Exhibit 10.1
SETTLEMENT AND FORBEARANCE
AGREEMENT AND RELEASE
This Settlement Agreement
(“Agreement”) is made as of May 19, 2009 (the
“Execution Date”) by and between Fushi International,
Inc. and Dalian Fushi Bimetallic Manufacturing Company Ltd.
(collectively and separately “Fushi”), and Kuhns
Brothers, Inc., Kuhns Brothers Securities Corp., and Kuhns Bros.
& Co. Inc. (collectively and separately
“Kuhns”). Fushi and Kuhns are sometimes
referred to herein, individually, as a “Party,” and,
collectively, as the “Parties.”
WHEREAS, Kuhns commenced an action against Fushi
on November 27, 2006 in the United States District Court for
the District of Connecticut, captioned Kuhns Brothers, Inc. et
al. v. Fushi International, Inc. et al. , Case
No. 3:06 Civ. 1917 (PCD) (the “Action”);
WHEREAS, the Court entered judgment in the
Action in favor of Kuhns on or about August 8, 2008 and the
judgment has thereafter been registered in other districts
(collectively, the “Judgment”) and Fushi has appealed
therefrom;
WHEREAS, the Parties have engaged in settlement
negotiations and have now reached an agreement, fully and finally
compromising, settling, and resolving the disputes between the
Parties;
WHEREAS, the Parties each have received the
advice of counsel in the preparation, drafting, and execution of
this Agreement, which was negotiated at arm’s
length.
NOW, THEREFORE, in consideration of the mutual
promises and representations herein contained, the undertakings
herein set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
Parties agree as follows:
1.
Effective Date . This Agreement will be effective
on the Execution Date.
(a) Within
four business days after the Execution Date, Fushi shall issue a
Current Report on Form 8-K disclosing the material terms of
this transaction.
(b) This
Agreement constitutes “Instructions” by both Fushi and
Kuhns to the Escrow Agent to deliver within 48 hours after the
Execution Date, the cash component of the Escrow Assets (as those
terms are defined in the Escrow Agreement between Kuhns and Fushi
dated October 3, 2007 (the “2007 Escrow
agreement”)), comprising $1 million plus accrued interest
(the “Escrow Payment”), by wire to Olshan Grundman
Frome Rosenzweig & Wolosky LLP, Park Avenue Tower, 65 East
55 th
Street, New York, New York
10022.
3.
The Closing . The Closing shall occur at the
offices of Olshan Grundman Frome Rosenzweig & Wolosky LLP, Park
Avenue Tower, 65 East 55 th Street, New York, New York 10022, at
2:00 p.m. on the twelfth Trading Day after the Execution Date,
time being of the essence. The Parties agree to deliver
the following at the Closing:
(a) This
Agreement constitutes “Instructions” by both Fushi and
Kuhns to the Escrow Agent under the 2007 Escrow Agreement to
deliver the stock component of the Escrow Assets comprised of
100,000 shares of Fushi Common Stock and a stock power to
Fushi.
(b) Fushi
shall deliver to Kuhns 100,000 shares of Fushi Common Stock (the
“Initial Shares”). The Shares shall be
issued in the name of “Kuhns Brothers,
Inc.” The shares shall bear customary restrictive
legends.
(c) The
foregoing consideration, along with the Initial Deliveries in
paragraph 2, is referred to herein as the Initial Settlement
Payment.
(d) Fushi
shall deliver a notice of discontinuance of its appeal in the
Action, without costs to either party.
(e) Fushi
shall deposit a certificate for 2,200,000 shares of Fushi Common
Stock in escrow (the “Escrow Shares”) with Continental
Stock Transfer as Escrow Agent (the “Escrow Agent”)
along with an executed stock power in blank, all to be held
pursuant to the Escrow Agreement annexed as Exhibit A (the
“Escrow Agreement”). Fushi, Kuhns and the
Escrow Agent shall all execute the Escrow Agreement.
(f)
Fushi shall issue to its transfer agent and the
Escrow Agent, the Irrevocable Transfer Agent Instructions annexed
hereto as Exhibit B.
(g) At
the Closing the Judgment shall be reduced to seven million
($7,000,000) and then further reduced by (i) the amount of the
Escrow Payment; and (ii) the Initial Share Value (as described
below). The Judgment shall thereafter be reduced by (i)
the amounts received by Kuhns from sales of the Escrow Shares, or
their delivery to Kuhns as Restricted Shares (as defined below) in
accordance with Section 4(g); (ii) any reduction arising from a
change to the Initial Share Value upon Fushi obtaining timely
registration for the Initial Shares; and/or (iii) any other
payments made to Kuhns by Fushi. The amount due under
the Judgment is referred to here as “Current Judgment
Amount.” Kuhns shall continue to have all rights
as a Judgment creditor, subject to its forbearance obligations in
paragraph 9, until the Judgment is satisfied.
4.
Registration Statement .
(a) Mandatory
Registration. On or prior to the thirtieth day after the
Closing the Company shall file a registration statement (the
“Registration Statement”) with the U.S. Securities and
Exchange Commission (“SEC”) under the Securities Act of
1933, as amended (the “Securities Act”) for the
registration of the Initial Shares and Escrow Shares so that they
may be sold in the public markets in accordance with the Escrow
Agreement. The Company shall cause the Registration
Statement to become effective and remain in effect as provided
herein. The Company shall use its best efforts to have
the Registration Statement be declared effective under the
Securities Act as promptly as possible after the filing thereof,
but in any event no later than 120 days from Closing (the
“Registration Deadline”). The Company
acknowledges that with respect to its obligation to have the
Registration Statement declared effective by the Registration
Deadline, time is of the essence. It shall be a condition precedent
to the obligations of the Company to complete the registration
pursuant to this Agreement with respect to the Initial Shares and
Escrow Shares that Kuhns shall furnish to the Company completed
Selling Securityholder Questionnaire in a form reasonably
acceptable to Fushi.
(b)
Registration Statement Form . The Registration
Statement shall be on Form S-3 and shall be approved by Kuhns,
which approval shall not be unreasonably withheld. No
later than five (5) days prior to the filing date, Fushi shall
provide drafts of the Registration Statement proposed to be filed
by it to Kuhns in advance of the filing thereof and provide Kuhns
with a reasonable amount of time to review and comment on the same
prior to its filing.
(c)
Effective Registration Statement . The
registration required pursuant to this Section 4 shall not be
deemed to have been effected unless the Registration Statement has
been declared effective by the SEC and has remained effective in
compliance with the provisions of the Securities Act with respect
to the disposition of all of Escrow Shares covered by such
Registration Statement necessary to pay the Current Judgment
Amount.
(d)
Expenses; Taxes . All expenses (including
reasonable counsel fees of Kuhns ) incurred in connection with
registrations, filings or qualifications of Escrow Shares pursuant
to this Section 4, including (without limitation) all registration,
filing, and qualification fees, printers’ and accounting
fees, fees and disbursements of counsel for Fushi, shall be borne
by Fushi.
(e)
Registration Procedures . Fushi shall, as
expeditiously as possible:
(i)
prepare and file with the Commission the
Registration Statement with respect to the Initial Shares and
Escrow Shares, respond as promptly as possible to any comments
received from the Commission, and use its best efforts to cause the
Registration Statement to become and remain effective for the
Effectiveness Period with respect thereto, and promptly provide to
Kuhns copies of all filings and Commission letters of comment
relating thereto;
(ii) prepare
and file with the SEC such amendments and supplements to such
Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement
effective and to comply with the provisions of the Securities Act
with respect to the disposition of all the Shares covered by such
Registration Statement such time as the Current Judgment Amount has
been satisfied;
(iii) furnish
such number of conformed copies of such Registration Statement and
of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus
contained in such Registration Statement (including each
preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in
conformity with the requirements of the Securities Act, and such
other documents, as Kuhns may reasonably require;
(iv) use
its best efforts to (A) register or qualify the Initial Shares and
Escrow Shares under such other securities or blue sky laws of such
states and jurisdictions where an exemption is not available and as
Kuhns shall reasonably request, (B) keep such registration or
qualification in effect for so long as such Registration Statement
remains in effect, and (C) take any other action which may be
reasonably necessary or advisable to enable Kuhns to consummate the
disposition in such jurisdictions of the securities to be sold by
Kuhns, except that Fushi shall not for any such purpose be required
to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this
subdivision (v) be obligated to be so qualified or to consent to
general service of process in any such jurisdiction;
(v) immediately
notify Kuhns at any time when a prospectus relating thereto is
required to be delivered or available under the Securities Act,
upon discovery that, or upon the happening of any event as a result
of which, the prospectus included in such Registration Statement,
as then in effect, includes an untrue statement of a material fact
or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, in the
light of the circumstances under which they were made, and at the
request of Kuhns promptly prepare and furnish to it a reasonable
number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to
the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances
under which they were made;
(vi) otherwise
use its best efforts to comply with all applicable rules and
regulations of the SEC;
(vii) provide
and cause to be maintained a transfer agent and registrar for all
the Escrow Shares covered by such Registration Statement from and
after a date not later than the effective date of such
registration;
(viii)
its best effort to avoid the issuance of, or if issued, to obtain
the withdrawal of, any order enjoining or suspending the use or
effectiveness of such Registration Statement or suspending the
qualification (or exemption from qualification) of any of the
Shares for sale in any jurisdiction, as promptly as reasonably
practicable; and
(ix) list
the Initial Shares and Escrow Shares on the NASDAQ Global Select
Market or any other national securities exchange on which the
shares of the same class covered by such Registration Statement are
then listed or for which the Escrow Shares and Fushi qualify, and,
if no such shares are so listed, on any national securities
exchange on which the Common Stock is then listed.
(i)
Indemnification by Fushi. With regard to any
Registration Statement, Fushi will, and hereby do, jointly and
severally, indemnify and hold harmless Kuhns and its respective
directors, officers, partners, agents and affiliates, against any
losses, damages or claims, including reasonable attorneys’
fees (“Losses”), joint or several, to which Kuhns or
any such director, officer, partner, agent, affiliate or
controlling person may become subject under the Securities Act or
otherwise, including, without limitation, the fees and expenses of
legal counsel, insofar as such any Losses arise out of or are based
upon any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement, any
preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein in light of the circumstances in which they were made not
misleading, and Fushi will reimburse Kuhns and each such director,
officer, partner, agent, affiliate and controlling person for any
legal or any other expenses reasonably incurred by them in
connection with investigating or defending any such any Losses;
provided, however, that the Company shall not be liable in any such
case to the extent that any such Losses arises out of or is based
upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement, any such
preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement in reliance upon and in conformity with
written information furnished to Fushi by or on behalf of Kuhns,
specifically stating that it is for use in the preparation
thereof. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such
Investor or any such director, officer, partner, agent, affiliate
or controlling person and shall survive the transfer of such
securities by Kuhns.
(ii) Indemnification
Payments. The indemnification and contribution required
by this Section 4(f) shall be made by periodic payments of the
amount thereof during the course of the investigation or defense,
as and when bills are received or Losses are incurred.
(iii) Promptly
after receipt by a party entitled to claim indemnification
hereunder (an "Indemnified Party") of notice of the commencement of
any action, such Indemnified Party shall, if a claim for
indemnification in respect thereof is to be made against a party
hereto obligated to indemnify such Indemnified Party (an
"Indemnifying Party"), notify the Indemnifying Party in writing
thereof, but the omission so to notify the Indemnifying Party shall
not relieve it from any liability which it may have to such
Indemnified Party other than under this Section 4(f)(iii) and shall
only relieve it from any liability which it may have to such
Indemnified Party under this Section 4(f)(iii) if and to the extent
the Indemnifying Party is prejudiced by such omission. In case any
such action shall be brought against any Indemnified Party and it
shall notify the Indemnifying Party of the commencement thereof,
the Indemnifying Party shall be entitled to participate in and, to
the extent it shall wish, to assume and undertake the defense
thereof with counsel satisfactory to such Indemnified Party, and,
after notice from the Indemnifying Party to such Indemnified Party
of its election so to assume and undertake the defense thereof, the
Indemnifying Party shall not be liable to such Indemnified Party
under this Section 4(f)(iii) for any legal expenses subsequently
incurred by such Indemnified Party in connection with the defense
thereof; if the Indemnified Party retains its own counsel, then the
Indemnified Party shall pay all fees, costs and expenses of such
counsel, provided, however, that, if the defendants in any such
action include both the indemnified party and the Indemnifying
Party and the Indemnified Party shall have reasonably concluded
that there may be reasonable defenses available to it which are
different from or additional to those available to the Indemnifying
Party or if the interests of the Indemnified Party reasonably may
be deemed to conflict with the interests of the Indemnifying Party,
the Indemnified Party shall have the right to select one separate
counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the reasonable
expenses and fees of such separate counsel and other expenses
related to such participation to be reimbursed by the Indemnifying
Party as incurred.
(iv) In
order to provide for just and equitable contribution in the event
of joint liability under the Securities Act in any case in which
either (i)Kuhns, or any officer, director or controlling person of
Kuhns, makes a claim for indemnification pursuant to this Section 5
but it is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case
notwithstanding the fact that this Section 4 provides for
indemnification in such case, or (ii) contribution under the
Securities Act may be required on the part of Kuhns or such
officer, director or controlling person of Kuhns in circumstances
for which indemnification is provided under this Section 4; then,
and in each such case, the Company and the Kuhns will contribute to
the aggregate losses, claims, damages or liabilities to which they
may be subject (after contribution from others) in such proportion
so that Kuhns will not be required to contribute any amount in
excess of the proceeds received by Kuhns pursuant to the shares it
sold in connection with the Registration Statement; and no person
or entity guilty of fraudulent misrepresentation (within the
meaning of Section 10(f) of the Act) will be entitled to
contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
(g) In
the event that (i) the Company’s Registration Statement is
not declared effective by the Registration Deadline and
(ii) for so long as the Registration Statement is not
effective subsequent to the Registration Deadline, the Current
Judgment Amount shall accrue interest at the rate of eighteen
percent per annum. In addition, upon such events, Kuhns
shall be entitled to receive Escrow Shares from the Escrow Agent
(the “Restricted Shares”) in such amounts, and at such
times, as it determines until the Judgment is
satisfied. The Current Judgment Amount shall thereupon
be reduced by the Restricted Share Value (as defined
below).
5.
The Current Judgment Amount . Subject to the
terms and conditions set forth in this Agreement and the Escrow
Agreement, including the forbearance by Kuhns, Fushi shall pay to
Kuhns no later than January 15, 2010, the balance due under the
Judgment, computed as follows:
(a)
Initial Share Value . The Judgment shall be
reduced the Initial Share Value, which shall mean an amount equal
to forty percent (40%) of the VWAP for Fushi common stock for the
ten trading days before the date of the Closing multiplied by
100,000, provided , however, if Fushi obtains an effective
registration statement for the Initial Shares by the Registration
Deadline and that registration statement remains effective through
the earlier of: (i) the sale of the Initial Shares
or (ii) December 31, 2009, the Judgment shall instead be
reduced by an amount equal to ninety percent (90%) of the VWAP for
Fushi Common Stock for the ten trading days before the effective
date of the Registration Statement.
(b)
The Escrow Shares : In the event that Fushi meets
the Registration Deadline and for so long as the Registration
Statement remains effective, the Judgment shall be further reduced
by an amount equal to the cash proceeds distributed by the Escrow
Agent to Kuhns in connection with sales of the Escrow
Shares. Notwithstanding the foregoing, in 2009 Kuhns is
only entitled to receive from the Escrow Agent no more than
$3,000,000 of cash proceeds from sale of Escrow Shares, provided
that Kuhns shall use its reasonable efforts to direct sale of
the Escrow Shares resulting in full payment of the Current Judgment
Amount including any accrued interest by January 15, 2010 and
provided further that any cash proceeds received from the sale in
2009 of Escrow Shares in excess of $3,000,000 shall be available
for the general creditors of Fushi upon any bankruptcy or
liquidation of Fushi. Any proceeds from sale of the
Escrow Shares in 2009 in the amount which is more than $3,000,000
and less than the then Current Judgment Amount including any
accrued interest shall be forwarded to Kuhns by the Escrow Agent
not earlier than and within reasonable time of January 1,
2010. Notwithstanding anything to the contrary in this
Agreement, the amount of Escrow Shares sold on any given day shall
not exceed 60% of the daily trading volume in Fushi’s
stock on the previous trading day as reported on all national
securities exchanges and/or automated quotation system, provided
however that this limitation does not apply to any private sales of
the Escrow Shares. In the event that Fushi fails to meet
the Registration Deadline, but causes a Registration Statement to
be declared effective by October 31, 2009 (the “Second
Registration Deadline”), the Judgment shall instead be
further reduced by an amount equal to 90% of the cash proceeds
distributed by the Escrow Agent to Kuhns in connection with sales
of the Escrow Shares.
(c)
Restricted Share Value . In the event that Kuhns
elects to receive Restricted Shares under Section 4(g), the Current
Judgment Amount shall be reduced by the Restricted Share Value,
which shall mean an amount equal to fifty percent (50%) of the VWAP
for Fushi common stock for the ten trading days before the date of
delivery of the Restricted Shares to Kuhns.
(d)
Pre-Payment . Fushi may pay the balance of the
Current Judgment Amount to Kuhns at any time, in its sole
discretion, by wire transfer to such accounts as Kuhns directs
without any pre-payment penalty. If at any time prior to
January 15, 2010, Fushi (i) prior to any sales of Escrow Shares,
prepays the entire outstanding balance of the Current Judgment, or
(ii) taking into account the cash proceeds received by Kuhns for
sales of Escrow Shares up to such time, pays the remaining balance
of the Current Judgment Amount to Kuhns, then any remaining Escrow
Shares shall be forthwith cancelled.
(e)
Final Payment . All further payments to Kuhns in
satisfaction of the balance due under the Judgment, if any, shall
be made on or before January 15 , 2010 by wire transfer to
such account as Kuhns may direct.
(f)
Satisfaction
. Once the Current Judgment Amount has been satisfied
hereunder, Kuhns agrees to instruct the Escrow Agent to return any
remaining Escrow Shares to Fushi pursuant to the terms of the
Escrow Agreement. Upon payment in full of the Current
Judgment Amount, Kuhns shall deliver to Fushi a satisfaction of
Judgment.
6.
General Release from Kuhns . Effective upon the
receipt of payment in full of the balance due under the Current
Judgment Amount, for good and valuable consideration, the
sufficiency of which is hereby acknowledged, Kuhns, its parents,
subsidiaries, affiliates, officers, and directors, past and
present, and successors in interest (for this section only, the
“Releasors”) hereby release and disc
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