing, selling and leasing energy saving systems and equipment
to customers.
The
Company’s organizational chart as of the date of this prospectus is as follows:
Erdos
TCH - Joint Venture
On
April 14, 2009, the Company formed a joint venture (the “JV”) with Erdos Metallurgy Co., Ltd. (“Erdos”) to recycle
waste heat from Erdos’ metal refining plants to generate power and steam to be sold back to Erdos. The name of the JV was Inner
Mongolia Erdos TCH Energy Saving Development Co., Ltd. (“Erdos TCH”) with a term of 20 years. Erdos contributed 7% of the
total investment of the project, and Xi’an TCH Energy Technology Co., Ltd. (“Xi’an TCH”) contributed 93%. On
June 15, 2013, Xi’an TCH and Erdos entered into a share transfer agreement, pursuant to which Erdos sold its 7% ownership interest
in the JV to Xi’an TCH for $1.29 million (RMB 8 million), plus certain accumulated profits. Xi’an TCH paid the $1.29 million
in July 2013 and, as a result, became the sole stockholder of the JV. Erdos TCH currently has two power generation systems in Phase I
with a total 18 MW power capacity, and three power generation systems in Phase II with a total 27 MW power capacity. On April 28, 2016,
Erdos TCH and Erdos entered into a supplemental agreement, effective May 1, 2016, whereby Erdos TCH cancelled monthly minimum lease payments
from Erdos, and started to charge Erdos based on actual electricity sold at RMB 0.30 / KWH. The selling price of each KWH is determined
annually based on prevailing market conditions. In May 2019, Erdos TCH ceased operations due to renovations and furnace safety upgrades
of Erdos, and the Company initially expected the resumption of operations in July 2020, but the resumption of operations was further
delayed due to the government’s mandate for Erdos to significantly lower its energy consumption per unit of GDP by implementing
a comprehensive technical upgrade of its ferrosilicon production line to meet the City’s energy-saving targets. Erdos is currently
researching the technical rectification scheme. Once the scheme is determined, Erdos TCH will carry out technical transformation for
its waste heat power station project. During this period, Erdos will compensate Erdos TCH RMB 1 million ($145,524) per month ,
until operations resume. The Company has not recognized any income due to the uncertainty of collection. In addition, Erdos TCH has 30%
ownership in DaTangShiDai (BinZhou) Energy Savings Technology Co., Ltd. (“BinZhou Energy Savings”), 30% ownership in DaTangShiDai
DaTong Recycling Energy Technology Co., Ltd. (“DaTong Recycling Energy”), and 40% ownership in DaTang ShiDai TianYu XuZhou
Recycling Energy Technology Co, Ltd. (“TianYu XuZhou Recycling Energy”). These companies were incorporated in 2012 but had
no operations since then nor has any registered capital contribution been made.
Formation
of Zhongxun
On
March 24, 2014, Xi’an TCH incorporated a subsidiary, Zhongxun Energy Investment (Beijing) Co., Ltd. (“Zhongxun”) with
registered capital of $5,695,502 (RMB 35,000,000), which must be contributed before October 1, 2028. Zhongxun is 100% owned by Xi’an
TCH and will be mainly engaged in project investment, investment management, economic information consulting, and technical services.
Zhongxun has not commenced operations nor has any capital contribution been made as of the date of this prospectus.
Formation
of Yinghua
On
February 11, 2015, the Company incorporated a subsidiary, Shanghai Yinghua Financial Leasing Co., Ltd. (“Yinghua”) with registered
capital of $30,000,000, to be paid within 10 years from the date the business license is issued. Yinghua is 100% owned by the Company
and will be mainly engaged in financial leasing, purchase of financial leasing assets, disposal and repair of financial leasing assets,
consulting and ensuring of financial leasing transactions, and related factoring business. Yinghua has not commenced operations nor has
any capital contribution been made as of the date of this prospectus.
Impact
of the COVID-19 Pandemic
The
COVID-19 pandemic did not have a material impact on our business or results of operation during the three months ended March 31, 2024
and fiscal years ended December 31, 2023 and 2022. However, the extent to which the COVID-19 pandemic may negatively impact the general
economy and our business is highly uncertain and cannot be accurately predicted. These uncertainties may impede our ability to conduct
our operations and could materially and adversely affect our business, financial condition and results of operations, and as a result
could adversely affect our stock price and create more volatility.
Recent
Regulatory Developments
Smart
Powerr Corp., or the Company or CREG, is a holding company incorporated in the state of Nevada. As a holding company with no material
operations, CREG conducts a substantial majority of its operations through its subsidiaries established in the People’s Republic
of China, or the PRC or China. However, neither the holding company nor any of the Company’s Chinese subsidiaries conduct any operations
through contractual arrangements with a variable interest entity based in China. Investors in our common stock should be aware that they
may never directly hold equity interests in the PRC operating entities, but rather purchasing equity solely in CREG, our Nevada holding
company. Furthermore, shareholders may face difficulties enforcing their legal rights under United States securities laws against our
directors and officers who are located outside of the United States. See “Risk Factors - Risks Related to Doing Business in China
- Uncertainties with respect to the PRC legal system could adversely affect us” on page 38 of this prospectus.
Our
equity structure is a direct holding structure. Within our direct holding structure, the cross-border transfer of funds within our corporate
entities is legal and compliant with the laws and regulations of the PRC. After the foreign investors’ funds enter CREG, the funds
can be directly transferred to the PRC operating companies through its subsidiaries. Specifically, CREG is permitted under the Nevada
laws to provide funding to our subsidiary in Cayman Islands through loans or capital contributions without restrictions on the amount
of the funds, subject to satisfaction of applicable government registration, approval and filing requirements. Our subsidiary in Cayman
Islands is also permitted under the laws of Cayman Islands to provide funding to CREG through dividend distribution without restrictions
on the amount of the funds. Current PRC regulations permit our PRC subsidiaries to pay dividends to the Company only out of their accumulated
profits, if any, determined in accordance with Chinese accounting standards and regulations. As of the date hereof, there have not been
any transfers, dividends or distributions made between the holding company, its subsidiaries, and to investors. Furthermore, as of the
date hereof, no cash generated from one subsidiary is used to fund another subsidiary’s operations and we do not anticipate any
difficulties or limitations on our ability to transfer cash between subsidiaries. We have also not installed any cash management policies
that dictate the amount of such funds and how such funds are transferred. For the foreseeable future, we intend to use the earnings for
our business operations and as a result, we do not intend to distribute earnings or pay any cash dividends. See “Transfers of Cash
to and from Our Subsidiaries” on page 10 and 11 of this prospectus.
Because
our operations are primarily located in the PRC through our subsidiaries, we are subject to certain legal and operational risks associated
with our operations in China, including changes in the legal, political and economic policies of the Chinese government, the relations
between China and the U.S, or Chinese or U.S regulations may materially and adversely affect our business, financial condition and results
of operations. PRC laws and regulations governing our current business operations are sometimes vague and uncertain, and therefore, these
risks may result in a material change in our operations and the value of our common stock, or could significantly limit or completely
hinder our ability to offer or continue to offer our securities to investors and cause the value of such securities to significantly
decline or be worthless. The PRC government initiated a series of regulatory actions and statements to regulate business operations in
China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over
China-based companies listed overseas using a variable interest entity structure, adopting new measures to extend the scope of cybersecurity
reviews, and expanding the efforts in anti-monopoly enforcement. As confirmed by our PRC counsel, Yan Tan, we will not be subject to
cybersecurity review with the Cyberspace Administration of China, or the “CAC,” after the Cybersecurity Review Measures became
effective on February 15, 2022, since we currently do not have over one million users’ personal information and do not anticipate
that we will be collecting over one million users’ personal information in the foreseeable future, which we understand might otherwise
subject us to the Cybersecurity Review Measures. We do not believe that our subsidiaries are directly subject to these regulatory actions
or statements, as we have not implemented any monopolistic behavior and our business does not involve the collection of user data or
implicate cybersecurity. As of the date hereof, no relevant laws or regulations in the PRC explicitly require us to seek approval from
the China Securities Regulatory Commission, or the CSRC, or any other PRC governmental authorities for future offerings, nor has our
Nevada holding company or any of our subsidiaries received any inquiry, notice, warning or sanctions regarding previous offerings from
the CSRC or any other PRC governmental authorities. However, on February 17, 2023, the CSRC promulgated Trial Administrative Measures
of the Overseas Securities Offering and Listing by Domestic Companies (the “Overseas Listing Trial Measures”) and five relevant
guidelines, which became effective on March 31, 2023. According to the Overseas Listing Trial Measures, PRC domestic companies that seek
to offer and list securities in overseas markets, either in direct or indirect means, are required to fulfill the filing procedure with
the CSRC and report relevant information. The Overseas Listing Trial Measures provides that an overseas listing or offering is explicitly
prohibited, if any of the following: (1) such securities offering and listing is explicitly prohibited by provisions in laws, administrative
regulations and relevant state rules; (2) the intended securities offering and listing may endanger national security as reviewed and
determined by competent authorities under the State Council in accordance with law; (3) the domestic company intending to make the securities
offering and listing, or its controlling shareholder(s) and the actual controller, have committed relevant crimes such as corruption,
bribery, embezzlement, misappropriation of property or undermining the order of the socialist market economy during the latest three
years; (4) the domestic company intending to make the securities offering and listing is currently under investigations for suspicion
of criminal offenses or major violations of laws and regulations, and no conclusion has yet been made thereof; or (5) there are material
ownership disputes over equity held by the domestic company’s controlling shareholder(s) or by other shareholder(s) that are controlled
by the controlling shareholder(s) and/or actual controller.
The
Overseas Listing Trial Measures also provides that if the issuer meets both the following criteria, the overseas securities offering
and listing conducted by such issuer will be deemed as an indirect overseas offering by PRC domestic companies: (1) 50% or more of any
of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial
statements for the most recent fiscal year is accounted for by domestic companies; and (2) the issuer’s main business activities
are conducted in China, or its main place(s) of business are located in China, or the majority of senior management staff in charge of
its business operations and management are PRC citizens or have their usual place(s) of residence located in China. Where an issuer submits
an application for initial public offering to competent overseas regulators, such issuer must file with the CSRC within three business
days after such application is submitted. In addition, the Overseas Listing Trial Measures provide that the direct or indirect overseas
listings of the assets of domestic companies through one or more acquisitions, share swaps, transfers or other transaction arrangements
shall be subject to filing procedures in accordance with the Overseas Listing Trial Measures. The Overseas Listing Trial Measures also
requires subsequent reports to be filed with the CSRC on material events, such as change of control or voluntary or forced delisting
of the issuer(s) who have completed overseas offerings and listings.
At
a press conference held for these new regulations (“Press Conference”), officials from the CSRC clarified that the domestic
companies that have already been listed overseas on or before March 31, 2023 shall be deemed as existing issuers (the “Existing
Issuers”). Existing Issuers are not required to complete the filling procedures immediately, and they shall be required to file
with the CSRC upon occurrences of certain subsequent matters such as follow-on offerings of securities. According to the Overseas Listing
Trial Measures and the Press Conference, the existing domestic companies that have completed overseas offering and listing before March
31, 2023, such as us, shall not be required to perform filing procedures for the completed overseas securities issuance and listing.
However, from the effective date of the regulation, any of our subsequent securities offering in the same overseas market or subsequent
securities offering and listing in other overseas markets shall be subject to the filing requirement with the CSRC within three working
days after the offering is completed or after the relevant application is submitted to the relevant overseas authorities, respectively.
If it is determined that any approval, filing or other administrative procedures from other PRC governmental authorities is required
for any future offering or listing, we cannot assure you that we can obtain the required approval or accomplish the required filings
or other regulatory procedures in a timely manner, or at all. If we fail to fulfill filing procedure as stipulated by the Trial Measures
or offer and list securities in an overseas market in violation of the Trial Measures, the CSRC may order rectification, issue warnings
to us, and impose a fine of between RMB1,000,000 and RMB10,000,000. Persons-in-charge and other persons that are directly liable for
such failure shall be warned and each imposed a fine from RMB500,000 to RMB5,000,000. Controlling shareholders and actual controlling
persons of us that organize or instruct such violations shall be imposed a fine from RMB1,000,000 and RMB10,000,000.
On
February 24, 2023, the CSRC published the Provisions on Strengthening the Confidentiality and Archives Administration Related to the
Overseas Securities Offering and Listing by Domestic Enterprises (the “Provisions on Confidentiality and Archives Administration”),
which came into effect on March 31, 2023. The Provisions on Confidentiality and Archives Administration requires that, in the process
of overseas issuance and listing of securities by domestic entities, the domestic entities, and securities companies and securities service
institutions that provide relevant securities service shall strictly implement the provisions of relevant laws and regulations and the
requirements of these provisions, establish and improve rules on confidentiality and archives administration. Where the domestic entities
provide with or publicly disclose documents, materials or other items related to the state secrets and government work secrets to the
relevant securities companies, securities service institutions, overseas regulatory authorities, or other entities or individuals, the
companies shall apply for approval of competent departments with the authority of examination and approval in accordance with law and
report the matter to the secrecy administrative departments at the same level for record filing. Where there is unclear or controversial
whether or not the concerned materials are related to state secrets, the materials shall be reported to the relevant secrecy administrative
departments for determination. However, there remain uncertainties regarding the further interpretation and implementation of the Provisions
on Confidentiality and Archives Administration.
PRC
Regulatory Permissions
We
and our operating subsidiaries currently have received all material permissions and approvals required for our operations in compliance
with the relevant PRC laws and regulations in the PRC, including the business licenses of our operating subsidiaries.
The
business license is a permit issued by Administration for Market Regulation that allows the company to conduct specific business within
the government’s geographical jurisdiction. Each of our PRC subsidiaries has received its business license. As of the date hereof,
except for the business licenses mentioned here, Smart Powerr Corp. and our PRC subsidiaries are not required to obtain any other permissions
or approvals from any Chinese authorities to operate the business. However, applicable laws and regulations may be tightened, and new
laws or regulations may be introduced to impose additional government approval, license, and permit requirements. If we or our subsidiaries
fail to obtain and maintain such approvals, licenses, or permits required for our business, inadvertently conclude that such approval
is not required, or respond to changes in the regulatory environment, we or our subsidiaries could be subject to liabilities, penalties,
and operational disruption, which may materially and adversely affect our business, operating results, financial condition and the value
of our common stock, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, or cause
such securities to significantly decline in value or become worthless.
On
August 8, 2006, six PRC regulatory agencies jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign
Investors, or the M&A Rules, which came into effect on September 8, 2006 and were amended on June 22, 2009. The M&A Rules require
that an offshore special purpose vehicle formed for overseas listing purposes and controlled directly or indirectly by PRC Citizens shall
obtain the approval of the China Securities Regulatory Commission(“CSRC”) prior to overseas listing and trading of such special
purpose vehicle’s securities on an overseas stock exchange. Based on our understanding of the Chinese laws and regulations in effect
at the time of this prospectus, we will not be required to submit an application to the CSRC for its approval of future offerings and
the trading of common stock on the Nasdaq under the M&A Rules. However, there remains some uncertainty as to how the M&A Rules
will be interpreted or implemented, and the requirement standard may change when new laws, rules and regulations or detailed implementations
and interpretations in any form relating to the M&A Rules are installed. We cannot assure you that relevant Chinese government agencies,
including the CSRC, would reach the same conclusion.
The
General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the
Opinions on Strictly Cracking Down on Illegal Securities Activities, which were made available to the public on July 6, 2021. The Opinions
on Strictly Cracking Down on Illegal Securities Activities emphasized the need to strengthen the administration over illegal securities
activities, and the need to strengthen the supervision over overseas listings by Chinese companies. Pursuant to the Opinions, Chinese
regulators are required to accelerate rulemaking related to the overseas issuance and listing of securities, and update the existing
laws and regulations related to data security, cross-border data flow, and management of confidential information. Numerous regulations,
guidelines and other measures are expected to be adopted under the umbrella of or in addition to the Cybersecurity Law and Data Security
Law. As of the date hereof, no official guidance or related implementation rules have been issued. As a result, the Opinions on Strictly
Cracking Down on Illegal Securities Activities remain unclear on how they will be interpreted, amended and implemented by the relevant
PRC governmental authorities.
On
December 28, 2021, the CAC and other relevant PRC governmental authorities jointly promulgated the Cybersecurity Review Measures (the
“new Cybersecurity Review Measures”) which took effect on February 15, 2022 and replaced the original Cybersecurity Review
Measures. Pursuant to the new Cybersecurity Review Measures, if critical information infrastructure operators purchase network products
and services, or network platform operators conduct data processing activities that affect or may affect national security, they will
be subject to cybersecurity review. A network platform operator holding more than one million users/users’ individual information
also shall be subject to cybersecurity review before listing abroad. The cybersecurity review will evaluate, among others, the risk of
critical information infrastructure, core data, important data, or a large amount of personal information being influenced, controlled
or maliciously used by foreign governments and risk of network data security after going public overseas.
We
believe that neither we nor our subsidiaries are currently required to obtain permission from any of the PRC authorities to operate and
issue our common stock to foreign investors, or required to obtain permission or approval from the CSRC, CAC or any other governmental
agency. Recently, however, the General Office of the Central Committee of the Communist Party of China and the General Office of the
State Council jointly issued the “Opinions on Severely Cracking Down on Illegal Securities Activities According to Law,”
or the “Opinions,” which were made available to the public on July 6, 2021. The Opinions emphasized the need to strengthen
the administration over illegal securities activities and the need to strengthen the supervision over overseas listings by Chinese companies.
Effective measures, such as promoting the construction of relevant regulatory systems, will be taken to deal with the risks and incidents
of China-concept overseas listed companies, cybersecurity, data privacy protection requirements, and similar matters. The Opinions and
any related implementing rules to be enacted may subject us to compliance requirements in the future. Given the current regulatory environment
in the PRC, we are still subject to the uncertainty of different interpretation and enforcement of the rules and regulations in the PRC
adverse to us, which may take place quickly with little advance notice. See “The Opinions recently issued by the General Office
of the Central Committee of the Communist Party of China and the General Office of the State Council may subject us to additional compliance
requirement in the future” on page 41 of this prospectus.
We
believe we will not be subject to the Cybersecurity Review Measures that became effective on February 15, 2022 under the CAC, because
we currently do not have over one million users’ personal information and do not anticipate that we will be collecting over one
million users’ personal information in the foreseeable future, which we understand might check subject us to the Cybersecurity
Review Measures. We are also not subject to network data security review by the CAC if the Draft Regulations on the Network Data Security
Administration are enacted as proposed, since we currently do not have over one million users’ personal information and do not
collect data that affects or may affect national security and we do not anticipate that we will be collecting over one million users’
personal information or data that affects or may affect national security in the foreseeable future, which we understand might otherwise
subject us to the Security Administration Draft.
Moreover,
we believe that no relevant laws or regulations in the PRC explicitly require us to seek approval from the CSRC for our overseas listing
plan. As of the date of this prospectus, we and our PRC subsidiaries have not received any inquiry, notice, warning, or sanctions regarding
our planned overseas listing from the CSRC or any other PRC governmental authorities. However, on February 17, 2023, the CSRC promulgated
Trial Administrative Measures of the Overseas Securities Offering and Listing by Domestic Companies (the “Overseas Listing Trial
Measures”) and five relevant guidelines, which became effective on March 31, 2023. According to the Overseas Listing Trial Measures,
PRC domestic companies that seek to offer and list securities in overseas markets, either in direct or indirect means, are required to
fulfill the filing procedure with the CSRC and report relevant information. The Overseas Listing Trial Measures provides that an overseas
listing or offering is explicitly prohibited, if any of the following: (1) such securities offering and listing is explicitly prohibited
by provisions in laws, administrative regulations and relevant state rules; (2) the intended securities offering and listing may endanger
national security as reviewed and determined by competent authorities under the State Council in accordance with law; (3) the domestic
company intending to make the securities offering and listing, or its controlling shareholder(s) and the actual controller, have committed
relevant crimes such as corruption, bribery, embezzlement, misappropriation of property or undermining the order of the socialist market
economy during the latest three years; (4) the domestic company intending to make the securities offering and listing is currently under
investigations for suspicion of criminal offenses or major violations of laws and regulations, and no conclusion has yet been made thereof;
or (5) there are material ownership disputes over equity held by the domestic company’s controlling shareholder(s) or by other
shareholder(s) that are controlled by the controlling shareholder(s) and/or actual controller.
As
of the date of this prospectus, we and our PRC subsidiaries have obtained the requisite licenses and permits from the PRC government
authorities that are material for the business operations of our PRC subsidiaries. In addition, as of the date of this prospectus, we
and our PRC subsidiaries are not required to obtain approval or permission from the CSRC or the CAC or any other entity that is required
to approve our PRC subsidiaries’ operations or required for us to offer securities to foreign investors under any currently effective
PRC laws, regulations, and regulatory rules. If it is determined that we are subject to filing requirements imposed by the CSRC under
the Overseas Listing Regulations or approvals from other PRC regulatory authorities or other procedures, including the cybersecurity
review under the revised Cybersecurity Review Measures, for our future offshore offerings, it would be uncertain whether we can or how
long it will take us to complete such procedures or obtain such approval and any such approval could be rescinded. Any failure to obtain
or delay in completing such procedures or obtaining such approval for our offshore offerings, or a rescission of any such approval, if
obtained by us, would subject us to sanctions by the CSRC or other PRC regulatory authorities for failure to file with the CSRC or failure
to seek approval from other government authorization for our offshore offerings. These regulatory authorities may impose fines and penalties
on our operations in China, limit our ability to pay dividends outside of China, limit our operating privileges in China, delay or restrict
the repatriation of the proceeds from our offshore offerings into China or take other actions that could materially and adversely affect
our business, financial condition, results of operations, and prospects, as well as the trading price of our common stock. The CSRC or
other PRC regulatory authorities also may take actions requiring us, or making it advisable for us, to halt our offshore offerings before
settlement and delivery of the securities offered. Consequently, if investors engage in market trading or other activities in anticipation
of and prior to settlement and delivery, they do so at the risk that settlement and delivery may not occur. In addition, if the CSRC
or other regulatory authorities later promulgate new rules or explanations requiring that we obtain their approvals or accomplish the
required filing or other regulatory procedures for our prior offshore offerings, we may be unable to obtain a waiver of such approval
requirements, if and when procedures are established to obtain such a waiver. Any uncertainties or negative publicity regarding such
approval requirement could materially and adversely affect our business, prospects, financial condition, reputation, and the trading
price of our common stock.
Since
these statements and regulatory actions by the PRC government are newly published and official guidance and related implementation rules
have not been issued, it is highly uncertain how soon legislative or administrative regulation making bodies will respond and what existing
or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential
impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments
and list on an U.S. or other foreign exchange. The Standing Committee of the National People’s Congress, or the SCNPC, or other
PRC regulatory authorities may in the future promulgate laws, regulations or implementing rules that requires our company or any of our
subsidiaries to obtain regulatory approval from Chinese authorities before future offerings in the U.S. In other words, although the
Company is currently not required to obtain permission from any of the PRC federal or local government to obtain such permission and
has not received any denial to list on the U.S. exchange, our operations could be adversely affected, directly or indirectly; our ability
to offer, or continue to offer, securities to investors would be potentially hindered and the value of our securities might significantly
decline or be worthless, by existing or future laws and regulations relating to its business or industry or by intervene or interruption
by PRC governmental authorities, if we or our subsidiaries (i) do not receive or maintain such permissions or approvals, (ii) inadvertently
conclude that such permissions or approvals are not required, (iii) applicable laws, regulations, or interpretations change and we are
required to obtain such permissions or approvals in the future, or (iv) any intervention or interruption by PRC governmental with little
advance notice.
For
more details, see “Risk Factors - Risks Related to Doing Business in China - The Chinese government exerts substantial influence
over the manner in which we must conduct our business activities. We are currently not required to obtain approval from Chinese authorities
to list on U.S exchanges, however, if our subsidiaries or the holding company were required to obtain approval or filing in the future
and were denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange,
which would materially affect the interest of the investors” on page 30 of this prospectus.
As
of the date hereof, we and our PRC subsidiaries have received from PRC authorities all requisite licenses, permissions or approvals needed
to engage in the businesses currently conducted in China, and no permission or approval has been denied. The following table provides
details on the licenses and permissions held by our PRC subsidiaries.
Approval
|
|
Recipient |
|
Issuing
body |
|
Validity |
Business
License |
|
Shanghai Yinghua
Financial Leasing Co., Ltd. |
|
China (Shanghai)
Pilot Free Trade Zone Market Supervision Administration |
|
May
10, 2045 |
Business
License |
|
Shanghai TCH
Energy Technology Co., Ltd. |
|
China (Shanghai)
Pilot Free Trade Zone Market Supervision Administration |
|
May
24, 2029 |
Business
License |
|
Huahong New
Energy Technology Co., Ltd. |
|
Shaanxi Provincial
Industry and Commerce Administration |
|
Indefinite
|
Business
License |
|
Xi’an
TCH Energy Technology Co., Ltd. |
|
Xi’an
Market Supervision Administration |
|
Indefinite
|
Business
License |
|
Erdos TCH Energy
Saving Development Co., Ltd. |
|
Market Supervision
administration of Etok Banner |
|
April
13, 2029 |
Business
License |
|
Xi’an
Zhonghong New Energy Technology Co., Ltd. |
|
Xi’an
Industry and Commerce Administration |
|
Indefinite
|
Business
License |
|
Zhongxun Energy
Investment (Beijing) Co., Ltd |
|
Dongcheng Branch
of Beijing Industry and Commerce Administration |
|
March
23, 2044 |
Business
License |
|
Beijing Hongyuan
Recycling Energy Investment Center |
|
Beijing Haidian
District Market Supervision Administration |
|
July
17, 2063 |
Implication
of the Holding Foreign Company Accountable Act
On
March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements
of the HFCAA. An identified issuer will be required to comply with these rules if the SEC identifies it as having a “non-inspection”
year under a process to be subsequently established by the SEC. On June 22, 2021, U.S Senate passed the Accelerating Holding Foreign
Companies Accountable Act, which was signed into law on December 29, 2022, amending the HFCAA and requiring the SEC to prohibit an issuer’s
securities from trading on any U.S. stock exchange if its auditor is not subject to PCAOB inspections for two consecutive years instead
of three consecutive years. If our auditor cannot be inspected by the PCAOB, PCAOB, for two consecutive years, the trading of our securities
on any U.S. national securities exchanges, as well as any over-the-counter trading in the U.S., will be prohibited. On September 22,
2021, the PCAOB adopted a final rule implementing the HFCAA, which provides a framework for the PCAOB to use when determining, as contemplated
under the HFCAA, whether the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign
jurisdiction because of a position taken by one or more authorities in that jurisdiction. On December 2, 2021, the SEC issued amendments
to finalize rules implementing the submission and disclosure requirements in the HFCA Act. The rules apply to registrants that the SEC
identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign
jurisdiction and that PCAOB is unable to inspect or investigate completely because of a position taken by an authority in foreign jurisdictions.
On December 16, 2021, the PCAOB issued a report on its determinations that it is unable to inspect or investigate completely PCAOB-registered
public accounting firms headquartered in mainland China and in Hong Kong, because of positions taken by PRC authorities in those jurisdictions.
Kreit
& Chiu CPA LLP (“Kreit & Chiu,” formerly Paris Kreit & Chiu CPA LLP), the independent registered public
account firm that issued the audit report for the fiscal years ended December 31, 2022 and 2021, as an auditor of companies that are
traded publicly in the U.S. and a firm registered with the PCAOB, is subject to laws in the U.S pursuant to which the PCAOB conducts
regular inspections to assess such auditor’s compliance with the applicable professional standards. Kreit & Chiu is
headquartered in New York, New York, and is subject to inspection by the PCAOB on a regular basis. Enrome LLP, our independent
registered public accounting firm for the fiscal year ended December 31, 2023, is based in Singapore and is registered with PCAOB
and subject to PCAOB inspection. Therefore, we believe neither Kreit & Chiu, our previous auditor, nor Enrome LLP, our current
auditor, is subject to the determinations as to the inability to inspect or investigate registered firms completely announced by the
PCAOB on December 16, 2021. However, as more stringent criteria have been imposed by the SEC and the PCAOB, recently, which would
add uncertainties to future offerings, and we cannot assure you whether Nasdaq or other regulatory authorities would apply
additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality
control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to
the audit of our financial statements. On August 26, 2022, the CSRC, the Ministry of Finance of the PRC (the “MOF”), and
the PCAOB signed a Statement of Protocol (the “Protocol”), governing inspections and investigations of audit firms based
in China and Hong Kong. The Protocol remains unpublished and is subject to further explanation and implementation. Pursuant to the
fact sheet with respect to the Protocol disclosed by the U.S. Securities and Exchange Commission (the “SEC”), the PCAOB
shall have independent discretion to select any issuer audits for inspection or investigation and has the unfettered ability to
transfer information to the SEC. See “The recent joint statement by the SEC and PCAOB, proposed rule changes submitted by
Nasdaq, and the HFCAA all call for additional and more stringent criteria to be applied to emerging market companies upon assessing
the qualification of their auditors, especially the non-U.S. auditors which are not inspected by the PCAOB. These developments could
add uncertainties to the trading of our common stock” on page 41 of this prospectus.
Transfers
of Cash to and from Our Subsidiaries
Smart
Powerr Corp. is a holding company with no operations of its own. We conduct our operations in China primarily through our subsidiaries
in China. We may rely on dividends to be paid by our subsidiaries in China to fund our cash and financing requirements, including the
funds necessary to pay dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating
expenses. If our subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict its ability
to pay dividends or make other distributions to us.
Our
equity structure is a direct holding company structure. Within our direct holding company structure, the cross-border transfer of funds
between our corporate entities is legal and compliant with the laws and regulations of the PRC. After the foreign investors’ funds
enter CREG, the funds can be directly transferred to the PRC operating companies through its subsidiaries. Specifically, Smart Powerr
Corp. is permitted under the Nevada laws to provide funding to our subsidiary, Sifang Holdings, in Cayman Islands through loans or capital
contributions without restrictions on the amount of the funds, subject to satisfaction of applicable government registration, approval
and filing requirements. Sifang Holdings is also permitted under the laws of Cayman Islands to provide funding to Smart Powerr Corp.
through dividend distribution without restrictions on the amount of the funds. As of the date hereof, there have not been any transfers,
dividends or distributions made between the holding company, its subsidiaries, and to investors.
We
currently intend to retain all available funds and future earnings, if any, for the operation and expansion of our business and do not
anticipate declaring or paying any dividends in the foreseeable future. Any future determination related to our dividend policy will
be made at the discretion of our Board of Directors after considering our financial condition, results of operations, capital requirements,
contractual requirements, business prospects and other factors the Board of Directors deems relevant, and subject to the restrictions
contained in any future financing instruments.
Subject
to the Nevada Business Corporation Act and our bylaws, our Board of Directors may authorize and declare a dividend to shareholders at
such time and of such an amount as it thinks fit if they are satisfied, on reasonable grounds, that immediately following the dividend
the value of our assets will exceed our liabilities and we will be able to pay our debts as they become due.
To
address persistent capital outflows and the RMB’s depreciation against the U.S. dollar in the fourth quarter of 2016, the People’s
Bank of China and the State Administration of Foreign Exchange, or SAFE, have implemented a series of capital control measures in the
subsequent months, including stricter vetting procedures for China-based companies to remit foreign currency for overseas acquisitions,
dividend payments and shareholder loan repayments. The PRC government may continue to strengthen its capital controls and our PRC subsidiaries’
dividends and other distributions may be subject to tightened scrutiny in the future. The PRC government also imposes controls on the
conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties
in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits,
if any. Furthermore, if our subsidiaries in the PRC incur debt on their own in the future, the instruments governing the debt may restrict
their ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive all of the revenues from our operations,
we may be unable to pay dividends on our common stock.
Cash
dividends, if any, on our common stock will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise for tax purposes,
any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding
tax at up to 10%.
To
pay dividends to our shareholders, we will rely on payments made from our PRC subsidiaries, i.e., Shanghai Yinghua Financial Leasing
Co., Ltd, Shanghai TCH Energy Technology Co., Ltd., Huahong New Energy Technology Co., Ltd., Xi’an TCH Energy Technology Co., Ltd.,
Erdos TCH Energy Saving Development Co., Ltd., Xi’an Zhonghong New Energy Technology Co., Ltd., and Zhongxun Energy Investment
(Beijing) Co., Ltd., to Smart Powerr Corp. As of the date hereof, our PRC subsidiaries have not made any transfers or distributions.
As of the date hereof, no cash or asset transfers have occurred between the Company and its subsidiaries. We do not expect to pay any
cash dividends in the foreseeable future. Furthermore, as of the date hereof, no cash generated from one subsidiary is used to fund another
subsidiary’s operations and we do not anticipate any difficulties or limitations on our ability to transfer cash between subsidiaries.
We have also not installed any cash management policies that dictate the amount of such funds and how such funds are transferred.
See
“Prospectus Summary – Transfers of Cash to and from Our Subsidiaries.” See also “Risk Factors — We are
a holding company, and will rely on dividends paid by our subsidiaries for our cash needs. Any limitation on the ability of our subsidiaries
to make dividend payments to us, or any tax implications of making dividend payments to us, could limit our ability to pay our parent
company expenses or pay dividends to holders of our common stock” on page 29 of this prospectus, and “Risk Factors
— Risks Related to Doing Business in China — “PRC regulation of loans to and direct investment by offshore holding
companies in PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC operating companies,
which could materially and adversely affect our liquidity and ability to fund and expand our business.” on page 38 of this
prospectus. See also the consolidated financial statements contained in our latest annual report on Form 10-K and incorporated herein
by reference.
Our Projects
We
design, finance, construct, operate and eventually transfer waste energy recycling projects to meet the energy saving and recovery needs
of our customers. Our waste energy recycling projects use the pressure, heat or gas, which is generated as a byproduct of a variety of
industrial processes, to create electricity. The residual energy from industrial processes, which was traditionally wasted, may be captured
in a recovery process and utilized by our waste energy recycling projects to generate electricity burning additional fuel and additional
emissions. Among a wide variety of waste-to-energy technologies and solutions, we primarily focus on waste pressure to energy systems,
waste heat to energy systems and waste gas power generation systems. We do not manufacture the equipment and materials that are used
in the construction of our waste energy recycling projects. Rather, we incorporate standard power generating equipment into a fully integrated
onsite project for our customers.
Waste Heat
to Energy Systems
Waste
heat to energy systems utilize waste heat generated in industrial production to generate electricity. The waste heat is trapped to heat
a boiler to create steam and power a steam turbine. Our waste heat to energy systems have used waste heat from cement production and
from metal production.
Shanghai TCH
and its Subsidiaries
Shanghai
TCH was established as a foreign investment enterprise in Shanghai under the laws of the PRC on May 25, 2004 and has a registered capital
of $29.80 million. Xi’an TCH was incorporated in Xi’an, Shaanxi Province under the laws of the PRC on November 8, 2007. In
February 2009, Huahong was incorporated in Xi’an, Shaanxi province. Erdos TCH was incorporated in April 2009 in Erdos, Inner Mongolia
Autonomous Region. On July 19, 2013, Xi’an TCH formed Xi’an Zhonghong New Energy Technology Co., Ltd (“Zhonghong”).
Xi’an TCH owns 90% and Shanghai TCH owns 10% of Zhonghong, which provides energy saving solutions and services, including constructing,
selling and leasing energy saving systems and equipment to customers.
Erdos TCH
- Joint Venture
On
April 14, 2009, the Company formed Erdos TCH as a joint venture (the “JV” or “Erdos TCH”) with Erdos Metallurgy
Co., Ltd. (“Erdos”) to recycle waste heat from Erdos’ metal refining plants to generate power and steam to be sold
back to Erdos. The JV has a term of 20 years with a total investment for the project estimated at $79 million (RMB 500 million) and an
initial investment of $17.55 million (RMB 120 million). Erdos contributed 7% of the total investment for the project, and Xi’an
TCH contributed 93%. According to Xi’an TCH and Erdos’ agreement on profit distribution, Xi’an TCH and Erdos will receive
80% and 20%, respectively, of the profit from the JV until Xi’an TCH receives the complete return of its investment. Xi’an
TCH and Erdos will then receive 60% and 40%, respectively, of the profit from the JV. On June 15, 2013, Xi’an TCH and Erdos entered
into a share transfer agreement, pursuant to which Erdos transferred and sold its 7% ownership interest in the JV to Xi’an TCH
for $1.29 million (RMB 8 million), plus certain accumulated profits as described below. Xi’an TCH paid the $1.29 million in July
2013 and, as a result, became the sole stockholder of Erdos TCH. In addition, Xi’an TCH is required to pay Erdos accumulated profits
from inception up to June 30, 2013 in accordance with the supplementary agreement entered on August 6, 2013. In August 2013, Xi’an
TCH paid 20% of the accumulated profit (calculated under PRC GAAP) of $226,000 to Erdos. Erdos TCH currently has two power generation
systems in Phase I with a total of 18 MW power capacity, and three power generation systems in Phase II with a total of 27 MW power capacity.
The power generation systems were built in 2009, and it is now 13 years old. The equipment is obsolete and the efficiency of the power
generation systems is declining year by year. The current power generation efficiency can only reach 30%, and the equipment needs to
be upgraded. The Erdos government has requested the Erdos to carry out a comprehensive technical upgrade of its ferrosilicon production
line to meet the city’s energy-saving targets. Erdos is researching the technical rectification scheme. After the scheme is determined,
the Company will carry out supporting technical transformation for our waste heat power station project. Before it goes into production,
the Company is still entitled to a compensation of RMB 1 million per month.
After
considering the challenging economic conditions facing Erdos, and to maintain the long-term cooperative relationship between the parties,
which we believe will continue to produce long-term benefits, on April 28, 2016, Erdos TCH and Erdos entered into a supplemental agreement,
effective May 1, 2016. Under the supplemental agreement, Erdos TCH cancelled monthly minimum lease payments from Erdos, and agreed to
charge Erdos based on actual electricity sold at RMB 0.30 / KWH, which such price will be adjusted annually based on prevailing market
conditions.
The
Company evaluated the modified terms for payments based on actual electricity sold as minimum lease payments as defined in ASC 840-10-25-4,
since lease payments that depend on a factor directly related to the future use of the leased property are contingent rentals and, accordingly,
are excluded from minimum lease payments in their entirety. The Company wrote off the net investment receivables of these leases at the
lease modification date.
Pucheng Biomass
Power Generation Projects
On
June 29, 2010, Xi’an TCH entered into a Biomass Power Generation (“BMPG”) Project Lease Agreement with PuchengXinHeng
Yuan Biomass Power Generation Co., Ltd. (“Pucheng”), a limited liability company incorporated in China. Under this lease
agreement, Xi’an TCH leased a set of 12MW BMPG systems to Pucheng at a minimum of $279,400 (RMB 1,900,000) per month for a term
of 15 years. (“Pucheng Phase I”).
On
September 11, 2013, Xi’an TCH entered into a BMPG Asset Transfer Agreement (the “Pucheng Transfer Agreement”) with
Pucheng Xin Heng Yuan Biomass Power Generation Corporation (“Pucheng”), a limited liability company incorporated in China.
The Pucheng Transfer Agreement provided for the sale by Pucheng to Xi’an TCH of a set of 12 MW BMPG systems with the completion
of system transformation for a purchase price of RMB 100 million ($16.48 million) in the form of 8,766,547 shares of common stock of
the Company at $1.87 per share (the share and per share numbers were not adjusted for the Reverse Stock Split). Also on September 11,
2013, Xi’an TCH also entered into a BMPG Project Lease Agreement with Pucheng (the “Pucheng Lease”). Under the Pucheng
Lease, Xi’an TCH leases this same set of 12 MW BMPG system to Pucheng, and combines this lease with the lease for the 12 MW BMPG
station of Pucheng Phase I project, under a single lease to Pucheng for RMB 3.8 million ($0.63 million) per month (the “Pucheng
Phase II Project”). The term for the consolidated lease is from September 2013 to June 2025. The lease agreement for the 12 MW
station from Pucheng Phase I project terminated upon the effective date of the Pucheng Lease. The ownership of two 12 MW BMPG systems
will transfer to Pucheng at no additional charge when the Pucheng Lease expires.
Shenqiu Yuneng
Biomass Power Generation Projects
On
May 25, 2011, Xi’an TCH entered into a Letter of Intent with Shenqiu YuNeng Thermal Power Co., Ltd. (“Shenqiu”) to
reconstruct and transform a Thermal Power Generation System owned by Shenqiu into a 75T/H BMPG System for $3.57 million (RMB 22.5 million).
The project commenced in June 2011 and was completed in the third quarter of 2011. On September 28, 2011, Xi’an TCH entered into
a Biomass Power Generation Asset Transfer Agreement with Shenqiu (the “Shenqiu Transfer Agreement”). Pursuant to the Shenqiu
Transfer Agreement, Shenqiu sold Xi’an TCH a set of 12 MW BMPG systems (after Xi’an TCH converted the system for BMPG purposes).
As consideration for the BMPG systems, Xi’an TCH paid Shenqiu $10.94 million (RMB 70 million) in cash in three installments within
six months upon the transfer of ownership of the systems. By the end of 2012, all the consideration was paid. On September 28, 2011,
Xi’an TCH and Shenqiu also entered into a Biomass Power Generation Project Lease Agreement (the “2011 Shenqiu Lease”).
Under the 2011 Shenqiu Lease, Xi’an TCH agreed to lease a set of 12 MW BMPG systems to Shenqiu at a monthly rental rate of $286,000
(RMB 1.8 million) for 11 years. Upon expiration of the 2011 Shenqiu Lease, ownership of this system will transfer from Xi’an TCH
to Shenqiu at no additional cost. In connection with the 2011 Shenqiu Lease, Shenqiu paid one month’s rent as a security deposit
to Xi’an TCH, in addition to providing personal guarantees.
On
October 8, 2012, Xi’an TCH entered into a Letter of Intent for technical reformation of Shenqiu Project Phase II with Shenqiu for
technical reformation to enlarge the capacity of the Shenqiu Project Phase I (the “Shenqiu Phase II Project”). The technical
reformation involved the construction of another 12 MW BMPG system. After the reformation, the generation capacity of the power plant
increased to 24 MW. The project commenced on October 25, 2012 and was completed during the first quarter of 2013. The total cost of the
project was $11.1 million (RMB 68 million). On March 30, 2013, Xi’an TCH and Shenqiu entered into a BMPG Project Lease Agreement
(the “2013 Shenqiu Lease”). Under the 2013 Shenqiu Lease, Xi’an TCH agreed to lease the second set of 12 MW BMPG systems
to Shenqiu for $239,000 (RMB 1.5 million) per month for 9.5 years. When the 2013 Shenqiu Lease expires, ownership of this system will
transfer from Xi’an TCH to Shenqiu at no additional cost.
On
January 4, 2019, Xi’an Zhonghong, Xi’an TCH, and Mr. Chonggong Bai, a resident of China, entered into a Projects Transfer
Agreement (the “Agreement”), pursuant to which Xi’an TCH transferred two Biomass Power Generation Projects in Shenqiu
(“Shenqiu Phase I and II Projects”) to Mr. Bai for RMB 127,066,000 ($18.55 million). Mr. Bai agreed to transfer all the equity
shares of his wholly owned company, Xi’an Hanneng Enterprises Management Consulting Co. Ltd. (“Xi’an Hanneng”)
to Beijing Hongyuan Recycling Energy Investment Center, LLP (the “HYREF”) as repayment for the loan made by Xi’an Zhonghong
to HYREE as consideration for the transfer of the Shenqiu Phase I and II Projects (See Note 10). The transfer was completed on February
15, 2019.
Yida Coke
Oven Gas Power Generation Projects
On
June 28, 2014, Xi’an TCH entered into an Asset Transfer Agreement (the “Transfer Agreement”) with Qitaihe City Boli
Yida Coal Selection Co., Ltd. (“Yida”), a limited liability company incorporated in China. The Transfer Agreement provided
for the sale to Xi’an TCH of a 15 MW coke oven WGPG station, which was converted from a 15 MW coal gangue power generation station
from Yida. As consideration for the Transfer Asset, Xi’an TCH paid Yida RMB 115 million ($18.69 million) in common stock of the
Company at the average closing price per share of the Stock for the 10 trading days prior to the closing date of the transaction. The
exchange rate between US Dollar and Chinese RMB in connection with the stock issuance was the rate equal to the middle rate published
by the PBOC on the closing date of the assets transfer.
On
June 28, 2014, Xi’an TCH also entered into a Coke Oven Gas Power Generation Project Lease Agreement (the “Lease Agreement”)
with Yida. Under the Lease Agreement, Xi’an TCH leased the Transfer Asset to Yida for RMB 3 million ($0.49 million) per month,
from June 28, 2014 to June 27, 2029. Yida will also provide an RMB 3 million ($0.49 million) security deposit (without interest) for
the lease. Xi’an TCH will transfer the Transfer Asset back to Yida at no cost at the end of the lease.
The Fund Management
Company and the HYREF Fund
On
June 25, 2013, Xi’an TCH and Hongyuan Huifu Venture Capital Co. Ltd (“Hongyuan Huifu”) jointly established Hongyuan
Recycling Energy Investment Management Beijing Co., Ltd (the “Fund Management Company”) with registered capital of RMB 10
million ($1.45 million). With respect to the Fund Management Company, voting rights and dividend rights are allocated 80% and 20% between
Hongyuan Huifu and Xi’an TCH, respectively.
The
Fund Management Company is the general partner of Beijing Hongyuan Recycling Energy Investment Center, LLP (the “HYREF Fund”),
a limited liability partnership established July 18, 2013 in Beijing. The Fund Management Company made an initial capital contribution
of RMB 5 million ($830,000) to the HYREF Fund. An initial amount of RMB 460 million ($77 million) was fully subscribed by all partners
for the HYREF Fund. The HYREF Fund has three limited partners: (1) China Orient Asset Management Co., Ltd., which made an initial capital
contribution of RMB 280 million ($46.67 million) to the HYREF Fund and is a preferred limited partner; (2) Hongyuan Huifu, which made
an initial capital contribution of RMB 100 million ($16.67 million) to the HYREF Fund and is an ordinary limited partner; and (3) the
Company’s wholly-owned subsidiary, Xi’an TCH, which made an initial capital contribution of RMB 75 million ($11.6 million)
to the HYREF Fund and is a secondary limited partner. The term of the HYREF Fund’s partnership is six years from the date of its
establishment, expiring on July 18, 2019. The term is four years from the date of contribution for the preferred limited partner, and
four years from the date of contribution for the ordinary limited partner. The size of the HYREF Fund is RMB 460 million ($76.66 million).
The HYREF Fund was formed for the purpose of investing in Xi’an Zhonghong New Energy Technology Co., Ltd., a then 90% owned subsidiary
of Xi’an TCH, for the construction of two coke dry quenching (“CDQ”) waste heat power generation (“WHPG”)
stations with Jiangsu Tianyu Energy and Chemical Group Co., Ltd. (“Tianyu”) and one CDQ WHPG station with Boxing County Chengli
Gas Supply Co., Ltd. (“Chengli”). On December 2018, Xi’an TCH transferred its 40% ownership of the Fund Management
Company to Hongyuan Huifu, pursuant to an equity transfer agreement signed by both sides.
Chengli
Waste Heat Power Generation Projects
On
July 19, 2013, Xi’an TCH formed a new company, “Xi’an Zhonghong New Energy Technology Co., Ltd.” (“Zhonghong”),
with registered capital of RMB 30 million ($4.85 million). Xi’an TCH paid RMB 27 million ($4.37 million) and owns 90% of Zhonghong.
Zhonghong is engaged to provide energy saving solution and services, including constructing, selling and leasing energy saving systems
and equipment to customers. On December 29, 2018, Shanghai TCH entered into a Share Transfer Agreement with HYREF, pursuant to which
HYREF transferred its 10% ownership in Xi’an Zhonghong to Shanghai TCH for RMB 3 million ($0.44 million). The transfer was completed
on January 22, 2019. The Company owns 100% of Xi’an Zhonghong after the transaction.
On
July 24, 2013, Zhonghong entered into a Cooperative Agreement of CDQ and CDQ WHPG Project (Coke Dry Quenching Waste Heat Power Generation
Project) with Boxing County Chengli Gas Supply Co., Ltd. (“Chengli”). The parties entered into a supplement agreement on
July 26, 2013. Pursuant to these agreements, Zhonghong will design, build and maintain a 25 MW CDQ system and a CDQ WHPG system to supply
power to Chengli, and Chengli will pay energy saving fees (the “Chengli Project”).
On
December 29, 2018, Xi’an Zhonghong, Xi’an TCH, HYREF, Guohua Ku, and Mr. Chonggong Bai entered into a CDQ WHPG Station Fixed
Assets Transfer Agreement, pursuant to which Xi’an Zhonghong transferred Chengli CDQ WHPG station as the repayment for the loan
of RMB 188,639,400 ($27.54 million) to HYREF. Xi’an Zhonghong, Xi’an TCH, Guohua Ku and Chonggong Bai also agreed to buy
back the CDQ WHPG Station when conditions under the Buy Back Agreement are met (see Note 9). The transfer of the Station was completed
January 22, 2019, the Company recorded $624,133 loss from this transfer. Since the original terms of Buy Back Agreement are still valid,
and the Buy Back possibility could occur; therefore, the loan principal and interest and the corresponding asset of Chengli CDQ WHPG
station cannot be derecognized due to the existence of Buy Back clauses (see Note 5 for detail).
Tianyu
Waste Heat Power Generation Project
On
July 19, 2013, Zhonghong entered into a Cooperative Agreement (the “Tianyu Agreement”) for Energy Management of CDQ and CDQ
WHPG Projects with Jiangsu Tianyu Energy and Chemical Group Co., Ltd. (“Tianyu”). Pursuant to the Tianyu Agreement, Zhonghong
will design, build, operate and maintain two sets of 25 MW CDQ systems and CDQ WHPG systems for two subsidiaries of Tianyu - Xuzhou Tian’an
Chemical Co., Ltd. (“Xuzhou Tian’an”) and Xuzhou Huayu Coking Co., Ltd. (“Xuzhou Huayu”) - to be located
at Xuzhou Tian’an and Xuzhou Huayu’s respective locations (the “Tianyu Project”). Upon completion of the Tianyu
Project, Zhonghong will charge Tianyu an energy saving fee of RMB 0.534 ($0.087) per kilowatt hour (excluding tax). The term of the Tianyu
Agreement is 20 years. The construction of the Xuzhou Tian’an Project was completed by the second quarter of 2020. The Xuzhou Huayu
Project has been on hold due to a conflict between Xuzhou Huayu Coking Co., Ltd. and local residents on certain pollution-related issues.
On
January 4, 2019, Xi’an Zhonghong, Xi’an TCH, and Mr. Chonggong Bai entered into a Projects Transfer Agreement (the “Agreement”),
pursuant to which Xi’an Zhonghong transferred a CDQ WHPG station (under construction) located in Xuzhou City for Xuzhou Huayu Coking
Co., Ltd. (“Xuzhou Huayu Project”) to Mr. Bai for RMB 120,000,000 ($17.52 million). Mr. Bai agreed that as consideration
for the transfer of the Xuzhou Huayu Project to him (Note 9), he would transfer all the equity shares of his wholly owned company, Xi’an
Hanneng, to HYREF as repayment for the loan made by Xi’an Zhonghong to HYREF. The transfer of the project was completed on February
15, 2019. The Company recorded $397,033 loss from this transfer during the year ended December 31, 2019. On January 10, 2019, Mr. Chonggong
Bai transferred all the equity shares of his wholly owned company, Xi’an Hanneng, to HYREF as repayment for the loan. Xi’an
Hanneng was expected to own 47,150,000 shares of Xi’an Huaxin New Energy Co., Ltd for the repayment of Huayu system and Shenqiu
system. As of September 30, 2019, Xi’an Hanneng already owned 29,948,000 shares of Huaxin, but was not able to obtain the remaining
17,202,000 shares due to halted trading of Huaxin stock by NEEQ for not filing its 2018 annual report. On December 20, 2019, Mr. Bai
and all the related parties agreed to have Mr. Bai instead pay in cash for the transfer price of Huayu (see Note 9 for detail).
On
January 10, 2020, Zhonghong, Tianyu and Huaxin signed a transfer agreement to transfer all assets under construction and related rights
and interests of Xuzhou Tian’an Project to Tianyu for RMB 170 million including VAT ($24.37 million) in three installment payments.
The 1st installment payment of RMB 50 million ($7.17 million) to be paid within 20 working days after the contract is signed. The 2nd
installment payment of RMB 50 million ($7.34 million) was to be paid within 20 working days after completion of the project construction
but no later than July 31, 2020. The final installment payment of RMB 70 million ($10.28 million) was to be paid before December 31,
2020. In December, 2020, the Company received payment in full for Tian’an Project.
Zhongtai
Waste Heat Power Generation Energy Management Cooperative Agreement
On
December 6, 2013, Xi’an TCH entered into a CDQ and WHPG Energy Management Cooperative Agreement (the “Zhongtai Agreement”)
with Xuzhou Zhongtai Energy Technology Co., Ltd. (“Zhongtai”), a limited liability company incorporated in Jiangsu Province,
China.
Pursuant
to the Zhongtai Agreement, Xi’an TCH was to design, build and maintain a 150 ton per hour CDQ system and a 25 MW CDQ WHPG system
and sell the power to Zhongtai, and Xi’an TCH is also to build a furnace to generate steam from the smoke pipeline’s waste
heat and sell the steam to Zhongtai.
The
construction period of the Project was expected to be 18 months from the date when conditions are ready for construction to begin. Zhongtai
is to start to pay an energy saving service fee from the date when the WHPG station passes the required 72-hour test run. The payment
term is 20 years. For the first 10 years, Zhongtai shall pay an energy saving fee at RMB 0.534 ($0.089) per kilowatt hour (KWH) (including
value added tax) for the power generated from the system. For the second 10 years, Zhongtai shall pay an energy saving fee at RMB 0.402
($0.067) per KWH (including value added tax). During the term of the contract the energy saving fee shall be adjusted at the same percentage
as the change of local grid electricity price. Zhongtai shall also pay an energy saving fee for the steam supplied by Xi’an TCH
at RMB 100 ($16.67) per ton (including value added tax). Zhongtai and its parent company will provide guarantees to ensure Zhongtai will
fulfill its obligations under the Agreement. Upon the completion of the term, Xi’an TCH will transfer the systems to Zhongtai for
RMB 1 ($0.16). Zhongtai shall provide waste heat to the systems for no less than 8,000 hours per year and waste gas volume no less than
150,000 Normal Meter Cubed (Nm3) per hour, with a temperature no less than 950°C. If these requirements are not met, the term of
the Agreement will be extended accordingly. If Zhongtai wants to terminate the Zhongtai Agreement early, it shall provide Xi’an
TCH with a 60 day notice and pay the termination fee and compensation for the damages to Xi’an TCH according to the following formula:
(1) if it is less than five years into the term when Zhongtai requests termination, Zhongtai shall pay: Xi’an TCH’s total
investment amount plus Xi’an TCH’s annual investment return times five years minus the years in which the system has already
operated; or 2) if it is more than five years into the term when Zhongtai requests the termination, Zhongtai shall pay: Xi’an TCH’s
total investment amount minus total amortization cost (the amortization period is 10 years).
In
March 2016, Xi’an TCH entered into a Transfer Agreement of CDQ and a CDQ WHPG system with Zhongtai and Xi’an Huaxin (the
“Transfer Agreement”). Under the Transfer Agreement, Xi’an TCH agreed to transfer to Zhongtai all of the assets associated
with the CDQ Waste Heat Power Generation Project (the “Project”), which is under construction pursuant to the Zhongtai Agreement.
Additionally, Xi’an TCH agreed to transfer to Zhongtai the Engineering, Procurement and Construction (“EPC”) Contract
for the CDQ Waste Heat Power Generation Project which Xi’an TCH had entered into with Xi’an Huaxin in connection with the
Project. Xi’an Huaxin will continue to construct and complete the Project and Xi’an TCH agreed to transfer all its rights
and obligations under the EPC Contract to Zhongtai. As consideration for the transfer of the Project, Zhongtai agreed to pay to Xi’an
TCH RMB 167,360,000 ($25.77 million) including (i) RMB 152,360,000 ($23.46 million) for the construction of the Project; and (ii) RMB
15,000,000 ($2.31 million) as payment for partial loan interest accrued during the construction period. Those amounts have been, or will
be, paid by Zhongtai to Xi’an TCH according to the following schedule: (a) RMB 50,000,000 ($7.70 million) was to be paid within
20 business days after the Transfer Agreement was signed; (b) RMB 30,000,000 ($4.32 million) was to be paid within 20 business days after
the Project was completed, but no later than July 30, 2016; and (c) RMB 87,360,000 ($13.45 million) was to be paid no later than July
30, 2017. Xuzhou Taifa Special Steel Technology Co., Ltd. (“Xuzhou Taifa”) guaranteed the payments from Zhongtai to Xi’an
TCH. The ownership of the Project was conditionally transferred to Zhongtai following the initial payment of RMB 50,000,000 ($7.70 million)
by Zhongtai to Xi’an TCH and the full ownership of the Project will be officially transferred to Zhongtai after it completes all
payments pursuant to the Transfer Agreement. The Company recorded a $2.82 million loss from this transaction in 2016. In 2016, Xi’an
TCH had received the first payment of $7.70 million and the second payment of $4.32 million. However, the Company received a repayment
commitment letter from Zhongtai on February 23, 2018, in which Zhongtai committed to pay the remaining payment of RMB 87,360,000 ($13.45
million) no later than the end of July 2018; in July 2018, Zhongtai and the Company reached a further oral agreement to extend the repayment
term of RMB 87,360,000 ($13.45 million) by another two to three months. In January 2020, Zhongtai paid RMB 10 million ($1.41 million);
in March 2020, Zhongtai paid RMB 20 million ($2.82 million); in June 2020, Zhongtai paid RMB 10 million ($1.41 million); and in December
2020, Zhongtai paid RMB 30 million ($4.28 million), which was payment in full. Accordingly, the Company reversed bad debt expense of
$5.80 million which was recorded earlier.
Formation
of Zhongxun
On
March 24, 2014, Xi’an TCH incorporated a new subsidiary, Zhongxun Energy Investment (Beijing) Co., Ltd (“Zhongxun”)
with registered capital of $5,695,502 (RMB 35,000,000), to be paid no later than October 1, 2028. Zhongxun is 100% owned by Xi’an
TCH and is mainly engaged in project investment, investment management, economic information consulting, and technical services. Zhongxun
has not yet commenced operations as of the date of this prospectus.
Formation
of Yinghua
On
February 11, 2015, the Company incorporated a new subsidiary, Shanghai Yinghua Financial Leasing Co., Ltd (“Yinghua”) with
registered capital of $30,000,000, to be paid within 10 years from the date the business license is issued. Yinghua is 100% owned by
the Company and is mainly engaged in financial leasing, purchase of financial leasing assets, disposal and repair of financial leasing
assets, consulting and ensuring of financial leasing transactions, and related factoring business. Yinghua has not yet commenced operations
as of the date of this prospectus.
Costs and
Effects of Compliance with Environmental Laws
There
were many new laws, regulations, rules and notices regarding the environment and energy production adopted, promulgated and put into
force during past years. The Chinese government is putting more stringent requirements and urgency on reducing pollution and emissions
and improving energy efficiency nationwide. Our products are designed and constructed to comply with the environmental laws and regulations
of China. As our systems allow our customers to use waste heat and gases to create energy, we help reduce the overall environmental impact
of our customers. Since our business focuses on recycling energy, the effect of the strengthening of environmental laws in China may
be to increase demand for the products and services we offer and others like them.
Governmental
Regulations in the PRC
As
of the date of this prospectus, as confirmed by our PRC counsel, Yan Tan, our PRC operating subsidiaries have received all requisite
permissions or approvals to operate the business and no such permissions or approvals have been denied. As further confirmed by our
PRC counsel, Yan Tan, except for the business license mentioned in “Regulations on Business License” on page 17 of this
prospectus, our PRC operating subsidiaries are not required to obtain any other permissions or approvals from any Chinese
authorities to operate the business. As further confirmed by our PRC counsel, Yan Tan, no relevant PRC laws or regulations in effect
require that we obtain permission from any PRC authorities to issue securities to foreign investors, and we have not received any
inquiry, notice, warning, sanction, or any regulatory objection from the CSRC, the CAC, or any other PRC authorities that have
jurisdiction over our operations. See “Regulations on Mergers & Acquisitions and Overseas Listings” on page 21 of
this prospectus and “Regulations on Cybersecurity Review” on page 23 of this prospectus. However, applicable laws and
regulations may be tightened, and new laws or regulations may be introduced to impose additional government approval, license, and
permit requirements. If (i) we or our subsidiaries do not receive or maintain all such required permissions or approvals to operate
our business, (ii) we or our subsidiaries inadvertently conclude that such permissions or approvals are not required, or (iii)
applicable laws, regulations, or interpretations change and we are required to obtain such permissions or approvals in the future,
we may face sanctions, including fines and penalties, by the CAC, CSRC, or other PRC regulatory agencies, our PRC
subsidiaries’ ability to pay dividends outside of the PRC could be limited, our operations could be adversely affected,
directly or indirectly, we could be required to restructure our operations to comply with such regulations or potentially cease
operations in the PRC entirely, our ability to offer, or continue to offer, securities to investors could be significantly limited
or completely hindered and the value of our securities might significantly decline or be worthless.
Regulations
on Business license
Any
company that conducts business in the PRC must have a business license that covers a particular type of work. The business license is
a permit issued by Market Supervision and Administration that allows the company to conduct specific business within the government’s
geographical jurisdiction.
As
of the date of this prospectus, as confirmed by our PRC counsel, Yan Tan, our PRC operating subsidiaries have all material permissions
and approvals required for our operations in compliance with the relevant PRC laws and regulations in the PRC and no such permissions
or approvals have been denied.
As
of the date of this prospectus, as confirmed by our PRC counsel, Yan Tan, except for the business license mentioned here, we and our
operating subsidiary are not required to obtain any other permissions or approvals from any Chinese authorities to operate the business.
However, applicable laws and regulations may be tightened, and new laws or regulations may be introduced to impose additional government
approval, license, and permit requirements. If (i) we or our subsidiaries do not receive or maintain all such required permissions or
approvals to operate our business, (ii) we or our subsidiaries inadvertently conclude that such permissions or approvals are not required,
or (iii) applicable laws, regulations, or interpretations change and we are required to obtain such permissions or approvals in the future,
we may face sanctions, including fines and penalties, by the CAC, CSRC, or other PRC regulatory agencies, our PRC subsidiaries’
ability to pay dividends outside of the PRC could be limited, our operations could be adversely affected, directly or indirectly, we
could be required to restructure our operations to comply with such regulations or potentially cease operations in the PRC entirely,
our ability to offer, or continue to offer, securities to investors could be significantly limited or completely hindered and the value
of our securities might significantly decline or be worthless.
Regulations
on Employment laws
Our
PRC subsidiaries are subject to laws and regulations governing our relationship with our employees, including: wage and hour requirements,
working and safety conditions, citizenship requirements, work permits and travel restrictions. These include local labor laws and regulations,
which may require substantial resources for compliance. China’s National Labor Law, which became effective on January 1, 1995,
and amended on August 27, 2009, and China’s National Labor Contract Law, which became effective on January 1, 2008, and amended
on December 28, 2012, permit workers in both state and private enterprises in China to bargain collectively. The National Labor Law and
the National Labor Contract Law provide for collective contracts to be developed through collaboration between the labor union (or worker
representatives in the absence of a union) and management that specify such matters as working conditions, wage scales, and hours of
work. The laws also permit workers and employers in all types of enterprises to sign individual contracts, which are to be drawn up in
accordance with the collective contract.
Regulations
on Intellectual property protection in China
Patent.
The PRC has domestic laws for the protection of copyrights, patents, trademarks and trade secrets. The PRC is also signatory to some
of the world’s major intellectual property conventions, including:
|
● |
Convention
establishing the World Intellectual Property Organization (WIPO Convention) (June 4, 1980); |
|
● |
Paris Convention for the
Protection of Industrial Property (March 19, 1985); |
|
● |
Patent Cooperation Treaty
(January 1, 1994); and |
|
● |
The Agreement on Trade-Related
Aspects of Intellectual Property Rights (TRIPs) (November 11, 2001). |
Patents
in the PRC are governed by the China Patent Law and its Implementing Regulations, each of which went into effect in 1985. Amended versions
of the China Patent Law and its Implementing Regulations came into effect in 1993, 2001 and 2009, respectively.
The
PRC is signatory to the Paris Convention for the Protection of Industrial Property, in accordance with which any person who has duly
filed an application for a patent in one signatory country shall enjoy, for the purposes of filing in the other countries, a right of
priority during the period fixed in the convention (12 months for inventions and utility models, and 6 months for industrial designs).
The
Patent Law covers three kinds of patents — patents for inventions, utility models and designs. The Chinese patent system adopts
the principle of first to file, which means that a patent may be granted only to the person who first files an application. Consistent
with international practice, the PRC allows the patenting of inventions or utility models that possess the characteristics of novelty,
inventiveness and practical applicability only. For a design to be patentable it cannot be identical with, or similar to, any design
which, before the date of filing, has been publicly disclosed in publications in the country or abroad or has been publicly used in the
country, and should not be in conflict with any prior right of another.
Copyright.
Copyright in the PRC, including copyrighted software, is principally protected under the Copyright Law of the PRC and related rules and
regulations. Under the Copyright Law, the term of protection for copyrighted software is 50 years.
Trademark.
Registered trademarks are protected under the Trademark Law of the PRC and related rules and regulations. Trademarks are registered with
the Trademark Office of the SAIC. Where registration is sought for a trademark that is identical or similar to another trademark which
has already been registered or given preliminary examination and approval for use in the same or similar category of commodities or services,
the application for registration of such trademark may be rejected. Trademark registrations are effective for a renewable ten-year period,
unless otherwise revoked. The duration of a trademark is 10 years from the date of registration.
Domain
names. Domain name registrations are handled through domain name service agencies established under the relevant regulations, and
applicants become domain name holders upon successful registration.
Regulations
on Tax
PRC
Corporate Income Tax
The
PRC corporate income tax, or CIT, is calculated based on the taxable income determined under the applicable CIT Law and its implementation
rules, which became effective on January 1, 2008 and amended on February 24, 2017. The CIT Law imposes a uniform corporate income tax
rate of 25% on all resident enterprises in China, including foreign-invested enterprises.
Uncertainties
exist with respect to how the CIT Law applies to the tax residence status of The Company and our offshore subsidiaries. Under the CIT
Law, an enterprise established outside of China with a “de facto management body” within China is considered a “resident
enterprise,” which means that it is treated in a manner similar to a Chinese enterprise for corporate income tax purposes. Although
the implementation rules of the CIT Law define “de facto management body” as a managing body that exercises substantive and
overall management and control over the production and business, personnel, accounting books and assets of an enterprise, the only official
guidance for this definition currently available is set forth in Circular 82 issued by the State Administration of Taxation, which provides
guidance on the determination of the tax residence status of a Chinese-controlled offshore incorporated enterprise, defined as an enterprise
that is incorporated under the laws of a foreign country or territory and that has a PRC enterprise or enterprise group as its primary
controlling shareholder. Although the Company does not have a PRC enterprise or enterprise group as our primary controlling shareholder
and is therefore not a Chinese-controlled offshore incorporated enterprise within the meaning of Circular 82, in the absence of guidance
specifically applicable to us, we have applied the guidance set forth in Circular 82 to evaluate the tax residence status of The Company
and our subsidiaries organized outside the PRC.
According
to Circular 82, a Chinese-controlled offshore incorporated enterprise will be regarded as a PRC tax resident by virtue of having a “de
facto management body” in China and will be subject to PRC corporate income tax on its worldwide income only if all of the following
criteria are met:
|
● |
the primary location of
the day-to-day operational management is in the PRC; |
|
● |
decisions relating to the
enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the
PRC; |
|
● |
the enterprise’s
primary assets, accounting books and records, company seals, and board and shareholders meeting minutes are located or maintained
in the PRC; and |
|
● |
50% or more of voting board
members or senior executives habitually reside in the PRC. |
We
do not believe that we meet any of the conditions outlined in the immediately preceding paragraph.
We
believe none of our entities outside of China is a PRC resident enterprise for PRC tax purposes. However, the tax resident status of
an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the
term “de facto management body.” As all of our management members are based in China, it remains unclear how the tax residency
rule will apply to our case. If the PRC tax authorities determine that we or any of our subsidiaries outside of China is a PRC resident
enterprise for PRC enterprise income tax purposes, then we or such subsidiary could be subject to PRC tax at a rate of 25% on its world-wide
income, which could materially reduce our net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations.
Furthermore, if the PRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, gains realized
on the sale or other disposition of our common stock may be subject to PRC tax, at a rate of 10% in the case of non-PRC enterprises or
20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable tax treaty), if such gains are deemed
to be from PRC sources. It is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties
between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce
the returns on your investment in our common stock.
Value-Added
Tax and Business Tax
In
November 2011, the MOF and the State Administration of Taxation promulgated the Pilot Plan for Imposition of Value-Added Tax to Replace
Business Tax. In May and December 2013 and April 2014, the MOF and the State Administration of Taxation promulgated Circular 37, Circular
106 and Circular 43 to further expand the scope of services which are to be subject to Value-Added Tax, or VAT, instead of business tax.
Pursuant to these tax rules, from August 1, 2013, VAT will be imposed to replace the business tax in certain service industries, including
technology services and advertising services, on a nationwide basis. The VAT rate shall be 17% for sale or importation of goods by a
taxpayer. But, unlike business tax, a taxpayer is allowed to offset the qualified input VAT paid on taxable purchases against the output
VAT chargeable on the revenue from services provided.
Regulations
Relating to Foreign Exchange and Dividend Distribution
Foreign
Exchange Regulation
The
principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations. Under the PRC
foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange
transactions, may be made in foreign currencies without prior approval from State Administration of Foreign Exchange (“SAFE”)
by complying with certain procedural requirements. By contrast, approval from or registration with appropriate government authorities
is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment
of foreign currency-denominated loans or foreign currency is to be remitted into China under the capital account, such as a capital increase
or foreign currency loans to our PRC subsidiaries.
In
November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct
Investment. Pursuant to this circular, the opening of various special purpose foreign exchange accounts, such as pre-establishment expenses
accounts, foreign exchange capital accounts and guarantee accounts, the reinvestment of RMB proceeds by foreign investors in the PRC,
and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require
the approval or verification of SAFE, and multiple capital accounts for the same entity may be opened in different provinces, which was
not possible previously. In addition, SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration
over Domestic Direct Investment by Foreign Investors and the Supporting Documents in May 2013, which specifies that the administration
by SAFE or its local branches over direct investment by foreign investors in the PRC shall be conducted by way of registration and banks
shall process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by
SAFE and its branches.
We
typically do not need to use our offshore foreign currency to fund our PRC operations. In the event we need to do so, we will apply to
obtain the relevant approvals of SAFE and other PRC government authorities as necessary.
SAFE
Circular 37
SAFE
promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and
Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced the former
circular commonly known as “SAFE Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular 37 requires PRC residents
to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for
the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic
enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.” SAFE Circular
37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle,
such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material
event. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration,
the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from
carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to
contribute additional capital into its PRC subsidiaries. Furthermore, failure to comply with the various SAFE registration requirements
described above could result in liability under PRC law for evasion of foreign exchange controls.
We
have notified substantial beneficial owners of common stock who we know are PRC residents of their filing obligation. However, we may
not be aware of the identities of all our beneficial owners who are PRC residents. In addition, we do not have control over our beneficial
owners and cannot assure you that all of our PRC resident beneficial owners will comply with SAFE Circular 37. The failure of our beneficial
owners who are PRC residents to register or amend their SAFE registrations in a timely manner pursuant to SAFE Circular 37 or the failure
of future beneficial owners of our company who are PRC residents to comply with the registration procedures set forth in SAFE Circular
37 may subject such beneficial owners or our PRC subsidiaries to fines and legal sanctions. Failure to register or amend the registration
may also limit our ability to contribute additional capital to our PRC subsidiaries or receive dividends or other distributions from
our PRC subsidiaries or other proceeds from disposal of our PRC subsidiaries, or we may be penalized by SAFE.
Share
Option Rules
Under
the Administration Measures on Individual Foreign Exchange Control issued by the PBOC on December 25, 2006, all foreign exchange matters
involved in employee share ownership plans and share option plans in which PRC citizens participate require approval from SAFE or its
authorized branch. Pursuant to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed
companies may submit applications to SAFE or its local branches for the foreign exchange registration with respect to offshore special
purpose companies. In addition, under the Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating
in Share Incentive Plans of Overseas Publicly-Listed Companies, or the Share Option Rules, issued by SAFE on February 15, 2012, PRC residents
who are granted shares or share options by companies listed on overseas stock exchanges under share incentive plans are required to (i)
register with SAFE or its local branches, (ii) retain a qualified PRC agent, which may be a PRC subsidiary of the overseas listed company
or another qualified institution selected by the PRC subsidiary, to conduct the SAFE registration and other procedures with respect to
the share incentive plans on behalf of the participants, and (iii) retain an overseas institution to handle matters in connection with
their exercise of share options, purchase and sale of shares or interests and funds transfers.
Regulation
of Dividend Distribution
The
principal laws, rules and regulations governing dividend distribution by foreign-invested enterprises in the PRC are the Company Law
of the PRC, as amended, the Wholly Foreign-owned Enterprise Law and its implementation regulations and the Chinese-foreign Equity Joint
Venture Law and its implementation regulations. Under these laws, rules and regulations, foreign-invested enterprises may pay dividends
only out of their accumulated profit, if any, as determined in accordance with PRC accounting standards and regulations. Both PRC domestic
companies and wholly-foreign owned PRC enterprises are required to set aside as general reserves at least 10% of their after-tax profit,
until the cumulative amount of such reserves reaches 50% of their registered capital. A PRC company is not permitted to distribute any
profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together
with distributable profits from the current fiscal year.
Regulations
on Mergers & Acquisitions and Overseas Listings
On
August 8, 2006, six PRC regulatory agencies, including the CSRC, MOFCOM, the State-owned Assets Supervision and Administration Commission,
the SAT, the State Administration of Industry and Commerce and SAFE, adopted the M&A Rules, which became effective on September 8,
2006, and were amended on June 22, 2009. Foreign investors shall comply with the M&A Rules when they purchase equity interests of
a domestic company or subscribe the increased capital of a domestic company, and thus changing the nature of the domestic company into
a foreign-invested enterprise, when the foreign investors establish a foreign-invested enterprise in the PRC, purchase the assets of
a domestic company and operate the assets, or when the foreign investors purchase the assets of a domestic company, establish a foreign-invested
enterprise by injecting such assets, and operate the assets. As for merger and acquisition of a domestic company with a related party
relationship by a domestic company, enterprise or natural person in the name of an overseas company legitimately incorporated or controlled
by the domestic company, enterprise of natural person, such merger and acquisition shall be subject to examination and approval of MOFCOM.
The parties involved shall not use domestic investment by foreign investment enterprises or other methods to circumvent the requirement
of examination and approval.
Pursuant
to the Manual of Guidance on Administration for Foreign Investment Access, which was issued and became effective on December 18, 2008
by MOFCOM, notwithstanding the fact that (i) the domestic shareholder is connected with the foreign investor or not, or (ii) the foreign
investor is the existing shareholder or the new investor, the M&A Rules shall not apply to the transfer of an equity interest in
an incorporated foreign-invested enterprise from the domestic shareholder to the foreign investor.
On
July 6, 2021, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council
jointly issued the Opinions. The Opinions emphasized the need to strengthen the administration over illegal securities activities and
the supervision on overseas listings by China-based companies. The Opinions proposed to take effective measures, such as promoting the
construction of relevant regulatory systems, to deal with the risks and incidents facing China-based overseas-listed companies and the
demand for cybersecurity and data privacy protection.
On
February 17, 2023, the China Securities Regulatory Commission, or the CSRC, announced the Circular on the Administrative Arrangements
for Filing of Securities Offering and Listing by Domestic Companies, or the Circular, and released a set of new regulations which consists
of the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies, or the Trial Measures, and five
supporting guidelines. On the same date, the CSRC also released the Notice on the Arrangements for the Filing Management of Overseas
Listing of Domestic Companies, or the Notice. The Trial Measures came into effect on March 31, 2023. The Trial Measures refine the regulatory
system by subjecting both direct and indirect overseas offering and listing activities to the CSRC filing-based administration. Requirements
for filing entities, time points and procedures are specified. A PRC domestic company that seeks to offer and list securities in overseas
markets shall fulfill the filing procedure with the CSRC per the requirements of the Trial Measures. Where a PRC domestic company seeks
to indirectly offer and list securities in overseas markets, the issuer shall designate a major domestic operating entity, which shall,
as the domestic responsible entity, file with the CSRC. The Trial Measures also lay out requirements for the reporting of material events.
Breaches of the Trial Measures, such as offering and listing securities overseas without fulfilling the filing procedures, shall bear
legal liabilities, including a fine between RMB 1.0 million (approximately $150,000) and RMB 10.0 million (approximately $1.5 million),
and the Trial Measures increase the cost for offenders by enforcing accountability with administrative penalties and incorporating the
compliance status of relevant market participants into the Securities Market Integrity Archives.
According
to the Circular, since the date of effectiveness of the Trial Measures on March 31, 2023, PRC domestic enterprises falling within the
scope of filing that have been listed overseas or met the following circumstances are “existing enterprises”: before the
effectiveness of the Trial Measures on March 31, 2023, the application for indirect overseas issuance and listing has been approved by
the overseas regulators or overseas stock exchanges (such as the registration statement has become effective on the U.S. market), it
is not required to perform issuance and listing supervision procedures of the overseas regulators or overseas stock exchanges, and the
overseas issuance and listing will be completed by September 30, 2023. Existing enterprises are not required to file with the CSRC immediately,
and filings with the CSRC should be made as required if they involve refinancings and other filing matters. PRC domestic enterprises
that have submitted valid applications for overseas issuance and listing but have not been approved by overseas regulatory authorities
or overseas stock exchanges at the date of effectiveness of the Trial Measures on March 31, 2023 can reasonably arrange the timing of
filing applications with the CSRC and shall complete the filing with the CSRC before the overseas issuance and listing.
In
addition, an overseas-listed company must also submit the filing with respect to its follow-on offerings, issuance of convertible corporate
bonds and exchangeable bonds, and other equivalent offering activities, within the time frame specified by the Trial Measures.
As
advised by Shaanxi Yan Tan Law Firm (“Yan Tan”), because the Company is not a company registered and formed in the territory
of China, its continued listing on Nasdaq and future offerings are not “direct overseas offering and listing of domestic enterprises”
as defined under the Trial Measures. Furthermore, according to Article 2 of the Trial Measures, the “indirect overseas offering
and listing of domestic enterprises” refers to the overseas offering and listing of enterprises whose main business activities
are in China, in the name of enterprises registered overseas, which offering and listing are based on the equity, assets, income or other
similar rights and interests of the domestic enterprises. According to Article 15 of the Trial Measures, if the issuer meets both of
the following conditions, the overseas offerings and listings shall be determined as an “indirect overseas offering and listing
of domestic enterprises”: (i) 50% or more of the issuer’s operating revenue, total profit, total assets or net assets as
documented in its audited consolidated financial statements for the most recent accounting year is accounted for by domestic enterprises;
and; (ii) its major operational activities are carried out in China or its main places of business are located in China, or the senior
managers in charge of its business operation and management are mostly Chinese citizens or domiciled in China.
The
Company does not meet both the requirements under Article 15 of the Trial Measures and therefore its continued listing on Nasdaq and
future offerings are not an “Indirect overseas offering and listing of domestic enterprises”, considering that (i) the operating
income and total profit of the Company’s subsidiaries that were established in China for the year ended December 31, 2023 do not
account for more than 50% of the operating income and total profit in our consolidated financial statements for the same period, (ii)
our main business is not conducted within China, and (iii) the majority of our senior management personnel are not Chinese citizens or
reside in China on a regular basis. Therefore, As advised by Yan Tan, we are not required to complete the record filing requirement under
the Trial Measures. However, if we inadvertently conclude that such filing procedures are not required, or applicable laws, regulations,
or interpretations change such that we are required to complete the filing procedures in the future, we may be subject to investigations
by the regulators, fines or penalties, ordered to suspend our relevant operations and rectify any non-compliance, prohibited from engaging
in relevant business or conducting any offering, and these risks could result in a material adverse change in our operations and/or the
value of our common stock, and could significantly limit or completely hinder our ability to offer or continue to offer securities to
investors, or cause such securities to significantly decline in value or become worthless.
On
February 24, 2023, the CSRC, together with the MOF, National Administration of State Secrets Protection and National Archives Administration
of China, revised the Provisions issued by the CSRC and National Administration of State Secrets Protection and National Archives Administration
of China in 2009. The revised Provisions were issued under the title the “Provisions on Strengthening Confidentiality and Archives
Administration of Overseas Securities Offering and Listing by Domestic Companies,” and came into effect on March 31, 2023 together
with the Trial Measures. One of the major revisions to the revised Provisions is expanding their application to cover indirect overseas
offering and listing, as is consistent with the Trial Measures. The revised Provisions require that, among other things, (a) a domestic
company that plans to, either directly or indirectly through its overseas listed entity, publicly disclose or provide to relevant individuals
or entities, including securities companies, securities service providers, and overseas regulators, any documents and materials that
contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to
law, and file with the secrecy administrative department at the same level; and (b) a domestic company that plans to, either directly
or indirectly through its overseas listed entity, publicly disclose or provide to relevant individuals and entities, including securities
companies, securities service providers, and overseas regulators, any other documents and materials that, if leaked, will be detrimental
to national security or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations. Any
failure or perceived failure by our Company or our subsidiaries, to comply with the above confidentiality and archives administration
requirements under the revised Provisions and other PRC laws and regulations may result in the relevant entities being held legally liable
by competent authorities, and referred to the judicial organ to be investigated for criminal liability if suspected of committing a crime.
Regulations
on Cybersecurity Review
On
December 28, 2021, the CAC, the NDRC, and several other administrations jointly issued the revised Measures for Cybersecurity Review,
or the Revised Review Measures, which became effective and has replaced the existing Measures for Cybersecurity Review on February 15,
2022. According to the Revised Review Measures, if an “online platform operator” that is in possession of personal data of
more than one million users intends to list in a foreign country, it must apply for a cybersecurity review. Based on a set of Q&A
published on the official website of the State Cipher Code Administration in connection with the issuance of the Revised Review Measures,
an official of the said administration indicated that an online platform operator should apply for a cybersecurity review prior to the
submission of its listing application with non-PRC securities regulators. Given the recency of the issuance of the Revised Review Measures
and their pending effectiveness, there is a general lack of guidance and substantial uncertainties exist with respect to their interpretation
and implementation. For example, it is unclear whether the requirement of cybersecurity review applies to follow-on offerings by an “online
platform operator” that is in possession of personal data of more than one million users where the offshore holding company of
such operator is already listed overseas. Furthermore, the CAC released the draft of the Regulations on Network Data Security Management
in November 2021 for public consultation, which among other things, stipulates that a data processor listed overseas must conduct an
annual data security review by itself or by engaging a data security service provider and submit the annual data security review report
for a given year to the municipal cybersecurity department before January 31 of the following year. If the draft Regulations on Network
Data Security Management are enacted in the current form, we, as an overseas listed company, will be required to carry out an annual
data security review and comply with the relevant reporting obligations.
As
advised by Yan Tan, we will not be subject to cybersecurity review with the CAC, after the Cybersecurity Review Measures became effective
on February 15, 2022, since we currently do not have over one million users’ personal information and do not anticipate that we
will be collecting over one million users’ personal information in the foreseeable future, which we understand might otherwise
subject us to the Cybersecurity Review Measures. In addition, for the same reasons, we are not subject to network data security review
by the CAC if the Draft Regulations on the Network Data Security Administration are enacted as proposed. See “Risk factors —
Risk Factors Related to Doing Business in China”
Legal
Proceedings
From
time to time, we may be involved in various claims and legal proceedings arising in the ordinary course of business. None of our Company
or our subsidiaries is currently a party to any such claims or proceedings which, if decided adversely to the Company, would either,
individually or in the aggregate, have a material adverse effect on our business, financial condition, results of operations or cash
flows.
In
November 2019, Beijing Hongyuan Recycling Energy Investment Center, or Hongyuan, filed a lawsuit with the Beijing Intermediate People’s
Court against Xi’an TCH to compel Xi’an TCH to repurchase certain stocks pursuant to a stock repurchase option agreement.
On April 9, 2021, the court rendered a judgment in favor of Hongyuan. Xi ‘an TCH filed a motion for retrial to High People’s
Court of Beijing on April 13, 2022, on the basis that Xi’an TCH has already paid RMB 267 million ($37.58 million)
to Hongyuan as an out-of-court settlement. On August 10, 2022, Beijing No.1 Intermediate People’s Court of Beijing issued
a Certificate of Active Performance, proving that Xi’an Zhonghong New Energy Technology Co., Ltd. had fulfilled its buyback obligations.
On
April 9, 2021, Xi’an TCH, Xi’an Zhonghong, Guohua Ku, Chonggong Bai and HYREF entered a Termination of Fulfillment Agreement
(termination agreement). Under the termination agreement, the original buyback agreement entered on December 19, 2019 was terminated
upon signing of the termination agreement. HYREF will not execute the buy-back option and will not ask for any additional payment from
the buyers other than keeping the CDQ WHPG station.
As of the date of this prospectus, Xi’an Zhonghong is waiting
for Court’s decision on retrial petition that was submitted in April 2022. During this waiting period, BIPC entered the execution
procedure, and there is a balance of RMB 14,204,317 ($2.20 million) between the amount executed by the court and the liability
recognized by Xi ‘an TCH, which was mainly the enforcement fee, legal and penalty fee for the original judgement, and was automatically
generated by the toll collection system of the People’s court. The Company accrued $2.10 million litigation expense as of August
15, 2024.
On
June 28, 2021, Beijing No.4 Intermediate People’s Court of Beijing entered into a judgement that Xi’an Zhonghong Technology
Co., Ltd. should pay the loan principal of RMB 77 million ($11.06 million) with
loan interest of RMB RMB 2,418,449 ($0.35 million) to
Beijiang Hongyuan Recycling Energy Investment Center (Limited Partnership). In the end of 2022, Beijing No.4 Intermediate People’s
Court of Beijing entered into the judgment enforcement procedure, which, in addition to the loan principal with interest amount, Xi’an
Zhonghong Technology Co., Ltd. was to pay judgment enforcement fee, late fee and other fees of RMB 80,288,184 ($11.53 million) in
total.
Summary
of Risk Factors
Investing
in our common stock involves a high degree of risk. This summary does not address all of the risks that we face. Please refer to the
information contained in and incorporated by reference under the heading “Risk Factors” on page 29 of this
prospectus.
Risks Related
to Doing Business in China
|
● |
We may rely on dividends
paid by our subsidiaries for our cash needs. Any limitation on the ability of our subsidiaries to make dividend payments to us, or
any tax implications of making dividend payments to us, could limit our ability to pay our parent company expenses or pay dividends
to holders of our common stock (see “Risk Factors - We are a holding company, and will rely on dividends paid by our subsidiaries
for our cash needs. Any limitation on the ability of our subsidiaries to make dividend payments to us, or any tax implications of
making dividend payments to us, could limit our ability to pay our parent company expenses or pay dividends to holders of our common
stock” on page 29 of this prospectus); |
|
● |
The Chinese government
exerts substantial influence over the manner in which we conduct our business activities and may intervene or influence our operations
at any time with little advance notice, which could result in a material change in our operations and the value of our common stock
(see “Risk Factors -The Chinese government exerts substantial influence over the manner in which we must conduct our business
activities and may intervene or influence our operations at any time with little advance notice, which could result in a material
change in our operations and the value of our common stock” on page 30 of this prospectus); |
|
● |
The M&A Rules and
certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which
could make it more difficult for us to pursue growth through acquisitions in China (see “Risk Factors - The M&A Rules
and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors,
which could make it more difficult for us to pursue growth through acquisitions in China” on page 33 of this
prospectus); |
|
● |
Adverse changes in
political and economic policies of the PRC government could have a material adverse effect on the overall economic growth of China,
which could materially and adversely affect the demand for our projects and our business (see “Risk Factors - Adverse
changes in political and economic policies of the PRC government could have a material adverse effect on the overall economic growth
of China, which could materially and adversely affect the demand for our projects and our business” on page 34 of this
prospectus); |
|
● |
Restrictions under PRC law
on our subsidiaries’ ability to make dividends and other distributions could materially and adversely affect our ability to
grow, make investments or acquisitions that could benefit our business, pay dividends to you, and otherwise fund and conduct our
business (see “Risk Factors - Restrictions under PRC law on our subsidiaries’ ability to make dividends and other
distributions could materially and adversely affect our ability to grow, make investments or acquisitions that could benefit our
business, pay dividends to you, and otherwise fund and conduct our business” on page 35 of this prospectus); |
|
● |
Fluctuation in the value
of the Renminbi may have a material adverse effect on your investment (see “Risk Factors - Fluctuation in the value of the
Renminbi may have a material adverse effect on your investment” on page 35 of this prospectus); |
|
● |
We may be exposed to
liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law (see “Risk Factors - We may be exposed
to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law” on page 36 of this
prospectus); |
|
● |
PRC regulation of loans to
and direct investment by offshore holding companies in PRC entities may delay or prevent us from making loans or additional capital
contributions to our PRC operating companies, which could materially and adversely affect our liquidity and ability to fund and
expand our business (see “Risk Factors - PRC regulation of loans to and direct investment by offshore holding companies in
PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC operating companies, which
could materially and adversely affect our liquidity and ability to fund and expand our business” on page 38 of this
prospectus); |
|
● |
China’s legal system
is evolving and has inherent uncertainties that could limit the legal protection available to you (see “Risk Factors - Risks
Related to Doing Business in China - Uncertainties with respect to the PRC legal system could adversely affect us” on page
38 of this prospectus); |
|
● |
We may be exposed to liabilities
under the Foreign Corrupt Practices Act and Chinese anti-corruption law (see “Risk Factors - Risks Related to Doing Business
in China - We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law” on
page 36 of this prospectus); |
|
● |
The joint statement by the
SEC and the Public Company Accounting Oversight Board (United States), or the “PCAOB,” proposed rule changes submitted
by Nasdaq and the Holding Foreign Companies Accountable Act(“HFCAA”) all call for additional and more stringent criteria
to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors
which are not inspected by the PCAOB. These developments could add uncertainties to the trading of our common stock (see
“Risk Factors - Risks Related to Doing Business in China - The recent joint statement by the SEC and PCAOB, proposed rule
changes submitted by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria
to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors
which are not inspected by the PCAOB. These developments could add uncertainties to the trading of our common stock” on
page 41 of this prospectus); |
Risks
Related to Our Business and Industry
|
● |
In recent years, the growth
of Chinese economy has experienced slowdown, and if the growth of the economy continues to slow or if the economy contracts, our
financial condition may be materially and adversely affected (see “Risk Factors - Risks Related to Our Business and Industry
- In recent years, the growth of Chinese economy has experienced slowdown, and if the growth of the economy continues to slow or
if the economy contracts, our financial condition may be materially and adversely affected” in
our 2023 Annual Report, which is incorporated herein by reference); |
|
● |
We depend on the waste
energy of our customers to generate electricity (see “Risk Factors - Risks Related to Our Business and Industry - We depend
on the waste energy of our customers to generate electricity” in our 2023
Annual Report, which is incorporated herein by reference); |
|
● |
We may require additional
funds to run our business and may be required to raise these funds on terms which are not favorable to us or which reduce our stock
price (see “Risk Factors - Risks Related to Our Business and Industry - We may require additional funds to run our business
and may be required to raise these funds on terms which are not favorable to us or which reduce our stock price” in
our 2023 Annual Report, which is incorporated herein by reference); |
|
● |
Our business could be materially
harmed by the natural disasters, extreme weather conditions, health epidemics and other catastrophic incident (see “Risk
Factors - Risks Related to Our Business and Industry - We face risks related to natural disasters, extreme weather conditions, health
epidemics and other catastrophic incidents, which could significantly disrupt our operations.” in
our 2023 Annual Report, which is incorporated herein by reference); |
|
● |
Changes in the economic
and credit environment could have an adverse effect on demand for our projects, which would in turn have a negative impact on our
results of operations, our cash flows, our financial condition, our ability to borrow and our stock price (see “Risk Factors
- Risks Related to Our Business and Industry - Changes in the economic and credit environment could have an adverse effect on demand
for our projects, which would in turn have a negative impact on our results of operations, our cash flows, our financial condition,
our ability to borrow and our stock price.” in our 2023 Annual Report, which
is incorporated herein by reference.; |
|
● |
Decreases in the price
of coal, oil and gas or a decline in popular support for “green” energy technologies could reduce demand for our waste
energy recycling projects, which could materially harm our ability to grow our business (see “Risk Factors - Risks Related
to Our Business and Industry - Decreases in the price of coal, oil and gas or a decline in popular support for “green”
energy technologies could reduce demand for our waste energy recycling projects, which could materially harm our ability to grow
our business” in our 2023 Annual Report, which is incorporated herein by reference); |
|
● |
Changes in the growth of
demand for or pricing of electricity could reduce demand for our waste energy recycling projects, which could materially harm our
ability to grow our business (see “Risk Factors - Risks Related to Our Business and Industry - Changes in the growth of
demand for or pricing of electricity could reduce demand for our waste energy recycling projects, which could materially harm our
ability to grow our business” in our 2023 Annual Report, which is incorporated
herein by reference); |
|
|
|
|
● |
Our use of a “Build-Operate-Transfer”
model requires us to invest substantial financial and technical resources in a project before we deliver a waste energy recycling
project (see “Risk Factors - Risks Related to Our Business and Industry - Our use of a “Build-Operate-Transfer”
model requires us to invest substantial financial and technical resources in a project before we deliver a waste energy recycling
project); |
|
|
|
|
● |
Our BOT model and the accounting
for our projects as sales-type leases could result in a difference between our revenue recognition and our cash flows (see “Risk
Factors - Risks Related to Our Business and Industry - Our BOT model and the accounting for our projects as sales-type leases could
result in a difference between our revenue recognition and our cash flows” in
our 2023 Annual Report, which is incorporated herein by reference); |
|
|
|
|
● |
We operate in an emerging
competitive industry and if we are unable to compete successfully our revenue and profitability will be adversely affected (see “Risk
Factors - Risks Related to Our Business and Industry - We operate in an emerging competitive industry and if we are unable to compete
successfully our revenue and profitability will be adversely affected” in
our 2023 Annual Report, which is incorporated herein by reference); |
Risks
Related to Our Common Stock
|
● |
The market price of our
common stock may be volatile or may decline regardless of our operating performance (see “Risk Factors - Risks Related to
Our Common Stock - The market price for our common stock may be volatile” on page 43 of this prospectus); |
|
|
|
|
● |
Shareholders could experience
substantial dilution (see “Risk Factors - Risks Related to Our Common Stock - Shareholders could experience substantial
dilution” on page 43 of this prospectus); |
|
|
|
|
● |
Future sales of our common
stock could reduce the market price of the common stock (see “Risk Factors - Risks Related to Our Common Stock - Future
sales of our common stock could reduce the market price of the common stock” on page 43 of this prospectus); |
|
|
|
|
● |
We do not know whether
a market for the common stock will be sustained or what the trading price of the common stock will be and as a result it may be difficult
for you to sell your shares (see “Risk Factors - Risks Related to Our Common Stock - We do not know whether a market for
the common stock will be sustained or what the trading price of the common stock will be and as a result it may be difficult for
you to sell your shares” on page 44 of this prospectus). |
|
|
|
|
● |
We have no plans to pay
dividends on our shares, and you may not receive funds without selling the shares (see “Risk Factors - Risks Related to
Our Common Stock - We have no plans to pay dividends on our shares, and you may not receive funds without selling the shares”
on page 44 of this prospectus); |
|
|
|
|
● |
A possible “short
squeeze” due to a sudden increase in demand of our common stock that largely exceeds supply may lead to additional price volatility
(see “Risk Factors - Risks Related to Our Common Stock - A possible “short squeeze” due to a sudden increase
in demand of our common stock that largely exceeds supply may lead to additional price volatility” on page 44 of
this prospectus); |
|
● |
In the event that our common
stocks are delisted from Nasdaq, U.S. broker-dealers may be discouraged from effecting transactions in our common stocks because
they may be considered penny stocks and thus be subject to the penny stock rules (see “Risk Factors - Risks Related to Our
Common Stock - In the event that our common stocks are delisted from Nasdaq, U.S. broker-dealers may be discouraged from effecting
transactions in our common stocks because they may be considered penny stocks and thus be subject to the penny stock rules”
on page 44 of this prospectus); |
|
|
|
|
● |
We have no present intention
to pay dividends (see “Risk Factors - Risks Related to Our Common Stock - We have no present intention to pay dividends”
on page 45 of this prospectus); |
|
|
|
|
● |
A large portion of our
common stock is controlled by a small number of shareholders (see “Risk Factors - Risks Related to Our Common Stock - A
large portion of our common stock is controlled by a small number of shareholders” on page 45 of this
prospectus); |
Implications
of Being a Smaller Reporting Company
We
qualify as a “smaller reporting company” as defined in Rule 405 of the Securities Act and Item 10 of Regulation S-K. A smaller
reporting company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public
companies. These provisions include:
|
● |
the ability to include
only two years of audited financial statements and only two years of related management’s discussion and analysis of financial
condition and results of operations disclosure; |
|
|
|
|
● |
the reduced disclosure
obligation regarding executive compensation under Item 402 of Regulation S-K; |
|
|
|
|
● |
an exemption from the auditor
attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of
2002. |
We
may take advantage of these provisions for so long as we remain a smaller reporting company. We may continue to be a smaller reporting
company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less
than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than
$700 million.
Corporate
Information
Our
principal executive offices are located at 4/F, Tower C, Rong Cheng Yun Gu Building, Keji 3rd Road, Yanta District, Xi’an City,
Shaanxi Province, China, and our telephone number at this location is +86-29-8765-1097. We do not incorporate the information on our
website into this prospectus and you should not consider any information on, or that can be accessed through, our website as part of
this prospectus.
The
SEC maintains an internet site at http://www.sec.gov that contains reports, information statements, and other information regarding issuers
that file electronically with the SEC.
RISK
FACTORS
Investing
in our securities involves a high degree of risk. You should carefully review the risks and uncertainties described in this section and
under the heading “Risk Factors” contained in any applicable prospectus supplement and under similar headings in our most
recent annual report on Form 10-K as updated by our subsequent filings, some of which are incorporated by reference into this prospectus,
before deciding whether to purchase any of the securities being registered pursuant to the registration statement of which this prospectus
forms a part. Each of the risk factors could adversely affect our business, results of operations, financial condition and cash flows,
as well as adversely affect the value of an investment in our securities, and the occurrence of any of these risks might cause you to
lose all or part of your investment. Additional risks not presently known to us or that we currently believe are immaterial may also
significantly impair our business operations. For more information, see “Where You Can Find Additional Information” and “Incorporation
of Documents by Reference.”
The
following disclosure is intended to highlight, update or supplement previously disclosed risk factors facing the Company set forth in
the Company’s public filings. These risk factors should be carefully considered along with any other risk factors identified in
the Company’s other filings with the SEC.
Risks Related
to Doing Business in China
We
are a holding company and will rely on dividends paid by our subsidiaries for our cash needs. Any limitation on the ability of our subsidiaries
to make dividend payments to us, or any tax implications of making dividend payments to us, could limit our ability to pay our parent
company expenses or pay dividends to holders of our common stock.
We
are a holding company and conduct substantially all of our business through our PRC subsidiaries, which are limited liability companies
in China. We may rely on dividends to be paid by our PRC subsidiaries to fund our cash and financing requirements, including the funds
necessary to pay dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating
expenses. If our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict its ability
to pay dividends or make other distributions to us.
Under
PRC laws and regulations, our PRC subsidiaries, which are mostly wholly foreign-owned enterprises in China, may pay dividends only out
of its accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned
enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund a certain statutory
reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital.
Our
PRC subsidiaries generate primarily all of their revenue in Renminbi, which is not freely convertible into other currencies. As a result,
any restriction on currency exchange may limit the ability of our PRC subsidiary to use its Renminbi revenues to pay dividends to us.
The PRC government may continue to strengthen its capital controls, and more restrictions and substantial vetting process may be put
forward by SAFE for cross-border transactions falling under both the current account and the capital account. Any limitation on the ability
of our PRC subsidiary to pay dividends or make other kinds of payments to us could materially and adversely limit our ability to grow,
make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.
In
addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax rate of up to 10% will be applicable
to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties
or arrangements between the PRC central government and governments of other countries or regions where the non-PRC resident enterprises
are incorporated. Any limitation on the ability of our PRC subsidiary to pay dividends or make other distributions to us could materially
and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or
otherwise fund and conduct our business.
The
Chinese government exerts substantial influence over the manner in which we must conduct our business activities. We are currently
not required to obtain approval from Chinese authorities to list on U.S exchanges, however, if our holding company or subsidiaries were
required to obtain approval or filing in the future and were denied permission from Chinese authorities to list on U.S. exchanges, we
will not be able to continue listing on U.S. exchange, which would materially affect the interest of the investors.
The
Chinese government has exercised and can continue to exercise substantial control to intervene on virtually every sector of the Chinese
economy through regulation and state ownership, and as a result, it can influence the manner in which we must conduct our business activities
and effect material changes in our operations or the value of the common stock we are registering in this resale. Under the current government
leadership, the government of the PRC has been pursuing reform policies which have adversely affected China-based operating companies
whose securities are listed in the U.S., with significant policies changes being made from time to time without notice. There are substantial
uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations
governing our business, or the enforcement and performance of our contractual arrangements with borrowers in the event of the imposition
of statutory liens, death, bankruptcy or criminal proceedings. Our ability to operate in China may be harmed by changes in its laws and
regulations, including those relating to taxation, environmental regulations, land use rights, property and other matters. The central
or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would
require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly,
government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally
planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic
conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties.
Given
recent statements by the Chinese government indicating an intent to exert more oversight and control over offerings that are conducted
overseas and/or foreign investment in China-based issuers, any such action could significantly limit or completely hinder our ability
to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or become worthless.
Recently,
the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued
the Opinions on Severely Cracking Down on Illegal Securities Activities According to Law, or the Opinions, which was made available to
the public on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities, and
the need to strengthen the supervision over overseas listings by Chinese companies. Effective measures, such as promoting the construction
of relevant regulatory systems, will be taken to deal with the risks and incidents of China-concept overseas listed companies. As of
the date hereof, we have not received any inquiry, notice, warning, or sanctions from PRC government authorities in connection with the
Opinions.
On
June 10, 2021, the Standing Committee of the National People’s Congress of China, or the SCNPC, promulgated the PRC Data Security
Law, which took effect in September 2021. The PRC Data Security Law imposes data security and privacy obligations on entities and individuals
carrying out data activities, and introduces a data classification and hierarchical protection system based on the importance of data
in economic and social development, and the degree of harm it will cause to national security, public interests, or legitimate rights
and interests of individuals or organizations when such data is tampered with, destroyed, leaked, illegally acquired or used. The PRC
Data Security Law also provides for a national security review procedure for data activities that may affect national security and imposes
export restrictions on certain data an information.
In
early July 2021, regulatory authorities in China launched cybersecurity investigations with regard to several China-based companies that
are listed in the United States. The Chinese cybersecurity regulator announced on July 2 that it had begun an investigation of Didi Global
Inc. (NYSE: DIDI) and two days later ordered that the company’s app be removed from smartphone app stores. On July 5, 2021, the
Chinese cybersecurity regulator launched the same investigation on two other Internet platforms, China’s Full Truck Alliance of
Full Truck Alliance Co. Ltd. (NYSE: YMM) and Boss of KANZHUN LIMITED (Nasdaq: BZ). On July 24, 2021, the General Office of the Communist
Party of China Central Committee and the General Office of the State Council jointly released the Guidelines for Further Easing the Burden
of Excessive Homework and Off-campus Tutoring for Students at the Stage of Compulsory Education, pursuant to which foreign investment
in such firms via mergers and acquisitions, franchise development, and variable interest entities are banned from this sector.
On
August 17, 2021, the State Council promulgated the Regulations on the Protection of the Security of Critical Information Infrastructure,
or the Regulations, which took effect on September 1, 2021. The Regulations supplement and specify the provisions on the security of
critical information infrastructure as stated in the Cybersecurity Review Measures. The Regulations provide, among others, that protection
department of certain industry or sector shall notify the operator of the critical information infrastructure in time after the identification
of certain critical information infrastructure.
On
August 20, 2021, the SCNPC promulgated the Personal Information Protection Law of the PRC, or the Personal Information Protection Law,
which took effect in November 2021. As the first systematic and comprehensive law specifically for the protection of personal information
in the PRC, the Personal Information Protection Law provides, among others, that (i) an individual’s consent shall be obtained
to use sensitive personal information, such as biometric characteristics and individual location tracking, (ii) personal information
operators using sensitive personal information shall notify individuals of the necessity of such use and impact on the individual’s
rights, and (iii) where personal information operators reject an individual’s request to exercise his or her rights, the individual
may file a lawsuit with a People’s Court.
As
such, the Company’s business segments may be subject to various government and regulatory interference in the provinces in which
they operate. The Company could be subject to regulation by various political and regulatory entities, including various local and municipal
agencies and government sub-divisions. The Company may incur increased costs necessary to comply with existing and newly adopted laws
and regulations or penalties for any failure to comply. Additionally, the governmental and regulatory interference could significantly
limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to
significantly decline or be worthless.
Furthermore,
it is uncertain when and whether the Company will be required to obtain permission from the PRC government to list on U.S. exchanges
in the future, and even when such permission is obtained, whether it will be denied or rescinded. Although the Company is currently not
required to obtain permission from any of the PRC federal or local government to obtain such permission and has not received any denial
to list on the U.S. exchange, our operations could be adversely affected, directly or indirectly, by existing or future laws and regulations
relating to its business or industry.
On
February 17, 2023, the CSRC promulgated Trial Administrative Measures of the Overseas Securities Offering and Listing by Domestic Companies
(the “Overseas Listing Trial Measures”) and five relevant guidelines, which became effective on March 31, 2023. According
to the Overseas Listing Trial Measures, PRC domestic companies that seek to offer and list securities in overseas markets, either in
direct or indirect means, are required to fulfill the filing procedure with the CSRC and report relevant information. The Overseas Listing
Trial Measures provides that an overseas listing or offering is explicitly prohibited, if any of the following: (1) such securities offering
and listing is explicitly prohibited by provisions in laws, administrative regulations and relevant state rules; (2) the intended securities
offering and listing may endanger national security as reviewed and determined by competent authorities under the State Council in accordance
with law; (3) the domestic company intending to make the securities offering and listing, or its controlling shareholder(s) and the actual
controller, have committed relevant crimes such as corruption, bribery, embezzlement, misappropriation of property or undermining the
order of the socialist market economy during the latest three years; (4) the domestic company intending to make the securities offering
and listing is currently under investigations for suspicion of criminal offenses or major violations of laws and regulations, and no
conclusion has yet been made thereof; or (5) there are material ownership disputes over equity held by the domestic company’s controlling
shareholder(s) or by other shareholder(s) that are controlled by the controlling shareholder(s) and/or actual controller.
The
Overseas Listing Trial Measures also provides that if the issuer meets both the following criteria, the overseas securities offering
and listing conducted by such issuer will be deemed as indirect overseas offering by PRC domestic companies: (1) 50% or more of any of
the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements
for the most recent fiscal year is accounted for by domestic companies; and (2) the issuer’s main business activities are conducted
in China, or its main place(s) of business are located in China, or the majority of senior management staff in charge of its business
operations and management are PRC citizens or have their usual place(s) of residence located in China. Where an issuer submits an application
for initial public offering to competent overseas regulators, such issuer must file with the CSRC within three business days after such
application is submitted. In addition, the Overseas Listing Trial Measures provide that the direct or indirect overseas listings of the
assets of domestic companies through one or more acquisitions, share swaps, transfers or other transaction arrangements shall be subject
to filing procedures in accordance with the Overseas Listing Trial Measures. The Overseas Listing Trial Measures also requires subsequent
reports to be filed with the CSRC on material events, such as change of control or voluntary or forced delisting of the issuer(s) who
have completed overseas offerings and listings.
At
a press conference held for these new regulations (“Press Conference”), officials from the CSRC clarified that the domestic
companies that have already been listed overseas on or before March 31, 2023 shall be deemed as existing issuers (the “Existing
Issuers”). Existing Issuers are not required to complete the filling procedures immediately, and they shall be required to file
with the CSRC upon occurrences of certain subsequent matters such as follow-on offerings of securities. According to the Overseas Listing
Trial Measures and the Press Conference, the existing domestic companies that have completed overseas offering and listing before March
31, 2023, such as us, shall not be required to perform filing procedures for the completed overseas securities issuance and listing.
However, from the effective date of the regulation, any of our subsequent securities offering in the same overseas market or subsequent
securities offering and listing in other overseas markets shall be subject to the filing requirement with the CSRC within three working
days after the offering is completed or after the relevant application is submitted to the relevant overseas authorities, respectively.
If it is determined that any approval, filing or other administrative procedures from other PRC governmental authorities is required
for any future offering or listing, we cannot assure you that we can obtain the required approval or accomplish the required filings
or other regulatory procedures in a timely manner, or at all. If we fail to fulfill filing procedure as stipulated by the Trial Measures
or offer and list securities in an overseas market in violation of the Trial Measures, the CSRC may order rectification, issue warnings
to us, and impose a fine of between RMB1,000,000 and RMB10,000,000. Persons-in-charge and other persons that are directly liable for
such failure shall be warned and each imposed a fine from RMB500,000 to RMB5,000,000. Controlling shareholders and actual controlling
persons of us that organize or instruct such violations shall be imposed a fine from RMB1,000,000 and RMB10,000,000.
On
February 24, 2023, the CSRC published the Provisions on Strengthening the Confidentiality and Archives Administration Related to the
Overseas Securities Offering and Listing by Domestic Enterprises (the “Provisions on Confidentiality and Archives Administration”),
which came into effect on March 31, 2023. The Provisions on Confidentiality and Archives Administration requires that, in the process
of overseas issuance and listing of securities by domestic entities, the domestic entities, and securities companies and securities service
institutions that provide relevant securities service shall strictly implement the provisions of relevant laws and regulations and the
requirements of these provisions, establish and improve rules on confidentiality and archives administration. Where the domestic entities
provide with or publicly disclose documents, materials or other items related to the state secrets and government work secrets to the
relevant securities companies, securities service institutions, overseas regulatory authorities, or other entities or individuals, the
companies shall apply for approval of competent departments with the authority of examination and approval in accordance with law and
report the matter to the secrecy administrative departments at the same level for record filing. Where there is unclear or controversial
whether or not the concerned materials are related to state secrets, the materials shall be reported to the relevant secrecy administrative
departments for determination. However, there remain uncertainties regarding the further interpretation and implementation of the Provisions
on Confidentiality and Archives Administration.
As
of the date of this prospectus, we and our PRC subsidiaries have obtained the requisite licenses and permits from the PRC government
authorities that are material for the business operations of our PRC subsidiaries. In addition, as of the date of this prospectus, we
and our PRC subsidiaries are not required to obtain approval or permission from the CSRC or the CAC or any other entity that is required
to approve our PRC subsidiaries’ operations or required for us to offer securities to foreign investors under any currently effective
PRC laws, regulations, and regulatory rules. If it is determined that we are subject to filing requirements imposed by the CSRC under
the Overseas Listing Regulations or approvals from other PRC regulatory authorities or other procedures, including the cybersecurity
review under the revised Cybersecurity Review Measures, for our future offshore offerings, it would be uncertain whether we can or how
long it will take us to complete such procedures or obtain such approval and any such approval could be rescinded. Any failure to obtain
or delay in completing such procedures or obtaining such approval for our offshore offerings, or a rescission of any such approval if
obtained by us, would subject us to sanctions by the CSRC or other PRC regulatory authorities for failure to file with the CSRC or failure
to seek approval from other government authorization for our offshore offerings. These regulatory authorities may impose fines and penalties
on our operations in China, limit our ability to pay dividends outside of China, limit our operating privileges in China, delay or restrict
the repatriation of the proceeds from our offshore offerings into China or take other actions that could materially and adversely affect
our business, financial condition, results of operations, and prospects, as well as the trading price of our common stock. The CSRC or
other PRC regulatory authorities also may take actions requiring us, or making it advisable for us, to halt our offshore offerings before
settlement and delivery of the securities offered. Consequently, if investors engage in market trading or other activities in anticipation
of and prior to settlement and delivery, they do so at the risk that settlement and delivery may not occur. In addition, if the CSRC
or other regulatory authorities later promulgate new rules or explanations requiring that we obtain their approvals or accomplish the
required filing or other regulatory procedures for our prior offshore offerings, we may be unable to obtain a waiver of such approval
requirements, if and when procedures are established to obtain such a waiver. Any uncertainties or negative publicity regarding such
approval requirement could materially and adversely affect our business, prospects, financial condition, reputation, and the trading
price of our common stock.
In
addition, on December 28, 2021, the CAC, the National Development and Reform Commission (“NDRC”), and several other administrations
jointly issued the revised Measures for Cybersecurity Review, or the Revised Review Measures, which became effective and has replaced
the existing Measures for Cybersecurity Review on February 15, 2022. According to the Revised Review Measures, if an “online platform
operator” that is in possession of personal data of more than one million users intends to list in a foreign country, it must apply
for a cybersecurity review. Based on a set of Q&A published on the official website of the State Cipher Code Administration in connection
with the issuance of the Revised Review Measures, an official of the said administration indicated that an online platform operator should
apply for a cybersecurity review prior to the submission of its listing application with non-PRC securities regulators. Given the recency
of the issuance of the Revised Review Measures and their pending effectiveness, there is a general lack of guidance and substantial uncertainties
exist with respect to their interpretation and implementation. For example, it is unclear whether the requirement of cybersecurity review
applies to follow-on offerings by an “online platform operator” that is in possession of personal data of more than one million
users where the offshore holding company of such operator is already listed overseas. Furthermore, the CAC released the draft of the
Regulations on Network Data Security Management in November 2021 for public consultation, which among other things, stipulates that a
data processor listed overseas must conduct an annual data security review by itself or by engaging a data security service provider
and submit the annual data security review report for a given year to the municipal cybersecurity department before January 31 of the
following year. If the draft Regulations on Network Data Security Management are enacted in the current form, we, as an overseas listed
company, will be required to carry out an annual data security review and comply with the relevant reporting obligations.
The
M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors,
which could make it more difficult for us to pursue growth through acquisitions in China.
The
Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory
agencies in 2006 and amended in 2009, and some other regulations and rules concerning mergers and acquisitions established additional
procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex, including
requirements in some instances that the anti-monopoly law enforcement agency be notified in advance of any change-of-control transaction
in which a foreign investor takes control of a PRC domestic enterprise.
For
example, the M&A Rules require MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes
control of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that impact
or may impact national economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds
a famous trademark or PRC time-honored brand. Moreover, the PRC Anti-Monopoly Law promulgated by the Standing Committee of the National
People’s Congress effective 2008 requires that transactions which are deemed concentrations and involve parties with specified
turnover thresholds (i.e., during the previous fiscal year, (i) the total global turnover of all operators participating in the transaction
exceeds RMB10 billion and at least two of these operators each had a turnover of more than RMB400 million within China, or (ii) the total
turnover within China of all the operators participating in the concentration exceeded RMB2 billion, and at least two of these operators
each had a turnover of more than RMB400 million within China) must be cleared by the anti-monopoly enforcement authority before they
can be completed. In addition, in 2011, the General Office of the State Council promulgated a Notice on Establishing the Security Review
System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, also known as Circular 6, which officially established
a security review system for mergers and acquisitions of domestic enterprises by foreign investors. Further, MOFCOM promulgated the Regulations
on Implementation of Security Review System for the Merger and Acquisition of Domestic Enterprises by Foreign Investors, effective 2011,
to implement Circular 6. Under Circular 6, a security review is required for mergers and acquisitions by foreign investors having “national
defense and security” concerns and mergers and acquisitions by which foreign investors may acquire the “de facto control”
of domestic enterprises with “national security” concerns. Under the foregoing MOFCOM regulations, MOFCOM will focus on the
substance and actual impact of the transaction when deciding whether a specific merger or acquisition is subject to security review.
If MOFCOM decides that a specific merger or acquisition is subject to a security review, it will submit it to the Inter-Ministerial Panel,
an authority established under Circular 6 led by the National Development and Reform Commission, and MOFCOM under the leadership of the
State Council, to carry out security review. The regulations prohibit foreign investors from bypassing the security review by structuring
transactions through trusts, indirect investments, leases, loans, control through contractual arrangements or offshore transactions.
There is no explicit provision or official interpretation stating that the merging or acquisition of a company engaged in the internet
content business requires security review, and there is no requirement that acquisitions completed prior to the promulgation of the Security
Review Circular are subject to MOFCOM review.
In
the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations
and other relevant rules to complete such transactions could be time consuming, and any required approval processes, including obtaining
approval from MOFCOM or its local counterparts may delay or inhibit our ability to complete such transactions. We believe that it is
unlikely that our business would be deemed to be in an industry that raises “national defense and security” or “national
security” concerns. However, MOFCOM or other government agencies may publish explanations in the future determining that our business
is in an industry subject to the security review, in which case our future acquisitions in China, including those by way of entering
into contractual control arrangements with target entities, may be closely scrutinized or prohibited.
Adverse
changes in political and economic policies of the PRC government could have a material adverse effect on the overall economic growth
of China, which could materially and adversely affect the demand for our projects and our business.
Currently,
all of our operations are conducted in China. Accordingly, our business, financial condition, results of operations and prospects are
affected significantly by economic, political and legal developments in China. The PRC economy differs from the economies of most developed
countries in many respects, including:
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the control of foreign exchange; and |
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While
the PRC economy has grown significantly since the late 1970s, the growth has been uneven, both geographically and among various sectors
of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources.
Some of these measures benefit the overall PRC economy, but may also have a negative effect on us. For example, our financial condition
and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that
are applicable to us.
The
PRC economy has been transitioning from a planned economy to a more market-oriented economy. Although the PRC government has in recent
years implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive
assets and the establishment of sound corporate governance in business enterprises, a substantial portion of the productive assets in
China is still owned by the PRC government. The continued control of these assets and other aspects of the national economy by the PRC
government could materially and adversely affect our business. The PRC government also exercises significant control over economic growth
in China through the allocation of resources, controlling payment of foreign currency- denominated obligations, setting monetary policy
and providing preferential treatment to particular industries or companies. Efforts by the PRC government to slow the pace of growth
of the PRC economy could result in decreased capital expenditure by energy users, which in turn could reduce demand for our products.
In addition, the PRC government, which regulates the power industry in China, has adopted laws related to renewable energy, and has adopted
policies for the accelerated development of renewable energy as part of a Development Plan promulgated on August 31, 2007.
Any
adverse change in the economic conditions or government policies in China could have a material adverse effect on the overall economic
growth and the level of energy investments and expenditures in China, which in turn could lead to a reduction in demand for our products
and consequently have a material adverse effect on our business and prospects.
Restrictions
under PRC law on our subsidiaries’ ability to make dividends and other distributions could materially and adversely affect our
ability to grow, make investments or acquisitions that could benefit our business, pay dividends to you, and otherwise fund and conduct
our business.
We
conduct all of our business through our consolidated subsidiaries and affiliated companies operating in the PRC. We rely on dividends
paid by these consolidated subsidiaries for our cash needs, including the funds necessary to pay any dividends and other cash distributions
to our stockholders, to service any debt we may incur and to pay our operating expenses. The payment of dividends by entities established
in the PRC is subject to limitations imposed by government regulations. Regulations in the PRC currently permit payment of dividends
only out of accumulated profits as determined in accordance with accounting standards and regulations in the PRC, subject to certain
statutory procedural requirements and these may not be calculated in the same manner as US GAAP. In addition, each of our subsidiaries
in China is required to set aside a certain amount of its after-tax profits each year, if any, to fund certain statutory reserves. These
reserves are not distributable as cash dividends. Furthermore, if our subsidiaries in China incur debt on their own behalf in the future,
the instruments governing the debt may restrict their ability to pay dividends or make other payments to us. Any limitations on the ability
of our PRC subsidiaries to transfer funds to us could materially and adversely limit our ability to grow, make investments or acquisitions
that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.
Fluctuation
in the value of the Renminbi may have a material adverse effect on your investment.
The
value of the Renminbi (“RMB”) against the US Dollar and other currencies may fluctuate and is affected by, among other things,
changes in China’s political and economic conditions. The conversion of RMB into foreign currencies, including US Dollars, has
historically been set by the People’s Bank of China(“PBOC”). On March 17, 2014, the PRC government changed its policy
of pegging the value of the RMB to the US Dollar. Under the new policy, the RMB is permitted to fluctuate within a band against a basket
of certain foreign currencies, determined by the Bank of China, against which it can rise or fall by as much as 2% each day. Since the
adoption of this new policy, the value of the RMB against the US Dollar has fluctuated on a daily basis within narrow ranges, but overall
has strengthened against the US Dollar. There remains significant international pressure on the PRC government to further liberalize
its currency policy, which could result in a further and more significant appreciation in the value of the RMB against the US Dollar.
Appreciation or depreciation in the value of the RMB relative to the US Dollar would affect our financial results reported in US Dollar
terms even if there is no underlying change in our business or results of operations. In addition, if we decide to convert our RMB into
US Dollars for the purpose of making payments for dividends on our common stock or for other business purposes, appreciation of the US
Dollar against the RMB would have a negative effect on the US Dollar amount available to us.
The
PRC currency is not a freely convertible currency, which could limit our ability to obtain sufficient foreign currency to support our
business operations in the future. In addition, changes in foreign exchange regulations in the PRC may affect our ability to pay dividends
in foreign currency or conduct other foreign exchange business.
The
PRC government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency
out of the PRC. We receive substantially all of our revenues in RMB, which is currently not a freely convertible currency. Shortages
in the availability of foreign currency may restrict our ability to remit sufficient foreign currency to pay dividends, or otherwise
satisfy foreign currency-denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items,
including profit distributions, interest payments and expenditures from the transaction, can be made in foreign currencies without prior
approval from the PRC State Administration of Foreign Exchange, or the SAFE, by complying with certain procedural requirements. However,
approval from appropriate governmental authorities is required where RMB are to be converted into foreign currency and remitted out of
China to pay capital expenses such as the repayment of bank loans denominated in foreign currencies.
The
PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the
foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be
able to pay certain of our expenses as they come due.
We
may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law.
We
are subject to the U.S. Foreign Corrupt Practices Act, or FCPA, and other laws that prohibit improper payments or offers of payments
to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute for the purpose
of obtaining or retaining business. We are also subject to Chinese anti-corruption laws, which strictly prohibit the payment of bribes
to government officials. We have operations, agreements with third parties, and make sales in China, which may experience corruption.
Our activities in China create the risk of unauthorized payments or offers of payments by one of the employees, consultants or distributors
of our company, because these parties are not always subject to our control. We are in process of implementing an anticorruption program,
which prohibits the offering or giving of anything of value to foreign officials, directly or indirectly, for the purpose of obtaining
or retaining business. The anticorruption program also requires that clauses mandating compliance with our policy be included in all
contracts with foreign sales agents, sales consultants and distributors and that they certify their compliance with our policy annually.
It further requires that all hospitality involving promotion of sales to foreign governments and government-owned or controlled entities
be in accordance with specified guidelines. In the meantime, we believe to date we have complied in all material respects with the provisions
of the FCPA and Chinese anti-corruption law.
However,
our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants or distributors
of our Company may engage in conduct for which we might be held responsible. Violations of the FCPA or Chinese anti-corruption law may
result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business,
operating results and financial condition. In addition, the government may seek to hold our Company liable for successor liability FCPA
violations committed by companies in which we invest or that we acquire.
Substantial
uncertainties exist with respect to the interpretation and implementation of PRC Foreign Investment Law and how it may impact the viability
of our current corporate structure, corporate governance and business operations
The
Ministry of Commerce published a discussion draft of the proposed Foreign Investment Law in January 2015, or the 2015 FIL Draft, which
expands the definition of foreign investment and introduces the principle of “actual control” in determining whether a company
is considered a foreign-invested enterprise, or an FIE.
On
March 15, 2019, the National People’s Congress approved the Foreign Investment Law, which took effect on January 1, 2020 and replaced
three existing laws on foreign investments in China, namely, the PRC Equity Joint Venture Law, the PRC Cooperative Joint Venture Law
and the Wholly Foreign-owned Enterprise Law, together with their implementation rules and ancillary regulations. The Foreign Investment
Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international
practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic invested enterprises in
China. The Foreign Investment Law establishes the basic framework for the access to, and the promotion, protection and administration
of foreign investments in view of investment protection and fair competition.
According
to the Foreign Investment Law, “foreign investment” refers to investment activities directly or indirectly conducted by one
or more natural persons, business entities, or otherwise organizations of a foreign country (collectively referred to as “foreign
investor”) within China, and the investment activities include the following situations: (i) a foreign investor, individually or
collectively with other investors, establishes a foreign-invested enterprise within China; (ii) a foreign investor acquires stock shares,
equity shares, shares in assets, or other like rights and interests of an enterprise within China; (iii) a foreign investor, individually
or collectively with other investors, invests in a new project within China; and (iv) investments in other means as provided by laws,
administrative regulations, or the State Council.
According
to the Foreign Investment Law, the State Council will publish or approve to publish the “negative list” for special administrative
measures concerning foreign investment. The Foreign Investment Law grants national treatment to foreign-invested entities, or FIEs, except
for those FIEs that operate in industries deemed to be either “restricted” or “prohibited” in the “negative
list”. Because the “negative list” has yet to be published, it is unclear whether it will differ from the current Special
Administrative Measures for Market Access of Foreign Investment (Negative List). The Foreign Investment Law provides that FIEs operating
in foreign restricted or prohibited industries will require market entry clearance and other approvals from relevant PRC governmental
authorities. If a foreign investor is found to invest in any prohibited industry in the “negative list”, such foreign investor
may be required to, among other aspects, cease its investment activities, dispose of its equity interests or assets within a prescribed
time limit and have its income confiscated. If the investment activity of a foreign investor is in breach of any special administrative
measure for restrictive access provided for in the “negative list”, the relevant competent department shall order the foreign
investor to make corrections and take necessary measures to meet the requirements of the special administrative measure for restrictive
access.
The
PRC government will establish a foreign investment information reporting system, according to which foreign investors or foreign-invested
enterprises shall submit investment information to the competent department for commerce concerned through the enterprise registration
system and the enterprise credit information publicity system, and a security review system under which the security review shall be
conducted for foreign investment affecting or likely affecting the state security.
Furthermore,
the Foreign Investment Law provides that foreign invested enterprises established according to the existing laws regulating foreign investment
may maintain their structure and corporate governance within five years after the implementing of the Foreign Investment Law.
In
addition, the Foreign Investment Law also provides several protective rules and principles for foreign investors and their investments
in the PRC, including, among others, that a foreign investor may freely transfer into or out of China, in Renminbi or a foreign currency,
its contributions, profits, capital gains, income from disposition of assets, royalties of intellectual property rights, indemnity or
compensation lawfully acquired, and income from liquidation, among others, within China; local governments shall abide by their commitments
to the foreign investors; governments at all levels and their departments shall enact local normative documents concerning foreign investment
in compliance with laws and regulations and shall not impair legitimate rights and interests, impose additional obligations onto FIEs,
set market access restrictions and exit conditions, or intervene with the normal production and operation activities of FIEs; except
for special circumstances, in which case statutory procedures shall be followed and fair and reasonable compensation shall be made in
a timely manner, expropriation or requisition of the investment of foreign investors is prohibited; and mandatory technology transfer
is prohibited.
Under
the PRC Enterprise Income Tax Law, or the EIT Law, we may be classified as a “resident enterprise” of China, which could
result in unfavorable tax consequences to us and our non-PRC shareholders.
The
EIT Law and its implementing rules provide that enterprises established outside of China whose “de facto management bodies”
are located in China are considered “resident enterprises” under PRC tax laws. The implementing rules promulgated under the
EIT Law define the term “de facto management bodies” as a management body which substantially manages, or has control over
the business, personnel, finance and assets of an enterprise. In April 2009, the State Administration of Taxation, or SAT, issued the
Circular on Issues Concerning the Identification of Chinese-Controlled Overseas Registered Enterprises as Resident Enterprises in Accordance
With the Actual Standards of Organizational Management, known as Circular 82, which has provided certain specific criteria for determining
whether the “de facto management bodies” of a PRC-controlled enterprise that is incorporated offshore is located in China.
However, there are no further detailed rules or precedents governing the procedures and specific criteria for determining “de facto
management body.” Although our board of directors and management are located in Hong Kong, it is unclear if the PRC tax authorities
will determine that we should be classified as a PRC “resident enterprise.”
If
we are deemed as a PRC “resident enterprise,” we will be subject to PRC enterprise income tax on our worldwide income at
a uniform tax rate of 25%, although dividends distributed to us from our existing PRC subsidiary and any other PRC subsidiaries which
we may establish from time to time could be exempt from the PRC dividend withholding tax due to our PRC “resident recipient”
status. This could have a material and adverse effect on our overall effective tax rate, our income tax expenses and our net income.
Furthermore, dividends, if any, paid to our shareholders may be decreased as a result of the decrease in distributable profits. In addition,
if we were considered a PRC “resident enterprise”, any dividends we pay to our non-PRC investors, and the gains realized
from the transfer of our common stock may be considered income derived from sources within the PRC and be subject to PRC tax, at a rate
of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable
tax treaty). It is unclear whether holders of our common stock would be able to claim the benefits of any tax treaties between their
country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. This could have a material and adverse
effect on the value of your investment in us and the price of our common stock.
PRC
regulation of loans to and direct investment by offshore holding companies in PRC entities may delay or prevent us from making loans
or additional capital contributions to our PRC operating companies, which could materially and adversely affect our liquidity and ability
to fund and expand our business.
As
an offshore holding company of PRC operating companies, we may make loans or additional capital contributions to our PRC operating companies.
Any loans to our PRC operating companies are subject to PRC regulations. For example, loans to our operating companies in China to finance
their activities may not exceed statutory limits and must be registered with SAFE. If we decide to make capital contributions to our
operating entities in the PRC, the PRC Ministry of Commerce, or MOFCOM, (or MOFCOM’s local counterpart, depending on the amount
involved) may need to approve these capital contributions. We cannot assure you that we will be able to obtain these government approvals
on a timely basis, if at all, with respect to any such capital contributions. If we fail to receive such approvals, our ability to capitalize
our PRC operations may be negatively affected, which could adversely affect our ability to fund and expand our business.
We
may face PRC regulatory risks relating to our equity incentive plan.
On
March 28, 2007, the SAFE promulgated a notice requiring PRC individuals who are granted stock options and other types of stock-based
awards by an overseas publicly-listed company to obtain approval from the local SAFE branch through an agent of the overseas publicly-listed
company (generally its PRC subsidiary or a financial institution).
We
urged our PRC management personnel, directors, employees and consultants who were granted stock options under our Incentive Plan to register
them with the local SAFE pursuant to the said regulation. However, we cannot ensure that each of these individuals have carried out all
of the required registration procedures.
If
we, or any of these persons, fail to comply with the relevant rules or requirements, we may be subject to penalties, and may become subject
to more stringent review and approval processes with respect to our foreign exchange activities, such as our PRC subsidiaries’
dividend payment to us or borrowing foreign currency loans, all of which may adversely affect our business and financial condition.
Uncertainties
with respect to the PRC legal system could adversely affect us and we may have limited legal recourse under PRC law if disputes arise
under our contracts with third parties.
Since
1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in
China. However, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently
cover all aspects of economic activities in China in particular, because these laws and regulations are relatively new, and because of
the limited volume of published decisions and their non-binding nature, the interpretation and enforcement of these laws and regulations
involve uncertainties. In addition, the PRC legal system is based in part on government policies and internal rules (some of which are
not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these
policies and rules until some time after violation.
The
Chinese government has enacted some laws and regulations dealing with matters such as corporate organization and governance, foreign
investment, commerce, taxation and trade. However, their experience in implementing, interpreting and enforcing these laws and regulations
is limited, and our ability to enforce commercial claims or to resolve commercial disputes is unpredictable. The resolution of these
matters may be subject to the exercise of considerable discretion by agencies of the Chinese government, and forces unrelated to the
legal merits of a particular matter or dispute may influence their determination. Any rights we may have to specific performance, or
to seek an injunction under PRC law, in either of these cases, are severely limited, and without a means of recourse by virtue of the
Chinese legal system, we may be unable to prevent others from violating our rights. The occurrence of any such events could have a material
adverse effect on our business, financial condition and results of operations.
We may
have difficulty maintaining adequate management, legal and financial controls in the PRC.
The
PRC historically has been deficient in western style management and financial reporting concepts and practices, as well as in modern
banking, and other control systems. We may have difficulty in hiring and retaining a sufficient number of qualified employees to work
in the PRC. As a result of these factors, and especially since we are a publicly listed company in the U.S. and subject to regulation
as such, we may experience difficulty in maintaining management, legal and financial controls, collecting financial data and preparing
financial statements, books of account and corporate records and instituting business practices that meet western standards. We may have
difficulty establishing adequate management, legal and financial controls in the PRC. Therefore, we may, in turn, experience difficulties
in implementing and maintaining adequate internal controls as required under Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404,
and other applicable laws, rules and regulations. This may result in significant deficiencies or material weaknesses in our internal
controls which could impact the reliability of our financial statements and prevent us from complying with SEC rules and regulations
and the requirements of the Sarbanes-Oxley Act of 2002. Any such deficiencies, weaknesses or lack of compliance could have a materially
adverse effect on our business and the market price of our stock.
If
we fail to maintain an effective system of internal control over financial reporting, our ability to accurately and timely report our
financial results or prevent fraud may be adversely affected and investor confidence and the market price of our common stock may be
adversely impacted.
As
directed by SOX 404, the SEC adopted rules requiring public companies to include a report of management on the company’s internal
controls over financial reporting in their annual reports. Our management may conclude that our internal controls over our financial
reporting are not effective, which could result in an adverse reaction in the financial marketplace due to a loss of investor confidence
in the reliability of our reporting processes, which could adversely impact the market price of our common stock.
Your
ability to bring an action against us or against our directors and officers, or to enforce a judgment against us or them, will be limited
because we conduct substantially all of our operations in the PRC and because the majority of our directors and officers reside outside
of the United States.
We
are a Nevada corporation but nearly all of our assets are located outside of the U.S. Most of our current operations are conducted in
the PRC. In addition, most of our directors and officers are nationals and residents of the PRC. A substantial portion of the assets
of these persons is located outside the U.S. As a result, it may be difficult for you to effect service of process within the U.S. upon
these persons. It may also be difficult for you to enforce in U.S. courts judgments on the civil liability provisions of the U.S. federal
securities laws against us and our officers and directors. In addition, there is uncertainty as to whether the courts of the PRC would
recognize or enforce judgments of U.S. courts. The recognition and enforcement of foreign judgments are provided for under the PRC
Civil Procedures Law. Courts in the PRC may recognize and enforce foreign judgments in accordance with the requirements of the PRC
Civil Procedures Law based on treaties between the PRC and the country where the judgment is made or on reciprocity between jurisdictions.
The PRC does not have any treaties or other arrangements that provide for the reciprocal recognition and enforcement of foreign judgments
with the U.S In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against
us or our directors and officers if they decide that the judgment violates basic principles of PRC law or national sovereignty, security
or the public interest. So it is uncertain whether a PRC court would enforce a judgment rendered by a court in the U.S.
A
failure by our stockholders or beneficial owners who are PRC residents to comply with certain PRC foreign exchange regulations could
restrict our ability to distribute profits, restrict our overseas and cross-border investment activities or subject us to liability under
PRC laws, which could adversely affect our business and financial condition.
On
October 21, 2005, SAFE issued the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in
Financing and Roundtrip Investments via Offshore Special Purpose Vehicles, or SAFE Circular 75. SAFE Circular 75 states that PRC residents
(including both legal persons and natural persons) must register with SAFE or its local branch in connection with their establishment
or control of an offshore entity established for the purpose of overseas equity financing involving a roundtrip investment whereby the
offshore entity acquires or controls onshore assets or equity interests held by the PRC residents. In addition, such PRC residents must
update their SAFE registrations when the offshore SPV undergoes material events relating to increases or decreases in investment amount,
transfers or exchanges of shares, mergers or divisions, long-term equity or debt investments, external guarantees, or other material
events that do not involve roundtrip investments. To further clarify the implementation of SAFE Circular 75, the General Affairs Department
of SAFE issued SAFE Circular 106 on May 29, 2007. Under SAFE Circular 106, PRC subsidiaries of an offshore company governed by SAFE Circular
75 are required to coordinate and supervise the filing of SAFE registrations in a timely manner by the offshore holding company’s
shareholders who are PRC residents. If these shareholders fail to comply, the PRC subsidiaries are required to report to the local SAFE
authorities. If our shareholders who are PRC residents do not complete their registration with the local SAFE authorities, our PRC subsidiaries
will be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to us, and
we may be restricted in our ability to contribute additional capital to our PRC subsidiaries.
On
July 14, 2014, SAFE promulgated the Circular Relating to Foreign Exchange Administration of Offshore Investment, Financing and Return
Investment by Domestic Residents Utilizing Special Purpose Vehicles (Circular 37). Replacing an earlier circular published by SAFE in
2005 (Circular 75), Circular 37 further simplifies the registration process for Chinese residents seeking the round- trip investment
transactions where Chinese companies (Domestic Entities) are re-organized to create an offshore holding company (the SPV) that will control
the Domestic Entities and seek offshore financing. Also, for the first time overseas investments by Chinese individuals are formally
legalized under Circular 37.
We
are committed to complying, and to ensuring that our shareholders, who are PRC residents, comply with the SAFE Circular 37 requirements.
We believe that all of our PRC resident shareholders and beneficial owners have completed their required registrations with SAFE, or
are otherwise in the process of registering. However, we may not at all times be fully aware or informed of the identities of all our
beneficial owners who are PRC residents, and we may not always be able to compel our beneficial owners to comply with the SAFE Circular
37 requirements. As a result, we cannot assure you that all of our shareholders or beneficial owners who are PRC residents will at all
times comply with, or in the future make or obtain any applicable registrations or approvals required by, SAFE Circular 37 or other related
regulations. Failure by any such shareholders or beneficial owners to comply with SAFE Circular 37 could subject us to fines or legal
sanctions, restrict our overseas or cross-border investment activities, limit our subsidiaries’ ability to make distributions or
pay dividends or affect our ownership structure, which could adversely affect our business and prospects.
Our labor
costs may increase due to the implementation of the new PRC Labor Contract Law.
The
PRC Labor Contract Law was adopted by the Standing Committee of the National People’s Congress of PRC in June 2007 and became effective
on January 1, 2008. The Implementation Rules of the PRC Labor Contract Law were passed by the PRC State Council in September 2008 and
became effective that same month. The implementation of the new law and its Implementation Rules, particularly the following provisions,
may increase our labor costs: (a) an employer shall make monetary compensation, which shall be based on the number of an employee’s
working years with the employer at the rate of one month’s wage for each year, to the employee upon termination of an employment
contract with certain exceptions (for example, in circumstances where the term of a fixed-term employment contract expires and the employee
does not agree to renew the contract even though the conditions offered by the employer are the same as or better than those stipulated
in the current contract); (b) the wages of an employee who is on probation may not be less than the lowest wage level for the same job
with the employer or less than 80% of the wage agreed upon in the employment contract, and may not be less than the local minimum wage
rate; (c) if an employee has been working for the employer for a consecutive period of not less than 10 years, or if a fixed-term employment
contract with an employee was entered into on two consecutive occasions, generally the employer should enter into an open-ended employment
contract with such employee, unless the employee requests a fixed-term employment contract; (d) if an employer fails, in violation of
the related provisions, to enter into an open-ended employment contract with an employee, it shall in each month pay to the employee
twice his/her wage, starting from the date on which an open-ended employment contract should have been entered into; (e) if an employer
fails to enter into a written employment contract with an employee more than one month but less than one year after the date on which
it started employing him/her, it shall in each month pay to the employee twice his/her wage; and (f) if an employer hires an employee
whose employment contract with another employer has not yet been terminated or ended, causing the other employer to suffer a loss, the
later hiring employer shall be jointly and severally liable with the employee for the compensation for such loss. Our labor costs may
increase due to the implementation of the new PRC Labor Contract Law and the Implementation Rules of the PRC Labor Contract Law and our
business and results of operations may be materially and adversely affected.
The
Opinions recently issued by the General Office of the Central Committee of the Communist Party of China and the General Office of the
State Council may subject us to additional compliance requirement in the future.
July
2021, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly
issued the Opinions. The Opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision
on overseas listings by China-based companies. These opinions proposed to take effective measures, such as promoting the construction
of relevant regulatory systems, to deal with the risks and incidents facing China-based overseas-listed companies and the demand for
cybersecurity and data privacy protection. The aforementioned policies and any related implementation rules to be enacted may subject
us to additional compliance requirement in the future. As the Opinions were recently issued, official guidance and interpretation of
the Opinions remain unclear in several respects at this time. Therefore, we cannot assure you that we will remain fully compliant with
all new regulatory requirements of the Opinions or any future implementation rules on a timely basis, or at all.
The
recent joint statement by the SEC and PCAOB, proposed rule changes submitted by Nasdaq, and the Holding Foreign Companies Accountable
Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of
their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our
offering.
On
April 21, 2020, SEC Chairman Jay Clayton and PCAOB Chairman William D. Duhnke III, along with other senior SEC staff, released a joint
statement highlighting the risks associated with investing in companies based in or have substantial operations in emerging markets including
China. The joint statement emphasized the risks associated with lack of access for the PCAOB to inspect auditors and audit work papers
in China and higher risks of fraud in emerging markets.
On
May 18, 2020, Nasdaq filed three proposals with the SEC to (i) apply minimum offering size requirement for companies primarily operating
in “Restrictive Market”, (ii) adopt a new requirement relating to the qualification of management or board of director for
Restrictive Market companies, and (iii) apply additional and more stringent criteria to an applicant or listed company based on the qualifications
of the company’s auditors.
On
May 20, 2020, the U.S. Senate passed the HFCAA requiring a foreign company to certify it is not owned or controlled by a foreign government
if the PCAOB is unable to audit specified reports because the company uses a foreign auditor not subject to PCAOB inspection. If the
PCAOB is unable to inspect the Company’s auditors for three consecutive years, the issuer’s securities are prohibited to
trade on a U.S. stock exchange. On December 2, 2020, the U.S. House of Representatives approved the HFCAA. On December 18, 2020, the
HFCAA was signed into law.
On
March 24, 2021, the SEC announced that it had adopted interim final amendments to implement congressionally mandated submission and disclosure
requirements of the Act. The interim final amendments will apply to registrants that the SEC identifies as having filed an annual report
on Forms 10-K, 20-F, 40-F or N-CSR with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction
and that the PCAOB has determined it is unable to inspect or investigate completely because of a position taken by an authority in that
jurisdiction. The SEC will implement a process for identifying such a registrant and any such identified registrant will be required
to submit documentation to the SEC establishing that it is not owned or controlled by a governmental entity in that foreign jurisdiction,
and will also require disclosure in the registrant’s annual report regarding the audit arrangements of, and governmental influence
on, such a registrant.
On
June 22, 2021, the U.S Senate passed the Accelerating Holding Foreign Companies Accountable Act, which was signed into law on December
29, 2022, amending the HFCAA and requiring the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchange if
its auditor is not subject to PCAOB inspections for two consecutive years instead of three consecutive years.
On
September 22, 2021, the PCAOB adopted a final rule implementing the HFCAA, which provides a framework for the PCAOB to use when determining,
as contemplated under the HFCAA, whether the PCAOB is unable to inspect or investigate completely registered public accounting firms
located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction.
On
December 2, 2021, the SEC issued amendments to finalize rules implementing the submission and disclosure requirements in the HFCAA. The
rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public
accounting firm that is located in a foreign jurisdiction and that PCAOB is unable to inspect or investigate completely because of a
position taken by an authority in foreign jurisdictions.
On
December 16, 2021, SEC announced the PCAOB designated China and Hong Kong as the jurisdictions where the PCAOB was not allowed to conduct
full and complete audit inspections as mandated under the HFCAA. The Company’s auditor, Kreit & Chiu, is based in New York,
New York, and therefore is not affected by this mandate by the PCAOB.
On
August 26, 2022, the PCAOB announced it signed a Statement of Protocol (the “Statement of Protocol”) with the CSRC and the
Ministry of Finance of China. The terms of the Statement of Protocol granted the PCAOB complete access to audit work papers and other
information so that it may inspect and investigate PCAOB-registered accounting firms headquartered in China and Hong Kong.
On
December 15, 2022, the PCAOB announced it was able to secure complete access to inspect and investigate PCAOB-registered public accounting
firms headquartered in mainland China and Hong Kong completely in 2022. The PCAOB Board vacated its previous 2021 determinations that
the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong
Kong. However, whether the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered public accounting
firms headquartered in mainland China and Hong Kong is subject to uncertainties and depends on a number of factors out of our and our
auditor’s control. The PCAOB continues to demand complete access in mainland China and Hong Kong moving forward and is making plans
to resume regular inspections in early 2023 and beyond, as well as to continue pursuing ongoing investigations and initiate new investigations
as needed. The PCAOB has also indicated that it will act immediately to consider the need to issue new determinations with the HFCAA
if needed.
The
lack of access to the PCAOB inspection in China prevents the PCAOB from fully evaluating audits and quality control procedures of the
auditors based in China. As a result, the investors may be deprived of the benefits of such PCAOB inspections. The inability of the PCAOB
to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of these accounting firms’ audit
procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections, which could
cause existing and potential investors in our stock to lose confidence in our audit procedures and reported financial information and
the quality of our financial statements.
Kreit
& Chiu, the independent registered public accounting firm that issued the audit report for the fiscal year ended December 31, 2022
included elsewhere in this prospectus. As an auditor of companies traded publicly in the U.S. and a firm registered with the PCAOB, is
subject to laws in the U.S. pursuant to which the PCAOB conducts regular inspections to assess such auditor’s compliance with the
applicable professional standards. Kreit & Chiu is headquartered in New York, New York, and is subject to inspection by the PCAOB
on a regular basis. Enrome LLP, our independent registered public accounting firm for the fiscal year ended December 31, 2023, is based
in Singapore and is registered with PCAOB and subject to PCAOB inspection. Therefore, we believe neither Kreit & Chiu, our previous
auditor, nor Enrome LLP, our current auditor is subject to the determinations as to the inability to inspect or investigate registered
firms announced by the PCAOB on December 16, 2021.
However,
recent developments with respect to audits of China-based companies create uncertainty about the ability of Kreit & Chiu or Enrome
LLP to fully cooperate with the PCAOB’s request for audit workpapers without the approval of the Chinese authorities. We cannot
assure you whether Nasdaq or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness
of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources,
geographic reach or experience as it relates to the audit of our financial statements. In the event it is later determined that the PCAOB
is unable to inspect or investigate completely the Company’s auditor because of a position taken by an authority in a foreign jurisdiction,
then such lack of inspection could cause trading in the Company’s securities to be prohibited under the HFCAA ultimately result
in a determination by a securities exchange to delist the Company’s securities. It remains unclear what the SEC’s implementation
process related to the above rules will entail or what further actions the SEC, the PCAOB or Nasdaq will take to address these issues
and what impact those actions will have on U.S. companies that have significant operations in the PRC and have securities listed on a
U.S. stock exchange. In addition, the above amendments and any additional actions, proceedings, or new rules resulting from these efforts
to increase U.S. regulatory access to audit information could create some uncertainty for investors, the market price of our common stock
could be adversely affected, and we could be delisted if we and our auditor are unable to meet the PCAOB inspection requirement or being
required to engage a new audit firm, which would require significant expense and management time.
Risks
Related to our Common Stock
The
market price for our common stock may be volatile.
Our
common stock may be subject to extreme volatility that is seemingly unrelated to the underlying performance of our business. In particular,
our common stock may be subject to rapid and substantial price volatility, low volumes of trades and large spreads in bid and ask prices,
given that we will have relatively small public floats after this offering. Such volatility, including any stock-run up, may be unrelated
to our actual or expected operating performance, financial condition or prospects. The market price for our common stock is highly volatile
and subject to wide fluctuations in response to factors including the following:
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actual or anticipated fluctuations
in our quarterly operating results; |
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announcements of new services
by us or our competitors; |
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announcements by our competitors
of significant acquisitions, strategic partnerships, joint ventures or capital commitments; |
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changes in financial estimates
by securities analysts; |
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conditions in the energy
recycling market; |
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changes in the economic
performance or market valuations of other companies involved in the same industry; |
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changes in accounting standards,
policies, guidance, interpretation or principles; |
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loss of external funding
sources; |
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failure to maintain compliance
with Nasdaq listing rules; |
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additions or departures
of key personnel; |
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potential litigation; |
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conditions in the market;
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relatively small size of
shares of our common stock available for purchase. |
In
addition, the securities markets from time to time experience significant price and volume fluctuations that are not related to the operating
performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common
stock. Holders of our common stock may also not be able to readily liquidate their investment or may be forced to sell at depressed prices
due to low volume trading. Broad market fluctuations and general economic and political conditions may also adversely affect the market
price of our common stock. As a result of this volatility, investors may experience losses on their investment in our common stock. Furthermore,
the potential extreme volatility may confuse the public investors of the value of our stock, distort the market perception of our stock
price and our company’s financial performance and public image, negatively affect the long-term liquidity of our common stock,
regardless of our actual or expected operating performance. If we encounter such volatility, including any rapid stock price increases
and declines seemingly unrelated to our actual or expected operating performance and financial condition or prospects, it will likely
make it difficult and confusing for prospective investors to assess the rapidly changing value of our common stock and understand the
value thereof.
Shareholders
could experience substantial dilution.
We
may issue additional shares of our capital stock to raise additional cash for working capital. If we issue additional shares of our capital
stock, our shareholders will experience dilution in their respective percentage ownership in the company.
Future
sales of our common stock could reduce the market price of the common stock.
Substantial
sales of our common stock may cause the market price of our common stock to decline. Sales by us or our security holders of substantial
amounts of our common stock, or the perception that these sales may occur in the future, could cause a reduction in the market price
of our common stock.
The
issuance of any additional shares of our common stock or any securities that are exercisable for or convertible into our common stock,
may have an adverse effect on the market price of the common stock and will have a dilutive effect on our existing shareholders and holders
of common stock.
We
do not know whether a market for the common stock will be sustained or what the trading price of the common stock will be and as a result
it may be difficult for you to sell your shares.
Although
our common stock trade on Nasdaq, an active trading market for the common stock may not be sustained. It may be difficult for you to
sell your shares without depressing the market price for the common stock. As a result of these and other factors, you may not be able
to sell your shares. Further, an inactive market may also impair our ability to raise capital by selling common stock, or may impair
our ability to enter into strategic partnerships or acquire companies or products by using our shares as consideration.
We
have no plans to pay dividends on our shares, and you may not receive funds without selling the shares.
We
have not declared or paid any cash dividends on our common stock, nor do we expect to pay any cash dividends on our common stock for
the foreseeable future. We currently intend to retain any additional future earnings to finance our operations and growth and, therefore,
we have no plans to pay cash dividends on our common stock at this time. Any future determination to pay cash dividends on our common
stock will be at the discretion of our board of directors and will be dependent on our earnings, financial condition, operating results,
capital requirements, any contractual restrictions, and other factors that our board of directors deems relevant. Accordingly, you may
have to sell some or all of the shares in order to generate cash from your investment. You may not receive a gain on your investment
when you sell the shares and may lose the entire amount of your investment.
A
possible “short squeeze” due to a sudden increase in demand of our common stock that largely exceeds supply may lead to additional
price volatility.
Historically
there has not been a large short position in our common stock. However, in the future investors may purchase shares of our common
stock to hedge existing exposure or to speculate on the price of our common stock. Speculation on the price of our common stock may involve
long and short exposures. To the extent an aggregate short exposure in our common stock becomes significant, investors with short exposure
may have to pay a premium to purchase shares for delivery to share lenders at times if and when the price of our common stock increases
significantly, particularly over a short period of time. Those purchases may in turn, dramatically increase the price of our common stock.
This is often referred to as a “short squeeze.” A short squeeze could lead to volatile price movements in our common
stock that are not directly correlated to our business prospects, financial performance or other traditional measures of value for the
Company or its common stock.
In
the event that our common stocks are delisted from Nasdaq, U.S. broker-dealers may be discouraged from effecting transactions in our
common stocks because they may be considered penny stocks and thus be subject to the penny stock rules.
The
SEC has adopted a number of rules to regulate “penny stock” that restricts transactions involving stock which is deemed to
be penny stock. Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Exchange Act. These
rules may have the effect of reducing the liquidity of penny stocks. “Penny stocks” generally are equity securities with
a price of less than $5.00 per share (other than securities registered on certain national securities exchanges or quoted on Nasdaq if
current price and volume information with respect to transactions in such securities is provided by the exchange or system). Our common
stocks could be considered to be a “penny stock” within the meaning of the rules. The additional sales practice and disclosure
requirements imposed upon U.S. broker-dealers may discourage such broker-dealers from effecting transactions in our common stocks, which
could severely limit the market liquidity of such common stocks and impede their sale in the secondary market.
A
U.S. broker-dealer selling a penny stock to anyone other than an established customer or “accredited investor” (generally,
an individual with a net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse)
must make a special suitability determination for the purchaser and must receive the purchaser’s written consent to the transaction
prior to sale, unless the broker-dealer or the transaction is otherwise exempt. In addition, the “penny stock” regulations
require the U.S. broker-dealer to deliver, prior to any transaction involving a “penny stock”, a disclosure schedule prepared
in accordance with SEC standards relating to the “penny stock” market, unless the broker-dealer or the transaction is otherwise
exempt. A U.S. broker-dealer is also required to disclose commissions payable to the U.S. broker-dealer and the registered representative
and current quotations for the securities. Finally, a U.S. broker-dealer is required to submit monthly statements disclosing recent price
information with respect to the “penny stock” held in a customer’s account and information with respect to the limited
market in “penny stocks”.
The
market for “penny stocks” has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control
of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of
prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) “boiler room” practices
involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed
bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, resulting in investor losses. Our management is aware of the abuses that have
occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market
or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the
described patterns from being established with respect to our securities.
We
have no present intention to pay dividends.
We
have not paid dividends or made other cash distributions on our common stock during any of the past three years, and we do not expect
to declare or pay any dividends in the foreseeable future. We intend to retain any future earnings for working capital and to finance
current operations and expansion of our business.
A
large portion of our common stock is controlled by a small number of shareholders.
A
large portion of our common stock is held by a small number of shareholders. As a result, these shareholders are able to influence the
outcome of shareholder votes on various matters, including the election of directors and extraordinary corporate transactions including
business combinations. In addition, the occurrence of sales of a large number of shares of our common stock, or the perception that these
sales could occur, may affect our stock price and could impair our ability to obtain capital through an offering of equity securities.
Furthermore, the current ratios of ownership of our common stock reduce the public float and liquidity of our common stock which can
in turn affect the market price of our common stock.
We
may be unable to maintain compliance with Nasdaq Marketplace Rules which could cause our common stock to be delisted from the Nasdaq
Capital Market. This could result in the lack of a market for our common stock, cause a decrease in the value of our common stock, and
adversely affect our business, financial condition and results of operations.
Under
the Nasdaq Marketplace Rules our common stock must maintain a minimum price of $1.00 per share for continued inclusion on the Nasdaq
Capital Market. The per share price of our common stock has fluctuated significantly. We cannot guarantee that our stock price will remain
at or above $1.00 per share and if the price again drops below $1.00 per share, the stock could become subject to delisting. If our common
stock is delisted, trading of the stock will most likely take place on an over-the-counter market established for unlisted securities.
An investor is likely to find it less convenient to sell, or to obtain accurate quotations in seeking to buy, our common stock on an
over-the-counter market, and many investors may not buy or sell our common stock due to difficulty in accessing over-the-counter markets,
or due to policies preventing them from trading in securities not listed on a national exchange or other reasons. For these reasons and
others, delisting would adversely affect the liquidity, trading volume and price of our common stock, causing the value of an investment
in us to decrease and having an adverse effect on our business, financial condition and results of operations by limiting our ability
to attract and retain qualified executives and employees and limiting our ability to raise capital.
Previously,
we received letters from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that,
because the Company has not yet filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and Quarterly Reports
on Form 10-Qs for the periods ended March 31, 2022 and June 30, 2022, the Company does not comply with Nasdaq Listing Rule 5250(c)(1)
for continued listing. The Company had until October 12, 2022 to file all delinquent filings and regain compliance. On October 12, 2022,
the Company received a notice of delinquency compliance from Nasdaq indicating that, based on the filings of its Form 10-Qs for the periods
ended March 31, 2022 and June 30, 2022 on October 11, 2022, Nasdaq determined the Company complied with the Rule.
On
May 23, 2023, we received a letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) indicating
that, because the Company has not yet filed its Quarterly Report on Form 10-Q for the period ended
March 31, 2023 (the “Form 10-Q”), the Company does not comply with Nasdaq Listing Rule 5250(c)(1) for continued listing.
The Company had until July 24, 2023 to cure the deficiency or to submit a plan to regain compliance.
On June 21, 2023, the Company filed its quarterly report on Form 10-Q for the period ended March 31, 2023. Accordingly, Nasdaq determined
the Company complies with the Listing Rule and closed the matter.
CAPITALIZATION
AND INDEBTEDNESS
Our
capitalization will be set forth in the applicable prospectus supplement or in a report on Form 8-K subsequently furnished to the SEC
and specifically incorporated by reference into this prospectus.
DILUTION
If
required, we will set forth in a prospectus supplement the following information regarding any material dilution of the equity interests
of investors purchasing securities in an offering under this prospectus:
|
● |
the net tangible book value
per share of our equity securities before and after the offering; |
|
● |
the amount of the increase
in such net tangible book value per share attributable to the cash payments made by purchasers in the offering; and |
|
● |
the amount of the immediate
dilution from the public offering price which will be absorbed by such purchasers. |
USE
OF PROCEEDS
We
intend to use the net proceeds from the sale of securities we offer as indicated in the applicable prospectus supplement, information
incorporated by reference, or free writing prospectus.
DESCRIPTION
OF CAPITAL STOCK
General
The
following description of our capital stock together with the additional information we include in any applicable prospectus supplement,
summarizes the material terms and provisions of the capital stock that we may offer under this prospectus but is not complete. For the
complete terms of our capital stock, please refer to our articles of incorporation and our bylaws, as amended from time to time. While
the terms we have summarized below will apply generally to any future capital stock that we may offer, we will describe the specific
terms of any series of these securities in more detail in the applicable prospectus supplement. If we so indicate in a prospectus supplement,
the terms of any capital stock we offer under that prospectus supplement may differ from the terms we describe below.
As
provided in the articles and bylaws, our authorized capital stock consists of 10,000,000 shares of common stock, par value $0.001 per
share.
Common
Stock
As
of the date of this prospectus, our authorized capital stock consists of 10,000,000 shares of common stock of which 8,765,857 shares
were issued and outstanding, held by approximately 2,725 shareholders of record. The share and per share numbers relating to our common
stock reflect a one-for-ten (1:10) reverse stock split of the issued and outstanding shares of common stock (the “Reverse Stock
Split”), which became effective on April 13, 2020. Upon the effectiveness of the Reverse Stock Split, we also correspondingly decreased
the number of the authorized shares of our common stock.
The
actual number of the Company’s holders of common stock is greater than the number of stockholders of record and includes beneficial
owners whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders
whose shares may be held in trust by other entities. In addition, as of the date of this prospectus, we had options to purchase 900 shares
of common stock issued and outstanding and warrants to purchase 30,411 shares of common stock issued and outstanding. The authorized
and unissued shares of common stock are available for issuance without further action by our stockholders unless such action is required
by applicable law or the rules of The Nasdaq Capital Market stock exchange on which our securities are listed. Unless approval of our
stockholders is so required, our board of directors will not seek stockholder approval for the issuance and sale of our common stock.
The
holders of our common stock are entitled to one vote per share. Our Articles of Incorporation, as
amended (the “Articles of Incorporation”), do not provide for cumulative voting. The holders of our common stock are
entitled to receive ratably such dividends, if any, as may be declared by our board of directors out of legally available funds; however,
the current policy of our board of directors is to retain earnings, if any, for operations and growth. Upon liquidation, dissolution
or winding-up, the holders of our common stock are entitled to share ratably in all assets that are legally available for distribution.
The holders of our common stock have no preemptive, subscription, redemption or conversion rights. All issued and outstanding shares
of common stock are fully paid and nonassessable.
Anti-Takeover
Effects of Certain Provisions of Nevada Law
As
a Nevada corporation, we are also subject to certain provisions of the Nevada Revised Statutes
(the “NRS”) that have anti-takeover effects and may inhibit a non-negotiated merger or other business combination.
These provisions are intended to encourage any person interested in acquiring us to negotiate with, and to obtain the approval of, our
board of directors in connection with such a transaction. However, certain of these provisions may discourage a future acquisition of
us, including an acquisition in which the stockholders might otherwise receive a premium for their shares. As a result, stockholders
who might desire to participate in such a transaction may not have the opportunity to do so.
The
NRS provides that specified persons who, with or through their affiliates or associates, own, or affiliates and associates of the subject
corporation at any time within two years own or did own, 10% or more of the outstanding voting stock of a corporation cannot engage in
specified business combinations with the corporation for a period of two years after the date on which the person became an interested
stockholder, unless the combination meets all of the requirements of the articles of incorporation of the company, and: (i) the combination
or transaction by which such person first became an interested stockholder was approved by the board of directors before they first became
an interested stockholder; or (ii) such combination is approved by: (x) the board of directors; and (y) at an annual or special meeting
of the stockholders (not by written consent), the affirmative vote of stockholders representing at least 60% of the outstanding voting
power not beneficially owned by such interested stockholder. The law defines the term “business combination” to encompass
a wide variety of transactions with or caused by an interested stockholder, including mergers, asset sales and other transactions in
which the interested stockholder receives or could receive a benefit on other than a pro rata basis with other stockholders.
The
Control Share Acquisition Statute generally applies only to Nevada corporations with at least 200 stockholders of record, including at
least 100 stockholders of record who are Nevada residents, and which conduct business directly or indirectly in Nevada. This statute
generally provides that any person that acquires a “controlling interest” acquires voting rights in the control shares, as
defined, only as conferred by the disinterested stockholders of the corporation at a special or annual meeting. A person acquires a “controlling
interest” whenever a person acquires shares of a subject corporation that, but for the application of these provisions of the NRS,
would enable that person to exercise (1) one-fifth or more, but less than one-third, (2) one-third or more, but less than a majority
or (3) a majority or more, of all of the voting power of the corporation in the election of directors. Once an acquirer crosses one of
these thresholds, shares which it acquired in the transaction taking it over the threshold and within the 90 days immediately preceding
the date when the acquiring person acquired or offered to acquire a controlling interest become “control shares.” In the
event control shares are accorded full voting rights and the acquiring person has acquired at least a majority of all of the voting power,
any stockholder of record who has not voted in favor of authorizing voting rights for the control shares is entitled to demand payment
for the fair value of its shares.
These
laws may have a chilling effect on certain transactions if our Articles of Incorporation or Bylaws are not amended to provide that these
provisions do not apply to us or to an acquisition of a controlling interest, or if our disinterested stockholders do not confer voting
rights in the control shares.
Listing
Our
common stocks are listed and traded under the symbols “CREG” on the Nasdaq Capital Market tier of The Nasdaq Stock Market
LLC.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is Securities Transfer Corporation, which is located 2901 N. Dallas Parkway, Suite
380, Plano, Texas 75093 and George Johnson.
DESCRIPTION
OF WARRANTS
The
following description, together with the additional information we may include in any applicable prospectus supplement, summarizes the
material terms and provisions of the warrants that we may offer under this prospectus and any related warrant agreement and warrant certificate.
While the terms summarized below will apply generally to any warrants that we may offer, we will describe the specific terms of any series
of warrants in more detail in the applicable prospectus supplement. If we indicate in the prospectus supplement, the terms of any warrants
offered under that prospectus supplement may differ from the terms described below. Specific warrant agreements will contain additional
important terms and provisions and will be incorporated by reference as an exhibit to the registration statement which includes this
prospectus.
General
We
may issue warrants for the purchase of common stock in one or more series. We may issue warrants independently or together with common
stock, and the warrants may be attached to or separate from common stock. We may issue the warrants under warrant agreements to be entered
into between us and a bank or trust company, as warrant agent, all as described in the prospectus supplement. If we issue the warrants
under warrant agreements, the warrant agent will act solely as our agent in connection with the warrants and will not assume any obligation
or relationship of agency or trust for or with any holders or beneficial owners of warrants.
While
the terms summarized below will apply generally to any warrants that we may offer, we will describe the particular terms of any series
of warrants in more detail in the applicable prospectus supplement. The terms of any warrants offered under a prospectus supplement may
differ from the terms described below:
|
● |
the offering price and
aggregate number of warrants offered; |
|
● |
if applicable, the designation
and terms of the securities with which the warrants are issued and the number of warrants issued with each such security; |
|
● |
if applicable, the date
on and after which the warrants and the related securities will be separately transferable; |
|
● |
in the case of warrants
to purchase common stock, the number or amount of shares of common stock purchasable upon the exercise of one warrant and the price
at which and currency in which these shares may be purchased upon such exercise; |
|
● |
the manner of exercise
of the warrants, including any cashless exercise rights; |
|
● |
the warrant agreement under
which the warrants will be issued; |
|
● |
the effect of any merger,
consolidation, sale or other disposition of our business on the warrant agreement and the warrants; |
|
● |
anti-dilution provisions
of the warrants, if any; |
|
● |
the terms of any rights
to redeem or call the warrants; |
|
● |
any provisions for changes
to or adjustments in the exercise price or number of securities issuable upon exercise of the warrants; |
|
● |
the dates on which the
right to exercise the warrants will commence and expire or, if the warrants are not continuously exercisable during that period,
the specific date or dates on which the warrants will be exercisable; |
|
● |
the manner in which the
warrant agreement and warrants may be modified; |
|
● |
the identities of the warrant
agent and any calculation or other agent for the warrants; |
|
● |
federal income tax consequences
of holding or exercising the warrants; |
|
● |
the terms of the securities
issuable upon exercise of the warrants; |
|
● |
any securities exchange
or quotation system on which the warrants or any securities deliverable upon exercise of the warrants may be listed or quoted; and |
|
● |
any other specific terms,
preferences, rights or limitations of or restrictions on the warrants. |
Before
exercising their warrants, holders of warrants will not have any of the rights of holders of the securities purchasable upon such exercise,
including:
|
● |
in the case of warrants
to purchase common stock the right to receive dividends, if any, or, payments upon our liquidation, dissolution or winding up or
to exercise voting rights, if any. |
Exercise
of Warrants
Each
warrant will entitle the holder to purchase the securities that we specify in the applicable prospectus supplement at the exercise price
that we describe in the applicable prospectus supplement. Holders of the warrants may exercise the warrants at any time up to the close
of business on the expiration date that we set forth in the applicable prospectus supplement. After the close of business on the expiration
date, unexercised warrants will become void.
Holders
of the warrants may exercise the warrants by delivering the warrant certificate representing the warrants to be exercised together with
specified information, and paying the required exercise price by the methods provided in the applicable prospectus supplement. We will
set forth on the reverse side of the warrant certificate, and in the applicable prospectus supplement, the information that the holder
of the warrant will be required to deliver to the warrant agent or any other office indicated in the prospectus supplement.
Upon
receipt of the required payment and the warrant certificate properly completed and duly executed at the corporate trust office of the
warrant agent or any other office indicated in the applicable prospectus supplement, we will issue and deliver the securities purchasable
upon such exercise. If fewer than all of the warrants represented by the warrant certificate are exercised, then we will issue a new
warrant certificate for the remaining amount of warrants.
Enforceability
of Rights By Holders of Warrants
Any
warrant agent will act solely as our agent under the applicable warrant agreement and will not assume any obligation or relationship
of agency or trust with any holder of any warrant. A single bank or trust company may act as warrant agent for more than one issue of
warrants. A warrant agent will have no duty or responsibility in case of any default by us under the applicable warrant agreement or
warrant, including any duty or responsibility to initiate any proceedings at law or otherwise, or to make any demand upon us. Any holder
of a warrant may, without the consent of the related warrant agent or the holder of any other warrant, enforce by appropriate legal action
the holder’s right to exercise, and receive the securities purchasable upon exercise of, its warrants in accordance with their
terms.
Warrant
Agreement Will Not Be Qualified Under Trust Indenture Act
No
warrant agreement will be qualified as an indenture, and no warrant agent will be required to qualify as a trustee, under the Trust Indenture
Act. Therefore, holders of warrants issued under a warrant agreement will not have the protection of the Trust Indenture Act with respect
to their warrants.
Governing
Law
Unless
we provide otherwise in the applicable prospectus supplement, each warrant agreement and any warrants issued under the warrant agreements
will be governed by New York law.
DESCRIPTION
OF DEBT SECURITIES
As
used in this prospectus, debt securities mean the debentures, notes, bonds and other evidences of indebtedness, which may or may not
be converted into our ordinary shares, that we may issue from time to time. The debt securities may be either secured or unsecured and
will either be senior debt securities or subordinated debt securities. The debt securities may be issued under one or more separate indentures
between us and a trustee to be specified in an accompanying prospectus supplement. Senior debt securities will be issued under a new
senior indenture. Subordinated debt securities will be issued under a subordinated indenture. Together, the senior indentures and the
subordinated indentures are sometimes referred to in this prospectus as the indentures. This prospectus, together with the applicable
prospectus supplement, will describe the terms of a particular series of debt securities.
The
statements and descriptions in this prospectus or in any prospectus supplement regarding provisions of the indentures and debt securities
are summaries thereof, do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all of
the provisions of the indentures (and any amendments or supplements we may enter into from time to time which are permitted under each
indenture) and the debt securities, including the definitions therein of certain terms.
General
Unless
otherwise specified in a prospectus supplement, the debt securities will be direct unsecured obligations of Smart Powerr Corp.. The senior
debt securities will rank equally with any of our other senior and unsubordinated debt. The subordinated debt securities will be subordinate
and junior in right of payment to any senior indebtedness.
Unless
otherwise specified in a prospectus supplement, the indentures do not limit the aggregate principal amount of debt securities that we
may issue and provide that we may issue debt securities from time to time at par or at a discount, and in the case of the new indentures,
if any, in one or more series, with the same or various maturities. Unless indicated in a prospectus supplement, we may issue additional
debt securities of a particular series without the consent of the holders of the debt securities of such series outstanding at the time
of the issuance. Any such additional debt securities, together with all other outstanding debt securities of that series, will constitute
a single series of debt securities under the applicable indenture.
Each
prospectus supplement will describe the terms relating to the specific series of debt securities being offered. These terms will include
some or all of the following:
|
● |
the title of the debt securities
and whether they are subordinated debt securities or senior debt securities; |
|
● |
any limit on the aggregate
principal amount of the debt securities; |
|
● |
the ability to issue additional
debt securities of the same series; |
|
● |
the price or prices at
which we will sell the debt securities; |
|
● |
the maturity date or dates
of the debt securities on which principal will be payable; |
|
● |
the rate or rates of interest,
if any, which may be fixed or variable, at which the debt securities will bear interest, or the method of determining such rate or
rates, if any; |
|
● |
the date or dates from
which any interest will accrue or the method by which such date or dates will be determined; |
|
● |
the conversion price at
which the debt securities may be converted; |
|
● |
the date on which the right
to convert the debt securities will commence and the date on which the right will expire; |
|
● |
if applicable, the minimum
or maximum amount of debt securities that may be converted at any one time; |
|
● |
the right, if any, to extend
the interest payment periods and the duration of any such deferral period, including the maximum consecutive period during which
interest payment periods may be extended; |
|
● |
whether the amount of payments
of principal of (and premium, if any) or interest on the debt securities may be determined with reference to any index, formula or
other method, such as one or more currencies, commodities, equity indices or other indices, and the manner of determining the amount
of such payments; |
|
● |
the dates on which we will
pay interest on the debt securities and the regular record date for determining who is entitled to the interest payable on any interest
payment date; |
|
● |
the place or places where
the principal of (and premium, if any) and interest on the debt securities will be payable, where any securities may be surrendered
for registration of transfer, exchange or conversion, as applicable, and notices and demands may be delivered to or upon us pursuant
to the indenture; |
|
● |
if we possess the option
to do so, the periods within which and the prices at which we may redeem the debt securities, in whole or in part, pursuant to optional
redemption provisions, and the other terms and conditions of any such provisions; |
|
● |
our obligation, if any,
to redeem, repay or purchase debt securities by making periodic payments to a sinking fund or through an analogous provision or at
the option of holders of the debt securities, and the period or periods within which and the price or prices at which we will redeem,
repay or purchase the debt securities, in whole or in part, pursuant to such obligation, and the other terms and conditions of such
obligation; |
|
● |
the denominations in which
the debt securities will be issued, if other than denominations of $1,000 and integral multiples of $1,000; |
|
● |
the portion, or methods
of determining the portion, of the principal amount of the debt securities which we must pay upon the acceleration of the maturity
of the debt securities in connection with an event of default (as described below), if other than the full principal amount; |
|
● |
the currency, currencies
or currency unit in which we will pay the principal of (and premium, if any) or interest, if any, on the debt securities, if not
United States dollars; |
|
● |
provisions, if any, granting
special rights to holders of the debt securities upon the occurrence of specified events; |
|
● |
any deletions from, modifications
of or additions to the events of default or our covenants with respect to the applicable series of debt securities, and whether or
not such events of default or covenants are consistent with those contained in the applicable indenture; |
|
● |
any limitation on our ability
to incur debt, redeem shares, sell our assets or other restrictions; |
|
● |
the application, if any,
of the terms of the indenture relating to defeasance and covenant defeasance (which terms are described below) to the debt securities; |
|
● |
whether the subordination
provisions summarized below or different subordination provisions will apply to the debt securities; |
|
● |
the terms, if any, upon
which the holders may convert or exchange the debt securities into or for our ordinary shares or other securities or property; |
|
● |
whether any of the debt
securities will be issued in global form and, if so, the terms and conditions upon which global debt securities may be exchanged
for certificated debt securities; |
|
● |
any change in the right
of the trustee or the requisite holders of debt securities to declare the principal amount thereof due and payable because of an
event of default; |
|
● |
the depository for global
or certificated debt securities; |
|
● |
any special tax implications
of the debt securities; |
|
● |
any foreign tax consequences
applicable to the debt securities, including any debt securities denominated and made payable, as described in the prospectus supplements,
in foreign currencies, or units based on or related to foreign currencies; |
|
● |
any trustees, authenticating
or paying agents, transfer agents or registrars, or other agents with respect to the debt securities; |
|
● |
any other terms of the
debt securities not inconsistent with the provisions of the indentures, as amended or supplemented; |
|
● |
to whom any interest on
any debt security shall be payable, if other than the person in whose name the security is registered, on the record date for such
interest, the extent to which, or the manner in which, any interest payable on a temporary global debt security will be paid if other
than in the manner provided in the applicable indenture; |
|
● |
if the principal of or
any premium or interest on any debt securities of the series is to be payable in one or more currencies or currency units other than
as stated, the currency, currencies or currency units in which it shall be paid and the periods within and terms and conditions upon
which such election is to be made and the amounts payable (or the manner in which such amount shall be determined); |
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● |
the portion of the principal
amount of any securities of the series which shall be payable upon declaration of acceleration of the maturity of the debt securities
pursuant to the applicable indenture if other than the entire principal amount; and |
|
● |
if the principal amount
payable at the stated maturity of any debt security of the series will not be determinable as of any one or more dates prior to the
stated maturity, the amount which shall be deemed to be the principal amount of such securities as of any such date for any purpose,
including the principal amount thereof which shall be due and payable upon any maturity other than the stated maturity or which shall
be deemed to be outstanding as of any date prior to the stated maturity (or, in any such case, the manner in which such amount deemed
to be the principal amount shall be determined). |
Unless
otherwise specified in the applicable prospectus supplement, the debt securities will not be listed on any securities exchange and will
be issued in fully-registered form without coupons.
Debt
securities may be sold at a substantial discount below their stated principal amount, bearing no interest or interest at a rate which
at the time of issuance is below market rates. The applicable prospectus supplement will describe the federal income tax consequences
and special considerations applicable to any such debt securities. The debt securities may also be issued as indexed securities or securities
denominated in foreign currencies, currency units or composite currencies, as described in more detail in the prospectus supplement relating
to any of the particular debt securities. The prospectus supplement relating to specific debt securities will also describe any special
considerations and certain additional tax considerations applicable to such debt securities.
Conversion
of Debt Securities
The
debt securities may entitle the holder to purchase, in exchange for the extinguishment of debt, an amount of securities at a conversion
price that will be stated in the debt securities. If such debt securities are convertible, unless otherwise specified in a prospectus
supplement, the debt securities will be convertible at any time up to the close of business on the expiration date set forth in the terms
of such debt securities. After the close of business on the expiration date, the debt securities not converted will be paid in accordance
with their terms.
Subordination
The
prospectus supplement relating to any offering of subordinated debt securities will describe the specific subordination provisions. However,
unless otherwise noted in the prospectus supplement, subordinated debt securities will be subordinate and junior in right of payment
to any existing senior indebtedness.
Unless
otherwise specified in the applicable prospectus supplement, under the subordinated indenture, “senior indebtedness” means
all amounts due on obligations in connection with any of the following, whether outstanding at the date of execution of the subordinated
indenture, or thereafter incurred or created:
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● |
the principal of (and premium,
if any) and interest due on our indebtedness for borrowed money and indebtedness evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in respect thereof); |
|
● |
all of our capital lease
obligations or attributable debt (as defined in the indentures) in respect of sale and leaseback transactions; |
|
● |
all obligations representing
the balance deferred and unpaid of the purchase price of any property or services, which purchase price is due more than six months
after the date of placing such property in service or taking delivery and title thereto, except any such balance that constitutes
an accrued expense or trade payable or any similar obligation to trade creditors; |
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● |
all of our obligations
in respect of interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements
and interest rate collar agreements; other agreements or arrangements designed to manage interest rates or interest rate risk; and
other agreements or arrangements designed to protect against fluctuations in currency exchange rates or commodity prices; |
|
● |
all obligations of the
types referred to above of other persons for the payment of which we are responsible or liable as obligor, guarantor or otherwise;
and |
|
● |
all obligations of the
types referred to above of other persons secured by any lien on any property or asset of ours (whether or not such obligation is
assumed by us). |
However,
senior indebtedness does not include:
|
● |
any indebtedness which
expressly provides that such indebtedness shall not be senior in right of payment to the subordinated debt securities, or that such
indebtedness shall be subordinated to any other of our indebtedness, unless such indebtedness expressly provides that such indebtedness
shall be senior in right of payment to the subordinated debt securities; |
|
● |
any of our obligations
to our subsidiaries or of a subsidiary guarantor to us or any other of our other subsidiaries; |
|
● |
any liability for federal,
state, local or other taxes owed or owing by us or any subsidiary guarantor, |
|
● |
any accounts payable or
other liability to trade creditors arising in the ordinary course of business (including guarantees thereof or instruments evidencing
such liabilities); |
|
● |
any obligations with respect
to any capital stock; |
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● |
any indebtedness incurred
in violation of the indenture, provided that indebtedness under our credit facilities will not cease to be senior indebtedness under
this bullet point if the lenders of such indebtedness obtained an officer’s certificate as of the date of incurrence of such
indebtedness to the effect that such indebtedness was permitted to be incurred by the indenture; and |
|
● |
any of our indebtedness
in respect of the subordinated debt securities. |
Senior
indebtedness shall continue to be senior indebtedness and be entitled to the benefits of the subordination provisions irrespective of
any amendment, modification or waiver of any term of such senior indebtedness.
Unless
otherwise noted in an accompanying prospectus supplement, if we default in the payment of any principal of (or premium, if any) or interest
on any senior indebtedness when it becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or
otherwise, then, unless and until such default is cured or waived or ceases to exist, we will make no direct or indirect payment (in
cash, property, securities, by set-off or otherwise) in respect of the principal of or interest on the subordinated debt securities or
in respect of any redemption, retirement, purchase or other requisition of any of the subordinated debt securities.
In
the event of the acceleration of the maturity of any subordinated debt securities, the holders of all senior debt securities outstanding
at the time of such acceleration, subject to any security interest, will first be entitled to receive payment in full of all amounts
due on the senior debt securities before the holders of the subordinated debt securities will be entitled to receive any payment of principal
(and premium, if any) or interest on the subordinated debt securities.
If
any of the following events occurs, we will pay in full all senior indebtedness before we make any payment or distribution under the
subordinated debt securities, whether in cash, securities or other property, to any holder of subordinated debt securities:
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● |
any dissolution or winding-up
or liquidation or reorganization of Lichen China Limited, whether voluntary or involuntary or in bankruptcy, |
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● |
insolvency or receivership; |
|
● |
any general assignment
by us for the benefit of creditors; or |
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● |
any other marshaling of
our assets or liabilities. |
In
such event, any payment or distribution under the subordinated debt securities, whether in cash, securities or other property, which
would otherwise (but for the subordination provisions) be payable or deliverable in respect of the subordinated debt securities, will
be paid or delivered directly to the holders of senior indebtedness in accordance with the priorities then existing among such holders
until all senior indebtedness has been paid in full. If any payment or distribution under the subordinated debt securities is received
by the trustee of any subordinated debt securities in contravention of any of the terms of the subordinated indenture and before all
the senior indebtedness has been paid in full, such payment or distribution will be received in trust for the benefit of, and paid over
or delivered and transferred to, the holders of the senior indebtedness at the time outstanding in accordance with the priorities then
existing among such holders for application to the payment of all senior indebtedness remaining unpaid to the extent necessary to pay
all such senior indebtedness in full.
The
subordinated indenture does not limit the issuance of additional senior indebtedness.
Events
of Default, Notice and Waiver
Unless
an accompanying prospectus supplement states otherwise, the following shall constitute “events of default” under the indentures
with respect to each series of debt securities:
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● |
we default for 30 consecutive
days in the payment when due of interest on the debt securities; |
|
● |
we default in the payment
when due (at maturity, upon redemption or otherwise) of the principal of, or premium, if any, on the debt securities; |
|
● |
our failure to observe
or perform any other of our covenants or agreements with respect to such debt securities for 60 days after we receive notice of such
failure; |
|
● |
certain events of bankruptcy,
insolvency or reorganization Lichen China Limited; or |
|
● |
any other event of default
provided with respect to securities of that series. |
Unless
an accompanying prospectus supplement states otherwise, if an event of default with respect to any debt securities of any series outstanding
under either of the indentures shall occur and be continuing, the trustee under such indenture or the holders of at least 25% (or at
least 10%, in respect of a remedy (other than acceleration) for certain events of default relating to the payment of dividends) in aggregate
principal amount of the debt securities of that series outstanding may declare, by notice as provided in the applicable indenture, the
principal amount (or such lesser amount as may be provided for in the debt securities of that series) of all the debt securities of that
series outstanding to be due and payable immediately; provided that, in the case of an event of default involving certain events in bankruptcy,
insolvency or reorganization, acceleration is automatic; and, provided further, that after such acceleration, but before a judgment or
decree based on acceleration, the holders of a majority in aggregate principal amount of the outstanding debt securities of that series
may, under certain circumstances, rescind and annul such acceleration if all events of default, other than the nonpayment of accelerated
principal, have been cured or waived. Upon the acceleration of the maturity of original issue discount securities, an amount less than
the principal amount thereof will become due and payable. Reference is made to the prospectus supplement relating to any original issue
discount securities for the particular provisions relating to acceleration of maturity thereof.
Any
past default under either indenture with respect to debt securities of any series, and any event of default arising therefrom, may be
waived by the holders of a majority in principal amount of all debt securities of such series outstanding under such indenture, except
in the case of (1) default in the payment of the principal of (or premium, if any) or interest on any debt securities of such series
or (2) certain events of default relating to the payment of dividends.
The
trustee is required within 90 days after the occurrence of a default (which is known to the trustee and is continuing), with respect
to the debt securities of any series (without regard to any grace period or notice requirements), to give to the holders of the debt
securities of such series notice of such default.
The
trustee, subject to its duties during default to act with the required standard of care, may require indemnification by the holders of
the debt securities of any series with respect to which a default has occurred before proceeding to exercise any right or power under
the indentures at the request of the holders of the debt securities of such series. Subject to such right of indemnification and to certain
other limitations, the holders of a majority in principal amount of the outstanding debt securities of any series under either indenture
may direct the time, method and place of conducting any proceeding for any remedy available to the trustee, or exercising any trust or
power conferred on the trustee with respect to the debt securities of such series, provided that such direction shall not be in conflict
with any rule of law or with the applicable indenture and the trustee may take any other action deemed proper by the trustee which is
not inconsistent with such direction.
No
holder of a debt security of any series may institute any action against us under either of the indentures (except actions for payment
of overdue principal of (and premium, if any) or interest on such debt security or for the conversion or exchange of such debt security
in accordance with its terms) unless (1) the holder has given to the trustee written notice of an event of default and of the continuance
thereof with respect to the debt securities of such series specifying an event of default, as required under the applicable indenture,
(2) the holders of at least 25% in aggregate principal amount of the debt securities of that series then outstanding under such indenture
shall have requested the trustee to institute such action and offered to the trustee indemnity reasonably satisfactory to it against
the costs, expenses and liabilities to be incurred in compliance with such request; (3) the trustee shall not have instituted such action
within 60 days of such request and (4) no direction inconsistent with such written request has been given to the trustee during such
60-day period by the holders of a majority in principal amount of the debt securities of that series. We are required to furnish annually
to the trustee statements as to our compliance with all conditions and covenants under each indenture.
Discharge,
Defeasance and Covenant Defeasance
We
may discharge or defease our obligations under the indenture as set forth below, unless otherwise indicated in the applicable prospectus
supplement.
We
may discharge certain obligations to holders of any series of debt securities issued under either the senior indenture or the subordinated
indenture which have not already been delivered to the trustee for cancellation by irrevocably depositing with the trustee money in an
amount sufficient to pay and discharge the entire indebtedness on such debt securities not previously delivered to the trustee for cancellation,
for principal and any premium and interest to the date of such deposit (in the case of debt securities which have become due and payable)
or to the stated maturity or redemption date, as the case may be, and we or, if applicable, any guarantor, have paid all other sums payable
under the applicable indenture.
If
indicated in the applicable prospectus supplement, we may elect either (1) to defease and be discharged from any and all obligations
with respect to the debt securities of or within any series (except in all cases as otherwise provided in the relevant indenture) (“legal
defeasance”) or (2) to be released from our obligations with respect to certain covenants applicable to the debt securities of
or within any series (“covenant defeasance”), upon the deposit with the relevant indenture trustee, in trust for such purpose,
of money and/or government obligations which through the payment of principal and interest in accordance with their terms will provide
money in an amount sufficient to pay the principal of (and premium, if any) or interest on such debt securities to maturity or redemption,
as the case may be, and any mandatory sinking fund or analogous payments thereon. As a condition to legal defeasance or covenant defeasance,
we must deliver to the trustee an opinion of counsel to the effect that the holders of such debt securities will not recognize income,
gain or loss for federal income tax purposes as a result of such legal defeasance or covenant defeasance and will be subject to federal
income tax on the same amounts and in the same manner and at the same times as would have been the case if such legal defeasance or covenant
defeasance had not occurred. Such opinion of counsel, in the case of legal defeasance under clause (i) above, must refer to and be based
upon a ruling of the Internal Revenue Service or a change in applicable federal income tax law occurring after the date of the relevant
indenture. In addition, in the case of either legal defeasance or covenant defeasance, we shall have delivered to the trustee (1) if
applicable, an officer’s certificate to the effect that the relevant debt securities exchange(s) have informed us that neither
such debt securities nor any other debt securities of the same series, if then listed on any securities exchange, will be delisted as
a result of such deposit and (2) an officer’s certificate and an opinion of counsel, each stating that all conditions precedent
with respect to such legal defeasance or covenant defeasance have been complied with.
We
may exercise our defeasance option with respect to such debt securities notwithstanding our prior exercise of our covenant defeasance
option.
Modification
and Waiver
Under
the indentures, unless an accompanying prospectus supplement states otherwise, we and the applicable trustee may supplement the indentures
for certain purposes which would not materially adversely affect the interests or rights of the holders of debt securities of a series
without the consent of those holders. We and the applicable trustee may also modify the indentures or any supplemental indenture in a
manner that affects the interests or rights of the holders of debt securities with the consent of the holders of at least a majority
in aggregate principal amount of the outstanding debt securities of each affected series issued under the indenture. However, the indentures
require the consent of each holder of debt securities that would be affected by any modification which would:
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● |
reduce the principal amount
of debt securities whose holders must consent to an amendment, supplement or waiver; |
|
● |
reduce the principal of
or change the fixed maturity of any debt security or, except as provided in any prospectus supplement, alter or waive any of the
provisions with respect to the redemption of the debt securities; |
|
● |
reduce the rate of or change
the time for payment of interest, including default interest, on any debt security; |
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waive a default or event
of default in the payment of principal of or interest or premium, if any, on, the debt securities (except a rescission of acceleration
of the debt securities by the holders of at least a majority in aggregate principal amount of the then outstanding debt securities
and a waiver of the payment default that resulted from such acceleration); |
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make any debt security
payable in money other than that stated in the debt securities; |
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● |
make any change in the
provisions of the applicable indenture relating to waivers of past defaults or the rights of holders of the debt securities to receive
payments of principal of, or interest or premium, if any, on, the debt securities; |
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● |
waive a redemption payment
with respect to any debt security (except as otherwise provided in the applicable prospectus supplement); |
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● |
except in connection with
an offer by us to purchase all debt securities, (1) waive certain events of default relating to the payment of dividends or (2) amend
certain covenants relating to the payment of dividends and the purchase or redemption of certain equity interests; |
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● |
make any change to the
subordination or ranking provisions of the indenture or the related definitions that adversely affect the rights of any holder; or |
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make any change in the
preceding amendment and waiver provisions. |
The
indentures permit the holders of at least a majority in aggregate principal amount of the outstanding debt securities of any series issued
under the indenture which is affected by the modification or amendment to waive our compliance with certain covenants contained in the
indentures.
Payment
and Paying Agents
Unless
otherwise indicated in the applicable prospectus supplement, payment of interest on a debt security on any interest payment date will
be made to the person in whose name a debt security is registered at the close of business on the record date for the interest.
Unless
otherwise indicated in the applicable prospectus supplement, principal, interest and premium on the debt securities of a particular series
will be payable at the office of such paying agent or paying agents as we may designate for such purpose from time to time. Notwithstanding
the foregoing, at our option, payment of any interest may be made by check mailed to the address of the person entitled thereto as such
address appears in the security register.
Unless
otherwise indicated in the applicable prospectus supplement, a paying agent designated by us will act as paying agent for payments with
respect to debt securities of each series. All paying agents initially designated by us for the debt securities of a particular series
will be named in the applicable prospectus supplement. We may at any time designate additional paying agents or rescind the designation
of any paying agent or approve a change in the office through which any paying agent acts, except that we will be required to maintain
a paying agent in each place of payment for the debt securities of a particular series.
All
moneys paid by us to a paying agent for the payment of the principal, interest or premium on any debt security which remain unclaimed
at the end of two years after such principal, interest or premium has become due and payable will be repaid to us upon request, and the
holder of such debt security thereafter may look only to us for payment thereof.
Denominations,
Registrations and Transfer
Unless
an accompanying prospectus supplement states otherwise, debt securities will be represented by one or more global certificates registered
in the name of a nominee for The Depository Trust Company, or DTC. In such case, each holder’s beneficial interest in the global
securities will be shown on the records of DTC and transfers of beneficial interests will only be effected through DTC’s records.
A
holder of debt securities may only exchange a beneficial interest in a global security for certificated securities registered in the
holder’s name if:
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we deliver to the trustee
notice from DTC that it is unwilling or unable to continue to act as depository or that it is no longer a clearing agency registered
under the Exchange Act and, in either case, a successor depositary is not appointed by us within 120 days after the date of such
notice from DTC; |
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● |
we in our sole discretion
determine that the debt securities (in whole but not in part) should be exchanged for definitive debt securities and deliver a written
notice to such effect to the trustee; or |
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there has occurred and
is continuing a default or event of default with respect to the debt securities. |
If
debt securities are issued in certificated form, they will only be issued in the minimum denomination specified in the accompanying prospectus
supplement and integral multiples of such denomination. Transfers and exchanges of such debt securities will only be permitted in such
minimum denomination. Transfers of debt securities in certificated form may be registered at the trustee’s corporate office or
at the offices of any paying agent or trustee appointed by us under the indentures. Exchanges of debt securities for an equal aggregate
principal amount of debt securities in different denominations may also be made at such locations.
Governing
Law
The
indentures and debt securities will be governed by, and construed in accordance with, the laws of the State of New York, without regard
to its principles of conflicts of laws, except to the extent the Trust Indenture Act is applicable or as otherwise agreed to by the parties
thereto.
Trustee
The
trustee or trustees under the indentures will be named in any applicable prospectus supplement.
Conversion
or Exchange Rights
The
prospectus supplement will describe the terms, if any, on which a series of debt securities may be convertible into or exchangeable for
our ordinary shares or other debt securities. These terms will include provisions as to whether conversion or exchange is mandatory,
at the option of the holder or at our option. These provisions may allow or require the number of shares of our ordinary shares or other
securities to be received by the holders of such series of debt securities to be adjusted. Any such conversion or exchange will comply
with applicable Cayman Islands law and our amended and restated memorandum and articles of association.
DESCRIPTION
OF UNITS
We
may issue units comprised of one or more of the other securities described in this prospectus in any combination. Each unit will be issued
so that the holder of the unit is also the holder, with the rights and obligations of a holder, of each security included in the unit.
The unit agreement under which a unit is issued may provide that the securities included in the unit may not be held or transferred separately,
at any time or at any time before a specified date or upon the occurrence of a specified event or occurrence.
The
applicable prospectus supplement will describe:
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the designation and terms
of the units and of the securities comprising the units, including whether and under what circumstances those securities may be held
or transferred separately; |
|
● |
any unit agreement under
which the units will be issued; |
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● |
any provisions for the
issuance, payment, settlement, transfer or exchange of the units or of the securities comprising the units; and |
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● |
whether the units will
be issued in fully registered or global form. |
DESCRIPTION
OF RIGHTS
We
may issue rights to purchase our common stock, in one or more series. Rights may be issued independently or together with any other offered
security and may or may not be transferable by the person purchasing or receiving the subscription rights. In connection with any rights
offering to our stockholders, we may enter into a standby underwriting arrangement with one or more underwriters pursuant to which such
underwriters will purchase any offered securities remaining unsubscribed after such rights offering. In connection with a rights offering
to our stockholders, we will distribute certificates evidencing the rights and a prospectus supplement to our stockholders on the record
date that we set for receiving rights in such rights offering. The applicable prospectus supplement or free writing prospectus will describe
the following terms of rights in respect of which this prospectus is being delivered:
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● |
the title of such rights; |
|
● |
the securities for which
such rights are exercisable; |
|
● |
the exercise price for
such rights; |
|
● |
the date of determining
the security holders entitled to the rights distribution; |
|
● |
the number of such rights
issued to each security holder; |
|
● |
the extent to which such
rights are transferable; |
|
● |
if applicable, a discussion
of the material United States federal income tax considerations applicable to the issuance or exercise of such rights; |
|
● |
the date on which the right
to exercise such rights shall commence, and the date on which such rights shall expire (subject to any extension); |
|
● |
the conditions to completion
of the rights offering; |
|
● |
any provisions for changes
to or adjustments in the exercise price or number of securities issuable upon exercise of the rights; |
|
● |
the extent to which such
rights include an over-subscription privilege with respect to unsubscribed securities; |
|
● |
if applicable, the material
terms of any standby underwriting or other purchase arrangement that we may enter into in connection with the rights offering; and |
|
● |
any other terms of such
rights, including terms, procedures and limitations relating to the exchange and exercise of such rights. |
Each
right will entitle the holder thereof the right to purchase for cash such amount of shares of common stock, or any combination thereof,
at such exercise price as shall in each case be set forth in, or be determinable as set forth in, the prospectus supplement relating
to the rights offered thereby. Rights may be exercised at any time up to the close of business on the expiration date for such rights
set forth in the prospectus supplement. After the close of business on the expiration date, all unexercised rights will become void.
Rights may be exercised as set forth in the prospectus supplement relating to the rights offered thereby. Upon receipt of payment and
the proper completion and due execution of the rights certificate at the office of the rights agent, if any, or any other office indicated
in the prospectus supplement, we will forward, as soon as practicable, the shares of common stock purchasable upon such exercise. We
may determine to offer any unsubscribed offered securities directly to persons other than stockholders, to or through agents, underwriters
or dealers or through a combination of such methods, including pursuant to standby underwriting arrangements, as set forth in the applicable
prospectus supplement.
PLAN
OF DISTRIBUTION
We
may sell the securities described in this prospectus through underwriters or dealers, through agents, directly to one or more purchasers,
“at-the-market” offerings, negotiated transactions, block trades or through a combination of these methods. The applicable
prospectus supplement will describe the terms of the offering of the securities, including:
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● |
the name or names of any
underwriters, if any, and if required, any dealers or agents, and the amount of securities underwritten or purchased by each of them,
if any; |
|
● |
the public offering price
or purchase price of the securities from us and the net proceeds to us from the sale of the securities; |
|
● |
any underwriting discounts
and other items constituting underwriters’ compensation; |
|
● |
any discounts or concessions
allowed or re-allowed or paid to dealers; and |
|
● |
any securities exchange
or market on which the securities may be listed. |
We
may distribute the securities from time to time in one or more transactions at:
|
● |
a fixed price or prices,
which may be changed; |
|
● |
market prices prevailing
at the time of sale; |
|
● |
varying prices determined
at the time of sale related to such prevailing market prices; or |
Only
underwriters named in the prospectus supplement will be underwriters of the securities offered by the prospectus supplement.
If
we use underwriters in the sale, the underwriters will either acquire the securities for their own account and may resell the securities
from time to time in one or more transactions at a fixed public offering price or at varying prices determined at the time of sale, or
sell the Shares on a “best efforts, minimum/maximum basis” when the underwriters agree to do their best to sell the securities
to the public. We may offer the securities to the public through underwriting syndicates represented by managing underwriters or by underwriters
without a syndicate. Any public offering price and any discounts or concessions allowed or re-allowed or paid to dealers may change from
time to time.
If
we use a dealer in the sale of the securities being offered pursuant to this prospectus or any prospectus supplement, the securities
will be sold directly to the dealer, as principal. The dealer may then resell the securities to the public at varying prices to be determined
by the dealer at the time of resale.
Our
common stock is listed on the Nasdaq Capital Market. Unless otherwise specified in the related prospectus supplement, all securities
we offer, other than common stock, will be new issues of securities with no established trading market. Any underwriter may make a market
in these securities, but will not be obligated to do so and may discontinue any market making at any time without notice. We may apply
to list any series of warrants or other securities that we offer on an exchange, but we are not obligated to do so. Therefore, there
may not be liquidity or a trading market for any series of securities.
We
may sell the securities directly or through agents we designate from time to time. We will name any agent involved in the offering and
sale of securities and we will describe any commissions we may pay the agent in the applicable prospectus supplement.
We
may authorize agents or underwriters to solicit offers by institutional investors to purchase securities from us at the public offering
price set forth in the prospectus supplement pursuant to delayed delivery contracts providing for payment and delivery on a specified
date in the future. We will describe the conditions to these contracts and the commissions we must pay for solicitation of these contracts
in the applicable prospectus supplement.
In
connection with the sale of the securities, underwriters, dealers or agents may receive compensation from us or from purchasers of the
securities for whom they act as agents in the form of discounts, concessions or commissions. Underwriters may sell the securities to
or through dealers, and those dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters
or commissions from the purchasers for whom they may act as agents. Underwriters, dealers and agents that participate in the distribution
of the securities, and any institutional investors or others that purchase securities directly and then resell the securities, may be
deemed to be underwriters, and any discounts or commissions received by them from us and any profit on the resale of the securities by
them may be deemed to be underwriting discounts and commissions under the Securities Act.
LEGAL
MATTERS
The
validity of the issuance of the securities offered hereby will be passed upon for us by Ortoli Rosenstadt LLP. The current address of
Ortoli Rosenstadt LLP is 366 Madison Avenue, 3rd Floor, New York, NY 10017.
If
legal matters in connection with offerings made pursuant to this prospectus are passed upon by counsel to underwriters, dealers, or agents,
such counsel will be named in the applicable prospectus supplement relating to any such offering.
EXPERTS
The
consolidated financial statements for the year ended December 31, 2023, incorporated by reference in this prospectus have been so included
in reliance on the report of Enrome LLP, an independent registered public accounting firm, given on their authority as experts in accounting
and auditing. The office of Enrome LLP is located at 143 Cecil St, #19-03/04 GB Building, Singapore 069542. The consolidated financial
statements for the year ended December 31, 2022, incorporated by reference in this prospectus have been so included in reliance on the
report of Kreit & Chiu CPA LLP, an independent registered public accounting firm, given on their authority as experts in accounting
and auditing. The office of Kreit & Chiu CPA LLP is located at 733 Third Avenue, Floor 16, #1014, New York NY, 10017.
INTERESTS
OF EXPERTS AND COUNSEL
No
named expert of or counselor to us was employed on a contingent basis, or owns an amount of our shares (or those of our subsidiaries)
which is material to that person, or has a material, direct or indirect economic interest in us or that depends on the success of the
offering.
INCORPORATION
OF DOCUMENTS BY REFERENCE
The
SEC allows us to “incorporate by reference” into this prospectus the documents we file with, or furnish to, it, which means
that we can disclose important information to you by referring you to these documents. The information that we incorporate by reference
into this prospectus forms a part of this prospectus. When we update the information contained in documents that have been incorporated
by reference by making future filings with the SEC, the information incorporated by reference in this prospectus is considered to be
automatically updated and superseded. In other words, in the case of a conflict or inconsistency between information contained in this
prospectus and information incorporated by reference into this prospectus, you should rely on the information contained in the document
that was filed later.
We
incorporate by reference into this prospectus the documents listed below:
|
● |
our
Annual Report on Form 10-K
for the fiscal year ended December 31, 2023, filed with the SEC on April 11, 2024; |
|
|
|
|
● |
our
Quarterly Report on Form 10-Q
for the three months ended March 31, 2024, filed with the SEC on May 14, 2024; |
|
|
|
|
● |
Our Quarterly Report on Form 10-Q for the six months ended June
30, 2024 filed with the SEC on August 14, 2024;
|
|
|
|
|
● |
the
Company’s Definitive Proxy Statement on Schedule
14A, filed with the SEC on November 2, 2023; |
|
|
|
|
● |
any
future annual reports on Form 10-K filed with the SEC after the date of this prospectus and prior to the termination of the offering
of the securities offered by this prospectus; and |
|
|
|
|
● |
any
future reports on Form 8-K that we furnish to the SEC after the date of this prospectus that are identified in such reports as being
incorporated by reference into the registration statement of which this prospectus forms a part. |
All
documents filed by us pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the initial filing date of this prospectus,
through the date declared effective, until the termination of the offering of securities contemplated by this prospectus shall be deemed
to be incorporated by reference into this prospectus. These documents that we file later with the Securities and Exchange Commission
and that are incorporated by reference in this prospectus will automatically update information contained in this prospectus or that
was previously incorporated by reference into this prospectus. You will be deemed to have notice of all information incorporated by reference
in this prospectus as if that information was included in this prospectus.
We
will provide to any person, including any beneficial owner, to whom this prospectus is delivered, a copy of any or all of the information
that has been incorporated by reference in this prospectus but not delivered with this prospectus, at no cost to the requesting party,
upon request to us in writing or by telephone using the following information:
Smart
Powerr Corp.
4/F,
Tower C
Rong
Cheng Yun Gu Building Keji 3rd Road, Yanta District
Xi
An City, Shaan Xi Province
China
710075
(011)
86-29-8765-1098
You
should rely only on the information that we incorporate by reference or provide in this prospectus. We have not authorized anyone to
provide you with different information. We are not making any offer to sell these securities in any jurisdiction where the offer or sale
is not permitted. You should not assume that the information contained or incorporated in this prospectus by reference is accurate as
of any date other than the date of the document containing the information.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
As
permitted by SEC rules, this prospectus omits certain information and exhibits that are included in the registration statement of which
this prospectus forms a part. Since this prospectus may not contain all of the information that you may find important, you should review
the full text of these documents. If we have filed a contract, agreement, or other document as an exhibit to the registration statement
of which this prospectus forms a part, you should read the exhibit for a more complete understanding of the document or matter involved.
Each statement in this prospectus, including statements incorporated by reference as discussed above, regarding a contract, agreement,
or other document is qualified in its entirety by reference to the actual document.
We
are subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers.
Accordingly, we are required to file reports, including annual reports on Form 10-K, and other information with the SEC. All information
filed with the SEC can be inspected over the Internet at the SEC’s website at www.sec.gov and copied at the public reference facilities
maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can request copies of these documents, upon payment of a duplicating
fee, by writing to the SEC.
As
a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content
of proxy statements, and our executive officers, directors, and principal shareholders are exempt from the reporting and short-swing
profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to
file periodic or current reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities
are registered under the Exchange Act.
PROSPECTUS
SMART
POWERR CORP.
$50,000,000
Common
Stock
Debt
Securities
Warrants
Rights
Units
,
2024
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The
estimated expenses payable by the Registrant in connection with the issuance and distribution of the securities being registered are
as follows:
SEC
Registration Fee | |
$ | 7,380 | |
Legal
Fees and Expenses* | |
| * | |
Accounting
Fees and Expenses* | |
| * | |
Printing
and miscellaneous Expenses* | |
| * | |
Total | |
$ | * | |
* |
Estimated expenses are
presently not known and cannot be estimated. |
ITEM
15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The
Nevada Revised Statutes permits our board of directors to indemnify any person against expenses (including attorneys’ fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred by him or her in connection with any threatened, pending, or completed
action, suit, or proceeding in which such person is made a party by reason of his or her being or having been a director, officer, employee,
or agent of us, or serving or having served, at our request, as a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise, in terms sufficiently broad to permit such indemnification under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the Securities Act. The statute provides that indemnification
pursuant to its provisions is not exclusive of other rights of indemnification to which a person may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise.
We
have adopted provisions in our Articles of Incorporation, as amended from time to time that limit or eliminate the personal liability
of our directors and officers to the fullest extent permitted by Nevada law, as it now exists or may in the future be amended, and against
all expenses and liabilities reasonably incurred in connection with their service for or on behalf of the company.
At
present, we are not aware of any pending or threatened litigation or proceeding involving any of our directors, officer, employees or
agents in which indemnification would be required or permitted. We believe provisions in our articles of incorporation are necessary
to attract and retain qualified persons as directors and officers.
In
any underwriting agreement we enter into in connection with the sale of common stock and warrants being registered hereby, the underwriters
will agree to indemnify, under certain conditions, us, our directors, our officers and persons who control us within the meaning of the
Securities Act, against certain liabilities.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, the Company has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
ITEM
16. EXHIBITS
The
following exhibits are attached hereto:
+ |
Filed herewith |
|
|
* |
To be filed, if necessary,
after effectiveness of this registration statement by an amendment to the registration statement or incorporated by reference to
a Current Report on Form 8-K filed in connection with an underwritten offering of the shares offered hereunder. |
|
|
** |
To be filed in accordance
with the requirements of Section 305(b)(2) of the Trust Indenture Act of 1939, as amended. |
ITEM
17. UNDERTAKINGS.
(a)
The undersigned registrant hereby undertakes:
(1)
To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:
(i)
To include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii)
To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration
Fee” table in the effective registration statement.
(iii)
To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement; provided, however, that paragraphs (a)(1)(i), (a)(1)(ii)
and (a)(1)(iii) of this section do not apply if the information required to be included in a post-effective amendment by those paragraphs
is contained in reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Exchange
Act that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule
424(b) that is part of the registration statement.
(2)
That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3)
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4)
That, for the purpose of determining liability under the Securities Act to any purchaser:
(A)
Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the
date the filed prospectus was deemed part of and included in this Registration Statement; and
(B)
Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on
Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required
by Section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier
of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the
offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date
an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the
registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is
part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or
modify any statement that was made in the registration statement or prospectus that was part of this Registration Statement or made in
any such document immediately prior to such effective date.
(5)
That, for the purpose of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution
of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant
to this Registration Statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities
are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to
the purchaser and will be considered to offer or sell such securities to such purchaser:
(i)
Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule
424;
(ii)
Any free-writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by
the undersigned registrant;
(iii)
The portion of any other free-writing prospectus relating to the offering containing material information about the undersigned registrant
or its securities provided by or on behalf of the undersigned registrant; and
(iv)
Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(b)
The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of
the registrant’s annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan’s annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c)
Insofar as indemnification for liabilities arising under the Securities Act, as amended, may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the
opinion of the SEC such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
(d)
The undersigned registrant hereby further undertakes that:
(1)
For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance under Rule 430A and contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it
was declared effective.
(2)
For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Shaanxi, China, on August 19,
2024.
|
SMART POWERR CORP. |
|
|
|
|
By: |
/s/
Guohua Ku |
|
|
Guohua Ku |
|
|
Chief
Executive Officer and
Chairman
of the Board
(Principal
Executive Officer) |
Pursuant
to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/
Guohua Ku |
|
Chairman of the Board of
Directors and Chief Executive Officer |
|
August 19, 2024 |
Guohua Ku |
|
|
|
|
|
|
|
|
|
/s/ Xiaoping
Guo |
|
Director |
|
August 19, 2024 |
Xiaoping Guo |
|
|
|
|
|
|
|
|
|
/s/ Yan Zhan |
|
Director |
|
August 19, 2024 |
Yan Zhan |
|
|
|
|
|
|
|
|
|
/s/ LuLu Sun |
|
Director |
|
August 19, 2024 |
LuLu Sun |
|
|
|
|
|
|
|
|
|
/s/ Zhongli
Liu |
|
Director |
|
August 19, 2024 |
Zhongli Liu |
|
|
|
|
|
|
|
|
|
/s/ Yongjiang
Shi |
|
Chief Financial Officer and Vice President |
|
August 19, 2024 |
Yongjiang Shi |
|
|
|
|
II-5
Exhibit 4.1
SMART POWERR CORP.
FORM OF
SENIOR INDENTURE
Dated as of [ ], 2024
[ ]
Trustee
TABLE OF CONTENTS
|
|
PAGE |
ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE |
1 |
SECTION 1.01. |
Definitions. |
1 |
SECTION 1.02. |
Other Definitions. |
4 |
SECTION 1.03. |
Incorporation by Reference of Trust Indenture Act. |
4 |
SECTION 1.04. |
Rules of Construction. |
5 |
|
|
|
ARTICLE II THE SECURITIES |
5 |
SECTION 2.01. |
Issuable in Series. |
5 |
SECTION 2.02. |
Establishment of Terms of Series of Securities. |
5 |
SECTION 2.03. |
Execution and Authentication. |
6 |
SECTION 2.04. |
Registrar and Paying Agent. |
7 |
SECTION 2.05. |
Paying Agent to Hold Money in Trust. |
8 |
SECTION 2.06. |
Securityholder Lists. |
8 |
SECTION 2.07. |
Transfer and Exchange. |
8 |
SECTION 2.08. |
Mutilated, Destroyed, Lost and Stolen Securities. |
8 |
SECTION 2.09. |
Outstanding Securities. |
9 |
SECTION 2.10. |
Treasury Securities. |
9 |
SECTION 2.11. |
Temporary Securities. |
9 |
SECTION 2.12. |
Cancellation. |
10 |
SECTION 2.13. |
Defaulted Interest. |
10 |
SECTION 2.14. |
Global Securities. |
10 |
SECTION 2.15. |
CUSIP Numbers. |
11 |
|
|
|
ARTICLE III REDEMPTION |
12 |
SECTION 3.01. |
Notice to Trustee. |
12 |
SECTION 3.02. |
Selection of Securities to be Redeemed. |
12 |
SECTION 3.03. |
Notice of Redemption. |
12 |
SECTION 3.04. |
Effect of Notice of Redemption. |
12 |
SECTION 3.05. |
Deposit of Redemption Price. |
13 |
SECTION 3.06. |
Securities Redeemed in Part. |
13 |
|
|
|
ARTICLE IV COVENANTS |
13 |
SECTION 4.01. |
Payment of Principal and Interest. |
13 |
SECTION 4.02. |
SEC Reports. |
13 |
SECTION 4.03. |
Compliance Certificate. |
14 |
SECTION 4.04. |
Stay, Extension and Usury Laws. |
14 |
SECTION 4.05. |
Corporate Existence. |
14 |
SECTION 4.06. |
Taxes. |
14 |
SECTION 4.07. |
Additional Interest Notice. |
14 |
SECTION 4.08. |
Further Instruments and Acts. |
15 |
|
|
|
ARTICLE V SUCCESSORS |
15 |
SECTION 5.01. |
When Company May Merge, Etc. |
15 |
SECTION 5.02. |
Successor Corporation Substituted. |
15 |
|
|
|
ARTICLE VI DEFAULTS AND REMEDIES |
15 |
SECTION 6.01. |
Events of Default. |
15 |
SECTION 6.02. |
Acceleration of Maturity; Rescission and Annulment. |
17 |
SECTION 6.03. |
Collection of Indebtedness and Suits for Enforcement by Trustee. |
17 |
SECTION 6.04. |
Trustee May File Proofs of Claim. |
18 |
SECTION 6.05. |
Trustee May Enforce Claims Without Possession of Securities. |
18 |
SECTION 6.06. |
Application of Money Collected. |
18 |
SECTION 6.07. |
Limitation on Suits. |
19 |
SECTION 6.08. |
Unconditional Right of Holders to Receive Principal and Interest. |
19 |
SECTION 6.09. |
Restoration of Rights and Remedies. |
19 |
SECTION 6.10. |
Rights and Remedies Cumulative. |
19 |
SECTION 6.11. |
Delay or Omission Not Waiver. |
19 |
SECTION 6.12. |
Control by Holders. |
20 |
SECTION 6.13. |
Waiver of Past Defaults. |
20 |
SECTION 6.14. |
Undertaking for Costs. |
20 |
|
|
|
ARTICLE VII TRUSTEE |
20 |
SECTION 7.01. |
Duties of Trustee. |
20 |
SECTION 7.02. |
Rights of Trustee. |
21 |
SECTION 7.03. |
Individual Rights of Trustee. |
22 |
SECTION 7.04. |
Trustee’s Disclaimer. |
22 |
SECTION 7.05. |
Notice of Defaults. |
22 |
SECTION 7.06. |
Reports by Trustee to Holders. |
22 |
SECTION 7.07. |
Compensation and Indemnity. |
22 |
SECTION 7.08. |
Replacement of Trustee. |
23 |
SECTION 7.09. |
Successor Trustee by Merger, etc. |
23 |
SECTION 7.10. |
Eligibility; Disqualification. |
24 |
SECTION 7.11. |
Preferential Collection of Claims Against Company. |
24 |
|
|
|
ARTICLE VIII SATISFACTION AND DISCHARGE; DEFEASANCE |
24 |
SECTION 8.01. |
Satisfaction and Discharge of Indenture. |
24 |
SECTION 8.02. |
Application of Trust Funds; Indemnification. |
25 |
SECTION 8.03. |
Legal Defeasance of Securities of any Series. |
25 |
SECTION 8.04. |
Covenant Defeasance. |
26 |
SECTION 8.05. |
Repayment to Company. |
27 |
|
|
|
ARTICLE IX AMENDMENTS AND WAIVERS |
27 |
SECTION 9.01. |
Without Consent of Holders. |
27 |
SECTION 9.02. |
With Consent of Holders. |
28 |
SECTION 9.03. |
Limitations. |
28 |
SECTION 9.04. |
Compliance with Trust Indenture Act. |
29 |
SECTION 9.05. |
Revocation and Effect of Consents. |
29 |
SECTION 9.06. |
Notation on or Exchange of Securities. |
29 |
SECTION 9.07. |
Trustee Protected. |
29 |
SECTION 9.08. |
Effect of Supplemental Indenture. |
29 |
|
|
|
ARTICLE X MISCELLANEOUS |
30 |
SECTION 10.01. |
Trust Indenture Act Controls. |
30 |
SECTION 10.02. |
Notices. |
30 |
SECTION 10.03. |
Communication by Holders with Other Holders. |
31 |
SECTION 10.04. |
Certificate and Opinion as to Conditions Precedent. |
31 |
SECTION 10.05. |
Statements Required in Certificate or Opinion. |
31 |
SECTION 10.06. |
Record Date for Vote or Consent of Holders. |
31 |
SECTION 10.07. |
Rules by Trustee and Agents. |
31 |
SECTION 10.08. |
Legal Holidays. |
32 |
SECTION 10.09. |
No Recourse Against Others. |
32 |
SECTION 10.10. |
Counterparts. |
32 |
SECTION 10.11. |
Governing Laws and Submission to Jurisdiction. |
32 |
SECTION 10.12. |
No Adverse Interpretation of Other Agreements. |
32 |
SECTION 10.13. |
Successors. |
32 |
SECTION 10.14. |
Severability. |
32 |
SECTION 10.15. |
Table of Contents, Headings, Etc. |
32 |
SECTION 10.16. |
Securities in a Foreign Currency or in ECU. |
33 |
SECTION 10.17. |
Judgment Currency. |
33 |
SECTION 10.18. |
Compliance with Applicable Anti-Terrorism and Money Laundering Regulations. |
33 |
|
|
|
ARTICLE XI SINKING FUNDS |
34 |
SECTION 11.01. |
Applicability of Article. |
34 |
SECTION 11.02. |
Satisfaction of Sinking Fund Payments with Securities. |
34 |
SECTION 11.03. |
Redemption of Securities for Sinking Fund. |
34 |
Reconciliation and tie between Trust Indenture
Act of 1939 and Indenture,
Dated as of [ ], 2024
Section 310(a)(1) |
|
7.10 |
(a)(2) |
|
7.10 |
(a)(3) |
|
Not Applicable |
(a)(4) |
|
Not Applicable |
(a)(5) |
|
7.10 |
(b) |
|
7.10 |
(c) |
|
Not Applicable |
Section 311(a) |
|
7.11 |
(b) |
|
7.11 |
(c) |
|
Not Applicable |
Section 312(a) |
|
2.06 |
(b) |
|
10.03 |
(c) |
|
10.03 |
Section 313(a) |
|
7.06 |
(b)(1) |
|
7.06 |
(b)(2) |
|
7.06 |
(c)(1) |
|
7.06 |
(d) |
|
7.06 |
Section 314(a) |
|
4.02, 10.05 |
(b) |
|
Not Applicable |
(c)(1) |
|
10.04 |
(c)(2) |
|
10.04 |
(c)(3) |
|
Not Applicable |
(d) |
|
Not Applicable |
(e) |
|
10.05 |
(f) |
|
Not Applicable |
Section 315(a) |
|
7.01 |
(b) |
|
7.05 |
(c) |
|
7.01 |
(d) |
|
7.01 |
(e) |
|
6.14 |
Section 316(a)(1)(A) |
|
6.12 |
(a)(1)(B) |
|
6.13 |
(a)(2) |
|
Not Applicable |
(b) |
|
6.13 |
(c) |
|
10.06 |
Section 317(a)(1) |
|
6.03 |
(a)(2) |
|
6.04 |
(b) |
|
2.05 |
Section 318(a) |
|
10.01 |
Note: This reconciliation and tie shall not, for any purpose, be deemed
to be part of the Indenture.
Indenture dated as of [ ],
2024 between SMART POWERR CORP., a company organized under the laws of the Nevada (the “Company”) and [ ] (the “Trustee”).
Each party agrees as follows
for the benefit of the other party and for the equal and ratable benefit of the Holders of the Securities issued under this Indenture.
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
“Additional Amounts”
means any additional amounts which are required hereby or by any Security, under circumstances specified herein or therein, to be paid
by the Company in respect of certain taxes imposed on Holders specified therein and which are owing to such Holders.
“Affiliate”
of any specified person means any other person directly or indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition, “control” (including, with correlative meanings,
the terms “controlled by” and “under common control with”), as used with respect to any person, shall mean the
possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such person, whether
through the ownership of voting securities or by agreement or otherwise.
“Agent”
means any Registrar or Paying Agent.
“Bankruptcy Law”
means Title 11 of the United States Code (or any successor thereto) or any similar federal or state law for the relief of debtors.
“Board of Directors”
means the board of directors of the Company or any duly authorized committee thereof.
“Board Resolution”
means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been adopted by the Board of
Directors or pursuant to authorization by the Board of Directors and to be in full force and effect on the date of the certificate and
delivered to the Trustee.
“Business Day”
means any day other than a (x) Saturday, (y) Sunday or (z) day on which state or federally chartered banking institutions in New York,
New York are not required to be open.
“Capital Stock”
of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, but excluding any debt securities convertible into such equity.
“Certificated Securities”
means Securities in the form of physical, certificated Securities in registered form.
“Company”
means the party named as such above until a successor replaces it in accordance with the terms of this Indenture and thereafter means
the successor.
“Company Order”
means a written order signed in the name of the Company by two Officers, one of whom must be the Company’s principal executive officer,
principal financial officer or principal accounting officer.
“Company Request”
means a written request signed in the name of the Company by its Chairman of the Board, a President or a Vice President, and by its Chief
Financial Officer, its Secretary or an Assistant Secretary, and delivered to the Trustee.
“Corporate Trust
Office” means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered
which office at the date of the execution of this Indenture is [ ], Attention: [ ], or at such other address as the Trustee may designate
from time to time.
“Custodian”
means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law.
“Default”
or “default” means any event which is, or after notice or passage of time or both would be, an Event of Default.
“Default Rate”
means the default rate of interest specified in the Securities.
“Depository”
means, with respect to the Securities of any Series issuable or issued in whole or in part in the form of one or more Global Securities,
the person designated as Depository for such Series by the Company, which Depository shall be a clearing agency registered under the Exchange
Act; and if at any time there is more than one such person, “Depository” as used with respect to the Securities of any Series
shall mean the Depository with respect to the Securities of such Series.
“Discount Security”
means any Security that provides for an amount less than the stated principal amount thereof to be due and payable upon declaration of
acceleration of the maturity thereof pursuant to Section 6.02.
“Dollars”
means the currency of The United States of America.
“ECU” means
the European Currency Unit as determined by the Commission of the European Union.
“Exchange Act”
means the Securities Exchange Act of 1934, as amended.
“Foreign Currency”
means any currency or currency unit issued by a government other than the government of The United States of America.
“Foreign Government
Obligations” means with respect to Securities of any Series that are denominated in a Foreign Currency, (i) direct obligations
of the government that issued or caused to be issued such currency for the payment of which obligations its full faith and credit is pledged
or (ii) obligations of a person controlled or supervised by or acting as an agency or instrumentality of such government the timely payment
of which is unconditionally guaranteed as a full faith and credit obligation by such government, which, in either case under clauses (i)
or (ii), are not callable or redeemable at the option of the issuer thereof.
“Global Security”
or “Global Securities” means a Security or Securities, as the case may be, in the form established pursuant to Section
2.02 evidencing all or part of a Series of Securities, issued to the Depository for such Series or its nominee, and registered in the
name of such Depository or nominee.
“Holder”
or “Securityholder” means a person in whose name a Security is registered.
“Indenture”
means this Indenture as amended and supplemented from time to time and shall include the form and terms of particular Series of Securities
established as contemplated hereunder.
“Interest,”
in respect of the Securities, unless the context otherwise requires, refers to interest payable on the Securities, including any additional
interest that may become payable pursuant to Section 6.02(b).
“Maturity,”
when used with respect to any Security or installment of principal thereof, means the date on which the principal of such Security or
such installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration
of acceleration, call for redemption, notice of option to elect repayment or otherwise.
“Officer”
means the Chairman of the Board, the President, any Vice-President, the Treasurer, the Secretary, any Assistant Treasurer or any Assistant
Secretary of the Company.
“Officers’
Certificate” means a certificate signed by two Officers, one of whom must be the Company’s principal executive officer,
principal financial officer or principal accounting officer.
“Opinion of Counsel”
means a written opinion of legal counsel who is, and which opinion is, acceptable to the Trustee and its counsel. Such legal counsel may
be an employee of or counsel to the Company or the Trustee.
“Person”
means any individual, corporation, partnership, joint venture, association, limited liability company, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
“Principal”
or “principal” of a Security means the principal of the Security plus, when appropriate, the premium, if any, on, and
any Additional Amounts in respect of, the Security.
“Responsible Officer”
means any officer of the Trustee in its Corporate Trust Office and also means, any vice president, managing director, director, associate,
assistant vice president, or any other officer of the Trustee customarily performing functions similar to those performed by any of the
above designated officers and also, with respect to a particular corporate trust matter, any other officer to whom any corporate trust
matter is referred because of his or her knowledge of and familiarity with a particular subject.
“SEC” means
the Securities and Exchange Commission.
“Security”
or “Securities” means the debentures, notes or other debt instruments of the Company of any Series authenticated and
delivered under this Indenture.
“Series”
or “Series of Securities” means each series of debentures, notes or other debt instruments of the Company created pursuant
to Sections 2.01 and 2.02 hereof.
“Stated Maturity”
when used with respect to any Security or any installment of principal thereof or interest thereon, means the date specified in such Security
as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable.
“Subordinated Indebtedness”
means any indebtedness which is expressly subordinated to the indebtedness evidenced by Securities.
“Subsidiary”
means, in respect of any Person, any corporation, association, partnership or other business entity of which more than 50% of the total
voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence
of any contingency) to vote in the election of directors, managers, general partners or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) such Person; (ii) such Person and one or more Subsidiaries of such Person; or (iii) one or more Subsidiaries
of such Person.
“TIA” means
the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb) as in effect on the date of this Indenture; provided, however, that
in the event the Trust Indenture Act of 1939 is amended after such date, “TIA” means, to the extent required by any such amendment,
the Trust Indenture Act as so amended.
“Trustee”
means the person named as the “Trustee” in the first paragraph of this instrument until a successor Trustee shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter “Trustee” shall mean or include each person who
is then a Trustee hereunder, and if at any time there is more than one such person, “Trustee” as used with respect to the
Securities of any Series shall mean the Trustee with respect to Securities of that Series.
“U.S. Government
Obligations” means securities which are (i) direct obligations of The United States of America for the payment of which its
full faith and credit is pledged or (ii) obligations of a person controlled or supervised by and acting as an agency or instrumentality
of The United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by The United
States of America, and which in the case of (i) and (ii) are not callable or redeemable at the option of the issuer thereof, and shall
also include a depository receipt issued by a bank or trust company as custodian with respect to any such U.S. Government Obligation or
a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder
of a depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation
evidenced by such depository receipt.
SECTION 1.02. Other Definitions.
TERM |
|
DEFINED IN SECTION |
“Applicable Law” |
|
10.18 |
“Event of Default” |
|
6.01 |
“Instrument” |
|
6.01 |
“Journal” |
|
10.16 |
“Judgment Currency” |
|
10.17 |
“Legal Holiday” |
|
10.08 |
“mandatory sinking fund payment” |
|
11.01 |
“Market Exchange Rate” |
|
10.16 |
“New York Banking Day” |
|
10.17 |
“optional sinking fund payment” |
|
11.01 |
“Paying Agent” |
|
2.04 |
“Registrar” |
|
2.04 |
“Required Currency” |
|
10.17 |
“successor person” |
|
5.01 |
“Temporary Securities” |
|
2.11 |
SECTION 1.03. Incorporation by Reference of
Trust Indenture Act.
Whenever this Indenture refers
to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. This Indenture shall also
include those provisions of the TIA required to be included herein by the provisions of the Trust Indenture Reform Act of 1990. The following
TIA terms used in this Indenture have the following meanings:
“indenture securities”
means the Securities.
“indenture security
holder” means a Securityholder.
“indenture to be
qualified” means this Indenture.
“indenture trustee”
or “institutional trustee” means the Trustee.
“obligor”
on the indenture securities means the Company and any successor obligor upon the Securities.
All other terms used in this
Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA and not otherwise
defined herein are used herein as so defined.
SECTION 1.04. Rules of Construction.
Unless the context otherwise
requires:
(a) a term has the meaning
assigned to it;
(b) an accounting term not
otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles;
(c) references to “generally
accepted accounting principles” shall mean generally accepted accounting principles in effect as of the time when and for the period
as to which such accounting principles are to be applied;
(d) “or” is not
exclusive;
(e) words in the singular
include the plural, and in the plural include the singular;
(f) provisions apply to successive
events and transactions;
(g) references to agreements
and other instruments include subsequent amendments thereto;
(h) the term “merger”
includes a statutory share exchange, and the term “merged” has a correlative meaning; and
(i) “herein,”
“hereof” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or
other subdivision.
ARTICLE II
THE SECURITIES
SECTION 2.01. Issuable in Series.
The aggregate principal amount
of Securities that may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more Series.
All Securities of a Series shall be identical except as may be set forth in a Board Resolution, a supplemental indenture or an Officers’
Certificate detailing the adoption of the terms thereof pursuant to the authority granted under a Board Resolution. In the case of Securities
of a Series to be issued from time to time, the Board Resolution, Officers’ Certificate or supplemental indenture may provide for
the method by which specified terms (such as interest rate, maturity date, record date or date from which interest shall accrue) are to
be determined. Securities may differ between Series in respect of any matters, provided that all Series of Securities shall be equally
and ratably entitled to the benefits of the Indenture.
SECTION 2.02. Establishment of Terms of Series
of Securities.
At or prior to the issuance
of any Securities within a Series, the following shall be established (as to the Series generally, in the case of Subsection (a), and
either as to such Securities within the Series or as to the Series generally in the case of Subsections (b) through (t) by a Board Resolution,
a supplemental indenture or an Officers’ Certificate pursuant to authority granted under a Board Resolution:
(a) the title, designation,
aggregate principal amount and authorized denominations of the Securities of the Series;
(b) the price or prices, (expressed
as a percentage of the aggregate principal amount thereof) at which the Securities of the Series will be issued;
(c) the date or dates on which
the principal of the Securities of the Series is payable;
(d) the rate or rates (which
may be fixed or variable) per annum or, if applicable, the method used to determine such rate or rates (including, but not limited to,
any commodity, commodity index, stock exchange index or financial index) at which the Securities of the Series shall bear interest, if
any, the date or dates from which such interest, if any, shall commence and be payable and any regular record date for the interest payable
on any interest payment date;
(e) any optional or mandatory
sinking fund provisions or conversion or exchangeability provisions upon which Securities of the Series shall be redeemed, purchased,
converted or exchanged;
(f) the date, if any, after
which and the price or prices at which the Securities of the Series may be optionally redeemed or must be mandatorily redeemed and any
other terms and provisions of optional or mandatory provisions;
(g) if other than denominations
of $1,000 and any integral multiple thereof, the denominations in which the Securities of the Series shall be issuable;
(h) if other than the full
principal amount, the portion of the principal amount of the Securities of the Series that shall be payable upon declaration of acceleration
pursuant to Section 6.02 or provable in bankruptcy;
(i) any addition to or change
in the Events of Default which applies to any Securities of the Series and any change in the right of the Trustee or the requisite Holders
of such Securities to declare the principal amount thereof due and payable pursuant to Section 6.02;
(j) the currency or currencies,
including composite currencies, in which payments of principal of, premium or interest, if any, on the Securities of the Series will be
payable, if other than the currency of the United States of America;
(k) if payments of principal
of, premium or interest, if any, on the Securities of the Series will be payable, at the Company’s election or at the election of
any Holder, in a currency other than that in which the Securities of the Series are stated to be payable, the period or periods within
which, and the terms and conditions upon which, the election may be made;
(l) if payments of interest,
if any, on the Securities of the Series will be payable, at the Company’s election or at the election of any Holder, in cash or
additional securities, and the terms and conditions upon which the election may be made;
(m) if denominated in a currency
or currencies other than the currency of the United States of America, the equivalent price of the Securities of the Series in the currency
of the United States of America for purposes of determining the voting rights of Holders of the Securities of the Series;
(n) if the amount of payments
of principal, premium or interest may be determined with reference to an index, formula or other method based on a coin or currency other
than that in which the Securities of the Series are stated to be payable, the manner in which the amounts will be determined;
(o) any restrictive covenants
or other material terms relating to the Securities of the Series;
(p) whether the Securities
of the Series will be issued in the form of global securities or certificates in registered form;
(q) any terms with respect
to subordination;
(r) any listing on any securities
exchange or quotation system;
(s) additional provisions,
if any, related to defeasance and discharge of the offered debt securities; and
(t) the applicability of any
guarantees, which would be governed by New York law.
All Securities of any one
Series need not be issued at the same time and may be issued from time to time, consistent with the terms of this Indenture, if so provided
by or pursuant to the Board Resolution, supplemental indenture or Officers’ Certificate referred to above, and the authorized principal
amount of any Series may not be increased to provide for issuance of additional Securities of such Series, unless otherwise provided in
such Board Resolution, supplemental Indenture or Officers’ Certificate.
SECTION 2.03. Execution and Authentication.
Two Officers shall sign the
Securities for the Company by manual or facsimile signature.
If an Officer whose signature
is on a Security no longer holds that office at the time the Security is authenticated, the Security shall nevertheless be valid.
A Security shall not be valid
until authenticated by the manual signature of the Trustee or an authenticating agent. The signature shall be conclusive evidence that
the Security has been authenticated under this Indenture.
The Trustee shall at any time,
and from time to time, authenticate Securities for original issue in the principal amount provided in the Board Resolution, supplemental
indenture hereto or Officers’ Certificate, upon receipt by the Trustee of a Company Order. Such Company Order may authorize authentication
and delivery pursuant to oral or electronic instructions from the Company or its duly authorized agent or agents, which oral instructions
shall be promptly confirmed in writing. Each Security shall be dated the date of its authentication unless otherwise provided by a Board
Resolution, a supplemental indenture hereto or an Officers’ Certificate.
The aggregate principal amount
of Securities of any Series outstanding at any time may not exceed any limit upon the maximum principal amount for such Series set forth
in the Board Resolution, supplemental indenture hereto or Officers’ Certificate delivered pursuant to Section 2.02, except as provided
in Section 2.08.
Prior to the issuance of Securities
of any Series, the Trustee shall have received and (subject to Section 7.02) shall be fully protected in relying on: (a) the Board Resolution,
supplemental indenture hereto or Officers Certificate establishing the form of the Securities of that Series or of Securities within that
Series and the terms of the Securities of that Series or of Securities within that Series, (b) an Officers’ Certificate complying
with Section 10.04, and (c) an Opinion of Counsel complying with Section 10.04.
The Trustee shall have the
right to decline to authenticate and deliver any Securities of such Series: (a) if the Trustee, being advised by counsel, determines that
such action may not lawfully be taken; or (b) if a Responsible Officer of the Trustee in good faith shall determine that such action would
expose the Trustee to personal liability to Holders of any then outstanding Series of Securities.
The Trustee may appoint an
authenticating agent acceptable to the Company to authenticate Securities. An authenticating agent may authenticate Securities whenever
the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating
agent has the same rights as an Agent to deal with the Company or an Affiliate.
If any successor that has
replaced the Company in accordance with Article 5 has executed an indenture supplemental hereto with the Trustee pursuant to Section 5.01,
any of the Securities authenticated or delivered prior to such transaction may, from time to time, at the request of such successor, be
exchanged for other Securities executed in the name of the such successor with such changes in phraseology and form as may be appropriate,
but otherwise identical to the Securities surrendered for such exchange and of like principal amount; and the Trustee, upon receipt of
a Company Order of such successor, shall authenticate and deliver Securities as specified in such order for the purpose of such exchange.
If Securities shall at any time be authenticated and delivered in any new name of such successor pursuant to this provision of Section
2.03 in exchange or substitution for or upon registration of transfer of any Securities, such successor, at the option of the Holders
but without expense to them, shall provide for the exchange of all Securities then outstanding for Securities authenticated and delivered
in such new name.
SECTION 2.04. Registrar and Paying Agent.
The Company shall maintain,
with respect to each Series of Securities, at the place or places specified with respect to such Series pursuant to Section 2.02, an office
or agency where Securities of such Series may be presented or surrendered for payment (“Paying Agent”) and where Securities
of such Series may be surrendered for registration of transfer or exchange (“Registrar”). The Registrar shall keep a register
with respect to each Series of Securities and to their transfer and exchange. The Company will give prompt written notice to the Trustee
of the name and address, and any change in the name or address, of each Registrar and Paying Agent. If at any time the Company shall fail
to maintain any such required Registrar or Paying Agent or shall fail to furnish the Trustee with the name and address thereof, such presentations
and surrenders may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its
agent to receive all such presentations and surrenders.
The Company may also from
time to time designate one or more co-registrars or additional paying agents and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the Company of its obligations to maintain a Registrar or
Paying Agent in each place so specified pursuant to Section 2.02 for Securities of any Series for such purposes. The Company will give
prompt written notice to the Trustee of any such designation or rescission and of any change in the name or address of any such co-registrar
or additional paying agent. The term “Registrar” includes any co-registrar; and the term “Paying Agent” includes
any additional paying agent.
The Company hereby appoints
[ ] as the initial Registrar and Paying Agent for each Series unless another Registrar or Paying Agent as the case may be, is appointed
prior to the time Securities of that Series are first issued. Each Registrar and Paying Agent shall be entitled to all of the rights,
protections, exculpations and indemnities afforded to the Trustee in connection with its roles as Registrar and Paying Agent.
SECTION 2.05. Paying Agent to Hold Money in
Trust.
The Company shall require
each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust, for the benefit of Securityholders
of any Series of Securities, or the Trustee, all money held by the Paying Agent for the payment of principal of or interest on the Series
of Securities, and will notify the Trustee of any default by the Company in making any such payment. While any such default continues,
the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent
to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary)
shall have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate
trust fund for the benefit of Securityholders of any Series of Securities all money held by it as Paying Agent.
SECTION 2.06. Securityholder Lists.
The Trustee shall preserve
in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders of
each Series of Securities and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company shall furnish
to the Trustee at least [ ] days before each interest payment date and at such other times as the Trustee may request in writing a list,
in such form and as of such date as the Trustee may reasonably require, of the names and addresses of Securityholders of each Series of
Securities.
SECTION 2.07. Transfer and Exchange.
Where Securities of a Series
are presented to the Registrar or a co-registrar with a request to register a transfer or to exchange them for an equal principal amount
of Securities of the same Series, the Registrar shall register the transfer or make the exchange if its requirements for such transactions
are met. To permit registrations of transfers and exchanges, the Trustee shall authenticate Securities at the Registrar’s request.
Any exchange or transfer shall be without charge, except that the Company or the Registrar may require payment of a sum sufficient to
cover any tax or other governmental charge required by law; provided that this sentence shall not apply to any exchange pursuant to Section
2.11, 2.08, 3.06 or 9.06.
Neither the Company nor the
Registrar shall be required (a) to issue, register the transfer of, or exchange Securities of any Series for the period beginning at the
opening of business [ ] days immediately preceding the mailing of a notice of redemption of Securities of that Series selected for redemption
and ending at the close of business on the day of such mailing, or (b) to register the transfer of or exchange Securities of any Series
selected, called or being called for redemption as a whole or the portion being redeemed of any such Securities selected, called or being
called for redemption in part.
All Securities issued upon
any transfer or exchange of Securities shall be valid obligations of the Company, evidencing the same debt and entitled to the same benefits
under this Indenture, as the Securities surrendered upon such transfer or exchange. Any Registrar appointed pursuant to Section 2.04 shall
provide to the Trustee such information as the Trustee may reasonably require in connection with the delivery by such Registrar of Securities
upon transfer or exchange of Securities. Each Holder of a Security agrees to indemnify the Company and the Trustee against any liability
that may result from the transfer, exchange or assignment of such Holder’s Security in violation of any provision of this Indenture
and/or applicable U.S. federal or state securities law.
SECTION 2.08. Mutilated, Destroyed, Lost and
Stolen Securities.
If any mutilated Security
is surrendered to the Registrar, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security
of the same Series and of like tenor and principal amount and bearing a number not contemporaneously outstanding.
If there shall be delivered
to the Company and the Registrar (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security
or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice
to the Company or the Registrar that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its
request the Trustee shall authenticate and make available for delivery, in lieu of any such destroyed, lost or stolen Security, a new
Security of the same Series and of like tenor and principal amount and bearing a number not contemporaneously outstanding.
In case any such mutilated,
destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing
a new Security, pay such Security.
Upon the issuance of any new
Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security of any
series issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual
obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall
be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that Series duly issued
hereunder.
The provisions of this Section
are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated,
destroyed, lost or stolen Securities.
SECTION 2.09. Outstanding Securities.
The Securities outstanding
at any time are all the Securities authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation,
those reductions in the interest on a Global Security effected by the Trustee in accordance with the provisions hereof and those described
in this Section as not outstanding.
If a Security is replaced
pursuant to Section 2.08, it ceases to be outstanding until the Trustee receives proof satisfactory to it that the replaced Security is
held by a bona fide purchaser.
If the Paying Agent (other
than the Company, a Subsidiary or an Affiliate of any thereof) holds on the Maturity of Securities of a Series money sufficient to pay
such Securities payable on that date, then on and after that date such Securities of the Series cease to be outstanding and interest on
them ceases to accrue.
A Security does not cease
to be outstanding because the Company or an Affiliate holds the Security.
In determining whether the
Holders of the requisite principal amount of outstanding Securities have given any request, demand, authorization, direction, notice,
consent or waiver hereunder, the principal amount of a Discount Security that shall be deemed to be outstanding for such purposes shall
be the amount of the principal thereof that would be due and payable as of the date of such determination upon a declaration of acceleration
of the Maturity thereof pursuant to Section 6.02.
SECTION 2.10. Treasury Securities.
In determining whether the
Holders of the required principal amount of Securities of a Series have concurred in any request, demand, authorization, direction, notice,
consent or waiver Securities of a Series owned by the Company or an Affiliate shall be disregarded, except that for the purposes of determining
whether the Trustee shall be protected in relying on any such request, demand, authorization, direction, notice, consent or waiver only
Securities of a Series that a Responsible Officer of the Trustee actually knows are so owned shall be so disregarded.
SECTION 2.11. Temporary Securities.
Until definitive Securities
are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary securities upon a Company Order (“Temporary
Securities”). Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the
Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee upon written
request shall authenticate definitive Securities of the same Series and date of maturity in exchange for temporary Securities. Until so
exchanged, temporary securities shall have the same rights under this Indenture as the definitive Securities.
SECTION 2.12. Cancellation.
The Company at any time may
deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee or its agent any Securities
surrendered to them for transfer, exchange, payment or conversion. The Trustee and no one else shall cancel, in accordance with its standard
procedures, all Securities surrendered for transfer, exchange, payment, conversion or cancellation and shall deliver the cancelled Securities
to the Company. No Security shall be authenticated in exchange for any Security cancelled pursuant to this Section 2.12.
The Company may, to the extent
permitted by law, purchase Securities in the open market or by tender offer at any price or by private agreement. Any Securities purchased
or otherwise acquired by the Company or any of its Subsidiaries prior to the final maturity of such Securities may, to the extent permitted
by law, be reissued or resold or may, at the option of the Company, be surrendered to the Trustee for cancellation. Any Securities surrendered
for cancellation may not be reissued or resold and shall be promptly cancelled by the Trustee, and the Company may not hold or resell
such Securities or issue any new Securities to replace any such Securities.
SECTION 2.13. Defaulted Interest.
If the Company defaults in
a payment of interest on a Series of Securities, it shall pay defaulted interest, plus, to the extent permitted by law, any interest payable
on the defaulted interest at the Default Rate, to the persons who are Security holders of the Series on a subsequent special record date.
The Company shall fix the record date and payment date. At least [ ] days before the record date, the Company shall mail to the Trustee
and the Paying Agent and to each Securityholder of the Series a notice that states the record date, the payment date and the amount of
interest to be paid. The Company may pay defaulted interest in any other lawful manner.
SECTION 2.14. Global Securities.
(a) A Board Resolution, a
supplemental indenture hereto or an Officers’ Certificate shall establish whether the Securities of a Series shall be issued in
whole or in part in the form of one or more Global Securities and the Depository for such Global Security or Securities.
(b) (i) Notwithstanding any
provisions to the contrary contained in Section 2.07 of the Indenture and in addition thereto, any Global Security shall be exchangeable
pursuant to Section 2.07 of the Indenture for Securities registered in the names of Holders other than the Depository for such Security
or its nominee only if (A) such Depository notifies the Company that it is unwilling or unable to continue as Depository for such Global
Security or if at any time such Depository ceases to be a clearing agency registered under the Exchange Act, and, in either case, the
Company fails to appoint a successor Depository within 90 days of such event, (B) the Company executes and delivers to the Trustee an
Officers’ Certificate to the effect that such Global Security shall be so exchangeable or (C) an Event of Default with respect to
the Securities represented by such Global Security shall have happened and be continuing.
(ii) Except as provided
in this Section 2.14(b), a Global Security may not be transferred except as a whole by the Depository with respect to such Global Security
to a nominee of such Depository, by a nominee of such Depository to such Depository or another nominee of such Depository or by the Depository
or any such nominee to a successor Depository or a nominee of such a successor Depository.
(iii) Securities
issued in exchange for a Global Security or any portion thereof shall be issued in definitive, fully registered form, without interest
coupons, shall have an aggregate principal amount equal to that of such Global Security or portion thereof to be so exchanged, shall be
registered in such names and be in such authorized denominations as the Depository shall designate and shall bear the applicable legends
provided for herein. Any Global Security to be exchanged in whole shall be surrendered by the Depository to the Trustee, as Registrar.
With regard to any Global Security to be exchanged in part, either such Global Security shall be so surrendered for exchange or, if the
Registrar is acting as custodian for the Depository or its nominee with respect to such Global Security, the principal amount thereof
shall be reduced by an amount equal to the portion thereof to be so exchanged, by means of an appropriate adjustment made on the records
of the Trustee. Upon any such surrender or adjustment, the Trustee shall authenticate and deliver the Security issuable on such exchange
to or upon the order of the Depository or an authorized representative thereof.
(iv) The registered
Holder may grant proxies and otherwise authorize any Person, including participants in the Depository and persons that may hold interests
through participants in the Depository, to take any action which a Holder is entitled to take under this Indenture or the Securities.
(v) In the event
of the occurrence of any of the events specified in 2.14(b)(i), the Company will promptly make available to the Trustee a reasonable supply
of Certificated Securities in definitive, fully registered form, without interest coupons. If (A) an event described in Section 2.14(b)(i)(A)
or (B) occurs and definitive Certificated Securities are not issued promptly to all beneficial owners or (B) the Registrar receives from
a beneficial owner instructions to obtain definitive Certificated Securities due to an event described in Section 2.14(b)(i)(C) and definitive
Certificated Securities are not issued promptly to any such beneficial owner, the Company expressly acknowledges, with respect to the
right of any Holder to pursue a remedy pursuant to Section 6.07 hereof, the right of any beneficial owner of Securities to pursue such
remedy with respect to the portion of the Global Security that represents such beneficial owner’s Securities as if such definitive
certificated Securities had been issued.
(vi) Notwithstanding
any provision to the contrary in this Indenture, so long as a Global Security remains outstanding and is held by or on behalf of the Depository,
transfers of a Global Security, in whole or in part, or of any beneficial interest therein, shall only be made in accordance with Section
2.07, this Section 2.14(b) and the rules and procedures of the Depository for such Global Security to the extent applicable to such transaction
and as in effect from time to time.
(c) Any Global Security issued
hereunder shall bear a legend in substantially the following form:
“This Security is a
Global Security within the meaning of the Indenture hereinafter referred to and is registered in the name of the Depository or a nominee
of the Depository. This Security is exchangeable for Securities registered in the name of a person other than the Depository or its nominee
only in the limited circumstances described in the Indenture, and may not be transferred except as a whole by the Depository to a nominee
of the Depository, by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such
nominee to a successor Depository or a nominee of such a successor Depository.”
(d) The Depository, as a Holder,
may appoint agents and otherwise authorize participants to give or take any request, demand, authorization, direction, notice, consent,
waiver or other action which a Holder is entitled to give or take under the Indenture.
(e) Notwithstanding the other
provisions of this Indenture, unless otherwise specified as contemplated by Section 2.02, payment of the principal of and interest, if
any, on any Global Security shall be made to the Holder thereof at their registered office.
(f) At all times the Securities
are held in book-entry form with a Depository, (i) the Trustee may deal with such Depository as the authorized representative of the Holders,
(ii) the rights of the Holders shall be exercised only through the Depository and shall be limited to those established by law and agreement
between the Holders and the Depository and/or direct participants of the Depository, (iii) the Depository will make book-entry transfers
among the direct participants of the Depository and will receive and transmit distributions of principal and interest on the Securities
to such direct participants; and (iv) the direct participants of the Depository shall have no rights under this Indenture, or any supplement
hereto, under or with respect to any of the Securities held on their behalf by the Depository, and the Depository may be treated by the
Trustee and its agents, employees, officers and directors as the absolute owner of the Securities for all purposes whatsoever.
SECTION 2.15. CUSIP Numbers.
The Company in issuing the
Securities may use “CUSIP”, “ISIN” or other identification numbers (if then generally in use), and, if so, the
Trustee shall use “CUSIP”, “ISIN” or such other identification numbers in notices of redemption as a convenience
to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed
on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other elements of identification
printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers.
ARTICLE III
REDEMPTION
SECTION 3.01. Notice to Trustee.
The Company may, with respect
to any series of Securities, reserve the right to redeem and pay the Series of Securities or may covenant to redeem and pay the Series
of Securities or any part thereof prior to the Stated Maturity thereof at such time and on such terms as provided for in such Securities.
If a Series of Securities is redeemable and the Company wants or is obligated to redeem prior to the Stated Maturity thereof all or part
of the Series of Securities pursuant to the terms of such Securities, it shall notify the Trustee and Registrar in writing of the redemption
date and the principal amount of Series of Securities to be redeemed. The Company shall give the notice at least [ ] days before the redemption
date (or such shorter notice as may be acceptable to the Trustee and Registrar).
SECTION 3.02. Selection of Securities to be
Redeemed.
Unless otherwise indicated
for a particular Series by a Board Resolution, a supplemental indenture or an Officers’ Certificate, if less than all the Securities
of a Series are to be redeemed, the Registrar shall select the Securities of the Series to be redeemed in accordance with its customary
procedures. The Registrar shall make the selection from Securities of the Series outstanding not previously called for redemption. The
Registrar may select for redemption portions of the principal of Securities of the Series that have denominations larger than $1,000.
Securities of the Series and portions of them it selects shall be in amounts of $1,000 or whole multiples of $1,000 or, with respect to
Securities of any Series issuable in other denominations pursuant to Section 2.02(g), the minimum principal denomination for each Series
and integral multiples thereof. Provisions of this Indenture that apply to Securities of a Series called for redemption also apply to
portions of Securities of that Series called for redemption.
SECTION 3.03. Notice of Redemption.
Unless otherwise indicated
for a particular Series by Board Resolution, a supplemental indenture hereto or an Officers’ Certificate, at least [ ] days but
not more than [ ] days before a redemption date, the Company shall mail a notice of redemption by first-class mail to each Holder whose
Securities are to be redeemed.
The notice shall identify
the Securities of the Series to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) the name and address of
the Paying Agent;
(d) that Securities of the
Series called for redemption must be surrendered to the Paying Agent to collect the redemption price;
(e) that interest on Securities
of the Series called for redemption ceases to accrue on and after the redemption date; and
(f) any other information
as may be required by the terms of the particular Series or the Securities of a Series being redeemed.
At the Company’s written
request, the Trustee shall distribute the notice of redemption prepared by the Company in the Company’s name and at its expense.
SECTION 3.04. Effect of Notice of Redemption.
Once notice of redemption
is mailed or published as provided in Section 3.03, Securities of a Series called for redemption become due and payable on the redemption
date and at the redemption price. A notice of redemption may not be conditional. Upon surrender to the Paying Agent, such Securities shall
be paid at the redemption price plus accrued interest to the redemption date.
SECTION 3.05. Deposit of Redemption Price.
On or before the redemption
date, the Company shall deposit with the Paying Agent money sufficient to pay the redemption price of and accrued interest, if any, on
all Securities to be redeemed on that date.
SECTION 3.06. Securities Redeemed in Part.
Upon surrender of a Security
that is redeemed in part, the Trustee shall authenticate for the Holder a new Security of the same Series and the same maturity equal
in principal amount to the unredeemed portion of the Security surrendered.
ARTICLE IV
COVENANTS
SECTION 4.01. Payment of Principal and Interest.
The Company covenants and
agrees for the benefit of the Holders of each Series of Securities that it will duly and punctually pay the principal of and interest,
if any, on the Securities of that Series in accordance with the terms of such Securities and this Indenture.
Unless otherwise provided
under the terms of a particular Series of Securities:
(a) an installment of principal
or interest shall be considered paid on the date it is due if the Paying Agent (other than the Company) holds by [ ] [a].m., New York
City time, on that date money, deposited by the Company or an Affiliate thereof, sufficient to pay such installment. The Company shall
(in immediately available funds), to the fullest extent permitted by law, pay interest on overdue principal and overdue installments of
interest at the rate borne by the Securities per annum; and
(b) payment of the principal
of and interest on the Securities shall be made at the office or agency of the Company maintained for that purpose in [ ] (which shall
initially be [ ], the Paying Agent) in such coin or currency of the United States of America as at the time of payment is legal tender
for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by
check mailed to the address of the Person entitled thereto as such address appears in the register; provided, further, that a Holder
with an aggregate principal amount in excess of $[ ] will be paid by wire transfer in immediately available funds at the election of such
Holder if such Holder has provided wire transfer instructions to the Company at least [ ] Business Days prior to the payment date.
SECTION 4.02. SEC Reports.
So long as any Securities
are outstanding, the Company shall (i) file with the SEC within the time periods prescribed by its rules and regulations and (ii) furnish
to the Trustee and the Holders of the Securities within [ ] days after the date on which the Company would be required to file the same
with the SEC pursuant to its rules and regulations (giving effect to any grace period provided by Rule 12b-25 under the Exchange Act),
all quarterly and annual financial information required to be furnished or filed with the SEC pursuant to Section 13 and Section 15(d)
of the Exchange Act and, with respect to the annual consolidated financial statements only, a report thereon by the Company’s independent
auditors. The Company also shall comply with the other provisions of TIA Section 314(a).
Delivery of such reports,
information and documents to the Trustee is for informational purposes only, and the Trustee’s receipt of such shall not constitute
constructive notice of any information contained therein or determinable from information contained therein, including the Company’s
compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers’ Certificates).
The Company shall not be required to file any report or other information with the SEC if the SEC does not permit such filing, although
such reports shall be furnished to the Trustee. Documents filed by the Company with the SEC via the SEC’s EDGAR system (or any successor
thereto) will be deemed furnished to the Trustee and the Holders of the Securities as of the time such documents are filed via EDGAR (or
such successor).
SECTION 4.03. Compliance Certificate.
The Company shall deliver
to the Trustee, within [ ] days after the end of each fiscal year of the Company, an officers certificate signed by two of the Company’s
officers stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under
the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his knowledge
the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the
performance or observance of any of the terms, provisions and conditions hereof (or, if a Default or Event of Default shall have occurred,
describing all such Defaults or Events of Default of which he may have knowledge in reasonable detail and the efforts to remedy the same).
For purposes of this Section 4.03, compliance shall be determined without regard to any grace period or requirement of notice provided
pursuant to the terms of this Indenture.
The Company shall deliver
to the Trustee, within [ ] days after the occurrence thereof, written notice in the form of an Officers’ Certificate of any Event
of Default described in Section 6.01(e), (f), (g) or (h) and any event of which it becomes aware that with the giving of notice or the
lapse of time would become such an Event of Default, its status and what action the Company is taking or proposes to take with respect
thereto. For the avoidance of doubt, a breach of a covenant under an Instrument that is not a payment default and that has not given rise
to a right of acceleration under such Instrument shall not trigger the requirement to provide notice under this paragraph.
SECTION 4.04. Stay, Extension and Usury Laws.
The Company covenants (to
the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, which may affect the
covenants or the performance of this Indenture or the Securities; and the Company (to the extent it may lawfully do so) hereby expressly
waives all benefit or advantage of any such law and covenants that it will not, by resort to any such law, hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law
has been enacted.
SECTION 4.05. Corporate Existence.
Subject to Article V, the
Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the
corporate, partnership or other existence of each Subsidiary in accordance with the respective organizational documents of each Subsidiary
and the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that the Company
shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any Subsidiary,
if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company
and its Subsidiaries taken as a whole and that the loss thereof is not adverse in any material respect to the Holders.
SECTION 4.06. Taxes.
The Company shall, and shall
cause each of its Subsidiaries to, pay prior to delinquency all taxes, assessments and governmental levies, except as contested in good
faith and by appropriate proceedings.
SECTION 4.07. Additional Interest Notice.
In the event that the Company
is required to pay additional interest to Holders of Securities pursuant to Section 6.02(b) hereof, the Company shall provide a direction
or order in the form of a written notice to the Trustee (and if the Trustee is not the Paying Agent, the Paying Agent) of the Company’s
obligation to pay such additional interest no later than [ ] Business Days prior to date on which any such additional interest is scheduled
to be paid. Such notice shall set forth the amount of additional interest to be paid by the Company on such payment date and direct the
Trustee (or, if the Trustee is not the Paying Agent, the Paying Agent) to make payment to the extent it receives funds from the Company
to do so. The Trustee shall not at any time be under any duty or responsibility to any Holder to determine whether additional interest
is payable, or with respect to the nature, extent, or calculation of the amount of additional interest owed, or with respect to the method
employed in such calculation of additional interest.
SECTION 4.08. Further Instruments and Acts.
The Company will execute and
deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purposes
of this Indenture.
ARTICLE V
SUCCESSORS
SECTION 5.01. When Company May Merge, Etc.
The Company shall not consolidate
with, enter into a binding share exchange, or merge into any other Person in a transaction in which it is not the surviving entity, or
sell, assign, convey, transfer or lease or otherwise dispose of all or substantially all of its properties and assets to any Person (a
“successor person”), unless:
(a) the successor person (if
any) is a corporation, partnership, trust or other entity organized and validly existing under the laws of the Nevada and expressly assumes
by a supplemental indenture executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of
the principal of, and any interest on, all Securities and the performance or observance of every covenant of this Indenture on the part
of the Company to be performed or observed;
(b) immediately after giving
effect to the transaction, no Default or Event of Default, shall have occurred and be continuing; and
(c) the Company shall have
delivered to the Trustee, prior to the consummation of the proposed transaction, an Officers’ Certificate to the foregoing effect
and an Opinion of Counsel stating that the proposed transaction and such supplemental indenture comply with this Indenture.
SECTION 5.02. Successor Corporation Substituted.
Upon any consolidation or
merger, or any sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with
Section 5.01, the successor person formed by such consolidation or into or with which the Company is merged or to which such sale, lease,
conveyance or other disposition is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company
under this Indenture with the same effect as if such successor person has been named as the Company herein; provided, however, that the
predecessor company in the case of a sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company
shall not be released from the obligation to pay the principal of and interest, if any, on the Securities.
ARTICLE VI
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default.
“Event of Default,”
wherever used herein with respect to securities of any Series, means any one of the following events, unless in the establishing Board
Resolution, supplemental indenture or Officers’ Certificate, it is provided that such Series shall not have the benefit of said
Event of Default:
(a) default in the payment
of any interest on any Security of that Series when it becomes due and payable, and continuance of such default for a period of 30 days
(unless the entire amount of such payment is deposited by the Company with the Trustee or with a Paying Agent prior to the expiration
of such period of 30 days); or
(b) default in the payment
of any principal of any Security of that Series at its Maturity; or
(c) default in the deposit
of any sinking fund payment, when and as due in respect of any Security of that Series; or
(d) the Company fails to perform
or comply with any of its other covenants or agreements contained in the Securities or in this Indenture (other than a covenant or agreement
a default in whose performance or whose breach is specifically dealt with in clauses (a), (b) or (c) of this Section 6.01) and the default
continues for 60 days after notice is given as specified below;
(e) any indebtedness under
any bond, debenture, note or other evidence of indebtedness for money borrowed by the Company or any Subsidiary or under any mortgage,
indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed
by, or any other payment obligation of, the Company or any Subsidiary (an “Instrument”) with a principal amount then, individually
or in the aggregate, outstanding in excess of $[ ], whether such indebtedness now exists or shall hereafter be created, is not paid at
Maturity or when otherwise due or is accelerated, and such indebtedness is not discharged, or such default in payment or acceleration
is not cured or rescinded, within a period of 30 days after there shall have been given, by registered or certified mail, to the Company
by the Trustee or to the Company and the Trustee by the Holders of at least [ ]% in aggregate principal amount of the outstanding Securities
of that Series a written notice specifying such default and requiring the Company to cause such indebtedness to be discharged or cause
such default to be cured or waived or such acceleration to be rescinded or annulled and stating that such notice is a “Notice of
Default” hereunder. A payment obligation (other than indebtedness under any bond, debenture, note or other evidence of indebtedness
for money borrowed by the Company or any Subsidiary or under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any indebtedness for money borrowed by the Company or any Subsidiary) shall not be deemed to
have matured, come due, or been accelerated to the extent that it is being disputed by the relevant obligor or obligors in good faith.
For the avoidance of doubt, the Maturity of an Instrument is the Maturity as set forth in that Instrument, as it may be amended from time
to time in accordance with the terms of that Instrument;
(f) the Company or any Subsidiary
fails to pay one or more final and non-appealable judgments entered by a court or courts of competent jurisdiction, the aggregate uninsured
or unbonded portion of which is in excess of $[ ], if the judgments are not paid, discharged, waived or stayed within [ ] days;
(g) the Company or any Subsidiary
of the Company, pursuant to or within the meaning of any Bankruptcy Law:
(i) commences a
voluntary case or proceeding;
(ii) consents to
the entry of an order for relief against it in an involuntary case or proceeding;
(iii) consents to
the appointment of a Custodian of it or for all or substantially all of its property; or
(iv) makes a general
assignment for the benefit of its creditors; or
(v) or generally
is unable to pay its debts as the same become due; or
(h) a court of competent jurisdiction
enters an order or decree under any Bankruptcy Law that:
(i) is for relief
against the Company or any of its Subsidiaries in an involuntary case or proceeding;
(ii) appoints a
Custodian of the Company or any of its Subsidiaries for all or substantially all of the property of the Company or any such Subsidiary;
or
(iii) orders the
liquidation of the Company or any of its Subsidiaries;
and the case of
each of clause (i), (ii) and (iii), the order or decree remains unstayed and in effect for [ ] consecutive days; or
(i) any other Event of Default
provided with respect to Securities of that Series, which is specified in a Board Resolution, a supplemental indenture hereto or an Officers’
Certificate, in accordance with Section 2.02(i).
A default under clause (d)
above is not an Event of Default until the Trustee notifies the Company, or the Holders of at least [ ]% in aggregate principal amount
of the Securities then outstanding notify the Company and the Trustee, in writing of the default, and the Company does not cure the default
within 60 days after receipt of such notice. The notice given pursuant to this Section 6.01 must specify the default, demand that it be
remedied and state that the notice is a “Notice of Default.” When any default under this Section 6.01 is cured, it ceases.
The Trustee shall not be charged
with knowledge of any Event of Default unless written notice thereof shall have been given to a Trust Officer at the Corporate Trust Office
of the Trustee by the Company, a Paying Agent, any Holder or any agent of any Holder.
SECTION 6.02. Acceleration of Maturity; Rescission
and Annulment.
(a) If an Event of Default
(other than an Event of Default specified in clause (g) or (h) of Section 6.01) occurs and is continuing with respect to any Securities
of any Series, then in every such case, the Trustee may, by notice to the Company, or the Holders of at least 25% in aggregate principal
amount of the Securities of that Series (or, if any Securities of that Series are Discount Securities, such portion of the principal amount
as may be specified in the terms of such Securities) then outstanding may, by notice to the Company and the Trustee, declare all unpaid
principal of, and accrued and unpaid interest on to the date of acceleration, the Securities of that Series then outstanding (if not then
due and payable) to be due and payable upon any such declaration, and the same shall become and be immediately due and payable. If an
Event of Default specified in clause (g) or (h) of Section 6.01 occurs, all unpaid principal of the Securities then outstanding, and all
accrued and unpaid interest thereon to the date of acceleration, shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder. The Holders of a majority in aggregate principal amount of the Securities
of that Series then outstanding by notice to the Trustee may rescind an acceleration of such Securities of that Series and its consequences
if (a) all existing Events of Default, other than the nonpayment of the principal of the Securities which has become due solely by such
declaration of acceleration, have been cured or waived; (b) to the extent the payment of such interest is lawful, interest (calculated
at the Default Rate) on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration
of acceleration, has been paid; (c) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction;
and (d) all payments due to the Trustee and any predecessor Trustee under Section 7.07 have been made. No such rescission shall affect
any subsequent default or impair any right consequent thereto.
(b) Notwithstanding any of
provision of this Article 6, at the election of the Company in its sole discretion, the sole remedy under this Indenture for an Event
of Default relating to the failure to comply with Section 4.02, and for any failure to comply with the requirements of Section 314(a)(1)
of the TIA, will consist, for the 180 days after the occurrence of such an Event of Default, exclusively of the right to receive additional
interest on the Securities at a rate equal to 0.50% per annum of the aggregate principal amount of the Securities then outstanding up
to, but not including, the 181st day thereafter (or, if applicable, the earlier date on which the Event of Default relating to Section
4.02 is cured or waived). Any such additional interest will be payable in the same manner and on the same dates as the stated interest
payable on the Securities. In no event shall additional interest accrue under the terms of this Indenture at a rate in excess of 0.50%
per annum, in the aggregate, for any violation or default caused by the failure of the Company to be current in respect of its Exchange
Act reporting obligations. If the Event of Default is continuing on the 181st day after an Event of Default relating to a failure to comply
with Section 4.02, the Securities will be subject to acceleration as provided in this Section 6.02. The provisions of this Section 6.02(b)
will not affect the rights of Holders in the event of the occurrence of any other Events of Default.
In order to elect to pay additional
interest as the sole remedy during the first 180 days after the occurrence of an Event of Default relating to the failure to comply with
Section 4.02 in accordance with the immediately preceding paragraph, the Company shall notify all Holders and the Trustee and Paying Agent
of such election on or before the close of business on the fifth Business Day after the date on which such Event of Default otherwise
would occur. Upon a failure by the Company to timely give such notice or pay additional interest, the Securities will be immediately subject
to acceleration as otherwise provided in this Section 6.02.
SECTION 6.03. Collection of Indebtedness and
Suits for Enforcement by Trustee.
If an Event of Default with
respect to any Securities of any Series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its
rights and the rights of the Holders of Securities of such Series by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture
or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.
If an Event of Default in
the payment of principal, interest, if any, specified in clause (a) or (b) of Section 6.01 occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the Company or another obligor on the Securities for the whole amount
of principal, and accrued interest remaining unpaid, if any, together with, to the extent that payment of such interest is lawful, interest
on overdue principal, on overdue installments of interest, if any, in each case at the Default Rate, and such further amount as shall
be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel.
SECTION 6.04. Trustee May File Proofs of Claim.
In case of the pendency of
any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding
relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors,
the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration
or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or
interest) shall be entitled and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim
for the whole amount of principal and interest owing and unpaid in respect of the Securities and to file such other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and
(b) to collect and receive
any moneys or other property payable or deliverable on any such claims and to distribute the same, and any custodian, receiver, assignee,
trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make
such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders,
to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07.
Nothing herein contained shall
be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.
SECTION 6.05. Trustee May Enforce Claims Without
Possession of Securities.
All rights of action and claims
under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or
the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own
name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities
in respect of which such judgment has been recovered.
SECTION 6.06. Application of Money Collected.
Any money collected by the
Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the
distribution of such money on account of principal or interest, upon presentation of the Securities and the notation thereon of the payment
if only partially paid and upon surrender thereof if fully paid: and
First: To the payment
of all amounts due the Trustee under Section 7.07;
Second: To the payment
of the amounts then due and unpaid for principal of and interest on the Securities in respect of which or for the benefit of which such
money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities
for principal and interest, respectively; and
Third: To the Company.
SECTION 6.07. Limitation on Suits.
No Holder of any Security
of any Series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment
of a receiver or trustee, or for any other remedy hereunder (except actions for payment of overdue principal and interest), unless:
(a) such Holder has previously
given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that Series;
(b) the Holders of not less
than [ ]% in principal amount of the outstanding Securities of that Series shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default in its own name as Trustee hereunder;
(c) such Holder or Holders
have offered to the Trustee indemnity satisfactory to it against the costs, expenses and liabilities to be incurred in compliance with
such request;
(d) the Trustee for [ ] days
after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent
with such written request has been given to the Trustee during such [ ]-day period by the Holders of a majority in principal amount of
the outstanding Securities of that Series; it being understood and intended that no one or more of such Holders shall have any right in
any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any
other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right
under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders.
SECTION 6.08. Unconditional Right of Holders
to Receive Principal and Interest.
Notwithstanding any other
provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment
of the principal of and interest, if any, on such Security on the Stated Maturity or Stated Maturities expressed in such Security (or,
in the case of redemption, on the redemption date) and to institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.
SECTION 6.09. Restoration of Rights and Remedies.
If the Trustee or any Holder
has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned
for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination
in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder
and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted.
SECTION 6.10. Rights and Remedies Cumulative.
Except as otherwise provided
with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in Section 2.08, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right
and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now
or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate right or remedy.
SECTION 6.11. Delay or Omission Not Waiver.
No delay or omission of the
Trustee or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right
or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article
or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee
or by the Holders, as the case may be.
SECTION 6.12. Control by Holders.
The Holders of a majority
in principal amount of the outstanding Securities of any Series shall have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the
Securities of such Series, provided that
(a) such direction shall not
be in conflict with any rule of law or with this Indenture,
(b) the Trustee may take any
other action deemed proper by the Trustee which is not inconsistent with such direction; and
(c) subject to the provisions
of Section 6.01, the Trustee shall have the right to decline to follow any such direction if the Trustee in good faith shall, by a Responsible
Officer of the Trustee, determine that the proceeding so directed would involve the Trustee in personal liability or would be unduly prejudicial
to the rights of another Holder or the Trustee.
SECTION 6.13. Waiver of Past Defaults.
Subject to Section 9.02, the
Holders of not less than a majority in principal amount of the outstanding Securities of any Series may on behalf of the Holders of all
the Securities of such Series waive any past Default hereunder with respect to such Series and its consequences, except a Default in the
payment of the principal of or interest on any Security of such Series (provided, however, that the Holders of a majority in principal
amount of the outstanding Securities of any Series may rescind an acceleration and its consequences, including any related payment default
that resulted from such acceleration). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom
shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default
or impair any right consequent thereon.
SECTION 6.14. Undertaking for Costs.
All parties to this Indenture
agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion
require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action
taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such
suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys’ fees, against any party
litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions
of this Section shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by
any Holder, or group of Holders, holding in the aggregate more than [ ]% in principal amount of the outstanding Securities of any Series,
or to any suit instituted by any Holder for the enforcement of the payment of the principal of or interest on any Security on or after
the Stated Maturity or Stated Maturities expressed in such Security (or, in the case of redemption, on the redemption date).
ARTICLE VII
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If an Event of Default
has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree
of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance
of an Event of Default:
(i) The Trustee
need perform only those duties that are specifically set forth in this Indenture and no implied duties, covenants or obligations shall
be deemed to be imposed upon the Trustee.
(ii) in the absence
of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed
therein, upon Officers’ Certificates or Opinions of Counsel furnished to the Trustee and conforming to the requirements of this
Indenture; however, in the case of any such Officers’ Certificates or Opinions of Counsel which by any provisions hereof are specifically
required to be furnished to the Trustee, the Trustee shall examine such Officers’ Certificates and Opinions of Counsel to determine
whether or not they conform on their face to the requirements of this Indenture.
(c) The Trustee may not be
relieved from liability for its own its own negligent action, its own negligent failure to act or willful misconduct, except that:
(i) This paragraph
does not limit the effect of paragraph (b) of Section 7.01 herein.
(ii) The Trustee
shall not be liable for any error of judgment made in good faith by a Responsible Officer.
(iii) The Trustee
shall not be liable with respect to any action taken, suffered or omitted to be taken by it with respect to Securities of any Series in
good faith in accordance with the direction of the Holders of a majority in principal amount of the outstanding Securities of such Series
relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred upon the Trustee, under this Indenture with respect to the Securities of such Series.
(d) Every provision of this
Indenture that in any way relates to the Trustee is subject to paragraph (a), (b) and (c) of this Section.
(e) The Trustee may refuse
to perform any duty or exercise any right or power unless it receives an indemnity satisfactory to it against any loss, liability or expense.
(f) The Trustee shall not
be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by
the Trustee need not be segregated from other funds except to the extent required by law.
(g) No provision of this Indenture
shall require the Trustee to risk or expend its own funds or otherwise incur liability, financial or otherwise, in the performance of
any of its duties, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment
of such funds or indemnity satisfactory to it against such risk is not reasonably assured to it.
(h) The Paying Agent, the
Registrar and any authenticating agent shall be entitled to the same rights, indemnities, protections and immunities afforded to the Trustee.
(i) The Trustee shall have
no duty to monitor the performance or compliance of the Company with its obligations hereunder or any under supplement hereto, nor shall
it have any liability in connection with the malfeasance or nonfeasance by the Company. The Trustee shall have no liability in conn