LOANOUT AGREEMENT
This LOANOUT AGREEMENT (this “
Agreement ”), dated as of May 1 , 2009,
by and between Winston C. Yen, CPA, A Professional Accountancy
Corporation, a California corporation, having its principal
location at 345 S. Figueroa Street, Suite 100, Los Angeles,
California 90071 (“Lender”), and Orient Paper, Inc., a
Nevada corporation having its principal office at Science Park,
Xushui Town, Baoding City, Hebei Province, People’s Republic
of China (the “ Company ”), for the
services of Lender’s employee, Winston C. Yen (the
"Executive").
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1.
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Engagement of Services, Duties and
Acceptance .
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1.1 Effective
as of the date of this Agreement, the Company engages Lender and
Lender agrees to supply and make available to the Company, the
services of the Executive to serve as the Company’s Chief
Financial Officer (“ CFO ”) during the
term of this Agreement, on the terms and conditions contained in
this Agreement. During the term of this Agreement, Executive shall
make himself available to the Company and to any of its
subsidiaries or affiliates as directed to pursue the business of
the Company subject to the supervision and direction of the Board
of Directors of the Company (the “ Board
”).
1.2 The
Board may assign Executive such general management and supervisory
responsibilities and executive duties for the Company as are
appropriate and commensurate with Executive’s position as CFO
with the understanding that the Executive will be based where
Lender’s principal offices are located.
1.3 Lender
and Executive agree that Executive shall devote up to eighty hours
per month of Executive’s business time, energies and
attention to the performance of his duties hereunder and as an
executive officer of the Company. Nothing herein shall be construed
as precluding Executive from owning, purchasing, selling, or
otherwise dealing in any manner with any property or engaging in
any business whatsoever, including without limitation, providing
consulting services, acting as a CFO or a director of another
company, or starting a new business, without notice to the Company,
without participation of the Company, and without liability to the
Company; provided, however, that these activities do not materially
interfere with the performance of his duties hereunder or violate
the provisions of Section 4.4 hereof.
2.1 As
compensation for all services to be rendered by Executive pursuant
to this Agreement, the Company shall pay to Lender for the term
thereof a fee (i) at an annual base rate of $36,000 in cash and
(ii) additional compensation of $2,000 per month during any
calendar month when “special road show services” are
performed. During Executive’s employment, compensation will
be paid not less frequently than one month in arrear. Payment will
be made to Lender via wire transfer. Company shall be responsible
for any applicable wire transfer fees for the compensation and/or
expense reimbursement. The Board or its compensation committee
has
Loanout Agreement - Orient Paper
1
the power to interpret whether
special road show services are performed during any calendar month
for purposes of this Section 2.1.
2.2 Upon
execution of this Agreement, Executive will have the right to
receive 20,000 shares of the Company’s Common Stock, $0.001
par value, which shall vest during the term of this Agreement, in
the form of a restricted stock grant (the “Restricted
Stock”). The shares of the Restricted Stock shall vest in
four (4) equal installments of 5,000 shares every three calendar
months, with the first installment to vest on May 10, 2009 (the
“Vesting Schedule”). The Restricted Stock shall be
“restricted” and cannot be resold without their prior
registration or compliance with the terms of Rule 144 promulgated
by the Act or an exemption from the Act. In addition, the
Restricted Stock shall further be subject to the terms and
conditions of a certain Lock-Up Agreement, a copy of which is
attached hereto as Exhibit A .
The number of shares of Restricted
Stock referenced in this section is subject to adjustment in the
case of any stock split, reverse stock split, combination or
similar events.
Upon the filing of an election
pursuant to Section 83(b) of the Internal Revenue Code (the
“Code”) with respect to such grant of Restricted Stock,
the Company will not reimburse the Executive any federal and state
taxes due as a result of such election.
During the term of this Agreement,
Executive shall not, directly or indirectly, (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or
warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any of the shares of the Restricted Stock
or (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of
ownership of any of the shares of Restricted Stock, whether any
such transaction described in clause (i) or (ii) above is to be
settled by delivery of shares of the Restricted Stock, in cash or
otherwise.
In connection with the issuance of
the Shares, Executive hereby represents and warrants to the
Company, as of the date hereof, that:
A. The Shares will be acquired for
investment for Executive’s own account, not as a nominee or
agent, and not with a view to the public resale or distribution
thereof within the meaning of the Securities Act of 1933, as
amended (the “Securities Act”), and the Executive has
no present intention of selling, granting any participation in or
otherwise distributing the same.
B. Executive understands that the
acquisition of the Shares involves substantial risk. Executive has
experience as an investor in securities of companies and
acknowledges that it is able to fend for itself, can bear the
economic risk of its investment and has such knowledge and
experience in financial or business matters that it is capable of
evaluating the merits and risks of its investment and protecting
its own interests in connection with this investment.
C. Executive is an "accredited
investor" within the meaning of Regulation D of the Securities
Act.
Loanout Agreement - Orient Paper
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D. Executive understands that (i)
the Shares are characterized as "restricted securities" under the
Securities Act, inasmuch as it are being acquired from the Company
in a transaction not involving a public offering, and (ii) under
the Securities Act and applicable rules and regulations thereunder,
such securities may be resold without registration under the
Securities Act only in certain limited circumstances. Executive is
familiar with Rule 144 under the Securities Act, as presently in
effect, and understands the resale limitations imposed thereby and
by the Securities Act.
2.3 During
the term of this Agreement, the Company shall include Executive as
insured under a directors and officers insurance policy (the
“D&O Insurance”) with initial coverage of
$1,000,000 from an insurance carrier that has a minimum rating of
XII A as defined by the A.M. Best Company. If any member of the
Board enters into an indemnification agreement with the Company as
part of the D&O Insurance, Executive shall be entitled to enter
into an agreement of like tenor with the Company. Additionally, if
the Board decides to increase the coverage of the D&O
Insurance, Executive shall be covered by such policy.
2.4 The
Company shall reimburse Executive for all reasonable business
expenses incurred by Executive during Executive’s employment
hereunder to the extent in compliance with the Company’s
business expense reimbursement policies in effect from time to time
and upon presentation by Executive of such documentation and
records as the Company shall from time to time require, provided
that any expense in excess of $500.00 shall require the prior
written approval of the Company. When Executive is required to
travel on behalf of the Company’s business outside of the
continental United States, the cost of a business class airline
ticket shall be included hereunder as a reimbursable business
expense.
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3.
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Term and Termination
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3.1 The
term of this Agreement commences as of the consummation of the
Agreement and shall continue for one (1) years unless sooner
terminated as herein provided.
3.2 If
Executive dies during the term of this Agreement, this Agreement
shall thereupon terminate, except that the Company shall pay to
Lender any accrued and unpaid fee due Lender pursuant to Section
2.1 hereof as well as a pro rata allocation of the shares of the
Restricted Stock under Section 2.3 based on the days of service
prior to the death in conjunction with the Vesting Schedule, and
all previously accrued but unpaid expense reimbursements at the
time of termination, including for.
3.3 The
Company reserves the right to terminate this Agreement upon ten
(10) days written notice if, for a continuous or accumulated period
of forty-five (45) days during the one year term of this Agreement,
Executive is prevented from discharging his duties under this
Agreement due to any physical or mental disability. With the
exception of the covenants included in Section 4 below, upon such
termination, the obligations of Executive and Company under this
Agreement shall immediately cease. In the event of a termination
pursuant to this section, Executive shall be entitled to receive
any accrued and unpaid amounts earned pursuant to Section 2.1
hereof as well as a pro rata allocation of the shares of the
Restricted Stock under Section 2.3 based on the days of service
prior to the cessation of Executive’s services in
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conjunction with the Vesting
Schedule, and all previously accrued but unpaid expense
reimbursements.
3.4 The
Company reserves the right to declare Executive in default of this
Agreement if Executive willfully breaches or habitually neglects
the duties which he is required to perform under the terms of this
Agreement, or if Executive commits such acts of dishonesty, fraud,
misrepresentation, gross negligence or willful misconduct as would
prevent the effective performance of his duties or which results in
material harm to the Company or its business. The Company may
terminate this Agreement for cause by giving written notice of
termination to Executive. With the exception of the covenants
included in Section 4 below, upon the date of delivery of the
written notice of such termination, the obligations of Executive
and the Company under this Agreement shall immediately cease. Such
termination shall be without prejudice to any other remedy to which
the Company may be entitled either at law, in equity, or under this
Agreement. In the event of a termination pursuant to this section,
Executive shall be entitled to receive any accrued and unpaid
amounts earned pursuant to Section 2.1 hereof. The Company shall
also pay to Executive all previously accrued but unpaid expense
reimbursements at the time of termination.
3.5 Executive’s
employment may be terminated at any time by Executive upon not less
than ninety (90) days written notice by Executive to the Board.
With the exception of the covenants included in section 4 below,
upon such termination the obligations of Executive and the Company
under this Agreement shall immediately cease. In the event of a
termination pursuant to this section, Executive shall be entitled
to receive any accrued and unpaid amounts earned pursuant to
Section 2.1 hereof. The Company shall also pay to Executive all
previously accrued but unpaid expense reimbursements at the time of
termination.
3.6 Company
may terminate Executive’s employment upon not less than
thirty (30) days written notice by Company to Executive. With the
exception of the covenants included in section 4 below, upon such
termination the obligations of Executive and the Company under this
Agreement shall immediately cease. In the event of a termination
pursuant to this section, Executive shall be entitled to receive
any accrued and unpaid amounts earned pursuant to Section 2.1
hereof as well as a pro rata allocation of the shares of Restricted
Stock under Section 2.3 based on the days of service prior to the
termination in conjunction with the Vesting Schedule, and all
previously accrued but unpaid expense reimbursements at the time of
termination.
4.
Protection of Confidential Information; Non-Competition,
Corporate Opportunities .
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4.1
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Lender and Executive acknowledge
that:
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(a) As
a result of his association with the Company pursuant to this
Agreement, Executive will obtain secret and confidential
information concerning the business of the Company and its
subsidiaries and affiliates (referred to collectively in this
Article 4 as the “ Group ”), including,
without limitation, trade secrets and any information concerning
products, processes, formulas, designs, inventions (whether or not
patentable or registrable under copyright or similar laws, and
whether or not reduced to practice), discoveries, concepts, ideas,
improvements, techniques, methods, research, development and test
results, specifications, data,
Loanout Agreement - Orient Paper
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know-how, software, formats,
marketing plans, and analyses, business plans and analyses,
strategies, forecasts, customer and supplier identities,
characteristics and agreement (“ Confidential
Information ”). In addition, Executive may become
aware of business opportunities that may be beneficial to the Group
including, but not limited, opportunities to acquire or purchase,
or, except for Permitted Competitive Investments, otherwise make
equity or debt investments in, companies primarily involved in a
Competitive Business (“ Corporate
Opportunities” ), during the term of this Agreement,
whether in the course of his employment or otherwise, and that such
Corporate Opportunities shall considered to be business
opportunities of the Group.
(b) The
Group will suffer substantial damage which will be difficult to
compute if, during the term of this Agreement or thereafter, Lender
and/or Executive should enter a business competitive with the Group
or divulge Confidential Information.
(c) The
provisions of this Agreement are reasonable and necessary for the
protection of the business of the Group.
4.2 Executive
agrees that he will not at any time, either during the term of this
Agreement or thereafter, divulge to any person or entity any
Confidential Information obtained or learned by him as a result of
his employment with the Group, except (i) in the course of
performing his duties hereunder, (ii) to the extent that any
such information is in the public domain other than as a result of
Executive’s breach of any of his obligations hereunder,
(iii) where required to be disclosed by court order, subpoena
or other government process, or (iv) if such disclosure is
made without Executive’s knowing intent to cause material
harm to the Group. If Executive shall be required to make
disclosure pursuant to the provisions of clause (iii) of the
preceding sentence, Executive promptly, but in no event more than
24 hours after learning of such subpoena, court order, or other
government process, shall notify, by personal delivery or by
electronic means, confirmed by mail, the Company and, at the
Company’s expense, Executive shall: (a) take reasonably
necessary and lawful steps required by the Group to defend against
the enforcement of such subpoena, court order or other government
process, and (b) permit the Group to intervene and participate with
counsel of its choice in any proceeding relating to the enforcement
thereof.
4.3 Upon
termination of this Agreement, Executive will promptly deliver to
the Group all memoranda, correspondence, notes, records, reports,
manuals, drawings, blue-prints and other documents (and all copies
thereof) relating to the business of the Group and all property
associated therewith, which he may then possess or have under his
control whether prepared by Executive or others.
4.4 During
the term of this Agreement and terminating three years after
termination of employment, Executive, without the prior written
permission of the Company, shall not for any reason whatsoever, (i)
enter into the employ of or render any services to any person, firm
or corporation engaged in any business which is in competition with
the Group’s principal existing business at the time of
termination (“ Competitive Business ”);
(ii) engage in any Competitive Business as an individual, partner,
shareholder, creditor, director, officer, principal, agent,
employee, trustee consultant, advisor or in any other relationship
or capacity; (iii) employ, or have or cause any other person or
entity to employ, any person who was
Loanout Agreement - Orient Paper
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employed by the Group at the time of
termination of Executive’s employment by the Company; or (iv)
solicit, interfere with, or endeavor to entice away from the Group,
for the benefit of a Competitive Business, any of its customers.
Notwithstanding the foregoing, (i) Executive shall not be precluded
from investing and managing the investment of, his or his
family’s assets in the securities of any corporation or other
business entity which is engaged in a Competitive Business if such
securities are traded on a national stock exchange or in the
over-the-counter market and if such investment does not result in
his beneficially owning, at any time, more than 2% of any class of
the publicly-traded equity securities of such Competitive Business
(“ Permitted Competitive
Investment ”); and (ii) during the term of this
Agreement and terminating one year after termination of
Executive’s employment (except for investments in a class of
securities trading on public markets), Executive: (a) shall be
prohibited from taking for himself personally any Corporate
Opportunities, and (b) shall refer to the Company for consideration
(before any other party) any and all Corporate Opportunities that
arise during the term of this Agreement or for a period of one year
thereafter. If the Company determines not to exploit any Corporate
Opportunity, the Company shall determine what, if anything, should
be done with such opportunity. Executive shall not be entitled to
any compensation, as a finder or otherwise, if either the Company
or Executive introduces such opportunity to other persons, it being
understood that any such compensation shall be paid to the
Company.
4.5 If
Executive commits a breach of any of the provisions of Sections 4.2
or 4.4, the Company shall have the right:
(a) to
have the provisions of this Agreement specifically enforced by any
court having equity jurisdiction, it being acknowledged and agreed
by Executive that the services being rendered hereunder to the
Company are of a special, unique and extraordinary character and
that any breach or threatened breach will cause irreparable injury
to the Group and that money damages will not provide an adequate
remedy to the Group; and
(b) to
require Executive to account for and pay over to the Company all
monetary damages determined by a non-appealable decision by a court
of law to have been suffered by the Group as the result of any
actions constituting a breach of any of the provisions of Section
4.2 or 4.4, and Executive hereby agrees to account for and pay over
such damages to the Company.
(c) to
not perform any obligation owed to Executive under this Agreement,
to the fullest extent permitted by law. Company shall also have the
right, to the fullest extent permitted by law, to adjust any amount
due and owing or to be due and owing to Executive, whether under
this Agreement or any other agreement between Company and Executive
in order to satisfy any losses to the Group as a result of
Executive’s breach.
4.6 If
Executive shall violate any covenant contained in Section 4.4, the
duration of such covenant so violated shall be automatically
extended for a period of time equal to the period of such
violation.
5. Lender
Representations. Lender represents that it is a validly existing
corporation and has the sole and exclusive right and authority to
provide the services of Executive to the Company as contemplated by
this Agreement, and that the entering into and performance of
this
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Agreement by Lender and the
provision of services hereunder by Executive and the acceptance
thereof by the Company will not violate any law, rule, regulation,
order, contract or agreement to which either Lender or Executive is
a party or is bound or affected.
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6.
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Miscellaneous
Provisions .
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6.1 The
parties acknowledge and agree that the relationship between the
Company and the Lender is that of independent contractors and not
that of employer and employee. Nothing in this Agreement is
intended to create or will be deemed to create or constitute a
joint venture or partnership between the Company and
Lender.
6.2 Lender
will be responsible for the payment of all withholding, payroll and
other taxes payable in respect of the payments received by Lender
under this Agreement and hereby agrees to indemnify and hold the
Company harmless from any obligation or penalty arising from the
failure to pay such taxes.
6.3 All
notices provided for in this Agreement shall be in writing, and
shall be deemed to have been duly given when delivered personally
to the party to receive the same, when delivered via overnight
courier providing for next day delivery service (“Overnight
Courier”), when transmitted by facsimile (electronic receipt
confirmed), or when mailed first class postage prepaid, by
certified mail, return receipt requested, addressed to the party to
receive the same at his or its address set forth below, or such
other address as the party to receive the same shall have specified
by written notice given in the manner provided for in this Section
5.1. All notices shall be deemed to have been given: (a) as of the
date of personal delivery, (b) the first business day after
delivery via Overnight Courier, (c) on the electronically confirmed
date of receipt during business hours of the facsimile transmittal
(or the following business day if the facsimile is received after
5:30 p.m. PDT), or (d) three calendar days after the date of
deposit (postage pre-paid) with the U.S. Postal Service if
delivered via first class or certified mail.
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If to Lender:
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Winston C. Yen, CPA,
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A Professional Accountancy
Corporation
345 S. Figueroa Street, Suite
100
Los Angeles, California
90071
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If to Executive:
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Winston C. Yen
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345 S. Figueroa Street, Suite
100
Los Angeles, California
90071
Fax: 1-213-613-1579
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If to the Company:
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Orient Paper, Inc.
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Science Park, Xushui Town
Baoding City, Hebei
Province
People’s Republic of
China
Attn: Mr. Zhenyong Liu
Fax:
Loanout Agreement - Orient Paper
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6.4 In
the event of any claims, litigation or other proceedings arising
under this Agreement, Executive shall be reimbursed by the Company
within sixty (60) days after delivery to the Company of statements
for the costs incurred by Executive
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