SHAREHOLDERS AGREEMENT
SHAREHOLDERS
AGREEMENT
THIS
AGREEMENT (this “Agreement”)
is
dated as of August 20, 2008 by and among China New Energy Group Company, a
Delaware corporation (the “Company”),
Quick
Rise Investments Limited, Waterpower Investments Limited and Eternal
International Holding Group Limited (each, an “Existing Shareholder” and
collectively, the “Existing Shareholders”), and China Hand Fund I, LLC, a
Delaware limited liability company (“China Hand”, together with Existing
Shareholders, each a “Shareholder” and collectively, the “Shareholders”).
Capitalized terms used herein without definition shall have the meanings
assigned to such terms in the Purchase Agreement.
WHEREAS,
the Company entered into a Series A Convertible Preferred Stock Securities
Purchase Agreement dated August 8, 2008 with China Hand (the “Purchase
Agreement”),
pursuant to which the Company will issue 1,672,741 shares of its Series A
Convertible Preferred Stock, par value $.001 per share (“Series
A Stock”)
and
warrants to purchase an aggregate of 334,548 shares of the Company’s Common
Stock, par value $.001 per share (“Common
Stock”)
for an
aggregate purchase price of $9,000,000 (the transactions contemplated by the
Purchase Agreement, the “Financing
Transaction”).
WHEREAS,
to induce China Hand to invest in the Financing Transaction and as a condition
to the Shareholders’ respective obligations to close the Financing Transaction,
each Shareholder has agreed not to sell any shares of Common Stock, Series
A
Stock or any shares of Common Stock issuable upon conversion of the Series
A
Stock or the exercise of the Warrants, as applicable, that such Shareholder
presently owns or may hereafter acquire, except in accordance with the terms
and
conditions set forth herein (collectively, the “Shares”).
NOW,
THEREFORE, in consideration of the covenants and conditions hereinafter
contained, the parties hereto agree as follows:
1. Effectiveness
of Agreement.
This
Agreement shall become null and void if the Purchase Agreement is terminated
prior to the closing of such agreement. Each Shareholder has independently
evaluated the merits of its decision to enter into and deliver this Agreement,
and such Shareholder confirms that it has not relied on the advice of the
Company or any other person.
2. Beneficial
Ownership.
Each
Shareholder hereby represents and warrants that it does not beneficially own
(as
determined in accordance with Section 13(d) of the Securities Exchange Act
of
1934, as amended, and the rules and regulations promulgated thereunder) any
Shares, or any economic interest therein or derivative therefrom, other than
those Shares specified on its signature page to this Agreement.
3. Restriction
on Transfer by Existing Shareholders; Term.
Each
Existing Shareholder hereby agrees that such Existing Shareholder will not
offer, sell, contract to sell, assign, transfer, hypothecate, pledge or grant
a
security interest in, or otherwise dispose of, or enter into any transaction
which is designed to, or might reasonably be expected to, result in the
disposition of (whether by actual disposition or effective economic disposition
due to cash settlement or otherwise, directly or indirectly (each, a
“Transfer”),
any
of the Shares owned by such Existing Shareholder at any time for the period
commencing on the Closing Date and expiring on the date that is twelve (12)
months following the Effective Date of the Registration Statement resulting
in
100% of all the Registrable Securities (as defined in the Registration Rights
Agreement) being registered for resale (the “Effective
Date”)
(plus
one additional day for each Trading Day following the Effective Date of any
Registration Statement during which either (1) the Registration Statement
is not effective or (2) the prospectus forming a portion of the
Registration Statement is not available for the resale of all Registrable
Securities (as defined in the Registration Rights Agreement); provided, however,
that in no event will such restriction on Transfer continue beyond one year
following the date that China Hand is able to sell all of the Shares held by
it
without restriction pursuant to Rule 144 under the Securities Act (the
“Existing
Shareholder Restrictive Period”).
Notwithstanding the foregoing, the Existing Shareholders shall be permitted
to
make Transfers to Affiliates (as defined below), so long as any such Affiliate
agrees in writing to be bound by the terms of this Agreement to the same extent
that the Existing Shareholder is bound.
4. Restriction
on Transfer by China Hand; Term.
Except
as permitted under the Transaction Documents, China Hand hereby agrees that
it
will not Transfer more than an aggregate of 50% of its Shares (calculated as
of
the Closing Date) for the period commencing on the Closing Date and expiring
on
the date that is twelve (12) months following the Closing Date (the
“China
Hand Restrictive Period”).
5. Tag-Along
Rights in Private Transactions.
a. Subject
to the restrictions set forth in Sections 3 (with respect to the Existing
Shareholders) and 4 (with respect to China Hand) hereof, during the China Hand
Restrictive Period, in the event China Hand proposes to make a Tag-Along Sale
(as defined below), each Existing Shareholder shall have the right to
participate (a "Tag-Along
Right")
in
such sale with respect to such Existing Shareholder’s Shares (on an as converted
basis), on a pro rata basis (based on the ratio of the aggregate number of
the
Shares (on an as converted basis) to be sold by China Hand to the aggregate
number of Shares (on an as converted basis) beneficially owned by China Hand
immediately prior to such sale) on the same terms on which China Hand sells
its
Shares. For purpose of clarification and by way of example, if China Hand
proposes to make a Tag-Along Sale of 10% of its Shares (on an as converted
basis), each Existing Shareholder shall have the right to participate in such
Tag-Along Sale with respect to 10% of its Shares (on an as converted basis).
As
to each Shareholder participating in the Tag Along Sale (including China Hand),
the ratio that the number of Shares (on an as converted basis) of such
Shareholder to be sold in such Tag-Along Sale bears to the total number of
Shares (on an as converted basis) of all Shareholders to be sold in such
Tag-Along Transaction is hereafter referred to as “Relative
Ratio”.
b. The
following terms shall have the meanings set forth below:
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i.
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"Tag
Along Sale"
means the sale or disposition, directly or indirectly, by China Hand,
in
one or more transactions (other than a transfer from China Hand to
an
Affiliate of China Hand) of any Shares that does not involve registration
under the Securities Act by the Company of China Hand’s Shares to be sold
in such sale or disposition, if (i) immediately following such sale
China
Hand would have sold in the aggregate calculated as of the date hereof
50%
or more of China Hand’s Shares (as such number may be adjusted for stock
splits, dividends paid in Common Stock, reclassifications of the
Common
Stock, and other similar events), and (ii) the number of China Hand’s
Shares proposed to be sold or disposed of in the Tag-Along Sale in
the
aggregate by China Hand is equal to or greater than 10% of China
Hand’s
Shares (as such number may be adjusted for stock splits, dividends
paid in
Common Stock, reclassifications of the Common Stock, and other similar
events).
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ii.
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A
person "beneficially
owns"
any shares of any security with respect to which such person would
be a
beneficial owner pursuant to Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended.
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iii.
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“Affiliate”
means, with respect to any Person, any other Person directly or indirectly
controlling, directly or indirectly controlled by, or under direct
or
indirect common control with, such Person or a member of such Person's
immediate family; or if such Person is a partnership, any general
partner
of such Person or a Person controlling any such general partner.
For
purposes of this definition, "control" (including "controlled by"
and
"under common control with") shall mean the power, directly or indirectly,
to direct or cause the direction of the management and policies of
such
Person whether through the ownership of voting securities, by contract
or
otherwise.
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c. In
the
case of a Tag-Along Sale, if circumstances occur which give rise to the
Tag-Along Right, China Hand shall give written notice to each Existing
Shareholder not less than ten (10) days prior to such proposed sale providing
a
summary of the terms of the proposed sale to the buyer and advising each such
Existing Shareholder of its Tag-Along Rights. Each Existing Shareholder may
exercise its Tag-Along Right (each, a “Tagging
Shareholder”
and
collectively, the “Tagging
Shareholders”)
by
written notice to China Hand within five (5) days upon receipt of the notice
from China Hand stating the number of Shares that it wishes to sell. If the
prospective purchaser or purchasers of the shares to be sold in such Tag-Along
Sale declines to purchase the aggregate number of shares sought to be sold
by
China Hand and the Tagging Shareholders, China Hand and the Tagging Shareholders
agree to reduce the number of shares of each participating party to be included
in such sale on a proportionate basis that preserves the Relative Ratio. If
a
Tagging Shareholder gives written notice indicating that such Tagging
Shareholder wishes to sell shares in the Tag-Along Sale, such Tagging
Shareholder shall be obligated to sell that number of shares specified in such
Tagging Shareholder's written acceptance notice (as such number may be reduced
pursuant to the immediately preceding sentence) for the greatest consideration
and upon the best terms by which China Hand is selling to the buyer, such
obligation to be conditioned upon and contemporaneous with completion of the
transaction of purchase and sale with the buyer.
d. The
restrictions on Transfer applicable to the Existing Stockholders shall not
apply
to Transfers effected pursuant to a Tag-Along Sale.
6. Ownership.
During
the Existing Shareholder Restrictive Period or the China Hand Restrictive
Period, as applicable, each Shareholder shall retain all rights of ownership
in
the Shares, including, without limitation, voting rights and the right to
receive any dividends, if any, that may be declared in respect
thereof.
7. Representations
and Warranties.
Each of
the parties hereto, by their respective execution and delivery of this
Agreement, hereby represents and warrants to the others and to all third party
beneficiaries of this Agreement that (a) such party has the full right, capacity
and authority to enter into, deliver and perform its respective obligations
under this Agreement, (b) this Agreement has been duly executed and delivered
by
such party and is the binding and enforceable obligation of such party,
enforceable against such party in accordance with the terms of this Agreement
and (c) the execution, delivery and performance of such party’s obligations
under this Agreement will not conflict with or breach the terms of any other
agreement, contract, commitment or understanding to which such party is a party
or to which the assets or securities of such party are bound.
8. Company
and Transfer Agent.
The
Company is hereby authorized to disclose the existence of this Agreement to
its
transfer agent. The Company and its transfer agent are hereby authorized to
decline to make any transfer of the Common Stock if such transfer would
constitute a violation or breach of this Agreement and/or the Purchase
Agreement.
9. Third-Party
Beneficiaries.
Each
Shareholder and the Company acknowledge and agree that this Agreement is entered
into for the benefit of and is enforceable by the Shareholders and their
successors and assigns.
10. Notices.
All
notices, demands, consents, requests, instructions and other communications
to
be given or delivered or permitted under or by reason of the provisions of
this
Agreement or in connection with the transactions contemplated hereby shall
be in
writing and shall be deemed to be delivered and received by the intended
recipient as follows: (i) if personally delivered, on the business day of such
delivery (as evidenced by the receipt of the personal delivery service), (ii)
if
mailed certified or registered mail return receipt requested, four (4) business
days after being mailed, (iii) if delivered by overnight courier (with all
charges having been prepaid), on the business day of such delivery (as evidenced
by the receipt of the overnight courier service of recognized standing), or
(iv)
if delivered by facsimile transmission, on the business day of such delivery
if
sent by 6:00 p.m. in the time zone of the recipient, or if sent after that
time,
on the next succeeding business day (as evidenced by the printed confirmation
of
delivery generated by the sending party’s telecopier machine). If any notice,
demand, consent, request, instruction or other communication cannot be delivered
because of a changed address of which no notice was given (in accordance with
this Section 4), or the refusal to accept same, the notice, demand, consent,
request, instruction or other communication shall be deemed received on the
second business day the notice is sent (as evidenced by a sworn affidavit of
the
sender). All such notices, demands, consents, requests, instructions and other
communications will be sent to the following addresses or facsimile numbers
as
applicable.
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If
to the
Company:
c/o
Tianjin Sing Ocean Public Utility Development Co., Ltd.
00xx
Xxxxx, XxxxXx Xxxxxxxx, XxxXxx Xxxx
XxXxx
Xxxxxxxx, Xxxxxxx, Xxxxx
People’s
Republic of China
Attention:
Xxx Xx Shang
Tel: (00
00)
0000 0000
Fax: (00
00)
0000 0000
Email:
xxxxxxxxx@xxxx.xxx
with
copies (which copies shall not constitute notice to the Issuer)
to:
Xxxxxx
Xxxx Xxxxx Raysman & Xxxxxxx LLP
000
0xx
Xxxxxx XX
Xxxxxxxxxx,
X.X. 00000
Attn.:
Xxxxx X. Xxxxxxxxxx, Esq.
Tel.
No.:
(000) 000-0000
Facsimile:
(000) 000-0000
Email:
xxxxxxxxxxx@xxxxxx.xxx
If
to
China Hand:
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
with
copies (which copies shall not constitute notice to the Issuer)
to:
Guzov
Ofsink, LLC
000
Xxxxxxx Xxx. 00xx Xxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Tel:
(000) 000-0000, Extension 102
Fax:
(000) 000-0000
Email:
xxxxxxx@xxxxxxxxx.xxx
If
to an
Existing Shareholder,
The
address set forth below the signature of such Existing Shareholder on the
signature page
or
to
such other address as any party may specify by notice given to the other
party
in accordance with this Section 9.
11. Amendment.
This
Agreement may not be modified, amended, altered or supplemented, except by
a
written agreement executed by each of the parties hereto.
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12. Entire
Agreement.
This
Agreement contains the entire understanding and agreement of the parties
relating to the subject matter hereof and supersedes all prior and/or
contemporaneous understandings and agreements of any kind and nature (whether
written or oral) among the parties with respect to such subject matter, all
of
which are merged herein.
13. Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of New York applicable to agreements made and to be performed in that
state, without regard to any of its principles of conflicts of laws or other
laws which would result in the application of the laws of another jurisdiction.
This Agreement shall be construed and interpreted without regard to any
presumption against the party causing this Agreement to be drafted.
14. Waiver
of Jury Trial.
EACH OF
THE PARTIES HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES THE RIGHT TO A TRIAL
BY JURY IN ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OF THE PARTIES
UNCONDITIONALLY AND IRREVOCABLY CONSENTS TO THE EXCLUSIVE JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK LOCATED IN NEW YORK COUNTY AND THE FEDERAL
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK WITH RESPECT TO ANY SUIT,
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY, AND EACH OF THE PARTIES HEREBY UNCONDITIONALLY
AND IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN NEW YORK COUNTY OR SUCH
DISTRICT, AND AGREES THAT SERVICE OF ANY SUMMONS, COMPLAINT, NOTICE OR OTHER
PROCESS RELATING TO SUCH SUIT, ACTION OR OTHER PROCEEDING MAY BE EFFECTED IN
THE
MANNER PROVIDED IN SECTION 4.
15. Severability.
The
parties agree that if any provision of this Agreement shall be held to be
invalid, illegal or unenforceable in any jurisdiction, that holding shall be
effective only to the extent of such invalidity, illegally or unenforceability
without invalidating or rendering illegal or unenforceable the remaining
provisions hereof, and any such invalidity, illegally or unenforceability in
any
jurisdiction shall not invalidate or render unenforceable such provision in
any
other jurisdiction. It is the intent of the parties that this Agreement be
fully
enforced to the fullest extent permitted by applicable law.
16. Binding
Effect; Assignment.
This
Agreement and the rights and obligations hereunder may not be assigned by any
party hereto without the prior written consent of the other parties hereby.
This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
17. Headings.
The
section headings contained in this Agreement (including, without limitation,
section headings and headings in the exhibits and schedules) are inserted for
reference purposes only and shall not affect in any way the meaning,
construction or interpretation of this Agreement. Any reference to the
masculine, feminine, or neuter gender shall be a reference to such other gender
as is appropriate. References to the singular shall include the plural and
vice
versa.
18. Counterparts.
This
Agreement may be executed in two or more counterparts, and by the different
parties hereto in separate counterparts, each of which when executed shall
be
deemed to be an original, and all of which, when taken together, shall
constitute one and the same document. This Agreement shall become effective
when
one or more counterparts, taken together, shall have been executed and delivered
by all of the parties.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
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IN
WITNESS WHEREOF,
the
parties hereto have executed this Agreement as of the day and year first above
written.
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By:
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/s/
Shang Jiaji
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Name:
Shang Jiaji
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Title:
Chief Executive Officer and Chairman of the
Board
of Directors
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THE
CHINA HAND FUND I, LLC
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By:
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/s/
Xxxx X. Xxxxx
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Name:
Xxxx X. Xxxxx
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Title:
Member-Manager
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IN
WITNESS WHEREOF,
the
parties hereto have executed this Agreement as of the day and year first above
written.
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Existing
Shareholders:
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QUICK
RISE INVESTMENTS LIMITED
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By:
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/s/
Jiaji Shang
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Name:
Jiaji Shang
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Title:
Executive Director
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WATERPOWER
INVESTMENTS LIMITED
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By:
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/s/
Jiaji Shang
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Name:
Jiaji Shang
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Title:
Executive Director
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ETERNAL
INTERNATIONAL HOLDING
GROUP
LIMITED
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By:
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/s/
Jiaji Shang
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Name:
Jiaji Shang
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Title:
Executive
Director
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