Agreement to Convert Debt into Equity
EXHIBIT
10.1
Agreement
to Convert Debt into Equity
This Agreement to Convert Debt into
Equity (“Agreement”) is made
as of February 2, 2010, by and between the China Electric Motor, Inc., a
Delaware corporation (the “Company”) and
Xxxxxxxx Xx, an individual (“Xx. Xx” and
collectively with the Company, the “Parties”).
WHEREAS, Xxxxxxxx Xx has
previously agreed to convert an outstanding debt of $1,281,794 owed to her by
Luck Loyal International Investment Limited, a company organized under the laws
of Hong Kong and an indirect wholly-owned subsidiary of the Company (the “Debt”), into shares
of the Company’s common stock, $0.0001 per share (the “Common Stock”), at a
conversion price equal to the per share price of the shares sold in the
Company’s proposed public offering (the “Li
Conversion”);
WHEREAS, the shares sold in
the public offering will be sold at $4.50 per share (the “Public Offering
Price”);
WHEREAS, pursuant to the Li
Conversion, upon the closing of the public offering Xx. Xx will receive 284,843
shares of Common Stock (the “Conversion Shares”)
based on the amount of the Debt divided by the Public Offering Price, rounded
down to the nearest whole share.
NOW THEREFORE, in
consideration of the covenants and agreements hereafter set forth, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties agree as follows:
1. Conversion of the Debt into
the Shares. Xx. Xx and the Company hereby agree that, upon the
closing of the public offering, the Debt shall be converted into 284,843 shares
of Common Stock. No fractional shares will be issued in the Li
Conversion. After the Li Conversion, the Debt shall no longer be
outstanding and extinguished in its entirety.
2. Representations, Warranties
and Covenants by Xx. Xx. Xx. Xx hereby makes the following
representations, warranties, and covenants as to the transactions contemplated
by this Agreement as of the date of this Agreement and as of the date of the
issuance of the Converstion Shares.
a. Xx.
Xx has the power and authority to execute and deliver this Agreement, and to
consummate the transactions contemplated hereby and thereby.
b. Xx.
Xx is acquiring the Shares for investment for her own account and not as a
nominee or agent, and not with a view to the resale or distribution of any part
thereof, and Xx. Xx has no present intention of selling, granting any
participation in, or otherwise distributing the same. Xx. Xx further
represents that she does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participation to such
person or to any third person, with respect to any of the Shares.
c. Xx.
Xx understands that the Shares are not and will not be registered under the
Securities Act of 1933, as amended (the “Securities Act”) on
the ground that the sale and the issuance of securities hereunder is exempt from
registration under the Securities Act pursuant to Section 4(2) thereof, and that
the Company’s reliance on such exemption is predicated on the Xx. Xx’x
representations set forth herein.
d. Xx.
Xx acknowledges that she can bear the economic risk of her investment, and has
such knowledge and experience in financial and business matters that she is
capable of evaluating the merits and risks of the investment in the Converstion
Shares.
e. Xx.
Xx has carefully reviewed such information as such she deemed necessary to
evaluate an investment in the Conversion Shares. To the full
satisfaction of Xx. Xx, she has been furnished all materials that she has
requested relating to the Company and the issuance of the Conversion Shares
hereunder, and Xx. Xx has been afforded the opportunity to ask questions of
representatives of the Company to obtain any information necessary to verify the
accuracy of any representations or information made or given to
her. Notwithstanding the foregoing, nothing herein shall derogate
from or otherwise modify the representations and warranties of the Company set
forth in this Agreement, on which Xx. Xx has relied in receiving the Conversion
Shares.
f. Xx.
Xx understands that the Conversion Shares may not be sold, transferred, or
otherwise disposed of without registration under the Securities Act or an
exemption there from, and that in the absence of an effective registration
statement covering the Conversion Shares or any available exemption from
registration under the Securities Act, the Conversion Shares must be held
indefinitely. Xx. Xx is aware that the Conversion Shares may not be
sold pursuant to Rule 144 promulgated under the Securities Act unless all of the
conditions of that Rule are met. Among the conditions for use of Rule
144 may be the availability of current information to the public about the
Company.
g. Xx.
Xx acknowledges that she must assure the Company that the offer and sale of the
Conversion Shares to her qualifies for an exemption from the registration
requirements imposed by the Securities Act and from applicable securities laws
of any state of the United States. Xx. Xx agrees that she meets the
criteria established in the subsections set forth below.
h. Xx.
Xx is not a U.S. Person, as defined in Rule 901 of Regulation S, promulgated
under the Securities Act, and Xx. Xx represents and warrants to the Company
that:
(i) Xx.
Xx is not acquiring the Shares as a result of, and Xx. Xx covenants that she
will not engage in any “directed selling efforts” (as defined in Regulation S
under the Securities Act) in the United States in respect of the Conversion
Shares which would include any activities undertaken for the purpose of, or that
could reasonably be expected to have the effect of, conditioning the market in
the United States for the resale of any of the Conversion Shares;
(ii) Xx.
Xx is not acquiring the Conversion Shares for the account or benefit of,
directly or indirectly, any U.S. Person;
(iii) Xx.
Xx is a resident of the PRC;
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(iv) the
offer and the sale of the Conversion Shares to Xx. Xx as contemplated in this
Agreement complies with or is exempt from the applicable securities legislation
of the PRC;
(v) Xx.
Xx is outside the United States when receiving and executing this Agreement and
that Xx. Xx will be outside the United States when acquiring the Conversion
Shares,
(vi) and
Xx. Xx covenants with Company that:
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(1)
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offers
and sales of any of the Conversion Shares prior to the expiration of a
period of one year after the date of original issuance of the Shares (the
six (6)-month period hereinafter referred to as the “Distribution
Compliance Period”) shall only be made in compliance with the safe
harbor provisions set forth in Regulation S, pursuant to the registration
provisions of the Securities Act or an exemption therefrom, and that all
offers and sales after the Distribution Compliance Period shall be made
only in compliance with the registration provisions of the Securities Act
or an exemption therefrom and in each case only in accordance with
applicable state securities laws;
and
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(2)
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Xx.
Xx will not engage in hedging transactions with respect to the Shares
until after the expiration of the Distribution Compliance
Period.
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3. Representations, Warranties
and Covenants by the Company. The Company hereby makes the
following representations, warranties, and covenants as to the transactions
contemplated by this Agreement as of the date of this Agreement and as of the
date of the issuance of the Conversion Shares.
a. The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware, with full corporate power and
authority to execute and deliver this Agreement, and to consummate the
transactions contemplated hereby and thereby.
b. The
Company shall deliver to Xx. Xx within ten (10) days of the closing of the
public offering a stock certificate that represents the Conversion
Shares.
4. Further
Assurances. Each of the Parties shall use its reasonable
commercial efforts to proceed promptly with the transactions contemplated herein
and to execute such further documents and other papers and perform such further
acts as may be reasonably required or desirable to carry out the provisions of
this Agreement and to consummate the transactions contemplated
herein.
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5. Miscellaneous. This
Agreement may be executed in any number of facsimile counterparts, all of which
shall be but a single original. This Agreement will be binding upon
and inure to the benefit of the Parties hereto and their respective successors
and assigns. The Parties shall execute and deliver from time to time
hereafter, upon written request, all such further documents and instruments and
shall do and perform all such acts as may be reasonably necessary to give full
effect to the intent of this Agreement.
6. Governing
Law. This Agreement and all actions arising out of or in
connection with it shall be governed by and construed in accordance with the
laws of the State of Delaware, without regard to the conflicts of law provisions
of the State of Delaware, or of any other state.
IN WITNESS WHEREOF, the
Parties have entered into this Agreement as of the date first set forth
above.
By:
/s/ Xxx Xxxx
Name:
Xxx Xxxx
Title:
Chief Executive Officer
Xxxxxxxx
Xx
/s/
Xxxxxxxx Xx
Xxxxxxxx
Xx
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