Execution
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NEITHER THESE SECURITIES NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”) AND APPLICABLE STATE SECURITIES LAWS
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON
EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
WARRANT AGREEMENT
Warrant Agreement (the “Warrant”),
dated as of May 21, 2009, between China Energy Recovery, Inc., a
Delaware company (the “Company”), and Hold And Opt
Investments Limited, a Bahamas company (the
“Holder”).
WITNESSETH:
WHEREAS, the Company has entered into a loan
(“Loan”) with the Holder, and the Loan provides for the
issuance of this Warrant for the purchase of shares of common stock
of the Company, $.001 par value (“Common Stock”), as
provided herein and subject hereto; and
WHEREAS, the Holder is taking this Warrant in
reliance on the representations of the Company, set forth in the
Loan agreement;
WHEREAS, this Warrant is being issued on a
private placement basis, on the terms provided herein, in
conjunction with the Loan, and the Company is relying on the
representations of the Holder in the Loan agreement, and the Holder
understands the limitations and responsibilities of acquiring the
restricted securities comprising the Warrant and the underlying
shares of Common Stock (“Warrant Shares”) and the
registration rights provided in a separate Registration Rights
Agreement (“Registration Rights Agreement”) between the
Company and the Holder of even date herewith.
NOW, THEREFORE, in consideration of the premises
contained herein, including the Loan by the Holder to the Company,
the agreements set forth herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1.
Grant and Period.
1.1
Grant . The Holder is hereby granted the right to
purchase from the Company, at any time during the exercise period,
up to an aggregate of 1,388,889 Warrant Shares of the Company at an
initial exercise price (subject to adjustment as provided in
Section 5 hereof) of $1.80 per Warrant Share (the “Exercise
Price”), such exercise to be subject to the terms and
conditions of this Warrant.
1.2
Period . The Warrant will be exercisable
commencing on May 21, 2009, and expire at 5:00 PM on May 21, 2014
(“Expiration Time”). If the Expiration Time
is not a business day in the City of Shanghai, then the expiration
date will be extended to 5:00 PM on the next business day in the
City of Shanghai. Days on which banks are generally
closed for business and financial transactions in the City of
Shanghai, Saturdays and Sundays will be considered a non-business
day.
2.
Exercise of Warrant .
2.1
Full Exercise . Except as provided in
Section 2.3 below, the Holder shall effect an exercise of the
Warrant by surrendering to the Company this Warrant, together with
a Subscription in the form of Exhibit A attached thereto, duly
executed by such Holder, at any time prior to the Expiration Time,
at the Company’s principal office, accompanied by payment in
cash or by certified or official bank check payable to the order of
the Company in the amount of the aggregate purchase price (the
“Aggregate Price”), subject to any adjustments provided
for in the Warrant. The Aggregate Price shall be the amount that is
the result of the Exercise Price multiplied by the number of
Warrant Shares that are the subject of the Warrant (as adjusted as
hereinafter provided) being purchased by the Holder.
2.2
Partial Exercise . The Warrant may also be
exercised from time to time in part by surrendering the Warrant in
the manner specified in Sections 2.1 or 2.3 hereof, except that the
Purchase Price payable shall be the amount that is the result of
the number of Warrant Shares being purchased hereunder multiplied
by the Exercise Price, subject to any adjustments provided for in
the Warrant. Upon any such partial exercise, the Company, at its
expense, will forthwith issue to the Holder a new Warrant of like
tenor for the aggregate number of securities (as constituted as of
the date hereof) for which the Warrant shall not have been
exercised, issued in the name of the Holder or as the Holder (upon
payment by such Holder of any applicable transfer taxes) may
direct.
2.3
Conversion Right . The Holder may effect an
exercise of the Warrants and pay the Exercise Price through a
conversion of the Warrant (“Conversion Right”);
provided , that such conversion right shall exist only at
such time that the Company has the obligation to provide a resale
registration statement for the underlying securities of the
Warrant, whether pursuant to the exercise of a demand right or an
exercised piggyback right, and the Company does not have a
registration statement effective and currently the available for
the resale by the Holder of the underlying securities of the
Warrant as provided in the Registration Rights Agreement. Subject
to the foregoing limitation, the Holder may effect a Conversion
Right of the Warrant by surrendering to the Company this Warrant,
together with a Subscription in the form of Exhibit B attached
hereto, duly executed by such Holder, prior to the Expiration Time,
at the Company’s principal office, upon which the Company
shall issue to the Holder the number of Warrant Shares determined
as follows:
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X
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Y x
(A-B)/A
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where
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X
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=
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the number of
Warrant Shares to be issued to the Holder;
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Y
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=
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the number of
Warrant Shares with respect to which this Warrant is being
exercised;
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A
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=
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the Market
Price of a share of Common Stock as of the Date of Exercise;
and
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B
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=
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the Exercise
Price.
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2.4
Certain Defined Terms . “Market
Price” of a share of Common Stock on any date shall mean, (i)
if the shares of Common Stock are traded on the NASDAQ Global
Market, NASDAQ Global Select Market or the NASDAQ Capital Market,
the last bid price reported on that date; (ii) if the shares of
Common Stock are not quoted on a NASDAQ market and are listed on
any other national securities exchange, the last sale price of the
Common Stock reported by such exchange on that date; (iii) if the
shares of Common Stock are not quoted on any such market or listed
on any such exchange and the shares of Common Stock are traded in
the over-the-counter market, the last price reported on such day by
the OTC Bulletin Board; (iv) if the shares of Common Stock are not
quoted on a any such market, listed on any such exchange or quoted
on the OTC Bulletin Board, then the last price quoted on such day
in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices); or (v) if
none of clauses (i)-(iv) are applicable, then as determined, in
good faith, by the Board of Directors of the Company and the
Holders. “Date of Exercise” means the date on which the
Holder shall have delivered to the Company (i) the Warrant, (ii)
the applicable Subscription form attached thereto, appropriately
completed and duly signed, and (iii) if applicable, payment of the
Exercise Price.
3.
Issuance of Certificates . Upon the exercise of
the Warrant, the issuance of certificates for Warrant Shares shall
be made promptly (and, in any event within five business days
thereafter) without charge to the Holder thereof including, without
limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of
Section 4 and Section 5 hereof) be issued in the name of, or in
such names as may be directed by, the Holder thereof; provided,
however, that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the
issuance and delivery of any such certificates in a name other than
that of the Holder and the Company shall not be required to issue
or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of
the Company that such tax has been paid.
4.
Restriction on Transfer . The Warrant and the
Warrant Shares may be transferred only pursuant to a registration
statement filed under the Securities Act of 1933, as amended (the
“Securities Act”) and the applicable state securities
laws or an exemption from such registrations. Subject to
such restrictions, the Company shall transfer the Warrant and the
Warrant Shares, from time to time, upon the books to be maintained
by the Company for that purpose, upon surrender thereof, for
transfer properly endorsed or accompanied by appropriate
instructions for transfer and such other documents as may be
reasonably required by the Company, including, if required by the
Company, an opinion of its counsel to the effect that such transfer
is exempt from the registration requirements of the Securities Act,
and to establish that such transfer is being made in accordance
with the terms hereof. Upon such surrender to the
Company of this Warrant for its transfer, the Company shall execute
and deliver a new Warrant, representing the new Warrant or Warrants
in the name of the transferee or transferees and in the
denomination or denominations specified in such instructions, and
shall issue to the transferor a new Warrant evidencing the portion
of the Warrant not so transferred, and this Warrant shall promptly
be cancelled. A Warrant, if properly transferred, may be
exercised by a new holder without having a new Warrant
issued.
5.
Adjustments to Exercise Price and Number of Securities
.
5.1
Stock Dividends and Splits . If the Company, at
any time while this Warrant is outstanding: (i) pays a stock
dividend or otherwise makes a distribution or distributions to all
its stockholders equally which are payable in shares of Common
Stock on shares of Common Stock or any Common Stock equivalents,
(ii) subdivides outstanding shares of Common Stock into a larger
number of shares, (iii) combines (including by way of a reverse
stock split) outstanding shares of Common Stock into a smaller
number of shares or (iv) issues, in the event of a reclassification
of shares of the Common Stock, any shares of capital stock of the
Company, then the Exercise Rate shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common
Stock (excluding any treasury shares of the Company) outstanding
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