SETTLEMENT AGREEMENT
THIS
SETTLEMENT AGREEMENT (the
“Settlement
Agreement”)
is
entered into by and between The Pinnacle Fund, L.P. (“Pinnacle”)
and
China BAK Battery, Inc. (the “Company”)
and
its subsidiary BAK International, Ltd. (“BAK
International”
and,
together with the Company, “CBAK”).
Pinnacle and CBAK are also each referred to separately as a “Party”
and
together as the “Parties.”
The
Parties, in order to resolve disputed and contested issues and to limit the
hazards, uncertainties and inconvenience of potential litigation, enter into
this Settlement Agreement.
1. Escrow
Agreement.
On
January 20, 2005, BAK International consummated a private placement of its
common stock with unrelated investors whereby it issued an aggregate of
8,600,433 shares of common stock for gross proceeds of US$17,000,000 (the
“Private
Placement”).
Immediately thereafter, the shares of BAK International were exchanged for
shares of the Company. Pinnacle was an investor in the Private Placement and
entered into a subscription agreement (the “Subscription
Agreement”)
in
connection therewith. In conjunction with the Private Placement, pursuant to
an
Escrow Agreement dated January 20, 2005, Xx. Xx Xiangqian, the Chairman and
Chief Executive Officer of the Company, placed 2,179,550 shares of the Company’s
common stock owned by him (the “Make
Good Shares”)
into
an escrow account. The terms and conditions regarding release of the Make Good
Shares from escrow was set forth in the Escrow Agreement. A dispute has arisen
between Pinnacle and CBAK regarding 1,089,775 Make Good Shares (herein referred
to as the “Released
Shares”)
released from the escrow account to Xx. Xx and subsequently delivered by Xx.
Xx
to BAK International, which then delivered the shares to the Company.
The
Parties have agreed, without any admission of liability, that it is in the
interests of all of the Parties to resolve the issues relating to the Released
Shares amicably.
2. Definitions.
Capitalized terms not otherwise defined herein shall have the following
meanings:
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a.
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Affiliates
means all persons and entities controlling, controlled by or under
common
control with a Party. Investors in Pinnacle shall not be deemed Affiliates
of Pinnacle for purposes of this Settlement Agreement, except to
the
extent of any rights that they may derive as an investor in
Pinnacle.
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b.
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Claims means
any and all claims, demands, causes of actions, or liabilities, of
any and
every character, kind and nature whatsoever, in law or in equity,
whether
known or unknown, foreseen or unforeseen, past, present, or future,
accrued or unaccrued, contingent or fixed, arising out of or related
to
any or all of the Subscription Agreement, the Escrow Agreement, the
Make
Good Shares (including the Released Shares), and the Private Placement,
including any registration rights (other than the registration rights
granted pursuant to Section 3.b. of this Settlement Agreement) related
thereto; provided, that "Claims" does not include any claims, demands,
causes of actions, or liabilities arising as a result of any breach
of
this Settlement Agreement.
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c.
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Release
Date
means the earliest of (x) such time as all of the Pinnacle Shares
have
been sold by Pinnacle; (y) such
time as all of the Pinnacle Shares may be sold by Pinnacle without
volume
limitations pursuant to Rule 144 under the Securities Act, as determined
by the counsel to the Company pursuant to a written opinion letter
to such
effect, addressed and acceptable to the Company’s transfer
agent;
and (z) the date a Registration Statement on Form S-3 (or other
appropriate form) covering the resale by Pinnacle of the Pinnacle
Shares
is declared effective by the SEC as set forth in Section
3.b.
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d.
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SEC
means the U.S. Securities and Exchange
Commission.
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e.
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Securities
Act
means the U.S. Securities Act of 1933, as
amended.
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3. Settlement
Terms.
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a.
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Delivery
of Shares.
Upon execution of this Settlement Agreement by the Company and Pinnacle,
the Company shall promptly, and no later than three days after the
date
this Settlement Agreement is executed by the Parties, deliver to
Pinnacle
at the address set out below a certificate or certificates registered
in
the name of The Pinnacle Fund, L.P. for 133,657 of the Released Shares
(the “Pinnacle
Shares”).
On the date this Settlement Agreement is executed by the Parties,
the
Company shall furnish Pinnacle with a copy of its irrevocable instruction
to its transfer agent irrevocably directing the delivery of the Pinnacle
Shares to Pinnacle. The Company agrees that, upon execution of this
Settlement Agreement, Pinnacle is irrevocably entitled to receive
the
Pinnacle Shares and that the consideration for the Pinnacle Shares
has
been fully paid or given to the Company; accordingly, the Company
understands and agrees that the holding period under Rule 144 under
the
Securities Act, as in effect on the date hereof, shall commence on
the
date this Settlement Agreement is executed by the Parties, whether
or not
the Pinnacle Shares are timely delivered to or received by Pinnacle
in
accordance with this Section 3.a.
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b.
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Registration.
On or prior to the date (the “Filing
Date”)
that is one month after the date that the Company’s Registration Statement
on Form S-3 (Registration No. 333-148253) is declared effective by
the SEC
(or, if the Filing Date is not a business day, the first business
day
after the Filing Date), and provided that Pinnacle has provided the
Company with a completed questionnaire in the form attached as
Exhibit
A
hereto, the Company shall prepare and file with the SEC a Registration
Statement on Form S-3 (or such other appropriate form for such purpose)
covering the resale by Pinnacle of the Pinnacle Shares in an offering
to
be made on a continuous basis pursuant to Rule 415 under the Securities
Act. Such Registration Statement may also include such other selling
holders as the Company shall deem appropriate (provided that the
aggregate
number of shares listed for resale on such Registration Statement
shall
not exceed the number that is 33.3% of the Company’s outstanding common
equity held by non-Affiliates of the Company on the date the Registration
Statement is filed with the SEC). The Company shall cause such
Registration Statement to be declared effective under the Securities
Act
as soon as possible, and shall use its reasonable best efforts to
keep
such Registration Statement continuously effective under the Securities
Act until the date which is the earliest of (i) two years after its
effective date; (ii) such time as all of the Pinnacle Shares covered
by
such Registration Statement have been sold by Pinnacle; and (iii)
such
time as all of the Pinnacle Shares covered by such Registration Statement
may be sold by Pinnacle without volume limitations pursuant to Rule
144,
as determined by counsel to the Company pursuant to a written opinion
letter to such effect, addressed and acceptable to the Company’s transfer
agent. No later than 5:00 p.m. Eastern time on the day following
the date
the Registration Statement is declared effective, the Company shall
file
with the SEC in accordance with Rule 424 under the Securities Act
the
final prospectus to be used in connection with sales pursuant to
such
Registration Statement (whether or not such filing is technically
required
under such Rule).
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SETTLEMENT
AGREEMENT
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c.
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Ability
to Disclose Information.
The Company agrees that Pinnacle may inform other investors in the
Private
Placement of the terms of this Settlement Agreement. The Company
agrees
that it will promptly furnish or file a report on Form 8-K regarding
this
Settlement Agreement, or otherwise make information regarding this
Settlement Agreement available in accordance with Regulation FD.
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d.
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Relief.
The Company acknowledges that in the event it fails to deliver a
certificate or certificates representing the Pinnacle Shares as provided
in Section 3.a, any remedy at law may prove to be inadequate relief
to
Pinnacle. The Company agrees that Pinnacle may require specific
performance of this Settlement Agreement by insisting upon delivery
of the
Pinnacle Shares in addition to or in combination with any other remedy
available to it under the law or equity (including terminating this
Settlement Agreement), and that Pinnacle is entitled to seek temporary
and
permanent injunctive relief without the necessity of proving actual
damages and without posting a bond or other security.
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4 Interpretation.
The
Parties have participated jointly in the negotiation and drafting of this
Settlement Agreement. If an ambiguity or question of intent or interpretation
arises, this Settlement Agreement will be construed as if drafted jointly by
the
Parties, and no presumption or burden of proof will arise favoring or
disfavoring any Party because of the authorship of any provision of this
Settlement Agreement.
SETTLEMENT
AGREEMENT
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5. No
Admission.
By
entering into this Settlement Agreement, no Party is in any way admitting any
liability to any other Party on account of any matter covered by this Settlement
Agreement. Rather, this Settlement Agreement is entered into solely for the
purpose of compromise and settlement of doubtful and contested claims and
issues, to buy peace, and to avoid the hazards, delays, and uncertainties of
litigation.
6. Mutual
Releases.
Effective on the Release Date, Pinnacle releases,
acquits, and forever discharges CBAK, its predecessors and successors in
interest, its parent and subsidiary organizations, and its Affiliates, all
of
their respective officers, directors, employees, managers, shareholders,
partners, attorneys, accountants, advisors, representatives, agents, insurers,
heirs, executors and assigns (collectively, the “CBAK
Releasees”)
of and
from any and all Claims; and Pinnacle covenants never to xxx any of the CBAK
Releasees, directly or indirectly through others, upon any of the Claims hereby
released.
Effective on the Release Date, CBAK, on behalf of itself and its Affiliates,
releases, acquits, and forever discharges Pinnacle, and all of its officers,
directors, employees, managers, shareholders, partners, attorneys, accountants,
advisors, representatives, agents, insurers, heirs, executors, and assigns
(collectively, the “Pinnacle
Releasees”)
of and
from any and all Claims; and CBAK covenants never to xxx any of the Pinnacle
Releasees, directly or indirectly through others, upon any of the Claims hereby
released.
7. Choice
of Law.
This
Settlement Agreement shall be interpreted and construed according to the
internal laws of the State of New York (without giving effect to any choice
of
law or conflict of law provisions of any jurisdiction), and applicable laws
of
the United States of America. Each Party agrees that all proceedings concerning
the interpretation, enforcement and defense of the transactions contemplated
by
this Settlement Agreement shall be commenced exclusively in the state and
federal courts of the State of New York (the “New
York Courts”).
Each
Party hereto hereby irrevocably submits to the exclusive jurisdiction of the
New
York Courts for the adjudication of any dispute hereunder or in connection
herewith, and hereby irrevocably waives, and agrees not to assert in any such
proceeding, any claim that it is not personally subject to the jurisdiction
of
any such New York Court, or that such proceeding has been commenced in an
improper or inconvenient forum. Each Party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address
in
effect for notices to it under this Settlement Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof.
8. Entire
Agreement.
This
Settlement Agreement supersedes all other prior oral or written agreements
between the Parties with respect to the matters set forth herein and contains
the entire agreement of the Parties with respect to the matters set forth
herein. If
any
provision of this Agreement shall be held invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Settlement Agreement in that
jurisdiction or the validity or enforceability of that or any other provision
of
this Settlement Agreement in any other jurisdiction.
9. Amendments.
This
Settlement Agreement may be modified or amended only in writing, signed by
each
of the Parties to this Settlement Agreement prior to the effective date of
any
such modification or amendment. Any waiver must be in writing and signed by
each
Party whose interests are adversely affected by such waiver. No waiver granted
in any one instance shall be construed as a continuing waiver or as a waiver
applicable to any other provision.
No
exercise or failure to exercise any right shall preclude any other or further
exercise of that right or any other right.
SETTLEMENT
AGREEMENT
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10. Representations.
The
Parties acknowledge that this Settlement Agreement is executed after
substantial, long-term negotiations between and among representatives of the
Parties. Each Party represents that: (a) such Party and its attorneys have
conducted their own investigation concerning the facts surrounding the matters
covered by this Settlement Agreement and in voluntarily choosing to execute
this
Settlement Agreement, have relied upon their own analysis of such facts and
not
on any information furnished by any other Party or its representatives;
(b) there are no oral or other written agreements concerning the subject
matter of this Settlement Agreement; (c) the right to rely on any oral or
written statement of any Party or any failure of any Party to state any fact
is
expressly waived and released; (d) it owns and has the right to release any
Claims released herein; (e) such Party has the requisite corporate power and
authority to enter into and to perform this Settlement Agreement; and (f) the
person signing the Settlement Agreement on behalf of such Party has been
authorized to execute and deliver this Settlement Agreement on behalf of such
Party. In addition, Pinnacle represents that
it
(i) is acquiring the Pinnacle Shares in the ordinary course of business for
its
own account and not with a view towards, or for resale in connection with,
the
sale or distribution thereof, except pursuant to sales registered or exempted
under the Securities Act, (ii) does not have a present arrangement to effect
any
distribution of the Pinnacle Shares to or through any person or entity, (iii)
does not presently have any agreement or understanding, directly or indirectly,
with any person to distribute any of the Pinnacle Shares, (iv) is an “accredited
investor” as that term is defined in Rule 501(a) of Regulation D under the
Securities Act and (v) is not a registered broker-dealer under Section 15 of
the
Securities Exchange Act of 1934, as amended. When executed by all Parties and
delivered by each Party to the other Parties, this Settlement Agreement will
constitute the legal, valid and binding obligation of each Party. This
Settlement Agreement shall be binding upon the assignees and successors of
the
Parties. This Settlement Agreement is personal to the Parties and is not
intended to create any right in any third person who is not a Party or is not
identified as a CBAK Releasee or a Pinnacle Releasee in Section 6 of this
Settlement Agreement.
11. Notice.
All
notices, demands, waivers or other communications required or permitted under
this Settlement Agreement must be in writing and will be deemed to have been
delivered: (i) upon receipt, when delivered personally; (ii) upon receipt,
when
sent by facsimile evidenced by confirmation of transmission (provided a copy
of
such facsimile is also sent by one of the methods provided in (i), (iii) or
(iv)
of this Section 11 within 24 hours of transmission); (iii) two calendar days
after deposit with a courier service that regularly conducts deliveries in
the
recipient’s jurisdiction; or (iv) if the recipient is located in the United
States, five calendar days after deposit in the United States mail, postage
prepaid, return receipt requested, in each case addressed to the addressees
shown below:
SETTLEMENT
AGREEMENT
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If
to Pinnacle:
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If
to CBAK:
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Xxxx
X. Xxxxx
Xxxxxxx
& Xxxxxx LLP
000
Xxxx Xxxxxx
Xxx
Xxxx, Xxx Xxxx 00000-0000
Tel:
(000) 000-0000
Fax:
(000) 000-0000
Email:
xxxxxxx@xxxxxxx.xxx
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Xxxxx
Xxxxxxxxxx
Xxxxxx
Xxxx Xxxxx Raysman &
Xxxxxxx
LLP
000
Xxxxxx Xxxxxx, XX
Xxxxxxxxxx,
XX 00000-0000
Tel:
(000) 000-0000
Fax:
(000) 000-0000
E-mail:
xxxxxxxxxxx@xxxxxx.xxx
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Any
Party
may change such Party’s address for the purpose of notices, demands and requests
required or permitted under this Settlement Agreement by providing written
notice of such change of address to the other Party, which change of address
shall only be effective when notice of the change is actually received by the
Party who thereafter sends any notice, demand, or request.
12. Counterparts.
This
Settlement Agreement may be executed in multiple counterparts, each of which
shall be deemed an original and all of which shall constitute one and the same
instrument. A facsimile or electronically reproduced signature shall constitute
due execution, shall be admissible as evidence of execution, and shall be
binding upon the signatory with the same force and effect as if the signature
were an original.
[Signature
Page Follows]
SETTLEMENT
AGREEMENT
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IN
WITNESS WHEREOF,
the
Parties have executed and delivered this Settlement Agreement.
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By:
Pinnacle Advisers, L.P., its general partner
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By:
Pinnacle Fund Management, LLC,
its general partner
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By:
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Xxxxx
X. Xxxx, its sole member
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CHINA
BAK BATTERY, INC.
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By:
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Name:
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Xxxx
Xxxx
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Title:
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Chief
Financial Officer
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BAK
International, Inc.
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By:
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Title:
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SETTLEMENT
AGREEMENT
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Exhibit
A
CHINA
BAK BATTERY, INC.
SELLING
STOCKHOLDER QUESTIONNAIRE
