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
”).
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 Agre
