SECURITIES PURCHASE AGREEMENT
0000
Xxxxxx Xxxxx Xxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxx
Xxxxx, Xxxxxxxxxx 00000
The
undersigned (the "Investor")
hereby
confirms its agreement with you as follows:
1. This
Securities Purchase Agreement is made as of the date set forth below between
China Energy Recovery, Inc., a Delaware corporation (the "Company"),
and
the Investor.
2. The
Company has authorized the sale and issuance of up to 8,339,902 Units
("Units"),
with
each Unit comprised of (i) one share (a "Share")
of the
Company's Series A Convertible Preferred Stock, par value $0.001 per share
(the
"Series
A Preferred Stock"),
and
(ii) one warrant (a "Warrant")
to
purchase one-half of one share (a "Warrant
Share")
of the
Company's Common Stock, par value $0.001 per share (the "Common
Stock"),
at an
exercise price of $1.29, to certain investors in a private placement (the
"Offering").
3. The
Company and the Investor agree that the Investor will purchase from the Company
and the Company will issue and sell to the Investor ___________ Units at a
purchase price of $1.08 per Unit, representing ____ Shares and Warrants to
purchase _____ shares of Common Stock for an aggregate purchase price of
$____________________ (the "Purchase
Price"),
subject to the Terms and Conditions for Purchase of Units attached hereto as
Annex
I
and
incorporated herein by reference as if fully set forth herein. Unless otherwise
requested by the Investor in Exhibit
A,
certificates representing the Shares purchased by the Investor and Warrants
will
be registered in the Investor's name and address as set forth below. The Company
and the Investor agree to enter into a registration rights agreement (the
"Registration
Rights Agreement")
in the
form of Exhibit
B
concurrently with the execution of this Securities Purchase Agreement.
4. The
Investor represents that, except as set forth below, (a) it has had no position,
office or other material relationship within the past three years with the
Company or its affiliates, (b) neither it, nor any group of which it is a member
or to which it is related, beneficially owns (including the right to acquire
or
vote) any securities of the Company, and (c) neither it, nor any affiliate
of
the Investor, has any direct or indirect affiliation or association with any
Finance and Regulatory Authority, Inc. ("FINRA")
member. Exceptions:
(If
no
exceptions, write "none." If left blank, response will be deemed to be "none.")
Please
confirm that the foregoing correctly sets forth the agreement between us by
signing in the space provided below for that purpose.
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Dated
as of: _________________, 2008
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[Investor Name] |
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| By: | |||
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Name:
Title:
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| Address: | |||
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AGREED
AND ACCEPTED:
By:
Name: Xxxxxxx
Xxxxxxxx
Title: Chief
Executive Officer
[SECURITIES
PURCHASE AGREEMENT SIGNATURE PAGE]
Annex
I
Terms
and Conditions for Purchase of Units
1. Agreement
to Sell and Purchase the Units; Subscription Date.
1.1 Purchase
and Sale. At
the
Closing (as defined in Section
2),
the
Company will sell to the Investor, and the Investor will purchase from the
Company, upon the terms and subject to the conditions set forth herein, and
at
the Purchase Price, the number of Shares and Warrants described in Paragraph
3
of the
Securities Purchase Agreement attached hereto (collectively with this
Annex
I
and the
other exhibits attached hereto, this "Agreement").
1.2 Other
Investors.
As part
of the Offering, the Company proposes to enter into Securities Purchase
Agreements in the same form as this Agreement with certain other investors
(the
"Other
Investors"),
and
the Company expects to complete sales of Units to them. The Investor and the
Other Investors are sometimes collectively referred to herein as the
"Investors,"
and
this Agreement, the Registration Rights Agreement and the Securities Purchase
Agreements executed by the Other Investors are sometimes collectively referred
to herein as the "Agreements".
The
Company may accept executed Agreements from Investors for the purchase of Shares
and Warrants commencing upon the date on which the Company provides the
Investors with the proposed purchase price per Share and concluding upon the
date (the "Subscription
Date")
on
which the Company decides that it will no longer accept Agreements for the
purchase of Units in the Offering, but in no event shall the Subscription Date
be later than [February ___, 2008]. Each Investor must execute and deliver
a
Securities Purchase Agreement and a Registration Rights Agreement (in the form
attached as Exhibit
B
hereto),
and must complete a Stock Certificate Questionnaire (in the form attached as
Exhibit
A
hereto)
and an Investor Questionnaire (in the form attached as Exhibit
C
hereto)
in order to purchase Shares and Warrants in the Offering.
2. Delivery
of the Units at Closing.
The
completion of the purchase and sale of the Shares and Warrants (the
"Closing")
shall
occur on a date specified by the Company (the "Closing
Date"),
which
date shall not be later than [February ___, 2008] (the "Outside
Date"),
and
of which the Investors will be notified in advance by the Company. At the
Closing, the Company shall deliver to the Investor one or more stock
certificates representing the number of Shares set forth in Paragraph
3
of the
Securities Purchase Agreement, each such certificate to be registered in the
name of the Investor or, if so indicated on the Stock Certificate Questionnaire
attached hereto as Exhibit
A,
in the
name of a nominee designated by the Investor, along with a Warrant registered
in
the same name. In exchange for the delivery of the stock certificates
representing such Shares and the Warrant, the Investor shall deliver the
Purchase Price to the Company by wire transfer of immediately available funds
pursuant to the Company's written instructions.
The
Company's obligation to issue and sell the Shares and Warrants to the Investor
shall be subject to the following conditions, any one or more of which may
be
waived by the Company: (a) prior receipt by the Company of a copy of this
Agreement executed by the Investor; (b) completion of purchases and sales of
Shares and Warrants under the Agreements with the Other Investors for an
aggregate purchase price of not less than $8,500,000; (c) the accuracy of the
representations and warranties made by the Investor in this Agreement and the
fulfillment of the obligations of the Investor to be fulfilled by it under
this
Agreement on or prior to the Closing; and (d) the absence of any order, writ,
injunction, judgment or decree that questions the validity of the Agreements
or
the right of the Company or the Investor to enter into such Agreements or to
consummate the transactions contemplated hereby and thereby.
The
Investor's obligation to purchase the Shares and Warrants shall be subject
to
the following conditions, any one or more of which may be waived by the
Investor: (a) the completion of purchases and sales under the Agreements with
the Other Investors for an aggregate purchase price of not less than $8,500,000;
(b) the accuracy of the representations and warranties made by the Company
in
this Agreement on the date hereof and, if different, on the Closing Date; (c)
the execution and delivery by the Company of the Registration Rights Agreement,
(d) the fulfillment of the obligations of the Company to be fulfilled by it
under this Agreement on or prior to the Closing; and (e) the absence of any
order, writ, injunction, judgment or decree that questions the validity of
the
Agreements or the right of the Company or the Investor to enter into such
Agreements or to consummate the transactions contemplated hereby and thereby.
In
the
event that the Closing does not occur on or before the Outside Date as a result
of the Company's failure to satisfy any of the conditions set forth above (and
such condition has not been waived by the Investor), the Company shall return
any and all funds paid hereunder to the Investor no later than one Business
Day
following the Outside Date and the Investors shall have no further obligations
hereunder. For purposes of this Agreement, "Business
Day"
shall
mean any day other than a Saturday, Sunday or other day on which the New York
Stock Exchange or commercial banks located in New York, New York are permitted
or required by law to close.
3. Representations,
Warranties and Covenants of the Company.
Except
as otherwise described in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 2006 filed on April 2, 2007 (and any amendments thereto
filed at least two Business Days prior to the date hereof), the Company's
Quarterly Reports on Form 10-QSB filed on May 18, 2007, August 14, 2007 and
November 19, 2007 for the quarterly periods ended March 31, 2007, June 30,
2007
and September 30, 2007, respectively, or any of the Company's Current Reports
on
Form 8-K filed since December 31, 2006 and at least two Business Days prior
to
the date hereof (collectively, the "SEC
Reports"),
the
Company hereby represents and warrants to, and covenants with, the Investor
as
of the date hereof and the Closing Date, as follows:
3.1 Organization.
The
Company is duly incorporated and validly existing in good standing under the
laws of the State of Delaware. The Company has full power and authority to
own,
operate and occupy its properties and to conduct its business as presently
conducted and is registered or qualified to do business and in good standing
in
each jurisdiction in which it owns or leases property or transacts business
and
where the failure to be so qualified would have a material adverse effect upon
the Company and its subsidiaries as a whole or the business, financial
condition, properties, operations or assets of the Company and its subsidiaries
as a whole or the Company's ability to perform its obligations under the
Agreements in all material respects ("Material
Adverse Effect"),
and
no proceeding has been instituted in any such jurisdiction revoking, limiting
or
curtailing, or seeking to revoke, limit or curtail, such power and authority
or
qualification. The Company has no "subsidiaries" (as defined in Rule 405 under
the Securities Act of 1933, as amended (the "Securities
Act")),
other than as set forth in its most recent Form 10-KSB.
3.2 Due
Authorization.
The
Company has all requisite power and authority to execute, deliver and perform
its obligations under the Agreements. The execution and delivery of the
Agreements, and the consummation by the Company of the transactions contemplated
hereby, have been duly authorized by all necessary corporate action and no
further action on the part of the Company or its Board of Directors or
stockholders is required. The Agreements have been validly executed and
delivered by the Company and constitute legal, valid and binding agreements
of
the Company enforceable against the Company in accordance with their terms,
except to the extent (i) rights to indemnity and contribution may be limited
by
state or federal securities laws or the public policy underlying such laws,
(ii)
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' and contracting
parties' rights generally and (iii) such enforceability may be subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
3.3 Non-Contravention.
The
execution and delivery of the Agreements, the issuance and sale of the Shares
and Warrants to be sold by the Company under the Agreements, the fulfillment
of
the terms of the Agreements and the consummation of the transactions
contemplated thereby, including the issuance of the Warrant Shares in accordance
with the terms of the Warrants, will not (A) result in a conflict with or
constitute a violation of, or default (with the passage of time or otherwise)
under, (i) any bond, debenture, note or other evidence of indebtedness, or
any
material lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument to which the Company or any
subsidiary (each, a "Subsidiary"
and
collectively, the "Subsidiaries")
is a
party or by which the Company or the Subsidiaries or their respective properties
are bound, (ii) the Certificate of Incorporation, Bylaws, or other
organizational documents of the Company, as amended, or (iii) any law,
administrative regulation, ordinance or order of any court or governmental
agency, arbitration panel or authority binding upon the Company or any
Subsidiary or their respective properties, which conflict, violation or default,
individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect, or (B) result in the creation or imposition of any lien,
encumbrance, claim, security interest or restriction whatsoever upon any of
the
material properties or assets of the Company or the Subsidiaries or an
acceleration of indebtedness pursuant to any obligation, agreement or condition
contained in any material bond, debenture, note or any other evidence of
indebtedness or any material indenture, mortgage, deed of trust or any other
agreement or instrument to which the Company or any Subsidiary is a party or
by
which it is bound or to which any of the property or assets of the Company
is
subject. No consent, approval, authorization or other order of, or registration,
qualification or filing with, any regulatory body, administrative agency, or
other governmental body is required for the execution and delivery of the
Agreements by the Company and the valid issuance or sale of the Shares by the
Company pursuant to the Agreements, other than such as have been made or
obtained, and except for any filings required to be made under federal or state
securities laws.
3.4 Capitalization.
The
authorized capital stock of the Company as of February 5, 2008 consists of
(i)
100,000,000 shares of Common Stock, of which 9,451,889 shares are outstanding,
(ii) 50,000,000 shares of Preferred Stock (10,000,000 of which have been
designated as Series A Preferred Stock), of which zero shares are outstanding,
and (iii) warrants to purchase 4,169,951 shares of Common Stock that are issued
and outstanding. The Shares, Warrants and Warrant Shares to be sold pursuant
to
the Agreements have been duly authorized, and when issued and paid for in
accordance with the terms of the Agreements and the Warrants, will be duly
and
validly issued, fully paid and nonassessable, subject to no lien, claim or
encumbrance (except for any such lien, claim or encumbrance created, directly
or
indirectly, by the Investor). The outstanding shares of capital stock of the
Company have been duly and validly issued and are fully paid and nonassessable,
have been issued in compliance with the registration requirements of federal
and
state securities laws, and were not issued in violation of any preemptive rights
or similar rights to subscribe for or purchase securities. The Company owns
all
of the outstanding capital stock of each Subsidiary, free and clear of all
liens, claims and encumbrances. Other than as set forth above and the Company's
obligation to issue 41,514,179 shares of Common Stock pursuant to a Share
Exchange Agreement dated as of January 29, 2008 between the Company and Poise
Profit International, Ltd. (the “Share
Exchange Agreement”),
there
are no outstanding rights (including, without limitation, preemptive rights),
warrants or options to acquire, or instruments convertible into or exchangeable
for, any unissued shares of capital stock or other equity interest in the
Company or any Subsidiary, or any contract, commitment, agreement, understanding
or arrangement of any kind to which the Company or any Subsidiary is a party
and
providing for the issuance or sale of any capital stock of the Company or of
any
Subsidiary, any such convertible or exchangeable securities or any such rights,
warrants or options. Without limiting the foregoing, no preemptive right,
co-sale right, registration right, right of first refusal or other similar
right
exists with respect to the issuance and sale of the Shares, except as provided
in the Agreements. There are no shareholders agreements, voting agreements
or
other similar agreements with respect to the Common Stock to which the Company
is a party.
3.5 Legal
Proceedings.
There
is no material legal or governmental proceeding pending, or to the knowledge
of
the Company, threatened, to which the Company or any Subsidiary is a party
or of
which the business or property of the Company or any Subsidiary is subject
that
is required to be disclosed and that is not so disclosed in the SEC Reports.
Neither the Company nor any Subsidiary is subject to any injunction, judgment,
decree or order of any court, regulatory body, administrative agency or other
government body.
3.6 No
Violations.
Neither
the Company nor any Subsidiary is in violation of its Certificate of
Incorporation, Bylaws or other organizational documents, as amended, or in
violation of any law, administrative regulation, ordinance or order of any
court
or governmental agency, arbitration panel or authority applicable to the
Company, which violation, individually or in the aggregate, is reasonably likely
to have a Material Adverse Effect, and neither the Company nor any Subsidiary
is
in default (and there exists no condition which, with the passage of time or
otherwise, would constitute a default) in the performance of any bond,
debenture, note or any other evidence of indebtedness or any indenture,
mortgage, deed of trust or any other material agreement or instrument to which
the Company or any Subsidiary is a party or by which the Company or such
Subsidiary or their respective properties are bound, which default is reasonably
likely to have a Material Adverse Effect.
3.7 Governmental
Permits, Etc.
Each of
the Company and the Subsidiaries has all necessary franchises, licenses,
certificates and other authorizations from any foreign, federal, state or local
government or governmental agency, department or body that are currently
necessary for the operation of the business of the Company and the Subsidiaries
as currently conducted, except where the failure to currently possess such
franchises, licenses, certificates and other authorizations is not reasonably
likely to have a Material Adverse Effect.
3.8 Intellectual
Property.
(a) Except
for matters which are not reasonably likely to have a Material Adverse Effect,
each of the Company and the Subsidiaries has ownership of, or a license or
other
legal right to use, all patents, copyrights, trade secrets, trademarks, customer
lists, designs, manufacturing or other processes, computer software, systems,
data compilation, research results or other proprietary rights used in the
business of the Company (collectively, "Intellectual
Property").
(b) Except
for matters which are not reasonably likely to have a Material Adverse Effect,
all material licenses or other material agreements under which (i) the Company
or any Subsidiary employs rights in Intellectual Property, or (ii) the Company
or any Subsidiary has granted rights to others in Intellectual Property owned
or
licensed by the Company or any Subsidiary are in full force and effect, and
there is no default by the Company with respect thereto.
(c) The
Company believes that it has taken all steps reasonably required in accordance
with sound business practice and business judgment to establish and preserve
the
ownership of all material Intellectual Property owned by the Company or any
Subsidiary.
(d) Except
for matters which are not reasonably likely to have a Material Adverse Effect,
to the knowledge of the Company, (i) the present business, activities and
products of the Company or any Subsidiary do not infringe any intellectual
property of any other person; (ii) neither the Company nor any Subsidiary is
making unauthorized use of any confidential information or trade secrets of
any
person; and (iii) the activities of any of the employees of the Company or
any
Subsidiary, acting on behalf of the Company or such Subsidiary, do not violate
any agreements or arrangements related to confidential information or trade
secrets of third parties.
(e) No
proceedings are pending, or to the knowledge of the Company, threatened, which
challenge the rights of the Company or any Subsidiary to the use of Intellectual
Property, except for matters which are not reasonably likely to have a Material
Adverse Effect.
3.9 Financial
Statements.
The
financial statements of the Company and the related notes contained in the
SEC
Reports present fairly and accurately in all material respects the financial
position of the Company as of the dates therein indicated, and the results
of
its operations, cash flows and the changes in shareholders' equity for the
periods therein specified, subject, in the case of unaudited financial
statements for interim periods, to normal year-end audit adjustments. Such
financial statements (including the related notes) have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis at the times and throughout the periods therein specified, except that
unaudited financial statements may not contain all footnotes required by
generally accepted accounting principles.
3.10 No
Material Adverse Change.
Except
as disclosed in the SEC Reports or in any press releases issued by the Company
at least two Business Days prior to the date of this Agreement, since September
30, 2007, there has not been (i) an event, circumstance or change that has
had
or is reasonably likely to have a Material Adverse Effect, (ii) any obligation
incurred by the Company or any Subsidiary, direct or contingent, that is
material to the Company, (iii) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company, or (iv) any loss
or
damage (whether or not insured) to the physical property of the Company or
any
Subsidiary which has had a Material Adverse Effect.
3.11 Reporting
Status.
The
Company has timely made all filings required under the Exchange Act during
the
12 months preceding the date of this Agreement, and all of those documents
complied in all material respects with the SEC's requirements as of their
respective filing dates, and the information contained therein as of the
respective dates thereof did not contain an untrue statement of a material
fact
or omit to state a material fact required to be stated therein or necessary
to
make the statements therein in light of the circumstances under which they
were
made not misleading.
3.12 No
Manipulation.
The
Company has not taken and will not take any action designed to or that might
reasonably be expected to cause or result in an unlawful manipulation of the
price of the Common Stock to facilitate the sale or resale of the Shares.
3.13 Accountants.
Xxxxxxxx Xxxxxxxxx & Co., CPA P.C., who expressed their opinion with respect
to the consolidated financial statements in the Company's Annual Report on
Form
10-KSB for the year ended December 31, 2006, have advised the Company that
they
are, and to the knowledge of the Company they are, independent accountants
as
required by the Securities Act and the rules and regulations promulgated
thereunder.
3.14 Contracts.
Except
for matters which are not reasonably likely to have a Material Adverse Effect
and those contracts that are substantially or fully performed or expired by
their terms, the contracts listed as exhibits to or described in the SEC Reports
that are material to the Company and all amendments thereto, are in full force
and effect on the date hereof, and neither the Company nor, to the Company's
knowledge, any other party to such contracts is in breach of or default under
any of such contracts, except for any breach that is not reasonably likely
to
have a Material Adverse Effect.
3.15 Taxes.
Except
for matters which are not reasonably likely to have a Material Adverse Effect,
each of the Company and the Subsidiaries has filed all necessary federal, state
and foreign income and franchise tax returns and has paid or accrued all taxes
shown as due thereon, and the Company has no knowledge of a tax deficiency
which
has been asserted or threatened against the Company or any Subsidiary.
3.16 Transfer
Taxes.
On the
Closing Date, all stock transfer or other taxes (other than income taxes) which
are required to be paid in connection with the sale and transfer of the Shares
hereunder will be, or will have been, fully paid or provided for by the Company
and the Company will have complied with all laws imposing such taxes.
3.17 Investment
Company.
The
Company is not an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for an investment company, within the
meaning of the Investment Company Act of 1940, as amended, and will not be
deemed an "investment company" as a result of the transactions contemplated
by
this Agreement.
3.18 Offering
Prohibitions.
Neither
the Company nor any person acting on its behalf or at its direction has in
the
past or will in the future take any action to sell, offer for sale or solicit
offers to buy any securities of the Company which would bring the offer or
sale
of the Shares or Warrants as contemplated by this Agreement within the
provisions of Section 5 of the Securities Act.
3.19 Related
Party Transactions.
Except
as described in the SEC Reports and the Registration Rights Agreement between
the Company and certain of its investors dated January __, 2008, to the
knowledge of the Company, no transaction has occurred between or among the
Company or any of its affiliates, officers or directors or any affiliate or
affiliates of any such officer or director that with the passage of time will
be
required to be disclosed pursuant to Section 13, 14 or 15(d) of the Exchange
Act.
3.20 Books
and Records.
The
books, records and accounts of the Company accurately and fairly reflect, in
reasonable detail, the transactions in, and dispositions of, the assets of,
and
the operations of, the Company. The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken
with
respect to any differences.
4. Representations,
Warranties and Covenants of the Investor.
4.1 Investor
Knowledge and Status.
The
Investor represents and warrants to, and covenants with, the Company that:
(i)
the Investor is an "accredited investor" as defined in Regulation D under the
Securities Act, is knowledgeable, sophisticated and experienced in making,
and
is qualified to make decisions with respect to, investments in securities
presenting an investment decision similar to that involved in the purchase
of
the Shares and Warrants, and has requested, received, reviewed and considered
all information it deemed relevant in making an informed decision to purchase
the Shares and Warrants; (ii) the Investor understands that the Shares and
Warrants are each "restricted securities" and have not been registered under
the
Securities Act and is acquiring the number of Shares and Warrants set forth
in
Paragraph
3
of the
Securities Purchase Agreement in the ordinary course of its business and for
its
own account for investment only, has no present intention of distributing any
of
such Shares or Warrants and has no arrangement or understanding with any other
persons regarding the distribution of such Shares or Warrants (this
representation and warranty not limiting the Investor's right to sell Shares
and
Warrant Shares pursuant to a registration statement (“Registration
Statement”)
filed
under the Registration Rights Agreement or otherwise, or other than with respect
to any claim arising out of a breach of this representation and warranty, the
Investor's right to indemnification under Section
5
of the
Registration Rights Agreement); (iii) the Investor will not, directly or
indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit
any offers to buy, purchase or otherwise acquire or take a pledge of) any of
the
Shares or Warrants except in compliance with the Securities Act, applicable
state securities laws and the respective rules and regulations promulgated
thereunder; (iv) the Investor has answered all questions in Paragraph
4
of the
Securities Purchase Agreement and the Investor Questionnaire attached hereto
as
Exhibit
C
for use
in preparation of the Registration Statement and for determining the
availability of state "Blue Sky" exemptions and the answers thereto are true
and
correct as of the date hereof and will be true and correct as of the Closing
Date; (v) the Investor will notify the Company promptly of any change in any
of
such information until such time as the Investor has sold all of its Shares
or
until the Company is no longer required to keep the Registration Statement
effective; and (vi) the Investor has, in connection with its decision to
purchase the number of Shares and Warrants set forth in Paragraph
3
of the
Securities Purchase Agreement, relied upon the representations and warranties
of
the Company contained herein and the information contained in the SEC Reports.
The Investor understands that the issuance of the Shares and Warrants to the
Investor has not been registered under the Securities Act, or registered or
qualified under any state securities law, in reliance on specific exemptions
therefrom, which exemptions may depend upon, among other things, the
representations made by the Investor in this Agreement. No person is authorized
by the Company to provide any representation that is inconsistent with or in
addition to those contained herein or in the SEC Reports, and the Investor
acknowledges that it has not received or relied on any such representations.
4.2 Transfer
of Shares.
The
Investor agrees that it will not make any sale, transfer or other disposition
of
the Shares, the Warrants or the Warrant Shares (a "Disposition")
other
than Dispositions that are made pursuant to the Registration Statement in
compliance with any applicable prospectus delivery requirements or that are
exempt from registration under the Securities Act.
4.3 Power
and Authority.
The
Investor represents and warrants to the Company that (i) the Investor has full
right, power, authority and capacity to enter into this Agreement and to
consummate the transactions contemplated hereby and has taken all necessary
action to authorize the execution, delivery and performance of this Agreement,
and (ii) this Agreement constitutes a valid and binding obligation of the
Investor enforceable against the Investor in accordance with its terms, except
to the extent (i) rights to indemnity and contribution may be limited by state
or federal securities laws or the public policy underlying such laws, (ii)
such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' and contracting
parties' rights generally and (iii) such enforceability may be subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
4.4 Short
Position.
From
the earlier of (i) 30 days prior to the date hereof and (ii) the date the
Investor learned of the Offering, neither the Investor nor any affiliate has
directly or indirectly established or agreed to establish any hedge, "put
equivalent position" (as defined in Rule 16a-1 under the Exchange Act) or other
position in the Common Stock that is outstanding on the Closing Date and that
is
designed to or could reasonably be expected to lead to or result in a
Disposition by the Investor or any other person or entity. For purposes hereof,
a "hedge or other position" includes, without limitation, effecting any short
sale or having in effect any short position (whether or not such sale or
position is against the box and regardless of when such position was entered
into) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to the Common Stock or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from the
Common Stock. Each Investor acknowledges that this representation is made for
the benefit of the Company and the other Investors, any of which may assert
claims arising out of the breach of this Section
4.4.
4.5 No
Investment, Tax or Legal Advice.
The
Investor understands that nothing in the SEC Reports, this Agreement, or any
other materials presented to the Investor in connection with the purchase and
sale of the Shares or Warrants constitutes legal, tax or investment advice.
The
Investor has consulted such legal, tax and investment advisors as it, in its
sole discretion, has deemed necessary or appropriate in connection with its
purchase of Shares and Warrants.
4.6 Confidential
Information.
The
Investor covenants that from the date hereof it will maintain in confidence
all
material non-public information regarding the Company received by the Investor
from the Company, including the receipt and content of any Suspension Notice
(as
defined in the Registration Rights Agreement) until such information (a) becomes
generally publicly available other than through a violation of this provision
by
the Investor or its agents or (b) is required to be disclosed in legal
proceedings (such as by deposition, interrogatory, request for documents,
subpoena, civil investigation demand, filing with any governmental authority
or
similar process); provided, however, that before making any disclosure in
reliance on this Section
4.6,
the
Investor will give the Company at least 15 days prior written notice (or such
shorter period as required by law) specifying the circumstances giving rise
thereto and will furnish only that portion of the non-public information which
is legally required and will exercise its commercially reasonable efforts to
ensure that confidential treatment will be accorded any non-public information
so furnished. The Investor will not trade, or provide material non-public
information about the Company to any other party who may or does trade, the
Company’s securities when the Investor is in possession of material non-public
information about the Company.
4.7 Additional
Acknowledgement.
The
Investor acknowledges that it has independently evaluated the merits of the
transactions contemplated by this Agreement, that it has independently
determined to enter into the transactions contemplated hereby, that it is not
relying on any advice from or evaluation by any Other Investor, that it is
relying solely upon the representations and warranties of the Company set forth
in this Agreement in making its investment decision, and that it is not acting
in concert with any Other Investor in making its purchase of the Shares and
Warrants hereunder. The Investor acknowledges that the Investors have not taken
any actions that would deem the Investors to be members of a "group" for
purposes of Section 13(d) of the Exchange Act.
5. Transfer
Restrictions; Legends.
Certificates evidencing the Shares, the Warrants and the Warrant Shares shall
each bear any legend as required by the "blue sky" laws of any state and a
restrictive legend in substantially the following form, until such time as
they
are not required:
[NEITHER
THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES
HAVE BEEN REGISTERED] [THESE
SECURITIES HAVE NOT BEEN REGISTERED]
UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OR (B) AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY AND ITS TRANSFER AGENT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
The
Company acknowledges and agrees that an Investor may from time to time pledge,
and/or grant a security interest in, some or all of the legended Shares in
connection with applicable securities laws, pursuant to a bona fide margin
agreement in compliance with a bona fide margin loan. Such a pledge would not
be
subject to approval or consent of the Company and no legal opinion of legal
counsel to the pledgee, secured party or pledgor shall be required in connection
with the pledge, but such legal opinion shall be required in connection with
a
subsequent transfer or foreclosure following default by the Investor transferee
of the pledge. No notice shall be required of such pledge, but the Investor's
transferee shall promptly notify the Company of any such subsequent transfer
or
foreclosure. Each Investor acknowledges that the Company shall not be
responsible for any pledges relating to, or the grant of any security interest
in, any of the Shares or for any agreement, understanding or arrangement between
any Investor and its pledgee or secured party. At the appropriate Investor's
expense, the Company will execute and deliver such reasonable documentation
as a
pledgee or secured party of Shares may reasonably request in connection with
a
pledge or transfer of the Shares, including the preparation and filing of any
required prospectus supplement under Rule 424(b)(3) of the Securities Act or
other applicable provision of the Securities Act to appropriately amend the
list
of selling stockholders thereunder.
6. Survival
of Representations, Warranties and Agreements.
Notwithstanding any investigation made by any party to this Agreement, all
covenants, agreements, representations and warranties made by the Company and
the Investor herein shall survive the execution of this Agreement for a period
of one year, and a party's reliance on such representations and warranties
shall
not be affected by any investigation made by such party or any information
developed thereby.
7. Registration
of Shares of Common Stock; Clawback; Public Statements.
7.1 In
connection with the purchase and sale of the Shares by the Investors
contemplated hereby, the Company has entered into a Registration Rights
Agreement with each Investor providing for the filing by the Company of a
Registration Statement on Form S-3 (or, if the Company is ineligible to use
From
S-3, another appropriate form) to enable the resale of shares of Common Stock
upon conversion of the Shares by the Investors from time to time.
7.2 At
the
closing of the Share Exchange Agreement, 3,558,358 shares of the Company’s
Common Stock (the “Escrow
Shares”)
will
be placed into an escrow account. In the event HAIE High-Tech Engineering (Hong
Kong) Co., Ltd. (“HAIE”)
generates (i) gross revenue for the 12-month period ended December 31, 2008
of
at least 150 million China Yuan Renminbi (“RMB”)
and
(ii) a gross margin for the 12-month period ended December 31, 2008 of at least
30 million RMB (collectively, the “HAIE
Target”),
in
each case as determined in accordance with Generally Accepted Accounting
Principles and certified by the Company’s independent auditor registered with
the Public Company Accounting Oversight Board in the United States in its report
on the 2008 audited financial statements of the Company (the “Auditor’s
Report”),
the
Escrow Shares will be released to the selling shareholders in the Share Exchange
Agreement in the amounts proportionate to the number of shares set out opposite
each selling shareholder’s name in Schedule
I
to the
Share Exchange Agreement within ten business days following the Company’s
receipt of the Auditor’s Report. In the event the HAIE Target is not achieved,
the Escrow Shares will be released to the Investors in the Offering pro rata
based upon their investment amounts in the Offering.
7.3 The
Company agrees to disclose on a Current Report on Form 8-K the closing of the
Offering and the material terms thereof, including pricing, within four Business
Days after the Closing. The Company will not issue any public statement, press
release or any other public disclosure listing the Investor as one of the
purchasers of the Shares without the Investor's prior written consent, except
as
may be required by applicable law or rules of any exchange on which the
Company's securities are listed.
8. Notices.
All
notices, requests, consents and other communications hereunder shall be in
writing, shall be delivered (A) if within the United States, by first-class
registered or certified airmail, or nationally recognized overnight express
courier, postage prepaid, or by facsimile, or (B) if from outside the United
States, by International Federal Express (or comparable service) or facsimile,
and shall be deemed given (i) if delivered by first-class registered or
certified mail domestic, upon the Business Day received, (ii) if delivered
by
nationally recognized overnight carrier, one Business Day after timely delivery
to such carrier, (iii) if delivered by International Federal Express (or
comparable service), two Business Days after timely delivery to such carrier,
(iv) if delivered by facsimile, upon electric confirmation of receipt and shall
be addressed as follows, or to such other address or addresses as may have
been
furnished in writing by a party to another party pursuant to this paragraph:
| (a) if to the Company, to: |
0000
Xxxxxx Xxxxx Xxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxx
Xxxxx, Xxxxxxxxxx 00000
Attention:
Xxxxxxx Xxxxxxxx
Facsimile:
(000) 000-0000
|
| with a copy to: |
Xxxxxxxxxx
Xxxxx Xxxxxx Xxxxxxx, LLP
000
Xxxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx,
Xxxxxxxx 00000
Attention:
Xxxx X. Xxxxx
Facsimile:
(000) 000-0000
|
(b) if
to the
Investor, at its address on the signature page to the Securities Purchase
Agreement.
9. Amendments;
Waiver.
This
Agreement may not be modified or amended except pursuant to an instrument in
writing signed by the Company and the Investor. Any waiver of a provision of
this Agreement must be in writing and executed by the party against whom
enforcement of such waiver is sought.
10. Headings.
The
headings of the various sections of this Agreement have been inserted for
convenience of reference only and shall not be deemed to be part of this
Agreement.
11. Entire
Agreement; Severability.
This
Agreement sets forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written relating to the subject matter hereof. If any provision
contained in this Agreement is determined to be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of
the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
12. Governing
Law.
This
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of Delaware, without giving effect to the principles of
conflicts of law.
13. Counterparts.
This
Agreement may be executed in two or more counterparts, each of which shall
constitute an original, but all of which, when taken together, shall constitute
but one instrument, and shall become effective when one or more counterparts
have been signed by each party hereto and delivered to the other
parties.
[Remainder
of This Page Intentionally Left Blank]
EXHIBIT
A
STOCK
CERTIFICATE QUESTIONNAIRE
Pursuant
to Section
4
of the
Agreement, please provide us with the following information:
| 1. | The exact name in which your Shares and Warrants are to be registered (this is the name that will appear on your stock certificate(s) and Warrants). You may use a nominee name if appropriate: | ||
| 2. | If a nominee name is listed in response to Item 1 above, the relationship between the Investor and such nominee: | ||
| 3. | The mailing address of the registered holder listed in response to Item 1 above: | ||
| 4. | The Social Security Number or Tax Identification Number of the registered holder listed in the response to Item 1 above: |
EXHIBIT
B
FORM
OF REGISTRATION RIGHTS AGREEMENT
Attached
hereto.
[See
Exhibit 4.4 to this Current Report on Form 8-K]
EXHIBIT
C
INVESTOR
QUESTIONNAIRE
(All
information will be treated confidentially)
The
undersigned hereby acknowledges the following:
This
Investor Questionnaire ("Questionnaire")
must
be completed by each potential investor in connection with the offer and sale
of
the shares of the Series A Convertible Preferred Stock, par value $0.001 per
share (the "Shares"),
and
warrants
to purchase shares of the Company's Common Stock, par value $0.001 per share
("Warrants"),
of
China Energy Recovery, Inc. (the "Company").
The
Shares are being offered and sold by the Company without registration under
the
Securities Act of 1933, as amended (the "Securities
Act"),
and
the securities laws of certain states, in reliance on the exemptions contained
in Section 4 of the Securities Act and on Regulation D promulgated thereunder
and in reliance on similar exemptions under applicable state laws. The Company
must determine that a potential investor meets certain suitability requirements
before offering or selling Shares and Warrants to such investor. The purpose
of
this Questionnaire is to assure the Company that each investor will meet the
applicable suitability requirements. The information supplied by the undersigned
will be used in determining whether the undersigned meets such criteria, and
reliance upon the private offering exemption from registration is based in
part
on the information herein supplied.
This
Questionnaire does not constitute an offer to sell or a solicitation of an
offer
to buy any security. The undersigned's answers will be kept strictly
confidential. However, by signing this Questionnaire the undersigned will be
authorizing the Company to provide a completed copy of this Questionnaire to
such parties as the Company deems appropriate in order to ensure that the offer
and sale of the Shares and Warrants will not result in a violation of the
Securities Act or the securities laws of any state and that the undersigned
otherwise satisfies the suitability standards applicable to purchasers of the
Shares. All potential investors must answer all applicable questions and
complete, date and sign this Questionnaire. The undersigned shall print or
type
its responses and attach additional sheets of paper if necessary to complete
its
answers to any item.
A. Background
Information
| Name: | _____________________________________________________________________ |
| Business Address: | _____________________________________________________________________ |
|
(Number
and Street); (City) (State); (Zip
Code)
|
|
| Telephone Number: | (_____) ______________________________________________________________ |
| Residence Address: | _____________________________________________________________________ |
| _____________________________________________________________________ | |
|
(Number
and Street); (City) (State); (Zip
Code)
|
| Telephone Number: | (_____) _______________________________________________________ |
| Age: _________________ | Citizenship: ___________________ | Where registered to vote: ______________________ |
If
a
corporation, partnership, limited liability company, trust or other entity:
| Type of entity: | _____________________________________________________________________ |
| State of formation:_____________________________ | Date of formation::_____________________________ |
Social
Security or Taxpayer Identification No.
__________________________________
Send
all
correspondence to (check one): ____________Residence Address ____________
Business Address
B. Status
as Accredited Investor
The
undersigned is an "accredited investor" as such term is defined in Regulation
D
under the Securities Act, because at the time of the sale of the Shares the
undersigned falls within one or more of the following categories (Please initial
one or more, as applicable):
_____
(1)
a bank as defined in Section 3(a)(2) of the Securities Act, or a savings and
loan association or other institution as defined in Section 3(a)(5)(A) of the
Securities Act whether acting in its individual or fiduciary capacity; a broker
or dealer registered pursuant to Section 15 of the Securities Exchange Act
of
1934; an insurance company as defined in Section 2(13) of the Securities Act;
an
investment company registered under the Investment Company Act of 1940 or a
business development company as defined in Section 2(a)(48) of that act; a
Small
Business Investment Company licensed by the U.S. Small Business Administration
under Section 301(c) or (d) of the Small Business Investment Act of 1958; a
plan
established and maintained by a state, its political subdivisions, or any agency
or instrumentality of a state or its political subdivisions for the benefit
of
its employees, if such plan has total assets in excess of $5,000,000; an
employee benefit plan within the meaning of the Employee Retirement Income
Security Act of 1974 if the investment decision is made by a plan fiduciary,
as
defined in Section 3(21) of such act, which is either a bank, savings and loan
association, insurance company, or registered investment adviser, or if the
employee benefit plan has total assets in excess of $5,000,000 or, if a
self-directed plan, with the investment decisions made solely by persons that
are accredited investors;1
_____
(2)
a private business development company as defined in Section 202(a)(22) of
the
Investment Advisers Act of 1940;
1 As used in this Questionnaire, the term "net worth" means the excess of total assets over total liabilities. In computing net worth for the purpose of subsection (4), the principal residence of the investor must be valued at cost, including cost of improvements, or at recently appraised value by a professional appraiser. In determining income, the investor should add to the investor's adjusted gross income any amounts attributable to tax exempt income received, losses claimed as a limited partner in any limited partnership, deductions claimed for depreciation, contributions to an XXX or XXXXX retirement plan, alimony payments, and any amount by which income from long-term capital gains has been reduced in arriving at adjusted gross income.
_____
(3)
an organization described in Section 501(c)(3) of the Internal Revenue Code
of
1986, as amended, as a corporation, Massachusetts or similar business trust,
or
partnership, not formed for the specific purpose of acquiring the Shares
offered, with total assets in excess of $5,000,000;
_____
(4)
a natural person whose individual net worth, or joint net worth with that
person's spouse, at the time of such person's purchase of the Shares exceeds
$1,000,000;
_____
(5)
a natural person who had an individual income in excess of $200,000 in each
of
the two most recent years or joint income with that person's spouse in excess
of
$300,000 in each of those years and has a reasonable expectation of reaching
the
same income level in the current year;
_____
(6)
a trust, with total assets in excess of $5,000,000, not formed for the specific
purpose of acquiring the Shares offered, whose purchase is directed by a
sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D; and
_____
(7)
an entity in which all of the equity owners are accredited investors (as defined
above).
C. Representations
The
undersigned hereby represents and warrants to the Company as follows:
1. Any
purchase of the Shares and Warrants would be solely for the account of the
undersigned and not for the account of any other person or with a view to any
resale, fractionalization, division, or distribution thereof.
2. The
information contained herein is complete and accurate and may be relied upon
by
the Company, and the undersigned will notify the Company immediately of any
material change in any of such information occurring prior to the closing,
if
any, with respect to the purchase of Shares by the undersigned or any
co-purchaser.
3. There
are
no suits, pending litigation, or claims against the undersigned that could
materially affect the net worth of the undersigned as reported in this
Questionnaire.
4. The
undersigned acknowledges that there may occasionally be times when the Company,
based on the advice of its counsel, determines that it must suspend the use
of
the Prospectus forming a part of the Registration Statement (as such terms
are
defined in the Securities Purchase Agreement to which this Questionnaire is
attached) until such time as an amendment to the Registration Statement has
been
filed by the Company and declared effective by the Securities and Exchange
Commission or until the Company has amended or supplemented such Prospectus.
The
undersigned is aware that, in such event, the Shares will not be subject to
ready liquidation, and that any Shares purchased by the undersigned would have
to be held during such suspension. The overall commitment of the undersigned
to
investments which are not readily marketable is not excessive in view of the
undersigned's net worth and financial circumstances, and any purchase of the
Shares will not cause such commitment to become excessive. The undersigned
is
able to bear the economic risk of an investment in the Shares.
5. The
undersigned has carefully considered the potential risks relating to the Company
and a purchase of the Shares and Warrants and fully understands that the Shares
and Warrants are speculative investments which involve a high degree of risk
of
loss of the undersigned's entire investment. Among others, the undersigned
has
carefully considered each of the risks described in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 2006.
6. The
following is a list of all states and other jurisdictions in which blue sky
or
similar clearance will be required in connection with the undersigned's purchase
of the Shares and Warrants:
________________________________________
________________________________________
________________________________________
The
undersigned agrees to notify the Company in writing of any additional states
or
other jurisdictions in which blue sky or similar clearance will be required
in
connection with the undersigned's purchase of the Shares.
IN
WITNESS WHEREOF, the undersigned has executed this Questionnaire this _____
day
of _____________, 2008, and declares under oath that it is truthful and correct.
|
Investor
Name:
|
|||
|
By:
Name:
Title:
(required
for any purchaser that is a
corporation,
partnership,
trust
or
other
entity)
|
