Document:

Exhibit 10.1

 

EXECUTION COPY

 

 

 

LOAN AGREEMENT

 

dated as of

 

August 16, 2012

 

between

 

A123 SYSTEMS, INC.

 

and

 

WANXIANG AMERICA CORPORATION

 

 

 

 

TABLE OF CONTENTS

 

	
 
    	
 
    	
Page
    
	
 
    	
 
    
	
ARTICLE I DEFINITIONS
    	
1
    
	
 
    	
 
    
	
SECTION 1.01.
    	
Defined Terms
    	
1
    
	
SECTION 1.02.
    	
Terms   Generally
    	
17
    
	
SECTION 1.03.
    	
Accounting Terms; GAAP
    	
17
    
	
 
    	
 
    	
 
    
	
ARTICLE II THE CREDIT
    	
17
    
	
 
    	
 
    
	
SECTION 2.01.
    	
Commitment
    	
17
    
	
SECTION 2.02.
    	
Borrowing Procedures; Requests for Loans
    	
18
    
	
SECTION 2.03.
    	
Termination and Reduction of Commitment
    	
18
    
	
SECTION 2.04.
    	
Repayment; Evidence of Debt
    	
18
    
	
SECTION 2.05.
    	
Prepayment of Loans
    	
19
    
	
SECTION 2.06.
    	
Fees
    	
19
    
	
SECTION 2.07.
    	
Interest
    	
20
    
	
SECTION 2.08.
    	
Increased Costs
    	
21
    
	
SECTION 2.09.
    	
Taxes
    	
21
    
	
SECTION 2.10.
    	
Payments Generally; Allocation of Proceeds
    	
24
    
	
SECTION 2.11.
    	
Indemnity for Returned Payments
    	
24
    
	
SECTION 2.12.
    	
Allocation of Purchase Price
    	
25
    
	
SECTION 2.13.
    	
Letters of Credit
    	
25
    
	
SECTION 2.14.
    	
Permitted Alternative Bridge Financing
    	
27
    
	
 
    	
 
    	
 
    
	
ARTICLE III REPRESENTATIONS AND WARRANTIES
    	
27
    
	
 
    	
 
    
	
SECTION 3.01.
    	
Organization; Powers
    	
27
    
	
SECTION 3.02.
    	
Authorization; Enforceability
    	
27
    
	
SECTION 3.03.
    	
Governmental Approvals; No Conflicts
    	
27
    
	
SECTION 3.04.
    	
Financial Condition; No Material Adverse Change
    	
28
    
	
SECTION 3.05.
    	
Properties
    	
28
    
	
SECTION 3.06.
    	
Litigation and Environmental Matters
    	
28
    
	
SECTION 3.07.
    	
Compliance with Laws and Agreements
    	
29
    
	
SECTION 3.08.
    	
Investment Company Status
    	
29
    
	
SECTION 3.09.
    	
Taxes
    	
29
    
	
SECTION 3.10.
    	
ERISA
    	
30
    
	
SECTION 3.11.
    	
Disclosure
    	
30
    
	
SECTION 3.12.
    	
Material Agreements
    	
30
    
	
SECTION 3.13.
    	
Solvency
    	
30
    
	
SECTION 3.14.
    	
Insurance
    	
31
    
	
SECTION 3.15.
    	
Capitalization and Subsidiaries
    	
31
    
	
SECTION 3.16.
    	
Security Interest in Collateral
    	
31
    
	
SECTION 3.17.
    	
Employment Matters
    	
31
    
	
SECTION 3.18.
    	
Common Enterprise
    	
31
    
	
SECTION 3.19.
    	
Margin Rules
    	
31
    
	
SECTION 3.20.
    	
Competing Businesses
    	
32
    
	
SECTION 3.21.
    	
Change of Control Payments
    	
32
    
	
SECTION 3.22.
    	
Excluded Subsidiaries
    	
32
    

 

i

 

TABLE OF CONTENTS
 (Continued)

 

	
 
    	
 
    	
Page
    
	
 
    	
 
    
	
ARTICLE IV CONDITIONS
    	
32
    
	
 
    	
 
    
	
SECTION 4.01.
    	
Effective Date
    	
32
    
	
SECTION 4.02.
    	
Initial Loan
    	
33
    
	
SECTION 4.03.
    	
Each Subsequent Loan
    	
35
    
	
 
    	
 
    	
 
    
	
ARTICLE V AFFIRMATIVE COVENANTS
    	
36
    
	
 
    	
 
    
	
SECTION 5.01.
    	
Financial Statements and Other Information
    	
36
    
	
SECTION 5.02.
    	
Notices of Material Events
    	
38
    
	
SECTION 5.03.
    	
Existence; Conduct of Business
    	
39
    
	
SECTION 5.04.
    	
Payment of Obligations; Taxes
    	
39
    
	
SECTION 5.05.
    	
Maintenance of Properties
    	
39
    
	
SECTION 5.06.
    	
Books and Records; Inspection Rights
    	
39
    
	
SECTION 5.07.
    	
Compliance with Laws
    	
40
    
	
SECTION 5.08.
    	
Use of Proceeds
    	
40
    
	
SECTION 5.09.
    	
Insurance
    	
40
    
	
SECTION 5.10.
    	
Casualty and Condemnation
    	
40
    
	
SECTION 5.11.
    	
Additional Collateral; Further Assurances
    	
40
    
	
SECTION 5.12.
    	
Shares Reserve
    	
41
    
	
SECTION 5.13.
    	
Specified Agreements
    	
41
    
	
SECTION 5.14.
    	
Employee Retention
    	
42
    
	
SECTION 5.15.
    	
Post-Closing Governmental Approvals
    	
42
    
	
 
    	
 
    	
 
    
	
ARTICLE VI NEGATIVE COVENANTS
    	
42
    
	
 
    	
 
    
	
SECTION 6.01.
    	
Indebtedness
    	
42
    
	
SECTION 6.02.
    	
Liens
    	
43
    
	
SECTION 6.03.
    	
Mergers; Nature of Business
    	
44
    
	
SECTION 6.04.
    	
Investments, Loans, Advances, Guarantees and Acquisitions
    	
44
    
	
SECTION 6.05.
    	
Asset Sales
    	
45
    
	
SECTION 6.06.
    	
Sale and Leaseback Transactions
    	
45
    
	
SECTION 6.07.
    	
Restricted Payments; Certain Payments of Indebtedness
    	
45
    
	
SECTION 6.08.
    	
Transactions with Affiliates
    	
46
    
	
SECTION 6.09.
    	
Restrictive Agreements
    	
46
    
	
SECTION 6.10.
    	
Amendment of Material Documents
    	
46
    
	
SECTION 6.11.
    	
Capital Expenditures
    	
47
    
	
SECTION 6.12.
    	
Minimum Liquidity
    	
47
    
	
SECTION 6.13.
    	
Existing Letters of Credit
    	
47
    
	
 
    	
 
    	
 
    
	
ARTICLE VII EVENTS OF DEFAULT
    	
47
    
	
 
    	
 
    
	
ARTICLE VIII MISCELLANEOUS
    	
50
    
	
 
    	
 
    
	
SECTION 8.01.
    	
Notices
    	
50
    
	
SECTION 8.02.
    	
Waivers; Amendments
    	
52
    
	
SECTION 8.03.
    	
Expenses; Indemnity; Damage Waiver
    	
52
    
	
SECTION 8.04.
    	
Successors and Assigns
    	
54
    

 

ii

 

TABLE OF CONTENTS
 (Continued)

 

	
 
    	
 
    	
Page
    
	
 
    	
 
    
	
SECTION 8.05.
    	
Survival
    	
55
    
	
SECTION 8.06.
    	
Counterparts; Integration; Effectiveness
    	
55
    
	
SECTION 8.07.
    	
Severability
    	
55
    
	
SECTION 8.08.
    	
Right of Setoff
    	
55
    
	
SECTION 8.09.
    	
Governing Law; Jurisdiction; Consent to Service of Process
    	
56
    
	
SECTION 8.10.
    	
WAIVER OF JURY TRIAL
    	
56
    
	
SECTION 8.11.
    	
Headings
    	
57
    
	
SECTION 8.12.
    	
Confidentiality
    	
57
    
	
SECTION 8.13.
    	
Nonreliance; Violation of Law
    	
57
    
	
SECTION 8.14.
    	
USA PATRIOT Act
    	
57
    
	
SECTION 8.15.
    	
Disclosure
    	
57
    
	
SECTION 8.16.
    	
Interest Rate Limitation
    	
58
    
	
SECTION 8.17.
    	
Termination and Release
    	
58
    
	
 
    	
 
    	
 
    
	
ARTICLE IX
    	
 
    	
58
    
	
 
    	
 
    	
 
    
	
SECTION 9.01.
    	
Designation of Agent
    	
58
    
	
SECTION 9.02.
    	
Intercreditor Matters
    	
59
    
	
SECTION 9.03.
    	
Actions by and Communications with the Agent
    	
59
    
	
SECTION 9.04.
    	
Payments
    	
59
    
	
SECTION 9.05.
    	
Independent Analysis
    	
59
    
	
SECTION 9.06.
    	
Actions in Concert
    	
59
    

 

SCHEDULES:

 

Schedule 1.01 – Existing Letters of Credit 

Schedule 3.03 – Governmental Approvals

Schedule 3.04 – Material Adverse Effect Exceptions

Schedule 3.05 - Properties 

Schedule 3.06 - Disclosed Matters

Schedule 3.09 - Tax Matters

Schedule 3.12 - Specified Agreements

Schedule 3.14 - Insurance

Schedule 3.15 - Capitalization and Subsidiaries

Schedule 6.01 - Existing Indebtedness

Schedule 6.02 - Existing Liens

Schedule 6.04 - Existing Investments

Schedule 6.09 - Existing Restrictions

 

iii

 

TABLE OF CONTENTS
 (Continued)

 

	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    
	
EXHIBITS:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Exhibit A
    	
Form of   Opinion of Borrower’s Counsel
    	
 
    
	
Exhibit B
    	
Form of   Compliance Certificate
    	
 
    
	
Exhibit C
    	
[Reserved]
    	
 
    
	
Exhibit D
    	
List   of Closing Documents
    	
 
    
	
Exhibit E
    	
Form of   Bridge Warrants 
    	
 
    
	
Exhibit F
    	
[Reserved]   
    	
 
    
	
Exhibit G
    	
Form of   Borrowing Request
    	
 
    
	
Exhibit H
    	
Form of   Note
    	
 
    

 

iv

 

This LOAN AGREEMENT, dated as of August 16, 2012 (as it may be amended, restated, supplemented or otherwise modified from time to time, this “Agreement”), is entered into by and between A123 SYSTEMS, INC. (the “Borrower”) and WANXIANG AMERICA CORPORATION (“Wanxiang”) as the initial lender (the “Lender”) hereunder and as agent for itself and each other Person that may from time to time be a “Lender” hereunder.

 

The parties hereto agree as follows:

 

ARTICLE I

 

Definitions

 

SECTION 1.01.            Defined Terms.  As used in this Agreement, the following terms have the meanings specified below:

 

“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

 

“Agreement” has the meaning assigned to such term in the preamble.

 

“Alternative Financing” means debt or equity financing from a Person which is not the Lender or an Affiliate of the Lender; provided that the term “Alternative Financing” shall not include (i) any Indebtedness permitted under Section 6.01 or (ii) any Equity Interests issued in accordance with stock option plans or other benefit plans for management or employees of the Borrower or any Loan Party in effect as of July 31, 2012.

 

“Alternative Financing Event” shall occur if (i) the Initial Loan is advanced by the Lender and (ii) within one year after the date of the Initial Loan the Borrower or any Subsidiary receives Alternative Financing without the Lender’s approval; provided that, if any such Alternative Financing occurs after the later of (x) one hundred eighty (180) days following the date of the Initial Loan and (y) the Securities Purchase Agreement Termination Date and if, as of the date of such Alternative Financing, the condition to closing set forth in Section 4.10 of the Securities Purchase Agreement shall, through no fault of the Borrower, not have been satisfied, then the incurrence of such Alternative Financing shall not give rise to an Alternative Financing Event.

 

“Availability Period” means the period from and including the Effective Date to but excluding the earliest of (i) the eighteen (18) month anniversary of the Effective Date, (ii) the Senior Secured Convertible Notes Issuance Date, (iii) the occurrence of a Prepayment Event and (iv) the date of termination of the commitment of the Lender to make Loans pursuant to Article VII.

 

“Board” means the Board of Governors of the Federal Reserve System of the United States of America.

 

“Borrower” has the meaning assigned to such term in the preamble.

 

“Borrowing Date” has the meaning assigned to such term in Section 2.01.

 

“Borrowing Request” means a request by the Borrower for a Loan in accordance with Section 2.02.

 

 

“Bridge Warrant Shares” means any shares of Common Stock issued upon the exercise of the Bridge Warrants.

 

“Bridge Warrants” means the Initial Bridge Warrants and the Subsequent Bridge Warrants.

 

“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed.

 

“Capital Expenditures” means, without duplication, any expenditure for any purchase or other acquisition of any asset which would be classified as a fixed or capital asset on a consolidated balance sheet of the Borrower and its Subsidiaries prepared in accordance with GAAP; provided that, for purposes of Section 6.11, such amounts will be measured on a “net” basis after giving effect to matching programs from the U.S. Department of Energy.

 

“Capital Lease Obligations” of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.

 

“Card/FX Obligations” means the obligations described in clause (ii) of the definition of Existing Letters of Credit.

 

“Change in Control” means the occurrence of any of the following circumstances:

 

(a) any “person” (other than the Lender or its Affiliates) or “group” (other than a group of which the Lender or any of its Affiliates is a member) (as these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of either (x) 30% of the aggregate ordinary voting power represented by issued and outstanding Common Stock or (y) 30% or more of the shares of Voting Stock of the Borrower not held by such Person or Persons as of the date hereof;

 

(b) during any period of twelve (12) consecutive months, a majority of the members of the board of directors of the Borrower cease to be composed of individuals (i) who were members of that board on the first day of such period, (ii) whose election or nomination to that board was approved by (x) individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (y) the Lender or its Affiliates, (iii) any individual who was nominated by the Lender or its Affiliates or appointed to the board with the consent of the Lender or its Affiliates in connection with issuance by the Borrower of its Senior Secured Convertible Notes or (iv) whose election or nomination to that board was approved by individuals referred to in clauses (i), (ii) and (iii) above constituting at the time of such election or nomination at least a majority of that board ; or

 

(c) the acquisition of direct or indirect Control of the Borrower by any Person other than the Lender and its Affiliates or group that does not include the Lender or any of its Affiliates.

 

2

 

“Change in Law” means (a) the adoption of any law, rule, regulation or treaty (including any rules or regulations issued under or implementing any existing law) after the date of this Agreement, (b) any change in any law, rule, regulation or treaty or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement, or (c) compliance by the Lender with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement; provided  that notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder, issued in connection therewith or in implementation thereof, and (ii) all requests, rules, guidelines and directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, shall in each case be deemed to be a “Change in Law”, regardless of the date enacted, adopted, issued or implemented.

 

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

 

“Collateral” has the meaning assigned to such term in the Security Agreement.

 

“Collateral Access Agreement” has the meaning assigned to such term in the Security Agreement.

 

“Collateral Documents” means, collectively, the Security Agreement, the Mortgages and any other documents pursuant to which a Person grants a Lien upon any real or personal property as security for payment of the Secured Obligations.

 

“Commitment” means the aggregate commitment of the Lender to make the Loans and procure issuance of the Letter of Credit pursuant to Article II, in an aggregate principal amount and face amount at any one time outstanding not to exceed Seventy-Five Million Dollars ($75,000,000), as such amount is reduced from time to time in accordance with this Agreement.

 

“Common Stock” means the Borrower’s common stock, par value $0.001 per share.

 

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise.  

 

“Controlling” and “Controlled” have meanings correlative thereto.

 

“Default” means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.

 

“Deposit Account Control Agreement” has the meaning assigned to such term in the Security Agreement.

 

“Disclosed Matters” means the actions, suits and proceedings and the environmental matters disclosed in the Borrower’s publicly available filings with the Securities and Exchange Commission filed on or prior to the date hereof or in Schedule 3.06.

 

“dollars” or “$” refers to lawful money of the United States of America.

 

“Effective Date” means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 8.02).

 

3

 

“Environmental Laws” means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters.

 

“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

 

“Equity Interests” means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any such equity interest.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

 

“ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.

 

“ERISA Event” means (a) any “reportable event,” as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the thirty (30) day notice period is waived); (b) the existence with respect to any Plan of an “accumulated funding deficiency” (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.

 

“Event of Default” has the meaning assigned to such term in Article VII.

 

4

 

“Excluded Subsidiary” means, as of the Effective Date, each of Grid Storage Holdings LLC, A123 Systems UK, Ltd. and A123 Systems China Co., Ltd., but only for so long as each such Subsidiary (i) owns no Intellectual Property (as defined in the Security Agreement), (ii) owns no other material property other than any such property used in the process of winding down the operations of such Subsidiary and (iii) is inactive, in the process of winding down or being liquidated or is otherwise immaterial.

 

“Excluded Taxes” means, with respect to any payment made by any Loan Party under any Loan Document, any of the following Taxes imposed on or with respect to the Lender:

 

(a)           Taxes imposed on (or measured by) net income (however denominated) or franchise Taxes by the United States of America, or by the jurisdiction under the laws of which the Lender is organized or in which its principal office is located or that are Other Connection Taxes,

 

(b)           any branch profits Taxes imposed by the United States of America or any similar Taxes imposed by any other jurisdiction in which the Lender is located,

 

(c)           U.S. federal withholding Taxes imposed on amounts payable to or for the account of the Lender with respect to an applicable interest in the Loans or Commitment pursuant to a law in effect on the date on which (i) the Lender acquires such interest in the Loans or Commitment or (ii) the Lender changes its lending office, except in each case to the extent that, pursuant to Section 2.09, amounts with respect to such Taxes were payable either to the Lender’s assignor immediately before the Lender became a party hereto or to the Lender immediately before it changed its lending office,

 

(d)           Taxes attributable to the Lender’s failure to comply with Section 2.09(f), and

 

(e)           any U.S. federal withholding Taxes imposed under FATCA.

 

“Existing Convertible Notes” means (i) the HB Notes and (ii) the 3.75% Convertible Subordinated Notes issued pursuant to that certain indenture (as amended, supplemented or otherwise modified from time to time) dated as of April 6, 2011.

 

“Existing Letters of Credit” means (i) letters of credit issued by Silicon Valley Bank for the account of the Borrower set forth on Schedule 1.01 and (ii) certain reimbursement obligations of the Borrower to Silicon Valley Bank in respect of merchant card services, business credit card services and foreign exchange transactions, in each case for clauses (i) and (ii), as in effect on the Effective Date and not giving effect to any renewals or extensions thereof.

 

“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code.

 

“Federal Funds Effective Rate” means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Lender from three Federal funds brokers of recognized standing selected by it.

 

5

 

“Financial Officer” means the chief financial officer, principal accounting officer, treasurer or controller of the Borrower.

 

“Financing Fee” has the meaning assigned to such term in Section 2.06(a).

 

“Fixtures” has the meaning assigned to such term in the Security Agreement.

 

“Foreign Lender” has the meaning assigned to such term in Section 2.09(f)(B).

 

“Fundamental Change” shall occur if any of the following have occurred, directly or indirectly, in one or more related transactions:

 

(a)                                  any sale, transfer, assignment, conveyance or other disposition (including pursuant to a sale and leaseback transaction or a grant of an exclusive license) of all or substantially all the assets of the Borrower or any other Loan Party;

 

(b)                                 any consolidation or merger of the Borrower or any other Loan Party with or into another Person (whether or not the Borrower or such other Loan Party is the surviving entity);

 

(c)                                  any liquidation, winding up or dissolution of the Borrower of any other Loan Party;

 

(d)                                 any reorganization, recapitalization or reclassification of the Voting Stock of the Borrower; or

 

(e)                                  any Change in Control.

 

“Funding Account” has the meaning assigned to such term in Section 4.02(h).

 

“GAAP” means generally accepted accounting principles in the United States of America.

 

“Governmental Authority” means the government of the United States of America, any political subdivision thereof, whether state or local, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

 

“Guarantee” of or by any Person (the “guarantor”) means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business.

 

6

 

“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

 

“HB Notes” means, collectively, any notes issued to Hudson Bay Master Fund Ltd. and certain other buyers pursuant to the Amended and Restated Securities Purchase Agreement, dated May 23, 2012 between the Borrower and such buyers, including, without limitation, the 6% Senior Convertible Notes in aggregate original principal amount of $50,000,000 issued by the Borrower on May 24, 2012, as the same may from time to time be amended, restated, supplemented or otherwise modified.

 

“Indebtedness” of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (d) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), which purchase price is (i) due more than 90 days after the date of incurrence or the obligations in respect thereof or (ii) evidenced by a note or similar written instrument), (e) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (f) all Guarantees by such Person of Indebtedness of others, (g) that portion of Capital Lease Obligations of such Person that is properly classified as a liability on a balance sheet in conformity with GAAP, (h) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty, (i) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances, (j) all obligations of such Person under any liquidated earn-out and (k) any other Off-Balance Sheet Liability of such Person.  The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.

 

“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by any Loan Party under any Loan Document and (b) Other Taxes.

 

“Initial Bridge Warrants” means Warrants to Purchase Common Stock issued in connection with the Initial Loan made on or about the Effective Date, which warrants shall be in substantially the form of Exhibit E hereto, duly completed in accordance with the instructions for “W1” set forth therein.

 

“Initial Loan” has the meaning assigned to such term in Section 2.01.

 

“Initial Loan Date” has the meaning assigned to such term in Section 4.02.

 

“Interest Payment Date” means the first day of each calendar quarter and the Maturity Date, and if such day is not a Business Day, the immediately succeeding Business Day.

 

“IRS” means the United States Internal Revenue Service.

 

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“Junior Lien Intercreditor Agreement” shall mean any intercreditor agreement by and among the Junior Representative, the Loan Parties and the Lender, in form and substance satisfactory to the Lender.

 

“Junior Representative” means, with respect to any series of Permitted Second Priority Indebtedness, the trustee, administrative agent, collateral agent, security agent or similar agent under the indenture or agreement pursuant to which such Indebtedness is issued, incurred or otherwise obtained, as the case may be, and each of their successors in such capacities.

 

“Latest Maturity Date” means, at any date of determination, the later of (a) the Maturity Date and (b) the maturity date in respect of the Senior Secured Convertible Notes.

 

“LC Collateral Account” has the meaning assigned to such term in Section 2.13(f).

 

“LC Disbursement” means any payment made by the Lender to or for the benefit of the LC Issuer in reimbursement for any drawing that shall have been made under the Letter of Credit.

 

“LC Face Amount” means, at any time, the aggregate face amount of the Letter of Credit at such time.

 

LC Fee” has the meaning assigned to such term in Section 2.13(e).

 

“LC Issuer” means any entity that issues the Letter of Credit pursuant to Section 2.13(a).

 

“LC Obligations” means, collectively, (a) all Reimbursement Obligations, (b) all interest payable hereunder in respect of Reimbursement Obligations, (c) all fees payable hereunder pursuant to Section 2.13(e), (d) a letter of credit fee equal to $250,050, and (e) all opening, confirming, advisory, drawing, processing and other customary charges by the LC Issuer to the Lender.

 

“Letter of Credit” has the meaning assigned to such term in Section 2.13.

 

“Lender” has the meaning assigned to such term in the preamble.  The term “Lender” shall include any successors and assigns of Wanxiang as the initial Lender pursuant to Section 8.04.  In the event that, by reason of any assignment or participation, more than one Person shall then have rights and obligations hereunder as “Lender,” Wanxiang shall act as agent for all such Lenders.

 

“Lien” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.

 

“Loan” has the meaning assigned to such term in Section 2.01.

 

“Loan Documents” means this Agreement, any promissory notes issued pursuant to this Agreement, the Collateral Documents, the Loan Guaranty, the Bridge Warrants and all other agreements, instruments, documents and certificates identified in Section 4.01 executed and delivered to, or in favor of, the Lender and including all other pledges, powers of attorney, consents, assignments, contracts, notices and all other written matter whether heretofore, now or hereafter executed by or on behalf of any Loan Party, or any employee of any Loan Party, and delivered to the Lender in connection with this

 

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Agreement or the transactions contemplated hereby.  Any reference in this Agreement or any other Loan Document to a Loan Document shall include all appendices, exhibits or schedules thereto, and all amendments, restatements, supplements or other modifications thereto, and shall refer to this Agreement or such Loan Document as the same may be in effect at any and all times such reference becomes operative.

 

“Loan Guarantor” means each Subsidiary of the Borrower that delivers or becomes a party to a Loan Guaranty.

 

“Loan Guaranty” means each Guarantee, in form and substance satisfactory to the Lender, delivered by each Loan Guarantor, as it may be amended or modified and in effect from time to time.

 

“Loan Parties” means the Borrower, the Loan Guarantors and their successors and assigns.

 

“MA-CEC” has the meaning assigned to such term in Section 2.01(b).

 

“MA-CEC Intercreditor Agreement” has the meaning assigned to such term in Section 2.01(b).

 

“MA-CEC LSA” has the meaning assigned to such term in Section 2.01(b).

 

“Mandatory Prepayment Date” has the meaning assigned to such term in Section 2.05.

 

“Margin Stock” has the meaning assigned to such term in Section 3.19.

 

“Material Adverse Effect” means a material adverse effect on (a) the business, assets, operations, prospects or condition, financial or otherwise, of the Borrower and the Subsidiaries taken as a whole, (b) the ability of any Loan Party to perform any of its obligations under the Loan Documents to which it is a party, (c) the Collateral, or the Lender’s Liens on the Collateral or the priority of such Liens, or (d) the rights of or benefits available to the Lender under any of the Loan Documents.

 

“Material Indebtedness” means Indebtedness (other than the Loans), or obligations in respect of one or more Swap Agreements, of any one or more of the Borrower and its Subsidiaries in an aggregate principal amount exceeding $1,000,000.  For purposes of determining Material Indebtedness, the “obligations” of the Borrower or any Subsidiary in respect of any Swap Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Subsidiary would be required to pay if such Swap Agreement were terminated at such time.

 

“Maturity Date” means August 15, 2014.

 

“Moody’s” means Moody’s Investors Service, Inc.

 

“Mortgages” means any mortgage, deed of trust or other agreement which conveys or evidences a Lien in favor of the Lender securing the Obligations on real property of a Loan Party, including any amendment, modification or supplement thereto.

 

“Multiemployer Plan” means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

 

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“Nasdaq” means either NASDAQ Global Select Market or NASDAQ Capital Market.

 

“NPA Obligations” means all unpaid principal of and accrued and unpaid interest on the Senior Secured Convertible Notes, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations of the Loan Parties to the holders of the Senior Secured Convertible Notes or any indemnified party arising under or in connection with the Securities Purchase Agreement, the Senior Secured Convertible Notes or any instrument, document or agreement executed in connection therewith.

 

“Obligations” means all unpaid principal of and accrued and unpaid interest on the Loans, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations of the Loan Parties to the Lender or any indemnified party arising under the Loan Documents, including, without limitation, all LC Obligations.

 

“Off-Balance Sheet Liability” of a Person means (a) any repurchase obligation or liability of such Person with respect to accounts or notes receivable sold by such Person, (b) any indebtedness, liability or obligation under any so-called “synthetic lease” transaction entered into by such Person, or (c) any indebtedness, liability or obligation arising with respect to any other transaction which is the functional equivalent of or takes the place of borrowing but which does not constitute a liability on the balance sheets of such Person (other than operating leases).

 

“Other Connection Taxes” means, with respect to the Lender, Taxes imposed as a result of a present or former connection between the Lender and the jurisdiction imposing such Taxes (other than a connection arising from the Lender having executed, delivered, enforced, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, or engaged in any other transaction pursuant to, or enforced, any Loan Document), or sold or assigned an interest in any Loan Document).

 

“Other Taxes” means any present or future stamp, court, documentary, intangible, recording, filing or similar excise or property Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, or from the registration, receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment.

 

“Participant” has the meaning assigned to such term in Section 8.04(c).

 

“Participant Register” has the meaning assigned to such term in Section 8.04(c).

 

“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.

 

“Permitted Encumbrances” means:

 

(a)                                  Liens imposed by law for Taxes that are not yet due or are being contested in compliance with Section 5.04;

 

(b)                                 carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than thirty (30) days or are being contested in compliance with Section 5.04;

 

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(c)                                  pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations;

 

(d)                                 deposits to secure the performance of bids, trade contracts, leases, government contracts, statutory obligations, surety and appeal bonds, performance and return-of-money bonds and other obligations of a like nature, in each case in the ordinary course of business;

 

(e)                                  judgment liens in respect of judgments that do not constitute an Event of Default under clause (k) of Article VII;

 

(f)                                    easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any Subsidiary;

 

(g)                                 Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods;

 

(h)                                 any interest of a lessor or sublessor under any lease of real estate permitted hereunder;

 

(i)                                     non-exclusive outbound licenses of patents, copyrights, trademarks and other intellectual property rights granted by the Borrower or any of its Subsidiaries in the ordinary court of business and not interfering in any respect with the ordinary conduct of or materially detracting from the value of the business of the Borrower or such Subsidiary;

 

(j)                                     purported Liens evidenced by the filing of precautionary UCC financing statements relating solely to operating leases of personal property entered into in the ordinary course of business;

 

(k)                                  exclusive licenses in effect as of the date of this Agreement that do not purport to grant a security interest therein and are limited in geographical scope to territories outside of the United States; and

 

(l)                                     Liens existing as of the Effective Date on the Excluded Property (as defined in the Security Agreement); provided that, with respect to the MA-CEC Collateral and the Choose Michigan Collateral (each as defined in the Security Agreement), the Indebtedness secured thereby (other than any interest accruing thereon) shall not be increased and upon repayment of any such Indebtedness the related Lien in such MA-CEC Collateral and such Choose Michigan Collateral shall cease to be a Permitted Encumbrance;

 

provided  that the term “Permitted Encumbrances” shall not include any Lien securing Indebtedness, except with respect to clause (e) above.

 

“Permitted First Priority Bridge Indebtedness” shall mean secured Indebtedness incurred by the Borrower in the form of one or more series of first lien (or other priority lien) secured notes or loans; provided that (a) such Indebtedness has commercially reasonably terms; (b) the Lender has consented to such Indebtedness, such consent not to be unreasonably withheld; (c) such Indebtedness shall not be subject to any prepayment fee or similar feature; (d) no Person shall have received or be entitled to receive any Equity Interest in the Borrower or any of its Subsidiaries in connection with the incurrence of such Indebtedness; (e) the Lender shall, on demand, have the unconditional right to acquire

 

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or refinance such Indebtedness for an amount not greater than the outstanding principal amount thereof (it being understood that the Borrower shall thereupon pay all accrued and unpaid interest and related breakage costs in connection therewith); (f) the aggregate principal amount of such Indebtedness shall not be less than the lesser of (i) $75,000,000 and (ii) the aggregate amount of the Obligations as of the date of incurrence of such Indebtedness; (g) the proceeds of such Indebtedness shall be applied toward the repayment in full of the Obligations hereunder; and (h) the Person or Persons funding such Indebtedness shall have assumed all obligations and liabilities of the Lender in respect of the Letter of Credit, in a manner satisfactory to the Lender and the LC Issuer.

 

“Permitted Investments” means:

 

(a)                                  direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof;

 

(b)                                 investments in commercial paper maturing within two hundred seventy (270) days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from S&P or from Moody’s;

 

(c)                                  investments in certificates of deposit, banker’s acceptances and time deposits maturing within one hundred eighty (180) days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000;

 

(d)                                 fully collateralized repurchase agreements with a term of not more than thirty (30) days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria described in clause (c) above; and

 

(e)                                  money market funds that (i) comply with the criteria set forth in Securities and Exchange Commission Rule 2a-7 under the Investment Company Act of 1940, (ii) are rated AAA by S&P and Aaa by Moody’s, and (iii) have portfolio assets of at least $5,000,000,000.

 

“Permitted Second Priority Indebtedness” shall mean secured Indebtedness incurred by the Borrower in the form of one or more series of second lien (or other junior lien) secured notes or second lien (or other junior lien) secured loans; provided  that (a) such Indebtedness has a maturity no earlier than, and a Weighted Average Life to Maturity equal to or greater than the Latest Maturity Date, (b) such Indebtedness has commercial terms and provisions (including, without limitation as relates to any prepayment fee or similar feature) reasonably satisfactory to the Lender, (c) such Indebtedness is not at any time guaranteed by any Subsidiaries other than Subsidiaries that are Loan Guarantors, (d) such Indebtedness does not have scheduled amortization payments of principal or payments of principal and is not subject to mandatory redemption, repurchase, prepayment, sinking fund obligations or prepayments at the option of the holders thereof (except customary asset sale or change of control provisions that provide for the prior repayment in full of the Loans and all other Obligations), in each case prior to the Latest Maturity Date at the time such Indebtedness is incurred, (e) such Indebtedness is secured by the Collateral on a second priority (or other junior priority) basis to the liens securing the Secured Obligations and is not secured by any property or assets of the Borrower or any Subsidiary other than the Collateral, (f) a Supplemental Financing Event shall have occurred prior to the incurrence of such Indebtedness, (g) the Lender shall have consented to such Indebtedness, such consent not to be unreasonably withheld, (h) the aggregate principal amount of such Indebtedness does not exceed the difference between (i) $75,000,000

 

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and (ii) the amount equal to the sum of the aggregate outstanding principal amount of the Loans and Reimbursement Obligations under this Agreement plus the undrawn LC Face Amount, and (i) the Borrower, the Loan Parties, the Lender and the Junior Representative for such Indebtedness shall have executed and delivered a Junior Lien Intercreditor Agreement subordinating the liens and rights of payment and enforcement of the Junior Representative (and all Persons for whom the Junior Representative acts as agent in connection with such Indebtedness) to the prior liens and rights of payment and enforcement of the Lender on such terms as shall be satisfactory to the Lender, (j) no Person shall have received or be entitled to receive any Equity Interest in the Borrower or any of its Subsidiaries in connection with the incurrence of such Indebtedness, and (k) the Lender shall, on demand, have the unconditional right to acquire or refinance such Indebtedness for an amount not greater than the outstanding principal amount thereof (it being understood that the Borrower shall thereupon pay all accrued and unpaid interest and related breakage costs in connection therewith).

 

“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

 

“Plan” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

 

“Prepayment Event” means the occurrence of any of the following events:

 

(a)                                  a Fundamental Change shall occur; or

 

(b)                                 the Borrower shall procure any Alternative Financing;

 

provided that, the procurement by the Borrower of Alternative Financing shall not constitute a Prepayment Event under clause (b) above if, on the incurrence thereof, (i) such Alternative Financing constitutes Permitted Second Priority Indebtedness and (ii) the aggregate principal amount of the Permitted Second Priority Indebtedness then outstanding does not exceed the limit set forth in definition of Permitted Second Priority Indebtedness.

 

“Prepayment Fee” has the meaning assigned to such term in Section 2.06(c).

 

“Projections” has the meaning assigned to such term in Section 5.01(f).

 

“Reimbursement Obligations” has the meaning assigned to such term in Section 2.13.

 

“Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person’s Affiliates.

 

“Report” means reports prepared by the Lender or another Person showing the results of appraisals, field examinations or audits pertaining to the assets of the Loan Parties from information furnished by or on behalf of the Borrower, after the Lender has exercised its rights of inspection pursuant to this Agreement.

 

“Requirement of Law” means, as to any Person, the Certificate of Incorporation and By-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case

 

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applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

 

“Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interests in the Borrower or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Equity Interests in the Borrower or any option, warrant or other right to acquire any such Equity Interests in the Borrower.

 

“S&P” means Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business.

 

“Secured Obligations” means (i) all Obligations and (ii) all NPA Obligations; provided that “Secured Obligations” shall exclude any obligations in connection with Lender’s Equity Interests or Voting Stock in Borrower or any of its Subsidiaries or warrant agreements and other similar instruments granted to Lender in connection with the Equity Interests or Voting Stock of Borrower or its Subsidiaries.

 

“Securities Account Control Agreement” has the meaning assigned to such term in the Security Agreement.

 

“Securities Purchase Agreement” means that certain Securities Purchase Agreement dated August 15, 2012 between the Borrower and Wanxiang Clean Energy USA Corp.

 

“Securities Purchase Agreement Termination Date” means the date the Securities Purchase Agreement shall for any reason terminate or cease to be in effect.

 

“Security Agreement” means that certain Pledge and Security Agreement, dated as of the Initial Loan Date between the Loan Parties and the Lender, and any other pledge or security agreement entered into after the date of this Agreement by any other Loan Party (as required by this Agreement or any other Loan Document), or any other Person, as the same may be amended, restated or otherwise modified from time to time.

 

Senior Secured Convertible Notes” means the Borrower’s 8.0% Senior Secured Convertible Notes in the aggregate amount of up to $200,000,000, issued after the Effective Date and purchased by the Lender or its Affiliates pursuant to the Securities Purchase Agreement.

 

“Senior Secured Convertible Notes Issuance Date” means a date on which the Borrower issues its Senior Secured Convertible Notes.

 

“Specified Agreements” means the material agreements and contracts to which any Loan Party is a party or is bound as of the date of this Agreement and that are set forth on Schedule 3.12.

 

“Subordinated Indebtedness” of a Person means any Indebtedness of such Person, the payment of which is subordinated to payment of the Secured Obligations to the written satisfaction of the Lender.

 

“Subsequent Bridge Warrants” means Warrants to Purchase Common Stock issued (i) in connection with the second Loan hereunder, which warrants shall be in substantially the form of Exhibit E hereto, duly completed in accordance with the instructions for “W2” set forth therein, and (ii) in

 

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connection with the third Loan hereunder, which warrants shall be in substantially the form of Exhibit E hereto, duly completed in accordance with the instructions for “W3” set forth therein.

 

“subsidiary” means, with respect to any Person (the “parent”) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.

 

“Subsidiary” means any direct or indirect subsidiary of the Borrower or a Loan Party, as applicable.

 

“Supplemental Financing Event” means the occurrence of any of the following circumstances:

 

(a)                                  a funding hereunder shall fail to have been made under the following circumstances:

 

(i)                                   the Borrower shall have requested a Loan in accordance with Section 2.02 on or after October 8, 2012;

 

(ii)                                  the Borrower shall have used its best efforts to timely satisfy the conditions to subsequent Loans set forth in Section 4.03  in respect of the requested Loan, but one or more of such conditions (other than clause (i) or (j) thereof) shall not have been satisfied as of the date proposed for the making of the requested Loan; and

 

(iii)                               the Lender shall have advised the Borrower that the requested Loan would not be made by reason of the failure of the Borrower to satisfy the conditions set forth in Section 4.03 (other than clause (i) or (j) thereof); or

 

(b)                                 a funding hereunder shall fail to have been made under the following circumstances:

 

(i)                                     the Borrower shall have requested a Loan in accordance with Section 2.02 on or after October 8, 2012;

 

(ii)                                  the Borrower shall have timely satisfied the conditions to subsequent Loans set forth in Section 4.03 (other than clause (i) or (j) thereof) in respect of the requested Loan, but through no fault of the Borrower the condition set forth in Section 4.03(i) or (j) shall not have been satisfied as of the date proposed for the making of the requested Loan; and

 

(iii)                               the Lender shall have advised the Borrower that the requested Loan would not be made by reason of the inability to satisfy the condition set forth in clause (i) or (j) of Section 4.03.

 

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“Swap Agreement” means any agreement with respect to any swap, forward, spot, future, credit default or derivative transaction or option or similar agreement involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value, or any similar transaction or any combination of these transactions; provided  that no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees or consultants of the Borrower or the Subsidiaries shall be a Swap Agreement.

 

“Tax Returns” means any federal, state, local or foreign return, declaration, report, statement, claim for refund, amended returns and declarations of estimated taxes (including all attached schedules) filed or required to be filed with any Governmental Entity with respect to Taxes.

 

“Taxes” means any present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

 

“Term Loan Rate” means a rate per annum equal to 10.0%.

 

“Transactions” means the execution, delivery and performance by the Borrower of this Agreement, the borrowing of Loans, the use of the proceeds thereof and the issuance of the Bridge Warrants.

 

“UCC” means the Uniform Commercial Code as in effect from time to time in the State of New York or any other state the laws of which are required to be applied in connection with the issue of perfection of security interests.

 

“Voting Stock” of a Person means capital stock of such Person of the class or classes pursuant to which the holders thereof have the general voting power to elect, or the general power to appoint, at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not at the time capital stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency).

 

“U.S. Tax Compliance Certificate” has the meaning assigned to such term in Section 2.09(f)(B)(iii).

 

“Wanxiang” has the meaning assigned to such term in the preamble.

 

“Weighted Average Life to Maturity” shall mean, when applied to any Indebtedness at any date, the number of years obtained by dividing: (a) the sum of the products obtained by multiplying (i) the amount of each then-remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (b) the then-outstanding principal amount of such Indebtedness.

 

“Withdrawal Liability” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.

 

“Withholding Agent” means any Loan Party and the Lender.

 

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SECTION 1.02.                                   Terms Generally.  The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.”  The word “will” shall be construed to have the same meaning and effect as the word “shall.”  Unless the context requires otherwise, (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (c) the words “herein,” “hereof” and “hereunder,” and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement, (e) any reference in any definition to the phrase “at any time” or “for any period” shall refer to the same time or period for all calculations or determinations within such definition, and (f) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

 

SECTION 1.03.                                   Accounting Terms; GAAP.  Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided  that, if after the date hereof there occurs any change in GAAP or in the application thereof on the operation of any provision hereof and the Borrower notifies the Lender that the Borrower requests an amendment to any provision hereof to eliminate the effect of such change in GAAP or in the application thereof (or if the Lender notifies the Borrower that the Lender requests an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith.  Notwithstanding any other provision contained herein, all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made, without giving effect to any election under Statement of Financial Accounting Standards 159 (or any other Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of any Loan Party the Borrower or any Subsidiary at “fair value,” as defined therein.

 

ARTICLE II

 

The Credit

 

SECTION 2.01.                                   Commitment.  (a) Subject to the terms and conditions set forth herein, the Lender agrees to make term loans (each, a “Loan”) to the Borrower from time to time, on any Business Day during the Availability Period (each such date, a “Borrowing Date”); provided  that, the Borrower shall not be permitted to request a Loan on more than three (3) occasions during the Availability Period. The initial Loan (the “Initial Loan”) shall be in the principal amount of Fifteen Million Dollars ($15,000,000)  and shall be made on the Effective Date following satisfaction of the conditions precedent set forth in Sections 4.01 and 4.02.  A second and third Loan, each in the principal amount of Twenty-Five Million Dollars ($25,000,000), shall be made on such Borrowing Dates as may be requested by the Borrower, subject to the satisfaction of the conditions precedent set forth in Section 4.03.  Amounts repaid or prepaid in respect of any Loans may not be reborrowed.

 

(b) Proceeds of each Loan shall, following satisfaction by the Borrower of all applicable conditions precedent to the making of such Loan, be remitted by the Lender to such account of the

 

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Borrower as the Borrower may direct in the related Borrowing Request; provided that, in the case of the Initial Loan, proceeds of such Loan in an amount equal to $2,500,000 (the “Reserve Amount”) shall be held in reserve by the Lender for (x) disbursement to the Borrower on the date following the Borrowing Date on which (i) the Massachusetts Clean Energy Technology Center (the “MA-CEC”) shall have confirmed, to the satisfaction of the Lender, that the security interest of the MA-CEC in the “Subordinate Collateral” (as such term is defined in that certain Loan and Security Agreement, dated as of October 8, 2010, between the MA-CEC and the Borrower, the “MA-CEC LSA”) is subordinate and junior to the security interest of the Lender in such assets and properties and (ii) the Borrower shall have requested that MA-CEC, and MA-CEC shall have agreed that it would, promptly execute an intercreditor agreement (the “MA-CEC Intercreditor Agreement”) with the Lender as contemplated in Section 1.4(d) of the MA-CEC LSA or (y) at the request of the Borrower, remittance of such Reserve Amount to the MA-CEC if the effect of such remittance, together with the application of any funds remitted to the MA-CEC by the Borrower, would be the satisfaction in full of all obligations of the Borrower to the MA-CEC, termination of the MA-CEC LSA and termination and release of all security interests granted by the Borrower to the MA-CEC pursuant thereto.

 

SECTION 2.02.                                   Borrowing Procedures; Requests for Loans.  To request a Loan, the Borrower shall notify the Lender of such request by telephone not later than 12:00 noon, New York City time, on the Business Day immediately preceding the date of the requested Loan.  Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or facsimile or other electronic communication to the Lender of a written Borrowing Request in a form approved by the Lender and signed by the Borrower.  Each such telephonic and written Borrowing Request shall specify the date of such Loan, which shall be a Business Day.

 

SECTION 2.03.                                   Termination and Reduction of Commitment.  On each Borrowing Date the Commitment shall be reduced by $25,000,000.  Unless previously terminated or reduced to zero, the Commitment shall terminate simultaneously with the termination of the Availability Period.

 

SECTION 2.04.                                   Repayment; Evidence of Debt.

 

(a)                                  The Borrower hereby unconditionally promises to pay to the Lender in full in cash, to the extent not previously paid, the then-unpaid principal amount of all Loans on the Maturity Date.

 

(b)                                 The Lender, acting solely for purposes of Treasury Regulation Section 5f.103-1(c) as an agent of the Borrower, shall maintain in accordance with its usual practice an account evidencing the indebtedness of the Borrower to the Lender or any assignee resulting from each Loan or assignment made by the Lender pursuant to this Agreement, including the amounts of principal and interest payable and paid to the Lender or any assignee from time to time hereunder.  Such account shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

 

(c)                                  The entries made in the account maintained pursuant to paragraph (b) of this Section shall be prima  facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of the Lender to maintain such account or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement.

 

(d)                                 The Lender may request that Loans made by it be evidenced by one or more promissory notes.  In such event, the Borrower shall prepare, execute and deliver to the Lender a promissory note or notes payable to the Lender (or, if requested by the Lender, to the Lender and

 

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its registered assigns) in substantially the form of Exhibit H.  Thereafter, the Loan(s) evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 8.04) be represented by one or more promissory notes in such form payable to the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns).

 

SECTION 2.05.                                   Prepayment of Loans.

 

(a)                                  The Borrower shall have the right at any time and from time to time to prepay any Loan in whole or in part, subject to prior notice in accordance with paragraph (b) of this Section.

 

(b)                                 The Borrower shall notify the Lender by telephone (confirmed by facsimile) of any prepayment hereunder not later than 12:00 noon, New York City time, on the date of prepayment.  Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Loan or portion thereof to be prepaid.  Prepayments shall be accompanied by accrued interest to the extent required by Section 2.07.

 

(c)                                  No later than the Business Day immediately following the occurrence of a Prepayment Event (the “Mandatory Prepayment Date”), the Borrower shall (i) prepay the Obligations in an amount equal to the sum of (A) the aggregate outstanding principal amount of the Loans, together with all accrued and unpaid interest thereon plus (B) all then unpaid Reimbursement Obligations, together with all accrued and unpaid interest thereon, plus (C) any amounts then due and payable under Section 2.06 and (ii) remit and pledge to the Lender as cash collateral an amount equal to 105% of the undrawn LC Face Amount.

 

SECTION 2.06.                                   Fees.

 

(a)                                  Financing Fee.  Subject to Section 2.06(b), if an Alternative Financing Event shall occur prior to the Senior Secured Convertible Notes Issuance Date, the Borrower shall on the Mandatory Prepayment Date pay to the Lender as liquidated damages and compensation for the costs of being prepared to make funds available hereunder and in respect of the Senior Secured Convertible Notes an amount equal to the excess of $13,750,000 over the amount (if any) previously paid by the Borrower pursuant to Section 14.3 of the Securities Purchase Agreement (the “Financing Fee”).  The Borrower, the other Loan Parties and the Lender agree that such amount is a reasonable calculation of the Lender’s lost profits under this Agreement and in respect of the Senior Secured Convertible Notes in view of the difficulties and impracticality of determining actual damages based on a failure to consummate the transactions contemplated by this Agreement and the Securities Purchase Agreement.

 

(b)                                 Financing Fee Deferral and Forgiveness.  In the event the Borrower shall incur Permitted First Priority Bridge Indebtedness and repay (and, as applicable, cash collateralize) in full all the Obligations hereunder as required under Section 2.05(c), the obligation of the Borrower to pay the Financing Fee to the Lender in connection therewith shall be deferred and become due and payable in full on the Securities Purchase Agreement Termination Date; provided that if (x) the Securities Purchase Agreement Termination Date occurs more than one hundred eighty (180) following the date of the Initial Loan and (y) as of the Securities Purchase Agreement Termination Date, the condition to closing set forth in Section 4.10 of the Securities Purchase Agreement shall, through no fault of the Borrower, not have been satisfied, then the Borrower shall not be obligated to pay the Financing Fee arising in connection with the Permitted First Priority Bridge Indebtedness.  Furthermore, in the event the Senior Secured Convertible

 

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Notes Issuance Date shall occur, and the Lender shall purchase the Senior Secured Convertible Notes contemplated under the Securities Purchase Agreement, the Borrower shall cease to have any obligation to pay the Financing Fee arising in connection with the Permitted First Priority Bridge Indebtedness.

 

(c)                                  Prepayment Fee.  Subject to Section 2.06(d), if a Prepayment Event shall occur prior to the Senior Secured Convertible Notes Issuance Date, the Borrower shall on the Mandatory Prepayment Date pay a fee (the “Prepayment Fee”) to the Lender in an amount equal to (i) in the case of any Prepayment Event occurring during the period from the date hereof to and including the first anniversary of the date hereof, ten percent (10%) of the sum of the aggregate principal amount of the Loans and Reimbursement Obligations outstanding plus the undrawn LC Face Amount on such date, before giving effect to any prepayment on such date, and (ii) in the case of any Prepayment Event occurring after the first anniversary of the date hereof, eight percent (8%) of the sum of the aggregate principal amount of the Loans and Reimbursement Obligations outstanding plus the undrawn LC Face Amount on such date, before giving effect to any prepayment on such date.

 

(d)                                 Prepayment Fee Deferral.  In the event the Borrower shall incur Permitted First Priority Bridge Indebtedness and repay (and, as applicable, cash collateralize) in full all the Obligations hereunder as required under Section 2.05(c), the obligation of the Borrower to pay the Prepayment Fee to the Lender in connection therewith shall be deferred and become due and payable in full on the Securities Purchase Agreement Termination Date.

 

(e)                                  Survival.  The obligations of the Borrower under this Section 2.06 shall survive termination of this Agreement and shall continue in effect until the date that is one year after the date of the Initial Loan hereunder; provided that if, prior to such date, an Alternative Financing Event shall have occurred, the obligations of the Borrower under this Section 2.06 shall continue in effect until any amount due under clause (a) hereof in connection with such Alternative Financing Event shall have been paid in full to the Lender or shall have ceased to be an obligation of the Borrower pursuant to the terms of Section 2.06(b).

 

(f)                                    General.  All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Lender.  Fees paid shall not be refundable under any circumstances.

 

SECTION 2.07.                                   Interest.

 

(a)                                  All Loans and Reimbursement Obligations shall bear interest at the Term Loan Rate.

 

(b)                                 Accrued interest on each Loan and the Reimbursement Obligations shall be payable in arrears on each Interest Payment Date for such Loan and the Reimbursement Obligations and upon termination of the Commitment; provided  that (i) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand and (ii) in the event of any repayment or prepayment of any Loan or Reimbursement Obligation, accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment.

 

(c)                                  Notwithstanding the foregoing, during the occurrence and continuance of an Event of Default, all Loans and Reimbursement Obligations and other amounts outstanding hereunder shall bear interest at 61⁄2% plus the Term Loan Rate.

 

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(d)                                 All interest hereunder shall be computed on the basis of a year of three hundred sixty (360) days and shall be payable for the actual number of days elapsed.

 

SECTION 2.08.                                   Increased Costs.

 

(a)                                  If any Change in Law shall subject the Lender to any Taxes on its loans, loan principal, commitments, or other obligations, (other than (i) Taxes imposed on or with respect to any payment made by any Loan Party under any Loan Document and (ii) Other Connection Taxes on gross or net income, profits or receipts (including value-added or similar Taxes)), and the result of any of the foregoing shall be to reduce the amount of any sum received or receivable by the Lender hereunder (whether of principal, interest or otherwise), then the Borrower will pay to the Lender such additional amount or amounts as will compensate the Lender for such additional costs incurred or reduction suffered.

 

(b)                                 A certificate of the Lender setting forth the amount or amounts necessary to compensate the Lender as specified in paragraph (a) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error.  The Borrower shall pay the Lender the amount shown as due on any such certificate within ten (10) days after receipt thereof.

 

(c)                                  Failure or delay on the part of the Lender to demand compensation pursuant to this Section shall not constitute a waiver of the Lender’s right to demand such compensation; provided  that the Borrower shall not be required to compensate the Lender pursuant to this Section for any increased costs or reductions incurred more than one hundred eighty (180) days prior to the date that the Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of the Lender’s intention to claim compensation therefor; provided  further  that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the one hundred eighty (180)-day period referred to above shall be extended to include the period of retroactive effect thereof.

 

SECTION 2.09.                                   Taxes.

 

(a)                                  Withholding of Taxes; Gross-Up.  Each payment by any Loan Party under any Loan Document shall be made without withholding for any Taxes, unless such withholding is required by any applicable law.  If any Withholding Agent determines, in its sole discretion exercised in good faith, that it is so required to withhold Taxes, then such Withholding Agent may so withhold and shall timely pay the full amount of withheld Taxes to the relevant Governmental Authority in accordance with applicable law.  If such Taxes are Indemnified Taxes, then the amount payable by such Loan Party shall be increased as necessary so that, net of such withholding (including such withholding applicable to additional amounts payable under this Section), the Lender receives the amount it would have received had no such withholding been made.

 

(b)                                 Payment of Other Taxes by the Borrower.  The Borrower shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

 

(c)                                  Evidence of Payments.  As soon as practicable after any payment of Indemnified Taxes by any Loan Party to a Governmental Authority, such Loan Party shall deliver to the Lender the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Lender.

 

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(d)                                 Indemnification by the Borrower.  The Loan Parties shall jointly and severally indemnify the Lender for any Indemnified Taxes that are paid or payable by the Lender in connection with any Loan Document (including amounts paid or payable under this Section 2.09(d)) and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority.  The indemnity under this Section 2.09(d) shall be paid within ten (10) days after the Lender delivers to the Borrower a certificate stating the amount of any Indemnified Taxes so paid or payable by the Lender and describing the basis for the indemnification claim.  Such certificate shall be conclusive of the amount so paid or payable absent manifest error.

 

(e)                                  Treatment of Certain Refunds.  If the Lender determines, in its sole discretion, exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section 2.09 (including additional amounts paid pursuant to this Section 2.09), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including any Taxes) of the Lender and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund).  Such indemnifying party, upon the request of the Lender, shall repay to the Lender the amount paid pursuant to this Section 2.09(e) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event the Lender is required to repay such refund to such Governmental Authority.  This Section shall not be construed to require the Lender to make available its tax returns (or any other information relating to its taxes which it deems confidential) to the Borrower or any other Person.  Notwithstanding anything to the contrary in this Section 2.09(e), in no event will the Lender be required to pay any amount to any indemnifying party pursuant to this Section 2.09 if such payment would place the Lender in a less favorable position (on a net after-Tax basis) than the Lender would have been in if the indemnification payments or additional amounts giving rise to such refund had never been paid.  This Section 2.09(e) shall not be construed to require the Lender to make available its Tax returns (or any other information relating to its Taxes which it deems confidential) to the indemnifying party or any other Person.

 

(f)                                    Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Borrower, at the time or times required by Law or as set out below, the following documents:

 

(A)                              any Lender that is a United States Person as defined in Section 7701(a)(30) of the Code shall deliver to the Borrower on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower), executed originals of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding tax;

 

(B)                                any Lender that is not a United States Person as defined in Section 7701(a)(30) of the Code (a “Foreign Lender”) shall, to the extent it is legally entitled to do so, deliver to the Borrower (in such number of copies as shall be requested by the Borrower) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower), whichever of the following is applicable:

 

(i)                                     in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to

 

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payments of interest under any Loan Document, executed originals of IRS Form W-8BEN establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;

 

(ii)                                  executed originals of IRS Form W-8ECI;

 

(iii)                               in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate to the effect that such Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code (a “U.S. Tax Compliance Certificate”) and (y) executed originals of IRS Form W-8BEN; or

 

(iv)                              to the extent a Foreign Lender is not the beneficial owner, executed originals of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN, a U.S. Tax Compliance Certificate, IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate on behalf of each such direct and indirect partner;

 

(C)                                any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower (in such number of copies as shall be requested by the Borrower) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower), executed originals of any other form prescribed by applicable law requested by the Borrower as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower to determine the withholding or deduction required to be made; and

 

(D)                               if a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower at the time or times prescribed by law and at such time or times reasonably requested by the Borrower such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower as may be necessary for the Borrower to comply with its obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment.  Solely for purposes of this clause (D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.

 

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Each Lender agrees that if any form or certification it previously delivered becomes inaccurate, it shall update such form or certification or promptly notify the Borrower in writing of its legal inability to do so.

 

(g)                                 For purposes of this Section 2.09, the term “Lender” includes any assignee pursuant to Section 8.04(b) and the term “applicable law” includes FATCA.

 

SECTION 2.10.                                   Payments Generally; Allocation of Proceeds.

 

(a)                                  The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest or fees, or of amounts payable under Sections 2.08 or 2.09, or otherwise) prior to 2:00 p.m., New York City time, on the date when due, in immediately available funds, without set off or counterclaim.  Any amounts received after such time on any date may, in the discretion of the Lender, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon.  All such payments shall be made to the Lender to an account designated by the Lender in writing.  If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension.  All payments hereunder shall be made in dollars.

 

(b)                                 Any proceeds of Collateral received by the Lender for application under this Agreement (i) not constituting a specific payment of principal, interest, fees or other sum payable under the Loan Documents (which shall be applied as specified by the Borrower), or (ii) after an Event of Default has occurred and is continuing and the Lender so elects such funds shall be applied ratably first, to pay any fees, indemnities, or expense reimbursements including amounts then due to the Lender from the Borrower, second, to pay interest then due and payable on the Loans and the Reimbursement Obligations, third, to prepay principal on the Loans and the unreimbursed Reimbursement Obligations on a pro rata basis, fourth, to pay an amount to the Lender equal to one hundred five percent (105%) of the undrawn LC Face Amount, to be held as cash collateral for such Obligations, and fifth, to the payment of any other Secured Obligation due to the Lender by the Borrower.  The Lender shall have the continuing and exclusive right to apply and reverse and reapply any and all such proceeds and payments to any portion of the Secured Obligations.

 

(c)                                  At the election of the Lender, all payments of fees, premiums, reimbursable expenses (including, without limitation, all reimbursement for fees and expenses pursuant to Section 8.03), and other sums payable as of the Effective Date under the Loan Documents, may be paid from the proceeds of the Initial Loan made hereunder.

 

SECTION 2.11.                                   Indemnity for Returned Payments.  If after receipt of any payment which is applied to the payment of all or any part of the Obligations, the Lender is for any reason compelled to surrender such payment or proceeds to any Person because such payment or application of proceeds is invalidated, declared fraudulent, set aside, determined to be void or voidable as a preference, impermissible setoff, or a diversion of trust funds, or for any other reason, then the Obligations or part thereof intended to be satisfied shall be revived and continued and this Agreement shall continue in full force as if such payment or proceeds had not been received by the Lender.  The provisions of this Section 2.13 shall be and remain effective notwithstanding any contrary action which may have been taken by the Lender in reliance upon such payment or application of proceeds.  The provisions of this Section 2.13 shall survive the termination of this Agreement.

 

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SECTION 2.12.                                   Allocation of Purchase Price.  The Lender and the Borrower shall endeavor in good faith to agree, as soon as reasonably practicable, to an allocation of the purchase price hereunder between any Loan and its related Bridge Warrants.

 

SECTION 2.13.                                   Letters of Credit

 

(a)                                  General.  Subject to the terms and conditions set forth herein, in connection with the Initial Loan to be made by the Lender on or about the Effective Date, the Borrower may request that the Lender procure the issuance of one or more letters of credit (collectively, the “Letter of Credit”) for the benefit of Silicon Valley Bank to back-stop the Existing Letters of Credit; provided that the aggregate face amount of the Letter of Credit shall not exceed $10,000,000.

 

(b)                                 Terms of the Letter of Credit.  Unless the Lender shall otherwise agree, the Letter of Credit shall contain, and the issuance thereof shall be subject to, the following terms and conditions:

 

(i)                                   the aggregate face amount of the Letter of Credit shall not exceed an amount equal to $10,000,000;

 

(ii)                                contemporaneous with the issuance of the Letter of Credit, Silicon Valley Bank shall release to the Borrower in immediately available funds all cash collateral then held by Silicon Valley Bank as collateral security for the Existing Letters of Credit (other than in respect of the Card/FX Obligations);

 

(iii)                             the expiry date for the Letter of Credit shall be October 24, 2013, or such later date as may be acceptable to the Lender or such earlier date on which the face amount thereof shall be reduced to zero;

 

(iv)                            with respect to each Existing Letter of Credit, the aggregate face amount of the Letter of Credit shall permanently reduce on the first extension or renewal date of such Existing Letter of Credit following the Effective Date (or on such later date as shall be acceptable to the Lender), without regard to whether such Existing Letter of Credit is extended or renewed, with the amount of such reduction being equal to the undrawn face amount of such Existing Letter of Credit;

 

(v)                               a drawing under the Letter of Credit may be made by Silicon Valley Bank on presentment of a statement that a drawing has been made on an Existing Letter of Credit in an amount equal to the amount then being requested to be drawn under the Letter of Credit, and neither the LC Issuer, nor any advising or confirming bank, nor the Lender shall have any duty to inquire, investigate or otherwise undertake any measures to confirm the truth or accuracy of any such statement by Silicon Valley Bank in connection with any such presentment;

 

(vi)                              upon the honoring of any drawing under the Letter of Credit, the face amount of the Letter of Credit shall permanently reduce by the amount of such drawing; and

 

(vii)                           in the event the Lender is required to provide the LC Issuer any cash collateral or other assets as collateral security for the reimbursement obligations of the Lender in connection therewith, such cash collateral and other assets (A) shall be provided solely from the assets of the Lender, (B) shall not constitute or be deemed to constitute the proceeds of any

 

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advance or other extension of credit made by the Lender to the Borrower and (C) neither the Borrower nor any Loan Party shall have or be deemed to have any interest therein.

 

(c)                                  Reimbursement.  Each LC Disbursement made by the Lender to or for the benefit of the LC Issuer shall constitute an advance by the Lender to the Borrower in a principal amount equal to the amount of such LC Disbursement.  The Borrower unconditionally promises to pay to the Lender in full in cash, to the extent not previously paid, the then-unpaid principal amount of all such advances (the “Reimbursement Obligations”) on the Maturity Date.  Until repaid by the Borrower in full, the Reimbursement Obligations outstanding from time to time shall bear interest at the rate and payable on the dates set forth in Section 2.07.

 

(d)                                 Obligations Absolute.  The Borrower’s obligation to pay the LC Obligations shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of the Letter of Credit or this Agreement, or any term or provision therein or herein, (ii) any draft or other document presented under the Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the LC Issuer under the Letter of Credit against, or payment by Silicon Valley Bank under any Existing Letter of Credit against, presentation of a draft or other document that does not comply with the terms of the Letter of Credit or an Existing Letter of Credit, as applicable, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower’s obligations hereunder.  Neither the LC Issuer nor Lender shall have any liability or responsibility by reason of or in connection with the issuance of the Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to the Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the LC Issuer or the Lender.  With respect to documents presented which appear on their face to be in substantial compliance with the terms of the Letter of Credit, the LC Issuer may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of the Letter of Credit.

 

(e)                                  Letter of Credit Fee.  The Borrower agrees to pay to the Lender a letter of credit fee (the “LC Fee”) for procuring the Letter of Credit.  The LC Fee shall accrue from the Effective Date to the date the Letter of Credit is surrendered for cancellation and shall, for each day, be equal to 10% per annum on the undrawn LC Face Amount on such day.  During the occurrence and continuance of an Event of Default, such rate per annum shall increase to 161⁄2% . The LC Fee shall be payable in arrears on each Interest Payment Date and on the date the Letter of Credit is surrendered for cancellation.  In addition, the Borrower agrees to pay to the Lender all fees, costs and expenses of the Lender with respect to procuring and arranging for the issuance of the Letter of Credit or processing of drawings thereunder.  Such fees, costs and expenses incurred through and including the last day of each calendar quarter shall be payable on each Interest Payment Date; provided that all fees, costs and expenses incurred by the Lender in connection with the initial issuance of the Letter of Credit shall be payable in full on the Effective Date.

 

(f)                                    Cash Collateralization.  If any Default shall occur and be continuing, on the Business Day immediately following the Business Day on which the Borrower receives notice 

 

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from the Lender demanding the deposit of cash collateral pursuant to this paragraph, the Borrower shall deposit in an account designated by the Lender in writing (the “LC Collateral Account”), an amount in cash equal to 105% of the undrawn LC Face Amount; provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described in clause (h) or (i) of Article VII.  Such deposit shall be held by the Lender as collateral for the payment and performance of the Secured Obligations in a non-interest bearing account and shall not bear any interest.  Moneys in the LC Collateral Account shall be applied by the Lender for the unpaid LC Obligations and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower in respect of future LC Disbursements and Reimbursement Obligations or, if the maturity of the Loans has been accelerated, be applied to satisfy other Secured Obligations.  If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of a Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within five Business Days after all such Defaults have been cured or waived as confirmed in writing by the Lender.

 

SECTION 2.14.                                   Permitted Alternative Bridge Financing.

 

(a)                                  Permitted First Priority Bridge Indebtedness.  If the events described in clause (b) of the definition herein of “Supplemental Financing Event” shall have occurred, the Borrower shall be permitted to incur Permitted First Priority Bridge Indebtedness.

 

(b)                                 Exercise of Right to Purchase.  In the event the Lender shall elect in its sole discretion to acquire or refinance any Permitted First Priority Bridge Indebtedness, the Borrower shall use its reasonable best efforts to facilitate such acquisition or refinancing with the effect that the Lender shall thereupon hold a first priority security interest in the Collateral.

 

ARTICLE III

 

Representations and Warranties

 

Each Loan Party represents and warrants to the Lender that:

 

SECTION 3.01.                                   Organization; Powers.  Each Loan Party and its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required, except in jurisdictions where the failure to be so qualified or in good standing has not had, and could not be reasonably expected to have, a Material Adverse Effect

 

SECTION 3.02.                                   Authorization; Enforceability.  The Transactions are within each Loan Party’s organizational powers and have been duly authorized by all necessary organizational actions and, if required, actions by equity holders.  The Loan Documents to which each Loan Party is a party have been duly executed and delivered by such Loan Party and constitute a legal, valid and binding obligation of such Loan Party, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

 

SECTION 3.03.                                   Governmental Approvals; No Conflicts.  The consummation of the Transactions by the Loan Parties (a) do not require any consent or approval of, registration or filing with, 

 

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or any other action by, any Governmental Authority, except (i) as set forth in Schedule 3.03, (ii) for such as have been obtained or made and are in full force and effect, (iii) for filings necessary to perfect Liens created pursuant to the Loan Documents and (iv) such as are applicable to the Lender by virtue of its owners or its relationship with China, Chinese entities and Chinese nationals, (b) will not violate any Requirement of Law applicable to any Loan Party or any of its Subsidiaries, (c) will not violate or result in a material default under any indenture, agreement or other instrument binding upon any Loan Party or any of its Subsidiaries or the assets of any Loan Party or any of its Subsidiaries, or give rise to a right thereunder to require any payment to be made by any Loan Party or any of its Subsidiaries, and (d) will not result in the creation or imposition of any Lien on any asset of any Loan Party or any of its Subsidiaries, except Liens created pursuant to the Loan Documents.

 

SECTION 3.04.                                   Financial Condition; No Material Adverse Change.

 

(a)                                  The Borrower has heretofore furnished to the Lender its consolidated balance sheet and statements of income, stockholders equity and cash flows (i) as of and for the fiscal year ended 2011, reported on by Deloitte & Touche, LLP, independent public accountants, and (ii) as of and for the fiscal quarter and the portion of the fiscal year ended March 31, 2012, certified by its Financial Officer.  Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Borrower and its consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP, subject, in the case of the statements referred to in clause (ii) above, to normal year-end audit, adjustments, that would not in the aggregate be material, and the absence of footnotes.

 

(b)                                 Except for the items listed on Schedule 3.04, no event, change or condition has occurred that has had, or could reasonably be expected to have, a Material Adverse Effect, since December 31, 2011.

 

SECTION 3.05.                                   Properties.

 

(a)                                  As of the date of this Agreement, Schedule 3.05 sets forth the address of each parcel of real property that is owned or leased by each Loan Party.  Each of such leases and subleases is valid and enforceable in accordance with its terms and is in full force and effect, and no default by any Loan Party party thereto or, to its knowledge, any other party to any such lease or sublease exists.  Each of the Loan Parties and its Subsidiaries has good and indefeasible title to, or valid leasehold interests in, all of its real and personal property, free of all Liens other than those permitted by Section 6.02.

 

(b)                                 Each Loan Party and its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property necessary to its business as currently conducted, a correct and complete list of which, as of the date of this Agreement, is set forth on Schedule 3.05, and the use thereof by each Loan Party and its Subsidiaries does not infringe in any material respect upon the rights of any other Person, and each Loan Party’s rights thereto are not subject to any licensing agreement or similar arrangement.

 

SECTION 3.06.                                   Litigation and Environmental Matters.

 

(a)                                  There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of any Loan Party, threatened against or affecting any Loan Party or any of its Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the 

 

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Disclosed Matters) or (ii) that seeks to enjoin the performance of any obligations under this Agreement or the Transactions.

 

(b)                                 Except for the Disclosed Matters, (i) no Loan Party nor any of its Subsidiaries has received written notice of any claim with respect to any Environmental Liability or knows of any basis for any Environmental Liability, and (ii) except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, neither any Loan Party nor any of its Subsidiaries (1) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law or (2) has become subject to any Environmental Liability.

 

(c)                                  Since the date of this Agreement, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect.

 

SECTION 3.07.                                   Compliance with Laws and Agreements.  Each Loan Party and its Subsidiaries is in compliance with all Requirements of Law applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.  No Default has occurred and is continuing.

 

SECTION 3.08.                                   Investment Company Status.  Neither any Loan Party nor any of its Subsidiaries is an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940.

 

SECTION 3.09.                                   Taxes.  All material Tax Returns required to be filed by each Loan Party and its Subsidiaries have in fact been filed on a timely basis.  Such Tax Returns were correct and complete in all material respects.  All material Taxes imposed upon each Loan Party and/or its Subsidiaries and upon their property, income or franchises, that are due and payable (whether or not shown on any Tax Return) have been paid, except for any Taxes the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Company or a Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP.  At Lender’s request, a Loan Party and/or its Subsidiaries will deliver documentary evidence of the payment of Taxes, or a particular Tax, to the Lender.  Except as set forth in Schedule 3.09, no Liens for Taxes (other than Permitted Encumbrances) have been filed and no claims are being asserted with respect to any such Taxes, and no Taxes are being contested by a Loan Party or any of its Subsidiaries.  Each Loan Party and its Subsidiaries have made in accordance with GAAP adequate book provision for liability for Taxes as of the date hereof (including, without limitation, any payment due pursuant to any tax sharing or allocation agreement) as such Taxes are or may become payable in respect of all tax periods ending on or prior to such date.  Except as set forth in Schedule 3.09, neither any Loan Party nor any of its Subsidiaries is currently the beneficiary of any extension of time within which to file any Tax Return with respect to income Taxes or any other material Taxes.  No claim has been made in the last six (6) years by a Governmental Authority in a jurisdiction in which a Loan Party or its Subsidiaries does not file Tax Returns that it is or may be subject to an income Tax or any other material Tax by that jurisdiction.  Except as set forth in Schedule 3.09, no Loan Party or any Subsidiary knows of any proposed additional Tax assessment against any of them.  Except as set forth in Schedule 3.09, no Tax Return of a Loan Party or any of its Subsidiaries is under audit or examination by any Governmental Authority and no notice of such an audit or examination or any assertion of any claim for Taxes has been given or made by any Governmental Authority.  Neither any Loan Party nor any of its Subsidiaries has participated in a “reportable transaction” within the meaning of Treasury Regulation 1.6011-4(b).

 

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SECTION 3.10.                                   ERISA.  No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect.  The present value of all accumulated benefit obligations under each Plan (based on the assumptions used to fund such Plans) did not, as of the date of the most recent financial statements reflecting such amounts, if any, exceed the fair market value of the assets of such Plan by an amount that could reasonably be expected to result in a Material Adverse Effect.  All required contributions have been and will be made in accordance with the provisions of each Multiemployer Plan, except to the extent the same could not individually, or in the aggregate, reasonably be expected to result in a Material Adverse Effect, and with respect to any Loan Party, there are, have been and will be no material Withdrawal Liabilities, except to the extent the same could not individually, or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

 

SECTION 3.11.                                   Disclosure.  The Borrower has disclosed to the Lender all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect.  None of the reports, financial statements, certificates or other information furnished by or on behalf of any Loan Party to the Lender in connection with the negotiation of this Agreement or any other Loan Document (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided  that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time delivered and, if such projected financial information was delivered prior to the Effective Date, as of the Effective Date, it being recognized by the Lender that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results.

 

SECTION 3.12.                                   Material Agreements.  All Specified Agreements are listed on Schedule 3.12.  No Loan Party is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in (a) any Specified Agreement or (b) any agreement or instrument evidencing or governing Indebtedness.

 

SECTION 3.13.                                   Solvency.

 

(a)                                  Immediately after the consummation of the Transactions to occur on the Effective Date, (i) the fair value of the assets of each Loan Party, at a fair valuation, will exceed its debts and liabilities, subordinated, contingent or otherwise; (ii) the present fair saleable value of the property of each Loan Party will be greater than the amount that will be required to pay the probable liability of its debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (iii) each Loan Party will be able to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (iv) no Loan Party will have unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted after the Effective Date.

 

(b)                                 No Loan Party intends to, or will permit any of its Subsidiaries to, and believes that it or any of its Subsidiaries will, incur debts beyond its ability to pay such debts as they mature, taking into account the timing of and amounts of cash to be received by it or any such Subsidiary and the timing of the amounts of cash to be payable on or in respect of its Indebtedness or the Indebtedness of any such Subsidiary.

 

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SECTION 3.14.                                   Insurance.  Schedule 3.14 sets forth a description of all insurance maintained by or on behalf of the Loan Parties and the Subsidiaries as of the Effective Date.  As of the Effective Date, all premiums in respect of such insurance have been paid.  The Borrower believes that the insurance maintained by or on behalf of the Borrower and the Subsidiaries is adequate.

 

SECTION 3.15.                                   Capitalization and Subsidiaries.  Schedule 3.15 sets forth as of the Effective Date (a) a correct and complete list of the name and relationship to the Borrower of each Subsidiary of the Borrower, (b) a true and complete listing of each class of each of the Borrower’s authorized Equity Interests, of which all of such issued shares are validly issued, outstanding, fully paid and non-assessable, and (c) the type of entity of the Borrower and each of its Subsidiaries.  All of the issued and outstanding Equity Interests owned by any Loan Party has been (to the extent such concepts are relevant with respect to such ownership interests) duly authorized and issued and is fully paid and non-assessable.

 

SECTION 3.16.                                   Security Interest in Collateral.  The provisions of this Agreement and the other Loan Documents create legal and valid Liens on all the Collateral in favor of the Lender, and such Liens constitute perfected and continuing Liens on the Collateral, securing the Secured Obligations, enforceable against the applicable Loan Party, and having priority over all other Liens on the Collateral except in the case of (a) Permitted Encumbrances, to the extent any such Permitted Encumbrances would have priority over the Liens in favor of the Lender pursuant to any applicable law, and (b) Liens perfected only by possession (including possession of any certificate of title) to the extent the Lender has not obtained or does not maintain possession of such Collateral.

 

SECTION 3.17.                                   Employment Matters.  As of the Effective Date, there are no strikes, lockouts or slowdowns against any Loan Party or any Subsidiary pending or, to the knowledge of the Borrower, threatened, except such as is not reasonably likely to have a Material Adverse Effect.  The hours worked by and payments made to employees of the Loan Parties and the Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable Federal, state, local or foreign law dealing with such matters.  All payments due from any Loan Party or any Subsidiary, or for which any claim may be made against any Loan Party or any Subsidiary, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of the Loan Party or such Subsidiary.

 

SECTION 3.18.                                   Common Enterprise.  The successful operation and condition of each of the Loan Parties is dependent on the continued successful performance of the functions of the group of the Loan Parties as a whole and the successful operation of each of the Loan Parties is dependent on the successful performance and operation of each other Loan Party.  Each Loan Party expects to derive benefit (and its board of directors or other governing body has determined that it may reasonably be expected to derive benefit), directly and indirectly, from (a) successful operations of each of the other Loan Parties and (b) the credit extended by the Lender to the Borrower hereunder, both in their separate capacities and as members of the group of companies.  Each Loan Party has determined that execution, delivery, and performance of this Agreement and any other Loan Documents to be executed by such Loan Party is within its purpose, in furtherance of its direct and/or indirect business interests, will be of direct and indirect benefit to such Loan Party, and is in its best interest.

 

SECTION 3.19.                                   Margin Rules.  The Borrower does not own any Margin Stock, as defined in Regulation U of the Board of Governors of the United States Federal Reserve System, or any successor thereto, as in effect from time to time (the “Margin Stock”).  No part of the proceeds of the Loans made hereunder will be used to purchase or carry any Margin Stock, or to extend credit to others for the purpose of purchasing or carrying any such Margin Stock or for any purpose that violates, or is inconsistent with, the provisions of Regulation T, U or X of such Board of Governors.

 

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SECTION 3.20.                                   Competing Businesses.  The Borrower and each other Loan Party each acknowledges that the Lender has disclosed to the Loan Parties that the Lender and certain of its Affiliates currently have interests in certain business ventures, including Zhejiang Wanxiang Ener1 Power Systems Co., Ltd. and Ener1, Inc., and may acquire interests in other business ventures, that compete with some or all of the business of the Loan Parties, and that the existence of any such interests shall not limit the discretion, rights or remedies of the Lender under this Agreement or any of the other Loan Documents.

 

SECTION 3.21.                                   Change of Control Payments.  Neither the Borrower nor any of its Subsidiaries will become obligated to pay, accelerate the timing of or increase the amount of, any separation, severance, retention, bonus or change in control payment or similar benefit as a result of the consummation of any of the Transactions.

 

SECTION 3.22.                                   Excluded Subsidiaries.  Each Excluded Subsidiary designated as such by the Borrower on the Effective Date qualifies as an Excluded Subsidiary as of such date.

 

ARTICLE IV

 

Conditions

 

SECTION 4.01.                                   Effective Date.  The Agreement shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 8.02):

 

(a)                                  Loan Agreement.  The Lender (or its counsel) shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Lender (which may include facsimile or other electronic transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement.

 

(b)                                 Financial Statements and Projections.  The Lender shall have received (i) audited consolidated financial statements of the Borrower for the three most recent fiscal years ended prior to the Effective Date as to which such financial statements are available, (ii) unaudited interim consolidated financial statements of the Borrower for each fiscal quarter ended after the date of the latest applicable financial statements delivered pursuant to clause (i) of this paragraph as to which such financial statements are available, and such financial statements shall not, in the reasonable judgment of the Lender, reflect any material adverse change in the consolidated financial condition of the Borrower, as reflected in the audited, consolidated financial statements described in clause (i) of this paragraph, and (iii) projections through 2016; provided that receipt of such projections shall not be deemed to represent approval by the Lender of such projections.

 

(c)                                  Representation and Warranties.  The representations and warranties of the Borrower and each other Loan Party set forth in this Agreement shall be true and correct with the same effect as though made on and as of such date (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct only as of such specified date).

 

(d)                                 No Default.  No Default shall have occurred and be continuing.

 

(e)                                  Lien Searches.  The Lender shall have received the results of a recent lien search in each of the jurisdictions where assets of the Loan Parties are located, and such search shall reveal no liens on any of the assets of the Loan Parties, except for liens permitted by Section 6.02 

 

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or discharged on or prior to the Effective Date pursuant to a pay-off letter or other documentation satisfactory to the Lender.

 

(f)                                    Approvals.  All governmental and third-party approvals necessary in connection with the Transactions (including any approvals from Hudson Bay Capital) shall have been obtained on terms satisfactory to the Lender in its sole discretion and shall be in full force and effect.

 

(g)                                 Insurance.  The Lender shall have received evidence of insurance coverage in form, scope and substance reasonably satisfactory to the Lender and otherwise in compliance with the terms of Section 5.09 and Section 4.12 of the Security Agreement.

 

The Lender shall notify the Borrower of the Effective Date, and such notice shall be conclusive and binding absent manifest error.

 

SECTION 4.02.                                   Initial Loan.  The obligation of the Lender to make the Initial Loan on or after the Effective Date on any date (such date, the “Initial Loan Date”) is subject to the satisfaction of the following additional conditions on or prior to such date:

 

(a)                                  Loan Documents and Other Documents.  The Lender (or its counsel) shall have received (i) duly executed copies of the Loan Documents and written opinion of the Loan Parties’ counsel, addressed to the Lender in substantially the form of Exhibit A, (ii) a duly executed copy of the Registration Rights Agreement dated the Initial Loan Date to which the Borrower, the Lender and Wanxiang Clean Energy USA Corp. are parties and (iii) such other documents as the Lender or its counsel may have reasonably requested and which documents are listed on the list of closing documents attached hereto as Exhibit D.

 

(b)                                 Closing Certificates; Certified Certificate of Incorporation; Good Standing Certificates.  The Lender shall have received (i) a certificate of each Loan Party, dated the Initial Loan Date and executed by its Secretary or Assistant Secretary, which shall (A) certify the resolutions of its Board of Directors, members or other body authorizing the execution, delivery and performance of the Loan Documents to which it is a party, (B) identify by name and title and bear the signatures of the Financial Officers and any other officers of such Loan Party authorized to sign the Loan Documents to which it is a party, and (C) attach the certificate or articles of incorporation or organization of each Loan Party certified by the relevant authority of the jurisdiction of organization of such Loan Party and a true and correct copy of its by-laws or operating, management or partnership agreement, and (ii) a good standing certificate for each Loan Party from its jurisdiction of organization.

 

(c)                                  Representation and Warranties.  The representations and warranties of the Borrower and each other Loan Party set forth in this Agreement shall be true and correct with the same effect as though made on the Initial Loan Date (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct only as of such specified date).

 

(d)                                 No Default.  At the time of and immediately after giving effect to the making of such Loan, no Default shall have occurred and be continuing.

 

(e)                                  Representations and Warranties and No Default Certificate.  The Lender shall have received a certificate, signed by a Financial Officer of the Borrower and each other Loan Party, dated as of the Initial Loan Date (i) stating that no Default has occurred and is continuing 

 

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and (ii) stating that the representations and warranties contained in Article III are true and correct as of the Initial Loan Date.

 

(f)                                    Fees.  The Lender shall have received all fees required to be paid, and all out-of-pocket expenses for which invoices have been presented (including the reasonable fees and expenses of legal counsel), on or before the Initial Loan Date.  All such amounts will be paid with proceeds of the Initial Loan and will be reflected in the funding instructions given by the Borrower to the Lender on or before the Initial Loan Date.

 

(g)                                 Pay-Off Letter.  The Lender shall have received satisfactory pay-off letters for all existing Indebtedness to be repaid from the proceeds of the Initial Loan, confirming that all Liens upon any of the property of the Loan Parties constituting Collateral will be terminated concurrently with such payment and all cash collateral pledged to secure letters of credit issued or guaranteed as part of such Indebtedness shall be released concurrently to the Borrower; provided that Silicon Valley Bank shall be permitted to retain its Liens on cash collateral securing obligations in respect of the Card/FX Obligations.

 

(h)                                 Funding Account.  The Lender shall have received a notice setting forth the deposit account of the Borrower (the “Funding Account”) to which the Lender is authorized by the Borrower to transfer the proceeds of any Loans requested or authorized pursuant to this Agreement.

 

(i)                                     Pledged Stock; Stock Powers; Pledged Notes.  The Lender shall have received (i) the certificates representing the shares of Capital Stock pledged pursuant to the Security Agreement, together with an undated stock power for each such certificate executed in blank by a duly authorized officer of the pledgor thereof, and (ii) each promissory note (if any) pledged to the Lender pursuant to the Security Agreement endorsed (without recourse) in blank (or accompanied by an executed transfer form in blank) by the pledgor thereof.

 

(j)                                     Filings, Registrations and Recordings.  Each document (including any Uniform Commercial Code financing statement) required by the Collateral Documents or under law or reasonably requested by the Lender to be filed, registered or recorded in order to create in favor of the Lender a perfected Lien on the Collateral described therein, prior and superior in right to any other Person (other than with respect to Liens expressly permitted by Section 6.02), shall be in proper form for filing, registration or recordation.

 

(k)                                  Tax Forms.  The Lender shall have received a properly completed and signed IRS Form W-8 or W-9, as applicable, for each Loan Party.

 

(l)                                     Silicon Valley Bank Letters of Credit.  The Borrower shall have provided written instructions to Silicon Valley Bank to advise all beneficiaries of outstanding letters of credit issued by Silicon Valley Bank for the account of the Borrower that such letters of credit will not be renewed or extended on the then current expiration date.

 

(m)                               Approvals.  All governmental and third-party approvals necessary in connection with the Transactions (including any approvals from Hudson Bay Capital) shall have been obtained on terms satisfactory to the Lender in its sole discretion and shall be in full force and effect.

 

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(n)                                 Common Stock.  The Common Stock shall be listed for trading on Nasdaq and shall not have been suspending from trading (other than trading suspension of not more than two (2) days occurring on the Effective Date as a result of business announcements by the Borrower).

 

(o)                                 Bridge Warrants.  The Lender shall have received validly issued Initial Bridge Warrants, evidencing its right to acquire shares of Common Stock on the terms and conditions set forth therein.

 

(p)                                 Absence of Certain Events.  No circumstance or event shall be continuing at such time that could reasonably be expected interfere in any material respect with the Borrower’s ability to comply with its obligations under this Agreement or the Bridge Warrants (other than due to the absence of sufficient authorized and unreserved shares in excess of 130,000,000).

 

Acceptance of proceeds of the Initial Loan shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in this Section 4.02.

 

SECTION 4.03.                                   Each Subsequent Loan.  The obligation of the Lender to make a Loan on the occasion of any request for a Loan (other than the Initial Loan) is subject to the satisfaction of the following conditions:

 

(a)                                  Representations and Warranties.  The representations and warranties of the Borrower and each other Loan Party set forth in this Agreement shall be true and correct with the same effect as though made on and as of the date of the making of such Loan (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct only as of such specified date).

 

(b)                                 No Default.  At the time of and immediately after giving effect to the making of such Loan no Default shall have occurred and be continuing.

 

(c)                                  Approvals.  All governmental and third-party approvals necessary in connection with the Transactions (including any approvals from Hudson Bay Capital) shall have been obtained on terms satisfactory to the Lender in its sole discretion and shall be in full force and effect.

 

(d)                                 Common Stock.  The Common Stock shall be listed for trading on Nasdaq and shall not have been suspending from trading (other than trading suspension of not more than two (2) days occurring on the Effective Date as a result of business announcements by the Borrower).

 

(e)                                  Bridge Warrants.  The Lender shall have received validly issued Subsequent Bridge Warrants evidencing its right to acquire shares of Common Stock on the terms and conditions set forth therein in substantially the applicable form of Exhibit E, in each case with such revisions as are contemplated therein made in a manner satisfactory to both the Lender and the Borrower.

 

(f)                                    Absence of Certain Events.  No circumstance or event shall be continuing at such time that could reasonably be expected interfere with the Borrower’s ability to comply with its obligations under this Agreement or the Bridge Warrants (other than due to the absence of sufficient authorized and unreserved shares in excess of 130,000,000).

 

(g)                                 Post-closing Deliveries.  The Lender shall have received all Mortgages, real estate-related deliverables, Collateral Access Agreements, Deposit Account Control Agreements

 

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and Securities Account Control Agreements required to be delivered after the Effective Date pursuant to Section 5.11(c) on terms satisfactory to the Lender in its sole discretion.

 

(h)                                 Employee Retention.  The Lender shall have received evidence reasonably satisfactory to it that the composition of both the research and development and the engineering teams of the Borrower and each Subsidiary remains substantially the same as on the Effective Date, subject to customary turn-over applicable to the same or similar business operating in the same or similar locations, and, in any event, the collective experience level and expertise thereof shall not have diminished to any material extent by reason of employee resignations or departures since the Effective Date.

 

(i)                                     Chinese Government Approval.  Chinese government approval of the making of such Loan under this Agreement shall have been obtained on terms satisfactory to the Lender in its sole discretion and shall be in full force and effect.

 

(j)                                     CFIUS.  The Committee on Foreign Investment in the United States (“CFIUS”) shall have determined that the transactions contemplated by this Agreement and the Senior Convertible Note Purchase Agreement do not present any unresolved national security issues.

 

(k)                                  MA-CEC.  Unless the Lender shall agree in its sole discretion to defer satisfaction of the condition set forth in this clause (k), (i) MA-CEC and the Lender shall have entered into the MA-CEC Intercreditor Agreement in form and substance reasonably satisfactory to the Lender or (ii) the Lender shall have received evidence reasonably satisfactory to it that all outstanding obligations of the Borrower to the MA-CEC have been satisfied in full, the MA-CEC LSA has been terminated and all security interests of the MA-CEC granted by the Borrower to the MA-CEC in any of its property pursuant to the MA-CEC LSA have been terminated and released.

 

Acceptance of proceeds of each Loan shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in items (a) through (k) of this Section 4.03.

 

ARTICLE V

 

Affirmative Covenants

 

Until the Commitment has expired or terminated, the Letter of Credit has been surrendered for cancellation and all Obligations (other than any inchoate indemnity obligations under Section 8.03) have been paid in full, each Loan Party executing this Agreement covenants and agrees, jointly and severally with all of the other Loan Parties, with the Lender that:

 

SECTION 5.01.                                   Financial Statements and Other Information.  The Borrower will furnish to the Lender:

 

(a)                                  within ninety (90) days after the end of each fiscal year of the Borrower, its audited consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by independent public accountants of recognized national standing (without a “going concern” or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in 

 

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accordance with GAAP consistently applied, and the Borrower will use its commercially reasonable efforts to cause such financial statements to be accompanied by any management letter prepared by said accountants;

 

(b)                                 within forty-five (45) days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, its consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes;

 

(c)                                  within twenty (20) days after the end of each fiscal month of the Borrower, its consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such fiscal month and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes;

 

(d)                                 concurrently with any delivery of financial statements under clause (a), (b) or (c) above, a certificate of a Financial Officer of the Borrower in substantially the form of Exhibit B  (i) certifying, in the case of the financial statements delivered under clause (b) or (c), as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes, (ii) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (iii) certifying as to the representations and warranties contained in this Agreement and the other Loan Documents, (iv) setting forth reasonably detailed calculations demonstrating compliance with Section 6.12, and (v) stating whether any change in GAAP or in the application thereof has occurred since the date of the audited financial statements referred to in Section 3.04 and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate;

 

(e)                                  concurrently with any delivery of financial statements under clause (a) above, a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of such financial statements of any Default (which certificate may be limited to the extent required by accounting rules or guidelines);

 

(f)                                    as soon as available, but in any event no later than the end of, and no earlier than sixty (60) days prior to the end of each fiscal year of the Borrower, a copy of the plan and forecast (including a projected consolidated balance sheet, income statement and funds flow statement) of the Borrower for each month of the upcoming fiscal year (the “Projections”) in form reasonably satisfactory to the Lender;

 

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(g)                                 as soon as possible and in any event within ten (10) days of filing thereof, copies of all tax returns filed by any Loan Party with the U.S. Internal Revenue Service after the Effective Date;

 

(h)                                 promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Borrower or any Subsidiary with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed by the Borrower to its shareholders generally, as the case may be; and

 

(i)                                     promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidiary, or compliance with the terms of this Agreement, as the Lender may reasonably request, unless the provision of such information could reasonably be expected to result in a violation of any applicable law.

 

Documents required to be delivered pursuant to clauses (a), (b) and (h) of this Section 5.01 may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date on which such documents are filed for public availability on the SEC’s Electronic Data Gathering and Retrieval System; provided that the Borrower shall notify (which may be by facsimile or electronic mail) the Lender of the posting of any such documents and provide to the Lender by electronic mail electronic versions (i.e., soft copies) of such documents, if requested.

 

SECTION 5.02.                                   Notices of Material Events.  The Borrower will furnish to the Lender prompt (but in any event within any time period that may be specified below) written notice of the following:

 

(a)                                  the occurrence of any Default;

 

(b)                                 receipt of any notice of any governmental investigation or any litigation commenced or threatened against any Loan Party that (i) seeks damages in excess of $1,000,000, (ii) seeks injunctive relief, (iii) is asserted or instituted against any Plan, its fiduciaries or its assets, (iv) alleges criminal misconduct by any Loan Party, (v) is commenced by the Securities and Exchange Commission, (vi) alleges the violation of any law regarding, or seeks remedies in connection with, any Environmental Laws; (vii) contests any tax, fee, assessment, or other governmental charge in excess of $1,000,000, or (vii) involves any product recall;

 

(c)                                  any Lien (other than Permitted Encumbrances or Liens permitted under Section 6.02) or claim made or asserted against any of the Collateral;

 

(d)                                 any loss, damage, or destruction to the Collateral in the amount of $1,000,000 or more, whether or not covered by insurance;

 

(e)                                  within two (2) Business Days of receipt thereof, any and all default notices received under or with respect to any leased location or public warehouse where Collateral with a value in excess of $1,000,000 is located;

 

(f)                                    all material amendments to Specified Agreements, together with a copy of each such amendment;

 

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(g)                                 the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $1,000,000; and

 

(h)                                 any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect.

 

Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.

 

SECTION 5.03.                                   Existence; Conduct of Business.  Each Loan Party will, and will cause each Subsidiary to, (a) do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, qualifications, licenses, permits, franchises, governmental authorizations, intellectual property rights, licenses and permits material to the conduct of its business, and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted; provided  that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.03, and (b) carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted.

 

SECTION 5.04.                                   Payment of Obligations; Taxes.  Each Loan Party will, and will cause each Subsidiary to, (a) file all material Tax Returns required to be filed in any jurisdiction and pay and discharge all Taxes shown to be due and payable on such returns before the same shall become delinquent or in default and (b) pay or discharge all Material Indebtedness and all other material liabilities and obligations before the same shall become delinquent or in default, except, in each case, where (x) the validity or amount thereof is being contested in good faith by appropriate proceedings, (y) such Loan Party or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP, and (z) such liabilities would not result in aggregate liabilities in excess of $1,000,000 and none of the Collateral becomes subject to forfeiture or loss as a result of the contest; provided, however, each Loan Party will, and will cause each Subsidiary to, remit withholding taxes and other payroll taxes to appropriate Governmental Authorities as and when claimed to be due, notwithstanding the foregoing exceptions.

 

SECTION 5.05.                                   Maintenance of Properties.  Each Loan Party will, and will cause each Subsidiary to, keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted.

 

SECTION 5.06.                                   Books and Records; Inspection Rights.  Each Loan Party will, and will cause each Subsidiary to, (a) keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities, and (b) permit any representatives designated by the Lender (including employees of the Lender, or any consultants, accountants, lawyers and appraisers retained by the Lender, upon reasonable prior notice, to visit and inspect its properties, to conduct at the Loan Party’s premises field examinations of the Loan Party’s assets, liabilities, books and records, including examining and making extracts from its books and records, environmental assessment reports and Phase I or Phase II studies, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times during normal business hours and as often as reasonably requested.  The Loan Parties acknowledge that the Lender, after exercising its rights of inspection, may prepare certain Reports pertaining to the Loan Parties’ assets for internal use by the Lender.  After the occurrence and during the continuance of any Event of Default, each Loan Party shall provide the Lender with access to its suppliers.

 

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SECTION 5.07.                                   Compliance with Laws.  Each Loan Party will, and will cause each Subsidiary to, comply with all Requirements of Law applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

 

SECTION 5.08.                                   Use of Proceeds.  The proceeds of the Loans shall be used to fund general corporate purposes, capital investments and debt recapitalization ; provided  that no more than 25% of each Loan shall be used for purposes of funding debt recapitalization.  No part of the proceeds of any Loan will be used, whether directly or indirectly, (a) for any purpose that entails a violation of any of the Regulations of the Board, including Regulations T, U and X, or (b) to make any acquisition.

 

SECTION 5.09.                                   Insurance.  Each Loan Party will, and will cause each Subsidiary to, maintain with financially sound and reputable carriers having a financial strength rating of at least A- by A.M. Best Company (a) insurance in such amounts (with no greater risk retention) and against such risks (including (i) loss or damage by fire and loss in transit; (ii) theft, burglary, pilferage, larceny, embezzlement, and other criminal activities; (iii) business interruption; (iv) general liability; and (v) and such other hazards, as is customarily maintained by companies of established repute engaged in the same or similar businesses, operating in the same or similar locations, and (b) all insurance required pursuant to the Collateral Documents.  The Borrower will furnish to the Lender, information in reasonable detail as to the insurance so maintained, including but not limited to long-form lender loss payable endorsements (in the case of property insurance) or additional insured endorsements (in the case of liability insurance), which endorsements shall be delivered to the Lender by no later than 30 days after the Effective Date.

 

SECTION 5.10.                                   Casualty and Condemnation.  The Borrower will (a) furnish to the Lender prompt written notice of any casualty or other insured damage to any material portion of the Collateral or the commencement of any action or proceeding for the taking of any material portion of the Collateral or interest therein under power of eminent domain or by condemnation or similar proceeding and (b) ensure that the Net Proceeds of any such event (whether in the form of insurance proceeds, condemnation awards or otherwise) are collected and applied in accordance with the applicable provisions of this Agreement and the Collateral Documents.

 

SECTION 5.11.                                   Additional Collateral; Further Assurances.

 

(a)                                  Subject to applicable law, the Borrower and each Subsidiary that is a Loan Party shall, unless the Lender otherwise consents, cause each Subsidiary of the Borrower formed or acquired after the date of this Agreement in accordance with the terms of this Agreement to become a Loan Party by executing a supplement to a Loan Guaranty.  Upon execution and delivery thereof, each such Person (i) shall automatically become a Loan Guarantor hereunder and thereupon shall have all of the rights, benefits, duties, and obligations in such capacity under the Loan Documents, and (ii) will grant Liens to the Lender, in any property of such Loan Party which constitutes Collateral, including any parcel of real property located in the U.S. owned by any Loan Party.

 

(b)                                 The Borrower and each Subsidiary that is a Loan Party will cause 100% of the issued and outstanding Equity Interests of each of its Subsidiaries to be subject at all times to a first priority, perfected Lien in favor of the Lender pursuant to the terms and conditions of the Loan Documents or other security documents as the Lender shall reasonably request; provided that, unless otherwise requested by the Lender, no Loan Party shall be required to create or perfect any Lien under the laws of jurisdiction other than the United States, each state thereof or the District of Columbia.

 

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(c)                                  Without limiting the foregoing, each Loan Party will, and will cause each Subsidiary to, execute and deliver or cause to be executed and delivered, to the Lender such documents, agreements and instruments, and will take or cause to be taken such further actions (including the filing and recording of financing statements, fixture filings, mortgages, deeds of trust and other documents and such other actions or deliveries of the type required by Section 4.01, as applicable), which may be required by law or which the Lender may, from time to time, reasonably request to carry out the terms and conditions of this Agreement and the other Loan Documents and to ensure perfection and priority of the Liens created or intended to be created by the Collateral Documents, all at the expense of the Loan Parties; provided, however, that (x) no Deposit Account Control Agreement or Securities Account Control Agreements are required to be delivered hereunder prior to the date which is thirty (30) days after the Effective Date or such later date as the Lender may agree in its sole discretion and (y) no Mortgages or other real estate-related deliverables or Collateral Access Agreements are required to be delivered hereunder prior to the date which is sixty (60) days after the Effective Date or such later date as the Lender may agree in its sole discretion; provided, further, that unless otherwise requested by the Lender, no foreign-law governed pledge, security agreement or similar agreement shall be required to create or perfect any Lien on any Collateral.

 

(d)                                 If any asset with an individual value in excess of $100,000 (including any real property or improvements thereto or any interest therein) is acquired by the Borrower or any Subsidiary that is a Loan Party after the Effective Date (other than assets constituting Collateral under the Security Agreement that become subject to the Lien in favor of the Security Agreement upon acquisition thereof), the Borrower will (i) notify the Lender, and, if requested by the Lender, cause such assets to be subjected to a Lien securing the Secured Obligations and (ii) take, and cause each Subsidiary that is a Loan Party to take, such actions as shall be necessary or reasonably requested by the Lender to grant and perfect such Liens, including actions described in paragraph (c) of this Section, all at the expense of the Loan Parties.

 

(e)                                  Notwithstanding anything herein to the contrary, no Excluded Subsidiary shall be required to execute a Loan Guaranty and become a Loan Guarantor for so long as such Subsidiary shall remain an Excluded Subsidiary.  If any Excluded Subsidiary shall cease to qualify as an Excluded Subsidiary, the Borrower shall (i) promptly notify the Lender thereof and (ii) if requested by the Lender, shall cause such Subsidiary that ceased to qualify as an Excluded Subsidiary to become a Loan Guarantor by executing a supplement to the Loan Guaranty within 30 days following such request.

 

Notwithstanding anything in this Agreement to the contrary, no Loan Party will be required to take any steps to deliver any foreign-law governed pledges, security agreements or similar agreements or create or perfect any Lien under the laws of any jurisdiction other that the United States, each state thereof or the District of Columbia to the extent such agreements or actions are not legally permissible or possible in such jurisdiction.

 

SECTION 5.12.                                   Shares Reserve. The Borrower shall maintain a reserve of authorized shares of its Common Stock in an amount equal to the Required Reserve Amount (as defined in the Bridge Warrants); provided, however, that this Section 5.12 shall not be deemed to be breached unless an Authorized Share Failure (as defined in the Bridge Warrants) has occurred and is continuing as of the Authorized Share Failure Deadline (as defined in the Bridge Warrants).

 

SECTION 5.13.                                   Specified Agreements.  The Borrower and each Subsidiary that is a Loan Party shall comply with the terms and conditions of the Specified Agreements.

 

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SECTION 5.14.                                   Employee Retention.

 

(a)                                  At any time prior to the Senior Secured Convertible Notes Issuance Date, the composition of both the research and development and the engineering teams of the Borrower and each Subsidiary shall remain substantially the same as on the Effective Date, subject to customary turn-over applicable to the same or similar business operating in the same or similar locations, and, in any event, the collective experience level and expertise thereof shall not have diminished to any material extent by reason of employee resignations or departures since the Effective Date; and

 

(b)                                 From and after the Senior Secured Convertible Notes Issuance Date, the Borrower shall use commercially reasonable efforts to ensure that the composition of both the research and development and the engineering teams of the Borrower and each Subsidiary shall remain substantially the same as on the Senior Secured Convertible Notes Issuance Date, subject to customary turn-over applicable to the same or similar business operating in the same or similar locations.

 

SECTION 5.15.                                   Post-Closing Governmental Approvals.  The Borrower shall deliver to the Lender by no later than thirty (30) days after the Effective Date (or such later date as the Lender shall agree to in its sole discretion) evidence reasonably satisfactory to the Lender that the Borrower has obtained all governmental consents and approvals that are listed on Schedule 3.03.

 

ARTICLE VI

 

Negative Covenants

 

Until the Commitment has expired or terminated, the Letter of Credit has been surrendered for cancellation and all Obligations (other than any inchoate indemnity obligations under Section 8.03) have been paid in full, each Loan Party executing this Agreement covenants and agrees, jointly and severally with all of the other Loan Parties, with the Lender that:

 

SECTION 6.01.                                   Indebtedness.  No Loan Party will, nor will it permit any Subsidiary to, create, incur or suffer to exist any Indebtedness, except:

 

(a)                                  the Secured Obligations;

 

(b)                                 Indebtedness existing on the date hereof and set forth in Schedule 6.01;

 

(c)                                  Indebtedness owed to any Person providing workers’ compensation, health, disability or other employee benefits or property, casualty or liability insurance, pursuant to reimbursement or indemnification obligations to such Person, in each case incurred in the ordinary course of business;

 

(d)                                 Indebtedness of the Borrower or any Subsidiary in respect of performance bonds, bid bonds, appeal bonds, surety bonds and similar obligations, in each case provided in the ordinary course of business;

 

(e)                                  Indebtedness in respect of the Senior Secured Convertible Notes;

 

(f)                                    Indebtedness constituting Permitted Second Priority Indebtedness in the aggregate principal amount not to exceed the difference between (i) $75,000,000 and (ii) the 

 

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amount equal to the sum of the aggregate outstanding principal amount of the Loans and Reimbursement Obligations under this Agreement and the undrawn LC Face Amount;

 

(g)                                 Indebtedness of the Borrower or any Subsidiary represented by Capital Lease Obligations or purchase money obligations, in each case, incurred for the purpose of financing all or any portion of the purchase price or cost of construction, design or installation of property, plant and equipment in an aggregate principal amount, including any refinancing thereof, not to exceed $2,000,000 at any time outstanding;

 

(h)                                 Indebtedness in respect of the Existing Letters of Credit and any replacements thereof to the extent permitted by Section 6.13 (with such Existing Letters of Credit being deemed to have a principal amount equal to the maximum potential liability of the Borrower and its Subsidiaries thereunder) in an aggregate principal amount, not to exceed $10,000,000 at any time outstanding;

 

(i)                                     Indebtedness of A123 Systems (China) Materials Co., Ltd. to the Borrower an aggregate principal amount not to exceed $60,000,000 at any time outstanding; and

 

(j)                                     Indebtedness owed to the Borrower or any Loan Party.

 

SECTION 6.02.                                   Liens.  No Loan Party will, nor will it permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except:

 

(a)                                  Liens created pursuant to any Loan Document;

 

(b)                                 Permitted Encumbrances;

 

(c)                                  any Lien on any property or asset of the Borrower or any Subsidiary existing on the date hereof and set forth in Schedule 6.02; provided  that (i) such Lien shall not apply to any other property or asset of the Borrower or Subsidiary and (ii) such Lien shall secure only those obligations which it secures on the date hereof and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof;

 

(d)                                 Liens arising by virtue of any statutory or common law provision relating to banker’s lines or similar rights;

 

(e)                                  Liens granted by a Subsidiary that is not a Loan Party in favor of the Borrower or another Loan Party in respect of Indebtedness owed by such Subsidiary;

 

(f)                                    Liens to secure Indebtedness (including Capital Lease Obligations) incurred pursuant to Section 6.01(g) covering only the assets acquired with or financed by such Indebtedness; provided that such Lien shall not apply to any other property or asset of the Borrower or any Subsidiary;

 

(g)                                 Liens on the Collateral on a pari passu basis securing Indebtedness in respect of the Senior Secured Convertible Notes so long as such Indebtedness is permitted by Section 6.01;

 

(h)                                 Liens on cash and cash equivalents in an amount not to exceed $10,000,000 securing the obligations of the Borrower in connection with (x) the Card/FX Obligations and (y) 

 

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letters of credit that constitute replacements of the Existing Letters of Credit permitted by Sections 6.01(h) and 6.13; and

 

(i)                                     Liens on the Collateral securing obligations in respect of Permitted Second Priority Indebtedness permitted by Section 6.01(f); provided  that a Junior Representative acting on behalf of the holders of such Indebtedness shall have become party to or otherwise subject to the provisions of a Junior Lien Intercreditor Agreement in form and substance satisfactory to the Lender.

 

SECTION 6.03.                                   Mergers; Nature of Business.

 

(a)                                  No Loan Party will, nor will it permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Event of Default shall have occurred and be continuing, (i) any Subsidiary of the Borrower that is a Loan Party may merge into the Borrower in a transaction in which the Borrower is the surviving corporation, (ii) any Loan Party (other than the Borrower) may merge into any other Loan Party in a transaction in which the surviving entity is a Loan Party, and (iii) any Subsidiary that is not a Loan Party may liquidate or dissolve if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and is not materially disadvantageous to the Lender.

 

(b)                                 No Loan Party will, nor will it permit any Subsidiary to, engage in any business other than businesses of the type conducted by the Borrower and its Subsidiaries on the date hereof and businesses reasonably related thereto.

 

SECTION 6.04.                                   Investments, Loans, Advances, Guarantees and Acquisitions.  No Loan Party will, nor will it permit any Subsidiary to, form any subsidiary after the Effective Date, or purchase, hold or acquire (including pursuant to any merger with any Person that was not a Loan Party and a wholly owned Subsidiary prior to such merger) any evidences of indebtedness or Equity Interest of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit (whether through purchase of assets, merger or otherwise), except:

 

(a)                                  Permitted Investments;

 

(b)                                 investments in existence on the date hereof and described in Schedule 6.04;

 

(c)                                  investments by the Borrower and the Subsidiaries in Equity Interests in their respective Subsidiaries that are Loan Parties, provided that any such Equity Interests held by a Loan Party shall be pledged pursuant to the Security Agreement (subject to the limitations applicable to common stock of a Foreign Subsidiary referred to in Section 5.12);

 

(d)                                 subject to Sections 4.2(a) and 4.4 of the Security Agreement, notes payable, or stock or other securities issued by any Person obligated on an account receivable owing to a Loan Party pursuant to negotiated agreements with respect to settlement of such account receivable in the ordinary course of business, consistent with past practices;

 

(e)                                  investments received in connection with the dispositions of assets permitted by Section 6.05;

 

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(f)                                    investments constituting deposits described in clauses (c) and (d) of the definition of the term “Permitted Encumbrances”;

 

(g)                                 investments in A123 Systems (China) Materials Co., Ltd. made in the ordinary course of business through intercompany Indebtedness permitted by Section 6.01(i); and

 

(h)                                 Capital Expenditures permitted pursuant to Section 6.11.

 

SECTION 6.05.                                   Asset Sales.  No Loan Party will, nor will it permit any Subsidiary to, sell, transfer, lease, grant exclusive licenses (other than Permitted Encumbrances) or otherwise dispose of any asset, including any Equity Interest owned by it, nor will the Borrower permit any Subsidiary to issue any additional Equity Interest in such Subsidiary (other than to the Borrower or another Subsidiary in compliance with Section 6.04), except:

 

(a)                                  sales, transfers and dispositions of (i) inventory in the ordinary course of business and (ii) used, obsolete, worn out or surplus equipment or property in the ordinary course of business or (iii) assets disposed of in connection with the winding up or liquidation of any Excluded Subsidiary;

 

(b)                                 sales, transfers and dispositions of assets to the Borrower or any Subsidiary, provided  that any such sales, transfers or dispositions involving a Subsidiary shall be made in compliance with Section 6.08;

 

(c)                                  sales, transfers and dispositions of accounts receivable in connection with the compromise, settlement or collection thereof;

 

(d)                                 sales, transfers and dispositions of Permitted Investments and other investments permitted by clause (f) of Section 6.04; and

 

(e)                                  dispositions resulting from any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of the Borrower or any Subsidiary;

 

provided  that all sales, transfers, leases and other dispositions permitted hereby (other than those permitted by paragraphs (b) and (e) above) shall be made for fair value and for at least 75% cash consideration.

 

SECTION 6.06.                                   Sale and Leaseback Transactions.  No Loan Party will, nor will it permit any Subsidiary to, enter into any arrangement, directly or indirectly, whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property sold or transferred.

 

SECTION 6.07.                                   Restricted Payments; Certain Payments of Indebtedness.

 

(a)                                  No Loan Party will, nor will it permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so, except (i)  Subsidiaries may declare and pay dividends ratably with respect to their Equity Interests and (ii) the Borrower may make Restricted Payments, not exceeding $1,000,000 during any fiscal year, pursuant to and in accordance with stock option

 

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plans or other benefit plans for management or employees of the Borrower and its Subsidiaries in effect as of July 31, 2012.

 

(b)                                 No Loan Party will, nor will it permit any Subsidiary to, make or agree to pay or make, directly or indirectly, any payment or other distribution (whether in cash, securities or other property) of or in respect of principal of or interest on any Indebtedness, or any payment or other distribution (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any Indebtedness, if an Event of Default has occurred and is continuing or would result therefrom, except:

 

(i)                                     payment of Indebtedness created under the Loan Documents; and

 

(ii)                                  payment of regularly scheduled interest and principal payments as and when due in respect of any Indebtedness, other than payments in respect of the Subordinated Indebtedness prohibited by the subordination provisions thereof.

 

SECTION 6.08.                                   Transactions with Affiliates.  No Loan Party will, nor will it permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (i) transactions that (a) are in the ordinary course of business, (b) are at prices and on terms and conditions not less favorable to such Loan Party or such Subsidiary than could be obtained on an arm’s-length basis from unrelated third parties, and (c) are approved in accordance with the applicable state laws and, if required, the applicable Nasdaq listing requirements and (ii) transactions with the Lender or any of its Affiliates.

 

SECTION 6.09.                                   Restrictive Agreements.  No Loan Party will, nor will it permit any Subsidiary to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (a) the ability of such Loan Party or any of its Subsidiaries to create, incur or permit to exist any Lien upon any of its property or assets, or (b) the ability of any Subsidiary to pay dividends or other distributions with respect to any Equity Interests or to make or repay loans or advances to the Borrower or any other Subsidiary or to Guarantee Indebtedness of the Borrower or any other Subsidiary; provided  that (i) the foregoing shall not apply to restrictions and conditions imposed by law or by any Loan Document, (ii) the foregoing shall not apply to restrictions and conditions existing on the date hereof identified on Schedule 6.09 (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition), (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder, (iv) clause (a) of the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Indebtedness, and (v) clause (a) of the foregoing shall not apply to customary provisions in leases and other contracts restricting the assignment thereof.

 

SECTION 6.10.                                   Amendment of Material Documents.  No Loan Party will, nor will it permit any Subsidiary to, amend, modify or waive any of its rights under (a) any agreement relating to any Subordinated Indebtedness, (b) its certificate of incorporation, by-laws, operating, management or partnership agreement or other organizational documents, or (c) the Specified Agreements; provided that the foregoing will not apply to (i) amendments to the Borrower’s certificate of incorporation to increase the number of authorized shares of Common Stock or (ii) amendments to Specified Agreements that are immaterial in substance or that do not reduce the economic benefit to the Loan Parties.

 

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SECTION 6.11.                                   Capital Expenditures.  The Borrower will not, nor will it permit any Subsidiary to, incur or make any Capital Expenditures (i) during the period from August 1, 2012 to December 31, 2012, in an aggregate amount exceeding $16,600,000 or (ii) during any subsequent period, in an aggregate amount exceeding the amount specified therefor in a budget for such period that shall have been approved by the Lender following its review of the Projections for such period.

 

SECTION 6.12.                                   Minimum Liquidity.  The Borrower shall maintain on deposit cash in an aggregate amount equal to not less than:

 

(a)  at any time during the period of time from the Effective Date until the date all of the HB Notes shall have been extinguished (whether by repayment in full or conversion into Common Stock of the Borrower or any combination thereof) (the “HB Termination Date”), $40,000,000 (the “Minimum Liquidity Threshold”); provided that if Section 15(n) in each HB Note shall provide that the “Minimum Cash Balance” shall be not less than  $20,000,000 (or any greater amount that is less than $40,000,000) (the “HBN Threshhold”), the Minimum Liquidity Threshold shall be an amount equal to the HBN Threshold in effect from time to time until the HB Termination Date;

 

(b)  at any time during the period of time from the HB Termination Date until the Senior Secured Convertible Notes Issuance Date, $32,000,000; and

 

(c)  at any time from and after the Senior Secured Convertible Notes Issuance Date, $40,000,000.

 

SECTION 6.13.                                   Existing Letters of Credit.  The Borrower shall not renew or extend (or permit renewal or extension of) any Existing Letter of Credit; provided that the foregoing shall not prohibit the Borrower from obtaining replacements for such Existing Letters of Credit upon the expiration thereof, it being understood that the Letter of Credit shall not be available to support any such replacement.

 

ARTICLE VII

 

Events of Default

 

If any of the following events (“Events of Default”) shall occur:

 

(a)                                  the Borrower shall fail to pay any principal of any Loan or Reimbursement Obligation when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise;

 

(b)                                 the Borrower shall fail to pay any interest on any Loan or Reimbursement Obligation or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three (3) Business Days;

 

(c)                                  any representation or warranty made or deemed made by or on behalf of any Loan Party or any Subsidiary in or in connection with this Agreement or any other Loan Document or any amendment or modification hereof or thereof or waiver hereunder or thereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any other Loan Document or any amendment or

 

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modification hereof or thereof or waiver hereunder or thereunder, shall prove to have been false, misleading or incomplete when made or deemed made;

 

(d)                                 any Loan Party shall fail to observe or perform any covenant, condition or agreement contained in Section 5.02(a), 5.03 (with respect to a Loan Party’s existence) or 5.08 or in Article VI;

 

(e)                                  any Loan Party shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those which constitute a default under another Section of this Article), and such failure shall continue unremedied for a period of ten (10) days after the earlier of knowledge of such breach or notice thereof from the Lender;

 

(f)                                    any Loan Party or any Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable;

 

(g)                                 any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided  that this clause (g) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness;

 

(h)                                 an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of a Loan Party or any Subsidiary of any Loan Party or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Loan Party or any Subsidiary of any Loan Party or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for thirty (30) days or an order or decree approving or ordering any of the foregoing shall be entered;

 

(i)                                     any Loan Party or any Subsidiary of any Loan Party shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for such Loan Party or Subsidiary of any Loan Party or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, or (vi) take any action for the purpose of effecting any of the foregoing;

 

(j)                                     any Loan Party or any Subsidiary of any Loan Party shall become unable, admit in writing its inability or fail generally to pay its debts as they become due;

 

(k)                                   (i) one or more judgments for the payment of money in an aggregate amount in excess of $2,000,000 (to the extent not covered by an independent third-party insurer that has not denied coverage) shall be rendered against any Loan Party, any Subsidiary of any Loan Party or any combination thereof and the same shall remain undischarged for a period of thirty (30)

 

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consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of any Loan Party or any Subsidiary of any Loan Party to enforce any such judgment; or (ii) any Loan Party or any Subsidiary of any Loan Party shall fail within thirty (30) days to discharge one or more non-monetary judgments or orders which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, which judgments or orders, in any such case, are not stayed on appeal or otherwise being appropriately contested in good faith by proper proceedings diligently pursued;

 

(l)                                     an ERISA Event shall have occurred that, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect;

 

(m)                               the occurrence of any “default,” as defined in any Loan Document (other than this Agreement) or the breach of any of the terms or provisions of any Loan Document (other than this Agreement), which default or breach continues beyond the shorter of (i) any period of grace therein provided, or (ii) ten (10) days after the earlier of knowledge of such breach or notice thereof from the Lender;

 

(n)                                 the Loan Guaranty shall fail to remain in full force or effect or any action shall be taken to discontinue or to assert the invalidity or unenforceability of the Loan Guaranty, or any Loan Guarantor shall fail to comply with any of the terms or provisions of the Loan Guaranty to which it is a party, or any Loan Guarantor shall deny that it has any further liability under the Loan Guaranty to which it is a party, or shall give notice to such effect;

 

(o)                                 except as permitted by the terms of any Collateral Document, (i) any Collateral Document shall for any reason fail to create a valid security interest in any Collateral purported to be covered thereby, or (ii) any Lien securing any Secured Obligation shall cease to be a perfected, first priority Lien;

 

(p)                                 any Collateral Document shall fail to remain in full force or effect or any action shall be taken to discontinue or to assert the invalidity or unenforceability of any Collateral Document;

 

(q)                                 any material provision of any Loan Document for any reason ceases to be valid, binding and enforceable in accordance with its terms (or any Loan Party shall challenge the enforceability of any Loan Document or shall assert in writing, or engage in any action or inaction based on any such assertion, that any provision of any of the Loan Documents has ceased to be or otherwise is not valid, binding and enforceable in accordance with its terms);

 

(r)                                    during any period that the aggregate outstanding principal amount of the HB Notes shall exceed $1,000,000, any “Event of Default” thereunder shall occur;

 

(s)                                  the Common Stock shall be delisted from Nasdaq or trading shall be suspended for more than five (5) consecutive trading days or more than fifteen (15) trading days in any three hundred sixty-five (365) day period;

 

(t)                                    either (i) the U.S. Department of Energy $249,000,000 American Recovery and Reinvestment Act grant to the Borrower or (ii) the State of Michigan $25,000,000 yearly tax credit ceases to be in effect other than, in each case, as a result from, or pursuant to, actions by, or directed by, the Lender or any of its Affiliates;

 

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(u)                                 the condition to closing set forth in Section 4.9 of the Securities Purchase Agreement (Shareholder Approvals) shall not have been satisfied on or prior to the 120th day after the Effective Date; or

 

(v)                                 the Bridge Warrant Shares have not been approved for listing on Nasdaq, subject to official notice of issuance, on or prior to the 120th day after the Effective Date;

 

then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Lender may, by notice to the Borrower, take either or both of the following actions, at the same or different times:  (i) terminate the Commitment, whereupon the Commitment shall terminate immediately, (ii) require the Borrower to comply with cash collateralization requirements set forth in Section 2.13, and (iii) declare the Loans and unpaid LC Obligations then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans and unpaid LC Obligations so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower described in clause (h) or ( i) of this Article, the Commitment shall automatically terminate and the principal of the Loans and unpaid LC Obligations then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.  Upon the occurrence and the continuance of an Event of Default, the Lender may increase the rate of interest applicable to the Loans and other Obligations as set forth in this Section 2.07(c) and exercise any rights and remedies provided to the Lender under the Loan Documents or at law or equity, including all remedies provided under the UCC.

 

ARTICLE VIII

 

Miscellaneous

 

SECTION 8.01.                                   Notices.

 

(a)                                  Except in the case of notices and other communications expressly permitted to be given by telephone (and subject to paragraph (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile, as follows:

 

(i)                                     if to any Loan Party, to the Borrower at:

 

A123 Systems, Inc.
 200 West Street
 Waltham, Massachusetts 02451
 Attention:  David Vieau, President & CEO
 Facsimile No:  (617) 924-8910

 

With a copy to:

 

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A123 Systems, Inc.
 200 West Street
 Waltham, Massachusetts 02451
 Attention:  General Counsel
 Facsimile No:  (617) 924-8910

 

With a copy to:

 

Latham & Watkins LLP 
 1000 Winter Street, Suite 3700
 Waltham, Massachusetts 02451
 Attention:  John Chory
 Facsimile No:  (212) 751-4864

 

(ii)                                  if to the Lender, to Wanxiang America Corporation at:

 

88 Airport Road
 Elgin, Illinois 60123
 Attention:  Paul Cumberland
 Facsimile No:  (847) 931-4838

 

With a copy to:

 

Sidley Austin LLP 
 1 S. Dearborn St.
 Chicago, Illinois 60603
 Attention:  John R. Box

Attention:  Thomas P. Brown
 Facsimile No:  (312) 853-7036

 

All such notices and other communications (i) sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received, or (ii) sent by facsimile shall be deemed to have been given when sent, provided  that if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient.

 

(b)                                 Notices and other communications to the Lender hereunder may be delivered or furnished by electronic communications (including e-mail and internet or intranet websites) pursuant to procedures approved by the Lender; provided  that the foregoing shall not apply to notices pursuant to Article II or to compliance and no Event of Default certificates delivered pursuant to Section 5.01(d) unless otherwise agreed by the Lender.  The Lender or the Borrower (on behalf of the Loan Parties) may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided  that approval of such procedures may be limited to particular notices or communications.  All such notices and other communications (i) sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided  that if not given during the normal business hours of the recipient, such notice or communication shall be deemed to have been given at the opening of business on the next Business Day for the recipient, and (ii) posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as

 

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described in the foregoing clause (b)(i) of notification that such notice or communication is available and identifying the website address therefor.

 

(c)                                  Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto.

 

SECTION 8.02.                                   Waivers; Amendments.

 

(a)                                  No failure or delay by the Lender in exercising any right or power hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power.  The rights and remedies of the Lender hereunder and under any other Loan Document are cumulative and are not exclusive of any rights or remedies that they would otherwise have.  No waiver of any provision of any Loan Document or consent to any departure by any Loan Party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.  Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of whether the Lender may have had notice or knowledge of such Default at the time.

 

(b)                                 Neither this Agreement nor any other Loan Document nor any provision hereof or thereof may be waived, amended or modified except (i) in the case of this Agreement, pursuant to an agreement or agreements in writing entered into by the Borrower and the Lender, or (ii) in the case of any other Loan Document, pursuant to an agreement or agreements in writing entered into by the Lender and the Loan Party or Loan Parties that are parties thereto.

 

SECTION 8.03.                                   Expenses; Indemnity; Damage Waiver.

 

(a)                                  The Borrower shall pay (i) all reasonable and documented out-of-pocket expenses incurred by the Lender and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Lender (excluding the allocated costs of its internal legal department), in connection with the credit facility provided for herein, the preparation and administration of the Loan Documents or any amendments, modifications or waivers of the provisions of the Loan Documents (whether or not the transactions contemplated hereby or thereby shall be consummated), and (ii) all out-of-pocket expenses incurred by the Lender, including the fees, charges and disbursements of any counsel for the Lender (whether outside counsel or the allocated costs of its internal legal department), in connection with the enforcement, collection or protection of its rights in connection with the Loan Documents, including its rights under this Section, or in connection with the Loans made, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans.  Expenses being reimbursed by the Borrower under this Section include, without limiting the generality of the foregoing, costs and expenses incurred in connection with:

 

(i)                                     appraisals and insurance reviews;

 

(ii)                                  field examinations and the preparation of Reports based on the fees charged by a third party retained by the Lender or the internally allocated fees for each Person employed by the Lender with respect to each field examination;

 

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(iii)                               background checks regarding senior management and/or key investors, as deemed necessary or appropriate in the sole discretion of the Lender;

 

(iv)                              taxes, fees and other charges for (A) lien and title searches and title insurance and (B) recording the Mortgages, filing financing statements and continuations, and other actions to perfect, protect, and continue the Lender’s Liens;

 

(v)                                 sums paid or incurred to take any action required of any Loan Party under the Loan Documents that such Loan Party fails to pay or take; and

 

(vi)                              forwarding loan proceeds, collecting checks and other items of payment, and establishing and maintaining the accounts and lock boxes, and costs and expenses of preserving and protecting the Collateral.

 

(b)                                 The Borrower shall indemnify the Lender, and each Related Party of the Lender (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, penalties, incremental taxes, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of the Loan Documents or any agreement or instrument contemplated thereby, the performance by the parties hereto of their respective obligations thereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or the use of the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) the failure of the Borrower to deliver to the Lender the required receipts or other required documentary evidence with respect to a payment made by the Borrower for Taxes pursuant to Section 2.09, (v) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided  that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, penalties, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence, bad faith or willful misconduct of such Indemnitee or such Indemnitee’s Affiliates and the respective directors, officers and employees of such Indemnitee and such Indemnitee’s Affiliates.  This Section 8.03(b) shall not apply with respect to Taxes other than any Taxes that represent losses or damages arising from any non-Tax claim.

 

(c)                                  The relationship between any Loan Party on the one hand and the Lender on the other hand shall be solely that of debtor and creditor.  The Lender (i) shall not have any fiduciary responsibilities to any Loan Party or (ii) does not undertake any responsibility to any Loan Party to review or inform such Loan Party of any matter in connection with any phase of any Loan Party’s business or operations.  To the extent permitted by applicable law, no Loan Party shall assert, and each hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or the use of the proceeds thereof.

 

(d)                                 All amounts due under this Section shall be payable not later than ten (10) Business Days after written demand therefor.

 

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SECTION 8.04.                                   Successors and Assigns.

 

(a)                                  The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void).  Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of each of the Lender) any legal or equitable right, remedy or claim under or by reason of this Agreement.

 

(b)                                 The Lender may assign to one or more Eligible Assignees (as defined below) all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it).  For purposes of this Agreement, “Eligible Assignee” means any Person other than a natural Person that is (i) a Lender, an Affiliate of any Lender or, with respect to any Lender that is an investment fund, any other investment fund that is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor, (ii) a commercial bank, insurance company, investment or mutual fund or other Person that is an “accredited investor” (as defined in Regulation D under the Securities Act) or (iii) a corporate entity that possesses financial sophistication and standing similar to that of the Lender.  Subject to notification of an assignment, the assignee shall be a party hereto and, to the extent of the interest assigned, have the rights and obligations of the Lender under this Agreement, and the Lender shall, to the extent of the interest assigned, be released from its obligations under this Agreement (and, in the case of an assignment covering all of the Lender’s rights and obligations under this Agreement, the Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.08, 2.09 and 8.03).  The Borrower hereby agrees to execute any amendment and/or any other document that may be necessary to effectuate such an assignment, including an amendment to this Agreement to provide for multiple lenders and an administrative agent to act on behalf of such lenders.  Any assignment or transfer by the Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by the Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section.

 

(c)                                  The Lender may, without the consent of the Borrower, sell participations to one or more banks or other entities (a “Participant”) in all or a portion of the Lender’s rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided  that (i) the Lender’s obligations under this Agreement shall remain unchanged, (ii) the Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, and (iii) the Borrower shall continue to deal solely and directly with the Lender in connection with the Lender’s rights and obligations under this Agreement.  The Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.08 and 2.09 to the same extent as if it were the Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section; provided  that such Participant (A) agrees to be subject to the provisions of Sections 2.09 and 2.10 as if it were an assignee under paragraph (b) of this Section; and (B) shall not be entitled to receive any greater payment under Section 2.08 or 2.09, with respect to any participation, than the Lender would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation.  The Lender shall, acting solely for this purpose as an agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in

 

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the Loans or other obligations under the Loan Documents (the “Participant Register”); provided that the Lender shall have no obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any commitments, loans, letters of credit or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations.  The entries in the Participant Register shall be conclusive absent manifest error, and the Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary.

 

(d)                                 To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 8.08 as though it were the Lender, provided such Participant agrees to be subject to Section 2.10(b) as though it were the Lender.

 

SECTION 8.05.                                   Survival.  All covenants, agreements, representations and warranties made by the Loan Parties in the Loan Documents and in the certificates or other instruments  delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Lender, the Lender may have had notice or knowledge of any Event of Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid and so long as the Commitment has not expired or terminated.  The provisions of Sections 2.06, 2.08, 2.09 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Commitment or the termination of this Agreement or any provision hereof.

 

SECTION 8.06.                                   Counterparts; Integration; Effectiveness.  This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract.  This Agreement, the other Loan Documents and any separate letter agreements with respect to fees payable to the Lender constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof.  Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Lender and when the Lender shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.  Delivery of an executed counterpart of a signature page of this Agreement by facsimile or other electronic transmission shall be effective as delivery of a manually executed counterpart of this Agreement.

 

SECTION 8.07.                                   Severability.  Any provision of any Loan Document held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

 

SECTION 8.08.                                   Right of Setoff.  If an Event of Default shall have occurred and be continuing, the Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any obligations at any time owing by the Lender

 

55

 

or Affiliate to or for the credit or the account of the Borrower or such Loan Guarantor against any of and all the Secured Obligations held by the Lender, irrespective of whether or not the Lender shall have made any demand under the Loan Documents and although such obligations may be unmatured.  The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which the Lender may have.

 

SECTION 8.09.                                   Governing Law; Jurisdiction; Consent to Service of Process.

 

(a)                                  The Loan Documents (other than those containing a contrary express choice of law provision) shall be governed by and construed in accordance with the internal laws (and not the law of conflicts) of the State of New York.

 

(b)                                 Each Loan Party hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any U.S. Federal or New York State court sitting in New York, New York in any action or proceeding arising out of or relating to any Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court.  Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.  Nothing in this Agreement or any other Loan Document shall affect any right that the Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against any Loan Party or its properties in the courts of any jurisdiction.

 

(c)                                  Each Loan Party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in paragraph (b) of this Section.  Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

 

(d)                                 Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 8.01.  Nothing in this Agreement or any other Loan Document will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

 

SECTION 8.10.                                   WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

56

 

SECTION 8.11.                                   Headings.  Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.

 

SECTION 8.12.                                   Confidentiality.  The Lender agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority; provided, unless specifically prohibited by applicable law or court order, the Lender shall make reasonable efforts to notify the Borrower of any request by any Chinese regulatory authority or representative thereof, (c) to the extent required by any Requirement of Law or by any subpoena or similar legal process, provided, unless specifically prohibited by applicable law or court order, the Lender shall make reasonable efforts to notify the Borrower of any request by any Chinese regulatory authority or representative thereof, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Loan Parties and their obligations, (g) with the consent of the Borrower, or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Lender on a non-confidential basis from a source other than the Borrower; provided  that, any failure by the Lender to notify the Borrower of the requested disclosures in accordance with clauses (b) and (c) above shall not give rise to any liability for the Lender.  For the purposes of this Section, “Information” means all information received from the Borrower relating to the Borrower or its business, other than any such information that is available to the Lender on a non-confidential basis prior to disclosure by the Borrower; provided  that, in the case of information received from the Borrower after the date hereof, such information is clearly identified at the time of delivery as confidential.  Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

 

SECTION 8.13.                                   Nonreliance; Violation of Law.  The Lender hereby represents that it is not relying on or looking to any margin stock for the repayment of the Loans provided for herein.  Anything contained in this Agreement to the contrary notwithstanding, the Lender shall not be obligated to extend credit to the Borrower in violation of any Requirement of Law.

 

SECTION 8.14.                                   USA PATRIOT Act.  The Lender is subject to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”) and hereby notifies the Borrower that pursuant to the requirements of the Act, it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow the Lender to identify the Borrower in accordance with the Act.

 

SECTION 8.15.                                   Disclosure.  Each Loan Party hereby acknowledges and agrees that the Lender and/or its Affiliates from time to time may hold investments in, make other loans to or have other relationships with any of the Loan Parties and their respective Affiliates.  In addition, each Loan Party hereby acknowledges that the Lender holds Bridge Warrants from the Borrower.

 

57

 

SECTION 8.16.                                   Interest Rate Limitation.  Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable law (collectively the “Charges”), shall exceed the maximum lawful rate (the “Maximum Rate”) which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to the Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by the Lender.

 

SECTION 8.17.                                   Termination and Release.  Upon the termination of the Commitment hereunder, the surrender of the Letter of Credit for cancellation and indefeasible payment in full in cash or other immediately available funds of all Obligations (other than any inchoate indemnity obligations under Section 8.03), this Agreement shall terminate and be of no further force and effect (other than with respect to any provisions of this Agreement that survive the termination hereof), the Lien securing the Obligations hereunder granted to the Lender, solely in its capacity as the Lender hereunder, shall be released and the Lender shall, at the sole cost and expense of the Borrower, execute such documents and take such other steps as reasonably requested by the Borrower to effectuate such release.  The termination and release contemplated in this Section 8.17 shall not release, terminate, impair, diminish or otherwise affect any of the NPA Obligations, any Lien granted by the Borrower or any other Loan Party to secure the NPA Obligations or any other obligation or liability of the Borrower or any other Loan Party to any Person other than the Lender in its capacity as “Lender” hereunder.  Without limiting the generality of the foregoing, following the termination and release contemplated herein, all obligations and liabilities of, and all Liens granted by, the Borrower or any Loan Party to Wanxiang or any of its Affiliates acting in any capacity other than as Lender hereunder shall continue be in full force and effect in accordance with any such documents governing such obligations, liabilities and Liens until indefeasible payment in full in cash or other immediately available funds of such obligations and liabilities.

 

ARTICLE IX

 

Role of Agent

 

In the event that the Lender shall at any time assign any portion of its interest hereunder pursuant to Section 8.04, with the effect that there shall be more than one “Lender” hereunder (each, a “Participating Lender”), and at all times that there shall be more than one Participating Lender hereunder, the provisions of this Article IX shall apply.

 

SECTION 9.01.                                   Designation of Agent.  Wanxiang shall act as agent (the “Agent”) for all Participating Lenders hereunder, as collateral agent for all Participating Lenders under the Security Agreement for purposes of any grant of collateral security being made by the Borrower in connection with this Agreement and as agent for the Participating Lenders under or in connection with any other Loan Document.  Each Participating Lender irrevocably appoints the Agent as its agent and authorizes the Agent to take such actions on its behalf and to exercise such powers as are set forth for the Agent in the Security Agreement and as are delegated to the Agent by the Participating Lenders from time to time, together with such actions and powers as are reasonably incidental thereto.  Each Participating Lender acknowledges that Wanxiang will be acting as collateral agent under the Security Agreement in respect of all “Lenders” from time to time parties to this Agreement and all Persons from time to time holding the Senior Secured Convertible Notes or interests therein (the “Holders”), and that the collateral security 

 

58

 

being provided by the Borrower to such Lender and such Holders will be a single pool of assets and interests in property to be shared by such Lenders and such Holders as secured parties on a pari passu basis.  Notwithstanding anything herein to the contrary, the provisions of this Section 9.01 shall apply at all times without regard to how many “Lenders” are party hereto at such time.

 

SECTION 9.02.                                   Intercreditor Matters.  The Participating Lenders shall agree among themselves on their respective voting rights and related intercreditor matters for purposes of this Agreement and shall timely provide instructions and direction to the Agent in accordance with such agreement in respect of any action to be taken by the Lender, any consent to be obtained from the Lender or any right or discretion to be exercised by the Lender under the Loan Documents.  Unless otherwise agreed among the Participating Lenders, the rights and priorities of the Participating Lenders shall at all times be pari passu.  Nothing contained herein shall impair, diminish or otherwise modify the right of any Participating Lender to receive its respective interest in any payment due the Lender hereunder.

 

SECTION 9.03.                                   Actions by and Communications with the Agent.  Notwithstanding the existence of several Participating Lenders hereunder, the Borrower shall be permitted to assume that any notice or instruction from the Agent, or any action taken by the Agent, shall have been duly authorized by the Participating Lenders without any requirement that the Borrower at any time seek confirmation thereof from any Participating Lender.  Any communication in connection with this Agreement made by the Borrower to the Agent shall be deemed to be a communication by the Borrower to all Participating Lenders.

 

SECTION 9.04.                                   Payments.  Unless otherwise instructed by the Agent, each payment to be made by the Borrower hereunder to the Lender shall be made to the Agent and payment when so made shall be deemed to be payment to each Participating Lender of its respective interest therein.  The Agent shall assume responsibility for allocating among and disbursing to the Participating Lenders in accordance with their respective interests any payment made by the Borrower to the Agent for the benefit of the Participating Lenders.

 

SECTION 9.05.                                   Independent Analysis.  Each Participating Lender acknowledges that it has, independently and without reliance upon the Agent or any other Participating Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement.  Each Participating Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Participating Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder.

 

SECTION 9.06.                                   Actions in Concert.  Each Participation Lender agrees that no Participating Lender shall have the right to individually seek to realize upon the security granted by any Collateral Document, it being understood and agreed that such rights and remedies may be exercised solely by the Agent for the benefit of the Participating Lenders upon the terms of the Collateral Documents.

 

59

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

 

 

	
 
    	
A123 SYSTEMS, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ David P. Vieau
    
	
 
    	
Name:
    	
David P. Vieau
    
	
 
    	
Title:
    	
President & CEO
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
WANXIANG AMERICA CORPORATION
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    

 

Signature Page to Loan Agreement

 

 

EXHIBIT A

 

OPINION OF COUNSEL FOR THE BORROWER

 

(attached)

 

Exh. A-1

 

EXHIBIT B

 

COMPLIANCE CERTIFICATE

 

To:                              WANXIANG AMERICA CORPORATION

 

This Compliance Certificate is furnished pursuant to that certain Loan Agreement dated as of August 15, 2012 (as amended, modified, renewed or extended from time to time, the “Agreement”) between A123 Systems, Inc. (the “Borrower”) and Wanxiang America Corporation, as Lender.  Unless otherwise defined herein, capitalized terms used in this Compliance Certificate have the meanings ascribed thereto in the Agreement.

 

THE UNDERSIGNED HEREBY CERTIFIES THAT:

 

1.                                       I am the duly elected                      of the Borrower;

 

2.                                       I have reviewed the terms of the Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of the Borrower and its Subsidiaries during the accounting period covered by the attached financial statements [for quarterly or monthly financial statements add:  and such financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes];

 

3.                                       The examinations described in paragraph 2 did not disclose, except as set forth below, and I have no knowledge of (i) the existence of any condition or event which constitutes a Default during or at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate or (ii) any change in GAAP or in the application thereof that has occurred since the date of the audited financial statements referred to in Section 3.04 of the Agreement;

 

4.                                       Except as set forth below, the representations and warranties of the Borrower and the other Loan Parties contained in Article III of the Agreement and any representations and warranties of the Borrower and the other Loan Parties that are contained in any other Loan Document are true and correct on and as of the date hereof, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date, and except that for purposes of this Compliance Certificate, the representations and warranties contained in subsection (a) of Section 3.04 of the Agreement shall be deemed to refer to the most recent statements furnished pursuant to clauses (a), (b) and (c), respectively, of Section 5.01 of the Agreement, including the statements in connection with which this Compliance Certificate is delivered;

 

5.                                       I hereby certify that no Loan Party has changed (i) its name, (ii) its chief executive office, (iii) principal place of business, (iv) the type of entity it is or (v) its state of incorporation or organization without having given the Lender the notice required by Section 4.15 of the Security Agreement; [and

 

6.                                       Schedule I attached hereto sets forth financial data and computations evidencing the Borrower’s compliance with certain covenants of the Agreement, all of which data and computations are true, complete and correct.]

 

Described below are the exceptions, if any, to paragraph 3 by listing, in detail, the (i) nature of the condition or event, the period during which it has existed and the action which the Borrower has taken, is 

 

Exh. B-1

 

taking, or proposes to take with respect to each such condition or event or (ii) the change in GAAP or the application thereof and the effect of such change on the attached financial statements:

 

	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    

 

Described below are the exceptions, if any, to paragraph 4 by listing, in detail, of any representation or warranty contained in the Agreement or any Loan Document which is not true and correct on and as of the date hereof:

 

	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    

 

Exh. B-2

 

The foregoing certifications, together with the computations set forth in Schedule I hereto and the financial statements delivered with this Certificate in support hereof, are made and delivered this                day of                                       .

 

	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    

 

Exh. B-3

 

SCHEDULE I

 

Compliance as of                   ,          with
 Provisions of       and         of
 the Agreement

 

Exh. B-4

 

EXHIBIT C

 

[RESERVED]

 

Exh. C-1

 

EXHIBIT D

 

LIST OF CLOSING DOCUMENTS

 

(Attached)

 

Exh. D-1

 

EXHIBIT E

 

FORM OF BRIDGE WARRANTS

 

(Attached)

 

Exh. E-1

 

EXHIBIT F

 

[RESERVED]

 

Exh. F

 

EXHIBIT G

 

FORM OF BORROWING REQUEST

 

[Date]

 

Wanxiang America Corporation

88 Airport Road
 Elgin, Illinois 60123

 

Ladies and Gentlemen:

 

The undersigned, A123 Systems, Inc. (the “Borrower”) refers to that certain Loan Agreement dated as of August 15, 2012 (as amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”) between the Borrower and Wanxiang America Corporation, as Lender. Capitalized terms not otherwise defined herein shall have the meanings set forth in the Loan Agreement.

 

The undersigned hereby gives the Lender notice, pursuant to Section 2.02 of the Loan Agreement, that it hereby requests a Loan (the “Proposed Loan”), and that the Borrowing Date for the Proposed Loan is                                           , 20    .(1)

 

The undersigned hereby acknowledges that this Borrowing Request is irrevocable and binding on the Borrower.

 

The undersigned hereby certifies that:

 

(A)  The representations and warranties of the Borrower and each other Loan Party set forth in Article III of the Loan Agreement are true and correct on and as of the date hereof (except for those representations and warranties which by their terms are made as of a specified date, which representations and warranties shall be true and correct on and as of such date); and

 

(B)  No Default has occurred and is continuing, or would result from such Loan.

 

The undersigned hereby represents and warrants that the conditions to lending specified in Section [4.02][4.03] of the Loan Agreement are satisfied as of the date hereof.

 

 

	
 
    	
A123   SYSTEMS, INC.
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    
	
 
    	
Title:
    

 

(1)  The Borrowing Date shall be a Business Day.

 

Exh. G-1

 

EXHIBIT H

 

FORM OF NOTE

 

August [    ], 2012

 

A123 SYSTEMS, INC., a Delaware corporation (the “Borrower”), promises to pay to WANXIANG AMERICA CORPORATION (the “Lender”) the aggregate unpaid principal amount of all Loans made by the Lender to the Borrower pursuant to Article II of the Agreement (as hereinafter defined), in immediately available funds to the Lender, together with interest on the unpaid principal amount hereof at the rates and on the dates set forth in the Agreement.  The Borrower shall pay the principal of and accrued and unpaid interest on the Loans in full on the Maturity Date.

 

The Lender shall, and is hereby authorized to, record on the schedule attached hereto, or to otherwise record in accordance with its usual practice, the date and amount of each Loan and the date and amount of each principal payment hereunder.

 

This Note is one of the Notes issued pursuant to, and is entitled to the benefits of, the Loan Agreement dated as of August 15, 2012 (which, as it may be amended or modified and in effect from time to time, is herein called the “Agreement”), between the Borrower and the Lender, to which Agreement reference is hereby made for a statement of the terms and conditions governing this Note, including the terms and conditions under which this Note may be prepaid or its maturity date accelerated.  Capitalized terms used herein and not otherwise defined herein are used with the meanings attributed to them in the Agreement.

 

In the event of default hereunder, the undersigned agree to pay all costs and expenses of collection, including reasonable attorneys’ fees.  The undersigned waive demand, presentment, notice of nonpayment, protest, notice of protest and notice of dishonor.

 

This Note is issued with “original issue discount” for United States federal income tax purposes.  For information on the issue price, amount of original issue discount, issue date and yield to maturity for the Note, please contact A123 Systems, Inc., 200 West Street, Waltham, MA 02451, Attention: Chief Financial Officer.(2)

 

THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF.

 

(2)  OID legend to be added if appropriate based on warrant valuation.

 

 

	
 
    	
A123 SYSTEMS, INC., a Delaware 
   corporation
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Print Name:
    	
 
    
	
 
    	
Title:
    	
 
    

 

Exh. H-1

 

SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL
 TO
 NOTE OF A123 SYSTEMS, INC.,
 DATED AUGUST [    ], 2012

 

	
Date
    	
 
    	
Principal
   Amount of
   Loan
    	
 
    	
Principal
   Amount
   Paid
    	
 
    	
Unpaid
   BalanceExhibit 10.2

 

EXECUTION COPY

 

	
 
    

 

A123 Systems, Inc.

 

 

$200,000,000

 

 

8.00% Senior Secured Convertible Notes
 Warrants to Purchase Common Stock

 

 

Securities Purchase Agreement

 

 

Dated August 16, 2012

 

	
 
    

 

 

Table of Contents

 

	
 
    	
 
    	
Page
    
	
 
    	
 
    
	
ARTICLE 1 AUTHORIZATION OF   SECURITIES
    	
1
    
	
 
    	
 
    
	
ARTICLE 2 SALE AND PURCHASE   OF NOTES AND WARRANTS
    	
1
    
	
 
    	
 
    
	
ARTICLE 3 CLOSING
    	
2
    
	
 
    	
 
    
	
ARTICLE 4 CONDITIONS TO   CLOSING
    	
2
    
	
 
    	
 
    	
 
    
	
4.1
    	
Representations and Warranties
    	
2
    
	
4.2
    	
Performance; No Default
    	
2
    
	
4.3
    	
Secretary’s Certificate
    	
3
    
	
4.4
    	
Opinion of Counsel
    	
3
    
	
4.5
    	
Election of Directors
    	
3
    
	
4.6
    	
Purchase Permitted By Applicable Requirements of   Law, Etc.
    	
3
    
	
4.7
    	
Funding Instructions
    	
3
    
	
4.8
    	
Proceedings and Documents
    	
3
    
	
4.9
    	
Company Board Approval of the Charter Amendment;   Shareholder Approvals
    	
3
    
	
4.10
    	
PRC Approval
    	
4
    
	
4.11
    	
HSR Act
    	
4
    
	
4.12
    	
CFIUS Review
    	
4
    
	
4.13
    	
6.00% Senior Convertible Notes
    	
4
    
	
4.14
    	
3.75% Convertible Subordinated Notes
    	
4
    
	
4.15
    	
ITAR
    	
5
    
	
4.16
    	
Grants; Tax Credits
    	
5
    
	
4.17
    	
D&O Insurance
    	
5
    
	
4.18
    	
No Litigation
    	
5
    
	
4.19
    	
No Default under Bridge Loan Agreement
    	
5
    
	
4.20
    	
Permitted First Priority Bridge Indebtedness
    	
5
    
	
4.21
    	
Security Agreement and Guarantee
    	
6
    
	
4.22
    	
No Delisting Actions
    	
6
    
	
4.23
    	
Updated Capitalization
    	
6
    
	
 
    	
 
    	
 
    
	
ARTICLE 5 REPRESENTATIONS   AND WARRANTIES OF THE COMPANY
    	
6
    
	
 
    	
 
    	
 
    
	
5.1
    	
Organization; Power and Authority
    	
6
    
	
5.2
    	
Authorization, Etc.
    	
6
    
	
5.3
    	
No Material Adverse Effect
    	
7
    
	
5.4
    	
Organization and Ownership of Capital Stock of Subsidiaries
    	
7
    
	
5.5
    	
Compliance with Laws, Other Instruments, Etc.
    	
7
    
	
5.6
    	
Change of Control Payments
    	
8
    
	
5.7
    	
Governmental Authorizations, Etc.
    	
8
    
	
5.8
    	
Litigation; Observance of Agreements, Statutes and Orders
    	
8
    
	
5.9
    	
NASDAQ Market Listing
    	
8
    

 

i

 

	
5.10
    	
Taxes
    	
9
    
	
5.11
    	
Title to Property; Leases
    	
9
    
	
5.12
    	
Reserved
    	
10
    
	
5.13
    	
Compliance with ERISA
    	
10
    
	
5.14
    	
Private Offering by the Company
    	
10
    
	
5.15
    	
Use of Proceeds; Margin Regulations
    	
10
    
	
5.16
    	
Existing Indebtedness; Future Liens
    	
10
    
	
5.17
    	
Foreign Assets Control Regulations, Etc.
    	
11
    
	
5.18
    	
Status under Certain Statutes
    	
11
    
	
5.19
    	
Solvency
    	
11
    
	
5.20
    	
Application of Takeover Protections; No Rights Agreement
    	
12
    
	
5.21
    	
SEC Documents; Financial Statements
    	
12
    
	
5.22
    	
Undisclosed Liabilities
    	
13
    
	
5.23
    	
Equity Capitalization
    	
13
    
	
5.24
    	
Employee Relations
    	
15
    
	
5.25
    	
Intellectual Property Rights
    	
15
    
	
5.26
    	
Environmental Laws
    	
16
    
	
5.27
    	
Reserved
    	
16
    
	
5.28
    	
Internal Accounting and Disclosure Controls
    	
16
    
	
5.29
    	
Bank Holding Company Act
    	
16
    
	
5.30
    	
Shell Company Status
    	
17
    
	
5.31
    	
Stock Option Plans
    	
17
    
	
5.32
    	
No Disagreements with Accountants and Lawyers
    	
17
    
	
5.33
    	
Disclosure
    	
17
    
	
5.34
    	
ITAR
    	
17
    
	
5.35
    	
Competing Businesses
    	
18
    
	
5.36
    	
Representations and Warranties of Purchaser
    	
18
    
	
 
    	
 
    	
 
    
	
ARTICLE 6 REPRESENTATIONS OF   PURCHASER
    	
18
    
	
 
    	
 
    	
 
    
	
6.1
    	
Purchase for Investment
    	
18
    
	
6.2
    	
Accredited Investor
    	
19
    
	
6.3
    	
Matters Relating to the Placement Agent
    	
19
    
	
6.4
    	
Representations and Warranties of the Company
    	
19
    
	
6.5
    	
Brokers and Other Advisors
    	
20
    
	
 
    	
 
    	
 
    
	
ARTICLE 7 COVENANTS
    	
20
    
	
 
    	
 
    	
 
    
	
7.1
    	
Preparation of the Proxy Statement; Company Shareholders   Meeting
    	
20
    
	
7.2
    	
Alternative Proposals
    	
21
    
	
7.3
    	
Cooperation; Certain Consents and Approvals
    	
24
    
	
7.4
    	
Commodity Jurisdiction Determination
    	
26
    
	
7.5
    	
Public Announcements
    	
26
    
	
7.6
    	
Litigation
    	
26
    
	
7.7
    	
Board Governance Matters
    	
26
    
	
7.8
    	
Interim Operations
    	
29
    
	
7.9
    	
Confidentiality Agreement
    	
30
    

 

ii

 

	
ARTICLE 8 SURVIVAL OF   REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT
    	
30
    
	
 
    	
 
    	
 
    
	
8.1
    	
Survival of Representations and Warranties
    	
30
    
	
8.2
    	
Entire Agreement
    	
30
    
	
 
    	
 
    	
 
    
	
ARTICLE 9 AMENDMENT AND   WAIVER
    	
30
    
	
 
    	
 
    
	
ARTICLE 10 NOTICES
    	
31
    
	
 
    	
 
    
	
ARTICLE 11 INDEMNIFICATION
    	
31
    
	
 
    	
 
    	
 
    
	
11.1
    	
Indemnification
    	
31
    
	
11.2
    	
Procedures; Third Party Claims
    	
32
    
	
11.3
    	
Other Claims
    	
33
    
	
11.4
    	
Tax Treatment
    	
33
    
	
 
    	
 
    
	
ARTICLE 12 SUBSTITUTION OF   PURCHASER
    	
34
    
	
 
    	
 
    
	
ARTICLE 13   EXPENSES, ETC.
    	
34
    
	
 
    	
 
    	
 
    
	
13.1
    	
Expenses
    	
34
    
	
13.2
    	
Survival
    	
34
    
	
 
    	
 
    
	
ARTICLE 14 TERMINATION
    	
35
    
	
 
    	
 
    	
 
    
	
14.1
    	
Termination by the Parties
    	
35
    
	
14.2
    	
Notice of Termination; Effect of Termination
    	
36
    
	
14.3
    	
Termination Fee
    	
36
    
	
 
    	
 
    
	
ARTICLE 15 MISCELLANEOUS
    	
37
    
	
 
    	
 
    	
 
    
	
15.1
    	
Successors and Assigns
    	
37
    
	
15.2
    	
Accounting Terms
    	
37
    
	
15.3
    	
Severability
    	
37
    
	
15.4
    	
Construction, etc.
    	
37
    
	
15.5
    	
Counterparts
    	
38
    
	
15.6
    	
Governing Law
    	
38
    
	
15.7
    	
Jurisdiction and Process; Waiver of Jury Trial
    	
38
    
	
15.8
    	
No Personal Liability of Directors, Officers, Employees and   Holders of Capital Stock
    	
38
    
	
15.9
    	
Successors
    	
39
    
	
15.10
    	
Third Party Beneficiaries
    	
39
    

 

iii

 

SCHEDULES

 

	
Schedule
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Schedule   A
    	
—
    	
Defined   Terms
    
	
Schedule   5.3
    	
—
    	
Material   Adverse Events
    
	
Schedule   5.4
    	
—
    	
Subsidiaries   of the Company and Ownership of Subsidiary Equity
    
	
Schedule   5.5
    	
—
    	
Compliance   with Laws, Other Instruments, Etc.
    
	
Schedule   5.10
    	
—
    	
Tax   Matters
    
	
Schedule   5.16
    	
—
    	
Existing   Indebtedness
    
	
Schedule   5.21
    	
—
    	
SEC   Documents and Financial Statements
    
	
Schedule   5.23
    	
—
    	
Capitalization
    
	
Schedule   5.25
    	
—
    	
Intellectual   Property
    
	
Schedule   5.34(a)
    	
—
    	
EAR   Matters
    
	
Schedule   7.8
    	
—
    	
Interim   Operations
    

 

EXHIBITS

 

	
Exhibit
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Exhibit 1.1
    	
—
    	
Form of   8.00% Senior Secured Convertible Note
    
	
Exhibit 1.2
    	
—
    	
Form of   Warrant
    
	
Exhibit 4.4
    	
—
    	
Form of   Opinion of Special Counsel for the Company
    

 

iv

 

A123 Systems, Inc.
 200 West Street
 Waltham, Massachusetts 02451
 Facsimile: (617) 924-8910

 

8.00% Senior Secured Convertible Notes
 Warrants to Purchase Common Stock

 

August 16, 2012

 

To Wanxiang Clean Energy USA Corp.:

 

Ladies and Gentlemen:

 

A123 Systems, Inc., a Delaware corporation (the “Company”), agrees with Wanxiang Clean Energy USA Corp. (the “Purchaser”) as follows:

 

ARTICLE 1

AUTHORIZATION OF SECURITIES

 

The Company has authorized the issuance and sale of $200,000,000 aggregate principal amount of its 8.00% Senior Secured Convertible Notes (the “Notes”, such term to include any such notes issued in substitution therefor pursuant to the terms thereof) and warrants to purchase shares of Common Stock (the “Warrants”).  The issuance and sale of the Notes and Warrants and the related actions contemplated in this agreement (this “Agreement”) are referred to herein as the “Transaction.” The Notes shall be substantially in the form set out in Exhibit 1.1.  The Warrants shall be substantially in the form set out in Exhibit 1.2, duly completed in accordance with the instructions for Warrants “W4” and “W5” therein.  The shares of Common Stock issuable upon conversion of the Notes, upon exercise of the Warrants and/or upon exercise of the Bridge Warrants (as hereinafter defined) are referred to herein as the “Underlying Shares” and, together with the Notes and the Warrants, are collectively referred to herein as the “Securities.”  Certain capitalized and other terms used in this Agreement are defined in Schedule A; and references to a “Schedule” or an “Exhibit” are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement.

 

ARTICLE 2

SALE AND PURCHASE OF NOTES AND WARRANTS

 

Subject to the terms and conditions of this Agreement, Purchaser agrees to purchase at the Closing, and the Company agrees to sell and issue to Purchaser, at the Closing, in each case as provided for in Article 3, the Notes and Warrants for the aggregate purchase price of $200,000,000.  The Company and Purchaser shall endeavor in good faith to agree, as soon as reasonably practicable, to an allocation of the purchase price hereunder between the Notes and Warrants.  The Notes shall be convertible into shares of Common Stock as provided for in the Notes,  and each Warrant shall be exercisable for shares of Common Stock as provided for in the Warrant.

 

 

ARTICLE 3

CLOSING

 

The sale and purchase of the Notes and Warrants to be purchased by Purchaser shall occur at the offices of Latham & Watkins LLP, 233 South Wacker Drive, Suite 5800, Chicago, Illinois 60606, at 9:00 a.m., Chicago time, at a closing (the “Closing”) on the second Business Day after the conditions to the Closing set forth in this Agreement (other than those conditions that by their nature are to be satisfied at the Closing) are either satisfied or waived, or at such other time and place as the Company and Purchaser mutually agree in writing.  At the Closing, the Company will deliver to Purchaser the Notes to be purchased by Purchaser in the form of a single Note (or such greater number of Notes in denominations of at least $100,000 as Purchaser may request) dated the date of the Closing and registered in Purchaser’s name (or in the name of its nominee) and the Warrants to be purchased by Purchaser by physical delivery thereof, against delivery by Purchaser to the Company or its order of immediately available funds in the amount of the aggregate purchase price therefor by wire transfer of immediately available funds for the account of the Company.  If, at the Closing, the Company shall fail to tender such Notes or Warrants to Purchaser as provided above in this Article 3, or any of the conditions specified in Article 4 shall not have been fulfilled to Purchaser’s satisfaction, Purchaser shall, at its election, be relieved of all further obligations under this Agreement, without thereby waiving any rights Purchaser may have by reason of such failure or such nonfulfillment.

 

ARTICLE 4

CONDITIONS TO CLOSING

 

Purchaser’s obligation to purchase and pay for the Notes and Warrants to be sold to Purchaser at the Closing is subject to the fulfillment to Purchaser’s satisfaction or waiver by Purchaser, prior to or at the Closing, of the following conditions:

 

4.1                                 Representations and Warranties.  The representations and warranties of the Company in this Agreement and the Bridge Loan Agreement that are qualified by materiality or Material Adverse Effect shall be true and correct in all respects and each other representation and warranty of the Company contained in this Agreement and the Bridge Loan Agreement shall be true and correct in all material respects, in each case as of the date of this Agreement and as of the Closing as though made on the date of Closing, except to the extent such representations and warranties are expressly made as of an earlier date, in which case as of such earlier date.  Purchaser shall have received a certificate signed on behalf of the Company by an executive officer of the Company to such effect.

 

4.2                                 Performance; No Default.  The Company shall have performed and complied with all agreements and covenants contained in this Agreement required to be performed or complied with by it prior to or at the Closing and after giving effect to the issue and sale of the Notes and Warrants (and the application of the proceeds thereof) no Default or Event of Default under the Notes shall have occurred and be continuing.  Purchaser shall have received a certificate signed on behalf of the Company by an executive officer of the Company to such effect.

 

2

 

4.3                                 Secretary’s Certificate.  The Company shall have delivered to Purchaser a certificate of its Secretary or Assistant Secretary, dated the date of Closing, certifying as to the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of the Securities and this Agreement, the approval by the Company Board of the Charter Amendment and the approval by the shareholders of the Company of the Share Issuance Proposal, the Change of Control Proposal and the Charter Proposal.

 

4.4                                 Opinion of Counsel.  Purchaser shall have received an opinion letter, dated the date of the Closing, from Latham & Watkins LLP, counsel for the Company, substantially in the form set forth in Exhibit 4.4 (and the Company hereby instructs its counsel to deliver such opinion letter to Purchaser).

 

4.5                                 Election of Directors.  The Wanxiang Board Designees shall have been duly elected or appointed to, and as of immediately following the Closing, shall be seated as directors on, the Company Board.

 

4.6                                 Purchase Permitted By Applicable Requirements of Law, Etc.  On the date of the Closing, such Purchaser’s purchase of Notes and Warrants shall (a) be permitted by the laws and regulations of each jurisdiction to which Purchaser is subject, (b) not violate applicable Requirements of Law (including Regulation T, U or X of the Board of Governors of the Federal Reserve System (the “Federal Reserve”)) and (c) not subject Purchaser to any tax, penalty or liability (other than any income tax or tax based on income) under or pursuant to applicable Requirements of Law, except, in the case of each of clauses (a), (b) and (c), such as are applicable to Purchaser by virtue of its owners or its relationship with China, Chinese entities or Chinese nationals.

 

4.7                                 Funding Instructions.  At least three Business Days prior to the date of the Closing, Purchaser shall have received written instructions signed by a senior financial officer of the Company on letterhead of the Company specifying (i) the name and address of the bank to which the purchase price for the Securities is to be deposited, (ii) such bank’s ABA number and (iii) the account name and number into which such purchase price is to be deposited.

 

4.8                                 Proceedings and Documents.  All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory to Purchaser, and Purchaser shall have received all such counterpart originals or certified or other copies of such documents as Purchaser may reasonably request.

 

4.9                                 Company Board Approval of the Charter Amendment; Shareholder Approvals.

 

(a)                                  The Company Board shall have approved, prior to the mailing of the Proxy Statement, and declared advisable an amendment to the Company Charter (the “Charter Amendment”) to provide that the number of shares of Common Stock authorized to be issued by the Company is a specific number, which number shall be sufficient to allow for the Company to reserve for issuance upon conversion of the Notes and exercise of the Warrants and the Bridge Warrants (without regard to any restrictions on the convertibility of the Notes or the exercise of the Warrants or the Bridge Warrants or any future anti-dilution adjustments but giving effect to

 

3

 

all outstanding shares of Common Stock and other rights to acquire Common Stock from the Company) a number of shares of Common Stock equal to the aggregate of the Required Reserve Amount (as such term is defined in the applicable Bridge Warrant or Warrant) with respect to each of the Bridge Warrants and Warrants and directing that the Charter Amendment be submitted to a vote of the shareholders of the Company.

 

(b)                                 At the Company Shareholders Meeting, the shareholders of the Company shall have duly approved (i) a proposal to approve the issuance of the Underlying Shares upon conversion of the Notes and upon exercise of the Warrants and the Bridge Warrants (the “Share Issuance Proposal”), (ii) a proposal to authorize a change of control resulting from the issuance of the Notes, the Bridge Warrants and the Warrants under NASDAQ Listing Rule 5635(b) (the “Change of Control Proposal”) and (iii) a proposal to approve the Charter Amendment (the “Charter Proposal” and, together with the Share Issuance Proposal and the Change of Control Proposal, the “Shareholder Proposals”), in accordance with the Company Charter, the Company Bylaws and the DGCL (the “Shareholder Approval”), and such approval shall be in full force and effect.

 

(c)                                  A certificate of amendment reflecting the Charter Amendment shall have been duly filed with the Secretary of State of the State of Delaware.

 

4.10                           PRC Approval.  All consents, approvals, licenses, permits and other authorizations of any Government Authority of the People’s Republic of China that Purchaser determines, in its reasonable discretion, are required for the consummation by Purchaser of the transactions contemplated by this Agreement shall have been obtained on terms satisfactory to Purchaser in its sole discretion, and such consents, approvals, licenses, permits and other authorizations shall be in full force and effect.

 

4.11                           HSR Act.  Any applicable waiting periods, together with any extensions thereof, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder (the “HSR Act”), and the antitrust or competition laws of any other applicable jurisdiction that are, in each case, applicable to the acquisition of all the Underlying Shares by Purchaser shall have expired or been terminated.

 

4.12                           CFIUS Review.  The Company and Purchaser shall have received written notice from the Committee on Foreign Investment in the United States (“CFIUS”) that its review of the transactions contemplated by this Agreement has concluded or, in the event of an investigation, that CFIUS has terminated such investigation, and there are no unresolved national security concerns with respect to the transactions contemplated by this Agreement.

 

4.13                           6.00% Senior Convertible Notes.  All of the Company’s 6.00% Senior Convertible Notes (the “6.00% Notes”) shall have been either converted into shares of Common Stock in accordance with their terms or redeemed by the Company or called by the Company for redemption at a price equal to 110% of the face value thereof, plus accrued and unpaid interest.

 

4.14                           3.75% Convertible Subordinated Notes. At least 90% of the initial principal amount of the Company’s 3.75% Convertible Subordinated Notes (the “3.75% Notes”) shall

 

4

 

have been converted into shares of Common Stock and/or purchased and cancelled by the Company on terms satisfactory to Purchaser in its sole discretion.

 

4.15                           ITAR.  A period of 60 days shall have elapsed following notice to the U.S. Department of State of the transactions contemplated by this Agreement pursuant to Section 122.4(b) of the International Traffic in Arms Regulations of the U.S. Department of State without objection from, or the imposition of conditions by, the U.S. Department of State, and the Company shall have received a Favorable CJ Determination with respect to any CJ Request filed pursuant to Section 7.4.

 

4.16                           Grants; Tax Credits.  Purchaser shall have received reasonable assurances that, after taking into account the Transaction, (a) the grant awarded to the Company in the amount of approximately $249.1 million, pursuant to the U.S. Department of Energy’s “Battery Initiative Program” under the American Recovery and Reinvestment Act of 2009, will remain available in accordance with its terms for purpose of funding the construction of new lithium-ion battery manufacturing facilities in Michigan and (b) the tax credits for which the Company is eligible pursuant to the High-Tech Credit Agreement dated October 2009 and the Cell Manufacturing Credit Agreement dated November 2009, each by and between the Company and the Michigan Economic Growth Authority, will be available for at least four (4) tax years following the Closing (beginning with the tax year ending December 31, 2012).

 

4.17                           D&O Insurance.  The Company shall have purchased a “tail policy” with respect to its existing directors and officers liability insurance policy, providing substantially comparable coverage through insurance carriers with the same or better rating than its existing policy, and Purchaser shall have determined in its sole discretion that the Company’s existing directors and officers liability insurance policy, as modified or supplemented by the tail policy, provides sufficient coverage (subject to retentions and deductibles in such policy) with respect to the litigation set forth in Schedule 5.3.

 

4.18                           No Litigation.  There shall be no pending or threatened action, suit or proceeding to restrain, prohibit or otherwise challenge the legality or validity of, or to seek damages with respect to, the transactions contemplated hereby or any disclosures the Company made with respect thereto, including its announcement of, and filings with the SEC relating to, the transactions contemplated in this Agreement and the Bridge Loan Agreement and any statements included in the Proxy Statement or any amendments or supplements thereto.

 

4.19                           No Default under Bridge Loan Agreement.  No Default (as defined in the Bridge Loan Agreement) shall have occurred.

 

4.20                           Permitted First Priority Bridge Indebtedness.  Any Permitted First Priority Bridge Indebtedness shall have been discharged and refinanced by Purchaser or its Affiliates and, subject to the satisfaction of all other conditions to the issuance of the Notes, Purchaser hereby commits to provide such financing on terms no less favorable to the Company than those set forth in the Bridge Loan Agreement (which terms will include the issuance of warrants having terms substantially similar to the Bridge Warrants that would have been issued if such financing were an advance under the Bridge Loan Agreement).

 

5

 

4.21       Security Agreement and Guarantee.  The Security Agreement and Guarantee shall be in full force and effect.

 

4.22       No Delisting Actions. There shall not be pending or, to the knowledge of the Company, threatened any action by NASDAQ seeking to delist the Common Stock from a Principal Market.

 

4.23       Updated Capitalization.  On the Business Day preceding the date of Closing, the Company shall have delivered to Purchaser a certificate of the Company signed on behalf of the Company by an executive officer of the Company setting forth an updated Schedule 5.23 as of two (2) Business Days prior to the date of Closing.

 

ARTICLE 5
 REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company represents and warrants to Purchaser that:

 

5.1         Organization; Power and Authority.  The Company and each Guarantor is a corporation or limited liability company, as applicable, duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign entity and is in good standing in each jurisdiction in which such qualification is required by applicable Requirements of Law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  The Company and each Guarantor has the corporate or limited liability company power and authority, as applicable, to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact, to execute and deliver Transaction Documents and to perform the provisions hereof and thereof.

 

5.2         Authorization, Etc.  Each of the Transaction Documents has been duly authorized by all necessary corporate or limited liability company action on the part of the Company and each Guarantor, except that the performance of the obligations to reserve and issue shares of Common Stock pursuant to the terms of the Securities and Bridge Warrants in excess of that number currently authorized, unissued and unreserved, is subject to obtaining the Shareholder Approvals and the filing of the Charter Amendment.  Each of the Transaction Documents constitutes, or will, upon execution and delivery thereof constitute, a legal, valid and binding obligation of the Company and each Guarantor, as applicable, enforceable against the Company and each Guarantor, as applicable, in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). The Company has all necessary corporate power and authority to perform its obligations under this Agreement and the other Transaction Documents and consummate the transactions contemplated hereby and thereby except that the performance of the obligations to reserve and issue shares of Common Stock pursuant to the terms of the Securities and Bridge Warrants in excess of that number currently authorized, unissued and unreserved, is subject to obtaining the Shareholder Approvals and the filing of the Charter

 

6

 

Amendment.  The Company Board, at a meeting duly called and held, has (i) approved and declared advisable this Agreement and the Transaction (the “Company Determination”), (ii) recommended approval by the shareholders of the Company of the Shareholder Proposals (the “Company Recommendation”) and (iii) subject to the Company Board’s right to make an Adverse Recommendation Change  in accordance with Section 7.2, directed that the Shareholder Proposals be submitted for consideration by the shareholders of the Company at a meeting of the shareholders of the Company (the “Company Shareholders Meeting”).  The Shareholder Approvals are the only votes or consents of the holders of any class of or series of capital stock of the Company required to approve the Shareholder Proposals under Requirements of Law.

 

5.3         No Material Adverse Effect.  Except as disclosed in Schedule 5.3 or in the Specified SEC Document, since December 31, 2011, there has been no change in the operations, business, properties or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, that individually or in the aggregate would reasonably be expected to have a Material Adverse Effect.

 

5.4         Organization and Ownership of Capital Stock of Subsidiaries.  (a) Schedule 5.4 contains (except as noted therein) complete and correct lists of the Company’s Subsidiaries, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its Capital Stock outstanding owned by the Company and each other Subsidiary.

 

(b)           All of the outstanding Capital Stock of each Subsidiary shown in Schedule 5.4 as being owned by the Company and its Subsidiaries has been validly issued, is fully paid and nonassessable and is owned by the Company or another Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule 5.4).

 

(c)           Each Subsidiary identified in Schedule 5.4 is a corporation, limited liability company or partnership duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation, limited liability company or partnership and is in good standing in each jurisdiction in which such qualification is required by applicable Requirements of Law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  Each such Subsidiary has the corporate, limited liability company or partnership power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact.

 

(d)           No Subsidiary is a party to, or otherwise subject to any legal, regulatory, contractual or other restriction (other than this Agreement, the agreements listed on Schedule 5.4 and customary limitations imposed by corporate, limited liability or partnership law or similar statutes) limiting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to the Company or any of its Subsidiaries that owns Capital Stock of such Subsidiary.

 

5.5         Compliance with Laws, Other Instruments, Etc.  Except as otherwise disclosed in Schedule 5.5, the execution, delivery and performance by the Company and each Guarantor of

 

7

 

this Agreement and the Notes and Warrants, as applicable, will not (a) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of the Company or any Subsidiary or give rise to any rights of acceleration, termination or cancellation under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or other organizational document or by-laws or other governing document, or any other agreement or instrument to which the Company or any Subsidiary is bound or by which the Company or any Subsidiary or any of their respective properties may be bound or affected, or (b) upon satisfaction of the conditions described in Article 4, (i) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Company or any Subsidiary or (ii) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company or any Subsidiary.

 

5.6         Change of Control Payments.  Neither the Company nor any of its Subsidiaries will become obligated to pay, accelerate the timing of or increase the amount of, any separation, severance, retention, bonus or change in control payment or similar benefit as a result of (i) the execution and delivery of this Agreement, or (ii) the sale and issuance of the Notes and Warrants pursuant to this Agreement (but, for avoidance of doubt, without giving effect to any conversion or exercise thereof).

 

5.7         Governmental Authorizations, Etc.  Except as described in Article 4, no consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by the Company of this Agreement, the Notes or the Warrants.

 

5.8         Litigation; Observance of Agreements, Statutes and Orders.

 

(a)           Except as set forth on Schedule 5.3, there are no actions, suits, investigations or proceedings pending or, to the knowledge of the Company, threatened against the Company or any Subsidiary or any property of the Company or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

 

(b)           Neither the Company nor any Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable Requirements of Law (including, for clarity, Environmental Laws or the USA Patriot Act) of any Governmental Authority, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

 

5.9         NASDAQ Market Listing.  As of the date of this Agreement, the Common Stock is listed on the NASDAQ Global Select Market.  The Company has taken no action designed to delist, or that is reasonably likely to have the effect of delisting, the Common Stock from the NASDAQ Global Select Market, and the Company has undertaken commercially reasonable efforts to maintain such listing of its Common Stock.  The Company has obtained or will have obtained, or has made or will have made, as applicable, all necessary consents, approvals, authorizations or orders of, or filings, notifications or registrations with, the Principal Market that

 

8

 

are required for the listing and trading of the Underlying Shares on the Principal Market.  Upon receipt of the Shareholder Approvals, the execution, delivery and performance of this Agreement and the issuance of the Notes and Warrants will not conflict with or result in a breach of any of the terms, conditions or provisions of the rules and regulations of the Principal Market.

 

5.10       Taxes.  All Tax Returns that are Material required to be filed by the Company and its Subsidiaries have in fact been filed on a timely basis.   Such Tax Returns were correct and complete, except for such errors or omissions as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  All Taxes imposed upon each of the Company and/or its Subsidiaries and upon their property, income or franchises, that are due and payable (whether or not shown on any Tax Return) have been paid, except for any Taxes (i) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Company or a Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP or (ii) the amount of which is not, individually or in the aggregate, Material.  At Purchaser’s request, the Company and/or its Subsidiaries will deliver documentary evidence of the payment of Taxes that are Material, or a particular Tax that is Material, to Purchaser.  No Liens for Taxes (other than Permitted Encumbrances, as such term is defined in the Bridge Loan Agreement) have been filed and no claims are being asserted with respect to any such Taxes, and no Taxes are being contested by the Company or any of its Subsidiaries.  The Company and its Subsidiaries have made in accordance with GAAP adequate book provision for liability for Taxes as of the date hereof (including any payment due pursuant to any tax sharing or allocation agreement) as such Taxes are or may become payable in respect of all tax periods ending on or prior to such date.  Except as set forth in Schedule 5.10, neither the Company nor any of its Subsidiaries is currently the beneficiary of any extension of time within which to file any Tax Return with respect to income Taxes or any other Taxes that are Material.  No claim has been made in the last six (6) years by a Governmental Authority in a jurisdiction in which the Company or its Subsidiaries does not file Tax Returns that it is or may be subject to an income Tax or any other Tax that is Material by that jurisdiction.  Except as set forth in Schedule 5.10, neither the Company nor any of its Subsidiaries knows of any proposed additional Tax assessment against any of them.   Except as set forth in Schedule 5.10, no Tax Return of the Company or any of its Subsidiaries is, to the best of the Company’s knowledge, under audit or examination by any Governmental Authority and no notice of such an audit or examination or any assertion of any claim for Taxes has been given or made by any Governmental Authority.  Neither the Company nor any of its Subsidiaries has participated in a “reportable transaction” within the meaning of Treasury Regulation 1.6011-4(b).

 

5.11       Title to Property; Leases.  The Company and its Subsidiaries have good and sufficient title to, or a valid leasehold interest in, their respective properties that individually or in the aggregate are Material, including all such properties reflected in the Company’s most recent audited balance sheet or purported to have been acquired by the Company or any Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by the terms of the Notes.  Neither the Company nor any of its Subsidiaries, and to the Company’s knowledge no other party thereto, is in breach in any material respect under any leases that individually or in the aggregate are Material.

 

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5.12       Reserved.

 

5.13       Compliance with ERISA.  Except as could not reasonably be expected to have a Material Adverse Effect, (i) each Plan for which the Company and each ERISA Affiliate would have any liability has been maintained in compliance with its terms and the requirements of any applicable statutes, orders, rules and regulations, including ERISA and the Code, (ii) no prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to any Plan excluding transactions effected pursuant to a statutory or administrative exemption, (iii) for each Plan that is subject to the funding rules of Section 412 of the Code or Section 302 of ERISA, no “accumulated funding deficiency” as defined in Section 412 of the Code, whether or not waived, has occurred or is reasonably expected to occur, (iv) the fair market value of the assets of each Plan (other than Multiemployer Plans) exceeds the present value of all benefits accrued under such Plan (determined based on those assumptions used to fund such Plan), (v) no “reportable event” (within the meaning of Section 4043(c) of ERISA) has occurred or is reasonably expected to occur, and (vi) neither the Company nor any ERISA Affiliate has incurred, nor reasonably expects to incur, any liability under Title IV of ERISA (other than contributions to the Plan or premiums to the PBGC, in the ordinary course and without default) in respect of a Plan (including a Multiemployer Plan).

 

5.14       Private Offering by the Company.  Neither the Company nor anyone acting on its behalf has offered the Notes, Warrants or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any person other than Purchaser and its Affiliates, which have been offered the Notes or Warrants at a private sale for investment.  Neither the Company nor anyone acting on its behalf has taken, or will take, any action that would subject the issuance or sale of the Notes and Warrants to the registration requirements of Section 5 of the Securities Act or to the registration requirements of any securities or blue sky laws of any applicable jurisdiction.

 

5.15       Use of Proceeds; Margin Regulations.  No part of the proceeds from the sale of the Notes or Warrants hereunder will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation U of the Federal Reserve (12 CFR 221), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X of the Federal Reserve (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220).  As used in this Section, the terms “margin stock” and “purpose of buying or carrying” shall have the meanings assigned to them in said Regulation U.

 

5.16       Existing Indebtedness; Future Liens.  (a) Schedule 5.16 sets forth a complete and correct list of all Indebtedness of the Company and its Subsidiaries as of the date hereof.  Neither the Company nor any Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Indebtedness of the Company or such Subsidiary and no event or condition exists with respect to any Indebtedness of the Company or any Subsidiary that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment.

 

(b)           Except as disclosed in Schedule 5.16 and except for Liens being created pursuant to the Bridge Loan Agreement or permitted by the terms of the Bridge Loan Agreement, neither the Company nor any Subsidiary has agreed or consented to cause or permit

 

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in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien prohibited by the terms of the Notes.

 

(c)           Neither the Company nor any Subsidiary is a party to, or otherwise subject to any provision contained in, any instrument evidencing Indebtedness of the Company or such Subsidiary, any agreement relating thereto or any other agreement (including its charter or other organizational document) which limits the amount of, or otherwise imposes restrictions on the incurring of, Indebtedness of the Company, except as specifically indicated in Schedule 5.16.

 

5.17       Foreign Assets Control Regulations, Etc.

 

(a)           Neither the sale of the Notes and Warrants by the Company hereunder nor its use of the proceeds thereof will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto.

 

(b)           Neither the Company nor any Subsidiary (i) is a Person described or designated in the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets Control or in Section 1 of the Anti-Terrorism Order or (ii) to the best of the Company’s knowledge, after reasonable investigation, engages in any dealings or transactions with any such Person.  To the best of the Company’s knowledge, after reasonable investigation, the Company and its Subsidiaries are in compliance, in all material respects, with the USA Patriot Act.

 

(c)           No part of the proceeds from the sale of the Notes and Warrants hereunder will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended, assuming in all cases that such Act applies to the Company.

 

5.18       Status under Certain Statutes.  Neither the Company nor any Subsidiary is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 2005, as amended, the ICC Termination Act of 1995, as amended, or the Federal Power Act, as amended.

 

5.19       Solvency.   The Company (after giving effect to the issuance of the Notes and Warrants and the other transactions related thereto, including the transactions contemplated by the Bridge Loan Agreement, will be Solvent.  As used in this Section 5.19, the term “Solvent” means, with respect to a particular date, that on such date (i) the present fair market value (or present fair saleable value) of the assets of the Company is not less than the total amount required to pay the liabilities of the Company on its total existing debts and liabilities (including contingent liabilities) as they become absolute and matured; (ii) the Company is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and commitments as they mature and become due in the normal course of business; (iii) assuming consummation of the issuance of the Notes and Warrants as contemplated by this Agreement, the Company is not

 

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incurring debts or liabilities beyond its ability to pay as such debts and liabilities mature; and (iv) the Company is not engaged in any business or transaction, and does not propose to engage in any business or transaction, for which its property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which the Company is engaged.  For purposes of this Section 5.19, references to the Company refer to the Company and its Subsidiaries on a consolidated basis.

 

5.20       Application of Takeover Protections; No Rights Agreement.  The Company and the Company Board have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company Charter or the laws of the jurisdiction of its formation which is or could become applicable to Purchaser or any of its Affiliates as a result of the transactions contemplated by this Agreement, including the sale and issuance of the Notes and Warrants pursuant to this Agreement, the issuance of the Underlying Shares upon conversion of the Notes and upon exercise of the Warrants and the Bridge Warrants and Purchaser’s ownership of the Securities.  The Company has not adopted a shareholder rights plan or similar arrangement relating to accumulations of Beneficial Ownership of Common Stock or a change in control of the Company.

 

5.21       SEC Documents; Financial Statements.  The Company is eligible to register a primary offering of the Underlying Shares for resale by Purchaser using Form S-3 promulgated under the Securities Act or, if not so eligible, using Form S-1 promulgated under the Securities Act.  Except as disclosed in Schedule 5.21, since August 1, 2010, the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the Securities Act or the Exchange Act (all of the foregoing, and all exhibits included or required to be included therein and financial statements, notes and schedules thereto and documents incorporated by reference or required to be incorporated by reference therein being hereinafter referred to as the “SEC Documents”).  The Company has delivered to Purchaser or its representatives true, correct and complete copies of the SEC Documents not available on the EDGAR system, if any.  As of their respective filing dates, the SEC Documents complied in all material respects with all applicable requirements of the Securities Act and/or the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.  As of their respective filing dates, the financial statements of the Company included in the SEC Documents (the “Company Financial Statements”) complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto.  The Company Financial Statements have been prepared in accordance with GAAP, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).

 

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5.22       Undisclosed Liabilities.

 

(a)           Neither the Company nor its Subsidiaries have any material liabilities or obligations of any nature (whether absolute or contingent, asserted or unasserted, known or unknown, primary or secondary, direct or indirect, and whether or not accrued) of a nature required by GAAP to be reflected on a consolidated balance sheet of the Company or in the notes thereto, except (i) as disclosed, reflected or reserved against in the most recent unaudited balance sheet included in the Specified SEC Document and (ii) for liabilities and obligations incurred in the ordinary course of business since the date of the most recent balance sheet included in the Company Financial Statements that are of a type and in an amount consistent with past practice.

 

(b)           No attorney representing the Company or any Subsidiary, whether or not employed by the Company or any Subsidiary, has reported to the Company’s chief legal counsel or chief executive officer evidence of a material violation of securities laws, breach of fiduciary duty or similar violation by the Company or any of its officers, directors, employees or agents pursuant to Section 307 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”).  As of the date hereof, there are no outstanding or unresolved comments in comment letters received from the SEC staff with respect to the SEC Documents.  To the knowledge of the Company, none of the Company SEC Documents is the subject of ongoing SEC review.  To the knowledge of the Company, there are no SEC inquiries or investigations, other governmental inquiries or investigations or internal investigations pending or threatened, in each case regarding any accounting practice of the Company.  The Company is in compliance in all material respects with (i) the applicable provisions of the Sarbanes-Oxley Act and (ii) the applicable listing and corporate governance rules and regulations of the Principal Market (except for any such rules and regulations relating to maintenance of a minimum price for listed securities).  Except as permitted by the Exchange Act, since the enactment of the Sarbanes-Oxley Act, neither the Company nor any of its Affiliates has made, arranged, modified (in any material way) or forgiven personal loans to any executive officer or director of the Company.

 

(c)           Neither the Company nor any Subsidiary nor, to the knowledge of the Company, any director, officer, employee, auditor, accountant or representative of the Company or any Subsidiary has received or otherwise had or obtained knowledge of any material complaint, allegation, assertion or claim, whether written or oral, regarding the accounting or auditing practices, procedures, methodologies or methods of the Company or any Subsidiary or their respective internal accounting controls, including any material complaint, allegation, assertion or claim that the Company or any Subsidiary has engaged in questionable accounting or auditing practices.

 

5.23       Equity Capitalization.

 

(a)           As of the date hereof, the authorized capital stock of the Company consists of (i) 650,000,000 shares of Common Stock, of which as of August 14, 2012, 180,321,207 shares are issued and outstanding, 21,707,795 shares are reserved for issuance pursuant to the Company’s stock option and purchase plans and 317,637,093 shares are reserved for issuance pursuant to securities (other than the Notes, the Warrants and the Bridge Warrants) exercisable or exchangeable for, or convertible into, Common Stock and (ii) 5,000,000 shares of preferred

 

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stock, par value $0.001, of which as of the date hereof, none of such shares of preferred stock are issued or outstanding.  All of such outstanding shares have been, or upon issuance will be, validly issued and are fully paid and nonassessable and have not been and will not be issued in violation of any preemptive rights, rights of first refusal, rights of first offer or similar rights.

 

(b)           Schedule 5.23 sets forth as of August 10, 2012, with respect to each outstanding Convertible Security of the Company, (i) the issuance date and expiration or maturity date thereof, (ii) the aggregate number of shares of Common Stock that may be issued or are issuable pursuant to the terms of such securities as of the date hereof (using $0.50 per share for any exercise or conversion price that is based on the market price of the Common Stock), (iii) the aggregate number of shares of Common Stock that may be issued or are issuable pursuant to the terms of such Convertible Securities (using $0.50 per share for any exercise or conversion price that is based on the market price of the Common Stock) as of the date hereof taking into account the effect of any anti-dilution or similar provisions in such Convertible Securities that would apply as of the date hereof assuming all of the Notes, Warrants and Bridge Warrants were issued on the date hereof (and after giving effect to such assumed issuance), (iv) the exercise or conversion price thereof, (v) the exercise or conversion price, as of the date hereof, of such Convertible Securities taking into account the effect of any anti-dilution or similar provisions in such Convertible Securities that would apply as of the date hereof assuming all of the Notes, Warrants and Bridge Warrants were issued on the date hereof (and after giving effect to such assumed issuance), and (vi) if the exercisability of such Convertible Security is subject to vesting, the vesting schedule thereof.

 

(c)           Except as disclosed in Schedule 5.23: (i) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any shares of capital stock of the Company or any of its Subsidiaries, or contract, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exercisable or exchangeable for, any shares of capital stock of the Company or any of its Subsidiaries (collectively, “Convertible Securities”); (ii) there are no agreements or arrangements under which Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the Securities Act (except pursuant to the Registration Rights Agreement); (iii) there are no outstanding securities or instruments of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries; (iv) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities; and (v) neither the Company nor any of its Subsidiaries has any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement.

 

(d)           The Company has furnished or made available to Purchaser (i) true, correct and complete copies of the Company’s Certificate of Incorporation, as amended and as in effect on the date hereof (the “Company Charter”), (ii) the Company’s bylaws, as amended and

 

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as in effect on the date hereof (the “Company Bylaws”), and (iii) the agreements or instruments containing the terms (including the material rights of the holders thereof) of all Convertible Securities of the Company.

 

5.24       Employee Relations.

 

(a)           Neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement or employs any member of a union.  The Company and its Subsidiaries believe that their relations with their employees are good.  As of the date hereof, no executive officer of the Company or any of its Subsidiaries (as defined in Rule 501(f) of the Securities Act) has notified the Company or any such Subsidiary that such officer intends to leave the Company or any such Subsidiary or otherwise terminate such officer’s employment with the Company or any such Subsidiary.  No executive officer of the Company or any of its Subsidiaries, to the knowledge of the Company or any of its Subsidiaries, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or any restrictive covenant, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters.

 

(b)           The Company and its Subsidiaries are in compliance with all federal, state, local, and foreign laws and regulations respecting labor, employment and employment practices and benefits, terms and conditions of employment and wages and hours, except where failure to be in compliance would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

 

5.25       Intellectual Property Rights. The Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, original works of authorship, patents, patent rights, copyrights, inventions licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights and all applications and registrations therefor (“Intellectual Property Rights”) necessary to conduct their respective businesses as now conducted.  Except as set forth in Schedule 5.25, none of the Company’s Intellectual Property Rights has expired or terminated or has been abandoned or is expected to expire or terminate or is currently expected to be abandoned, within three years from the date of this Agreement (it being understood that the Company expects that it may abandon any Intellectual Property Rights if at any time it determines in its business judgment that such Intellectual Property Rights are no longer used or useful in its business as then conducted and that such abandonment shall not constitute a breach of this Section 5.25). The Company does not have any knowledge of any infringement by the Company or its Subsidiaries of Intellectual Property Rights of others.  There is no claim, action or proceeding being made or brought, or to the knowledge of the Company or any of its Subsidiaries, being threatened, against the Company or any of its Subsidiaries regarding its Intellectual Property Rights. Neither the Company nor any of its Subsidiaries is aware of any facts or circumstances which might give rise to any of the foregoing infringements or claims, actions or proceedings. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their Intellectual Property Rights.

 

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5.26       Environmental Laws.  The Company and its Subsidiaries (i) together with their assets, properties (including current and former properties) and business are and at all times have been in compliance with all Environmental Laws (as hereinafter defined) and have no obligation or liability thereunder or in connection therewith, (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect. The term “Environmental Laws” means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including ambient air, surface water, groundwater, land surface or subsurface strata), including laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.

 

5.27       Reserved.

 

5.28       Internal Accounting and Disclosure Controls. Except as disclosed in the Specified SEC Document or the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (the “FY2011 10-K”), the Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset and liability accountability, (iii) access to assets or incurrence of liabilities is permitted only in accordance with management’s general or specific authorization and (iv) the  recorded accountability for assets and liabilities is compared with the existing assets and liabilities at reasonable intervals and appropriate action is taken with respect to any difference.  Except as disclosed in the Specified SEC Document or the FY2011 10-K, the Company maintains effective disclosure controls and procedures (as such term is defined in Rule 13a-15 under the Exchange Act) that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC, including controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer or officers and its principal financial officer or officers, as appropriate, to allow timely decisions regarding required disclosure. During the twelve months prior to the date hereof, neither the Company nor any of its Subsidiaries has received any notice or correspondence from any accountant relating to any material weakness in any part or the system of internal accounting controls of the Company or any of its Subsidiaries (other than any material weakness disclosed in the Specified SEC Document or the FY2011 10-K).

 

5.29       Bank Holding Company Act.  Neither the Company nor any of its Subsidiaries or affiliates is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”), or to

 

16

 

regulation by the Federal Reserve.  Neither the Company nor any of its Subsidiaries or affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent (25%) or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.  Neither the Company nor any of its Subsidiaries or affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA or to regulation by the Federal Reserve.

 

5.30       Shell Company Status.  The Company is not, and has never been, an issuer identified in Rule 144(i)(1) of the Securities Act.

 

5.31       Stock Option Plans.  Each stock option granted by the Company was granted (i) in accordance with the terms of the applicable stock option plan of the Company and (ii) with an exercise price at least equal to the fair market value of the Common Stock on the date such stock option would be considered granted under GAAP and applicable Requirements of Law.  No stock option granted under the Company’s stock option plan has been backdated.  The Company has not knowingly granted, and there is no and has been no policy or practice of the Company to knowingly grant, stock options prior to, or otherwise knowingly coordinate the grant of stock options with, the release or other public announcement of material information regarding the Company or its Subsidiaries or their financial results or prospects.

 

5.32       No Disagreements with Accountants and Lawyers.  As of the date hereof, there are no material disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and the Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company’s ability to perform any of its obligations under this Agreement or any of the other Transaction Documents.  In addition, on or prior to the date hereof, the Company had discussions with its accountants about its financial statements previously filed with the SEC.  Based on those discussions, the Company has no reason to believe that it will need to restate any such financial statements or any part thereof.

 

5.33       Disclosure.  All disclosure provided to Purchaser regarding the Company, or any of its Subsidiaries, their business and the transactions contemplated hereby, including the schedules to this Agreement, furnished by or on behalf of the Company is true and correct in all material respects and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.  Except as contemplated by this Agreement and the other Transaction Documents, no event or circumstance has occurred or information exists with respect to the Company or any of its Subsidiaries or its or their business, properties, prospects, operations or financial conditions, which, under applicable Requirements of Law, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed.

 

5.34       ITAR.

 

(a)           To the best of the Company’s knowledge, except as set forth on Schedule 5.34(a), all products manufactured, sold, leased, licensed or delivered by any Company

 

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or Subsidiary are correctly classified as EAR99, or in one of the 99 AT classifications under the Export Administration Regulations for the purpose of U.S. export controls;

 

(b)           since January 1, 2007, at the time of shipment, no Company or Subsidiary has, without an export license or other authorization, exported any product, software, technology or service to a denied Person or specially designated national or an embargoed country under the Requirements of Law of the jurisdiction relevant to each export shipment;

 

(c)           no disclosures of export control or economic sanctions violations have been made by any Company or Subsidiary to any Governmental Authority and there is no Action by any Governmental Authority with respect to export control or economic sanctions violations that is pending or, to the knowledge of the Company, has been asserted or threatened with respect to the Company, any of its Subsidiaries or their businesses; and

 

(d)           to the best of the Company’s knowledge,  none of the products or services produced, sold, leased, licensed or delivered by any Company or Subsidiary are defense articles and therefore subject to the provisions of the U.S. International Traffic in Arms Regulations or their equivalent in any other jurisdiction.

 

5.35       Competing Businesses.  Purchaser has disclosed to the Company that Purchaser and certain of its Affiliates currently have interests in certain business ventures, including Zhejiang WanxiangEner1 Power Systems Co., Ltd. and Ener1, Inc., and may acquire interests in other business ventures that compete with some or all of the business of the Company and its Affiliates, and that the existence of any such interests shall not limit the discretion, rights or remedies of Purchaser under this Agreement or any of the other documents related to the Transaction.

 

5.36       Representations and Warranties of Purchaser.  The Company acknowledges and agrees that Purchaser does not make and has not made any representations or warranties with respect to Purchaser or the transactions contemplated hereby other than those specifically set forth in Article 6.

 

ARTICLE 6
 REPRESENTATIONS OF PURCHASER

 

Purchaser represents and warrants to the Company that:

 

6.1         Purchase for Investment.  Purchaser is purchasing the Notes and Warrants for its own account and not with a view to the distribution thereof.  Purchaser understands that the Notes and Warrants have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by applicable Requirements of Law, and that the Company is not required to register the Notes or Warrants except as provided in the Registration Rights Agreement.  Purchaser understands that, in addition to other legends, a legend substantially in the form set forth on the face of the Note will be placed on any certificate representing any Notes, unless the Company determines otherwise in compliance with applicable Requirements of Law.

 

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6.2         Accredited Investor.  Purchaser:

 

(a)           has such knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of an investment in the Securities, is able to incur a complete loss of such investment and to bear the economic risk of such investment for an indefinite period of time;

 

(b)           is an “accredited investor” as that term is defined in Regulation D under the Securities Act; and

 

(c)           has been represented by counsel in the purchase of the Notes and the Warrants to be purchased by it and is aware of the limitations of U.S. state and U.S. federal securities laws with respect to the disposition of the Securities.

 

Purchaser acknowledges that Purchaser has had an opportunity to examine the financial and business affairs of the Company and the Guarantors and an opportunity to ask questions of and receive answers from the Company and its management with respect to all information it deems material or relevant to its investment in the Securities and that the Company has given Purchaser the opportunity to perform fully its own due diligence.

 

6.3         Matters Relating to the Placement Agent.  Purchaser hereby:

 

(a)           represents and warrants that it first became aware of the private offering of the Notes and Warrants in private written and/or oral communication(s) between Purchaser and the Placement Agent;

 

(b)           acknowledges that the Placement Agent has not provided, and will not be providing, Purchaser with any offering memorandum or similar document regarding the Securities or the Company;

 

(c)           acknowledges that the Placement Agent makes no representation or warranty, expressed or implied, as to the accuracy or completeness of the information provided or to be provided to Purchaser by the Company, and nothing contained in any documents provided to Purchaser is, or will be relied upon as, a promise, representation, or warranty by the Placement Agent;

 

(d)           represents and warrants that it has not relied and will not rely on any investigation that the Placement Agent or any person acting on the Placement Agent’s behalf may have conducted with respect to the Securities or the Company; and

 

(e)           acknowledges that the Placement Agent does not make any representation as to the availability of Rule 144 or any other exemption under the Securities Act for the re-offer, resale, pledge, or transfer of the Securities.

 

6.4         Representations and Warranties of the Company.  Purchaser acknowledges and agrees that the Company does not make and has not made any representations or warranties with respect to the Company and its Subsidiaries and the transactions contemplated hereby other than those specifically set forth in Article 5.

 

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6.5         Brokers and Other Advisors. No broker, investment banker, financial advisor or other person (other than Carnegie Hudson Resources) is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of Purchaser or its Affiliates.

 

ARTICLE 7
 COVENANTS

 

7.1         Preparation of the Proxy Statement; Company Shareholders Meeting.

 

(a)           As soon as practicable following the date of this Agreement, the Company shall prepare and file with the SEC the Proxy Statement in preliminary form relating to the Company Shareholders Meeting.  The Company will cause the Proxy Statement to comply as to form in all material respects with the applicable provisions of the Exchange Act and shall use its best efforts to cause the Proxy Statement to be mailed to the shareholders of the Company as soon as practicable after confirmation from the SEC or its staff that it will not comment on, or has no additional comments on, the Proxy Statement.  Purchaser shall cooperate with the Company in connection with the preparation of the Proxy Statement and shall furnish to the Company all information regarding Purchaser and its respective Affiliates as may be required to be disclosed therein as promptly as possible after the date hereof. The Company shall notify Purchaser  promptly of the receipt of any comments from the SEC or its staff and of any request by the SEC or its staff for amendments or supplements to the Proxy Statement or for additional information and, unless the Company Board shall have made an Adverse Recommendation Change in accordance with Section 7.2(d), shall supply Purchaser with copies of all correspondence between the Company or any of its representatives, on the one hand, and the SEC or its staff, on the other hand, with respect to the Proxy Statement or the Transaction.

 

(b)           Each of the Company and Purchaser agrees, as to itself and its respective Subsidiaries, that none of the information supplied or to be supplied by it or its Subsidiaries for inclusion or incorporation by reference in the Proxy Statement or any amendment or supplement thereto will, at the date of mailing to the shareholders of the Company and at the time of the Company Shareholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. If, at any time prior to receipt of the Shareholder Approvals, any event occurs with respect to the Company, any Company Subsidiary or Purchaser, or any change occurs with respect to other information to be included in the Proxy Statement, which is required to be described in an amendment of, or a supplement to, the Proxy Statement, the Company or Purchaser, as the case may be, shall promptly notify the other party of such event and the Company shall promptly file, with Purchaser’s cooperation, any necessary amendment or supplement to the Proxy Statement. The Company will also advise Purchaser, promptly after it receives notice thereof, of any request by the SEC for amendment of the Proxy Statement.

 

(c)           Notwithstanding the foregoing, prior to filing or mailing the Proxy Statement (or any amendment or supplement thereto) or responding to any comments of the SEC with respect thereto, unless the Company Board shall have made an Adverse Recommendation

 

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Change in accordance with Section 7.2(d), the Company shall (i) provide Purchaser a reasonable opportunity to review and comment on such document or response and (ii) reasonably consider all comments proposed by Purchaser prior to filing or mailing such document, or responding to the SEC.

 

(d)           The Company shall, as soon as practicable following the clearance of the Proxy Statement by the SEC, duly call, give notice of, convene and hold the Company Shareholders Meeting for the purpose of seeking the Shareholder Approvals. The notice of such Company Shareholders Meeting shall state that the Shareholder Proposals will be considered at the Company Shareholders Meeting. Subject to Section 7.2(d), (x) the Company Board shall include the Company Recommendation in the Proxy Statement and (y) the Company shall use its reasonable best efforts to solicit the Shareholder Approvals.  The Company shall not include in the Proxy Statement any proposal to vote upon or consider any Alternative Proposal (other than the Transaction).  The Company shall be permitted to adjourn or postpone the Company Shareholders Meeting in order to comply with applicable Requirements of Law, including in the case that the Company Board has delivered a Notice of Proposed Recommendation Change, disclosure requirements or fiduciary duty obligations owed by the Company Board for up to five (5) Business Days so long as the Company Shareholders Meeting would reasonably be expected to occur within ten (10) Business Days after the expiration of the applicable Notice Period.  The Company shall also adjourn or postpone the Company Shareholders Meeting at the request of Purchaser on one occasion for up to five (5) Business Days if an Alternative Proposal has been publicly made or disclosed or has become known to shareholders of the Company and has not been withdrawn or the Company has delivered a Notice of Superior Proposal and the Company Shareholders Meeting would reasonably be expected to occur within ten (10) Business Days after the expiration of the Notice Period.  Notwithstanding the foregoing, if such adjournment or postponement would result in the Company Shareholders Meeting occurring less than five (5) Business Days prior to the Expiration Date, then the Company shall only be required to adjourn or postpone the meeting to a date five (5) Business Days prior to the Expiration Date.

 

7.2         Alternative Proposals.

 

(a)           Following the execution hereof, the Company shall, and shall cause the Company Subsidiaries to, and shall direct its and their respective directors, officers, employees, investment bankers, financial advisors, attorneys, accountants or other advisors, agents and representatives (collectively, “Representatives”) to (i) immediately cease and cause to be terminated all existing discussions or negotiations with any Person conducted heretofore with respect to any Alternative Proposal, or any proposal, inquiry or offer that would reasonably likely be expected to lead to an Alternative Proposal, and (ii) request the prompt return or destruction of all confidential information previously furnished by it or on its behalf.

 

(b)           Subject to the other terms of this Section 7.2, the Company shall not, and shall cause the Company Subsidiaries not to, and shall not authorize or permit its and their respective Representatives to, and the Company shall use its reasonable efforts to cause its and their Representatives not to, directly or indirectly, (i) solicit, initiate, or encourage or induce or facilitate the making, submission or announcement of any inquiries or the making of any proposal or offer constituting, related to or that could reasonably be expected to lead to an Alternative Proposal, (ii) furnish any non-public information regarding the Company or the

 

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Company Subsidiaries to any Person (other than Purchaser and Purchaser’s or the Company’s Representatives acting in their capacity as such) in connection with or in response to an Alternative Proposal or any proposal, inquiry or offer that could reasonably be expected to lead to an Alternative Proposal, (iii) engage in discussions or negotiations with any Person with respect to any Alternative Proposal or any proposal, inquiry or offer that could reasonably be expected to lead to an Alternative Proposal (other than to state that they currently are not permitted to have discussions), (iv) approve, endorse, submit for the consideration of the shareholders of the Company or recommend any Alternative Proposal or any proposal, inquiry or offer that could reasonably be expected to lead to an Alternative Proposal, (v) make or authorize any public statement, recommendation or solicitation in support of any Alternative Proposal or any proposal, inquiry or offer that could reasonably be expected to lead to an Alternative Proposal or (vi) enter into any letter of intent or agreement in principle or any contract providing for, relating to or in connection with any Alternative Proposal or any proposal, inquiry or offer that could reasonably be expected to lead to an Alternative Proposal (other than an Acceptable Confidentiality Agreement in accordance with Section 7.2(c)).

 

(c)           Notwithstanding anything to the contrary in this Section 7.2, if at any time prior to obtaining the Shareholder Approvals, (i) the Company receives, after the date of this Agreement, an unsolicited bona fide written Alternative Proposal, (ii) such Alternative Proposal did not result from a breach of Section 7.2(a) or (b), in any material respect, (iii) the Company Board determines in good faith (after consultation with its outside counsel and financial advisors) that such Alternative Proposal constitutes or would reasonably be expected to lead to a Superior Proposal and (iv) the Company Board determines in good faith (after consultation with outside counsel) that the failure to take the actions referred to in clause (x) or (y) of this Section 7.2(c) would be inconsistent with its fiduciary duties to the Company under Requirements of Law, then, prior to obtaining the Shareholder Approvals, the Company may (x) furnish and make available information with respect to the Company and the Company Subsidiaries to the Person making such Alternative Proposal (and its Representatives) pursuant to an Acceptable Confidentiality Agreement; provided, that any non-public information provided or made available to any Person given such access shall have been previously provided or made available to Purchaser or shall be provided or made available to Purchaser prior to or substantially concurrently with the time it is provided or made available to such Person, and (y) participate in discussions and negotiations with the Person making such Alternative Proposal (and its Representatives) regarding such Alternative Proposal. The Company shall promptly (and in any event within 24 hours) advise Purchaser in writing of the receipt of any Alternative Proposal or any inquiry, proposal or offer that could reasonably be expected to lead to an Alternative Proposal (including the identity of the Person making or submitting such Alternative Proposal or inquiry, proposal or offer, and the material terms and conditions thereof) that is made or submitted by any Person prior to the Closing. The Company shall keep Purchaser informed, on a reasonably current basis, of the status of, and any financial or other material changes in, any such Alternative Proposal, including providing Purchaser copies of any material correspondence (which, for the avoidance of doubt, would include any change in financial terms) related thereto and proposed agreements to effect such Alternative Proposal.

 

(d)           Neither the Company Board nor any committee thereof shall (i) fail to make or withhold or withdraw or qualify (or modify in a manner adverse to Purchaser) the Company Recommendation, the Company Determination or the approval of this Agreement or

 

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take any action (or permit or authorize the Company or any of the Company Subsidiaries or any of its or their respective Representatives to take any action) inconsistent with the Company Recommendation or Company Determination or resolve, agree or propose to take any such actions (each of such actions set forth in this Section 7.2(d)(i) being referred to herein as an “Adverse Recommendation Change”), (ii) adopt, approve, recommend, endorse or otherwise declare advisable any Alternative Proposal or resolve, agree or propose to take any such actions, (iii) cause or permit the Company to enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement or other agreement related to an Alternative Proposal other than an Acceptable Confidentiality Agreement in accordance with Section 7.2(c), (iv) take any action to make the provisions of any “fair price,” “moratorium,” “control share acquisition” or other similar antitakeover statute or regulation, including Section 203 of the DGCL (each, a “Takeover Statute”), or any restrictive provision of any applicable anti-takeover provision in the Company Charter or the Company Bylaws inapplicable to any transactions contemplated by an Alternative Proposal (including approving any transaction under, or a third Person becoming an “interested stockholder” under, Section 203 of the DGCL) or amend or modify or terminate, or grant any waiver or release under, any confidentiality agreement with respect to an Alternative Proposal or standstill or similar agreement with respect to any class of Equity Interests of the Company or any Company Subsidiary or fail to enforce any provision thereof or (v) resolve, agree or propose to take any such actions.

 

(e)           Notwithstanding the foregoing, at any time prior to obtaining the Shareholder Approvals, if the Company Board determines in good faith (after consultation with outside counsel) that the failure to do so would reasonably be expected to be inconsistent with its fiduciary duties to the Company under Requirements of Law, then, prior to obtaining the Shareholder Approvals, the Company Board may make an Adverse Recommendation Change (i) in response to a Superior Proposal that is capable of being accepted by the Company (or, in the case of a tender offer or exchange offer, recommended by the Company Board or any committee thereof) and that was received on or after the date hereof that has not been withdrawn or abandoned and that did not otherwise result from a breach of Section 7.2, or (ii) if an Intervening Event occurs.

 

(f)            The Company Board shall not take any action set forth in Section 7.2(e) unless the Company Board has first (i) provided written notice to Purchaser (a “Notice of Proposed Recommendation Change”) advising Purchaser that the Company has received a Superior Proposal or that an Intervening Event has occurred, as the case may be, specifying the material terms and conditions of such Superior Proposal or the material facts relating to such Intervening Event, as applicable, identifying the Person making such Superior Proposal and providing copies of any agreements intended to effect such Superior Proposal, and notifying Purchaser that the Company Board has made the determination described in Section 7.2(e) (including the basis on which such determination has been made), (ii) negotiated, and caused the Company and its Representatives to negotiate, during the four (4) Business Day period following Purchaser’s receipt of the Notice of Proposed Recommendation Change (the “Notice Period”), in good faith with Purchaser to enable Purchaser to make a counteroffer or propose to amend the terms of this Agreement so that such Alternative Proposal no longer constitutes a Superior Proposal or that the Intervening Event no longer requires an Adverse Recommendation Change, and (iii) after complying with clauses (i) and (ii), determined in good faith (after consultation

 

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with its outside counsel and financial advisor) that, (A) in the case of an Adverse Recommendation Change made in response to a Superior Proposal, and in any event, such Alternative Proposal continues to constitute a Superior Proposal after giving effect to any counter offer or amendments to the terms of this Agreement proposed by Purchaser in writing and, after consultation with outside counsel, that the failure to make an Adverse Recommendation Change would reasonably be expected to be inconsistent with its fiduciary duties to the Company under Requirements of Law and (B) in the case of an Adverse Recommendation Change made in response to an Intervening Event, such event continues to constitute an Intervening Event and, after consultation with outside counsel, that the failure to make an Adverse Recommendation Change would reasonably be expected to be inconsistent with its fiduciary duties to the Company under Requirements of Law; provided, however, that if during the Notice Period any revisions are made to an Alternative Proposal and such revisions are material (it being understood and agreed that any change to consideration with respect to such proposal is material), the Company shall deliver a new Notice of Proposed Recommendation Change to Purchaser and shall comply with the requirements of this Section 7.2(f) with respect to such new Notice of Proposed Recommendation Change, except that the new Notice Period shall be two (2) Business Days instead of four (4) Business Days.

 

(g)           The Company agrees that it shall take all reasonable actions so that any Adverse Recommendation Change shall not change the approval of this Agreement for purposes of any Takeover Statutes.

 

(h)           Nothing contained in this Section 7.2 shall prohibit the Company Board or any committee thereof from (i) making any disclosure to shareholders of the Company if the Company Board or any committee thereof determines in good faith (after consultation with its legal advisors) that failure to make such disclosure would reasonably be expected to be inconsistent with its fiduciary duties to the Company under any applicable Requirements of Law, or (ii) taking and disclosing a position contemplated by Item 1012(a) of Regulation M-A, Rule 14e-2(a) under the Exchange Act or Rule 14d-9 under the Exchange Act; provided, however, that neither the Company nor the Company Board (or any committee thereof) shall be permitted to recommend that shareholders of the Company tender any securities in connection with any tender or exchange offer (or otherwise approve, endorse or recommend any Alternative Proposal), unless in each case, in connection therewith, the Company Board effects an Adverse Recommendation Change in accordance with Section 7.2(d); provided, further, that if any such disclosure relates to an Alternative Proposal (other than a “stop, look and listen” communication or similar communication of the type contemplated by Rule 14d-9(f) under the Exchange Act), it shall be deemed to be an Adverse Recommendation Change unless the Company Board expressly reaffirms the Company Recommendation and rejects any Alternative Proposal within ten (10) Business Days after such stop, look and listen communication; provided, further, that neither the Company Board nor any committee thereof shall effect an Adverse Recommendation Change unless it does so in accordance with the procedures set forth in this Section 7.2.

 

7.3         Cooperation; Certain Consents and Approvals.

 

(a)           From the date hereof until the Closing Date, upon the terms and subject to the conditions of this Agreement, each of the parties shall use its commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done and reasonably cooperate

 

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with each other in order to do, all things reasonably necessary, proper or advisable (subject to any applicable Requirements of Law) to consummate the transactions contemplated by this Agreement and to obtain the approvals contemplated by Sections 4.03(i) and (j) of the Bridge Loan Agreement, as promptly as reasonably practicable, including preparing and filing all forms, registrations and notices required to be filed to consummate the transactions contemplated hereby, coordinating communications with respect thereto and promptly responding to requests for information from each other.  Notwithstanding the foregoing, the Company shall use commercially reasonable efforts to obtain, and Purchaser shall cooperate in all reasonable respects with the Company’s efforts to obtain, any and all consents necessary to consummate the transactions contemplated by this Agreement; provided, however, that Purchaser shall not be required to, or to agree to, and the Company and the Company Subsidiaries shall not without the prior written consent of Purchaser, pay any money, make any concession or incur any Liability in connection therewith.

 

(b)           To the extent permitted by applicable Requirements of Law, each party shall consult with the other party with respect to, and provide any information reasonably requested by the other party in connection with, all filings made with any U.S. Governmental Authority in connection with this Agreement and the transactions contemplated hereby. If any party or any of its Affiliates receives any request for documents and/or information from any U.S. Governmental Authority with respect to this Agreement or any of the transactions contemplated hereby, then such party shall endeavor in good faith to make, or cause to be made, as soon as reasonably practicable and, to the extent permitted by applicable Requirements of Law, after consultation with the other party, an appropriate response in compliance with such request.

 

(c)           In addition to, and without limiting any of the other covenants of the parties contained in this Section 7.3, the parties shall, in connection with the transactions contemplated hereby, (i) take promptly all actions necessary to make the filings required of them or their “ultimate parent entities” under the HSR Act to allow Purchaser to acquire the Underlying Shares, (ii) comply promptly with any requests for documents and/or information by them, or any of their respective Affiliates from the U.S. Federal Trade Commission (“FTC”) or the U.S. Department of Justice (“DOJ”) pursuant to the HSR Act or from any state attorney general or other Governmental Authority in connection with antitrust matters, (iii) use commercially reasonable efforts to resolve such objections, if any, as may be asserted with respect to the transactions contemplated hereby under any antitrust law and (iv) advise the other party promptly of any substantive communication received by such party from the FTC, DOJ, any state attorney general or any other Governmental Authority regarding any of the transactions contemplated hereby; provided, however, that the Company shall be solely responsible for, and shall make timely payment of, any filing fees payable under the HSR Act in connection with the transactions contemplated hereby.

 

(d)           Notwithstanding anything in this Agreement to the contrary, nothing in this Agreement (i) shall require, or be construed to require, Purchaser to proffer to, or agree to, sell, license or dispose of or hold separate and agree to sell, license or dispose of before or after the Closing, any assets, businesses, or interest in any assets or businesses of Purchaser, the Company or any of their respective Affiliates (or to consent to any sale, license, or disposition, or agreement to sell, license or dispose of, by the Company or any of its Subsidiaries, any of

 

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their assets or businesses) or to agree to any changes or restrictions in the operations of any such assets or businesses or commence or participate in any litigation, offer or grant any accommodation or undertake any obligation or liability; and the Company shall not, and shall cause its Subsidiaries not to, take or agree to take on any such action without Purchaser’s prior written consent; or (ii) shall require, or be construed to require, Purchaser to agree to any mitigation agreement or to take or agree to take other action required by CFIUS as a condition for concluding any review or investigation of the transactions contemplated by this Agreement, and the Company shall not, and shall cause its Subsidiaries not to, agree to a mitigation agreement or take or agree to take such other action without Purchaser’s prior written consent.

 

7.4                                       Commodity Jurisdiction Determination.  If reasonably requested as a result of Purchaser’s ongoing due diligence after the date hereof, the Company will request a commodity jurisdiction determination from the U.S. Department of State (the “CJ Request”) confirming that the item(s) and/or service(s) that are the subject of the CJ Request, which item(s) and/or service(s) shall be determined in Purchaser’s reasonable discretion, are not subject to ITAR. The receipt of a favorable commodity jurisdiction determination from the U.S. Department of State confirming that such item(s) and/or service(s) are not subject to the ITAR shall be referred to as the “Favorable CJ Determination.”

 

7.5                                       Public Announcements.  Purchaser and the Company shall consult with each other before issuing, and provide each other the opportunity to review and comment upon, any press release or other public statements with respect to the Transaction and the other transactions contemplated by this Agreement and shall not issue any such press release or make any such public statement before such consultation, except to the extent required by applicable Requirements of Law, court process or by obligations pursuant to any listing agreement with any national securities exchange.

 

7.6                                       Litigation.  The Company shall provide Purchaser with prompt notice of and copies of all Legal Proceedings and correspondence relating to any Legal Proceeding against the Company, any of the Company Subsidiaries or any of their respective directors or officers by any shareholder of the Company arising out of or relating to this Agreement or the transactions contemplated by this Agreement. The Company shall give Purchaser the opportunity to participate in the defense or settlement of any such Legal Proceeding. Neither the Company nor any of its Subsidiaries shall agree to any settlement of any such Legal Proceeding without the prior written consent of Purchaser, which shall not to be unreasonably withheld.

 

7.7                                 Board Governance Matters.

 

(a)                                  Effective upon the Closing, the Company will cause (i) the size of the Company Board to continue to be nine directors and (ii) four individuals designated by Purchaser (referred to herein, together with any replacement designees pursuant to Section 7.7(e) as, the “Wanxiang Board Designees”) to be appointed to the Company Board, such that each class of directors on the Company Board shall include at least one Wanxiang Board Designee and such that the class of directors up for election at the third annual meeting of shareholders after the Closing shall include two Wanxiang Board Designees.  From and after the Closing, the size of the Company Board shall not be increased or decreased unless Purchaser shall have first

 

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consented in writing to such increase or decrease, which consent may be granted in Purchaser’s sole discretion.

 

(b)                                 After such appointment, the Company will be required to nominate, and recommend to its shareholders the election of, the Wanxiang Board Designees to the Company Board at each annual meeting of shareholders of the Company and at each special meeting of shareholders of the Company at which directors are to be elected, so that the number of Wanxiang Board Designees to be directors of the Company are as follows:

 

(i)                                     if the Purchaser’s Beneficial Ownership Percentage as of an Annual Calculation Date is equal to or in excess of 40%, Purchaser shall be entitled to have four (4) Wanxiang Board Designees nominated and recommended to the shareholders of the Company as directors of the Company for the period commencing on the date of the annual meeting of shareholders of the Company next following such Annual Calculation Date until the annual meeting of shareholders of the Company next following such annual meeting;

 

(ii)                                  if the Purchaser’s Beneficial Ownership Percentage as of an Annual Calculation Date is equal to or in excess of 30%, but is less than 40%, Purchaser shall be entitled to have three (3)  Wanxiang Board Designees nominated and recommended to the shareholders of the Company as directors of the Company for the period commencing on the date of the annual meeting of shareholders of the Company next following such Annual Calculation Date until the annual meeting of shareholders of the Company next following such annual meeting;

 

(iii)                               if the Purchaser’s Beneficial Ownership Percentage as of an Annual Calculation Date is equal to or in excess of 20%, but is less than 30%, Purchaser shall be entitled to have two (2)  Wanxiang Board Designees nominated and recommended to the shareholders of the Company as directors of the Company for the period commencing on the date of the annual meeting of shareholders of the Company next following such Annual Calculation Date until the annual meeting of shareholders of the Company next following such annual meeting;

 

(iv)                              if the Purchaser’s Beneficial Ownership Percentage as of an Annual Calculation Date is equal to or in excess of 10%, but is less than 20%, Purchaser shall be entitled to have one (1)  Wanxiang Board Designees nominated and recommended to the shareholders of the Company as directors of the Company for the period commencing on the date of the annual meeting of shareholders of the Company next following such Annual Calculation Date until the annual meeting of shareholders of the Company next following such annual meeting; and

 

(v)                                 if at any Annual Calculation Date the Purchaser’s Beneficial Ownership Percentage is less than 10%, the Company shall have no obligation to nominate and recommend to its shareholders any Wanxiang Board Designee.

 

Purchaser shall deliver the certificate contemplated by the definition of Purchaser’s Beneficial Ownership Percentage promptly after the applicable Annual Calculation Date, and the Company

 

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shall promptly determine Purchaser’s Beneficial Ownership Percentage and inform Purchaser of such determination.

 

(c)                                  Subject to applicable Requirements of Law and the rules and regulations of the Principal Market, at the option of Purchaser, the Company Board shall cause each committee of the Company Board to consist of such number of Wanxiang Board Designees as shall equal the greater of (i) a number constituting a majority of the members of such committee minus one and (ii) one.

 

(d)                                 The Wanxiang Board Designees (including any successor nominees) designated in accordance with Section 7.7(a) or Section 7.7(e) shall, subject to applicable Requirements of Law and the rules and regulations of the Principal Market, be included in the Company’s and the Company’s Nominating and Governance Committee’s nominees to serve on the Company Board.  The Company shall use all reasonable best efforts to have the Wanxiang Board Designees elected as directors of the Company and the Company shall solicit proxies for each such person to the same extent as it does for any of its other nominees to the Company Board.

 

(e)                                  Purchaser shall have the power to designate a replacement for any Wanxiang Board Designee upon the death, resignation, retirement, disqualification or removal from office of such Wanxiang Board Designee.  The Company Board will use its reasonable best efforts to take all action required to fill the vacancy resulting therefrom with such replacement designee (including such person, subject to applicable Requirements of Law, being the Company’s and the Company’s Nominating and Governance Committee’s nominee to serve on the Company Board, using all reasonable best efforts to have such person elected as director of the Company and the Company soliciting proxies for such person to the same extent as it does for any of its other nominees to the Company Board).

 

(f)                                    The Company further agrees that, from and after the date hereof, for so long as there are amounts outstanding under the Bridge Loan Agreement or the Bridge Warrants are outstanding, the Company shall invite a person designated by Purchaser (the “Observer”) to attend all meetings of the Company Board or committees thereof in a nonvoting observer capacity; provided, however, that the Observer may be excluded from all or a portion of any such Company Board meeting if and to the extent that: (i) in the judgment of legal counsel to the Company, such exclusion is necessary to preserve the attorney-client privilege during such meeting or portion thereof, or (ii) the Company Board is to consider an Alternative Proposal during such meeting or portion thereof.  The person designated pursuant to this Section 7.7(f) shall be required to satisfy all legal and governance requirements regarding service as a director of the Company.  The Company’s obligations under this Section 7.7(f) shall be suspended at any time when the Company Board or any committee thereof includes the Wanxiang Board Designees.

 

(g)                                 The Company shall notify each Wanxiang Board Designee and Observer of all regular and special meetings of the Company Board and shall notify each Wanxiang Board Designee of all regular and special meetings of any committee of the Company Board of which such Wanxiang Board Designee is a member.  The Company shall provide the Wanxiang Board Designees and the Observer with copies of all notices, minutes, consents and other materials

 

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provided to all other members of the Company Board concurrently as such materials are provided to the other members; provided, however, that the Observer shall not be entitled to such materials if and to the extent that such materials directly relate to an Alternative Proposal.

 

(h)                                 Each of the Wanxiang Board Designees shall be entitled to the same compensation and same indemnification in connection with his or her role as a director as the other members of the Company Board.  Each Wanxiang Board Designee and Observer shall be entitled to reimbursement for documented, reasonable out-of-pocket expenses incurred in attending meetings of the Company Board or any committees thereof, to the same extent as the other members of the Company Board.

 

7.8                                       Interim Operations.  (a) Except for matters set forth in Schedule 7.8 or otherwise expressly permitted hereby, from the date hereof to the Closing, the Company shall, and shall cause its Subsidiaries to, comply with each of the covenants set forth in Sections 5.01 through 5.15 and Sections 6.01 through 6.13 of the Bridge Loan Agreement;

 

(b)                                 Notwithstanding Section 7.8(a), except as expressly permitted by this Agreement, as required by Requirements of Law, as set forth in Schedule 7.8, with the express prior written approval of Purchaser or, solely with respect to Sections 7.8(b)(i), (iii) and (iv) below, as expressly permitted by the Bridge Loan Agreement, from the date hereof until the Closing Date, the Company shall not and shall cause its Subsidiaries not to:

 

(i)                                     (A) declare, set aside or pay any dividends on, or make any other actual, constructive or deemed distributions in respect of, any of its Equity Interests or other securities, or otherwise make any payments to shareholders of the Company in their capacity as such, (B) split, combine or reclassify any of its Equity Interests (except for the purpose of maintaining a listing on the Principal Exchange) or issue, sell or authorize the issuance of any other securities in respect of, in lieu of or in substitution for any Equity Interests or (C) purchase, redeem or otherwise acquire, directly or indirectly any Equity Interests or any other securities of the Company or any of its Subsidiaries;

 

(ii)                                  issue, deliver, sell, pledge, transfer, lease, license, grant, dispose of or otherwise encumber any of its Equity Interests or grant any options, warrants, calls, rights, convertible securities or enter into other agreements or contracts pursuant to which it would be obligated to issue or sell any Equity Interests of the Company or any of its Subsidiaries, except for the issuance of shares of Common Stock upon the exercise of Convertible Securities outstanding on the date of this Agreement and in accordance with their terms on the date of this Agreement;

 

(iii)                               enter into, adopt or amend any employee benefit plan, bonus, profit-sharing, incentive, deferred compensation, insurance, pension, retirement, medical, hospital, disability, welfare, severance or other employee benefit plan or employment, consulting or management agreement with respect to the directors, officers or other current or former employees or consultants of the Company or any of its Subsidiaries, other than any such amendment to an employee benefit plan that is made to maintain the qualified status of such plan or its continued compliance with applicable Requirements of Law; or

 

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(iv)                              alter or commit to alter the compensation (including bonuses or other incentive compensation), severance or other benefits payable or to become payable by the Company or any of its Subsidiaries to any executive officer or director, or pay cash retention bonuses to, or to set the amount of a cash bonus pool for, other employees without Purchaser’s consent as to the aggregate amount thereof.

 

7.9                                       Confidentiality Agreement.  Upon the occurrence of the Closing or, if this Agreement has been terminated, the first anniversary of the date of this Agreement, the Standstill Period (as such term is defined in the Confidentiality Agreement) shall terminate.

 

ARTICLE 8
 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT

 

8.1                                       Survival of Representations and Warranties.  All representations, warranties, covenants and obligations contained in this Agreement shall survive the execution and delivery of this Agreement and the Closing; provided,  however, that, except as otherwise provided in Article 11, the representations and warranties contained in Articles 5 and 6 shall terminate on the eighteen (18) month anniversary of the date of Closing. No investigation made at any time by or on behalf of Purchaser or any other holder of a Note or Warrant shall affect the representations and warranties of the Company hereunder.  All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement shall be deemed representations and warranties of the Company under this Agreement.

 

8.2                                       Entire Agreement.  This Agreement (including the Schedules and Exhibits hereto, and the documents and instruments executed and delivered in connection herewith) and the other Transaction Documents constitute the entire agreement among the parties hereto with respect to the subject matter hereof and supersede all prior and contemporaneous agreements and understandings, whether written or oral, between the parties with respect to the subject matter hereof, including the MOU, and there are no representations, understandings or agreements relating to the subject matter hereof that are not fully expressed in this Agreement, the other Transaction Documents and the documents and instruments executed and delivered in connection herewith.  All Schedules and Exhibits attached to this Agreement are expressly made a part of, and incorporated by reference into, this Agreement.

 

ARTICLE 9
 AMENDMENT AND WAIVER

 

Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Purchaser.  Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Securities purchased or otherwise acquired under this Agreement at the time outstanding, each future holder of all such Securities, and the Company.

 

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ARTICLE 10
 NOTICES

 

All notices and communications provided for hereunder shall be in writing and sent (a) by facsimile transmission if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid) or (b) by a recognized overnight delivery service (with charges prepaid).  Any such notice must be sent:

 

(i)                                     if to Purchaser or its nominee, to Purchaser or nominee at the address specified under Purchaser’s name on Purchaser’s signature page hereto, or at such other address as Purchaser or nominee shall have specified to the Company in writing,

 

(ii)                                  if to any other holder of any Note or Warrant, to such holder at such address as such other holder shall have specified to the Company in writing, or

 

(iii)                               if to the Company, to the Company at its address set forth at the beginning hereof to the attention of Eric Pyenson, Esq., or at such other address as the Company shall have specified to the holder of each Note in writing.

 

Notices under this Article 10 will be deemed given only when actually received.

 

ARTICLE 11
 INDEMNIFICATION

 

11.1                           Indemnification.

 

(a)                                  The Company agrees to indemnify and hold harmless each Purchaser and its Affiliates and each of their respective officers, directors, partners, members and employees, and each person who controls such Purchaser within the meaning of the Exchange Act and the regulations thereunder, to the fullest extent lawful, from and against any and all actions, suits, claims, proceedings, costs, losses, liabilities, damages, expenses (including reasonable attorneys’ fees and disbursements), amounts paid in settlement and other costs (collectively, “Losses”) arising out of or resulting from (1) any inaccuracy in or breach of the Company’s representations or warranties in this Agreement (without giving effect to any materiality, Material Adverse Effect or similar qualifications limiting the scope of such representation or warranty) or (2) the Company’s breach of agreements or covenants made by the Company in this Agreement or (3) any action, suit, claim, proceeding or investigation by any Governmental Authority, shareholder of the Company or any other Person (other than the Company) relating to this Agreement or the transactions contemplated hereby; provided, that:

 

(i)             the agreement to so indemnify and hold harmless with respect to clauses (1) and (2) shall be effective from and after the Closing and the agreement to so indemnify and hold harmless with respect to clause (3) shall be effective from and after the date hereof;

 

(ii)          the Company shall not be required to indemnify and hold harmless under clause (1) of this Section 11.1(a) with respect to Losses incurred by Indemnified Parties

 

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(other than Losses incurred as a result of inaccuracies in or breaches of the representations and warranties contained in Sections 5.1 (Organization; Power and Authority), 5.2 (Authorization, Etc.), 5.4 (Organization and Ownership of Capital Stock of Subsidiaries), 5.20 (Application of Takeover Protections; No Rights Agreement) and 5.23 (Equity Capitalization), as to which this proviso shall have no effect)  unless the aggregate amount of such Losses subject to indemnification by the Company exceeds $1,000,000, and once such amount is exceeded, the Company shall indemnify the Indemnified Parties only for the amount in excess of $1,000,000;

 

(iii)                         in no event shall the aggregate amount required to be paid by the Company pursuant to clause (1) of this Section 11.1(a) exceed $50,000,000; and

 

(iv)                        in no event shall the aggregate amount required to be paid by the Company pursuant to clauses (2) and (3) of this Section 11.1(a) exceed $200,000,000.

 

(b)                                 The indemnification provided for in clause (1) of Section 11.1(a) shall terminate eighteen (18)  months after the date of the Closing Date (and no claims shall be made by any Indemnified Party under Section 11.1(a) thereafter), except that the indemnification by the Company shall continue as to any Loss of which any Indemnified Party has notified the Company in accordance with the requirements of this Article 11 on or prior to the date such indemnification would otherwise terminate in accordance with this Section 11.1(b), as to which the obligation of the Company shall continue until the liability of the Company shall have been determined pursuant to this Article 11, and the Company shall have reimbursed all Indemnified Parties for the full amount of such Loss accordance with this Article 11.

 

11.2                                 Procedures; Third Party Claims.  A Person entitled to indemnification hereunder (each, an “Indemnified Party”) shall give written notice to the Company (the “Indemnifying Party”) of any action, suit, claim or proceeding made by any Person not a party hereto against the Indemnified Party (a “Third Party Claim”) with respect to which it seeks indemnification promptly after receipt by such Indemnified Party of written notice of such Third Party Claim; provided that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Article 11 unless and to the extent that the Indemnifying Party shall have been actually prejudiced by the failure of such Indemnified Party to so notify such party. Such notice shall describe in reasonable detail the facts giving rise to such Third Party Claim to the extent known to the Indemnifying Party.  In case any such Third Party Claim is brought against an Indemnified Party, the Indemnified Party shall be entitled to hire, at its own expense, separate counsel and participate in the defense thereof; provided, however, that the Indemnifying Party shall be entitled to assume and conduct the defense thereof, unless the counsel to the Indemnified Party advises such Indemnifying Party in writing that such claim involves a conflict of interest (other than one of a monetary nature) that would reasonably be expected to make it inappropriate for the same counsel to represent both the Indemnifying Party and the Indemnified Party, in which case the Indemnified Party shall be entitled to retain its own counsel at the cost and expense of the Indemnifying Party (except that the Indemnifying Party shall only be liable for the legal fees and expenses of one law firm for all Indemnified Parties, taken together with respect to any single Third Party Claim or group of related Third Party Claims). If the Indemnifying Party assumes the defense of any Third Party Claim, all Indemnified Parties shall thereafter deliver to the Indemnifying Party copies of all

 

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notices and documents (including court papers) received by the Indemnified Party relating to the Third Party Claim, and each Indemnified Party shall cooperate in the defense or prosecution of such Third Party Claim. Such cooperation shall include the retention and (upon the Indemnifying Party’s request) the provision to the Indemnifying Party of records and information that are reasonably relevant to such Third Party Claim, and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder.  Notwithstanding the foregoing, the Indemnifying Party shall not be entitled to assume the defense of any Third Party Claim (and shall be liable for the fees and expenses of counsel incurred by the Indemnified Party in defending such Third Party Claim) if (i) the Third Party Claim seeks an injunction or other equitable relief or relief other than monetary damages for which the Indemnified Party would be entitled to indemnification under this Agreement that the Indemnified Party reasonably determines, after conferring with its outside counsel, cannot be separated from any related claim for monetary damages for which it would be entitled to indemnification under this Agreement or may otherwise adversely affect the Indemnified Party or (ii) the Third Party Claim is a criminal, civil or administrative proceeding or investigation brought by a Governmental Authority or stock exchange, or relates to such a proceeding or investigation, or the underlying facts or circumstances of which would reasonably be expected to give rise to such a proceeding or investigation.  The Indemnifying Party shall not be liable for any settlement of any Third Party Claim effected without its written consent; provided, however, that the Indemnifying Party shall not unreasonably withhold or delay its consent. The Indemnifying Party further agrees that it will not, without the Indemnified Party’s prior written consent (which shall not be unreasonably withheld or delayed), settle or compromise any Third Party Claim or consent to entry of any judgment in respect thereof in any pending or threatened action, suit, claim or proceeding in respect of which indemnification has been sought hereunder unless such settlement or compromise includes an unconditional release of such Indemnified Party from all liability arising out of such Third Party Claim.

 

11.3                                 Other Claims.  In the event any Indemnified Party has a claim against any Indemnifying Party under Section 11.1 that does not involve a Third Party Claim, the Indemnified Party shall deliver notice of such claim to the Indemnifying Party (setting forth in reasonable detail the facts giving rise to such claim (to the extent known by the Indemnified Party) and the amount or estimated amount (to the extent reasonably estimable) of Losses arising out of, involving or otherwise in respect of such claim) with reasonable promptness after becoming aware of such claim; provided, however, that, failure to give such notification with reasonable promptness shall not affect the indemnification provided hereunder except to the extent the Indemnifying Party shall have been actually and materially prejudiced as a result of such failure.  If the Indemnifying Party does not notify the Indemnified Party within 10 Business Days following its receipt of such notice that the Indemnifying Party disputes its liability to the Indemnified Party under Section 11.1, such claim specified by the Indemnified Party in such notice shall be conclusively deemed a liability of the Indemnifying Party and the Indemnifying Party shall pay the amount of such liability to the Indemnified Party on demand or, in the case of any notice in which the amount of the claim (or any portion thereof) is estimated, on such later date when the amount of such claim (or such portion thereof) becomes finally determined.

 

11.4                                 Tax Treatment.  Any indemnification payments pursuant to this Article 11 shall be treated as an adjustment to the purchase price for the Securities for U.S. federal income and

 

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applicable state and local Tax purposes, unless a different treatment is required by applicable Requirements of Law.

 

ARTICLE 12
 SUBSTITUTION OF PURCHASER

 

Purchaser shall have the right to substitute one or more of its Affiliates as the purchaser of the Notes and Warrants that it has agreed to purchase hereunder, by written notice to the Company, which notice shall be signed by both Purchaser and any such Affiliate, shall contain such Affiliate’s agreement to be bound by this Agreement and shall contain a confirmation by such Affiliate of the accuracy with respect to it of the representations set forth in Article 6.  Upon receipt of such notice, any reference to Purchaser in this Agreement (other than in this Article 12), shall be deemed to refer to such Affiliate in lieu of such original Purchaser.

 

ARTICLE 13
  EXPENSES, ETC.

 

13.1                                 Expenses.  The Company will pay all out-of-pocket fees and expenses incurred by or on behalf of Purchaser or its Affiliates in connection with the transactions contemplated by this Agreement (including all legal and accounting fees and disbursements in connection herewith, documentation and implementation of such transactions and due diligence in connection therewith, in each case whether before or after the date hereof) and with any amendments, waivers or consents under or in respect of this Agreement, the Notes, Warrants or Bridge Warrants (whether or not such amendment, waiver or consent becomes effective), including: (a) fees and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement, the Notes, Warrants or Bridge Warrants or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement, the Notes, Warrants or Bridge Warrants; (b) fees and expenses incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Notes, Warrants and Bridge Warrants; and (c) placement agent’s fees, financial advisory fees, or broker’s commissions (other than Persons engaged by Purchaser) relating to or arising out the transactions contemplated hereby, including, for example, any fees or commissions payable to the Placement Agent.  The Company shall pay and hold Purchaser harmless against, any Loss arising in connection with any claim relating to any such payment.  In addition, the Company shall pay, at the Closing, the fees of Carnegie Hudson Resources LLC payable in connection with the Closing; provided, that such fees do not exceed an amount previously agreed upon by Company and Purchaser.

 

13.2                                 Survival.  The obligations of the Company under this Article 13 will survive the payment or transfer of any Note or the exercise or transfer of any Warrant, the enforcement, amendment or waiver of any provision of this Agreement or the Notes, Warrants or the Bridge Warrants, and the termination of this Agreement.

 

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ARTICLE 14
 TERMINATION

 

14.1                                 Termination by the Parties.  This Agreement may be terminated at any time prior to the Closing:

 

(a)                                  by the mutual written consent of Purchaser and the Company;

 

(b)                                 by Purchaser, if there has been any violation or breach by the Company of any covenant, representation or warranty that, if it continued to occur as of the Closing, would result in the failure of a condition set forth in Section 4.1 or Section 4.2 and such violation or breach has not been waived by Purchaser or, in the case of a covenant breach, cured by the Company within thirty (30) days after written notice thereof from Purchaser;

 

(c)                                  (i) by Purchaser, if the Company fails to obtain the Shareholder Approvals within one hundred twenty (120) after the date hereof, or (ii) by the Company, if the Shareholder Approvals shall not have been obtained upon a vote taken thereon at the Company Shareholders Meeting or any postponement or adjournment thereof;

 

(d)                                 by Purchaser, if any Event of Default under the Bridge Loan Agreement shall have occurred and be continuing; provided, however, that if any Event of Default specified in paragraphs (h) or (i) of Article VIII of the Bridge Loan Agreement occurs, this Agreement shall terminate automatically and without any action on the part of either party;

 

(e)                                  by the Company, if there has been a material violation or breach by Purchaser of any covenant, representation or warranty contained in this Agreement and such violation or breach has not been waived by the Company or, in the case of a covenant breach, cured by Purchaser within thirty (30) days after written notice thereof by the Company;

 

(f)                                    by either Purchaser or the Company if there shall be in effect any Requirements of Law that prohibits the consummation of the Closing or if consummation of the Closing would violate any non-appealable final order, decree or judgment of any Governmental Authority having competent jurisdiction;

 

(g)                                 by Purchaser if the transactions contemplated hereby have not been consummated by 5:00 p.m., New York City time on the one hundred eightieth (180th) day after the date hereof (the “Expiration Date”), provided that Purchaser shall not be entitled to terminate this Agreement pursuant to this Section 14.1(g) if Purchaser has materially breached this Agreement and such breach has prevented or frustrated the consummation of the transactions contemplated hereby;

 

(h)                                 by the Company if the transactions contemplated hereby have not been consummated by 5:00 p.m., New York City time on the Expiration Date, provided that the Company shall not be entitled to terminate this Agreement pursuant to this Section 14.1(h)  if the Company has materially breached this Agreement and such breach has prevented or frustrated the consummation of the transactions contemplated hereby; or

 

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(i)                                     by Purchaser if, at any time prior to the receipt of the Shareholder Approvals, the Company Board or any committee thereof shall have (1) effected an Adverse Recommendation Change (whether or not permitted to do so under the terms of this Agreement), (2) adopted or approved or submitted for the consideration of the shareholders of the Company or publicly endorsed, publicly declared advisable or publicly recommended to the shareholders of the Company, an Alternative Proposal or caused the Company or any of its Subsidiaries to enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement or other agreement related to an Alternative Proposal other than an Acceptable Confidentiality Agreement in accordance with Section 7.2(c), (3) failed to publicly reaffirm its recommendation of this Agreement within ten (10) Business Days following receipt of a written request by Parent to provide such reaffirmation following the public announcement of an Acquisition Proposal, (4) failed to include in the Proxy Statement the Company Determination or Company Recommendation or included in the Proxy Statement any proposal to vote upon or consider any Acquisition Proposal, or (5) if the Company Board or any committee thereof shall have failed to recommend against Alternative Proposal within ten (10) Business Days after public disclosure of the Alternative Proposal.

 

14.2                                 Notice of Termination; Effect of Termination. In order to terminate this Agreement under Section 14.1, the terminating party shall give written notice of such termination to the other party specifying the provision or provisions of this Agreement on which such termination is based.  Upon such termination in accordance with Section 14.1, this Agreement shall forthwith become void and have no effect, without any liability or obligation on the part of Purchaser or the Company, other than Section 7.7(d), Section 13.1, this Section 14.2, Section 14.3 and Article 15, which provisions shall survive such termination; provided, that nothing shall relieve a party of liability for a willful breach of this Agreement.

 

14.3                                 Termination Fee.

 

(a)                                  The Company shall pay the Termination Fee to Purchaser if:

 

(i)                                     this Agreement is terminated by the Company pursuant to Section 14.1(c)(ii) or Section 14.1(h) and, in the case of termination under Section 14.1(h), a vote on the Shareholder Proposals at the Company Shareholders Meeting has not been taken, and in either case within twelve (12) months of such termination the Company enters into a definitive agreement to consummate, or consummates, or the Company Board approves or recommends, the transactions contemplated by, an Alternative Proposal (with 30% or 40% as applicable in the definition thereof being replaced with 50%); or

 

(ii)                                  this Agreement is terminated by Purchaser pursuant to Section 14.1(i).

 

(b)                                 Any Termination Fee payable under this Section 14.3 shall be paid by wire transfer of same-day funds to an account specified by Purchaser.  Any fee due under Section 14.3(a) shall be paid as follows:

 

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(i)                                     if this Agreement is terminated pursuant to Section 14.1(c)(ii) or Section 14.1(h) and, in the case of termination under Section 14.1(h), a vote on the Shareholder Proposals at the Company Shareholders Meeting has not been taken, and in either case,  within twelve (12) months of such termination the Company enters into a definitive agreement to consummate, or consummates, or the Company Board approves or recommends, the transactions contemplated by, an Alternative Proposal (with 30% or 40% as applicable in the definition thereof being replaced with 50%), then the Company shall pay the Termination Fee prior to entering into such definitive agreement or the consummation of such Alternative Proposal and as a condition to the effectiveness of such entry or consummation; and

 

(ii)                                  if this Agreement is terminated by Purchaser pursuant to Section 14.1(i), then the Company shall pay the Termination Fee no later than the fifth Business Day after such termination.

 

ARTICLE 15
 MISCELLANEOUS.

 

15.1                                 Successors and Assigns.  All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors and assigns (including any subsequent holder of a Note or Warrant) whether so expressed or not.

 

15.2                                 Accounting Terms.  All accounting terms used herein which are not expressly defined in this Agreement have the meanings respectively given to them in accordance with GAAP.  Except as otherwise specifically provided herein, (i) all computations made pursuant to this Agreement shall be made in accordance with GAAP, and (ii) all financial statements shall be prepared in accordance with GAAP.

 

15.3                                 Severability.  Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by Requirements of Law) not invalidate or render unenforceable such provision in any other jurisdiction. For purposes of this Agreement, (a) the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation,” and (b) the word “or” is not exclusive and (c) the words “herein,” “hereof,” “hereby,” “hereto” and “hereunder” refer to this Agreement as a whole.

 

15.4                                 Construction, etc.  Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant.  Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. For the avoidance of doubt, all Schedules and Exhibits attached to this Agreement shall be deemed to be a part hereof.

 

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15.5                                 Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument.  Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto.

 

15.6                                 Governing Law.  This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York excluding choice-of-law principles of the law of such State that would permit the application of the laws of a jurisdiction other than such State.

 

15.7                                 Jurisdiction and Process; Waiver of Jury Trial.  (a)  The Company irrevocably submits to the non-exclusive jurisdiction of any New York State or federal court sitting in the Borough of Manhattan, The City of New York, over any suit, action or proceeding arising out of or relating to this Agreement.  To the fullest extent permitted by applicable Requirements of Law, the Company irrevocably waives and agrees not to assert, by way of motion, as a defense or otherwise, any claim that it is not subject to the jurisdiction of any such court, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

 

(b)                                 The Company consents to process being served by or on behalf of any holder of Notes or Warrants in any suit, action or proceeding of the nature referred to in Section 15.7(a) by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, return receipt requested, to it at its address specified in Article 10 or at such other address of which such holder shall then have been notified pursuant to said Section.  The Company agrees that such service upon receipt (i) shall be deemed in every respect effective service of process upon it in any such suit, action or proceeding and (ii) shall, to the fullest extent permitted by applicable Requirements of Law, be taken and held to be valid personal service upon and personal delivery to it.  Notices hereunder shall be conclusively presumed received as evidenced by a delivery receipt furnished by the United States Postal Service or any reputable commercial delivery service.

 

(c)                                  Nothing in this Section 15.7 shall affect the right of any holder of a Note to serve process in any manner permitted by applicable Requirements of Law, or limit any right that the holders of any of the Notes or Warrants may have to bring proceedings against the Company in the courts of any appropriate jurisdiction or to enforce in any lawful manner a judgment obtained in one jurisdiction in any other jurisdiction.

 

(d)                                 The parties hereto hereby waive trial by jury in any action brought on or with respect to this Agreement, the Notes or Warrants or any other document executed in connection herewith or therewith.

 

15.8                                 No Personal Liability of Directors, Officers, Employees and Holders of Capital Stock.  No director, officer, employee, organizer or holder of Capital Stock of the Company or any Guarantor, as such, will have any liability for any obligations of the Company or the Guarantors under the Notes, the Warrants or this Agreement.  Each holder of Notes or Warrants by accepting a Note or Warrant waives and releases all such liability.  The waiver and release are

 

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part of the consideration for issuance of the Notes and Warrants.  The waiver may not be effective to waive liabilities under the federal securities laws.

 

15.9                                 Successors.  All agreements of the Company in this Agreement and the Notes and Warrants will bind its successors.

 

15.10                           Third Party Beneficiaries. Nothing in this Agreement, express or implied, is intended to or shall confer upon any Person, other than the parties hereto, any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement, and no other Person shall be deemed a third-party beneficiary under or by reason of this Agreement, other than (a) with respect to the provisions of Article 11 and Article 13 which shall inure to the benefit of any Person entitled to indemnification or reimbursement thereunder, and his, her or its successors, heirs or representatives who are intended to be third-party beneficiaries thereof.

 

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If you are in agreement with the foregoing, please sign the form of agreement on a counterpart of this Agreement and return it to the Company, whereupon this Agreement shall become a binding agreement between you and the Company.

 

 

	
 
    	
Very   truly yours,
    
	
 
    	
 
    
	
 
    	
A123   SYSTEMS, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By
    	
/s/   David P. Vieau
    
	
 
    	
Name:
    	
David   P. Vieau
    
	
 
    	
Title:
    	
President   & CEO
    

 

 

This Agreement is hereby

accepted and agreed to as

of the date thereof.

 

WANXIANG CLEAN ENERGY USA CORP.

 

 

	
By:
    	
 
    	
 
    
	
Name:
    	
Ping   Yi Li
    
	
Title:
    	
President
    

 

 

All notices to Purchaser shall be addressed as follows:

 

Wanxiang Clean Energy USA Corp.

c/o Wanxiang America Corporation

88 Airport Road

Elgin, Illinois 60123

United States of America

Facsimile:  (847) 931-4838

Attn:  Mr. Daniel Li

Email: dli@wanxiang.com

 

with a copy (which shall not constitute notice) to:

 

Sidley Austin LLP

One South Dearborn

Chicago, Illinois 60603

United States of America

Facsimile: (312) 853-7036

Attn: Mr. John R. Box

Email:  jbox@sidley.com

 

 

SCHEDULE A

 

Defined Terms

 

As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term:

 

“3.75% Notes” is defined in Section 4.15.

 

“6.00% Notes” is defined in Section 4.14.

 

“Acceptable Confidentiality Agreement” means a customary confidentiality agreement containing terms substantially similar to, and (taken as a whole) no less favorable to the Company than, those set forth in the Confidentiality Agreement; provided, that such confidentiality agreement shall not prohibit compliance with any of the provisions of this Agreement.

 

“Adverse Recommendation Change” is defined in Section 7.2(d).

 

“Affiliate”  means, at any time, and with respect to any Person, any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person. As used in this definition, “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.  Unless the context otherwise clearly requires, any reference to an “Affiliate” is a reference to an Affiliate of the Company.  For purposes of Articles 11 and 12, an Affiliate of a Purchaser shall include (i) any Immediate Family of Purchaser, (ii) any Family Company of Purchaser or (iii) any Affiliate of any Family Company of Purchaser.

 

“Allocation” is defined in Article 2.

 

“Alternative Proposal” means any proposal or offer (whether or not in writing) by any Person or group (as defined in Section 13(d) of the Exchange Act) with respect to any (A) merger, consolidation, share exchange, other business combination or similar transaction involving the Company or any of its Subsidiaries pursuant to which the holders of the voting power of the Company immediately prior to such transaction own 70% or less of the voting power of the surviving or resulting entity immediately following the transaction, calculated on a fully-diluted basis, (B) sale, lease, license, contribution or other disposition, directly or indirectly (including by way of merger, consolidation, share exchange, other business combination, partnership, joint venture, sale of capital stock of or other Equity Interests in a Company Subsidiary or otherwise) by the Company or any of its Subsidiaries to any Person or group (as defined in Section 13(d) of the Exchange Act) of any business or assets of the Company or its Subsidiaries representing 40% or more of the consolidated revenues, net income or assets of the Company and its Subsidiaries, taken as a whole, (C) issuance, sale or other disposition, directly or indirectly, to any Person or group (as defined in Section 13(d) of the Exchange Act) of securities (or options, rights or warrants to purchase, or securities convertible into or exchangeable for, such securities) by the Company or any of its Subsidiaries representing 30% or more of the voting power of the Company, (D) any single or related transactions with a Person or

 

Schedule A
 (to Securities Purchase Agreement)

 

 

group (as defined in Section 13(d) of the Exchange Act) to which the Company or any of its Subsidiaries is a party in which the holders of the voting power of the Company immediately prior to such transaction own 70% or less of the voting power of the Company immediately following the transaction, calculated on a fully-diluted basis, (E) any tender or exchange offer for equity securities of the Company in which any Person or group (as defined in Section 13(d) of the Exchange Act) shall acquire, directly or indirectly, Beneficial Ownership, or the right to acquire Beneficial Ownership, of 30% or more of the voting securities of the Company, calculated on a fully-diluted basis or (F) any combination of the foregoing (in each case, other than the Transaction).

 

“Annual Calculation Date” means the date that is ten (10) Business Days prior to the date on which the Company is required to file its definitive proxy statement on Schedule 14A with the SEC for an annual meeting of shareholders of the Company; provided, that if the Company is not required to file definitive proxy statements on Schedule 14A in connection with its annual meetings of shareholders, the Annual Calculation Date for any given year shall be the one (1) year anniversary of the preceding Annual Calculation Date.

 

“Anti-Terrorism Order” means Executive Order No. 13,224 of September 24, 2001, Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit or Support Terrorism, 66 U.S. Fed. Reg. 49, 079 (2001), as amended.

 

“Beneficial Owner”  has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular “person” (as that term is used in Section 13(d)(3) of the Exchange Act), such “person” will be deemed to have beneficial ownership of all securities that such “person” has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time.  The terms “Beneficially Owns,” “Beneficially Owned” and “Beneficial Ownership” have a corresponding meaning.

 

“BHCA” is defined in Section 5.29.

 

“Bridge Loan Agreement” means the Loan Agreement of even date herewith by and between the Company and Wanxiang America Corporation, as lender (as amended, supplemented or modified from time to time, and irrespective of whether or not the Bridge Loan Agreement is then in effect, whether or not the commitments thereunder have expired or been terminated, whether or not any letter of credit has been surrendered or whether or not any amounts of principal, interest, fees or other amounts remain outstanding thereunder).

 

“Bridge Warrants” means the warrants to purchase Common Stock issued or to be issued by the Company pursuant to the Bridge Loan Agreement.

 

“Board of Directors” means:

 

(a)                                  with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board;

 

(b)                                 with respect to a partnership, the board of directors of the general partner of the partnership;

 

Schedule A-2

 

(c)                                  with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and

 

(d)                                 with respect to any other Person, the board or committee of such Person serving a similar function.

 

“Business Day” means any day other than a Saturday, a Sunday or a day on which commercial banks in New York, New York or Chicago, Illinois are required or authorized to be closed.

 

“Capital Lease” means, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP.

 

“Capital Lease Obligation” means, at the time any determination is to be made, the amount of the liability in respect of a Capital Lease, and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such Capital Lease prior to the first date upon which such Capital Lease may be prepaid by the lessee without payment of a penalty.

 

“Capital Stock”  means (a) in the case of a corporation, capital stock, (b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of capital stock, (c) in the case of a partnership, partnership interests (whether general or limited), (d) in the case of a limited liability company, membership interests and (e) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.

 

“CFIUS” is defined in Section 4.12.

 

“Change of Control Proposal” is defined in Section 4.9.

 

“Charter Amendment” is defined in Section 4.9.

 

“Charter Proposal” is defined in Section 4.9.

 

“CJ Request” is defined in Section 7.4.

 

“Closing” is defined in Article 3.

 

“Code”  means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time.

 

“Common Stock” means the common stock of the Company, par value $0.001 per share.

 

“Company” means A123 Systems, Inc., a Delaware corporation.

 

“Company Board” means the Company’s Board of Directors.

 

“Company Bylaws” is defined in Section 5.23.

 

Schedule A-3

 

“Company Charter” is defined in Section 5.23.

 

“Company Determination” is defined in Section 5.2.

 

“Company Financial Statements” is defined in Section 5.21.

 

“Company Recommendation” is defined in Section 5.2.

 

“Company Shareholders Meeting” is defined in Section 5.2.

 

“Confidentiality Agreement” means the Confidentiality Agreement dated as of April 11, 2012, by and between Wanxiang America Corporation and the Company.

 

“Convertible Securities” is defined in Section 5.23.

 

“DGCL” means the General Corporation Law of the State of Delaware.

 

“Disqualified Stock”  means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case, at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature.  The amount of Disqualified Stock deemed to be outstanding at any time for purposes of this Agreement will be the maximum amount that the Company and its Subsidiaries may become obligated to pay upon the maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock, exclusive of accrued dividends.

 

“DOJ” is defined in Section 7.3(c).

 

“Environmental Laws” is defined in Section 5.26.

 

“Equity Interests”  means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

 

“ERISA Affiliate” means any trade or business (whether or not incorporated) that is treated as a single employer together with the Company under section 414 of the Code.

 

“Exchange Act”  means the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

 

“Expiration Date” is defined in Section 14.1(g).

 

“Family Company” means, with respect to any specified Person, any trust, partnership, limited liability company, foundation, charitable organization, or other estate-planning vehicle

 

Schedule A-4

 

for the benefit of, or the ownership interests of which are owned wholly by, (i) such Person, (ii) one or more Persons who are Immediate Family members of such Person or (iii) the Immediate Family of any Beneficial Owner of such Person.

 

“Favorable CJ Determination” is defined in Section 7.4.

 

“Federal Reserve” is defined in Section 4.6.

 

“FTC” is defined in Section 7.3(c).

 

“FY2011 10-K” is defined in Section 5.28.

 

“GAAP” means generally accepted accounting principles as in effect from time to time in the United States of America.

 

“Governmental Authority” means any United States federal, state or local, or any supra-national or non-U.S., government, political subdivision, governmental, regulatory or administrative authority, instrumentality, agency body or commission, self-regulatory organization, court, tribunal or judicial or arbitral body.

 

“Guarantee” means the Guarantee under the Bridge Loan Agreement.

 

“Guarantor”  means any Subsidiary of the Company that executed the Guarantee, and their respective successors and assigns, in each case, until the Guarantee of such Person has been released in accordance with the provisions thereof.

 

“Hazardous Materials” is defined in Section 5.26.

 

“holder” means, with respect to any Note or Warrant, the Person in whose name such Note or Warrant is registered in the register maintained by the Company.

 

“HSR Act” is defined in Section 4.11.

 

“Immediate Family” means, with respect to any specified individual, such individual’s current spouses, parents, parents-in-law, grandparents, children, siblings or grandchildren.

 

“Indebtedness” with respect to any Person means, at any time, without duplication,

 

(a)                                  its liabilities for borrowed money;

 

(b)                                 its liabilities for the deferred purchase price of property acquired by such Person (excluding accounts payable arising in the ordinary course of business but including all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property);

 

(c)                                  (i) all Capital Lease Obligations and (ii) all liabilities which would appear on its balance sheet in accordance with GAAP in respect of synthetic leases assuming such synthetic leases were accounted for as Capital Leases;

 

Schedule A-5

 

(d)                                 all its liabilities in respect of letters of credit (other than commercial letters of credit) or instruments serving a similar function issued or accepted for its account by banks and other financial institutions (whether or not representing obligations for borrowed money), as well as liabilities evidenced by bonds, notes, debentures or similar instruments;

 

(e)                                  the termination value, after termination, or mark-to-market value, prior to termination, of any Swap Obligations; and

 

(f)                                    (i) Disqualified Stock and (ii) Redeemable Preferred Stock,

 

if and to the extent any of the preceding items (other than letters of credit and Swap Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP.  In addition, the term “Indebtedness” includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the guarantee by the specified Person of any Indebtedness of any other Person. Indebtedness shall be calculated without giving effect to the effects of Statement of Financial Accounting Standards No. 133 and related interpretations to the extent such effects would otherwise increase or decrease an amount of Indebtedness for any purpose under this Agreement as a result of accounting for any embedded derivatives created by the terms of such Indebtedness.

 

“Indemnified Party” is defined in Section 11.2.

 

“Indemnifying Party” is defined in Section 11.2.

 

“Intervening Event” means an event, development, or change in circumstances that (a) is material to the Company (other than a change in the market price of any shares of capital stock of the Company), (b) is not related to an Alternative Proposal (or any inquiry that could reasonably be expected to lead to an Alternative Proposal) and (c) was not known (or the magnitude of which was not known) to the Company Board or of which the Company did not have knowledge on the date hereof that becomes known to the Company Board prior to the receipt of the Shareholder Approvals; provided, however, that in no event shall any event, development or circumstance relating to the announcement or pendency of this Agreement or arising from any action taken by any party hereto pursuant to and in compliance with the terms of this Agreement constitute an Intervening Event.

 

“Intellectual Property Rights” is defined in Section 5.25.

 

“Liability” mean any debt, liability or obligation (whether direct or indirect, known or unknown, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, or due or to become due, matured or unmatured or determined or determinable), and including all costs and expenses relating thereto.

 

“Lien” means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease, upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements).

 

Schedule A-6

 

“Losses” is defined in Section 11.1.

 

“Material” means material in relation to the business, operations, affairs, financial condition, assets, properties, or prospects of the Company and its Subsidiaries taken as a whole.

 

“Material Adverse Effect” means a material adverse effect on (a) the business, operations, affairs, condition, financial or otherwise, or properties of the Company and its Subsidiaries taken as a whole, or (b) the ability of the Company to perform its obligations under this Agreement, the Notes, the Warrants or the Bridge Warrants, or (c) the validity or enforceability of this Agreement, the Notes, the Warrants or the Bridge Warrants; provided, however, that none of the following shall be deemed in themselves, either alone or in combination, to constitute, and that none of the following shall be taken into account in determining whether there has been or will be, a Material Adverse Effect: (i)  any change generally affecting the economy, financial or securities markets or political, economic or regulatory conditions in the United States or any other geographic region in which the Company and its Subsidiaries conduct business; (ii) general financial, credit or capital market conditions, including interest rates or exchange rates, or any changes therein; (iii); acts of war (whether or not declared), the commencement, continuation or escalation of a war, acts of armed hostility, sabotage or terrorism or other international or national calamity or any material worsening of such conditions threatened or existing as of the date of this Agreement; (iv) any changes or developments in the price for oil, gasoline, electricity or other commodities; (v) changes or developments in the availability of government grants, loans or subsidies (it being understood that the facts and circumstances giving rise to such change or development may be deemed to constitute, and may be taken into account in determining whether there has been, a Material Adverse Effect if such facts and circumstances are not otherwise described in clauses (i)-(viii) of this definition); (vi) changes in GAAP or accounting standards or interpretations thereof after the date hereof; (vii) any failure by the Company to meet any published or internally prepared estimates of revenues, earnings or other economic performance for any period ending on or after the date of this Agreement and prior to the Closing (it being understood that the facts and circumstances giving rise to such failure may be deemed to constitute, and may be taken into account in determining whether there has been, a Material Adverse Effect if such facts and circumstances are not otherwise described in clauses (i)-(viii) of this definition); or (viii) a decline in the price of the Common Stock on any market in which such securities are quoted for purchase and sale (it being understood that the facts and circumstances giving rise to such decline may be deemed to constitute, and may be taken into account in determining whether there has been, a Material Adverse Effect if such facts and circumstances are not otherwise described in clauses (i)-(viii) of the definition); provided, further, that in the case of clauses (i), (ii) and (v), only to the extent such change, event, development, condition, occurrence or effect does not, either alone or in combination, have a materially disproportionate adverse impact on the Company and its Subsidiaries relative to other Persons or businesses in the affected geographic regions and in the industries or markets in which the Company or its Subsidiaries conduct business.

 

“MOU” means the Non-binding Memorandum of Understanding between the Company and Wanxiang Group Corporation.

 

Schedule A-7

 

“Multiemployer Plan” means any Plan that is a “multiemployer plan” (as such term is defined in section 4001(a)(3) of ERISA).

 

“Notes” is defined in Article 1.

 

“Notice of Proposed Recommendation Change” is defined in Section 7.2(f).

 

“Notice Period” is defined in Section 7.2(f).

 

“Observer” is defined in Section 7.7 (d).

 

“Officer’s Certificate” means a certificate of the chief financial officer, principal accounting officer, treasurer or comptroller of the Company or of any other officer of the Company whose responsibilities extend to the subject matter of such certificate.

 

“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto.

 

“Permitted First Priority Bridge Indebtedness” has the meaning specified in the Bridge Loan Agreement.

 

“Person” means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, business entity or Governmental Authority.

 

“Placement Agent”  means Lazard Freres & Co. LLC.

 

“Plan” means an “employee benefit plan” (as defined in section 3(3) of ERISA) subject to Title I of ERISA that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability.

 

“Principal Market” means the NASDAQ Global Select Market or, if the Common Stock is not listed on the NASDAQ Global Select Market, the NASDAQ Capital Market.

 

“property” or “properties” means, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate.

 

“Proxy Statement” means the proxy statement relating to the approval by the Company’s shareholders of the Share Issuance Proposal, the Change of Control Proposal and the Charter Amendment Proposal, as amended or supplemented from time to time.

 

“Purchaser” is defined in the first paragraph of this Agreement.

 

“Purchaser’s Beneficial Ownership Percentage” as of any Annual Calculation Date means the quotient (expressed as a percentage) determined by dividing (i) the aggregate number of shares of Common Stock Beneficially Owned by Purchaser and its Affiliates (without regard to any restrictions on the convertibility of the Notes or the exercise of the Warrants or the Bridge

 

Schedule A-8

 

Warrants) as of such Annual Calculation Date, as reflected in a certificate delivered to the Company by Purchaser, by (ii) the aggregate number of shares of Common Stock outstanding as of such Calculation Date (assuming the exercise or the conversion in full of all outstanding Convertible Securities of the Company Beneficially Owned by Purchaser and its Affiliates (without regard to any restrictions on the convertibility of the Notes or the exercise of the Warrants or the Bridge Warrants) as of such Annual Calculation Date).

 

“Redeemable Preferred Stock”  means Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case, at the option of the holder of the Capital Stock), or upon the happening of any event, is mandatorily redeemable, or redeemable at the option of the holder of such Capital Stock, in whole or in part, with preferential rights to payment of dividends or upon liquidation, dissolution or winding up.  The amount of Redeemable Preferred Stock deemed to be outstanding at any time for purposes of this Agreement will be the greater of its mandatory or optional liquidation preference plus accrued and unpaid dividends.

 

“Registration Rights Agreement” means the Registration Rights Agreement being delivered pursuant to the Bridge Loan Agreement.

 

“Representatives” is defined in Section 7.2(a).

 

“Requirements of Law” means any foreign, international or multinational treaty, federal, state, provincial, municipal and local laws, statutes, regulations, rules, codes or ordinances enacted, adopted, issued or promulgated by any Governmental Authority (including those pertaining to electrical, building, zoning, subdivision, land use and Environmental Laws) or common law or any court order.

 

“SEC” means the Securities and Exchange Commission of the United States, or any successor thereto.

 

“SEC Documents” is defined in Section 5.21.

 

“Securities” is defined in Article 1.

 

“Securities Act” means the Securities Act of 1933, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

 

“Security Agreement” means the Pledge and Security Agreement under the Bridge Loan Agreement.

 

“Share Issuance Proposal” is defined in Section 4.9.

 

“Shareholder Approvals” is defined in Section 4.9.

 

“Shareholder Proposals” is defined in Section 4.9.

 

“Specified SEC Document” means the Company’s Quarterly Report for the quarterly period ended June 30, 2012, as filed with the SEC on August 9, 2012.

 

Schedule A-9

 

“Subsidiary” means, as to any Person, any other Person in which such first Person or one or more of its Subsidiaries or such first Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such second Person, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such first Person or one or more of its Subsidiaries or such first Person and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries).  Unless the context otherwise clearly requires, any reference to a “Subsidiary” is a reference to a Subsidiary of the Company.

 

“Superior Proposal” means any bona fide written offer made by a third party or group (as defined in Section 13(d) of the Exchange Act) pursuant to which such third party or group would acquire or own, directly or indirectly, 50% or more of the voting securities of the Company, calculated on a fully-diluted basis, or 50% or more of the assets of Company and its Company Subsidiaries, taken as a whole, on terms which the Company Board determines in good faith (after consultation with outside counsel and a financial advisor of nationally recognized reputation) to be superior to the Transaction from a financial point of view to the Company and/or the shareholders of the Company, taking into account all the terms and conditions of such proposal and this Agreement (including (A) the Termination Fee and any changes proposed by Purchaser to the terms of this Agreement, (B) the likelihood that such transaction will be completed, taking into account all financial, regulatory, legal and other aspects of such offer and (C) any necessary financing (including with respect to any Indebtedness that could be required to be repaid in connection with the transactions contemplated by such offer).

 

“Swap Contract” means (a) any and all interest rate swap transactions, basis swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward foreign exchange transactions, cap transactions, floor transactions, currency options, spot contracts or any other similar transactions or any of the foregoing (including, any options to enter into any of the foregoing), and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement.

 

“Swap Obligations”  means, with respect to any specified Person, the obligations of such Person under any Swap Contract.

 

“Takeover Statute’ is defined in Section 7.2(d).

 

“Tax Returns” means any federal, state, local or foreign return, declaration, report, statement, claim for refund, amended returns and declarations of estimated taxes (including all attached schedules) filed or required to be filed with any Governmental Entity with respect to Taxes.

 

Schedule A-10

 

“Taxes” means any present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

 

“Termination Fee” means the excess (if any) of (x) $9,000,000 over (y) the amount previously paid by the Company pursuant to Section 2.06(a) of the Bridge Loan Agreement.

 

“Third Party Claim” is defined in Section 11.2.

 

“Transaction” is defined in Article 1.

 

“Transaction Documents” means this Agreement, the Bridge Loan Agreement, the Registration Rights Agreement, the Notes, the Warrants, the Bridge Warrants, as well as each of the other documents and agreements entered into, or contemplated to be entered into, by the parties hereto in connection with the transactions contemplated by this Agreement, the Bridge Loan Agreement, the Notes, and the Warrants (including each of the Loan Documents (as defined in the Bridge Loan Agreement)).

 

“Underlying Shares” is defined in Article 1.

 

“USA Patriot Act” means United States Public Law 107-56, Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

 

“Wanxiang Board Designees” is defined in Section 7.7.

 

“Warrants” is defined in Article 1.

 

Schedule A-11

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