INVESTOR RIGHTS AGREEMENT
THIS
INVESTOR RIGHTS AGREEMENT (this “Agreement”)
is
made and entered into as of January 29, 2008, by and among (i) China Natural
Gas, Inc., a Delaware corporation (the “Company”),
(ii)
Xi’an Xilan Natural Gas Co., Ltd., a limited liability company incorporated
under the laws of the People’s Republic of China (the “PRC”),
(iii)
Shaanxi Jingbian Liquified Natural Gas Co., Ltd., a limited liability company
formed under the laws of the PRC, (iv) Shaanxi Xilan Natural Gas Equipment
Co.
Ltd., a limited liability company formed under the laws of the PRC, (v) Shaanxi
Xilan Automobile Conversion Co. Ltd., a limited liability company formed
under
the laws of the PRC, and (vi) Henan Branch of Xi’an Xilan Natural Gas Co., Ltd
(collectively (i) through (vi) the “Group
Companies”);
(viii) Mr. Ji Qinan, (the “Controlling
Shareholder”)
and
(vii) Abax Lotus Ltd. (“Abax”
or
the
“Investor”).
Capitalized terms used herein but not otherwise defined herein shall have
the
respective meanings set forth in the Purchase Agreement (as defined
below).
WITNESSETH:
WHEREAS,
the Group Companies and the Investor have entered into a certain Securities
Purchase Agreement dated as of December 30, 2007 (as may be amended, restated
or
supplemented, the “Purchase
Agreement”),
pursuant to which the Company has agreed to issue to the Investor, and the
Investor has agreed to purchase from the Company, an aggregate of up to RMB
363,000,000 of its 5.0% Guaranteed Senior Notes due 2014 settled in U.S.Dollars
(the “Notes”)
and in
connection therewith purchase from the Company certain warrants (the
“Warrants”)
to
purchase the Company’s common stock, par value $.0001 (the “Common
Stock”,
and,
together with the Notes, the “Securities”);
WHEREAS,
in consideration of Investor’s entering into the Purchase Agreements, the
Company, the Group Companies and the Controlling Shareholder have agreed
to
provide certain rights to Investor as set forth in this Agreement.
NOW,
THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the
parties hereto, intending to be legally bound by this agreement, agree as
follows:
1. Representations
and Warranties of the Group Companies and the Controlling
Shareholder.
Each of
the Group Companies and the Controlling Shareholder, jointly and severally,
represents and warrants that:
1.1 Mr.
Ji
Qinan is the beneficial owner, free and clear of all Liens of 5,931,596 shares
of Common Stock (of record or through a brokerage firm or other nominee
arrangement), which constitutes 20.3% of the outstanding voting power of
the
Company’s capital stock.
1.2 Each
of
the Group Companies and the Controlling Shareholder (each of the foregoing,
a
“Warrantor”)
has
full power and authority to make, enter into and carry out the terms of this
Agreement. This Agreement has been duly executed and delivered by each Warrantor
and constitutes the legal, valid and binding obligations of such Warrantor
enforceable against such Warrantor in accordance with its terms, except as
limited by applicable bankruptcy, insolvency, reorganization, moratorium
and
other laws of general application affecting enforcement of creditors’ rights
generally.
1.3 The
execution and delivery of this Agreement by each Warrantor do not, and the
performance of this Agreement by such Warrantor will not: (i) conflict with
or
violate any law, rule regulation, order, decree or judgment applicable to
such
Warrantor or by which such Warrantor or any of the properties of such Warrantor
is or may be bound or affected, or the Charter Documents of any Group Company;
(ii) result in or constitute (with or without notice or lapse of time) any
breach of or default under any contract to which such Warrantor is a party
or by
which such Warrantor or any of the affiliates or properties of such Warrantor
is
or may be bound or affected, or (iii) result in the creation of any encumbrance
or restriction on any of the shares of Common Stock or equity interests in
any
other Group Company or properties of such Warrantor, other than in each of
clause (i), (ii) and (iii), such conflicts, violations, breaches of defaults
that would not, individually or in the aggregate, have a Material Adverse
Effect. The execution and delivery of this Agreement by each Warrantor do
not,
and the performance of this Agreement by each Warrantor will not, require
any
consent or approval of any Person.
2. Covenants
and Agreements.
Unless
the context requires otherwise, each Group Company hereby covenants and agrees,
and the Controlling Shareholder hereby covenants and agrees to cause each
Group
Company to do, as follows:
2.1 Business
Plan and Annual Budget.
As long
as an Investor holds in aggregate 10% of the aggregate principal amount of
Notes
outstanding to the extent permitted by applicable laws and regulations, the
Company shall prepare and notify such Investor, as the case may be, at least
thirty (30) days prior to the beginning of the next financial year or period,
the annual budget (“Annual
Budget”)
of the
Company and its Subsidiaries on a consolidated basis setting out in reasonable
detail the planned annual capital and operating budgets in reasonable detail,
projected revenues, a projected financial statement for such fiscal year
on a
quarterly basis, and promptly after preparation from time to time, any revisions
to the forecasts contained therein of the Company and its Subsidiaries and
attaching thereto such notes as are necessary, desirable or customary, together
with a business plan setting forth in reasonable detail the operating goals
of
the Company and its Subsidiaries for the following year (the “Business
Plan”),
accompanied by such qualifications and disclaimers as management shall deem
appropriate in the circumstances.
2.2 Other
Covenants.
As long
as the Investor holds in aggregate 10% of the aggregate principal amount
of
Notes outstanding or at least 3 % of the Company’s issued and outstanding common
stock pursuant to the Warrants on an as-exercised basis (in either case,
the
“Minimum
Holding”,
the
Investor being referred to herein as an “Eligible
Investor”),
to
the extent permitted by applicable laws and regulations, each Group Company
hereby covenants and agrees, and the Controlling Shareholder hereby covenants
and agrees to cause each Group Company to do, as follows, unless Abax otherwise
provides prior written Investor Approval (as defined below):
2
(a) No
Group
Company shall change the substantive responsibilities of any member of the
senior management of such Group Company and its Subsidiaries, or substitute
any
other Person to perform the substantive responsibilities of such members
of
senior management as they are performed as of the date hereof, other than
in the
case of incapacity of such member of senior management (which for purposes
of
this paragraph shall mean Mr. Ji Qinan).
(b) No
Group
Company or its Subsidiaries, nor the Controlling Shareholder shall issue
or
repurchase any securities, declare or pay any dividend with respect to any
securities, create any security interest or enter into any transaction or
a
series of related transactions the completion of which will result in a Change
of Control of the Company. “Change
of Control”
shall
have the meaning as defined in the Indenture.
(c) No
Group
Company or its Subsidiaries shall dispose of any material amount of assets,
including by way of a sale and leaseback transaction.
(d) No
Group
Company or its Subsidiary shall change the number of members of the board
of
directors (“Board”)
of
such Group Company or its Subsidiaries, or the composition or structure of
the
board or board committees of the Group Company or its Subsidiaries or establish
board committees of such Group Company or its Subsidiaries, or delegate powers
of any Board to a committee, or change the powers, duties or responsibilities
delegated to any committee of the Board of such Group Company in a manner
adverse to the Investor.
(e) No
Group
Company shall amend, alter, waive or repeal any provision of such Group
Company’s or its Subsidiaries’ certificate of incorporation, memorandum and
articles of association or any other organizational or constitutional documents
of such Group Company or its Subsidiaries in a manner adverse to the
Investor.
(f) The
Company shall retain a firm of independent public accountants (the “Accountants”)
of
recognized international standing (from those listed on Schedule
A
hereto)
that is acceptable to the Investor (as determined by Investor Approval),
who
shall certify the Company’s consolidated financial statements each at the end of
each fiscal year. The Company shall not terminate the services of the
Accountants without prior written Investor Approval. In the event that the
Accountants elect to terminate their services to the Company, the Company
shall
provide Eligible Investor with a written notice prior to such resignation
if
reasonably practicable and if not, promptly thereafter notify the Eligible
Investor, and in any event shall request the Accountants to deliver to Eligible
Investor a letter from the Accountants setting forth the reasons for the
termination of their services. In the event of such termination, the Company
shall promptly thereafter engage another firm of independent public accountants
of recognized international standing (from those listed on Schedule
A
hereto)
that is acceptable to the Investor (as determined by Investor Approval) to
be
the new Accountants. In its notice to the Investor, the Company shall state
whether the change of Accountants was recommended or approved by the Company’s
Board or any committee thereof.
3
(g) Without
prior written Investor Approval, no Group Company shall expend any money
in any
financial year or period that deviates in amount by more than 20% of the
amount
in the Approved Budget.
(h) No
Group
Company or its Subsidiaries shall enter into any activities which are not
in the
Ordinary Course of Business of such Group Company or such Subsidiary, as
the
case may be. For the purposes of this paragraph, the term “Ordinary
Course of Business”
means
the ordinary course of business presently engaged in by the Group Company
or its
Subsidiaries as consistent with the past custom and practice of the Company
and
permitted under the all necessary licenses (including any arrangements with
respect to such licenses), consents, authorizations, approvals, orders,
certificates and permits duly obtained by the Group Companies.
(i) As
long
as the Investor is an Eligible Investor, each Group Company shall permit
the
Investor and any authorized representative thereof, to visit and inspect
the
properties of such Group Company, including its corporate and financial records,
to examine its records and make copies thereof and to discuss its affairs,
finances and accounts with its officers, at all such reasonable times and
as
often as may be reasonably requested upon reasonable notice, provided that
such
visits and inspections shall not unduly interrupt the daily operation of
such
Group Company. Such Investor and its participating agents and representatives,
in exercising its rights of inspection hereunder, agrees to maintain the
confidentiality of all financial and other confidential information of such
Group Company acquired by them.
(j) For
the
purpose of this Agreement, “Investor
Approval”
shall
be determined by the vote of the majority in aggregate principal amount of
Notes
held by Abax to the extent it remains to be an Eligible Investor, with, for
purposes of such voting, any Warrant Shares held by them valued at the aggregate
amount equal to the product of the number of such shares and the exercise
price
thereof.
3. Right
of First Refusal for Future Securities Offerings.
3.1 Issuance
Notice.
(a) So
long
as an Investor owns the Minimum Holding, if the Company proposes to issue
or
sell any debt securities including securities convertible into or exchangeable
for Common Stock, to a purchaser that is not an Affiliate of the Company
(the
“Proposed
Third Party Purchaser”),
the
Company shall, not less than fifteen (15) Business Days prior to the
consummation of such issuance or sale, offer such securities to the Eligible
Investor by sending written notice (an “Issuance
Notice”)
to the
Eligible Investor, which Issuance Note shall state (a) a description of the
securities to be issued or sold, including detailed terms of such securities,
(b) the amount of the securities proposed to be issued to the Proposed Third
Party Purchaser (the “Offered
New Securities”);
(c)
the proposed purchase price for the Offered Securities (the “Issuance
Price”);
and
(d) the terms and conditions of such proposed sale. For purposes of this
Agreement, an “Affiliate”
shall
refer to: (i) any Person directly or indirectly controlling, controlled by
or
under common control with another Person, (ii) any Person owning or controlling
50% or more of the outstanding voting securities of such other Person, (iii)
any
officer, director or partner of such Person, (iv) a trust for the benefit
of
such Person referred to in the foregoing clause (ii) of this definition.
The
term “Business
Day”
means
any day that is not a Saturday, Sunday or any other day on which banking
institutions in Hong Kong and the State of Delaware are authorized or obligated
by applicable law, regulation or executive order to close.
4
(b) Upon
delivery of the Issuance Notice, such offer shall be irrevocable unless and
until the rights of first refusal provided for herein shall have been waived
or
shall have expired.
3.2 Option;
Exercise.
By
notification to the Company within fifteen (15) Business Days after the Issuance
Notice is given, the Eligible Investor may elect to purchase or otherwise
acquire, at the price and on the terms specified in the Issuance Notice,
(i) in
the case of debt securities that are not convertible into or exchangeable
for
Common Stock and which are issued in an aggregate principal amount not exceeding
$50,000,000, the whole offered amount of such debt securities; (ii) in case
of
(A) debt securities that are not convertible into or exchangeable for either
Common Stock and (B) debt securities that are convertible into or exchangeable
for Common Stock and that are issued in an aggregate principal amount exceeding
$50,00,000, an amount equal to the proportion of Offered New Securities that
bears the same proportion as such Eligible Investor’s Securities bears to the
Securities owned by such Eligible Investor who may elect to purchase Offered
New
Securities (all such Securities being valued as the aggregate principal amount
of Notes held by such Eligible Investor, and for purposes of such calculation,
any Warrant Shares held by such Eligible Investor valued at the aggregate
amount
equal to the product of the number of such shares and the exercise price
thereof, hereinafter referred to as the “Investor’s
Pro Rata Share”).
The
Eligible Investor (or its assignees) shall be entitled to apportion the rights
of first refusal hereby granted to it among itself and its Affiliates in
such
proportions as it deems appropriate.
3.3 Shelf
Registration.
(a) If,
following the date hereof, and until the earlier of (i) an Investor does
not own
the Minimum Holding and (ii) the date that is six (6) years from the date
hereof, the Company proposes to issue or sell its securities through a Shelf
Registration, the Company shall, not less than 30 days prior to filing a
registration statement on Form S-3 in respect of the Shelf Registration,
offer
such securities to the Investor by sending written notice (a “Shelf
Registration Issuance
Notice”)
to the
Investor, which shall state (a) a description of the securities to be issued
or
sold, including detailed terms of such securities, (b) the total amount of
the
securities to be issued or sold under such registration statement and (c)
the
expected amount of proceeds from the issuance and sale of such securities.
By
notification to the Company within 10 days after the Shelf Registration Issuance
Notice is given, the Investor may elect to enter into negotiation with the
Company, and the Company shall engage in negotiation with the Investor in
good
faith, as to alternative financing other than the Shelf Registration. If
the
Company and the Investor fail to reach a mutually satisfactory agreement
with
respect to such financing five (5) Business Days prior to the filing date
for
the Shelf Registration Statement in respect of such Shelf Registration, the
Company shall be entitled to proceed with the filing of such Shelf Registration
Statement.
5
(b) Following
the date on which the Shelf Registration Statement is declared effective
by the
Commission and so long as such Shelf Registration Statement remains effective,
the Company shall, not less than five (5) Business Days prior to the proposed
sale of any securities by way of a “take-down” under such Shelf Registration
Statement (a “Take-down”),
offer
such securities to the Investor by sending a written notice (a “Take-down
Notice”),
which
shall state (a) a description of the securities to be issued or sold, including
detailed terms of such securities, (b) the amount of the securities to be
issued
or sold under such Shelf Registration Statement (the “Offered
Take-down Securities”);
(c)
the proposed purchase price for the Offered Take-down Securities (the
“Take-down Price”);
and
(d) the terms and conditions of such proposed sale.
(c) By
notification to the Company within fifteen (15) Business Days after the
Take-down Notice is given, the Investor may elect to purchase or otherwise
acquire, at the price and on the terms specified in such Take-down Notice,
up to
such number of Offered Take-down Securities as is equal to the number of
Offered
Take-down Securities multiplied by a fraction the numerator of which is the
number of shares of the Company’s common stock issued and issuable upon
conversion of the Warrants and the denominator of which are the number of
outstanding shares of the Company’s common stock. The closing of the sale of the
Offered Take-down Securities pursuant to this Section
3.3(c) shall
occur within thirty (30) days after the date on which such notification is
given
by the Investor.
(d) The
Company may, subject to the terms hereof and any applicable securities law,
offer and sell the remaining unsubscribed portion of such securities by way
of a
Take-down at a price not less than, and upon terms no more favorable than,
those
specified in the Take-down Notice. If the Company does not offer and sell
such
securities through the Take-down within sixty (60) days after the execution
thereof, the right of first offer provided in this Section
3.3
shall be
deemed to be revived and such securities shall not be offered by way of a
Take-down unless first reoffered to the Investor in accordance with this
Section
3.3.
3.4 Right
to Sell to Proposed Third Party Purchaser.
If less
than all of the Offered New Securities entitled to be purchased or acquired
by
the Eligible Investor are elected to be purchased or acquired as provided
in
Section
3.2,
the
Company may, during the thirty (30) day period following the expiration of
the
fifteen (15) day period provided in Section
3.2,
offer
and sell the remaining unsubscribed portion of such securities to the Proposed
Third Party Purchaser in the Issuance Notice at a price not less than, and
upon
terms not materially more favorable to the Proposed Third Party Purchaser
than,
those specified in the Issuance Notice. If the Company does not enter into
an
agreement for the sale of such securities within such period, or if such
agreement is not consummated within thirty (30) days after the execution
thereof, the right of first refusal provided hereunder shall be deemed to
be
revived and such securities shall not be offered to a third party unless
first
reoffered to the Eligible Investor in accordance with this Section.
6
4. Right
of First Refusal for the Controlling Shareholder’s Transfer and Tag-Along
Right.
4.1 Securities
Notice.
As long
as an Investor holds the Minimum Holding, subject to Section
4.8
of this
Agreement, if the Controlling Shareholder proposes to sell or transfer any
securities of the Company held by it or any other Permitted Holder (as defined
below) to a third party purchaser (the “Third
Party Purchaser”)
other
than as otherwise agreed by Investor Approval in writing prior to such sale
or
transfer, or in the case of any Exempt Transfer (as defined in Section
4.7
below),
such Controlling Shareholder shall, within twenty (20) days prior to the
consummation of such transfer or sale, offer such securities to the Eligible
Investor by sending written notice (an “Offering
Notice”)
to the
Eligible Investor, which shall state (a) the identity of the Third Party
Purchaser, (b) the type and number of such securities proposed to be transferred
(the “Offered
Securities”),
including detailed terms of such securities (if other than Common Stock);
(c)
the proposed purchase price per share for the Offered Securities (the
“Offer
Price”);
and
(d) the terms and conditions of such sale. The Offering Notice shall also
include a copy of any written proposal, term sheet or letter of intent or
other
agreement or understanding relating to the Offered Securities. Upon delivery
of
the Offering Notice, such offer shall be irrevocable unless and until the
rights
of first refusal provided for herein shall have been waived or shall have
expired.
4.2 Option;
Exercise.
For a
period of fifteen (15) days after the giving of the Offering Notice pursuant
to
Section
4.1
(the
“Option
Period”),
the
Eligible Investor shall have the right to purchase its Investor’s Pro Rata Share
of the Offered Securities at a purchase price equal to the Offer Price and
upon
terms and conditions no less favorable than those set forth in the Offering
Notice;
provided,
however,
that if
transaction set forth in the Offering Notice involves a registered public
offering of securities by the Controlling Shareholder, then in such event,
in
lieu of its right to purchase all of the Offered Securities, the Eligible
Investor may elect to purchase or otherwise acquire that portion of the Offered
Securities which equals the proportion that the Common Stock issued and held,
or
issuable (directly or indirectly) upon conversion and/or exercise, as
applicable, of the Warrants and any other Derivative Securities then held,
by
such Eligible Investor bears to the total Common Stock of the Company then
outstanding (assuming full conversion and/or exercise, as applicable, of
all
Warrants and other Derivative Securities). The Eligible Investor (or its
assignees) may assign to any of its Affiliates (other than a Person engaged
in
the Business) all or any portion of its rights pursuant to this
Section.
4.3 The
right
of the Eligible Investor to purchase all or any part of the Offered Securities
under Section
4.2
above
shall be exercisable by delivering written notice of the exercise thereof
(the
“ROFR
Exercise Notice”),
prior
to the expiration of the Option Period, to the Controlling Shareholder. The
failure of such Eligible Investor to respond within the Option Period to
such
Controlling Shareholder shall be deemed to be a waiver of that Eligible
Investor’s rights under Section
4.1
above.
4.4 Closing.
The
closing of the purchases of Offered Securities subscribed for by the Investor
under Section
4.3
shall be
held at the executive office of the Company at 11:00 a.m., local time, on
the
30th day after the giving of the ROFR Exercise Notice pursuant to Section
4.3
or at
such other time and place as the parties to the transaction may agree. At
such
closing, such Controlling Shareholder shall deliver certificates representing
such Offered Securities, duly endorsed for transfer and accompanied by all
requisite transfer taxes, if any, and such Offered Securities shall be free
and
clear of any Liens (other than those arising hereunder and those attributable
to
actions by the purchasers thereof) and the Controlling Shareholder shall
so
represent and warrant, and shall further represent and warrant that it is
the
sole beneficial and record owner of such Offered Securities. Such Eligible
Investor shall deliver at the closing payment in full in immediately available
funds for the Offered Securities purchased by them or their respective
Affiliates. At such closing, all of the parties to the transaction shall
execute
such additional documents as are otherwise necessary or
appropriate.
7
4.5 Sale
to a Third Party Purchaser.
Unless
Eligible Investor elects to purchase all of the Offered Securities under
Section
4.2,
the
Controlling Shareholder may, subject to Section
4.8,
sell
the remaining Offered Securities not purchased by such Eligible Investor
to the
Third Party Purchaser identified in the Offering Notice at a price not less
than
the Offer Price, and on terms not materially more favorable than the terms
set
forth in the Offering Notice; provided,
however,
that
such sale is bona fide and made pursuant to a contract entered into within
thirty (30) days after the earlier to occur of (i) the waiver by Eligible
Investor of its rights to purchase the Offered Securities and (ii) the
expiration of the Option Period (the “Contract
Date”);
and
provided
further,
that
such sale shall not be consummated unless prior to the purchase by such Third
Party Purchaser of any of such Offered Securities, such Third Party Purchaser
shall become a party to this Agreement and agree to be bound by the terms
and
conditions hereof that are applicable to the Controlling Shareholder,
provided
that if
such Third Party Purchaser, together with any other Third Party Purchasers
and
on an aggregated basis, owns less than 10% of the Company’s outstanding capital
stock on an as-converted, fully diluted basis following such sale, then such
Third Party Purchaser shall not be bound by Sections
1,
2,
3
and
6
of this
Agreement. If such sale is not consummated within thirty (30) days after
the
earlier to occur of (i) the waiver by Eligible Investor of its option to
purchase the offer and (ii) the Contract Date for any reason, then the
restrictions provided for herein shall again become effective, and no transfer
of such Offered Securities may be made thereafter by such Controlling
Shareholder without again offering the same to the Eligible Investor in
accordance with this Section.
4.6 Tag-Along
Right.
(a) If
the Controlling Shareholder is directly or indirectly transferring Offered
Securities to a Third Party Purchaser pursuant to Section
4.5,
then
the Eligible Investor shall have the right to sell to such Third Party Purchaser
that number of Shares equal to that percentage of the Offered Securities
determined by dividing (i) the total number of outstanding shares of the
Common
Stock of the Company (the “Shares”)
(on an
as-converted basis) then owned by such Eligible Investor by (ii) the sum
of (x)
the total number of Shares (on an as-converted basis) then owned by such
Eligible Investor and (y) the total number of Shares then owned by the
Controlling Shareholder, at a price equal to the Offer Price, with other
terms
set forth in the Offering Notice. The Controlling Shareholder and Eligible
Investor shall effect the sale of the Offered Securities and Eligible Investor
shall sell the number of Offered Securities to be sold by them pursuant to
this
Section, and the number of Offered Securities to be sold to such Third Party
Purchaser by the Controlling Shareholder shall be reduced
accordingly.
8
(b)
The
Controlling Shareholder shall give notice to the Eligible Investor of each
proposed sale by it, or any other Permitted Holder of Offered Securities
which
gives rise to the rights of the Eligible Investor set forth in this Section,
at
least thirty (30) days prior to the proposed consummation of such sale, setting
forth the type and number of Offered Securities, including detailed terms
of
such securities (if other than Common Stock), the name and address of the
proposed Third Party Purchaser, the proposed amount and form of consideration
and terms and conditions of payment offered by such Third Party Purchaser,
the
percentage of shares of Common Stock that the Eligible Investor may sell
to such
Third Party Purchaser (determined in accordance with Section
4.6(a)),
and a
representation that such Third Party Purchaser has been informed of the
“tag-along” rights provided for in this Section and has agreed to purchase
Offered Securities in accordance with the terms hereof. The tag-along rights
provided by this Section must be exercised by the Eligible Investor within
thirty (30) days following receipt of the notice required by the preceding
sentence, by delivery of a written notice to the Controlling Shareholder
indicating such Eligible Investor’s election to exercise its rights and
specifying the number of shares of Common Stock (up to the maximum number
of
shares of Common Stock owned by such Eligible Investor required to be purchased
by such Third Party Purchaser) it elects to sell (the “Tag-along
Exercise Notice”),
provided
that any
Eligible Investor may waive its rights under this Section prior to the
expiration of such thirty (30) day period by giving written notice to the
Controlling Shareholder, with a contemporaneous copy to the Company and any
other Eligible Investor, upon which any other Eligible Investor may elect
to
exercise its share of such waived rights (determined in accordance with
Section
4.6(a))
prior
to the expiration of the allotted time period therefor by giving written
notice
to the Controlling Shareholder. The failure of an Eligible Investor to respond
within such thirty (30) day period shall be deemed to be a waiver of such
Eligible Investor’s rights under this Section. If a Third Party Purchaser fails
to purchase shares of Common Stock from any Eligible Investor, notwithstanding
such Eligible Investor’s proper exercise of its tag-along rights pursuant to
this Section
4.6(b),
then
such Controlling Shareholder shall either contemporaneously purchase from
such
Eligible Investor at the Offer Price such number of shares of Common Stock
as
the Third Party Purchaser failed to purchase from such Eligible Investor,
or if
the Controlling Shareholder does not so purchase, it shall not be permitted
to
consummate the proposed sale of the Offered Securities, the Company shall
not
register the transfer of such Offered Securities on its share register, and
any
such attempted sale shall be null and void ab
initio.
4.7 Exempt
Transfers.
The
right of first refusal and tag-along rights set forth in this Section
4
shall
not apply to any of (i) any Transfer (as defined below) to a Permitted Holder;
provided
that
adequate documentation therefor is provided to the Eligible Investor to its
satisfaction and that any such Permitted Holder agrees in writing to be bound
by
this Agreement in place of the relevant transferor; provided,
further,
that
such transferor shall remain liable for any breach by such Permitted Holder
of
any provision hereunder, (ii) the sale in an unsolicited broker’s transaction
pursuant to Rule 144 under the Securities Act of 1933, as amended, or (iii)
so
long as the Controlling Shareholder beneficially owns at least 30% of the
Company’s outstanding Common Stock (the “Exempt
Transfers”).
“Transfer”
shall
mean sell, transfer, assign, pledge, hypothecate, dispose of, mortgage, enter
into any voting trust or other agreement, option or other arrangement or
understanding with respect thereto, whether directly or indirectly and whether
voluntarily or involuntarily. “Permitted
Holder”
means
the Controlling Shareholder’s parents, children or spouse or trusts for the
benefit of such persons, and any legal entity in which such Controlling
Shareholder holds a majority of the equity interests and “controls” such
entity.
4.8 Prohibited
Transfers.
(a) Notwithstanding
anything to the contrary contained herein, to the extent permitted under
applicable law, the Controlling Shareholder shall not, and the Controlling
Shareholder shall cause the Permitted Holder not to, without prior written
Investor Approval, which shall not be unreasonably withheld, Transfer through
one or a series of transactions more than 10% of the equity securities of
the
Company beneficially owned by such Controlling Shareholder to any Person,
so
long as the Investor owns 5% or more of the total outstanding equity interest
in
the Company on a fully diluted basis, provided
that the
foregoing provision shall not apply to any Exempt Transfer.
9
(b) The
Controlling Shareholder shall ensure that no other Permitted Holder shall
sell
or transfer equity securities of the Company that were received from a
Controlling Shareholder and are held by such Permitted Holder, other than
as
provided in this Agreement. Any attempt by any Controlling Shareholder or
any
other Permitted Holders to sell or transfer any equity securities of the
Company
held by it or any other Permitted Holder in violation of this Section shall
be
void and the Company hereby agrees it will not effect such a transfer on
its
share register nor will it treat any alleged transferee as the holder of
such
shares.
5. Board
Representation.
5.1 Number
of Board Members.
The
Company shall, effective upon Closing and until the termination of this
Agreement, take all appropriate actions to fix and maintain a Board of no
more
than eight (8) voting members and the Company shall not change the number
of
voting members of its Board without Abax’s prior written approval so long as the
Investor holds the Minimum Holding.
5.2 Abax
Nominees.
Upon
the Abax Election (as defined below), as long as Abax continues to hold more
than 10% of the outstanding shares of Common Stock on an as exercised and
fully-diluted basis, it shall be entitled to appoint one (1) of the voting
members of the Company’s Board (the “Abax
Nominee”).
5.3 Board
Committees.
To the
extent permitted by applicable law and exchange listing rules, the Abax Nominee
shall be entitled to be members of all committees of the boards of directors
of
the Company and its Subsidiaries, if any, it being understood that the Abax
Nominee shall not be a member of the Audit Committee until he or she is an
independent director.
5.4 Abax
Election.
If Abax
provides written notice to the Company informing the Company of (i) its election
(the “Abax
Election”)
to be
represented on the Board and (ii) the name of the Abax Nominee, then, as
soon as
practicable after its receipt of such notice from Abax, but in no event later
than thirty (30) Business Days after such receipt, the Company shall:
(a) provide
notice of the Abax Election to the Company’s Board and the Controlling
Shareholder, and
(b) to
the
extent permissible under applicable laws and regulations (including rules
of any
relevant listing exchange), take all necessary actions so as to permit the
Abax
Nominee to be duly appointed or elected as members of the Company’s Board as
soon as practicable.
Subject
to the conditions and limitations set forth herein, the Abax Election may
be
exercised by Abax at any time in its sole discretion.
10
5.5 Voting
Agreement.
Upon
the Abax Election, the Controlling Shareholder agrees to vote, or cause to
be
voted, all of the Company’s Shares owned by such Controlling Shareholder or any
other Permitted Holder (of record or through a brokerage firm or other nominee
arrangement), or over which such Controlling Shareholder has voting control,
from time to time and at all times, in whatever manner as shall be necessary
to
ensure that at each annual or special meeting of shareholders at which an
election of directors is held or pursuant to any written consent of the
shareholders, the Abax Nominee is duly elected to the Board. The Controlling
Shareholder further covenants not to frustrate the purpose of the immediately
preceding sentence by any means, including through entering into any agreement
or commitment inconsistent with such purpose, including but not limited to
any
inconsistent pledge, charge, hypothecation, voting agreement, voting trust
or
other disposition of voting rights of the Common Stock over which such
Controlling Shareholder retains beneficial ownership or the economic benefits
and risks attendant thereto.
5.6 Vacancies.
Any
vacancies created by the resignation, removal or death of the Abax Nominee
appointed or elected to the Board shall be filled pursuant to the provisions
of
this Section.
5.7 Participation
by Phone.
Following the Abax Election, the Company shall not take any action to amend
its
by-laws to prevent members of the Board of Directors, or of any committee
thereof, from participating in a meeting of such Board of Directors or committee
by means of conference telephone or other communications equipment.
5.8 Reimbursement.
Each
time the Abax Nominee attends a face-to-face meeting of the Board, the Company
shall reimburse such director for reasonable travel expenses on the same
basis
as the other members of the Board.
6. Indemnification.
(a) In
addition to all rights and remedies available to any Investor at law or in
equity, each Group Company and the Controlling Shareholder shall jointly
and
severally indemnify the Investor, and its Affiliates, stockholders, officers,
directors, employees, agents, representatives, successors and permitted assigns
(collectively, the “Indemnified
Parties”)
and
save and hold each of them harmless against and pay on behalf of or reimburse
such party as and when incurred for any loss (including, without limitation,
diminutions in value), liability, demand, claim, action, cause of action,
cost,
damage, deficiency, tax, penalty, fine or expense, whether or not arising
out of
any claims by or on behalf of any third party, including interest, penalties,
reasonable attorneys’ fees and expenses and all reasonable amounts paid in
investigation, defense or settlement of any of the foregoing (collectively,
“Losses”)
which
any such party may suffer, sustain or become subject to, as a result of,
in
connection with, relating or incidental to or by virtue of:
(i) any
misrepresentation or breach of a representation or warranty on the part of
any
Warrantor herein;
(ii) any
nonfulfillment or breach of any covenant or agreement herein on the part
of any
Group Company or the Controlling Shareholder, or of any Senior Management
Member
pursuant to the Non competition and Non-Solicitation Agreement entered into
the
date hereof between the Investor and each such Senior Management Member;
or
11
(iii) any
action, demand, proceeding, investigation or claim by any third party
(including, without limitation, governmental agencies) against or affecting
any
Group Company and/or its Affiliates or Subsidiaries which, if successful,
would
give rise to or evidence the existence of or relate to a breach of (A) any
of
the representations or warranties at the time made or (B) covenants of such
Group Company or the Controlling Shareholder.
(b) Notwithstanding
the foregoing, and subject to the following sentence, upon judicial
determination, which is final and no longer appealable, that the act or omission
giving rise to the indemnification hereinabove provided resulted primarily
out
of or was based primarily upon the Indemnified Party’s gross negligence, fraud
or willful misconduct (unless such action was based upon the Indemnified
Party’s
reliance in good faith upon any of the representations, warranties, covenants
or
promises made by any Warrantor herein) by the Indemnified Party, neither
any
Group Company nor any Controlling Shareholder shall be responsible for any
Losses sought to be indemnified in connection therewith, and each Group Company
and the Controlling Shareholder shall be entitled to recover from the
Indemnified Party all amounts previously paid in full or partial satisfaction
of
such indemnity, together with all costs and expenses of such Group Company
and
the Controlling Shareholder reasonably incurred in effecting such recovery,
if
any.
(c) All
indemnification rights hereunder shall survive indefinitely, regardless of
any
investigation, inquiry or examination made for or on behalf of, or any knowledge
of any Investor and/or any of the other Indemnified Parties.
(d) Notwithstanding
anything to the contrary in this Agreement, the Controlling Shareholder,
solely
in his capacity as the Controlling Shareholder, shall not, be liable for
any
Losses under Section
6(a)(i), (ii)
and
(iii)
that are
due to: (i) any misrepresentation or breach of a representation or warranty
on
the part of any Group Company herein; (ii) any nonfulfillment or breach of
any
covenant or agreement herein on the part of any Group Company; or (iii) any
action, demand, proceeding, investigation or claim by any third party
(including, without limitation, governmental agencies) against or affecting
any
Group Company and/or its Affiliates or Subsidiaries which, if successful,
would
give rise to or evidence the existence of or relate to a breach of (A) any
of
the representations or warranties at the time made or (B) covenants of such
Group Company; provided
that
the
Controlling Shareholder is (x) not in breach of any of its representations
and
warranties herein, (y) has otherwise complied with all its obligations under
this Agreement and (z) has taken no action that could have reasonably been
expected to result in any of the proceeding described in clause (iii) above
for
which indemnification is sought. For the avoidance of doubt, such Losses
referred to in this Section shall be joint and several among each of the
Group
Companies.
(e) The
indemnity obligations that each Group Company and the Controlling Shareholder
have under this Section shall be in addition to any liability that such Group
Company and the Controlling Shareholder may otherwise have.
12
7. Miscellaneous.
7.1 Termination.
Except
for Sections
6
and
7,
which
shall survive the termination of this Agreement, or as otherwise expressly
provided herein, this Agreement will be automatically terminated with no
further
effect with respect to an Investor at such time that such Investor no longer
holds any Securities (including the Warrant Shares issued upon exercise of
the
Warrants).
7.2 Specific
Enforcement.
Upon a
breach by any Controlling Shareholder or any Group Company of this Agreement,
in
addition to any such damages as any Investor is entitled to, directly or
indirectly, by reason of said breach, the Investor shall be entitled to
injunctive relief against such Controlling Shareholder or such Group Company
if
such relief is applicable and available, as a remedy at law would be inadequate
and insufficient. Nothing in this Section shall be construed as limiting
any
Investor’s remedies in any way.
7.3 Notices.
All
notices, requests, consents and other communications hereunder shall be in
writing and shall be personally delivered or delivered by overnight courier
or
mailed by first-class registered or certified mail, postage prepaid, return
receipt requested, or by facsimile transmission. Every notice hereunder shall
be
deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, upon transmission by facsimile and
confirmed facsimile receipt, or two (2) days after the same shall have been
deposited with a reputable international overnight courier.
(a) If
to an
Investor, at its address as set forth in the Purchase Agreement, or at such
other address as may have been furnished to the Company by it in
writing.
(b) If
to the
Controlling Shareholder, at the address set forth on Schedule
B
to this
Agreement, or at such other address as may have been furnished to the Company
by
it in writing, with a copy to:
Xxxxx
Rozynko LLP
000
Xxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx
Xxxxxxxxx, XX 00000
XXX
Attention:
Xxxxxxxx X. Xxxxxxx, Esq.
Fax:
x0
000 000 0000
(c) If
to the
Company at:
Attn:
Chief Executive Officer
00xx
Xxxxx,
Xxxxxxxx X, Xxx Xxxxxxxxxx
Xx.
00
Xxxxxx Xxxx
Xxxx
Xxxx
Xxxx
Xi’an
710065, Shaanxi Province
P.R.
China
Fax:
x00
00 0000 0000
13
00
Xxxx
Xxx Xxxxx# 0000
Xxx
Xxxx,
XX 00000
Attention:
Taylor Zhang
Fax:
x0
000 000 0000
with
a
copy to:
Xxxxx
Rozynko LLP
000
Xxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx
Xxxxxxxxx, XX 00000
XXX
Attention:
Xxxxxxxx X. Xxxxxxx, Esq.
Fax:
x0
000 000 0000
7.4 Amendments
and Waiver.
Unless
otherwise specifically stated herein, any term of this Agreement may be amended
with the written consent of the party against whom enforcement may be sought
and
the observance of any term of this Agreement may be waived (either generally
or
in a particular instance and either retroactively or prospectively) by the
Company and the Controlling Shareholder, in the case of an Investor’s
obligations, and by the Investor entitled to rights hereunder in the case
of the
obligations of any other parties hereto. No waivers of or exceptions to any
term, condition or provision of this Agreement, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver of
any
such term, condition or provision.
7.5 Entire
Agreement.
This
Agreement embodies the entire agreement and understanding between the parties
hereto and supersedes all prior agreements and understandings relating to
the
subject matter hereof.
7.6 Severability.
The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provisions of this Agreement
to the extent permitted by law.
7.7 Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws
of the
State of New York. Each Group Company and Controlling Shareholder agrees
that
any suit, action or proceeding against it arising out of or based upon this
Agreement or the transactions contemplated hereby may be instituted in any
State
or U.S. federal court in The City of New York and County of New York, and
waives
any objection which it may now or hereafter have to the laying of venue of
any
such proceeding, and irrevocably submits to the non-exclusive jurisdiction
of
such courts in any suit, action or proceeding.
7.8 Successors
and Assigns.
Except
for the rights of Eligible Investor pursuant to Sections
3
and
4
and as
otherwise provided herein, the terms and conditions of this Agreement shall
be
binding upon, and inure to the benefit of, the respective representatives,
successors and assigns of the parties hereto.
14
7.9 Counterparts.
This
Agreement may be executed in two or more counterparts, each of which shall
be
deemed an original, but all of which together shall constitute one and the
same
instrument.
[THE
REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
15
IN
WITNESS WHEREOF, the undersigned have executed this Investor Rights Agreement
as
of the day and year written above.
| GROUP COMPANIES: | ||
| CHINA NATURAL GAS INC. | ||
| By: |
/s/
Qinan Ji
|
|
|
Name: |
||
| Title: | ||
|
SHAANXI
XILAN NATURAL GAS EQUIPMENT CO., LTD.
|
||
| By: |
/s/
Qinan Ji
|
|
|
Name:
|
||
| Title: | ||
| XI’AN XILAN NATURAL GAS CO., LTD. | ||
| By: |
/s/
Qinan Ji
|
|
|
Name: |
||
| Title: | ||
| SHAANXI JINGBIAN LIQUIFIED NATURAL GAS CO., LTD. | ||
| By: |
/s/
Qinan Ji
|
|
|
Name: |
||
| Title: | ||
| SHAANXI XILAN AUTOMOBILE CONVERSION CO., LTD. | ||
| By: |
/s/
Qinan Ji
|
|
|
Name:
|
||
| Title: | ||
[SIGNATURE
PAGE TO INVESTOR RIGHTS AGREEMENT]
|
HENAN
BRANCH OF XI’AN XILAN NATURAL GAS CO. LTD.
|
||
| By: |
/s/
Qinan Ji
|
|
|
Name: |
||
| Title: | ||
|
CONTROLLING
SHAREHOLDER:
|
||
| By: |
/s/
Qinan Ji
|
|
|
Mr. Ji. Qinan |
||
| as the Controlling Shareholder | ||
[SIGNATURE
PAGE TO INVESTOR RIGHTS AGREEMENT]
|
Accepted
and Agreed to:
|
||
|
|
||
|
ABAX
LOTUS LTD.
|
||
|
By:
|
/s/
Xxxx Xxxxx Dong
|
|
|
Name:
|
||
|
Title:
Authorized Signatory
|
||
[SIGNATURE
PAGE TO INVESTOR RIGHTS AGREEMENT]
Schedule
A
List
of
Accounting Firms
|
|
1.
|
PricewaterhouseCoopers
|
|
|
2.
|
Deloitte
Touche Tohmatsu
|
|
|
3.
|
Ernst
& Young
|
|
|
4.
|
KPMG
|
|
5.
|
BDO
International
|
|
|
6.
|
Xxxxx
Xxxxxxxx International
|
|
|
7.
|
RSM
International
|
|
|
8.
|
Xxxxx
Xxxxx International
|
|
|
9.
|
Xxxxxxx
International
|
|
|
10.
|
Xxxxxx
Xxxxxxx International
|
|
|
11.
|
Xxxx
Xxxxx
|
|
|
12.
|
X.X.
Xxxx
|
|
|
13.
|
Xxxxx
Xxxxxx and Co. LLC
|
|
|
14.
|
Xxxxxx
& Xxxxx PLLC
|
|
|
15.
|
BKD
LLP
|
|
|
16.
|
Xxxxx
Xxxxxxxx Xxxxx Xxxxxx & Xxxxxx,
LLP
|
Schedule
B
Addresses
of Controlling Shareholder:
00xx
Xxxxx,
Xxxxxxxx X, Xxx Xxxxxxxxxx
Xx.
00
Xxxxxx Xxxx
Xxxx
Xxxx
Xxxx
Xi’an
710065, Shaanxi Province
P.R.
China
