INVESTOR RIGHTS AGREEMENT
EXECUTION
VERSION
THIS
INVESTOR RIGHTS AGREEMENT (this
“Agreement”)
is
made and entered into as of September 28, 2007,
by and
among (i) (a) Sinoenergy Corporation, a Nevada corporation (the “Company”),
Sinoenergy Holdings, Ltd., a British Virgin Islands limited liability company
(“Holdings”),
Qingdao Sinogas General Machinery Company Limited, a wholly foreign-owned
limited liability company organized and existing under the laws of the People’s
Republic of China (the “PRC”)
(the
“WFOE”,
and,
together with the Company, Holdings and the other companies set forth on
Schedule
A
hereto,
the “Group
Companies”);
(b)
Xx. XXXX Tianzhou, a resident of Qingdao in the PRC, and (c) Mr. XXXXX Xx,
a
resident of Qingdao Province in the PRC (collectively, Messrs. DENG and XXXXX
are referred to herein as the “Controlling
Shareholders”
and
individually as the “Controlling
Shareholder”);
and
(ii) Abax
Lotus Ltd. (“Abax”)
and
CCIF Petrol Limited (“CCIF”and,
together with Abax, the “Investors”).
Capitalized terms used herein but not otherwise defined herein shall have the
respective meanings set forth in the Notes Purchase Agreement (as defined below)
and the Convertible Note Indenture.
WITNESSETH:
WHEREAS,
the Group Companies and the Investors have entered into that certain
Notes
Purchase
Agreement dated as of September 1, 2007 (the “Notes
Purchase
Agreement”),
pursuant to which the Company has agreed to issue to the Investors, and the
Investors have severally agreed to purchase from the Company, an aggregate
of
US$16,000,000 of the Company’s 12% Guaranteed Senior Notes due 2012
(the
“Senior
Notes”)
and
an
aggregate of the Company’s US$14,000,000 3.0% Guaranteed Senior Convertible
Notes due
2012
(the
“Convertible
Notes”,
and
together
with the Senior Notes, the “Notes”),
which
are convertible into the Company’s common stock, par value $0.001
(the
“Common
Stock”,
and,
together with the Notes, the “Securities”);
WHEREAS,
in consideration of the Investors entering into the
Notes
Purchase
Agreement, the Company, the Group Companies and the Controlling Shareholders
have agreed to provide certain rights to the Investors 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
Shareholders.
Each of
the Group Companies and the Controlling Shareholders, jointly and severally,
represents and warrants that:
1.1 Xx.
XXXX
Tianzhou is the beneficial owner, free and clear of all Liens, of 6,396,923
shares
of
Common
Stock
(of
record or through a brokerage firm or other nominee arrangement), which
constitutes 20.36%
of
the outstanding voting power of the Company’s capital stock,
as set
forth in Exhibit A to this Agreement.
1
1.2 Mr.
XXXXX
Xx is the beneficial owner, free and clear of all Liens, of 6,396,923
shares
of
Common
Stock (of record or through a brokerage firm or other nominee arrangement),
which constitutes 20.36%
of the
outstanding voting power of the Company’s capital stock, as set forth in Exhibit
A to this Agreement.
1.3 Each
of
the Group Companies and the Controlling Shareholders (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.
1.4 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 any
Warrantor or by which any Warrantor or any of the properties of any 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 any Warrantor is a party or by which
any
Warrantor or any of the affiliates or properties of any 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 any Warrantor. 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 each of the Controlling Shareholders 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 at least $2.0 million of Notes it purchased under the
Notes
Purchase Agreement, or at least 3% of the Company’s issued and outstanding
common stock (in either case, the “Minimum
Holding”),
to
the extent not otherwise made publicly available and to the extent permitted
by
applicable laws and regulations, the Company shall prepare
and submit to such Investor and all other such Investors for their approval
(determined by the vote of the majority in aggregate principal amount of Notes
held by such Investors, with any Conversion Shares held by such Investors valued
as Convertible Notes at the initial Conversion Price in the Convertible Note
Indenture, which vote is referred to herein as “Investor
Approval”)
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”).
2
The
Investors acknowledge that the Company could be irreparably damaged if material
non-public information concerning the business and affairs of the Company were
disclosed to or utilized on behalf of any person. Each of the Investors
severally and not jointly covenants and agrees to and with the Company that
it
will not use material non-public information regarding the Company in violation
of applicable securities laws, including without limitation Rule 10b-5 under
the
Securities Exchange Act of 1934.
2.2 Other
Covenants.
As
long
as any Investor holds the Minimum Holding,
each
Group Company hereby covenants and agrees as follows, unless all such Investors
otherwise provide prior Investor Approval in their sole discretion, provided,
that
any action that is approved by the Board of Directors with at least one designee
of Abax participating, shall be deemed to have been approved by the
Investors:
(a) No
Group
Company shall change
the substantive responsibilities of the chief executive officer of the Company
or his role in senior management of such Group Company and
its
Subsidiaries, or substitute any other Person to perform the substantive
responsibilities of the chief executive officer as they are performed as of
the
date hereof, other than in the case of incapacity, resignation or retiruement
of
the chief executive officer.
(b) No
Group
Company or its Subsidiaries shall issue
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 Convertible Note Indenture.
(c) 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.
(d) 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.
3
(e) The
Company shall retain independent public accountants (the “Accountants”)
of
recognized international standing (from those listed on Schedule
B
hereto),
who shall certify the Company’s consolidated financial statements each at the
end of each fiscal year. The Company covenants that it shall pay an amount
equal to $2.5 million on April 1 of each fiscal year, commencing April 1, 2008,
if on or before that date none of the Accountants identified on Schedule
B
hereto
has been appointed as the Company’s auditor, such amount to be paid pro
rata
to each
Investor in the proportion that the Notes held by such Investor bears to the
aggregate amount of Notes initially issued pursuant to the Notes Purchase
Agreement. The
Company shall not terminate the services of the Accountants without prior
written Investor Approval, provided
that at
any time the Company has an audit committee in compliance with the
Xxxxxxxx-Xxxxx Act of 2002 (an “Audit
Committee”),
the
Company shall not require such Investor Approval if the Company has the approval
of such Audit Committee and an Abax Nominee (as defined below) is a member
of
the Audit Committee and has voted in favor of dismissing the Accountant;
provided,
further,
that if
an Abax Nominee is not a member of the Audit Committee because such Abax Nominee
is not an independent director, as defined by the Nasdaq Stock Exchange, or,
if
the Company is listed on the New York or American Stock Exchange, as defined
by
that exchange, then it shall be necessary for such Abax Nominee to have
consented to the termination of the services of the Accountants.
In the
event that the Accountants elect to terminate their services to the Company,
the
Company shall provide such Investors with a written notice prior to such
resignation if reasonably practicable and if not, promptly thereafter notify
such Investors, and at any time that the Company is not required to file current
reports on Form 8-K with the Securities Exchange Comission (the “Commission”)
and
does not file such report, the Company shall request the Accountants to deliver
to such Investors 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
B
hereto)
to be the new Accountants. In its notice to such Investors, the Company shall
state whether the change of Accountants was recommended or approved by the
Company’s Board or the Audit Committee. The
Company may elect to satisfy its notice obligation by filing a current report
on
Form 8-K with the Commission disclosing the resignation or appointment of
Accountants.
(f) No
Group
Company or its Subsidiaries shall approve
any
Annual Budget or Business Plan of such Group Company and its
Subsidiaries
without
the prior written approval of the Board of Directors or an executive committee
of the Board of Directors that, in each case, contains an Abax Nominee who
has
assented to such Annual Budget or Business Plan,
or
approve any capital expenditure budget of such Group Company and its
Subsidiaries without
the prior written approval of such executive committee and the Abax Nominee
who
is a member thereof (the “Approved
Budget”).
Without the prior written consent of such executive committee and the Abax
Nominee who is a member thereof, no Group Company shall expend any money in
any
financial year or period that deviates in amount by more than 15% of the amount
in the Approved Budget.
(g) 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, and that would have a material adverse effect on the
interests of
the
Investors as holders of the Company’s Notes or equity securities.
3. Right
of First Refusal for Future Securities Offerings.
3.1 Issuance
Notice.
4
(a) So
long
as an Investor owns the Minimum Holding, if the Company proposes to issue
or
sell any securities to a purchaser that is not an Affiliate of the Company
(the
“Proposed
Third Party Purchaser”),
the
Company shall deliver to such Investor a written notice of its intention
to
effect such sale (an “Issuance
Notice”)
at
least thirty (30) days prior to the consummation of such issuance or sale,
which
Issuance Notice shall offer such securities to such Investor and shall state
(a)
the
identity of the Proposed Third Party Purchaser, (b) a description of the
securities to be issued or sold, including detailed terms of such securities,
(c) the amount of the securities proposed to be issued to the Proposed Third
Party Purchaser (the “Offered
New Securities”);
(d)
the proposed purchase price for the Offered Securities (the “Issuance
Price”);
and
(e) the terms and conditions of such proposed sale; provided,
however,
that
the right of first refusal granted in this paragraph shall be subject to
the
rights of certain named persons in the Securities Purchase Agreement dated
June
2, 2006, as amended as of the date hereof, among the Company, Xxxxxx Partners,
L.P. and the other investors therein, as amended, to purchase a pro rata
share
of securities, as described therein.
(b) The
Issuance 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
New
Securities and proof satisfactory to the Company that the Offered New Securities
will not violate any applicable securities laws and is a firm offer from
the
Proposed Third Party Purchaser. 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) days after the Issuance Notice
is given, such Investor may elect to purchase or otherwise acquire, at the
price
and on the terms specified in the Issuance Notice, an amount not greater
than
the proportion of Offered New Securities that bears the same proportion as
such
Investor’s Securities bears to the Securities owned by all such Investors who
may elect to purchase Offered New Securities (all such Securities being valued
as the aggregate
principal amount of Notes held by such Investors, with any Conversion Shares
held by such Investors valued as Convertible Notes at the initial Conversion
Price in the Convertible Note Indenture, hereinafter referred to as the
“Investor’s
Pro Rata Share”);
provided
that if
any Investor waives its right to purchase Offered New Securities, then any
other
Investor that is eligible to purchase Offered New Securities may elect to
exercise its Investor’s Pro Rata Share of such waived rights under Section
3.2
prior to
the expiration of the time allotted therefor by giving written notice to
the
Company.
The
closing of any sale pursuant to this Section
3.2
shall
occur within sixty (60) days after the date on which such notification is
first
given by any such Investor.
Each
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 Right
to Sell to Proposed Third Party Purchaser.
If less
than all of the Offered New Securities 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 no 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 all Investors owning the Minimum Holding in accordance with
this
Section.
5
4. Right
of First Refusal for the Controlling Shareholders’ 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 any 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 thirty (30) days prior to the
consummation of such transfer or sale, offer such securities to such Investors
by sending written notice (an “Offering
Notice”)
to
such Investors, 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 and proof
satisfactory to the Company that the Offered Securities will not violate
any
applicable securities laws.
4.2 Option;
Exercise.
For a
period of thirty (30) days after the giving of the Offering Notice pursuant
to
Section
4.1
(the
“Option
Period”),
each
Investor owning a Minimum Holding shall have the right to purchase up to
its Pro
Rata Share of all or any part 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. Each Investor 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 an 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. Such
notice shall state the number of Offered Securities that such Investor is
willing to purchase pursuant to this Section. The failure of any such Investor
to respond within the Option Period to such Controlling Shareholder shall
be
deemed to be a waiver of that Investor’s rights under Section
4.1;
provided
that any
other Investor that is eligible to tender a ROFR Exercise Notice may elect
to
exercise its Investor’s Pro Rata Share of such waived rights under Section
4.2
prior to
the expiration of the Option Period by giving written notice to the Controlling
Shareholder.
4.4 Closing.
The
closing of the purchases of Offered Securities subscribed for by such Investors
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
the 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 Investors
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.
6
4.5 Sale
to a Third Party Purchaser.
Unless
eligible Investors elect 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 Investors to the Third
Party Purchaser identified in the Offering Notice at a price not less than
the
Offer Price, and on terms not 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
Investors of their respective 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 and until (x) such Third Party
Purchaser shall represent in writing to eligible Investors that it is aware
of
the rights of such Investors contained in this Agreement and (y) 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 Investors of their respective
options 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 eligible Investors 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
eligible Investors shall have the right to sell to such Third Party Purchaser
that number of Shares (or Convertible Notes representing as closely as possible
such number of shares held by any such Investor) 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 Investor by (ii) the sum of (x) the
total
number of Shares (on an as-converted basis) then owned by such Investor and
(y)
the total number of Shares then owned by the Controlling Shareholder, at
a price
equal to the Offer Price (in the case of sale of Conversion Shares) or the
Offer
Price less the then applicable Conversion Price (in the case of the sale
of the
Convertible Notes), with other terms set forth in the Offering Notice;
provided
that if
the Offer Price is less than the then applicable Conversion Price the Conversion
Shares shall be transferred at the Offer Price. The Controlling Shareholder
and
eligible Investors shall effect the sale of the Offered Securities and eligible
Investors 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.
7
(b)
Each
Controlling Shareholder shall give notice to eligible Investors of each proposed
sale by it, or any other Permitted Holder of Offered Securities which gives
rise
to the rights of eligible Investors 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 eligible Investors 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 eligible Investors 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
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 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 Investors, upon which any other Investor that is eligible
to
tender a Tag-along Exercise Notice 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
Investor’s rights under this Section. If a Third Party Purchaser fails to
purchase shares of Common Stock from any eligible Investor, notwithstanding
such
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
Investor at the Offer Price such number of shares of Common Stock as the
Third
Party Purchaser failed to purchase from such 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
and the
restrictions set forth in Section
4.8
shall
not apply to any of (i) any transfer to a Permitted Holder; provided
that
adequate documentation therefor is provided to Investors that are eligible
to
exercise rights under this Section to their reasonable 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) the Transfer (as defined below)
by
the Controlling Shareholder of no more than 1% (on an aggregated basis over
the
term of the Notes) of the total outstanding equity interest in the Company
on a
fully-diluted basis if, after such Transfer, each Controlling Shareholder
still
beneficially owns no less than 7.5% of the total outstanding equity interest
in
the Company on a fully diluted basis (the “Exempt
Transfers”),
all
of which Exempt Transfers shall be cumulatively available to each Permitted
Holder. “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”
shall
have the meaning ascribed to it in the Convertible Note Indenture.
8
4.8 Prohibited
Transfers.
(a) Notwithstanding
anything to the contrary contained herein, to the extent permitted under
applicable law, each Controlling Shareholder shall not, and each Controlling
Shareholder shall cause the Permitted Holder not to, without the prior written
Investor Approval, which shall not be unreasonably withheld, Transfer through
one or a series of transactions any securities of the Company to any Person,
unless one or more Investors have, singly or in the aggregate, sold more
than 5%
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.
(b) Each
Controlling Shareholder shall require each Permitted Holder to agree not
to sell
or transfer securities of the Company held by such Permitted Holder except
to
the extent that the Controlling Shareholder would be able to sell the shares
as
provided in this Agreement if the Controlling Shareholder had not transferred
the securities, it being understood that any right of a Permitted Holder
to sell
shall not be an independent right and the limitation in this Agreement shall
be
applicable to the Controlling Shareholder and all of his Permitted Holders
as a
group. Any attempt by any Controlling Shareholder or any other Permitted
Holders
to sell or transfer any 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 six (6) voting members and the Company shall not change the number of
voting members of its Board without the approval of the Abax
Nominees.
5.2 Abax
Nominees.
Upon
the Abax Election (as defined below), as long as Abax continues to hold more
than 5% of the outstanding shares of Common
Stock on
an
as-converted basis, it shall be entitled to appoint up to 20% of the voting
members (or the next higher whole number if such percentage does not yield
a
whole number) of the Company’s Board (each a “Abax
Nominee”
and
together, the “Abax
Nominees”).
If,
however, there occurs any Financial and Operational Trigger (as defined in
the
Convertible Note Indenture) while Abax holds more than 5% of the outstanding
shares of Common
Stock on
an
as-converted basis, Abax shall be eligible to appoint an additional voting
member of the Company’s Board, provided
however,
that
Abax shall have the right to appoint only one additional voting member of
the
Company’s Board irrespective of the number of times a Financial and Operational
Trigger occurs.
5.3 Board
Committees.
The
Company shall not, without the prior written consent of Abax, establish any
committee of its Board, delegate powers of its Board to a committee, or change
the powers, duties or responsibilities delegated to any committee of the
Board
of the Company. To
the
extent permitted by applicable law and exchange listing rules, Abax
Nominees 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.
9
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(s) of the Abax Nominee(s), together
with the information concening the Abax Nominee as would required by Item
401 of
Regulation S-B or S-K, whichever shall be applicable, then, as soon as
practicable after its receipt of such notice from Abax, but in no event later
than five (5) business days after such receipt, the Company shall:
(a) provide
notice of the Abax Election to the Company’s Board and the Controlling
Shareholders, 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(s) 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.
5.5 Voting
Agreement.
Each of
the Controlling Shareholders 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, 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, if favor of the election of the Abax Nominees to the
Board.
Each
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 an Abax Nominee
appointed or elected to the Board shall be filled pursuant to the provisions
of
this Section.
5.7 Quorum.
The
Company’s by-laws shall provide that a quorum for any meeting of the Board shall
require the attendance of at least one of the Abax Nominee(s), provided
that
Abax Nominee(s) may participate in such meetings by telephone conference
call.
5.8 Reimbursement.
Each
time Abax Nominee(s) attend 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 independent members of the Board.
10
6. Indemnification.
(a) In
addition to all rights and remedies available to any Investor at law or in
equity, each Group Company jointly and severally, and each Controlling
Shareholder severally as to its own conduct and not jointly with the other
Controlling Shareholder, shall indemnify each 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 on the part of any
Group
Company, any Controlling Shareholder or the chief executive officer or chairman
pursuant to the Noncompetition and Non-Solicitation Agreements entered into
the
date hereof between the Investors and the chief executive officer and the
chairman; 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 or the Controlling Shareholders.
(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 Shareholders 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 Shareholders reasonably incurred in effecting such recovery,
if
any.
(c) All
indemnification rights hereunder shall survive, 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.
11
(d) The
indemnity obligations that each Group Company and the Controlling Shareholders
have under this Section shall be in addition to any liability that such Group
Company and the Controlling Shareholders may otherwise have.
The
total
amount of indemnification which can be sought under this Section
6
shall
not be greater than the sum of (x) the Repurchase Amount as defined in the
indenture governing the Convertible Notes and (y) the maximum amount payable
upon maturity of the Senior Notes.
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 Common Stock issued upon conversion of
the
Convertible Notes).
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, each 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 Notes Purchase Agreement, or
at
such other address as may have been furnished to the Company by it in
writing.
(b) If
to the
Controlling Shareholders, at the address set forth on Schedule
C
to this
Agreement, or at such other address as may have been furnished to the Company
by
it in writing.
12
(c)
If
to the
Company at:
Sinoenergy
Corporation
1603-1604,
Tower B Fortune Centre Ao City
Xxxxxxx
Xxxx, Xxxxxxxx Xxxxxxxx
Xxxxxxx,
X.X. Xxxxx 000000
Fax:
x00
00 0000 0000
Attention:
Chief Financial Officer
with
a
copy to:
Sichenzia
Xxxx Xxxxxxxx Xxxxxxx LLP
00
Xxxxxxxx, 00xx Xxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Fax:
x0
000 000 0000
Attn:
Xxxxx X. Xxxxxxxx, P.C.
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 Shareholders, in the case of an Investor’s
obligations, and by the Investors 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, except insofar as the law of where a corporation is organized
and existing may require its own laws to apply to matters of corporate
governance. Each
Group Company and each 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
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. Unless otherwise provided herein,
each
Investor
may
assign its rights hereunder to any of
its
Affiliates
(as
defined below).
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.
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.]
14
EXECUTION
VERSION
IN
WITNESS WHEREOF, the undersigned have executed this Investor Rights Agreement
as
of the day and year written above.
15
GROUP
COMPANIES
|
SINOENERGY
CORPORATION
By:
/s/
XXXXX Bo____________________
Name:
XXXXX Xx
Title:
CEO
|
SINOENERGY
HOLDINGS, LTD.
By:
/s/
XXXXX Bo__________________
Name:
XXXXX Xx
Title:
Director
|
|
Qingdao
Sinogas General Machinery Limited Corporation
(梮岛中油濦用机械有榰公司)
By:
/s/
XXXXX Bo__________________
Name:
XXXXX Xx
Title:
Chairman of the BOD
|
Xuancheng
Sinoenergy Vehicle Gas Company
(宣城中缃汽炚燃气有榰公司)
By:
/s/
XXXXX Bo__________________
Name:
XXXXX Xx
Title:
Director
|
|
Pingdingshan
Sinoenergy Gas Company
(平枊山中缃燃气有榰公司)
By:
/s/
XXXXX Bo__________________
Name:
XXXXX Xx
Title:
Chairman of the BOD
|
Wuhan
Sinoenergy Gas Company
(武汉中缃燃气有榰公司)
By:
/s/
XXXXX Bo__________________
Name:
XXXXX Xx
Title:
Director
|
|
Qingdao
Sinogas Yuhan Chemical Equipment Co., Ltd.
(梮岛中油濦用宇恒冶化有榰公司)
By:
/s/
XXXXX Bo__________________
Name:
XXXXX Xx
Title:
Chairman of the BOD
|
Jiaxing
Lixun Automotive Electronic Co, Ltd.
(嘉兴力瀻汽炚电子有榰公司)
By:
/s/
XXXXX Bo__________________
Name:
XXXXX Xx
Title:
Chairman of the BOD
|
|
Hubei
Gather Eenergy Gas Co., Ltd.
(湖北合缃燃气有榰公司)
By:
/s/
XXXXX Bo__________________
Name:
XXXXX Xx
Title:
Director
|
Anhui
Gather Eenergy Gas Co., Ltd.
(安徽合缃燃气有榰公司)
By:
/s/
XXXXX Bo__________________
Name:
XXXXX Xx
Title:
Director
|
| CONTROLLING SHAREHOLDER: | ||
| |
|
|
| By: | /s/ DENG Tianzhou | |
|
Xx.
XXXX Tianzhou
as
the Controlling Shareholder
|
||
| CONTROLLING SHAREHOLDER: | ||
| |
|
|
| By: | /s/ XXXXX Xx | |
|
Mr. XXXXX Xx |
||
|
as
the Controlling Shareholder
|
||
Accepted
and Agreed to:
CCIF
PETROL LIMITED
By:
/s/ Xxxxxx
Xx
Name:
Title:
Authorized Signatory
Accepted
and Agreed to:
ABAX
LOTUS LTD.
By:
By:
/s/ Xxxx
Xxxxxxxxx
Name:
Title:
Authorized Signatory
