LOAN CONVERSION AGREEMENT
THIS
LOAN CONVERSION AGREEMENT
(this
"Agreement")
is
made and entered into as of the 15 day of April, 2008 (the "Effective
Date")
by and
between RMK Emerging Markets, LLC, a Delaware limited liability company
("RMK"),
Shanghai Hai Lu Kun Lun Hi-Tech Engineering Co., Ltd., a company incorporated
in
the People's Republic of China ("HAIE"),
and
China Energy Recovery, Inc., a Nevada corporation ("CER").
RECITALS
WHEREAS,
on December 18, 2007, RMK and HAIE entered into a Loan and Transaction
Expenses Agreement (the “Loan
Agreement”)
pursuant to which RMK agreed to loan HAIE $600,000;
WHEREAS,
notwithstanding the Loan Agreement, RMK loaned to HAIE and HAIE borrowed from
RMK $725,000 (the “Loan”);
WHEREAS,
pursuant to the Loan Agreement, HAIE is required to repay the Loan at 1.75x
the
principal amount thereof (or $1,268,750) upon the earlier to occur of HAIE’s
sale, next financing or going public event of at least $5 million as long as
such sale, financing or going public event involves a party that is not a 100%
domestic company in China;
WHEREAS,
the
parent company of HAIE, Poise Profit International, Ltd., a British Virgin
Islands corporation (“Poise”),
and
the shareholders of Poise have entered into a Share Exchange Agreement (the
“Share
Exchange Agreement”)
with
CER pursuant to which CER will acquire all of the issued and outstanding shares
of Poise’s common stock in exchange for the issuance of 41,514,179 shares of
CER’s common stock to the shareholders of Poise;
WHEREAS,
upon
the closing of the Share Exchange Agreement, Poise will become a wholly-owned
subsidiary of CER and HAIE will become an indirect wholly-owned subsidiary
of
CER;
WHEREAS,
a
condition to the closing of the Share Exchange Agreement is that CER must
complete an equity financing (the “Financing”)
by
issuing Series A preferred stock at a price of $1.08 per share and warrants
to purchase CER’s common stock at an exercise price of $1.29 per share;
WHEREAS,
pursuant to the terms of the Loan Agreement, the full amount of the Loan,
including all outstanding principal and interest thereunder in the aggregate
amount of $1,268,750, will become due and payable to RMK upon the closing of
the
Financing; and
WHEREAS, upon
the
closing of the Financing, HAIE,
CER
and RMK have agreed to convert the Loan into the securities to be issued by
CER
in the Financing as repayment in full of the Loan.
AGREEMENT
NOW,
THEREFORE,
in
consideration of the foregoing, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
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1.
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The
Recitals set forth above are hereby incorporated by reference into
this
Agreement and made a part hereof.
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2.
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At
the closing of the Financing, (i) CER shall issue to RMK 1,174,769
shares
of Series A Convertible Preferred Stock of CER and warrants to
purchase
587,384 shares of CER common stock at $1.29 per share (collectively,
the
“Securities”)
in full satisfaction of the repayment and conversion of the Loan,
(ii) RMK
will execute and deliver to CER the subscription agreements required
to be
delivered to CER by the other investors in the Financing in order
to
subscribe for the Securities, and (iii) the Loan Agreement shall
be deemed
paid in full and cancelled. The parties acknowledge and agree that
the
issuance of the Securities to RMK as repayment and conversion of
the Loan
pursuant to the terms of this Agreement shall be credited towards
satisfying the minimum amount of the Financing required under the
Share
Exchange Agreement.
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3.
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This
Agreement shall be governed by and construed in accordance with
the
domestic laws of the State of California without giving effect
to any
choice of law or conflict of law provision or rule (whether of
the State
of California or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of California.
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4.
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This
Agreement may be executed in two or more counterparts, each of
which shall
be deemed an original, but all of which together shall constitute
one and
the same instrument.
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5.
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In
the event that any signature is delivered by facsimile transmission,
such
signature shall create a valid and binding obligation of the party
executing (or on whose behalf such signature is executed) with
the same
force and effect as if such facsimile signature page were an original
thereof.
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6.
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If
one or more provisions of this Agreement are held to be unenforceable
under applicable law, such provision(s) shall be excluded from
this
Agreement and the balance of the Agreement shall be interpreted
as if such
provision(s) were so excluded and shall be enforceable in accordance
with
its terms.
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7.
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This
Agreement constitutes the entire agreement and understanding of
the
parties with respect to the subject matter hereof and supersedes
any and
all prior negotiations, correspondence, agreements, understandings
duties
or obligations between the parties with respect to the subject
matter
hereof. From and after the date of this Agreement, upon the request
of
CER, RMK or HAIE, the other parties to this Agreement shall execute
and
deliver such instruments, documents or other writings as may be
reasonably
necessary or desirable to confirm and carry out and to effectuate
fully
the intent and purposes of this Agreement.
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8.
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This
Agreement is the result of the joint efforts of CER, RMK and HAIE,
and
each provision hereof has been subject to the mutual consultation,
negotiation and agreement of the parties and there shall be no
construction against any party based on any presumption of that
party's
involvement in the drafting
thereof.
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[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
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IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
Effective Date.
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RMK
Emerging Markets, LLC
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By:
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/s/
Xxxx X. Xxxxxxx
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Xxxx
X. Xxxxxxx
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Chief
Executive Officer
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Shanghai
Hai Lu Kun Lun Hi-Tech Engineering Co., Ltd.
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By:
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/s/
Wu Qinghuan
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Wu
Qinghuan
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Executive
Director and President
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By:
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/s/
Xxxxxxx Xxxxxxxx
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Xxxxxxx
Xxxxxxxx
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Chief
Executive Officer
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