UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of
Report (Date of Earliest event Reported): May 6, 2009 (April 16,
2009)
China
New Energy Group Company
(Exact
name of registrant as specified in its charter)
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Delaware
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001-32691
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65-0972647
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(State
or other jurisdiction of
incorporation
or organization)
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(Commission
File Number)
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(IRS
Employer
Identification
No.)
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No. 1703
and 1704, A Building, No. 1, Hongji Apartment, Jin Wei Road
He Bei
District, Tianjin, China
(Address
of principal executive offices)
(86 22) 5829
9778
(Registrant’s
telephone number, including area code)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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Soliciting material
pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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o
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Item
1.01
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Entry
Into a Material Definitive
Agreement
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On April
30, 2009, China New Energy Group Company (the “Company”) entered into a Series B
Convertible Preferred Stock Securities Purchase Agreement (the “SPA”) with China
Hand Fund I L.P. (“China Hand”).
Pursuant
to the SPA, on May 1, 2009, the Company issued and sold to China Hand, and China
Hand purchased from the Company, 1,116,388 shares of the Company’s Series B
Convertible Preferred Stock (“Series B Preferred Stock”) and warrants (the
“Warrants”) to purchase 7,814,719 shares of its Common Stock at an initial
exercise price of $0.187 per share (subject to adjustments) for a period of five
(5) years following the date of issuance for an aggregate purchase price of
$5,400,000 (the “Private Placement”).
Additionally,
the Company agreed to make good provisions that will require the Company to
issue to China Hand up to 334,916 additional shares (the “Make Good Shares”) of
its Series B Preferred Stock if it does not achieve an audited after-tax net
income of $5.0 million for the year ending December 31, 2009 (the “2009 Income
Target”); if the Company is successful in achieving the 2009 Income Target,
China Hand will transfer 22,327 shares of its Series B Preferred Stock to
certain members of the Company’s management, which shares have been deposited
into an escrow account. The Company also agreed to issue to China
Hand 27,910 shares of Series B Preferred Stock if the Company’s Common Stock is
not listed for trading on a national securities exchange on or before January
31, 2010 (the “Listing Shares”).
In
connection with the signing of the SPA, on April 30, 2009, the Company also
entered into a Closing Escrow Agreement by and among the Company, China Hand and
Escrow LLC (the “Escrow Agent”), pursuant to which China Hand agreed to deposit
all funds due to the Company under the SPA in escrow until such time as all
closing conditions of the SPA have been satisfied and the Escrow Agent shall
have received notice, executed by both the Company and China Hand, instructing
the Escrow Agent to release such funds to the Company. The Closing Escrow
Agreement terminates upon the release of all funds from escrow as described
above, or upon the 90
th
day
following the date of the Closing Escrow Agreement if no such instructions to
disburse funds is received by the Escrow Agent, on which date all such funds
will be returned to China Hand.
On May 1,
2009, the company and China Hand consummated the Private Placement and all of
the Series B Preferred Stock and the Warrants were sold to China Hand and
payment was received for such securities by the Company. Kuhns Brothers
Securities Corporation (“Kuhns Brothers”) acted as placement agent in connection
with the Private Placement. As compensation for its services, Kuhns Brothers
received a cash fee equal to $540,000, representing 10% of the gross proceeds
received from the Private Placement, as well as warrants to purchase 3,907,358
shares of the Company’s Common Stock (the “Agent Warrants”), representing 10%
the aggregate number of shares of common stock issuable to China Hand in the
Private Placement upon conversion of the Preferred Stock.
In
connection with the closing of the Private Placement, the Company and China Hand
amended and restated that certain registration rights agreement
between the Company and China Hand dated August 20, 2008. Pursuant to
the Amended and Restated Registration Rights Agreement (the “Amended and
Restated Registration Rights Agreement”), among other things, the
Company agreed to register all of the shares of common stock underlying the
securities issued to China Hand in the Private Placement, as well as the private
placement that was consummated on August 20, 2008 (collectively, the “Shares”)
within a pre-defined period. Under the terms of the Amended and Restated
Registration Rights Agreement, the Company is obligated to file a registration
statement (the “Registration Statement”) under the Securities Act of 1933
covering the resale of the Shares by May 30, 2009. The Company is subject to
registration delay payments in amounts prescribed by the Amended and Restated
Registration Rights Agreement if it is unable to file the Registration
Statement, cause it to become effective or maintain its effectiveness as
required by the Amended and Restated Registration Rights
Agreement. Registration delay payments will accrue at a rate of
$54,000 per month or one percent (1%) of the gross proceeds of the Private
Placement; provided that the maximum aggregate amount of the registration delay
payments pursuant to the Amended and Restated Registration Rights Agreement is
$810,000, or fifteen percent (15%) of the gross proceeds of the Private
Placement.
Also in
connection with the closing of the Private Placement, the Company entered into a
Securities Escrow Agreement with China Hand and the Escrow Agent, whereby the
Company delivered the Make Good Shares and the Listing Shares to the Escrow
Agent, which shall be released from escrow to China Hand in accordance with the
SPA as described above.
As
partial consideration for the Company’s issuance of the Series B Preferred
Stock, and in connection with the closing of the Private Placement, the Company
and China Hand executed a Waiver (the “Waiver”) of certain post-closing
obligations relating to the private placement consummated between the parties on
August 20, 2008. Specifically, China Hand waived its rights (i)
to 557,212 shares of the Company’s Series A Preferred Stock held in escrow and
due to China Hand as of the date of the closing pursuant to a Securities
Purchase Agreement dated August 8, 2008 (the “August SPA”); provided that the
Company agreed to deliver to China Hand 241,545 shares of Series A Preferred
Stock and to place an additional 241,545 shares of Series A Preferred Stock into
escrow, to be delivered to China Hand if the Company’s after-tax net income for
the year ending December 31, 2009 is not at or above $5,000,000 (the “Amended
Series A Make Good”); (ii) under Section 6.18 of the August SPA in favor of the
Amended Series A Make Good; (iii) to liquidated damages under Section 6.31 of
the August SPA arising from the Company’ s failure to effect a
reverse split of its Common Stock prior to March 31, 2009; and (iv)
its rights to liquidated damages under a Registration Rights Agreement dated
August 20, 2008, provided that the parties enter into the Amended and Restated
Registration Rights Agreement.
In
connection with the Private Placement, China Hand, together with the holders of
the Company’s Series A Convertible Preferred Stock (the “Series A Preferred
Stock”), will have the right to nominate an aggregate of four (4) members to the
Company’s Board of Directors following the closing of the Private
Placement. In connection with the closing of the private placement
consummated between the parties on August 20, 2008 as noted above, China Hand
nominated John D. Kuhns and James Tie Li to the Company’s Board of Directors,
and accordingly, may nominate up to two additional members to the Board of
Directors. John D. Kuhns is the president, chief executive officer,
director and principle shareholder of Kuhns Brothers, and is a principal of
China Hand. James Tie Li is a consultant for Kuhns
Brothers.
The
foregoing summary does not purport to be a complete statement of the parties’
rights and obligations under the Warrants, SPA, Closing Escrow Agreement,
Registration Rights Agreement, Securities Escrow Agreement and the Waiver, or
the transactions contemplated thereby or a complete explanation of the material
terms thereof. The foregoing summary is qualified in its entirety by
reference to the Warrants, SPA, Closing Escrow Agreement, Registration Rights
Agreement, Securities Escrow Agreement and Waiver attached hereto as Exhibits
4.1, 10.1, 10.2, 10.3, 10.4 and 10.5, respectively.
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Item
3.01
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Unregistered Sales of Equity
Securities
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The
information pertaining to the Series B Preferred Stock in Item 1.01 is
incorporated herein by reference in its entirety. Neither the shares of Series B
Preferred Stock or the shares of the Company’s common stock issuable upon
conversion of the Series B Preferred Stock or the Warrants have been registered
under the Securities Act of 1933, as amended, and may not be offered or sold in
the United States absent registration or an applicable exemption from
registration requirements. The Company issued these shares in reliance on the
exemption from registration provided by Regulation D. This current report on
Form 8-K does not constitute an offer to sell, or a solicitation of an offer to
buy, any security and shall not constitution an offer, solicitation or sale in
any jurisdiction in which such offering would be unlawful.
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Item
3.03
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Material Modification to the
Rights of Security Holders
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In
connection with the Private Placement, the Company filed a Certificate of
Designations of Preferences, Rights and Limitations of Series B Convertible
Preferred Stock with the Secretary of State of the State of Delaware (the
“Certificate”). Pursuant to the Certificate, there are 2,000,000 shares of
Series B Preferred Stock authorized. The holders of the Series B Preferred Stock
will be entitled to cumulative dividends at a rate of 6% of the price paid per
share, as may be adjusted in accordance with the Certificate, per annum
compounded daily and payable semi-annually.
Additionally,
in addition to the right to vote as a separate class of securities, the holders
of the Preferred Stock are entitled to vote together with the holders of the
Company’s common stock, with each such holder of Preferred Stock entitled to the
number of votes equal to the number of shares of the Company’s common stock in
to which such Preferred Stock would be converted if converted on the record date
for the taking of a vote. For so long as the number of outstanding
shares of Series B Preferred Stock is at least thirty percent (30%) of the total
number of shares of Series B Preferred Stock issued under the SPA, the holders
of Series B Preferred Stock shall vote together as a single class with the
holders of the Company’s Common Stock, and the holders of any other class or
series of shares entitled to vote with the Common Stock, with the holders of
Series B Preferred Stock issued under the SPA being entitled to seventy percent
(70%) of the total votes on all such matters regardless of the actual number of
shares of Series B Preferred Stock then outstanding, and the holders of Series A
Preferred Stock and Common Stock being entitled to their proportional share of
the remaining 30% of the total votes based on their respective voting power as
calculated under the Certificate of Designations of Preferences, Rights and
Limitations of Series A Convertible Preferred Stock and the Company’s
Certificate of Incorporation.
Each
share of Series B Preferred Stock is initially convertible, at any time at the
sole option of the holder of such Preferred Stock, into 35 shares of the
Company’s Common Stock, subject to future adjustments as provided for in the
Certificate. The Series B Preferred Stock shall automatically convert into
shares of the Company’s common stock immediately prior to any transaction
resulting in a change in control of the Company.
The
foregoing summary does not purport to be a complete statement of the parties’
rights and obligations under the Certificate or a complete explanation of the
material terms thereof. The foregoing summary is qualified in its entirety by
reference to the Certificate attached hereto as Exhibit 4.2.
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Item
5.01
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Changes
in Control of Registrant
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Pursuant
to the transactions contemplated by the Private Placement, the holders of the
Series B Preferred Stock will beneficially own seventy percent (70%) of the
Company’s outstanding voting power in accordance with the Certificate.
Immediately following consummation of the Private Placement, China Hand
transferred its rights to the Series B Preferred Stock to Vicis Capital Master
Fund (“Vicis”). Accordingly, following the Private Placement, Vicis will own
(i) 100% of the Company’s outstanding Series B Preferred Stock, which, as of the
date of closing, entitles Vicis to 70% of the total voting power on all
matters submitted to a stockholder vote, and (ii) 1,368,247 shares of the
Company’s Series A Preferred Stock, which entitles Vicis to approximately 32.4%
of the remaining 30% of the Company’s outstanding voting power following the
issuance of the Series B Preferred Stock, or approximately 9.7% of the total
outstanding voting power of the Company. Accordingly, following the Private
Placement, Vicis owns approximately 79.7% of the total outstanding voting power
of the Company. In addition, Vicis owns warrants to purchase an aggregate of
17,392,446 shares of the Company Common Stock, which on an as-converted basis
would entitle Vicis to approximately 9.5% of the remaining 30% of the Company’s
outstanding voting power following the issuance of the Series B Preferred Stock,
or approximately 2.9% of the total outstanding voting power of the
Company.
Accordingly,
following the closing of the Private Placement, Vicis has acquired control
of the Company and has the power to control
the outcome of matters submitted to stockholders
requiring a majority vote.
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Item
5.02
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Departure
of Directors or Principal Officers; Election of Directors;Appointment of
Principal Officers; Compensatory Arrangements of
CertainOfficers
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Departure
of Chief Financial Officer
On April
16, 2009, Xiaoling Li resigned as the Chief Financial Officer of the Company,
effective immediately. Ms. Li’s resignation was not in connection
with any disagreement with the Company.
Appointment
of Chief Financial Officer
On April
16, 2009, Peng Mun Foo, age 38, was appointed as the Company’s Chief Financial
Officer. Mr. Foo initially joined the Company on January 1, 2009, in
order to assist with the preparation of the Company’s financial statements for
the year ended December 31, 2008. Prior to joining the Company, Mr.
Foo served as Director, Asia Pacific with International Alliance Associates LLC,
a cross border strategic advisory entity, from June 2007 through December
2008. From September 2004 through June 2007, Mr. Foo served as Deputy
General Manager of London Asia Capital Plc, an Asia focused merchant banking and
private equity fund management group. From March 2002 to September
2004, Mr. Foo served as the Chief Operating Officer of Legg Mason Asset
Management (Asia). Mr. Foo has over 15 years of experience investing
in and building businesses in Asia. He is a Certified Public
Accountant and has passed the Charter Financial Analyst level 2
exams. Mr. Foo also holds a Singapore Fund Management
Representative's license and is also a Licensed Private Equity Fund
manager.
Pursuant
to the terms of an informal employment agreement, the Company has agreed to pay
to Mr. Foo an annual salary of $70,000. Additionally, the Company has
agreed to issue to Mr. Foo, contingent upon the achievement of certain
performance-based milestones, which have not yet been determined, and upon the
future adoption of a Company equity incentive plan, shares of the Company’s
common stock pursuant to such plan.
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Item
9.01
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Financial Statements And
Exhibits
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(d)
Exhibits
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Exhibit
No.
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Description
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4.1
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Form
of Warrant
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4.2
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Certificate
of Designations of Preferences, Rights and Limitations of Series B
Convertible Preferred Stock
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10.1
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Series
B Convertible Preferred Stock Securities Purchase Agreement, between China
New Energy Group Company and China Hand Fund I, L.P., dated April 30,
2009.
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10.2
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Closing
Escrow Agreement, among China New Energy Group Company, China Hand Fund I,
L.P. and Escrow LLC, dated April 30, 2009.
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10.3
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Amended
and Restated Registration Rights Agreement, between China New Energy Group
Company and China Hand Fund I, L.P., dated April 30,
2009.
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10.4
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Securities
Escrow Agreement, among China New Energy Group Company, China Hand Fund I,
L.P. and Escrow LLC, dated April 30, 2009.
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10.5
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Waiver
between China New Energy Group Company and China Hand Fund I, L.P., dated
April 30, 2009.
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SIGNATURE
Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly
authorized.
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CHINA
NEW ENERGY GROUP COMPANY
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By:
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/s/ Jiaji Shang
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Jiaji
Shang
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President
and Chief Executive Officer
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Dated:
May 6, 2009
China New Energy (PK) (USOTC:CNER)
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