Document:

ex10-2.htm

Exhibit 10.2

 

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights Agreement (this “Agreement”) is made and entered into as of December ____, 2010 by and between Balqon Corporation, a Nevada corporation (the “Company”), and Seven One Limited, a company organized under the laws of the British Virgin Islands (the “Purchaser”).

 

This Agreement is made in connection with the issuance (i) of Shares and a Warrant pursuant to a certain Securities Purchase Agreement by and between the Company and the Purchaser dated as of the date hereof (the “Purchase Agreement”) and (ii) the Distribution Shares and the Distribution Warrant issued to the Purchaser in connection with entering into the Distribution Agreement.

 

The Company is obligated to register for resale certain securities (collectively, including any shares of Common Stock issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing, the “Previous Shares”) offered and sold under the terms of (i) a Confidential Private Placement Memorandum dated March 23, 2009, (ii) a certain Confidential Private Placement Memorandum dated September 22, 2009 as supplemented by that certain Supplement No. 1 to Confidential Private Placement Memorandum dated January 22, 2010, and (iii) a certain Confidential Private Placement Memorandum dated May 25, 2010, as amended by Supplement No. 1 to Confidential Private Placement Memorandum dated July 21, 2010.  In addition, the Company has filed a registration statement with the Commission in respect of other shares of Common Stock, which registration statement has been declared effective and is required to be amended to incorporate certain information contained in the Company’s filings under the Exchange Act since the effective date of such registration statement.

 

The Company and the Purchaser hereby agree as follows:

 

1. Definitions.  Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement.  As used in this Agreement, the following terms shall have the following meanings:

 

“Advice” shall have the meaning set forth in Section 6(c).

 

“Commission” means the Securities and Exchange Commission.

 

“Cut-back” and “Cut-back Shares” shall have the meanings set forth in Section 2(a).

 

“Effectiveness Period” shall have the meaning set forth in Section 2(a).

 

“Holder” or “Holders” means the holder or holders, as the case may be, from time to time of Registrable Securities.

 

“Indemnified Party” shall have the meaning set forth in Section 5(c).

 

“Indemnifying Party” shall have the meaning set forth in Section 5(c).

 

  

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“Losses” shall have the meaning set forth in Section 5(a).

 

“Other Shares” shall have the meaning set forth in Section 2(a).

 

“Plan of Distribution” shall have the meaning set forth in Section 2(a).

 

“Previous Shares” shall have the meaning set forth in the Recitals.

 

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

 

“Prospectus” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

 

“Registrable Securities” means all of (i) the Shares, (ii) the Distribution Shares, (iii) the Warrant Shares, (iv) the Distribution Warrant Shares and (v) any shares of Common Stock issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing.

 

“Registration Statement” means the registration statements required to be filed hereunder, including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.

 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such rule.

 

“Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such rule.

 

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such rule.

 

  

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“Securities Act” the Securities Act of 1933, as amended.

 

“Selling Shareholder Questionnaire” shall have the meaning set forth in Section 3(a).

 

2. Registration Statement.

 

(a) On or before April 15, 2011, subject to the Company’s obligation to register the Previous Shares, the Company shall prepare and file with the Commission a Registration Statement covering the resale of 100% of the Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415; provided, however, that if after the Company files a Registration Statement with the Commission covering the Registrable Securities the Commission takes the position that the offering of some or all of the securities included in the Registration Statement are not eligible to be made on a delayed or continuous basis under the provisions of Rule 415, the Company shall amend the Registration Statement prior to its effectiveness to remove from the Registration Statement such portion of the Registrable Securities (the “Cut-back Shares”) and/or agree to such restrictions and limitations on the registration and resale of the Registrable Securities as the Commission may require to assure the Company’s compliance with the requirements of Rule 415 (collectively, the “SEC Restrictions”).  The Company’s obligation to file a Registration Statement pursuant to this Section 2 shall be subject to the Company first meeting its obligations to register the Previous Shares. The Company intends to meet its registration obligations with respect to the Previous Shares by including in the Registration Statement all Previous Shares along with the Registrable Securities.  In the event of a cut-back pursuant to this Section 2(a) (a “Cut Back”) and unless the SEC Restrictions require otherwise, the registration of the Registrable Securities shall be subject to the priority registration of the Previous Shares such that the securities that are entitled to be included in the registration shall first be allocated to the Previous Shares (subject to such allocation priorities as set forth in the registration rights agreements for such Previous Shares) and second to the Registrable Securities.  In the event that holders of securities other than the Registrable Securities and the Previous Shares are entitled to registration rights (“Other Shares”), the securities that are entitled to be included in the registration shall first be allocated to the Previous Shares, second to the Registrable Securities and, thereafter, to the Other Shares, subject to such allocation priorities as set forth in the registration rights agreements for such Other Shares.  The Registration Statement shall contain the “Plan of Distribution” section substantially in the form attached hereto as Annex A, with such changes as are reasonably required to respond to any comments to such section by the Commission and to comply with then applicable securities laws.  Subject to the terms of this Agreement, the Company shall use its reasonable efforts to cause such Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, and shall use its commercially reasonable efforts to keep such Registration Statement continuously effective under the Securities Act until the earlier of (A) the date that is two years after the date the Registration Statement is initially declared effective, (B) the date that is six months after the date on which all the Warrant Shares and the Distribution Shares are issued to the Holders, (C) the date on which there ceases to be outstanding any Registrable Securities, and (D) the date on which the Company receives an opinion from its legal counsel to the effect that Rule 144 is available for the resale of all Registrable Securities except for the requirement for the Company to be in compliance with the current public information requirements of Rule 144 (the “Effectiveness Period”).

 

  

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(b) The parties hereto agree that the Company will not be required to use a Registration Statement for any registration in which securities of the Company are sold to an underwriter for reoffering to the public, and the Company will in no event be required to cooperate with or pay for any such underwritten offering.

 

3. Registration Procedures.  In connection with the Company’s registration obligations hereunder, the Company shall:

 

(a) Not less than three trading days prior to the filing of each Registration Statement or any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall, (i) furnish to each Holder copies of the “Principal and Selling Stockholders” and “Plan of Distribution” sections of such Registration Statement, if such sections have been revised since the previous filing of such Registration Statement or any amendment or supplement thereto, which sections will be subject to the review of such Holders, and (ii) cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act.  The Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities included in such Registration Statement shall reasonably object in good faith, provided that, the Company is notified of such objection in writing no later than two trading days after the Holders have been so furnished copies of such documents.  In order to be included in such registration, each Holder agrees to furnish to the Company a completed questionnaire related to such registration (a “Questionnaire”) not less than three calendar days after written request therefore has been made by the Company.  The securities owned by any Holder who fails to timely forward to the Company the completed Questionnaire shall be excluded from the registration.

 

(b) (i) Prepare and file with the Commission such amendments, including post-effective amendments, to a Registration Statement and the Prospectus used in connection therewith as may be necessary to keep a Registration Statement continuously effective as to the Registrable Securities not subject to the Cut-Back for the Effectiveness Period; (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) respond as promptly as reasonably possible to any comments received from the Commission with respect to a Registration Statement or any amendment thereto and, upon written request by the Holders of at least 25% of the Registrable Securities included in such Registration Statement, as promptly as reasonably possible provide such Holders with true and complete copies of all material written correspondence from and to the Commission relating to a Registration Statement; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement during the applicable period in accordance (subject to the terms of this Agreement) with the intended methods of disposition by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented.

 

  

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(c) Use its commercially reasonable efforts to notify the Holders (which notice shall, pursuant to clauses (ii) through (vi) hereof, be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made) as promptly as reasonably possible and (if requested by any Holder of at least 25% of the Registrable Securities included in a Registration Statement) confirm such notice in writing (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement has been filed; (B) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement; and (C) with respect to a Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any other federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information; (iii) of the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in a Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to a Registration Statement, Prospectus or other documents so that, in the case of a Registration Statement or the Prospectus, as the case may be, 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 light of the circumstances under which they were made, not misleading; and (vi) the occurrence or existence of any pending corporate development with respect to the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the best interest of the Company to allow continued availability of a Registration Statement or Prospectus; provided that any and all of such information shall be kept confidential by each Holder until such information otherwise becomes public, unless disclosure by a Holder is required by law; provided, further, that notwithstanding each Holder’s agreement to keep such information confidential, the Holders make no acknowledgement that any such information is material, non-public information.

 

(d) Use its commercially reasonable efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.

 

  

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(e) Furnish to each Holder, without charge, to the extent requested in writing by such Holder, at least one conformed copy of each such Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to such Registration Statement (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission.

 

(f) Promptly deliver to each Holder, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Holder may reasonably request in writing in connection with resales by such Holder.  Subject to the terms of this Agreement, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto, except after the giving on any notice pursuant to Section 3(c).

 

(g) Prior to any resale of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from the registration or qualification) of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement; provided, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any material tax in any such jurisdiction where it is not then so subject or file a general consent to service of process in any such jurisdiction.

 

(h) If requested by a selling Holder, cooperate with such Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by applicable law, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holder may request.

 

(i) Upon the occurrence of any event contemplated by this Section 3, as promptly as reasonably possible under the circumstances taking into account the Company’s good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to a Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither a Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.  If the Company notifies the Holders in accordance with clauses (ii) through (vi) of Section 3(c) above to suspend the use of any Prospectus until the requisite changes to such Prospectus have been made, then the Holders shall suspend use of such Prospectus.  The Company will use its commercially reasonable efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable.  The Company shall be entitled to exercise its right under this Section 3(i) to suspend the availability of a Registration Statement and Prospectus for a period not to exceed 40 trading days (which need not be consecutive days) in any 12 month period.

 

  

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(j) Comply with all applicable rules and regulations of the Commission until the end of the Effectiveness Period.

 

(k) The Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holder and the person who has voting and dispositive control over such shares.  The Company shall have no obligation to keep a Prospectus usable or to give notice that a Prospectus is not usable by a particular Holder, and the Company will have no liability for, to the extent such Prospectus is not usable by such Holder because current information with respect to such Holder is not included therein because such Holder has not provided information to the Company in accordance with Section 3(a) or this Section 3(k).

 

(l) Notwithstanding any provision of this Agreement to the contrary, it shall not be a breach or violation of any obligation of the Company hereunder if the Company fails to take any action otherwise required hereunder because, in its reasonable determination, such action would require the Company to disclose material, non-public information that the Company has a bona fide business or legal reason for not disclosing regardless of whether the Company caused such material, non-public information to exist.

 

4. Registration Expenses.  All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement.  The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with the trading market on which the Common Stock is then listed for trading, and (B) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as requested in writing by the Holders), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is reasonably requested by the Holders of a majority of the Registrable Securities included in a Registration Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement.  In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any trading market as required hereunder.  In no event shall the Company be responsible for any broker or similar commissions or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Holders.

 

  

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5. Indemnification.

 

(a) Indemnification by the Company.  The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved or was not objected to in writing by such Holder expressly for use in a Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto (it being understood that each Holder has expressly approved Annex A hereto for this purpose) or (ii) in the case of an occurrence of an event of the type specified in Section 3(c)(ii)-(vi), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 6(d).  The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware.

 

  

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(b) Indemnification by Holders.  Each Holder shall, severally and not jointly, indemnify and hold harmless each other Holder, the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, to the extent arising out of or based solely upon: (x) such Holder’s failure to comply with the prospectus delivery requirements of the Securities Act, or (y) in the case of an occurrence of an event of the type specified in Section 3(c)(ii)-(vi), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or  defective and prior to the receipt by such Holder of the Advice contemplated in Section 6(d) or (z) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading (i) to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Company specifically for inclusion in such Registration Statement or such Prospectus or (ii) to the extent that such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved or was not objected to in writing by such Holder expressly for use in a Registration Statement (it being understood that each Holder has expressly approved Annex A hereto for this purpose), such Prospectus or such form of Prospectus or in any amendment or supplement thereto.  In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.

 

(c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have prejudiced the Indemnifying Party.

 

An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless:  (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall reasonably believe that a material conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and the reasonable fees and expenses of one separate counsel shall be at the expense of the Indemnifying Party).  The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld.  No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.

 

  

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Subject to the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten trading days following written notice thereof to the Indemnifying Party; provided, that the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions for which such Indemnified Party is not entitled to indemnification hereunder, determined based upon the relative faults of the parties.

 

(d) Contribution.  If the indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission.  The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in this Agreement, any reasonable attorneys’ or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms.

 

The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph.  Notwithstanding the provisions of this Section 5(d), no Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, except in the case of fraud by such Holder.

 

  

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The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties.

 

6. Miscellaneous.

 

(a) Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

 

(b) Compliance.  Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to a Registration Statement.

 

(c) Discontinued Disposition.  Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(c), such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until such Holder’s receipt of the copies of the supplemented Prospectus and/or amended Registration Statement or until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement.  The Company will use its commercially reasonable efforts to ensure that the use of the Prospectus may be resumed as promptly as it practicable.

 

(d) Notices. All notices and other communications required or permitted to be provided to a party hereunder shall be given in accordance with Section 5.3 of the Purchase Agreement.

 

(e) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of a majority of the then outstanding Registrable Securities.  Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of all of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence.

 

  

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(f) Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

 

(g) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder.  The Company may not assign its rights or obligations hereunder without the prior written consent of all of the Holders of the then-outstanding Registrable Securities except in the case of a merger (or similar transaction) in which case the surviving entity shall succeed to the rights and obligations of the Company.

 

(h) No Third-Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

 

(i) Governing Law.  This Agreement and any controversy arising out of or relating to this Agreement shall be governed by and construed in accordance with the laws of the State of California without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.

 

(j) Dispute Resolution.  The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the federal and state courts located within the geographic boundaries of Orange County, California for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action or other proceeding arising out of or based upon this Agreement except in the federal and state courts located within the geographic boundaries of Orange County, California and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court. The prevailing party shall be entitled to reasonable attorney’s fees, costs, and necessary disbursements in addition to any other relief to which such party may be entitled.

 

(k) Attorneys’ Fees.  If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of the Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

 

  

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(l) Execution. This Agreement may be executed in two or more counterparts, all of which when taken together 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, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

 

(m) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

(n) Remedies.  In the event of a breach by the Company or by a Holder, of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement.  The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.

 

(o) No Inconsistent Agreements.  The Company has not, as of the date hereof, nor shall the Company, during the period beginning on or after the date of this Agreement and ending at the end of the Effectiveness Period, enter into any agreement with respect to its securities without the prior written consent of all of the Holders of the then-outstanding Registrable Securities, that would conflict with the provisions hereof.

 

(p) Independent Nature of Holders’ Obligations and Rights.  The obligations of each Holder hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder.  Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Holders are in any way acting in concert with respect to such obligations or the transactions contemplated by this Agreement.  Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any Proceeding for such purpose.

 

  

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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

 

	
  

	

BALQON CORPORATION

 

 

By:                                                                           

 
 
Name: Balwinder Samra

 
Title:   President

 

 

 

 
SEVEN ONE LIMITED

 

 

By:                                                                           

Name: Chung Hung Ka

Title:   Chief Executive Officer

 

  

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ANNEX A

 

Plan of Distribution

 

The selling security holders may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or quoted in private transactions.  These sales may be at prevailing market prices at the time of sale, or at privately negotiated prices.  The selling security holders may use any one or more of the following methods when selling shares of our common stock:

 

	
·  

	
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;

 

	
·  

	
short sales;

 

	
·  

	
broker-dealers may agree with the selling security holders to sell a specified number of such shares at a stipulated price per share;

 

	
·  

	
a combination of any such methods of sale; and

 

	
·  

	
any other method permitted pursuant to applicable law.

 

The selling security holders may also sell shares of our common stock under Rule 144 under the Securities Act, if available, rather than under this prospectus.

 

Broker-dealers engaged by the selling security holders may arrange for other brokers-dealers to participate in sales.  Broker-dealers may receive commissions or discounts from the selling security holders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated.  The selling security holders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.  Any profits on the resale of shares of common stock by a broker-dealer acting as principal might be deemed to be underwriting discounts or commissions under the Securities Act.  Discounts, concessions, commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by a selling security holder.  The selling security holders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act.

 

  

A-1

  

 

The selling security holders may from time to time pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time under this prospectus after we have filed a supplement to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act supplementing or amending the list of selling security holders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.

 

The selling security holders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus and may sell the shares of common stock from time to time under this prospectus after we have filed a supplement to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act supplementing or amending the list of selling security holders to include the pledgee, transferee or other successors in interest as selling security holders under this prospectus.

 

The selling security holders and any broker-dealers or agents that are involved in selling the shares of common stock 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 of common stock purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.

 

We are required to pay all fees and expenses incident to the registration of the shares of common stock.  We have agreed to indemnify the selling security holders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

 

The selling security holders have advised us that they have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their shares of common stock, nor is there an underwriter or coordinating broker acting in connection with a proposed sale of shares of common stock by any selling security holder.  If we are notified by any selling security holder that any material arrangement has been entered into with a broker-dealer for the sale of shares of common stock, if required, we will file a supplement to this prospectus.  If the selling security holders use this prospectus for any sale of the shares of common stock, they will be subject to the prospectus delivery requirements of the Securities Act.

 

The anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of our common stock and activities of the selling security holders.

 

 

A-2ex10-3.htm

Exhibit 10.3

 

 

DISTRIBUTION AGREEMENT

 

THIS DISTRIBUTION AGREEMENT (“Agreement”) is entered into this 14th day of December, 2010 by and between Seven One Limited, a company organized under the laws of the British Virgin Islands (“SOL”), and Balqon Corporation, a Nevada corporation (“Distributor”).

 

RECITALS

 

A.             SOL is an affiliate of Thunder Sky Battery Limited (also known as Winston Battery Limited).

 

B.             Thunder Sky Battery Limited manufactures and sells lithium iron phosphate batteries and high voltage charging systems (collectively, the “Products”) and has granted SOL an exclusive worldwide right to distribute the Products and SOL desires to enter into an exclusive distribution agreement with Balqon to enhance sales of the Products in the United States (the “Territory”).

 

C.             Balqon desires to sell the Products to end users and resellers within the United States pursuant to an exclusive distribution agreement with SOL.

 

NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein, the parties agree as follows.

 

1. Appointment.

 

(a) SOL hereby appoints Distributor as its exclusive authorized Distributor for the promotion, marketing and sale of the Products in the Territory, and Distributor hereby accepts such appointment.

 

(b) In consideration of the appointment, effective on the date of this Agreement, Distributor hereby issues SOL (i) 1,375,000 shares (the “Distribution Shares”) of Distributor’s common stock, $0.001 par value per share (“Common Stock”) and (ii) a five-year warrant (the “Distribution Warrant”) to purchase up to 1,500,000 shares of Common Stock (the “Distribution Warrant Shares”) at an exercise price of $1.50 per share in the form attached hereto as Exhibit A.

 

(c) As further consideration of the appointment, Distributor agrees to register for resale with the Securities and Exchange Commission the Distribution Shares and the Distribution Warrant Shares pursuant to the terms of that certain Registration Rights Agreement of even date herewith between Distributor and SOL.

 

2. Term.  The initial term of this Agreement shall commence on the date of this Agreement and shall continue until December 31, 2013, unless earlier terminated in accordance with Section 11 below.  Thereafter, this Agreement will automatically renew for successive one (1) year terms, unless earlier terminated in accordance with Section 11 below.

 

  

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3. Promotion and Sales.

 

(a) Distributor shall use its best efforts to promote, market and sell the Products within the Territory.  Distributor agrees to maintain a fully qualified sales organization in order to fulfill its responsibilities under this Agreement and conduct a continuing program of quality sales promotion activities for the Products. During the term of this Agreement, Distributor shall not promote, market or sell any lithium iron phosphate batteries and high voltage charging systems or similar products within the Territory that directly compete with the Products.

 

(b) Distributor shall maintain facilities in the territory assigned so as to favorably reflect on the Products and quality image of SOL.

 

(c) Distributor shall provide prompt and courteous service to customer inquiries or complaints relating to the Products. Distributor shall at all times properly represent the Products and shall not make, directly or indirectly, any false misleading, or disparaging representations to any customers or persons in regards to the Products.

 

(d) SOL agrees to permit Distributor to identify itself as its authorized exclusive Distributor for Products and use the trademarks of SOL in connection with the Distributor’s effort to sell and promote the Products.

 

(e) SOL, upon mutual agreement with Distributor, shall permit Distributor to brand, package and/or private label products as deemed necessary by Distributor in connection with Distributor’s efforts to market, promote and sell the Products.

 

(f) Distributor shall provide, in reasonable detail, all data reasonably requested by SOL including sales forecasts as well as data on the overall marketplace, market segments, market opportunities and other information related to the Products marketed hereunder; as an aid in measuring SOL’s market potential therein and in planning its marketing efforts, including use of or applications for Products, suggestions for modification or improvements to Products and the like. Such data shall be limited to that specifically related to the Products.

 

(g) Distributor shall keep accurate accounts, books and records relating to the business of Distributor with respect to Products, in accordance with generally accepted accounting principles and practices and sufficient to ascertain compliance by Distributor with its obligations under this Agreement.

 

(h) SOL may periodically change design, models, features of Products, add new Products, or discontinue distribution of any or all Products without any accountability to Distributor in connection with any Products ordered by Distributor or Distributor’s inventory of the Products.

 

  

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(i) Distributor shall comply fully with all applicable laws and regulations, including the U. S. Foreign Corrupt Practices Act, refrain from taking any action which would cause SOL to be in violation of any such law and regulations, and keep SOL informed of any applicable laws or regulations of the territory or any political sub-division or agency thereof, as well as of any amendments thereto, whether proposed or adopted, which may affect the rights and obligations of the parties, or promotion, sales, service or maintenance of Products.  If at any time, after the effective date hereof, this Agreement or the performance of its obligations by Distributor or SOL is no longer in compliance with any federal, state or local law or regulations, this Agreement shall be appropriately amended by the parties so as to be in compliance with those laws or regulations or terminated by either party.

 

4. Product Service.

 

(a) Distributor acknowledges the importance of the service responsibilities under this agreement. Distributor shall establish and maintain quality service operations as recommended by SOL, including trained personnel, proper tools and equipment and service facilities in order to fulfill its responsibilities under this agreement. Such service operations shall provide to owners of the Products prompt, courteous and quality service.

 

(b) Distributor shall be responsible for and agrees to perform inspection, preparation and pre-delivery steps prior to delivery of the Products to purchaser thereof. It shall be Distributor’s responsibility to determine whether or not the Products meet the needs of the customer based upon use intended by customer.

 

(c) Distributor shall provide to owners of the Products such general service and repair for the Products as may be necessary. Any or all charges therefore shall be reasonable and consistent with those prevailing in the territory and all such services and charges shall be in accordance with the applicable law.

 

(d) Distributor agrees to perform all warranty service on all Products brought to Distributor, whether or not sold by Distributor. Distributor shall perform such warranty service in accordance with the policies of SOL as they may be issued from time to time in the SOL service and warranty manuals and bulletins.

 

5. Relationship of SOL and Distributor.  Distributor acknowledges that it is and will be an independent contractor and not an employee, partner or joint venturer of or with SOL, and is not and will not be subject to the control of SOL.  Neither Distributor nor any officer or employee of Distributor shall, in any event, have any right, collectively or individually, to bind SOL, to make any representations or warranties, to accept service of process, to receive notice, or to perform any act or obligation on behalf of SOL except as specifically authorized in writing by SOL in its sole discretion. Neither SOL nor any officer or employee of SOL shall, in any event, have any right, collectively or individually, to bind Distributor, to make any representations or warranties, to accept service of process, to receive notice, or to perform any act or obligation on behalf of Distributor except as specifically authorized in writing by Distributor in its sole discretion.

 

6. Trademarks and Trade names.  Distributor agrees not to use in any way, or to remove, alter or change in any way, any SOL trademark, trade name, logo or other commercial symbol, contained on any of the Products, packaging or otherwise, without the prior written permission of SOL which may be withheld in its sole discretion.  Distributor agrees that it will not add, by sticker or any other device, its own or any other trademark, trade name, logo or other commercial symbol to any Product without the prior written permission of SOL.

 

  

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7. Serial Numbers.  Under no circumstances, shall Distributor remove, alter or change in any way the serial number assigned to any of the Products by SOL.  Distributor is aware that any such action restricts SOL from accurately tracking the manufacturing origin and warranty information associated with the Products.

 

8. Unauthorized Dealer/Distributors.  Distributor shall immediately report to SOL any sales or distribution of Products or any other SOL merchandise in the Territory which Distributor may have reason to suspect is unauthorized.  Distributor also agrees to participate and cooperate with SOL in the prosecution of any such unauthorized distribution or sale if so requested by SOL.

 

9. Product Liability Insurance.  Distributor shall obtain adequate product liability insurance policies covering the Products and name SOL as an additional insured party on any and all such product liability insurance policies.  Distributor shall immediately report to SOL the termination or suspension of any such policies.

 

10. Terms of Purchase.

 

(a) SOL shall sell the Products to Distributor and Distributor shall purchase the Products from SOL in accordance with the terms and conditions set forth herein and upon the terms and conditions contained in purchase orders provided by SOL for use by Distributor.

 

(b) Distributor shall order the Products from SOL in accordance with the then current ordering procedures established by SOL.  SOL reserves the right, in its sole discretion, to accept the order, reject any order, either in whole or in part (unless the order states that it must be accepted in its entirety), placed by Distributor, without prejudicing the relationship between SOL and Distributor.  SOL will promptly notify Distributor of any delays which will postpone its promised shipment date of any accepted order.

 

(c) Distributor shall pay SOL the price and any other charges for the Products as set forth on price schedules provided by SOL to Distributor.

 

(d) Distributor shall pay the purchase price for the Products at the time of delivery thereof, unless SOL has approved other terms of credit for Distributor, and agrees to pay within terms of the invoice. Payments due from Distributor shall be made to SOL in United States Dollars and invoices shall be sent by SOL in the same currency.  SOL may cancel any order placed by Distributor or refuse shipment thereof should Distributor fail to meet any payment term, credit, or financial requirement of SOL.

 

(e) Shipment of Products by SOL to Distributor will be made in a manner determined by Distributor. Title and risk of loss or damage to the product shall pass to Distributor at the time SOL delivers possession of the product to a carrier at SOL’s plant or warehouse or other facility without regard to notification of shipment or selection of carrier.

 

  

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(f) Distributor represents and warrants that all Products purchased hereunder are purchased for resale in the ordinary course of Distributor’s business.  Distributor agrees that it is responsible for and shall comply with all laws calling for the collection and / or payment of all taxes, including sales and use taxes and ad valorem taxes.

 

(g) Distributor agrees to pay reasonable cancellation charges with respect to any Products ordered and cancelled by Distributor.

 

(h) Full legal and beneficial ownership to such Products shall remain vested in SOL until such time as SOL shall have received payment in full of the relevant invoice amount.  Distributor shall execute such security agreements and other documents that SOL may reasonably request to perfect the security interest, subject to the security interests held by current secured creditors of Distributor.  Notwithstanding the foregoing, Distributor is authorized to sell the Products in the ordinary course of its business and thereby to pass Product title thereto to the purchaser thereof and SOL’s security interest shall continue in the proceeds of that sale.

 

(i) Distributor undertakes to SOL that it shall cause all Products purchased by it pursuant to this Agreement to be insured to their full replacement value with insurers of good repute approved in writing by SOL and, pending the passage of full legal and beneficial ownership therein pursuant to Section 5(h), shall cause the interest of SOL therein to be noted on the relative policy of insurance.

 

(j) Distributor shall be responsible for all applicable federal, state and local sales, use, personal property, inventory and other taxes that may be assessed on any Product sold or other SOL property in Distributor’s possession at the time such tax is assessed or determined.  Distributor shall also be responsible for any applicable local, state and federal taxes resulting from Distributor’s purchase of the Products to the extent that such taxes are not included in SOL’s prices.

 

11. Termination.

 

(a) Except as otherwise required by local law, either party may terminate this Agreement without cause upon three hundred sixty-five (365) days’ prior written notice to the other party given at any time. All other terminations hereunder are deemed for cause.

 

(b) Either party may terminate this Agreement upon thirty (30) days’ prior written notice if the other party is in breach of this Agreement or has defaulted in the performance of any of its obligations under this Agreement and such breach or default remains uncured within the notice period.

 

(c) Either party may terminate this Agreement upon twenty-four (24) hours’ prior written notice if or when it is discovered in such party’s good faith judgment that the other party has acted in such a manner as to require immediate termination of this Agreement, including, but not limited to the following:

 

(i) intentionally or in a willful, wanton or reckless manner, made any material, false representation, report or claim relative hereto;

 

  

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(ii) violated another’s copyright or trademark;

 

(iii) become insolvent, invoked as a debtor any laws relating to the relief of debtors’ or creditors’ rights, or has had such laws invoked against it;

 

(iv) become involved in any liquidation or termination of business;

 

(v) been adjudicated bankrupt;

 

(vi) been involved in an assignment for the benefit of its creditors;

 

(vii) if the other party admits in writing the inability to pay debts as they mature;

 

(viii) if a trustee or receiver is appointed for the other or for any part of the other’s assets by any court; or

 

(ix) the other party ceases to do business as a going concern.

 

(d) Except as may be provided elsewhere in this Agreement, upon termination or expiration of this Agreement pursuant to this Section 11, or expiration hereof, neither party shall be liable to the other, either for compensation or for damages of any kind or character whatsoever, whether on account of the loss by SOL or Distributor of present or prospective profits on sales or anticipated sales, or expenditures, investments or commitments made in connection therewith or in connection with the establishment, development or maintenance of Distributor’s business, or on account of any other cause or thing whatsoever, provided that termination shall not prejudice or otherwise affect the rights or liabilities of the parties with respect to Products theretofore marketed pursuant to this Agreement, or any indebtedness then owing by either party to the other under this Agreement.

 

(e) Upon termination of this Agreement, or expiration hereof, all rights granted to Distributor under or pursuant to this Agreement shall cease and Distributor shall:

 

(i) Within thirty (30) days after termination and at Distributor’s expense, Distributor shall return to SOL all Proprietary Information (as defined below) previously furnished by SOL and all sales literature, etc., previously furnished by SOL and technical assistance and sales training materials previously furnished by SOL still in Distributor’s possession, and shall advise SOL of all unfilled orders for Product which Distributor cannot fill from its remaining stock;

 

(ii) return to SOL all SOL owned or licensed equipment and software provided to Distributor under this Agreement; and

 

(iii) cease holding itself out, in any manner, as a Distributor of SOL’s Products.

 

(f) Upon expiration or termination of this Agreement:  SOL shall have the right upon termination or expiration to inspect and will have the option to repurchase all Product then owned by Distributor (which are unused and in factory-shipped condition) at the original price paid by Distributor, less any prior credits granted for such Product.

 

  

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(g) Distributor shall use its best efforts to continue selling to its customers the Product in its inventory during the final ninety (90) days of this Agreement. Upon expiration of this Agreement or within thirty (30) days after notice of termination, Distributor shall provide SOL with a preliminary inventory of the Products and quantities of Product to be repurchased. Upon termination, Distributor will provide SOL with an updated, final version of the inventory list to be repurchased. SOL shall be granted ninety (90) days from the date of expiration or termination to repurchase said inventory. Distributor agrees to follow SOL’s reasonable shipping instructions and schedules for the repurchased inventory. The terminating party shall bear transport costs and all risk of loss or damage during shipment.

 

12. Warranties.

 

(a) The Products sold to Distributor hereunder pursuant to any purchase order shall, notwithstanding the language contained on such purchase order, be sold solely on the basis of such warranties and guarantees as SOL may specify from time to time in writing.  All representations, warranties or conditions whether express, collateral or implied by statute, common law or otherwise as to: (i) the state, quality, condition or performance of the Products, (ii) the Products’ fitness for any particular purpose, or (iii) the Products’ correspondence with description or samples are hereby unconditionally excluded to the fullest extent permitted by law except as otherwise provided by SOL in writing.

 

(b) Distributor shall offer and shall require its dealers to offer for sale the Products only on the basis of SOL’s published warranty and neither Distributor nor its dealers shall have authority to, and shall not, make any representations related to SOL’s warranty other than those made therein.  Distributor shall deliver and shall require its dealers to deliver the warranty to the original retail purchaser at the time of delivery of the Products to the purchaser.  SOL reserves the right to amend, modify or cancel the aforesaid warranty at any time, effective for Products sold after the date Distributor receives notice of such amendment, modification or cancellation.  In the event that Distributor or its dealers offers or if laws in Distributor’s Territory require a warranty in excess of SOL’s warranty, Distributor assumes responsibility for such additional warranty.

 

13. Intellectual Property.

 

(a) Distributor acknowledges and shall cause its dealers to acknowledge SOL’s sole ownership of all designs, trademarks, trade names, service marks, trade secrets and inventions or improvements, whether or not patented or patentable or registered or registrable under the laws of any country, which are associated with the Products.  Distributor acknowledges that it has paid no consideration for the use of the Trademark, or for the use of any logos, copyrights, trade secrets, trade names or designations used by SOL in connection with the marketing and distribution of the Products and, except as expressly provided herein, nothing contained in this Agreement shall give Distributor any right, title or interest in or to any of them.  Distributor acknowledges that SOL owns or retains copyright or other proprietary rights in all Products and agrees that it will not at any time during or after this Agreement assert or claim an interest to or do anything that may adversely affect the validity or enforceability of any trademark (including the Trademark (as defined below)), trade name, trade secret, copyright, or logo belonging to or licensed to SOL (including, without limitation, any acts, or assistance to any act, which may infringe or lead to the infringement of any copyright to the Products).

 

  

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(b) All Products sold by Distributor shall bear the trademark(s) as specified in writing by SOL to Distributor (collectively, the “Trademark”) and no other trademarks or trade names, and Distributor shall not modify, add to or otherwise change the design, format or form of the Trademark or the trade name of SOL.  Distributor agrees not to attach any additional trademarks, logos or trade designations to any Products without the prior written approval of SOL.  Distributor further agrees not to affix any trademark (including the Trademark) logo or trade name belonging to or licensed to SOL to any Products or to any containers or storage medium not used in connection with the distribution of the Products without the prior written approval of SOL.  Upon expiration or termination of this Agreement, the Distributor shall forthwith cease use of all of SOL’s trademarks (including the Trademark), logos and designations, and shall not thereafter use, advertise or display any name, mark or logo which is, or any part of which is deceptively similar to or substantially identical to any such designations associated with any of the Products.

 

(c) SOL grants to Distributor during the term of this Agreement a royalty-free, non-exclusive license to use the Trademark in connection with the promotion and sale of the Products in the Territory as provided herein.  Distributor shall not use or incorporate the Trademark or the trade names of SOL in or as a part of a trade name, corporate name, or business name unless written approval is given in advance by SOL.

 

(d) Upon direction by SOL, Distributor will immediately execute all such documents and do all such things as may be necessary to effect the cancellation and cessation of use of the Trademark or the corporate or business names or trade names of SOL and the change of Distributor’s name in accordance with SOL’s direction.  For this purpose, in the event Distributor fails to act within a reasonable time, Distributor hereby appoints the officers of SOL jointly and severally to be Distributor’s true and lawful attorneys for and in Distributor’s name to execute all such documents and do all such things as are necessary to effect the cancellation and cessation of use of the Trademark or the corporate or business names or trade names of SOL and the change of Distributor’s name in accordance with SOL’s direction.

 

(e) Distributor acknowledges that considerable time and money have been expended to create the goodwill associated with the Trademark and SOL’s trade names Distributor will always act in a manner that would maintain the quality and goodwill associated with the Trademark and the corporate or business names or the trade names of SOL, and Distributor shall not use them in any manner likely to confuse, mislead or deceive the public, or be injurious or inimical to the goodwill and best interests of SOL.  Nothing contained herein shall give Distributor any interest in or right to the Trademark and SOL’s trade names except as is expressly granted herein.  Any goodwill generated by Distributor in relation to any use by Distributor of SOL’s intellectual property, including, but not limited to the Trademark or the corporate or business names or trade names of SOL, is for the benefit of and shall be owned exclusively by SOL.

 

  

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(f) During the term of this Agreement and thereafter, Distributor shall not apply for or acquire the registration of the Trademark or the corporate or business names or trade names of SOL, except as is expressly granted herein.  Distributor agrees and shall cause its dealers to agree to take no action, the effect of which would be to divest SOL of any design, trademark, trade name, service mark, patent or trade secret rights associated with the Products, and shall not be deemed by anything contained in this Agreement or done pursuant to it to acquire any right, title or interest in or to any designs, trademarks, service marks or trade names, inventions or improvements now or hereafter embodied in the Products whether or not such invention or improvement is patented or patentable or registered or registrable under the laws of any country.  Upon termination of this Agreement, Distributor agrees to cease to use and shall cause its dealers to cease to use all of SOL’s trademarks, service marks, trade names, trade secrets and other confidential or proprietary information in any way.

 

(g) Distributor shall not disclose, during the period of this Agreement or at any time thereafter, to any outside person, any commercial, technical or business information which Distributor has obtained from SOL, and which information was not specifically intended for public use or distribution by Distributor. Distributor shall take reasonable precautions, contractual and otherwise, to prevent unauthorized disclosure or use of such information by any of its employees/associates and dealers.

 

14. Indemnification.

 

(a) As a separate and independent undertaking, Distributor shall indemnify and hold harmless SOL from and against any and all loss, damage, injury, liability, costs, expenses and claims therefor, howsoever caused on account of injuries to or death of any person and/or on account of damage to any property which may result from actions of Distributor, its dealers, their servants, agents, contractors and/or employees under or in connection with the terms of this Agreement.  Distributor assumes sole responsibility for quality of workmanship in the installation, maintenance and repairs made by the Distributor or its dealers of SOL’s Products.  SOL shall promptly notify Distributor in writing upon learning of any such claim or potential claim, and Distributor shall have the option of handling the defense of the same through counsel of its choice, in which event SOL shall provide reasonable cooperation and assistance at its own expense, provided that any out of pocket expense of SOL in complying with this provision shall be borne by Distributor.

 

(b) SOL shall indemnify and hold Distributor harmless from and against any and all liabilities, losses, damages, injuries, costs, expenses, causes of action, claims, demands, assessments and similar matters, including without limitation reasonable attorneys’ fees, resulting from or arising out of design or manufacture of the Products, including, without limitation, claims for product liability and claims under any warranties given by SOL, but excluding any claim arising from or in connection with any act or omission by Distributor or any officer, agent or employee of Distributor.  Distributor shall promptly notify SOL in writing upon learning of any such claim or potential claim, and SOL shall have the option of handling the defense of the same through counsel of its choice, in which event Distributor shall provide reasonable cooperation and assistance at its own expense, provided that any out of pocket expense of Distributor in complying with this provision shall be borne by SOL.

 

  

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15. Use of Proprietary Information.

 

(a) All information which one party furnishes to the other under or in contemplation of this Agreement and designated as proprietary (“Proprietary Information”) shall remain the property of the furnishing party.  Distributor shall not remove or alter and shall require its dealers not to remove or alter any name, signs or other marks on the Products or take any steps to alter the construction or design of the Products.  Distributor shall comply and shall cause its dealers to comply fully with all labeling and packaging requirements established by applicable statutes, rules and regulations.  Distributor shall not and shall cause its dealers to not make any alterations or additions to the labeling and packaging of the Products without SOL’s prior written approval, except for the purpose of complying with such legal requirements.

 

(b) Unless the party furnishing Proprietary Information consents in writing, the receiving party shall:

 

(i) hold the Proprietary Information in confidence, except for any part of such Proprietary Information which is known to it free of any obligation to keep in confidence or which is now generally known to the public or which later becomes generally known to the public through acts not attributable to such receiving party;

 

(ii) not reproduce or copy such Proprietary Information, in whole or in part;

 

(iii) if reproduced, include any copyright and proprietary notices on all such copies and mark all media containing such copies with a warning that the Proprietary Information is subject to restrictions contained in an agreement with the furnishing party and that such Proprietary Information is the property of the furnishing party; and

 

(iv) return or destroy such Proprietary Information when no longer needed or, if such Proprietary Information is recorded on an erasable storage medium, erase it.

 

(c) Proprietary Information shall be clearly and conspicuously marked as such by the disclosing party. Any information disclosed without such marking shall be considered unrestricted as to its use and shall not be protected hereunder unless such disclosed information is identified orally as confidential or proprietary at the time of disclosure and is subsequently furnished to the receiving party in a document clearly and conspicuously marked proprietary within twenty (20) days of the initial disclosure. All Proprietary Information supplied by either party shall remain the property of and shall be returned promptly to the disclosing party upon its request.

 

(d) A party receiving Proprietary Information owned or controlled by a disclosing party shall use reasonable care not to disclose such information to any third party. Reasonable care shall be the same degree of care the receiving party normally accords its own information of similar kind and importance. A party shall not be liable for inadvertent or accidental disclosure of Proprietary Information of another, provided such reasonable care was used for protecting the received information. Neither party shall be liable for disclosure of Proprietary Information if made in response to a valid order of court or authorized agency of government, provided, however, that notice first be given to the party owning or controlling the Proprietary Information in order that a protective order, if appropriate, may be sought by such owning or controlling party. Nothing in this Section 15 shall restrict a disclosing party from using, disclosing, or disseminating its own Proprietary Information in any way.

 

  

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(e) Proprietary Information furnished pursuant to this Agreement shall not be used by a receiving party except in the performance of this Agreement and only for any specific purpose for which the Proprietary Information was furnished by the disclosing party. Proprietary Information shall not be disclosed within the receiving party’s organization to persons other than those to whom it is directed by the disclosing party and shall not be disclosed to any other associate, affiliate or subsidiary entity, division or group of the receiving party. Furnishing of information under the protection of this Section 15 shall not be construed to convey any license for any patent, trademark, copyright or other intellectual property of any other party.

 

(f) A receiving party shall have no obligation with respect to any information which:

 

(i) was already known by the receiving party without restriction prior to receipt from a disclosing party; or

 

(ii) is or becomes publicly known through no wrongful act of the receiving party; or

 

(iii) is received from a third party without similar restriction and without breach of these conditions; or

 

(iv) is independently developed by the receiving party; or

 

(v) is released or disclosed to a third party without restriction by a disclosing party.

 

(g) Upon termination or expiration of this Agreement, each party shall return promptly any and all Proprietary Information of the disclosing party, shall purge its own records of any and all Proprietary Information of the disclosing party, and shall certify to the disclosing party in writing that all records have been purged of such Proprietary Information to preserve the rights of the disclosing party therein. The obligations imposed by this Agreement shall expire with respect to each certifying party seven (7) years from the date of such certification to the disclosing party.

 

16. Force Majeure.  Except with respect to Distributor’s obligation to make timely payments when due, neither party shall be held responsible for any delay or failure in performance of any part of this Agreement to the extent such delay or failure is caused by fire, flood, explosion, war, strike, embargo, government requirement, civil or military authority, act of God, nature or the public enemy, inability to secure material or transportation facilities, inadequate yield of products despite SOL’s reasonable efforts, act or omission of carriers or any other causes beyond its reasonable control.

 

  

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17. Audit.  Distributor shall maintain accurate and complete accounts, books and records relating to the business of Distributor with respect to Products, in accordance with generally accepted accounting principles and practices and sufficient so that they may be readily audited to ascertain compliance by Distributor with its obligations under this Agreement. These records shall be held until all costs and expenses have been finally determined under this Agreement and payment or final adjustment of payment, as the case may be, has been made. Distributor shall permit SOL or SOL’s representative to examine and audit these records and all supporting records, upon reasonable notice, every three (3) months during the term of this Agreement. Distributor agrees to provide SOL with access to all books and records for the twelve (12) months preceding the date of the audit. Audits shall be made not later than twelve (12) months after the expiration date of this Agreement.

 

18. Miscellaneous.

 

(a) This Agreement shall not in any way create the relationship of principal and agent between SOL and Distributor in no circumstances shall Distributor, its agents or employees be considered as agents of SOL.  Distributor shall not create or attempt to assume to create any obligation or make any contract, agreement, representation or warranty on behalf of or in the name of SOL, except those authorized in writing by SOL. Distributor shall indemnify and hold SOL harmless from any costs and liability caused by any unauthorized acts prohibited by this paragraph, whether by Distributor, its agents or employees.

 

(b) Distributor represents and warrants that the Distribution Shares and Distribution Warrant (collectively, the “Securities”) have been duly authorized and validly issued and are issued to SOL free and clear of all liens, charges, encumbrances and security interests (except for those restrictions imposed on the securities by federal and state securities laws).

 

(c) SOL acknowledges that the Securities are being acquired for its own account and for investment and not with a view to the public resale or distribution thereof.  SOL is capable of bearing the economic risks of an investment in the Securities and fully understands the speculative nature of the Securities and the possibility of such loss. SOL acknowledges that it has been furnished with information regarding the Distributor and further acknowledges that it has had an opportunity to ask questions of and receive answers from duly designated representatives of the Distributor.  SOL acknowledges that the Securities have not been registered under the Securities Act of 1933, as amended (“Act”), or any state securities laws and may not be sold or otherwise transferred or disposed of except pursuant to an effective registration statement under the Act and any applicable state securities laws, or an opinion of counsel satisfactory to counsel to the issuer that an exemption from registration under the act and any applicable state securities laws is available.

 

(d) This Agreement contains the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into this Agreement.

 

  

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(e) Any notice, request, demand or other communication required or permitted to be given to a party pursuant to the provisions of this Agreement will be in writing and will be effective and deemed given under this Agreement on the earliest of:  (a) the date of personal delivery, (b) the date of transmission by facsimile, with confirmed transmission and receipt, (c) two (2) days after deposit with a nationally-recognized courier or overnight service and (d) five (5) days after mailing via first-class mail.  All notices not delivered personally or by facsimile will be sent with postage and other charges prepaid and properly addressed to the party to be notified at the address set forth for such party (i) if to SOL, to China Winston Battery Limited, No. 3 Industrial Zone, Lisonglang Village, Gongming Town, Bao’an Dist., Shenzhen, P.R.C., attention: Mr. Winston Chung, with a copy to Quintairos, Prieto, Wood & Boyer, P.A., attention: Robert J. Cousins, Esq., facsimile (954) 253-7008, and (ii) if to the Company, to Balqon Corporation., 1420 240th Street, Harbor City, CA 90710, attention:  Balwinder Samra, with a copy to Rutan & Tucker LLP, 611 Anton Boulevard, 14th Floor, Costa Mesa, CA 92626, attention:  Larry A. Cerutti, facsimile (714) 546-9035.  Any party hereto (and such party’s permitted assigns) may change such party’s address for receipt of future notices hereunder by giving written notice to the Company and the Purchaser

 

(f) This Agreement may not be amended or modified, and no provisions hereof may be waived, without the written consent of SOL and Distributor.  No action taken pursuant to this Agreement, including without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representation, warranty, covenant or agreement contained herein.  The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a further or continuing waiver of such breach or as a waiver of any other or subsequent breach.  No failure on the part of any party to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by such party preclude any other or further exercise thereof or the exercise of any other right, power or remedy.  All remedies hereunder are cumulative and are not exclusive of any other remedies provided by law.

 

(g) The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

 

(h) This Agreement and any controversy arising out of or relating to this Agreement shall be governed by and construed in accordance with the laws of the State of Nevada without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.

 

(i) The parties (i) hereby irrevocably and unconditionally submit to the jurisdiction of the federal and state courts located within the geographic boundaries of Orange County, California for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (ii) agree not to commence any suit, action or other proceeding arising out of or based upon this Agreement except in the federal and state courts located within the geographic boundaries of Orange County, California and (iii) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court. The prevailing party shall be entitled to reasonable attorney’s fees, costs, and necessary disbursements in addition to any other relief to which such party may be entitled.

 

  

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(j) If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of the Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

 

(k) This Agreement may be executed in two or more counterparts, all of which when taken together 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, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

 

(l) If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

[Signatures contained on following page]

 

  

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

 

	
  

	

 
 
SEVEN ONE LIMITED

 

 

By:                                                                           

       Chung Hung Ka,

       Chief Executive Officer

 

 

BALQON CORPORATION

 

 

By:                                                                           

 
       Balwinder Samra,

       President and Chief Executive Officer

 

  

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EXHIBIT A

 

FORM OF DISTRIBUTION WARRANT

 

 

 

16

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