WAIVER
This
Waiver (the “Waiver”) is made as
of April 30, 2009, by and among China New Energy Group Company, a Delaware
corporation (the "Company"), and China Hand Fund I,
LLC, a Delaware limited liability company (together with its successors and
assigns, the “Purchaser”
or “China
Hand”).
RECITALS
WHEREAS, on August 8, 2008, in
connection with a financing transaction which closed on August 20,
2008 (the “August 2008
Financing”), the Company entered into the following agreements with China
Hand: (i) a Series A Convertible Preferred Stock Securities Purchase
Agreement (the “August
Securities Purchase Agreement”), (ii) a Registration Rights Agreement
(the “August
Registration Rights Agreement”), (iii) a Securities Escrow Agreement with Escrow, LLC as
Escrow Agent (the “August Securities Escrow
Agreement”), (iv) a Closing Escrow Agreement with the Escrow
Agent (the “August Closing Escrow
Agreement” and together with the August Securities Purchase Agreement,
the August Registration Rights Agreement, the August Securities Escrow
Agreement, and the Letter Agreement dated August 20, 2008 between the Company
and the Purchaser, the “August Transaction
Agreements”); and
WHEREAS, pursuant to the
August Securities Purchase Agreement the Company issued to China Hand 1,857,373
shares of Series A Convertible Preferred Stock of the Company, par value $0.001
per share (the “Series
A Preferred Stock”), and warrants to purchase 13,001,608 shares of the
Company’s common stock, par value $0.001 per share (“Common Stock”), at an
initial exercise price of $0.187 per share (subject to adjustments) for a period
of five (5) years following the date of their issuance (the “Warrants”), for an
aggregate purchase price of Nine Million U.S. Dollars
($9,000,000); and
WHEREAS under the terms of the
August Securities Purchase Agreement and August Securities Escrow Agreement, the
Company delivered to the Escrow Agent 557,212 shares of Series A Preferred Stock
(the “Make Good Escrow
Shares”) to be released from escrow to China Hand if certain performance
thresholds set forth in the August Securities Purchase Agreement are not met by
the Company; and
WHEREAS, the
Company did not meet the 2008 Target Numbers (as defined in the August
Securities Purchase Agreement) and consequently under the terms of
Section 6.18 of the August Securities Purchase Agreement Purchaser is entitled
to all of the Make Good Shares; and
WHEREAS, under Section 6.32 of
the August Securities Purchase Agreement, prior to March 31, 2009 the Company
was required to effect a reverse stock split of its Common Stock at the ratio of
one share of Common Stock for every 35 shares of Common Stock outstanding (the
“Reverse
Split”).
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WHEREAS, the Reverse Split has
not occurred and under the terms of Section 6.32 the August Securities Purchase
Agreement China Hand is entitled to liquidated damages equal to
$90,000 for each 30 day period the Reverse Split has not occurred calculated for
each day that the reverse split shall not have become effective, such liquidated
damages not to exceed $1,350,000;
WHEREAS, under the August
Registration Rights Agreement, the Company agreed, among other things, to
register all of the shares of Common Stock underlying the Series A Preferred
Stock and Warrants issued to the Purchaser (the “Shares”) within a
defined period and in connection therewith agreed to prepare and
file, prior to November 20, 2008, a registration statement under the
Securities Act of 1933, as amended, with the Securities and Exchange Commission
(the “Commission”) covering
the resale of all of the Shares.
WHEREAS,
the Company has not filed a registration statement with the
Commission and under August Registration Rights Agreement the Company
is required to pay China Hand and the other investors certain liquidated
damages; and
WHEREAS, in connection with
the April 2009 Financing (as defined below) the Company is entering into an
Amended and Restated Registration Rights Agreements with China Hand which will
replace the August Registration Rights Agreement and which will grant
China Hand certain registration rights with respect to the Shares and will
provide for liquidated damages for failure to meet the schedule set
forth therein; and
WHEREAS, the August Securities
Purchase Agreement contemplated an additional closing where the Purchaser could
invest up to an additional $5.4 million on the same terms as provided for in the
August Securities Purchase Agreement;
WHEREAS, the Purchaser and
certain other investors are willing to invest the additional $5.4 million in the
Company (the “April
2009 Financing”) but in lieu of the issuance of further shares of Series
A Preferred Stock contemplated by the August Securities Purchase Agreement the
Purchaser has requested that it be issued shares of a new class of preferred
stock to be called Series B Preferred Stock (“Series B Preferred”)
which would entitle the holders thereof to seventy percent (70%) of the voting
power of the Company. Except for super voting provisions of the
Series B Preferred set forth in the Certificate of Designation for the Series B
Preferred, the terms of the Series B Preferred are substantially similar to the
terms of Series A Preferred Stock;
WHEREAS, the Company is
willing to issue shares of Series B Preferred Stock in
the April 2009 Financing and in connection therewith the
Purchaser is willing to waive certain rights as set forth in this
waiver.
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NOW, THEREFORE, in
consideration of the mutual terms, conditions and other agreements set forth
herein, the parties hereto hereby agree as follows:
Section
1. Waiver. Simultaneously
with the issuance and delivery of the Company’s shares of Series B Preferred
Stock to the Purchaser pursuant to the terms of Series B Preferred Stock
Securities Purchase Agreement dated as of April 30, 2009 by and between the
Company and Purchaser (the “Series B Preferred Stock
Securities Purchase Agreement”), Purchaser hereby waives the following
(for the avoidance of doubt, the execution and delivery by the Company of Series
B Preferred Stock Securities Purchase Agreement and the issuance of the Series B
Preferred Stock by the Company to the Purchaser contemplated thereby shall be a
condition precedent to the Waiver):
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(a)
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its
rights to the all of the 557,212 Make Good Escrow Shares currently held in
escrow under the terms of the August Securities Purchase Agreement and the
August Securities Escrow Agreement arising from the Company’s failure to
meet the 2008 Target Numbers (as defined in the August Securities Purchase
Agreement); provided,
however,
that in lieu thereof China Hand shall receive 241,545 shares of
Series A Preferred Stock (which number is based on an assumed After Tax
Net Income (as defined in the August Securities Purchase Agreement) for
the fiscal year ended December 31, 2008 of $3.368
million). The Company will cause the Escrow Agent to
release and the Escrow Agent shall deliver to China
Hand 241,545 shares of Series A Preferred Stock from the Make
Good Escrow Shares within 30 days of the closing of the April
2009 Transaction and the Company will deliver to the Escrow
Agent within 30 days of the closing of the April
2009 Transaction 241,545 additional shares of Series A Preferred
Stock to be held as Make Good Escrow Shares under the terms of
the August Securities Purchase Agreement and the August Securities Escrow
Agreement; and
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(b)
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its
rights under Section 6.18(ii) of the August Securities Purchase Agreement
to receive additional shares of Series A Preferred Stock if the
Company’s audited consolidated After-Tax Net Income for the fiscal year
ended December 31, 2009 is less than $6,000,000 and the Company’s Earnings
Per Share on a Full-Diluted Basis (both as defined in the August
Securities Purchase Agreement) is less than $0.0294; provided, however, that
in lieu thereof China Hand shall be entitled to receive such additional
shares if the Company’s audited consolidated After-Tax Net Income for the
fiscal year ended December 31, 2009 is less than
$5,000,000.
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(c)
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all
of its rights to liquidated damages under Section 6.31 of the
August Securities Purchase Agreement arising from the Company’
s failure to effect the Reverse Split prior to March 31, 2009;
and
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(d)
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all
of its rights to liquidated damages under the
August Registration Rights
Agreement; provided, however, that
the execution and delivery by the Company of Amended and Restated
Registration Rights Agreement in connection with the April 2009 Financing
(which agreement is intended to replace the August Registration Rights
Agreement) shall be a condition precedent to the waiver of these
liquidated damages.
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3
Section
2. Effect on August Transaction
Agreements. Except as expressly set forth above, all of the
terms and conditions of the August Transaction Agreements and any agreements,
documents and instruments signed by the Company and any Purchaser in connection
therewith shall continue in full force and effect after the execution of this
Waiver and shall not be in any way changed, modified or superseded by the terms
set forth herein.
Section
3. Miscellaneous.
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a.
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Amendments and
Waivers. The provisions of this Waiver, including the
provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not
be given, unless the same shall be in writing and signed by the Company
and the Purchaser.
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b.
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Notices. Any
and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be delivered as set forth in the
August Securities Purchase
Agreement.
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c.
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Successors and
Assigns. This Waiver shall inure to the benefit of and
be binding upon the successors and permitted assigns of each of the
parties.
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d.
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Execution and
Counterparts. This Waiver may be executed in
any number of counterparts, each of which when so executed shall be deemed
to be an original and, all of which taken together shall constitute one
and the same agreement and shall become effective when counterparts have
been signed by each party and delivered to the other parties hereto, it
being understood that all parties need not sign the same
counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid binding
obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile
signature were the original
thereof.
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e.
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Governing
Law. All questions concerning the construction,
validity, enforcement and interpretation of this Waiver shall be
determined in accordance with New York
law.
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f.
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Severability. If
any term, provision, covenant or restriction of this Waiver is
held by a court of competent jurisdiction to be invalid, illegal, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and
shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their commercially reasonable efforts to find and employ
an alternative means to achieve the same or substantially the same result
as that contemplated by such term, provision, covenant or restriction. It
is hereby stipulated and declared to be the intention of the parties that
they would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter declared
invalid, illegal, void or
unenforceable.
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g.
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Headings. The
headings in this Waiver are for convenience only, do not constitute a part
of the Waiver and shall not be deemed to limit or affect any of the
provisions hereof.
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IN
WITNESS WHEREOF, the undersigned have executed this Wavier as of the day and
year written above.
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CHINA
NEW ENERGY GROUP
COMPANY
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By:
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/s/ Xxxxx Xx
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Name: Xxxxx
Xx
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Title: Authorized
Signatory
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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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