ENERGROUP HOLDINGS CORPORATION No. 9, Xin Yi Street, Ganjingzi District Dalian City, Liaoning Province, PRC 116039
ENERGROUP
HOLDINGS CORPORATION
Xx. 0,
Xxx Xx Xxxxxx, Xxxxxxxxx Xxxxxxxx
Dalian
City, Liaoning Province, PRC 116039
December
30, 2009
Pinnacle
China Fund, L.P.
The
Pinnacle Fund, L.P.
0000
Xxxxxxx Xxxx Xxxx, Xxxxx 000
Xxxxx,
Xxxxx 00000
Attn.: Xx.
Xxxxx Xxxx
Re: Energroup
Holdings Corporation (the “Company”)
Dear Xx.
Xxxx:
Reference
is made to that certain “Securities Purchase Agreement,” “Registration Rights
Agreement,” “Make Good Escrow Agreement” and “Holdback Escrow Agreement,” each
dated as of December 31, 2007, by and among the Company and the Investors
signatory thereto. Capitalized terms used, but not defined herein,
shall have the meanings ascribed to such terms in the relevant above-referenced
agreements.
We are
writing to memorialize the understanding between The Pinnacle Fund, L.P. and the
Pinnacle China Fund, L.P. (collectively, the “Funds”), and the Company, with
respect to (i) the Company’s obligations under the Registration Rights Agreement
and the Securities Purchase Agreement, (ii) the Make Good Pledgor’s obligations
under Section 4.11 of the Securities Purchase Agreement and under the Make Good
Escrow Agreement, (iii) the release of funds from the Holdback Escrow Agreement,
and (iv) the release of the 2008 Make Good Shares under the Make Good Escrow
Agreement. We understand and agree that the Funds do not represent
any other Investor and do not purport to provide consents, waivers, or
amendments for or on behalf of any other Investor. To that end, the
Funds, the Investors signatory hereto and we agree as follows:
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1.
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Simultaneously
with the execution and delivery of this letter agreement, the Funds shall
countersign the Release Notice attached hereto containing an instruction
to the Escrow Agent to deliver the 2008 Make Good Escrow Shares to the
Make Good Pledgor.
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2.
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Pursuant
to Section 2(f) of the Registration Rights Agreement liquidated damages of
$1,700,000 (the “S-1 Liquidated Damages”) is owed by the Company to the
Investors as a result of the Registration Statement not being declared
effective by the Commission on or prior to the Effective
Date. The Company agrees to cause the SEC to declare the
Registration Statement effective as to all shares owned by the Investors
on or prior to March 31, 2010 (the “S-1 Requirement”); provided, however,
that if the financial statements to be included in the Registration
Statement are no longer current and the audited financial statements for
the fiscal year ended December 31, 2009 must be included in the
Registration Statement, the Company shall have until May 15, 2010 (the
“Extension Date”) to have the Registration Statement declared effective as
to all shares owned by the
Investors.
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3.
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Section
3.1 of the Holdback Escrow Agreement and Section 4.14(a) of the Securities
Purchase Agreement provides for a holdback of Escrowed Funds in the amount
of $2,000,000 (the “Board Escrow Disbursement”), to be released upon the
appointment of independent directors to serve on the Company’s Board of
Directors. The Company hereby agrees to appoint such qualified
independent directors (the “Qualified Independent Directors”) as required
to comply with The Nasdaq Stock Market or The NYSE-AMEX Stock Market, as
the case may be, on or prior to March 31, 2010 (the “Board
Requirement”). For the purpose of this paragraph, the term
“Qualified Independent Director” means a director who meets the standard
for “independence” under either the listing criteria of The Nasdaq Stock
Market or The NYSE-AMEX Stock
Market.
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4.
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Notwithstanding
that Section 3.2 of the Holdback Escrow Agreement and Section 4.14(b) of
the Securities Purchase Agreement provides for a holdback of Escrowed
Funds in the amount of $1,500,000 (the “CFO Escrow Disbursement”), to be
released upon the appointment of a Qualified CFO, the Company agrees to
hire a Qualified CFO on or prior to March 31, 2010 (the “CFO
Requirement”). For the purpose of this paragraph, the term
“Qualified CFO” means a CFO who speaks English, has prior business
experience as a CFO for a U.S. public company and meets the standard
criteria of a CFO for a U.S. public
company.
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5.
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If
the Company satisfies all of the S-1 Requirement, the Board Requirement
and the CFO Requirement (the “Public Company Requirements”) on or prior to
March 31, 2010 (the “Determination Date”) the Funds shall waive any and
all prior penalties accrued and owing under the Holdback Escrow Agreement
and the Registration Rights Agreement. The Funds further agree
to execute and deliver with the Company joint written instructions to the
Escrow Agent to release all of the Escrowed Funds to the Company within
ten calendar days following the Determination
Date.
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(a) Notwithstanding
the foregoing, in the event that the S-1 Requirement is the only Public Company
Requirement not satisfied by the Determination Date due to the reasons set forth
in paragraph 2 above and the Extension Date applies the Funds agree to execute
and deliver with the Company joint written instructions to the Escrow Agent, to
(i) release to the Company an amount equal to the Escrowed Funds less the
$1,700,000 S-1 Liquidated Damages within ten calendar days of the Determination
Date; and (ii) continue to hold the remaining Escrowed Funds in the Escrow
Account pending the Extension Date. In the event that the Extension
Date applies and the Company satisfies the S-1 Requirement by the Extension
Date, the Funds agree to execute and deliver with the Company joint written
instructions to the Escrow Agent, to release the remaining Escrowed Funds to the
Company within ten calendar days following the Extension Date. In the
event that the Extension Date applies and the Company does not satisfy the S-1
Requirement by the Extension Date, the Company agrees that it shall execute and
deliver, together with the Funds joint written instructions to the Escrow Agent
to release the remaining Escrowed Funds to the Investors on a pro rata basis no
later than ten calendar days after the Extension Date.
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(b) If
the Company fails to satisfy any one of the Public Company Requirements by the
Determination Date (other than the S-1 Requirement in the event that the
Extension Date applies), the Funds shall execute and deliver an instruction to
the Escrow Agent to (i) release all of the Escrowed Funds, except for the
$1,700,000 S-1 Liquidated Damages, to the Investors, on a pro rata basis, and
(H) if the Extension Date applies, continue to hold the remaining Escrowed Funds
until the Extension Date, at which time the remaining Escrowed Funds shall be
released either to the Company or the Investors, as the case may
be.
(c) Notwithstanding
anything to the contrary set forth herein, in the event that the Company fails
to satisfy two of the Public Company Requirements by the Determination Date, the
Funds shall execute and deliver an instruction to the Escrow Agent to release
all of the Escrowed Funds to the Investors on a pro rata basis no later than
April 10, 2010.
6. If
the Company satisfies all of the Public Company Requirements on or prior to the
Determination Date and achieves the 2009 Guaranteed ATNI (after tax net income
(calculated in accordance with GAAP) reported in the 2009 Annual Report, equal
to or greater than $20,900,000) as set forth in the Make Good Escrow Agreement,
the Funds hereby agree that their right to countersign an escrow release notice
with respect to the release of the 2009 Make Good Escrow Shares shall be
automatically waived. If the 2009 Guaranteed ATNI is achieved, the
Company shall have the right, within five calendar days from the date the
Company files its Annual Report on Form 10-K for the fiscal year 2009, to
deliver an escrow release notice to the Escrow Agent instructing the Escrow
Agent to deliver the 2009 Make Good Escrow Shares to the Make Good
Pledgor.
(a) In
the event that the Company does not meet any one of the Public Company
Requirements by the Determination Date (other than the S-1 Requirement in the
event that the Extension Date applies), the 2009 Make Good Escrow Shares shall
be delivered in accordance with the provisions set forth in the Make Good Escrow
Agreement; except, that in the event the Company does not meet any one of the
Public Company Requirements on or prior to the Determination Date and does not
achieve the 2009 Guaranteed ATNI (after tax net income (calculated in accordance
with GAAP) reported in the 2009 Annual Report, equal to or greater than
$20,900,000) as set forth in the Make Good Escrow Agreement, the Company hereby
agrees that its right to countersign an escrow release notice with respect to
the release of the 2009 Make Good Escrow Shares shall be automatically waived
and the Funds shall have the right to deliver such escrow release notice to the
Escrow Agent instructing the Escrow Agent to deliver the 2009 Make Good Escrow
Shares to the Investors within five days of the delivery of such
notice.
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(b) If
the Extension Date applies and (i) the S-1 Requirement is satisfied by the
Extension Date, (ii) the Board Requirement and the CFO Requirement are satisfied
by the Determination Date, and (iii) the Company achieves the 2009 Guaranteed
ATNI, the Funds hereby agree that their right to countersign an escrow release
notice with respect to the release of the 2009 Make Good Escrow Shares shall be
automatically waived and the Company shall have the right to deliver such escrow
release notice to the Escrow Agent instructing the Escrow Agent to deliver the
2009 Make Good Escrow Shares to the Make Good Pledgor within five days of the
satisfaction of the S-1 Requirement.
7. (a) Each
of the Funds and the other Investors signatory hereto agree that upon receipt of
all of the S-1 Liquidated Damages, the Board Escrow Disbursement and the CFO
Escrow Disbursement, each of the Funds and the other Investors, on behalf of
themselves, their respective parents, subsidiaries, affiliates, shareholders,
directors, officers, employees, agents, managers, members, legal
representatives, successors and assigns, forever releases and discharges the
Company, and its parent, subsidiaries, affiliates, shareholders, directors,
officers, employees, agents, managers, members, legal representatives,
successors and assigns, from any and all claims, demands, damages, rights of
action or causes of action whatsoever (“Claims”) arising out of or in connection
with the Holdback Escrow Agreement and the Registration Rights Agreement, and,
upon release of the 2008 Make Good Escrow Shares to the Make Good Pledgor, any
Claims arising out of or in connection with the 2008 Guaranteed ATNI (after tax
net income (calculated in accordance with GAAP) reported in the 2008 Annual
Report, equal to or greater than $15,900,000) under the Make Good Escrow
Agreement and Sections 4.11(a)(i) and 4.14 of the Securities Purchase Agreement
..
(b) The
Company agrees that upon the receipt by the Funds and the other Investors
signatory hereto of all of the S-1 Liquidated Damages, the Board Escrow
Disbursement and the CFO Escrow Disbursement, the Company, on behalf of itself,
its parent, subsidiaries, affiliates, shareholders, directors, officers,
employees, agents, managers, members, legal representatives, successors and
assigns, forever releases and discharges the Funds and the other Investors, and
their respective parents, subsidiaries, affiliates, shareholders, directors,
officers, employees, agents, managers, members, legal representatives,
successors and assigns, from any and all Claims arising out of or in connection
with the Holdback Escrow Agreement and the Registration Rights Agreement, and,
upon release of the 2008 Make Good Escrow Shares to the Make Good Pledgor, any
Claims arising out of or in connection with the 2008 Guaranteed ATNI under the
Make Good Escrow Agreement and Sections 4.11(a)(i) and 4.14 of the Securities
Purchase Agreement.
8. The
Company, the Funds and the Investors represent and warrant to each other that
each has the authority to enter into, execute, deliver and perform its
obligations set forth in this letter.
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9. Each
of The Pinnacle Fund, L.P. and Pinnacle China Fund L.P. represent that they hold
1,022,727 shares of Common Stock, respectively. Shine Gold Holdings Limited
represents that it holds 3,863,636 shares of Common Stock.
10. The
parties reaffirm that, in accordance with Section 4(c) of the Make Good Escrow
Agreement, for purposes of determining whether or not 2009 Guaranteed ATNI has
been achieved, any direct or indirect tax breaks, tax holidays, tax credits or
similar tax benefit(s), compensation, grant or any other remuneration or
deduction granted or benefiting any of the Company Entities by any governmental
authority or body, which are beyond and in addition to benefits that may exist
on the Closing date, shall be excluded for purposes of determining whether
or not the 2009 Guaranteed ATNI has been achieved by
the Company.
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Please
acknowledge your agreement with the terms of this letter by returning an
executed original to me at the address set forth above.
Very
truly yours,
ENGROUP
HOLDINGS CORPORATION
_____________________________________
Shi
Huashan,
President,
Chief Executive Officer
and
Chairman of the Board
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Accepted & Agreed:
PINNACLE CHINA FUND L.P.
By:___________________________
Its:___________________________
THE PINNACLE FUND, L.P.
By:___________________________
Its:___________________________
WESTPARK CAPITAL, L.P.
By:___________________________
Its:___________________________
ATLAS ALLOCATION FUND,
L.P.
By:___________________________
Its:___________________________
XXXXXXXXX PARTNERS, L.P.
By:___________________________
Its:___________________________
CENTAUR VALUE FUND
By:___________________________
Its:___________________________
UNITED CENTAUR MASTER
FUND
By:___________________________
Its:___________________________
0
XXXXXX XXXXXXX XXXXXX
XXXX,X.X.
By:___________________________
Its:___________________________
PRECEPT CAPITAL MASTER FUND,
G.P.
By:___________________________
Its:___________________________
XXXX CAPITAL PARTNERS,
LLC
By:___________________________
Its:___________________________
XXXXXX FAMILY TRUST
By:___________________________
Its:___________________________
GLACIER PARTNERS, L.P.
By:___________________________
Its:___________________________
___________________________
Xxxxx X. Xxxxxxxx
___________________________
Xxxxxx Xxxx
___________________________
Xxxxxxx Xxxxxx
SCG PRIVATE HOLDINGS, LLC
By:___________________________
Its:___________________________
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Accepted
& Agreed solely for the purpose of
modifying
terms of the Registration Rights Agreement:
SHINE
GOLD HOLDINGS LIMITED
By:____________________________
Its:_____________________________
Accepted
& Agreed solely for the purpose of modifying
terms of
the Holdback Escrow Agreement:
U.S. BANK
NATIONAL ASSOCIATION
By:____________________________
Its:_____________________________
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