Exhibit 10.5
OPTION AGREEMENT
This
Option Agreement (this “ Agreement
”) is entered into as of February 28, 2008, by and
between CHINA
NORTH EAST PETROLEUM HOLDINGS LIMITED , a Nevada
corporation (the “ Grantor
”), and LOTUSBOX INVESTMENTS
LIMITED , a British Virgin Island
company (the “ Option
Holder ”).
In
consideration of the sum of One Dollar ($1.00) and other good
and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by the Grantor, the Grantor
desires to grant Option Holder, and Option Holder desires to
accept from the Grantor, an option to purchase up to 24% of
the registered capital (whether represented by actual share
certificates or not) (for reference purposes referred to as
the “ Option
Shares ”) of the registered capital of Song Yuan
North East Petroleum Technical Service Co. Ltd., a Sino
Foreign entity established under the laws of the
People’s Republic of China (the “ Company
”), at the Option Exercise Price (as hereinafter
defined) and upon the terms and subject to the conditions
hereinafter contained.
1.
Grant
of Option .
Grantor hereby grants to Option Holder an option (the “
Option
”) to purchase the Option Shares, free and clear of any and
all charges, liens or encumbrances. This Option Agreement has been
entered into, and the Option granted herein, in order to induce the
Option Holder to make the loan to the Grantor in the principal
amount of U.S. $15,000,000 upon the terms and conditions in the
Debentures (as defined below) and the Securities Purchase Agreement
as defined below.
2.
Vesting;
Time of Exercise . The
Option shall automatically vest in its entirety on the date which
is immediately after the occurrence of an “Event of
Default” (as hereinafter defined) which results in the
acceleration of the Debentures (as defined
below). The right to purchase the Option Shares
pursuant to the Option shall be exercisable, in whole, at any time
following the vesting thereof.
3.
Method
of Exercise . The Option shall be
exercised by written notice, in the form of Exhibit A
attached hereto, from the Option Holder to Grantor specifying
whether the Option Shares are to be issued in the name of the
Option Holder or transferee(s) designated by Option Holder and
accompanied by a copy of the written offer or purchase agreement
evidencing the determination of the Fair Market Value of the Option
Shares and payment in full of the Option Exercise
Price. Notwithstanding the foregoing, the Option
Exercise Price may be paid, at the election of the Option Holder,
by reduction and offset from the principal and interest due under
the Debentures (as hereinafter defined) without being required to
make any actual cash payment for the Option Exercise
Price.
4
.
Certain
Definitions . For the purposes
herein:
“
Debentures
” shall mean
Grantor’s 8% Secured Debentures due February 27, 2012
and issued on February 28, 2008, in the original aggregate
principal amount of U.S. $15,000,000, to Option
Holder.
“
Event of
Default ” shall have the meaning ascribed thereto
in the Debentures.
“
Fair
Market Value ” shall mean the purchase price that
a willing buyer would be willing to pay and a willing seller
would be willing to accept in an arm’s length
transaction, provided that neither party is under any
compulsion to buy or sell, as the case may be, which purchase
price shall be evidenced by a written offer or purchase
agreement between such buyer and seller.
“
Option Exercise
Price ” shall mean the Fair Market Value of the
Option Shares.
“
Securities
Purchase Agreement ” means the Securities
Purchase Agreement dated as of the date hereof between the
Grantor and the Option Holder.
5.
Transferability
.
The Option and the Option Holder’s rights
hereunder shall be fully transferable and assignable by the Option
Holder and the Option may be exercised by the Option Holder or its
transferee(s) upon an Event of Default resulting in the
acceleration of the Debentures.
6.
Representations
and Warranties of the Grantor . The
Grantor hereby represents and warrants to Option Holder as
follows:
(a) The
Company is a corporation duly organized, validly existing and
in good standing under the laws of the People’s Republic
of China and has full power to own its properties and to
conduct its business as presently
conducted.
(b) Grantor
has all requisite corporate power and authority to execute,
deliver and perform this Agreement and the other agreements,
certificates and instruments to be executed by Grantor in
connection with or pursuant to this Agreement. The execution,
delivery and performance by Grantor of this Agreement have
been duly authorized by all necessary corporate action on the
part of Grantor. This Agreement constitutes the
legal, valid and binding agreement of Grantor, enforceable
against Grantor in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy,
insolvency, fraudulent conveyance or similar laws affecting
the enforcement of creditors’ rights generally and
subject to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in
equity).
(c) &nbs
