BACKSTOP AGREEMENT
This
BACKSTOP AGREEMENT dated
as of September 14, 2010 (this “Agreement”) is by and
between China New Energy Group Company, a Delaware corporation (the “Company”), and China
Hand Fund I, LLC, a Delaware limited liability company (the “Investor”).
Capitalized terms not defined herein shall have the meaning ascribed to them in
the Purchase Agreement (as defined below).
BACKGROUND
WHEREAS, the Company is
entering into that certain Series C and Series D Convertible Preferred Stock
Securities Purchase Agreement (the “Purchase Agreement”),
dated as of the date hereof, by and between the Company and the Investor for the
purpose of raising capital to finance its acquisition of Beijing Century Dadi
Gas Engineering Co., Ltd., and/or its affiliated companies, each a limited
liability company organized under the PRC laws (“Dadi”);
WHEREAS, in order to complete
the acquisition of 70% of Dadi, the Company intends to raise additional capital
in the total amount of $20,100,000 through offer and sale of its securities to
investors (the “Additional
Offering”);
WHEREAS, the Company desires
that the Investor provide, and the Investor has agreed to provide, a Backstop
Commitment (as defined below) to the Additional Offering, on the terms and
subject to the conditions set forth herein;
NOW, THEREFORE, in
consideration of the mutual covenants and agreements contained in this
Agreement, the receipt and sufficiency of which are hereby acknowledged, the
parties to this Agreement hereby agree as follows:
Section 1 Backstop
Commitment.
(a) On
or before April 15, 2011 (the “Backstop Closing
Date”), Investor shall purchase from the Company, and the Company shall
issue and sell to Investor a number of shares (the “Backstop Commitment”)
of its common stock, par value $.001 per share (the “Common Stock”),
determined by dividing (x) $20,100,000 minus all amounts raised by the sale of
securities in the Additional Offering to investors other than the Investor or
its assignees (the “Backstop
Investor(s)”) by (y) $0.14179. As soon as practicable (but not more than
four (4) days) after the completion of the Additional Offering, the Company
shall deliver to Backstop Investor(s) a notice (the “Subscription Notice”)
setting forth the dollar amount subscribed for in the Additional Offering and,
accordingly, the number of shares of Common Stock to be acquired by the Backstop
Investor(s) pursuant to the Backstop Commitment. The shares acquired by the
Backstop Investor(s) pursuant to the Backstop Commitment are referred to as the
“Backstop
Shares.” The Backstop Investor(s) shall have ten (10) days after
receipt of the Subscription Notice to fund the purchase of the Backstop
Shares.
(b) The
Backstop Commitment shall be subject to the terms and conditions substantially
similar to those set forth in the Purchase Agreement and the purchase of the
Backstop Shares shall be memorialized in a respective securities purchase
agreement (the “Backstop Purchase
Agreement”).
(c) If
the Company, at any time before the Backstop Closing Date, shall (a) subdivide outstanding shares of Common
Stock into a larger number of shares, or (b) combine (including by way of
reverse stock split) outstanding shares of Common Stock into a smaller number of
shares, then the number of Backstop Shares issuable to the Backstop Investor(s)
pursuant to this Agreement shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding before such
event and of which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this Section 1(c)
shall become effective immediately after the effective date of a subdivision or
combination.
(d) On
the terms and subject to the conditions set forth in this Agreement, the closing
of the Backstop Commitment (the “Backstop Closing”)
shall occur on or before the Backstop Closing Date, at 10:00 a.m. (New York
time) at the offices of Guzov Ofsink, LLC, 000 Xxxxxxx Xxxxxx, 00xx Xxxxx,
Xxx Xxxx, Xxx Xxxx 00000 or such other place, time and date as shall be agreed
between the Company and Backstop Investor(s).
(e) At
the Backstop Closing (i) the Company shall deliver to the Backstop
Investor(s) evidence of the issuance of the Backstop Shares, in the name of the
Backstop Investor(s) against payment by or on behalf of Investor of the purchase
price therefor by wire transfer of immediately available funds to the account
designated by the Company in writing, (ii) the Company shall deliver all
other documents and certificates required to be delivered to the Backstop
Investor(s) pursuant to the Backstop Purchase Agreement, and (iii) the
Backstop Investor(s) shall deliver all documents and certificates required to be
delivered to the Company pursuant to the Backstop Purchase
Agreement.
Section 2 Termination of this
Agreement.
(a) The
Backstop Investor(s) shall have the right to terminate this Agreement by giving
notice to the Company as hereinafter specified at any time at or prior to the
Backstop Closing Date, if (i) the Company or Dadi has suffered a Material
Adverse Effect, as defined below, or trading in securities generally on the
NASDAQ Global Market, New York Stock Exchange or NYSE Amex shall have been
suspended, (ii) a banking moratorium shall have been declared by federal, state
or the PRC authorities, (iii) there shall have occurred any attack on, outbreak
or escalation of hostilities or act of terrorism involving the United States or
the PRC, any declaration by the United States or the PRC of a national emergency
or war, any change in financial markets, any substantial change or development
involving a prospective substantial change in United States, the PRC or
other international
political, financial or economic conditions or any other calamity or crisis, or
(iv) the Company suffers any loss by strike, fire, flood, earthquake, accident
or other calamity, whether or not covered by insurance, the effect of which, in
each case described in this subsection (a), in the Backstop Investor(s)’
reasonable judgment is material and adverse and makes it impractical or
inadvisable to proceed with the purchase of the Backstop Shares. Any
such termination shall be without liability of any party to any other
party.
For the
purposes of this Agreement, “Material Adverse Effect” means any change or effect
which, individually or in the aggregate with all other such changes and effects,
is materially adverse to the business or to the condition (financial or
otherwise), assets, operations, financial condition, results of operations or
prospects of the Company, taken as a whole, including Dadi (the “Company
Condition”), or that would materially and adversely effect the ability of the
Company, taken as a whole, including Dadi, to conduct its business as regularly
conducted.
(b) If
a Backstop Investor elects to terminate this Agreement as provided in this
Section, the Company shall be notified promptly by such Backstop Investor by
telephone, confirmed by letter and this Agreement shall only be terminated as to
the Backstop Commitment of that Backstop Investor, but not others.
Section 3 Miscellaneous.
(a) Successors and
Assigns. Neither this Agreement nor any right or obligation
hereunder is assignable in whole or in part, whether by operation of Law or
otherwise, by any party without the express written consent of the other party
hereto and any such attempted assignment shall be void and
unenforceable. Notwithstanding the foregoing, Investor may transfer
or assign this Agreement or any right or obligation hereunder to an Affiliate or
Vicis Capital Master Fund (“Vicis”) or any of its
Affiliates, which shall not be deemed an Affiliate of China Hand solely by
virtue of this Section 3(a) and Vicis may assign its rights to any of its
affiliates, at any time prior to or after the Closing. This Agreement
and the rights and obligations hereunder shall be binding upon, and shall inure
to the benefit of, the parties hereto and their respective successors or
assignees, and no other person shall acquire or have any rights under or by
virtue of this Agreement.
(b) Notices. All notices
and other communications required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given (a) on the
date of delivery, if delivered personally or by facsimile, upon confirmation of
receipt, (b) on the first Business Day following the date of dispatch if
delivered by a recognized next-day courier services, or (c) on the third
Business Day following the date of mailing if delivered by registered or
certified mail, return receipt requested, postage prepaid, to the parties to
this Agreement at the following address or to such other address either party to
this Agreement shall specify by notice to the other party:
If to the
Company:
Xxxxx X0,
00/X, Xx. 00, Xxxxxxx Xxxx
Tianjin
Emperor Place
Heping
District, Tianjin 300040
People's
Republic of China
Attn:
X.X. Xxxxx, CEO
Tel. No.:
(00 00) 0000 0000
Fax No.:
_______________________
Email:
xxxxxxx@xxxx.xxx
With a
copy to (which shall not constitute notice):
Guzov
Ofsink, LLC
000
Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx,
Xxx Xxxx 00000, XXX
Attn:
Xxxxxx X. Xxxxxx, Esq.
Tel.:
(000) 000-0000
Fax No.;
(000) 000-0000
Email:
xxxxxxx@xxxxxxxxx.xxx
If to the
Investor:
China
Hand Fund I, LLC
000 Xxxx
Xxxx Xxxx
Xxxxxxxxx,
XX 00000
Attn:
Xxxx Xxxxxxx
Tel. No.:
000-000-0000
Fax No.:
000-000-0000
Email:
xxxxxxxx@xxxxxxxxxxxxx.xxx
(c) Further Assurances.
Each party hereto shall do and perform or cause to be done and performed all
further acts and shall execute and deliver all other agreements, certificates,
instruments and documents as the other party hereto reasonably may request in
order to carry out the intent and accomplish the purposes of this Agreement and
the consummation of the transactions contemplated hereby.
(d) Amendments and
Waivers. Any provision of this Agreement may be amended or waived if, but
only if, such amendment or waiver is in writing and is duly executed and
delivered by the Company and Investor. No failure or delay by any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by Law.
(e) Governing Law. This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York, without regard to its rule of conflict of laws. Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement and (whether
brought against a party hereto or its respective Affiliates, directors,
officers, shareholders, employees or agents) shall be commenced exclusively in
the state and federal courts sitting in New York County, New York. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the New York County, New York for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is improper or is an inconvenient venue for such proceeding. Each
party hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any other manner permitted by
law. Each party hereby irrevocably waives, to the fullest extent permitted by
applicable law, any right it may have to a trial by jury in any legal proceeding
directly or indirectly arising out of or relating to this Agreement, any
Ancillary Agreement or the transactions contemplated hereby or thereby. If any
party shall commence an action or proceeding to enforce any provisions of this
Agreement, then the prevailing party in such action or proceeding shall be
reimbursed by the other parties for its reasonable attorneys’ fees and other
costs and expenses incurred with the investigation, preparation and prosecution
of such action or proceeding.
(f) Entire Agreement.
This Agreement constitutes the entire agreement between the parties with respect
to the subject matter of this Agreement and supersedes all prior agreements and
understandings, both oral and written, between the parties and/or their
Affiliates with respect to the subject matter of this Agreement.
(g) Severability. If one
or more provisions of this Agreement are held to be unenforceable under
applicable Law, such provision shall be deemed to be excluded from this
Agreement and the balance of this Agreement shall be interpreted as if such
provision were so excluded and shall be enforced in accordance with its terms to
the maximum extent permitted by Law.
(h) Expenses and
Fees. Each
party shall bear its own fees and expenses incurred with respect to this
Agreement. There shall be no backstop fee or commitment fee payable
to the Investor by the Company under this Agreement.
(h) Specific Performance.
Each of the Company and Investor acknowledge and agree that, in addition to all
other remedies to which it may be entitled, each of the parties hereto is
entitled to seek a decree of specific performance of their rights under this
Agreement, provided that such party is not in material default hereunder. The
Company and Investor agree that, if for any reason a party shall have failed to
perform its obligations under this Agreement, then the party seeking to enforce
this Agreement against such nonperforming party shall be entitled to specific
performance and injunctive and other equitable relief, and the parties further
agree to waive any requirement for the securing or posting of any bond in
connection with the obtaining of any such injunctive or other equitable relief.
This provision is without prejudice to any other rights that any party may have
against another party for any failure to perform its obligations under this
Agreement, including the right to seek damages for a breach of any provision of
this Agreement, and all rights, powers and remedies available (at law or in
equity) to a party in respect hereof by the other party shall be cumulative and
not alternative or exclusive, and the exercise or beginning of the exercise of
any thereof by a party shall not preclude the simultaneous or later exercise of
any other rights, powers or remedies by such party.
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of page intentionally left blank]
IN WITNESS WHEREOF, the
parties hereto have executed this Agreement as of the day and year first above
written.
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THE
COMPANY:
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CHINA
NEW ENERGY GROUP
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COMPANY
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By:
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/s/
Yang Xxx Xxxxx
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Name:
Yang Xxx Xxxxx
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Title:
Chief Executive Officer
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THE
INVESTOR:
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CHINA
HAND FUND I, LLC
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By:
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/s/
Authorized Signatory
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Name:
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Title:
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