Exhibit 10.1

 

STANDBY EQUITY DISTRIBUTION AGREEMENT

 

THIS STANDBY EQUITY DISTRIBUTION AGREEMENT dated as of July 8, 2014 (this
“Agreement”) is made by and between YA GLOBAL MASTER SPV LTD., a Cayman Islands
exempt limited partnership (the “Investor”), and CHINA RECYCLING ENERGY
CORPORATION, a company organized under the laws of the State of Nevada (the
“Company”).

 

WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue and sell to the Investor, from time to
time as provided herein, and the Investor shall purchase from the Company up to
$50,000,000 of the Company’s Common Stock, $0.001 par value (the “Common
Stock”); and

 

WHEREAS, the Common Stock are listed for trading on the NASDAQ Global Market
under the symbol “CREG;” and

 

WHEREAS, the offer and sale of the Common Stock issuable hereunder will be made
in reliance upon the provisions of Regulation D (“Regulation D”) promulgated
under the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder (the “Securities Act”), or upon such other exemption from
the registration requirements of the Securities Act as may be available with
respect to any or all of the transactions to be made hereunder.

 

NOW, THEREFORE, the parties hereto agree as follows:

 

Article I. Certain Definitions

 

Section 1.01         “Advance” shall mean the portion of the Commitment Amount
requested by the Company in the Advance Notice.

 

Section 1.02         “Advance Date” shall mean the 1st Trading Day after
expiration of the applicable Pricing Period for each Advance.

 

Section 1.03         “Advance Notice” shall mean a written notice in the form of
Exhibit A attached hereto to the Investor executed by an officer of the Company
and setting forth the Advance amount that the Company requests from the
Investor.

 

Section 1.04         “Advance Notice Date” shall mean each date the Company
delivers (in accordance with Section 2.01(c) of this Agreement) to the Investor
an Advance Notice requiring the Investor to advance funds to the Company,
subject to the terms of this Agreement.

 

Section 1.05         “Affiliate” shall have the meaning set forth in Section
3.08.

 

Section 1.06         “Articles of Incorporation” shall have the meaning set
forth in Section 4.03.

 

Section 1.07         “Bylaws” shall have the meaning set forth in Section 4.03.

 

Section 1.08         “Commitment Amount” shall mean the aggregate amount of up
to $50,000,000.

 

 

 

 

Section 1.09         “Commitment Fee” shall have the meaning set forth in
Section 13.04.

 

Section 1.10         “Commitment Fee Shares” shall have the meaning set forth in
Section 13.04.

 

Section 1.11          “Company Indemnitees” shall have the meaning set forth in
Section 5.02.

 

Section 1.12         “Commitment Period” shall mean the period commencing on the
Effective Date, and expiring upon the date of termination of this Agreement in
accordance with Section 11.02.

 

Section 1.13         “Common Stock” shall have meaning set forth in the
Recitals.

 

Section 1.14         “Condition Satisfaction Date” shall have the meaning set
forth in Section 7.01.

 

Section 1.15         “Consolidation Event” shall have the meaning set forth in
Section 6.08.

 

Section 1.16         “Daily Value Traded” in respect of a particular day means
the product obtained by multiplying the daily trading volume of the Common Stock
for that day on the Principal Market by the VWAP for such day.

 

Section 1.17         “Damages” shall mean any loss, claim, damage, liability,
costs and expenses (including, without limitation, reasonable attorney’s fees
and disbursements and costs and expenses of expert witnesses and investigation).

 

Section 1.18         “Effective Date” shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Shares.

 

Section 1.19         “Environmental Laws” shall have the meaning set forth in
Section 4.08.

 

Section 1.20         “Exchange Act” shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.

 

Section 1.21         “Indemnified Liabilities” shall have the meaning set forth
in Section 5.01.

 

Section 1.22          “Investor Indemnitees” shall have the meaning set forth in
Section 5.01.

 

Section 1.23         “Market Price” shall mean the lowest daily VWAP of the
Common Stock during the relevant Pricing Period that is greater than or equal to
the Minimum Acceptable Price.

 

Section 1.24         “Material Adverse Effect” shall mean any condition,
circumstance, or situation that may result in, or would reasonably be expected
to result in (i) a material adverse effect on the legality, validity or
enforceability of this Agreement or the transactions contemplated herein, (ii) a
material adverse effect on the results of operations, assets, business or
condition (financial or otherwise) of the Company and its subsidiaries, taken as
a whole, or (iii) a material adverse effect on the Company’s ability to perform
in any material respect on a timely basis its obligations under this Agreement.

 

Section 1.25         “Bylaws” shall have the meaning set forth in Section 4.03.

 

- 2 -

 

 

Section 1.26         “Minimum Acceptable Price” or “MAP” shall be 90% of the
last closing price of the Common Stock on the Principal Market at the time of
delivery of each Advance Notice.

 

Section 1.27         “Ownership Limitation” shall have the meaning set forth in
Section 2.01(a).

 

Section 1.28         “Person” shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.

 

Section 1.29         “Plan of Distribution” shall have the meaning set forth in
Section 6.01(a).

 

Section 1.30         “Pricing Period” shall mean the 5 consecutive Trading Days
commencing on the Trading Day immediately following the Advance Notice Date.

 

Section 1.31         “Pricing Period Volume Limitation” shall have the meaning
set forth in Section 2.01(d).

 

Section 1.32         “Principal Market” shall mean the New York Stock Exchange,
the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital
Market, the OTCBB, or the NYSE Euronext, whichever is at the time the principal
trading exchange or market for the Common Stock.

 

Section 1.33         “Purchase Price” shall mean the price per share obtained by
multiplying the Market Price by 99%.

 

Section 1.34         “Registrable Securities” shall mean (i) the Shares, and
(ii) any securities issued or issuable with respect to any of the foregoing by
way of exchange, stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise. As to any particular Registrable Securities, once
issued such securities shall cease to be Registrable Securities when (a) the
Registration Statement has been declared effective by the SEC and such
Registrable Securities have been disposed of pursuant to the Registration
Statement, (b) such Registrable Securities have been sold under circumstances in
which all of the applicable conditions of Rule 144 (or any similar provision
then in force) under the Securities Act (“Rule 144”) are met, or (c) in the
opinion of counsel to the Company such Registrable Securities may permanently be
sold without registration or without any time, volume or manner limitations
pursuant to Rule 144.

 

Section 1.35         “Registration Limitation” shall have the meaning set forth
in Section 2.01(a).

 

Section 1.36         “Registration Period” shall have the meaning set forth in
Section 6.01(b).

 

Section 1.37         “Registration Statement” shall mean a registration
statement on Form S-1 or Form S-3 or on such other form promulgated by the SEC
for which the Company then qualifies and which counsel for the Company shall
deem appropriate, and which form shall be available for the registration of the
resale by the Investor of the Registrable Securities under the Securities Act.

 

- 3 -

 

 

Section 1.38         “Regulation D” shall have the meaning set forth in the
recitals of this Agreement.

 

Section 1.39         “SEC” shall mean the U.S. Securities and Exchange
Commission.

 

Section 1.40         “SEC Documents” shall have the meaning set forth in Section
4.05.

 

Section 1.41         “Securities Act” shall have the meaning set forth in the
recitals of this Agreement.

 

Section 1.42         “Settlement Document” shall have the meaning set forth in
Section 2.02(a).

 

Section 1.43         “Shares” shall mean the Common Stock to be issued from time
to time hereunder pursuant to Advances, and any Commitment Fee Shares.

 

Section 1.44          “Trading Day” shall mean any day during which the
Principal Market shall be open for business.

 

Section 1.45         “VWAP” means, for any Trading Day, the daily volume
weighted average price of the Common Stock for such date on the Principal Market
as reported by Bloomberg L.P. during regular trading hours.

 

Article II. Advances

 

Section 2.01         Advances; Mechanics. Subject to the terms and conditions of
this Agreement (including, without limitation, the provisions of Article VII
hereof), the Company, at its sole and exclusive option, may issue and sell to
the Investor, and the Investor shall purchase from the Company, Common Stock on
the following terms:

 

(a)Advance Notice. At any time during the Commitment Period the Company may
require the Investor to purchase Shares by delivering an Advance Notice to the
Investor, subject to the conditions set forth in Section 7.01, and in accordance
with the following provisions;

 

(i)The Company shall, in its sole discretion, select the Advance Amount it
desires to request in each Advance Notice and the time it desires to deliver
each Advance Notice, which amount shall not exceed $5,000,000, provided however,
the Company acknowledges and agrees that the total Advance Amount that the
Company will receive in connection with each Advance Notice may be less than the
Advance Amount requested in the Advance Notice due to reductions to the Advance
Amount in accordance with the terms of this Agreement, including the Pricing
Period Volume Limitation as described below.

 

(ii)There shall be no mandatory minimum Advances and no non-usages fee for not
utilizing the Commitment Amount or any part thereof.

 

- 4 -

 

 

(b)Date of Delivery of Advance Notice. Advance Notices shall be delivered in
accordance with the instructions set forth on the bottom of Exhibit A. An
Advance Notice shall be deemed delivered on (i) the Trading Day it is received
by the Investor if such notice is received prior to 5:00 pm Eastern Time, or
(ii) the immediately succeeding Trading Day if it is received after 5:00 pm
Eastern Time on a Trading Day or at any time on a day which is not a Trading
Day. No Advance Notice may be deemed delivered on a day that is not a Trading
Day.

 

(c)Advance Limitations. Regardless of the Advance Amount requested by the
Company in the Advance Notice, the final amount of the Advance shall be reduced
in accordance with each of the following limitations:

 

(i)Ownership Limitation; Commitment Amount. In no event shall the number of
shares of Common Stock issuable to the Investor pursuant to an Advance cause the
aggregate number of shares of Common Stock beneficially owned (as calculated
pursuant to Section 13(d) of the Exchange Act) by the Investor and its
affiliates to exceed 4.99% of the then outstanding Common Stock (the “Ownership
Limitation”). In connection with each Advance Notice delivered by the Company,
any portion of an Advance that would (i) cause the Investor to exceed the
Ownership Limitation or (ii) cause the aggregate amount of Advances to exceed
the Commitment Amount shall automatically be withdrawn with no further action
required by the Company, and such Advance Notice shall be deemed automatically
modified to reduce the aggregate amount of the requested Advance by an amount
equal to such withdrawn portion.

 

(ii)Pricing Period Volume Limitation. In connection with each Advance Notice,
the “Pricing Period Volume Limitation” shall mean the greater of (i) $500,000,
and (ii) the sum of the Daily Value Traded for each Trading Day during the
Pricing Period multiplied by 20% but not more than $5,000,000. In respect of
each Advance Notice delivered by the Company, any portion of an Advance Amount
that would exceed the Pricing Period Volume Limitation shall automatically be
deemed to be withdrawn with no further action required on behalf of either
party.

 

(iii)Registration Limitation. In no event shall the aggregate number of Shares
subject to an Advance Notice cause the number of Shares purchased by the
Investor pursuant to this Agreement to exceed the number of Shares registered
for resale under the Registration Statement(s) filed by the Company in respect
of the transactions contemplated hereby (the “Registration Limitation”). In
connection with each Advance Notice, any portion of an Advance that would exceed
the Registration Limitation shall automatically be withdrawn with no further
action required by the Company and such Advance Notice shall be deemed
automatically modified to reduce the aggregate amount of the requested Advance
by an amount equal to such withdrawn portion in respect of each Advance Notice.

 

- 5 -

 

 

(d)Minimum Acceptable Price.

 

(i)With respect to each Advance Notice (A) the amount of the Advance set forth
in such Advance Notice shall automatically be reduced by 20% for each Trading
Day during the Pricing Period for which the VWAP of the Common Stock is below
the MAP in effect with respect to such Advance Notice (each such day, an
“Excluded Day”), and (B) for the avoidance of doubt, each Excluded Day shall be
excluded from the Pricing Period for purposes of determining the Market Price.

 

(ii)The number of Shares to be issued and delivered to the Investor at each
Closing with respect to an Advance Notice with an Excluded Day shall be
determined based on the Advance Notice amount as reduced pursuant to Section
2.01(d)(i) above (the “Adjusted Advance Notice”); provided however, that the
Adjusted Advance Notice shall be automatically increased by an amount equal to
the number of Shares sold by the Investor on such Excluded Day (in a total
amount for each Excluded Day not to exceed 20% of the amount of the Advance set
forth in the original Advance Notice) at a price per share equal to the MAP in
effect with respect to such Advance Notice (without any further discount).

 

(e)Notwithstanding any other provision in this Agreement, the Company and the
Investor acknowledge and agree that upon the Investor’s receipt of a valid
Advance Notice the parties shall be deemed to have entered into an unconditional
contract binding on both parties for the purchase and sale of Shares pursuant to
such Advance Notice in accordance with the terms of this Agreement

 

Section 2.02         Closings. Each Closing shall take place as soon as
practicable after each Advance Date in accordance with the procedures set forth
below. In connection with each Closing the Company and the Investor shall
fulfill each of its obligations as set forth below:

 

(a)On each Advance Date, the Investor shall deliver to the Company a written
document in the form attached hereto as Exhibit B (each a “Settlement Document”)
setting forth the amount of the Advance (taking into account any adjustments
pursuant to Section 2.01), the Purchase Price, the number of shares of Common
Stock to be purchased by the Investor, and a report by Bloomberg, L.P.
indicating the VWAP for each of the Trading Days during the Pricing Period, in
each case in accordance with the terms and conditions of this Agreement.

 

(b)Promptly after receipt of the Settlement Document with respect to each
Advance (and, in any event, not later than two Trading Days after such receipt),
the Company will, or will cause its transfer agent to, electronically transfer
number of shares of Common Stock to be purchased by the Investor (as set forth
in the Settlement Document) by crediting the Investor’s account or its
designee’s account at the Depository Trust Company through its Deposit
Withdrawal at Custodian System or by such other means of delivery as may be
mutually agreed upon by the parties hereto (which in all cases the resale of
such shares of Common Stock shall be covered by an effective Registration
Statement and may be freely transferred by the Investor), and transmit
notification to the Investor that such share transfer has been requested.
Promptly upon receipt of such notification, the Investor shall pay to the
Company of the aggregate amount of the Advance (as set forth in the Closing
Statement) in cash in immediately available funds to an account designated by
the Company in writing. No fractional shares shall be issued, and any fractional
amounts shall be rounded to the next higher whole number of shares. Any
certificates evidencing Common Stock delivered pursuant hereto shall be free of
restrictive legends. To facilitate the transfer of the Common Stock by the
Investor, the Common Stock will not bear any restrictive legends so long as
there is an effective Registration Statement covering such Common Stock.

 

- 6 -

 

 

(c)On or prior to the Advance Date, each of the Company and the Investor shall
deliver to the other all documents, instruments and writings required to be
delivered by either of them pursuant to this Agreement in order to implement and
effect the transactions contemplated herein.

 

Section 2.03         Hardship. In the event the Investor sells shares of the
Company’s Common Stock after receipt of an Advance Notice and the Company fails
to perform its obligations as mandated in Section 2.02, the Company agrees that
in addition to and in no way limiting the rights and obligations set forth in
Article V hereto and in addition to any other remedy to which the Investor is
entitled at law or in equity, including, without limitation, specific
performance, it will hold the Investor harmless against any loss, claim, damage,
or expense (including reasonable legal fees and expenses), as incurred, arising
out of or in connection with such default by the Company and acknowledges that
irreparable damage would occur in the event of any such default. It is
accordingly agreed that the Investor shall be entitled to an injunction or
injunctions to prevent such breaches of this Agreement and to specifically
enforce (subject to the Securities Act and other rules of the Principal Market),
without the posting of a bond or other security, the terms and provisions of
this Agreement.

 

Article III. Representations and Warranties of Investor

 

Investor hereby represents and warrants to, and agrees with, the Company that
the following are true and correct as of the date hereof and as of each Advance
Date:

 

Section 3.01         Organization and Authorization. The Investor is duly
organized, validly existing and in good standing under the laws of the Cayman
Islands and has all requisite power and authority to execute, deliver and
perform this Agreement, including all transactions contemplated hereby. The
decision to invest and the execution and delivery of this Agreement by such
Investor, the performance by the Investor of its obligations hereunder and the
consummation by the Investor of the transactions contemplated hereby have been
duly authorized and require no other proceedings on the part of the Investor.
The undersigned has the right, power and authority to execute and deliver this
Agreement and all other instruments on behalf of the Investor or its
shareholders. This Agreement has been duly executed and delivered by the
Investor and, assuming the execution and delivery hereof and acceptance thereof
by the Company, will constitute the legal, valid and binding obligations of the
Investor, enforceable against the Investor in accordance with its terms.

 

- 7 -

 

 

Section 3.02         Evaluation of Risks. The Investor has such knowledge and
experience in financial, tax and business matters as to be capable of evaluating
the merits and risks of, and bearing the economic risks entailed by, an
investment in the Company and of protecting its interests in connection with the
transactions contemplated hereby. The Investor acknowledges and agrees that its
investment in the Company involves a high degree of risk.

 

Section 3.03         No Legal, Investment or Tax Advice from the Company. The
Investor acknowledges that it had the opportunity to review this Agreement and
the transactions contemplated by this Agreement with its own legal counsel and
investment and tax advisors. The Investor is relying solely on such counsel and
advisors and not on any statements or representations of the Company or any of
the Company’s representatives or agents for legal, tax, investment or other
advice with respect to the Investor’s acquisition of shares of Common Stock
hereunder, the transactions contemplated by this Agreement or the laws of any
jurisdiction.

 

Section 3.04         Investment Purpose. The shares of Common Stock purchased by
the Investor hereunder are being purchased for its own account, for investment
purposes, and without any view or intention to distribute such shares in
violation of the Securities Act or any other applicable securities laws. The
Investor agrees not to assign or in any way transfer the Investor’s rights to
the securities or any interest therein and acknowledges that the Company will
not recognize any purported assignment or transfer except in accordance with
applicable Federal and state securities laws. No other Person has or will have a
direct or indirect beneficial interest in the securities. The Investor agrees
not to sell, hypothecate or otherwise transfer the Investor’s shares of Common
Stock unless such shares are registered under Federal and applicable state
securities laws or unless, in the opinion of counsel satisfactory to the
Company, an exemption from such registration is available.

 

Section 3.05         Accredited Investor. The Investor is an “Accredited
Investor” as that term is defined in Rule 501(a)(3) of Regulation D.

 

Section 3.06         Information. The Investor and its advisors (and its
counsel), if any, have been furnished with all materials relating to the
business, finances and operations of the Company and information it deemed
material to making an informed investment decision. The Investor and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company and its management and has received answers to such questions. Neither
such inquiries nor any other due diligence investigations conducted by such
Investor or its advisors, if any, or its representatives shall modify, amend or
affect the Investor’s right to rely on the Company’s representations and
warranties contained in this Agreement. The Investor understands that its
investment involves a high degree of risk. The Investor has sought such
accounting, legal and tax advice, as it has considered necessary to make an
informed investment decision with respect to the transactions contemplated
hereby.

 

Section 3.07         No General Solicitation. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D) in connection with the offer or sale of the Common Stock offered
hereby.

 

- 8 -

 

 

Section 3.08         Not an Affiliate. The Investor is not an officer, director
or a person that directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with the Company or any
“affiliate” of the Company (as that term is defined in Rule 405 promulgated
under the Securities Act).

 

Section 3.09         Trading Activities. The Investor’s trading activities with
respect to the Common Stock shall be in compliance with all applicable federal
and state securities laws, rules and regulations and the rules and regulations
of the Principal Market on which the Common Stock is listed or traded. Neither
the Investor nor its affiliates has any open short position in the Common Stock,
the Investor agrees that it shall not, and that it will cause its affiliates not
to, engage in any short sales of the Common Stock; provided that the Company
acknowledges and agrees that upon receipt of an Advance Notice the Investor has
the right to sell the shares to be issued to the Investor pursuant to the
Advance Notice prior to receiving such shares.

 

Article IV. Representations and Warranties of the Company

 

Except as stated below, on the disclosure schedules attached hereto or in the
SEC Documents, the Company hereby represents and warrants to, the Investor that
the following are true and correct as of the date hereof and as of each Advance
Date (other than representations and warranties which address matters only as of
a certain date, which shall be true and correct as written as of such certain
date):

 

Section 4.01         Organization and Qualification. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Nevada and has all requisite corporate power to own its properties and to carry
on its business as now being conducted. Each of the Company and its subsidiaries
is duly qualified to do business and is in good standing (to the extent
applicable) in every jurisdiction in which the nature of the business conducted
by it makes such qualification necessary, except to the extent that the failure
to be so qualified or be in good standing would not have a Material Adverse
Effect.

 

Section 4.02         Authorization, Enforcement, Compliance with Other
Instruments. (i) The Company has the requisite corporate power and authority to
enter into and perform this Agreement and any related agreements, in accordance
with the terms hereof and thereof, (ii) the execution and delivery of this
Agreement and any related agreements by the Company and the consummation by it
of the transactions contemplated hereby and thereby, have been duly authorized
by the Company’s Board of Directors and no further consent or authorization is
required by the Company, its Board of Directors or its shareholders, (iii) this
Agreement and any related agreements have been duly executed and delivered by
the Company, (iv) this Agreement and assuming the execution and delivery thereof
and acceptance by the Investor, any related agreements, constitute the valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium, liquidation or similar laws from time to time
relating to, or affecting generally, the enforcement of creditors’ rights and
remedies.

 

- 9 -

 

 

Section 4.03         Capitalization. The registered share capital of the Company
as of the date hereof consists of 200,000,000 Common Stock, of which 60,946,182
Common Stock are issued and outstanding. All of such outstanding shares have
been validly issued and are fully paid and nonassessable. Except as disclosed in
the SEC Documents, none of the Common Stock are subject to preemptive rights or
any other similar rights or any liens or encumbrances suffered or permitted by
the Company. Except as disclosed in the SEC Documents, as of the date hereof,
(i) there are no outstanding options, warrants, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of Common Stock or any of its contracts,
commitments, understandings or arrangements by which the Company is or may
become bound to issue additional shares of Common Stock or options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any Common Stock, (ii)
there are no outstanding debt securities (iii) there are no outstanding
registration statements and (iv) there are no agreements or arrangements under
which the Company is obligated to register the sale of any of its securities
under the Securities Act. There are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by this Agreement or
the consummation of the transactions described herein. The Company has furnished
or made available to the Investor true and correct copies of the Company’s
Articles of Incorporation, as amended and as in effect on the date hereof (the
“Articles of Incorporation”), and the Company’s Bylaws, as in effect on the date
hereof (the “Bylaws”).

 

Section 4.04         No Conflict. The execution, delivery and, subject to the
satisfaction of the Closing procedures set forth in Section 2.02 hereof,
performance of this Agreement by the Company and the consummation by the Company
of the transactions contemplated hereby will not (i) result in a violation of
the Articles of Incorporation or Bylaws or (ii) conflict with or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and the rules and regulations of the
Principal Market on which the Common Stock are quoted) applicable to the Company
or any of its subsidiaries or by which any material property or asset of the
Company is bound or affected and which would cause a Material Adverse Effect.
Except as disclosed in the SEC Documents, neither the Company nor its
subsidiaries is in violation of any term of or in default under its Articles of
Incorporation or Bylaws or other applicable organizational documents, or, to the
Company’s knowledge, any material contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its subsidiaries that would cause a
Material Adverse Effect. To the Company’s knowledge, the business of the Company
and its subsidiaries is not being conducted in violation of any material law,
ordinance or regulation of any governmental entity, except as would not cause a
Material Adverse Effect. Except as specifically contemplated by this Agreement
and as required under the Securities Act and any applicable securities laws, and
as required by the rules of the Principal Market, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under or contemplated by this
Agreement in accordance with the terms hereof except as such consent,
authorization or order has been obtained as of the date hereof. The Company and
its subsidiaries are not aware of any fact or circumstance which is reasonably
expected to give rise to any of the foregoing.

 

- 10 -

 

 

Section 4.05         SEC Documents; Financial Statements. The Company has filed
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to Section 15(d) of the Exchange Act for the
two years preceding the date hereof (or such shorter period as the Company was
required by law or regulation to file such material) (all of the foregoing filed
within the two years preceding the date hereof or amended after the date hereof
and all exhibits included therein and financial statements and schedules thereto
and documents incorporated by reference therein, and all registration statements
filed by the Company under the Securities Act, being hereinafter referred to as
the “SEC Documents”). The Company has made available to the Investor through the
SEC’s website at http://www.sec.gov, true and complete copies of the SEC
Documents. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act or the Securities
Act, as applicable, and the rules and regulations of the SEC promulgated
thereunder applicable to the SEC Documents, and none of the SEC Documents, at
the time they were filed with the SEC, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. As of their respective
dates, the financial statements of the Company included in the SEC Documents
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of respective the dates thereof and the results of
its operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments).

 

Section 4.06         Intellectual Property Rights. The Company and its
subsidiaries own or possess adequate rights or licenses to use all material
trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights necessary to conduct their
respective businesses as now conducted, except as would not cause a Material
Adverse Effect. The Company and its subsidiaries do not have any knowledge of
any infringement by the Company or its subsidiaries of trademark, trade name
rights, patents, patent rights, copyrights, inventions, licenses, service names,
service marks, service mark registrations, or trade secrets, except as would not
cause a Material Adverse Effect. To the knowledge of the Company, there is no
claim, action or proceeding being made or brought against, or to the Company’s
knowledge, being threatened against the Company or its subsidiaries regarding
trademark, trade name, patents, patent rights, invention, copyright, license,
service names, service marks, service mark registrations, trade secret or other
infringement; and, except as would not cause a Material Adverse Effect, the
Company is not aware of any facts or circumstances which might give rise to any
of the foregoing.

 

Section 4.07         Employee Relations. Neither the Company nor any of its
subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened, in each case
which is reasonably likely to cause a Material Adverse Effect.

 

- 11 -

 

 

Section 4.08         Environmental Laws. The Company and its subsidiaries (i)
are in compliance in all material respects with any and all applicable material
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants (“Environmental Laws”), (ii)
have received all material permits, licenses or other approvals required of them
under applicable Environmental Laws to conduct their respective businesses and
(iii) are in compliance with all terms and conditions of any such permit,
license or approval.

 

Section 4.09         Title. Except as set forth in the SEC Documents or except
as would not cause a Material Adverse Effect, the Company has good and
marketable title to its properties and material assets owned by it, free and
clear of any pledge, lien, security interest, encumbrance, claim or equitable
interest other than such as are not material to the business of the Company. Any
real property and facilities held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
subsidiaries.

 

Section 4.10         Insurance. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. The Company has no reason to believe that it will not
be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not have a Material Adverse
Effect.

 

Section 4.11         Regulatory Permits. Except as would not cause a Material
Adverse Effect, the Company and its subsidiaries possess all material
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.

 

Section 4.12         Internal Accounting Controls. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management’s general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.

 

Section 4.13         Absence of Litigation. Except as set forth in the SEC
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory organization
or body pending against or affecting the Company, the Common Stock or any of the
Company’s subsidiaries, wherein an unfavorable decision, ruling or finding would
have a Material Adverse Effect.

 

- 12 -

 

 

Section 4.14         Subsidiaries. Except as disclosed in the SEC Documents, the
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, partnership, association or other business entity.

 

Section 4.15         Tax Status. Except as disclosed in the SEC Documents, the
Company and each of its subsidiaries has made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject to be filed as of the date hereof and
(unless and only to the extent that the Company and each of its subsidiaries has
set aside on its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes) has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and has set aside on its books provision reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim.

 

Section 4.16         Certain Transactions. Except as set forth in the SEC
Documents (or as not required to be disclosed pursuant to applicable law) none
of the officers or directors of the Company is presently a party to any
transaction with the Company (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer or
director, or to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer or director has a substantial
interest or is an officer, director, trustee or partner.

 

Section 4.17         Fees and Rights of First Refusal. The Company is not
obligated to offer the Common Stock offered hereunder on a right of first
refusal basis or otherwise to any third parties including, but not limited to,
current or former shareholders of the Company, underwriters, brokers, agents or
other third parties.

 

Section 4.18         Use of Proceeds. The Company shall use the net proceeds
from this offering for working capital and other general corporate purposes.

 

Section 4.19         Dilution. The Company is aware and acknowledges that
issuance of shares of the Common Stock could cause dilution to existing
shareholders and could significantly increase the outstanding number of shares
of Common Stock.

 

Section 4.20         Acknowledgment Regarding Investor’s Purchase of Shares. The
Company acknowledges and agrees that the Investor is acting solely in the
capacity of an arm’s length investor with respect to this Agreement and the
transactions contemplated hereunder. The Company further acknowledges that the
Investor is not acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the transactions
contemplated hereunder and any advice given by the Investor or any of its
representatives or agents in connection with this Agreement and the transactions
contemplated hereunder is merely incidental to the Investor’s purchase of the
Shares hereunder. The Company is aware and acknowledges that it may not be able
to request Advances under this Agreement if the Registration Statement is not
declared effective or if any issuances of Common Stock pursuant to any Advances
would violate any rules of the Principal Market. The Company further is aware
and acknowledges that any fees paid or shares issued pursuant to Section 13.04
hereunder shall be earned on the date hereof and are not refundable or
returnable under any circumstances.

 

- 13 -

 

 

Article V. Indemnification

 

The Investor and the Company represent to the other the following with respect
to itself:

 

Section 5.01         Indemnification by the Company. In consideration of the
Investor’s execution and delivery of this Agreement, and in addition to all of
the Company’s other obligations under this Agreement, the Company shall defend,
protect, indemnify and hold harmless the Investor, and all of its officers,
directors, partners, employees and agents (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement) and
each person who controls the Investor within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act (collectively, the “Investor
Indemnitees”) from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and reasonable
expenses in connection therewith (irrespective of whether any such Investor
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys’ fees and disbursements (the
“Indemnified Liabilities”), incurred by the Investor Indemnitees or any of them
as a result of, or arising out of, or relating to (a) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement for the registration of the Shares as originally filed or in any
amendment thereof, or in any related prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of the Investor specifically for inclusion therein;
(b) any material misrepresentation or breach of any material representation or
material warranty made by the Company in this Agreement or any other
certificate, instrument or document contemplated hereby or thereby; (c) any
material breach of any material covenant, material agreement or material
obligation of the Company contained in this Agreement or any other certificate,
instrument or document contemplated hereby or thereby; and (d) any cause of
action, suit or claim brought or made against such Investor Indemnitee not
arising out of any action or inaction of an Investor Indemnitee, and arising out
of or resulting from the execution, delivery, performance or enforcement of this
Agreement or any other instrument, document or agreement executed pursuant
hereto by any of the Investor Indemnitees. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities, which is permissible under applicable law.

 

- 14 -

 

 

Section 5.02         Indemnification by the Investor. In consideration of the
Company’s execution and delivery of this Agreement, and in addition to all of
the Investor’s other obligations under this Agreement, the Investor shall
defend, protect, indemnify and hold harmless the Company and all of its
officers, directors, shareholders, employees and agents (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the “Company Indemnitees”) from and against any
and all Indemnified Liabilities incurred by the Company Indemnitees or any of
them as a result of, or arising out of, or relating to (a) any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement for the registration of the Shares as originally filed or in any
amendment thereof, or in any related prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Investor will only be liable for written information relating to the
Investor furnished to the Company by or on behalf of the Investor specifically
for inclusion in the documents referred to in the foregoing indemnity, and will
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance upon
and in conformity with written information furnished to the Investor by or on
behalf of the Company specifically for inclusion therein; (b) any
misrepresentation or breach of any representation or warranty made by the
Investor in this Agreement or any instrument or document contemplated hereby or
thereby executed by the Investor; (c) any breach of any covenant, agreement or
obligation of the Investor(s) contained in this Agreement or any other
certificate, instrument or document contemplated hereby or thereby executed by
the Investor; or (d) any cause of action, suit or claim brought or made against
such Company Indemnitee not arising out of any action or inaction of a Company
Indemnitee and arising out of or resulting from the execution, delivery,
performance or enforcement of this Agreement or any other instrument, document
or agreement executed pursuant hereto by any of the Company Indemnitees. To the
extent that the foregoing undertaking by the Investor may be unenforceable for
any reason, the Investor shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities, which is permissible under
applicable law.

 

Section 5.03         Notice of Claim. Promptly after receipt by an Investor
Indemnitee or Company Indemnitee of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving an
Indemnified Liability, such Investor Indemnitee or Company Indemnitee, as
applicable, shall, if a claim for an Indemnified Liability in respect thereof is
to be made against any indemnifying party under this Article V, deliver to the
indemnifying party a written notice of the commencement thereof; but the failure
to so notify the indemnifying party will not relieve it of liability under this
Article V except to the extent the indemnifying party is prejudiced by such
failure. The indemnifying party shall have the right to participate in, and, to
the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense thereof
with counsel mutually satisfactory to the indemnifying party and the Investor
Indemnitee or Company Indemnitee, as the case may be; provided, however, that an
Investor Indemnitee or Company Indemnitee shall have the right to retain its own
counsel with the reasonable fees and expenses of not more than one counsel for
such Investor Indemnitee or Company Indemnitee to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Investor Indemnitee or Company
Indemnitee and the indemnifying party would be inappropriate due to actual or
potential differing interests between such Investor Indemnitee or Company
Indemnitee and any other party represented by such counsel in such proceeding.
The Investor Indemnitee or Company Indemnitee shall cooperate fully with the
indemnifying party in connection with any negotiation or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the Investor Indemnitee or Company
Indemnitee which relates to such action or claim. The indemnifying party shall
keep the Investor Indemnitee or Company Indemnitee fully apprised at all times
as to the status of the defense or any settlement negotiations with respect
thereto. No indemnifying party shall be liable for any settlement of any action,
claim or proceeding effected without its prior written consent, provided,
however, that the indemnifying party shall not unreasonably withhold, delay or
condition its consent. No indemnifying party shall, without the prior written
consent of the Investor Indemnitee or Company Indemnitee, consent to entry of
any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Investor Indemnitee or Company Indemnitee of a release from all
liability in respect to such claim or litigation. Following indemnification as
provided for hereunder, the indemnifying party shall be subrogated to all rights
of the Investor Indemnitee or Company Indemnitee with respect to all third
parties, firms or corporations relating to the matter for which indemnification
has been made. The indemnification required by this Article V shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received.

 

- 15 -

 

 

Section 5.04         Contribution. In the event that the indemnity provided in
Section 5.01 or Section 5.02 is unavailable to or insufficient to hold harmless
an indemnified party for any reason, the Company and the Investor severally
agree to contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating or defending the same) (collectively “Losses”) to which the
Company or the Investor may be subject in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and by the
Investor on the other from transactions contemplated by this Agreement. If the
allocation provided by the immediately preceding sentence is unavailable for any
reason, the Company and the Investor severally shall contribute in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company on the one hand and of the Investor on the
other in connection with the statements or omissions which resulted in such
Losses as well as any other relevant equitable considerations. Benefits received
by the Company shall be deemed to be equal to the total proceeds from the
offering (net of all discounts and commissions but before deducting expenses)
received by it, and benefits received by the Investor shall be deemed to be
equal to the total discounts received by the Investor. Relative fault shall be
determined by reference to, among other things, whether any untrue or any
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information provided by the Company on the
one hand or the Investor on the other, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The Company and the Investor agree that it
would not be just and equitable if contribution were determined by pro rata
allocation or any other method of allocation which does not take account of the
equitable considerations referred to above. The aggregate amount of losses,
liabilities, claims, damages and expenses incurred by an indemnified party and
referred to above in this Article V shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in investigating,
preparing or defending against any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue or alleged untrue statement or
omission or alleged omission. Notwithstanding the provisions of this Section
5.04, the Investor shall not be required to contribute any amount in excess of
the amount by which the Purchase Price for Shares actually purchased pursuant to
this Agreement exceeds the amount of any damages which the Investor has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Article V, each person who
controls the Investor within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act and each director, officer, employee and agent of
the Investor shall have the same rights to contribution as the Investor, and
each person who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, each officer of the Company
who shall have signed the Registration Statement and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to the applicable terms and conditions of this Section 5.04.

 

- 16 -

 

 

Section 5.05         Remedies. The remedies provided for in this Article V are
not exclusive and shall not limit any right or remedies which may otherwise be
available to any indemnified person at law or in equity. The obligations of the
parties to indemnify or make contribution under this Article V shall survive
expiration or termination of this Agreement for a period of three years.

 

Section 5.06         Limitation of liability. Notwithstanding the foregoing, no
party shall be entitled to recover from the other party for indirect, incidental
or consequential damages.

 

Article VI.
Covenants of the Company

 

Section 6.01         Registration Statement.

 

(a)Filing of a Registration Statement. The Company shall prepare and file with
the SEC a Registration Statement, or multiple Registration Statements for the
resale by the Investor of the Registrable Securities. The Company shall use its
best efforts to file such initial Registration Statements within 60 days of the
date hereof. The Company shall not have the ability to request any Advances
until the effectiveness of a Registration Statement. Each Registration Statement
shall contain the “Plan of Distribution” section in substantially the form
attached hereto as Exhibit D.

 

(b)Maintaining a Registration Statement. The Company shall maintain the
effectiveness of any Registration Statement that has been declared effective at
all times during the Commitment Period (the “Registration Period”). Each
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall 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 light of the circumstances in which
they were made, not misleading.

 

- 17 -

 

 

(c)Filing Procedures. Not less than three business days prior to the filing of a
Registration Statement and not less than one business day prior to the filing of
any related amendments and supplements to all Registration Statements (except
for any amendments or supplements caused by the filing of any annual reports on
Form 10-K, quarterly reports on Form 10-Q or current periodic reports on Form
8-K), the Company shall furnish to the Investor copies of all such documents
proposed to be filed, which documents (other than those incorporated or deemed
to be incorporated by reference) will be subject to the reasonable and prompt
review of the Investor. The Investor shall furnish comments on a Registration
Statement and any related amendment and supplement to a Registration Statement
to the Company within 24 hours of the receipt thereof.

 

(d)Delivery of Final Documents. The Company shall furnish to the Investor
without charge, (i) at least one copy of each Registration Statement as declared
effective by the SEC and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference, all
exhibits and each preliminary prospectus, (ii) at the request of the Investor,
10 copies of the final prospectus included in such Registration Statement and
all amendments and supplements thereto (or such other number of copies as the
Investor may reasonably request) and (iii) such other documents as the Investor
may reasonably request from time to time in order to facilitate the disposition
of the Registrable Securities owned by the Investor pursuant to a Registration
Statement.

 

(e)Amendments and Other Filings. The Company shall (i) prepare and file with the
SEC such amendments (including post-effective amendments) and supplements to a
Registration Statement and the related prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the Securities Act, as may be necessary to keep such
Registration Statement effective at all times during the Registration Period,
and prepare and file with the SEC such additional Registration Statements in
order to register for resale under the Securities Act all of the Registrable
Securities; (ii) cause the related prospectus to be amended or supplemented by
any required prospectus supplement (subject to the terms of this Agreement), and
as so supplemented or amended to be filed pursuant to Rule 424; (iii) provide
the Investor copies of all correspondence from and to the SEC relating to a
Registration Statement (provided that the Company may excise any information
contained therein which would constitute material non-public information, and
(iv) comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement. In the case of amendments and supplements to a Registration Statement
which are required to be filed pursuant to this Agreement (including pursuant to
this Section 6.01(e) ) by reason of the Company’s filing a report on Form 10-K,
or Form 8-K or any analogous report under the Exchange Act, the Company shall
incorporate such report by reference into the Registration Statement, if
applicable, or shall file such amendments or supplements with the SEC either on
the day on which the Exchange Act report is filed which created the requirement
for the Company to amend or supplement the Registration Statement, if feasible,
or otherwise promptly thereafter.

 

- 18 -

 

 

(f)Blue-Sky. The Company shall use its commercially reasonable efforts to, if
applicable, (i) register and qualify the Registrable Securities covered by a
Registration Statement under such other securities or “blue sky” laws of such
jurisdictions in the United States as the Investor reasonably requests,
(ii) prepare and file in those jurisdictions, such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof during
the Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (w) make any change to its Articles of
Incorporation or Bylaws, (x) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section 6.01(f), (y)
subject itself to general taxation in any such jurisdiction, or (z) file a
general consent to service of process in any such jurisdiction. The Company
shall promptly notify the Investor of the receipt by the Company of any
notification with respect to the suspension of the registration or qualification
of any of the Registrable Securities for sale under the securities or “blue sky”
laws of any jurisdiction in the United States or its receipt of actual notice of
the initiation or threat of any proceeding for such purpose.

 

Section 6.02         Listing of Common Stock. The Company shall use its
commercially reasonable efforts to maintain the Common Stock’s authorization for
quotation on the Principal Market and shall notify the Investor promptly if the
Common Stock shall cease to be authorized for quotation on the Principal Market.

 

Section 6.03         Opinion of Counsel. The Company shall deliver to the
Investor an opinion from counsel to the Company in the form attached hereto as
Exhibit C.

 

Section 6.04         Exchange Act Registration. The Company will file in a
timely manner all reports and other documents required of it as a reporting
company under the Exchange Act and will not take any action or file any document
(whether or not permitted by Exchange Act or the rules thereunder) to terminate
or suspend its reporting and filing obligations under the Exchange Act.

 

Section 6.05         Transfer Agent Instructions. Upon effectiveness of the
Registration Statement the Company shall deliver instructions and a legal
opinion to its transfer agent to issue Common Stock to the Investor free of
restrictive legends on or before each Advance Date.

 

Section 6.06         Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company during
the Commitment Period.

 

- 19 -

 

 

Section 6.07         Notice of Certain Events Affecting Registration; Suspension
of Right to Make an Advance. The Company will immediately notify the Investor,
and confirm in writing, upon its becoming aware of the occurrence of any of the
following events in respect of a Registration Statement or related prospectus
relating to an offering of Registrable Securities: (i) receipt of any request
for additional information 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;
(ii) 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) receipt
of any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus of any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
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, or of the necessity to amend the Registration Statement or
supplement a related prospectus to comply with the Securities Act or any other
law; and (v) the Company’s reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate (other than, in the
case of this clause (v), for routine post-effective amendments required in order
to maintain the effectiveness of a Registration Statement filed on Form S-1);
and the Company will promptly make available to the Investor any such supplement
or amendment to the related prospectus. The Company shall not deliver to the
Investor any Advance Notice, and the Investor shall not sell any Shares pursuant
to a Registration Statement, during the continuation of any of the foregoing
events (each of the events described in the immediately preceding clauses (i)
through (v), inclusive, a “Material Outside Event”).

 

Section 6.08         Consolidation; Merger. If an Advance Notice has been
delivered to the Investor, then the Company shall not effect any merger or
consolidation of the Company with or into, or a transfer of all or substantially
all the assets of the Company to another entity before the transaction
contemplated in such Advance Notice has been closed in accordance with Section
2.02 hereof.

 

Section 6.09         Issuance of the Company’s Common Stock. The sale of the
Common Stock hereunder shall be made in accordance with the provisions and
requirements of Regulation D and any applicable state securities law.

 

Section 6.10         Market Activities.         The Company will not, directly
or indirectly, take any action designed to cause or result in, or that
constitutes or might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company under Regulation M of
the Exchange Act.

 

Section 6.11         Opinion of Counsel Concerning Resales. Provided that the
Investor’s resale of Common Stock received pursuant to this Agreement may be
freely sold by the Investor either pursuant to an effective Registration
Statement, in accordance with Rule 144, or otherwise, the Company shall obtain
for the Investor, at the Company’s expense, any and all opinions of counsel
which may be required by the Company’s transfer agent to issue such shares free
of restrictive legends, or to remove legends from such shares.

 

- 20 -

 

 

Section 6.12 Expenses. The Company, whether or not the transactions contemplated
hereunder are consummated or this Agreement is terminated, will pay all expenses
incident to the performance of its obligations hereunder, including but not
limited to (i) the preparation, printing and filing of the Registration
Statement and each amendment and supplement thereto, of each prospectus and of
each amendment and supplement thereto; (ii) the preparation, issuance and
delivery of any Shares issued pursuant to this Agreement, (iii) all fees and
disbursements of the Company’s counsel, accountants and other advisors, (iv) the
qualification of the Shares under securities laws in accordance with the
provisions of this Agreement, including filing fees in connection therewith, (v)
the printing and delivery of copies of any prospectus and any amendments or
supplements thereto, (vi) the fees and expenses incurred in connection with the
listing or qualification of the Shares for trading on the Principal Market, or
(vii) filing fees of the SEC and the Principal Market.

 

Section 6.13 Sales. Without the written consent of the Investor, the Company
will not, directly or indirectly, offer to sell, sell, contract to sell, grant
any option to sell or otherwise dispose of any Common Stock (other than the
Shares offered pursuant to the provisions of this Agreement) or securities
convertible into or exchangeable for Common Stock, warrants or any rights to
purchase or acquire, Common Stock during the period beginning on the 5th Trading
Day immediately prior to an Advance Notice Date and ending on the 5th Trading
Day immediately following the corresponding Advance Date.

 

Section 6.14 Current Report. Promptly after the date hereof (and prior to the
Company delivering an Advance Notice to the Investor hereunder), the Company
shall file with the SEC a current report on Form 8-K or such other appropriate
form as determined by counsel to the Company, relating to the transactions
contemplated by this Agreement and shall provide the Investor with a reasonable
opportunity to review such report prior to its filing.

 

Section 6.15 Black-out Periods. Notwithstanding any other provision of this
Agreement, the Company shall not deliver an Advance Notice during any Company
black-out periods or during any other period in which the Company is, or could
be deemed to be, in possession of material non-public information.

 

Section 6.16 Comfort Letters. At the request of the Investor the Company will
cause its independent accountants to furnish to the Investor, at the Investor’s
request, a letter in form and substance reasonably satisfactory to the Investor,
containing statements and information of the type ordinarily included in
accountants’ “comfort letters” to underwriters with respect to the financial
statements of the Company promptly after (i) the date the Registration Statement
or any prospectus shall be amended or supplemented (other than (1) in connection
with the filing of a prospectus supplement that contains solely information
relating to the number of shares sold by the Investor pursuant to the
Registration Statement (2) in connection with the filing of any report or other
document under Section 13, 14 or 15(d) of the Exchange Act (other than a filing
of a Form 8-K which contains financial statements), or (3) by a prospectus
supplement relating to the offering of other securities (including, without
limitation, other Common Stock)) and (ii) the date of filing or amending each
Annual Report on Form 10-K for a period in which an Advance was delivered
pursuant to this Agreement and which are incorporated by reference in the
Registration Statement.

 

- 21 -

 

  

Article VII.
Conditions for Advance and Conditions to Closing

 

Section 7.01 Conditions Precedent to the Right of the Company to Deliver an
Advance Notice. The right of the Company to deliver an Advance Notice and the
obligations of the Investor hereunder with respect to an Advance is subject to
the satisfaction by the Company, on each Advance Notice Date and Advance Date (a
“Condition Satisfaction Date”), of each of the following conditions:

 

(a)Accuracy of the Company’s Representations and Warranties. The representations
and warranties of the Company shall be true and correct in all material
respects.

 

(b)Registration of the Common Stock with the SEC. There is an effective
Registration Statement pursuant to which the Investor is permitted to utilize
the prospectus thereunder to resell all of the Common Stock issuable pursuant to
such Advance Notice. The Company shall have filed with the SEC in a timely
manner all reports, notices and other documents required of a “reporting
company” under the Exchange Act and applicable SEC regulations during the
twelve-month period immediately preceding the applicable Condition Satisfaction
Date.

 

(c)Authority. The Company shall have obtained all permits and qualifications
required by any applicable state for the offer and sale of the Common Stock, or
shall have the availability of exemptions therefrom. The sale and issuance of
the Common Stock shall be legally permitted by all laws and regulations to which
the Company is subject.

 

(d)No Material Outside Event. No Material Outside Event shall have occurred and
be continuing.

 

(e)Performance by the Company. The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to each Condition Satisfaction Date.

 

(f)No Injunction. No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction that prohibits or
directly and adversely affects any of the transactions contemplated by this
Agreement, and no proceeding shall have been commenced that may have a Material
Adverse Effect.

 

(g)No Suspension of Trading in or Delisting of Common Stock. The Common Stock is
quoted trading on a Principal Market and all of the shares issuable pursuant to
such Advance Notice will be listed or quoted for trading on such Principal
Market and the Company believes, in good faith, that trading of the Common Stock
on a Principal Market will continue uninterrupted for the foreseeable future.
The issuance of Common Stock with respect to the applicable Advance Notice will
not violate the shareholder approval requirements of the Principal Market. The
Company shall not have received any notice threatening the continued quotation
of the Common Stock on the Principal Market.

 

- 22 -

 

  

(h)Authorized. There shall be a sufficient number of authorized but unissued and
otherwise unreserved Common Stock for the issuance of all of the shares issuable
pursuant to such Advance Notice.

 

(i)Executed Advance Notice. The Investor shall have received the Advance Notice
executed by an officer of the Company and the representations contained in such
Advance Notice shall be true and correct as of the applicable Condition
Satisfaction Date.

 

(j)Comfort Letters. If requested by the Investor, the Company’s independent
accounts shall have furnished to the Investor any letters requested pursuant to
Section 6.17 addressed to the Investor containing statements and information of
the type ordinarily included in accountants’ “comfort letters” to underwriters
with respect to the financial statements of the Company.

 

(k)Consecutive Advance Notices. Except with respect to the first Advance Notice,
the Company shall have delivered all Shares relating to all prior Advances.

 

Article VIII.
Non-Disclosure of Non-Public Information

 

The Company covenants and agrees that it shall refrain from disclosing, and
shall cause its officers, directors, employees and agents to refrain from
disclosing, any material non-public information (as determined under the
Securities Act, the Exchange Act, or the rules and regulations of the SEC) to
the Investor without also disseminating such information to the public, unless
prior to disclosure of such information the Company identifies such information
as being material non-public information and provides the Investor with the
opportunity to accept or refuse to accept such material non-public information
for review. In no event shall the Investor have a duty of confidentially, or be
deemed to have agreed to maintain information in confidence, with respect to (i)
any information disclosed in violation of this provision or (ii) the delivery of
any Advance Notices.

 

Article IX.
Non Exclusive Agreement

 

Notwithstanding anything contained herein, this Agreement and the rights awarded
to the Investor hereunder are non-exclusive, and, subject to the provisions in
Section 6.13, the Company may, at any time throughout the term of this Agreement
and thereafter, issue and allot, or undertake to issue and allot, any shares
and/or securities and/or convertible notes, bonds, debentures, options to
acquire shares or other securities and/or other facilities which may be
converted into or replaced by Common Stock or other securities of the Company,
and to extend, renew and/or recycle any bonds and/or debentures, and/or grant
any rights with respect to its existing and/or future share capital.

 

- 23 -

 

  

Article X.
Choice of Law/Jurisdiction

 

This Agreement shall be governed by and interpreted in accordance with the laws
of the State of New York without regard to the principles of conflict of laws.
The parties further agree that any action between them shall be heard in New
York County, New York, and expressly consent to the jurisdiction and venue of
the Supreme Court of New York, sitting in New York County, New York and the
United States District Court of the Southern District of New York, sitting in
New York, New York, for the adjudication of any civil action asserted pursuant
to this paragraph.

 

Article XI. Assignment; Termination

 

Section 11.01 Assignment. Neither this Agreement nor any rights of the parties
hereto may be assigned to any other Person.

 

Section 11.02 Termination.

 

(a)Unless earlier terminated as provided hereunder, this Agreement shall
terminate automatically on the earliest of (i) the first day of the month next
following the 24-month anniversary of the Effective Date, (ii) the first day of
the month next following the 36-month anniversary of the date hereof or (ii) the
date on which the Investor shall have made payment of Advances pursuant to this
Agreement in the aggregate amount of the Commitment Amount.

 

(b)The Company may terminate this Agreement effective upon fifteen Trading Days’
prior written notice to the Investor; provided that (i) there are no outstanding
Advance Notices, the shares of Common Stock under which have yet to be issued,
and (ii) the Company has paid all amounts owed to the Investor pursuant to this
Agreement. This Agreement may be terminated at any time by the mutual written
consent of the parties, effective as of the date of such mutual written consent
unless otherwise provided in such written consent. In the event of any
termination of this Agreement by the Company hereunder, so long as the Investor
owns any Common Stock issued hereunder, unless all of such Common Stock may be
resold by the Investor without registration and without any time, volume or
manner limitations pursuant to Rule 144, the Company shall not suspend or
withdraw the Registration Statement or otherwise cause the Registration
Statement to become ineffective, or voluntarily delist the Common Stock from the
Principal Market.

 

(c)Nothing in this Section 11.02 shall be deemed to release the Company or the
Investor from any liability for any breach under this Agreement, or to impair
the rights of the Company and the Investor to compel specific performance by the
other party of its obligations under this Agreement. The indemnification
provisions contained in Article V shall survive termination hereunder.

 

- 24 -

 

  

Article XII. Notices

 

Any notices, consents, waivers, or other communications required or permitted to
be given under the terms of this Agreement must be in writing and will be deemed
to have been delivered (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile or e-mail if sent on a business day, or, if not
sent on a business day, on the immediately following business day, provided a
copy is mailed by U.S. certified mail, return receipt requested or overnight
carrier; (iii) 7 days after being sent by U.S. or Israeli certified mail, return
receipt requested, or (iv) 1 day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications,
except for Advance Notices which shall be delivered in accordance with hereof,
shall be:

 

If to the Company, to: China Recycling Energy Corporation   12/F, Tower A  
Chang An International building   No. 88 Mam Guan Zheng Jie   Xi’an City,
Shaanxi Province, China   Telephone: +86-29-8769-1097   Email:
chongscd@gmail.com     With a copy to (which shall not McKenna Long & Aldridge
LLP Constitute notice or delivery of 303 Peachtree Street process) to: Atlanta,
GA 30308   Attention:  Thomas Wardell   Telephone: (404) 527-4990   Email:
twardell@mckennalong.com     If to the Investor(s): YA Global Master SPV Ltd.  
1012 Springfield Avenue   Mountainside, NJ 07092   Attention: Mark Angelo    
Portfolio Manager   Telephone: (201) 985-8300   Email:
mangelo@yorkvilleadvisors.com

 

- 25 -

 

  

With a Copy (which shall not   Constitute notice or delivery of   process) to:
David Gonzalez, Esq.   1012 Springfield Avenue   Mountainside, NJ 07092  
Telephone: (201) 985-8300   Email: legal@yorkvilleadvisors.com

 

Either may change its information contained in this Article XII by delivering
notice to the other party as set forth herein.

 

Article XIII. Miscellaneous

 

Section 13.01 Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. Facsimile or other electronically
scanned and delivered signatures, including by e-mail attachment, shall be
deemed originals for all purposes of this Agreement.

 

Section 13.02 Entire Agreement; Amendments. This Agreement supersedes all other
prior oral or written agreements between the Investor, the Company, their
respective affiliates and persons acting on their behalf with respect to the
matters discussed herein, and this Agreement, and the instruments referenced
herein contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor the Investor makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.

 

Section 13.03 Reporting Entity for the Common Stock. The reporting entity relied
upon for the determination of the trading price or trading volume of the Common
Stock on any given Trading Day for the purposes of this Agreement shall be
Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investor and the Company shall be required to employ any other reporting entity.

 

Section 13.04 Structuring and Due Diligence Fee. Each of the parties shall pay
its own fees and expenses (including the fees of any attorneys, accountants,
appraisers or others engaged by such party) in connection with this Agreement
and the transactions contemplated hereby, except that the Company shall pay to
the Investor a structuring and due diligence fee of $12,000, of which $6,000 has
been paid and the remaining $6,000 shall be paid within 5 Trading Days of the
date hereof.

 

- 26 -

 

  

Section 13.05 Commitment Fee. The Company shall pay a commitment fee in the
amount of $375,000 (the “Commitment Fee”) to YA Global II SPV LLC (the
“Investor’s Designee”), which shall be paid within 10 days of the Effective
Date. The Company shall pay the Commitment Fee in cash.

 

Section 13.06 Brokerage. Each of the parties hereto represents that it has had
no dealings in connection with this transaction with any finder or broker who
will demand payment of any fee or commission from the other party. The Company
on the one hand, and the Investor, on the other hand, agree to indemnify the
other against and hold the other harmless from any and all liabilities to any
person claiming brokerage commissions or finder’s fees on account of services
purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

- 27 -

 

  

IN WITNESS WHEREOF, the parties hereto have caused this Standby Equity
Distribution Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.

 

  COMPANY:   China Recycling Energy Corporation       By:     Name:   Title:

 

  INVESTOR:   YA Global Master SPV Ltd.       By: Yorkville Advisors Global, LP
  Its: Investment Manager

 

  By:       Yorkville Advisors Global, LLC   Its:        General Partner      
By:     Name:   Title:

 

- 28 -

 

  

EXHIBIT A
ADVANCE NOTICE

 

CHINA RECYCLING ENERGY CORPORATION

 

Dated: ______________

 

The undersigned, _______________________ hereby certifies, with respect to the
sale of Common Stock of China Recycling Energy Corporation (the “Company”)
issuable in connection with this Advance Notice, delivered pursuant to that
certain Standby Equity Distribution Agreement, dated as of _______, 2014 (the
“Agreement”), as follows:

 

1.       The undersigned is the duly elected ______________ of the Company.

 

2.       There are no fundamental changes to the information set forth in the
Registration Statement which would require the Company to file a post-effective
amendment to the Registration Statement.

 

3.      The Company has performed in all material respects all covenants and
agreements to be performed by the Company and has complied in all material
respects with all obligations and conditions contained in this Agreement on or
prior to the Advance Notice Date, and shall continue to perform in all material
respects all covenants and agreements to be performed by the Company through the
applicable Advance Date. All conditions to the delivery of this Advance Notice
are satisfied as of the date hereof.

 

4.        The undersigned hereby represents, warrants and covenants that it has
made all filings (“SEC Filings”) required to be made by it pursuant to
applicable securities laws (including, without limitation, all filings required
under the Securities Exchange Act of 1934). All SEC Filings have been reviewed
and approved for release by the Company’s attorneys and, if containing financial
information, the Company’s independent certified public accountants. None of the
SEC Filings contain any untrue statement of a material fact or omit to state any
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.

 

5.       The Advance requested is _____________________.

 

6.       The Minimum Acceptable Price with respect to this Advance Notice is
_________ (85% of the last closing price of the Common Stock on the Principal
Market at the time of delivery of this Advance Notice.

 

7.       4.99% of the outstanding Common Stock of the Company as of the date
hereof is ___________.

 

The undersigned has executed this Advance Notice as of the date first set forth
above.

 

  CHINA RECYCLING ENERGY CORPORATION       By:  

 

Please deliver this Advance Notice by email with a follow up phone call to:

Email: Trading@yorkvilleadvisors.com

Attention: Trading Department and Compliance Officer

Confirmation Telephone Number: (201) 985-8300.

 

 

 

  

EXHIBIT B

FORM OF SETTLEMENT DOCUMENT

 

VIA EMAIL

 

China Recycling Energy Corporation

Attn:

Email:

 

   Below please find the settlement information with respect to the Advance
Notice dated:            1.   (a) Amount of Advance Notice:  $     (b) Amount of
Advance Notice (after taking into account any adjustments pursuant to Section
2.01):  $         2.   Market Price:  $         3.   Purchase Price (Market
Price X  99%) per share:  $         4.   Number of Shares due to Investor:  

 

Please issue the number of Shares due to the Investor to the account of the
Investor as follows:

 

Investor’s DTC participant #:

 

ACCOUNT NAME:

ACCOUNT NUMBER:

ADDRESS:

CITY:

COUNTRY:

Contact person:

Number and/or email:

 

  Sincerely,       YA GLOBAL MASTER SPV, LTD.

 

Approved By China Recycling Energy Corporation:

 

    Name:  

 

 

 

  

EXHIBIT C

 

FORM OF OPINION

 

1.          The Company is a corporation validly existing and in good standing
under the laws of the State of Nevada, with corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Company’s public filings, including reports filed or furnished by the
Company under the Securities Exchange Act of 1934, as amended, (the “Exchange
Act”), and the rules and regulations of the Commission thereunder (the “Public
Filings”) and to enter into and perform its obligations under the Standby Equity
Distribution Agreement.

 

2.          The Company has the requisite corporate power and authority to enter
into and perform its obligations under the Standby Equity Distribution Agreement
and to issue the shares of Common Stock in accordance with its terms. The
execution and delivery of the Standby Equity Distribution Agreement by the
Company and the consummation by it of the transactions contemplated thereby have
been duly authorized by all necessary corporate action, and no further consent
or authorization of the Company or its Board of Directors or stockholders is
required. The Standby Equity Distribution Agreement has been duly executed and
delivered.

 

3.          The shares of Common Stock issuable under the Standby Equity
Distribution Agreement are duly authorized and, upon issuance in accordance with
the terms of the Standby Equity Distribution Agreement against payment therefore
in accordance with the terms thereof, will be duly and validly issued, fully
paid and nonassessable, free of any liens, encumbrances and preemptive or
similar rights, in each case arising under the Company’s Articles of
Incorporation or By-laws or, to my knowledge, in any agreement filed by the
Company as an exhibit to the Company’s Public Filings (other than inchoate liens
existing as a result of statute and restrictions on transfer arising under
applicable securities laws).

 

4.          The execution, delivery and performance of the Standby Equity
Distribution Agreement by the Company and the consummation by the Company of the
transactions contemplated thereby (other than performance by the Company of its
obligations under the indemnification sections of such agreements, which are not
subject to this opinion) will not (i) result in a violation of the Company’s
Articles of Incorporation or Bylaws; (ii) conflict with, or constitute a default
(or an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement or indenture filed by the Company as an exhibit
to the Company's Public Filings; or (iii) to my knowledge, result in a violation
of any federal or Nevada law, rule or regulation, order, judgment or decree
applicable to the Company or by which any property or asset of the Company is
bound or affected.

 

5.          To my knowledge and other then as set forth in the Public Filings,
there are no legal or governmental proceedings pending to which the Company is a
party or of which any property or assets of the Company is subject which is
required to be disclosed in any Public Filings.

 

 

 

  

EXHIBIT D

 

PLAN OF DISTRIBUTION

 

The Selling Stockholder and any of its pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their Common
Stock on the NASDAQ stock market or any other stock exchange, market or trading
facility on which the shares are traded or in private transactions. These sales
may be at fixed or negotiated prices. The Selling Stockholder may use any one or
more of the following methods when selling shares:

 

·ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;

 

·block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;

 

·purchases by a broker-dealer as principal and resale by the broker-dealer for
its account;

 

·an exchange distribution in accordance with the rules of the applicable
exchange;

 

·privately negotiated transactions;

 

·broker-dealers may agree with the Selling Stockholder to sell a specified
number of such shares at a stipulated price per share;

 

·through the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;

 

·a combination of any such methods of sale; or

 

·any other method permitted pursuant to applicable law.

 

The Selling Stockholder may also sell shares under Rule 144 under the Securities
Act of 1933, as amended (the “Securities Act”), if available, rather than under
this prospectus.

 

The Selling Stockholder is an “underwriter” within the meaning of Section
2(a)(11) of the Securities Act.

 

Broker-dealers engaged by the Selling Stockholder may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Stockholder (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated, but, except as set forth in a supplement to this Prospectus, in the
case of an agency transaction not in excess of a customary brokerage commission
in compliance with NASDR Rule 2440; and in the case of a principal transaction a
markup or markdown in compliance with NASDR IM-2440.

 

 

 

  

In connection with the sale of the Common Stock or interests therein, the
Selling Stockholder may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
Common Stock in the course of hedging the positions they assume. The Selling
Stockholder may also enter into option or other transactions with broker-dealers
or other financial institutions or the creation of one or more derivative
securities which require the delivery to such broker-dealer or other financial
institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).

 

The Selling Stockholder is an, and any broker-dealers or agents that are
involved in selling the shares may be deemed to be, “underwriters” within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. The Selling Stockholder has
informed the Company that it does not have any written or oral agreement or
understanding, directly or indirectly, with any person to distribute the Common
Stock. In no event shall any broker-dealer receive fees, commissions and markups
which, in the aggregate, would exceed eight percent (8%).

 

Because the Selling Stockholder is an “underwriter” within the meaning of the
Securities Act, it is subject to the prospectus delivery requirements of the
Securities Act including Rule 172 thereunder. In addition, any securities
covered by this prospectus which qualify for sale pursuant to Rule 144 under the
Securities Act may be sold under Rule 144 rather than under this prospectus.
There is no underwriter (other than the Selling Stockholder) or coordinating
broker acting in connection with the proposed sale of the resale shares by the
Selling Stockholder.

 

We have agreed to keep this prospectus effective until the earlier of (i) the
date on which the shares may be resold by the Selling Stockholders without
registration and without regard to any volume limitations by reason of Rule 144
under the Securities Act or any other rule of similar effect or (ii) all of the
shares have been sold pursuant to this prospectus or Rule 144 under the
Securities Act or any other rule of similar effect. The resale shares will be
sold only through registered or licensed brokers or dealers if required under
applicable state securities laws. In addition, in certain states, the resale
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.

 

Expenses, Indemnification

 

We will not receive any of the proceeds from the sale of the Common Stock sold
by the Selling Stockholder and will bear all expenses related to the
registration of this offering, but will not pay for any commissions, fees or
discounts, if any, relating to the sale of the Common Stock sold by the Selling
Stockholder. We have agreed to indemnify the Selling Stockholder against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act.

 

 

 

  

Supplements

 

In the event of a material change in the plan of distribution disclosed in this
prospectus, the Selling Stockholder will not be able to effect transactions in
the shares pursuant to this prospectus until such time as a post-effective
amendment to the registration statement is filed with, and declared effective
by, the SEC.

 

Regulation M

 

We have informed the Selling Stockholder that it is required to comply with
Regulation M promulgated under the Securities Exchange Act of 1934 with respect
to any purchase or sale of our Common Stock. In general, Rule 102 under
Regulation M prohibits any person connected with a distribution of our Common
Stock from directly or indirectly bidding for, or purchasing for any account in
which it has a beneficial interest, any of the shares or any right to purchase
the shares, for a period of one business day before and after completion of its
participation in the distribution.

 

During any distribution period, Regulation M prohibits the Selling Stockholder
and any other persons engaged in the distribution from engaging in any
stabilizing bid or purchasing our Common Stock except for the purpose of
preventing or retarding a decline in the open market price of the Common Stock.
None of these persons may affect any stabilizing transaction to facilitate any
offering at the market.

 

We have also advised the Selling Stockholders that they should be aware that the
anti-manipulation provisions of Regulation M under the Exchange Act will apply
to purchases and sales of Common Stock by the Selling Stockholder, and that
there are restrictions on market-making activities by persons engaged in the
distribution of the shares. Under Regulation M, the Selling Stockholder or its
agents may not bid for, purchase, or attempt to induce any person to bid for or
purchase, shares of our Common Stock while the Selling Stockholder is
distributing shares covered by this prospectus. Regulation M may prohibit the
Selling Stockholder from covering short sales by purchasing shares while the
distribution is taking place, despite any contractual rights to do so under the
Agreement. We have advised the Selling Stockholders that they should consult
with their own legal counsel to ensure compliance with Regulation M.