REGISTRATION RIGHTS AGREEMENT
This
Registration Rights Agreement (the "
Agreement ")
is made as of the date set forth below between China Energy
Recovery, Inc., a Delaware corporation (the "
Company "),
and the purchasers of its Series A Preferred Stock (as defined
below) pursuant to a Securities Purchase Agreement dated as of the
date hereof (each an "
Investor "
and, collectively, the "
Investors ").
Capitalized terms used and not defined herein shall have the
respective meanings ascribed to them in the Securities Purchase
Agreement.
RECITALS
WHEREAS,
the Company has sold up to 8,339,902 shares (the "
Preferred Shares ")
of Series A Convertible Preferred Stock of the Company, par value
$0.001 per share (the "
Series A Preferred Stock "),
convertible into shares ("
Shares ")
of the Company's common stock, par value $0.001 per share (the
"
Common Stock "),
and warrants (the "
Warrants ")
to purchase up to 4,169,951 Shares at an exercise price of $1.29
per share (the "
Warrant Shares ,"
and together with the Shares, the "
Securities ")
to certain investors in a private placement (the "
Offering ");
and
WHEREAS,
the execution and delivery of this Agreement by the Company is
a condition to the completion of the Offering.
NOW,
THEREFORE, the parties hereto agree as follows:
1.
Registration Procedures and Expenses .
The Company shall:
(a)
subject
to receipt of necessary information from the Investors, use
its commercially reasonable efforts to cause a Registration
Statement on Form S-3, or on such other form as is available
to the Company (the "
Initial Registration Statement "),
to be filed with the Securities and Exchange Commission ("
SEC "),
within 30 calendar days following the Closing Date (the "
Required Filing Date "),
to enable the resale of the Securities by the Investors from time
to time. Notwithstanding the registration obligations set forth in
the first sentence of this
Section 1(a), in
the event the SEC informs the Company that all of the Securities
cannot, as a result of the application of Rule 415, be registered
for resale as a secondary offering on a single registration
statement, the Company agrees to promptly (i) inform each of the
holders thereof, (ii) use its best efforts to file amendments to
the Initial Registration Statement as required by the SEC or (iii)
withdraw the Initial Registration Statement and file a new
registration statement (a "
New Registration Statement ,"
and together with the Initial Registration Statement, the "
Registration Statement "),
in either case covering the maximum number of Securities permitted
to be registered by the SEC on Form S-3 or such other form
available to register for resale the Securities as a secondary
offering, with the number of shares included on such amendment or
the New Registration Statement cut back proportionally for each
Investor; provided, however, that prior to filing such amendment or
New Registration Statement, the Company shall be obligated to use
its best efforts to advocate with the SEC for the registration of
all of the Securities in accordance with SEC policies. In the event
the Company amends the Initial Registration Statement or files a
New Registration Statement, as the case may be, under clauses (ii)
or (iii) above, the Company will use its commercially reasonable
efforts to file with the SEC, as promptly as allowed by the SEC,
one or more registration statements on Form S-3 or such other form
available to register for resale those Securities that were not
registered for resale on the Initial Registration Statement, as
amended, or the New Registration Statement;
(b)
subject
to receipt of necessary information from the Investors, use
its commercially reasonable efforts to cause the Registration
Statement to become effective no later than the date that is
90 calendar days after the Closing Date, (or, in the event of
a "full review" of the Registration Statement by the SEC, 150
calendar days after the Closing Date) (the "
Required Effective Date ").
If the Registration Statement (i) has not been filed by the
Required Filing Date or (ii) has not been declared effective by the
SEC on or before the Required Effective Date, the Company shall, on
the Business Day immediately following the Required Filing Date or
the Required Effective Date, as the case may be, and each 30th day
thereafter, make a payment to the Investor as partial compensation
for such delay (the "
Late Registration Payments ")
equal to 1% of the purchase price paid for the Preferred Shares
purchased by the Investor and not previously sold by the Investor
until the Registration Statement is filed or declared effective by
the SEC, as the case may be; provided, however, that in no event
shall the payments made pursuant to this
Subsection (b) if
any, exceed in the aggregate 10% of such purchase price. Late
Registration Payments will be prorated on a daily basis during each
30 day period and will be paid to the Investor by wire transfer or
check within five Business Days after the earlier of (i) the end of
each 30 day period following the Required Effective Date or (ii)
the effective date of the Registration Statement;
(c)
subject
to a Suspension (as defined in
Section 2(c) )
being in effect, use its commercially reasonable efforts to prepare
and file with the SEC such amendments and supplements to the
Registration Statement and the related prospectus (the "
Prospectus ")
as may be necessary to keep the Registration Statement current and
effective for a period ending on the earlier of (i) the second
anniversary of the Closing Date, (ii) the date on which the
Investor may sell Securities pursuant to Rule 144 under the
Securities Act or any successor rule ("
Rule 144 ")
or (iii) such time as all Securities purchased by such Investor in
this Offering have been sold (A) pursuant to a registration
statement, (B) to or through a broker, dealer or underwriter in a
public distribution or a public securities transaction or (C) in a
transaction exempt from the registration and prospectus delivery
requirements of the Securities Act under Section 4(1) thereof so
that all transfer restrictions and restrictive legends with respect
thereto, if any, are removed upon the consummation of such sale,
and to notify each Investor promptly upon the Registration
Statement and each post-effective amendment thereto, being declared
effective by the SEC;
(d)
furnish
to the Investor such number of copies of the Registration
Statement and the Prospectus (including supplemental
prospectuses) (collectively, the "
Prospectuses ")
as the Investor may reasonably request, in order to facilitate the
public sale or other disposition of all or any of the Securities by
the Investor;
(e)
file
documents required of the Company for customary blue sky
clearance in states specified in writing by the Investor;
provided, however, that the Company shall not be required to
qualify to do business or consent to service of process in any
jurisdiction in which it is not now so qualified or has not so
consented;
(f)
bear
all expenses (other than underwriting discounts and
commissions, if any) in connection with the procedures in
paragraph (a) through (e) of this
Section 1 and
the registration of the Securities pursuant to the Registration
Statement;
(g)
advise
the Investors, promptly after it shall receive notice or
obtain knowledge of the issuance of any stop order by the SEC
delaying or suspending the effectiveness of the Registration
Statement or of the initiation of any proceeding for that
purpose; and it will promptly use its commercially reasonable
efforts to prevent the issuance of any stop order or to obtain
its withdrawal at the earliest possible moment if such stop
order should be issued; and
(h)
with
a view to making available to the Investor the benefits of
Rule 144 and any other rule or regulation of the SEC that may
at any time permit the Investor to sell Securities to the
public without registration, the Company covenants and agrees
to use its commercially reasonable efforts to: (i) make and
keep public information available, as those terms are
understood and defined in Rule 144, until the earlier of (A)
such date as all of the Investor's Securities may be resold
pursuant to Rule 144 or any other rule of similar effect or
(B) such date as all of the Investor's Securities shall have
been resold; (ii) file with the SEC in a timely manner all
reports and other documents required of the Company under the
Securities Act and under the Securities Exchange Act of 1934,
as amended (the "
Exchange Act ");
and (iii) furnish to the Investor upon request, as long as the
Investor owns any Securities, (A) a written statement by the
Company that it has complied with the reporting requirements of the
Securities Act and the Exchange Act, (B) a copy of the Company's
most recent Annual Report on Form 10-K or Quarterly Report on Form
10-Q, and (C) such other information as may be reasonably requested
in order to avail the Investor of any rule or regulation of the SEC
that permits the selling of any such Securities without
registration.
It
shall be a condition precedent to the obligations of the
Company to take any action pursuant to this
Section 1 that
the Investor shall furnish to the Company such information
regarding itself, the Securities to be sold by the Investor, and
the intended method of disposition of such securities as shall be
required to effect the registration of the Securities.
The
Company understands that the Investor disclaims being an
underwriter, but acknowledges that a determination by the SEC
that the Investor is deemed an underwriter shall not relieve
the Company of any obligations it has hereunder.
2.
Transfer of Shares After Registration; Suspension
.
(a)
The
Investor agrees that it will not effect any disposition of the
Securities or its right to purchase the Securities that would
constitute a sale within the meaning of the Securities Act
other than transactions exempt from the registration
requirements of the Securities Act, as contemplated in the
Registration Statement and as described below, and that it
will promptly notify the Company of any material changes in
the information set forth in the Registration Statement
regarding the Investor or its plan of
distribution.
(b)
Except
in the event that
Subsection (c) below
applies, the Company shall: (i) if deemed necessary by the Company,
prepare and file from time to time with the SEC a post-effective
amendment to the Registration Statement or a supplement to the
related Prospectus or a supplement or amendment to any document
incorporated therein by reference or file any other required
document so that such Registration Statement will not contain 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, and so that, as thereafter
delivered to purchasers of the Securities being sold thereunder,
such Prospectus will not contain 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, in light of the
circumstances under which they were made, not misleading; (ii)
provide the Investor copies of any documents filed pursuant
to
Section 2(b)(i) ;
and (iii) upon request, inform each Investor who so requests that
the Company has complied with its obligations in
Section 2(b)(i) (or
that, if the Company has filed a post-effective amendment to the
Registration Statement which has not yet been declared effective,
the Company will notify the Investor to that effect, will use its
commercially reasonable efforts to secure the effectiveness of such
post-effective amendment as promptly as possible and will promptly
notify the Investor pursuant to
Section 2(b)(i) hereof
when the amendment has become effective).
(c)
Subject
to
Subsection (d) below,
in the event: (i) of any request by the SEC or any other federal or
state governmental authority during the period of effectiveness of
the Registration Statement for amendments or supplements to the
Registration Statement or related Prospectus or for additional
information; (ii) of the issuance by the SEC or any other federal
or state governmental authority of any stop order suspending the
effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose; (iii) of the receipt by the
Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the
Securities for sale in any jurisdiction or the initiation of any
proceeding for such purpose; or (iv) of any event or circumstance
which necessitates the making of any changes in the Registration
Statement or Prospectus, or any document incorporated or deemed to
be incorporated therein by reference, so that, in the case of the
Registration Statement, it will not contain any 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, and that in the case of the Prospectus, it will not
contain any 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, in the light of the circumstances under
which they were made, not misleading; then the Company shall
promptly deliver a certificate in writing to the Investor (the
"
Suspension Notice ")
to the effect of the foregoing and, upon receipt of such Suspension
Notice, the Investor will refrain from selling any Securities
pursuant to the Registration Statement (a "
Suspension ")
until the Investors are advised in writing by the Company that the
current Prospectus may be used, and has received copies of any
additional or supplemental filings that are incorporated or deemed
incorporated by reference in any such Prospectus. In the event of
any Suspension, the Company will use its commercially reasonable
efforts to cause the use of the Prospectus so suspended to be
resumed as soon as reasonably practicable after delivery of a
Suspension Notice to the Investors. In addition to and without
limiting any other remedies (including, without limitation, at law
or at equity) available to the Investor, the Investor shall be
entitled to specific performance in the event that the Company
fails to comply with the provisions of this
Section 2(c) .
The Investor covenants that from the date hereof it will maintain
in confidence the receipt and content of any Suspension Notice
provided in accordance with this
Section 2(c) in
accordance with and subject to
Section 4.6 of
Annex I to
the Securities Purchase Agreement.
(d)
Notwithstanding
the foregoing paragraphs of this
Section 2 ,
the Company shall use its commercially reasonable efforts to ensure
that (i) a Suspension shall not exceed 60 days individually and
(ii) no mor
