Exhibit 10.1
Share Purchase Agreement
Between
Synthesis Energy Systems, Inc.
China Energy Industry Holding Group Co., Limited
and
Zhongjixuan Investment Management Company Ltd.
March 31, 2011

 

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Share Purchase Agreement
This Share Purchase Agreement (this “Agreement”) is made and entered into as of
March 31, 2011, by and among the following (collectively, the “Parties”):
Synthesis Energy Systems, Inc. (“SES”), a Delaware corporation listed on the
NASDAQ Global Market (“NASDAQ”), with its address at Three Riverway, Suite 300,
Houston, Texas 77056, United States of America (“USA”);
Zhongjixuan Investment Management Company Ltd. (“ZJX”), a limited liability
company incorporated and existing under the law of the People’s Republic of
China (“PRC”), with its address at No.4 Building, No.7 Wanshou Road (West),
Beijing, PRC; and
China Energy Industry Holding Group Co., Limited, a limited liability company
(“China Energy”) incorporated and existing under the law of Hong Kong Special
Administrative Region, PRC (“Hong Kong”) , with its address at Unit D 16/F Cheuk
Nang Plaza 250 Hennessy RD Wanchai, Hong Kong.
WHEREAS, as of March 30, 2011, SES had 48,449,512 issued and outstanding shares
of common stock, par value USD0.01 (in this Agreement “USD” shall mean the legal
currency of the USA) per share (the “Common Stock”), outstanding options to
acquire 6,462,455 shares of Common Stock and 969,745 shares of Common Stock
reserved for future issuance pursuant to its incentive plan.
WHEREAS, pursuant to the terms and conditions of this Agreement, SES will agree
to issue new shares of Common Stock (“New Shares”) to China Energy on the terms
described below.
WHEREAS, pursuant to the terms and conditions of Clause 7.3 of this Agreement,
ZJX shall directly or indirectly acquire 60% of the equity of China Energy.
WHEREAS, notwithstanding anything to the contrary in any documents which may be
submitted to any governmental authorities in connection with this transaction,
the Parties intend to comprehensively set forth in this Agreement all of the
terms and conditions of this transaction.
NOW THEREFORE, in consideration of the foregoing recitals and the mutual
covenants contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Parties agree as
follows:

1.  
Definitions
  1.1  
References to any statutory provisions shall, where the context so admits or
requires, be construed as references to those provisions as respectively
amended, consolidated, extended or re-enacted from time to time, and shall,
where the context so admits or requires, be construed as including references to
the corresponding provisions of any earlier legislation (whether repealed or
not) directly or indirectly amended, consolidated, extended, or replaced thereby
or re-enacted therein, which may be applicable to any relevant tax year or other
period, and shall include any orders, regulations, instruments or other
subordinate legislation made under the relevant statute.
  1.2  
Unless the context otherwise requires, words importing the singular only shall
include the plural and vice versa, words importing one gender only shall include
all other genders, and words importing natural persons shall include
corporations and un-incorporated associations.
  1.3  
The recitals form an integral part of this Agreement and shall be construed and
have the same full force and effect as if expressly set out in the body of this
Agreement.
  1.4  
References herein to clauses are to clauses in this Agreement unless the context
requires otherwise.

 

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1.5  
a “business day” shall mean any day (other than a Saturday or a Sunday or other
public holidays) on which banks are open for business in Hong Kong. A “day”
shall mean a calendar day.
  2.  
Transactions
  2.1  
Payment of Consideration for New Shares
     
On the Closing Date (as defined in Clause 3 below), China Energy shall make the
payment of USD83,822,568 (the “Consideration”) in a lump sum payment by wire
transfer to a designated Hong Kong bank account held by the Escrow Agent (as
defined in Clause 2.3.1 below).
  2.2  
Issuance of New Shares
     
Subject to the other terms and conditions under this Agreement, the New Shares
should be issued and released pursuant to the following schedule:

  2.2.1  
On the Closing Date, SES shall issue 37,254,475 New Shares (“Closing Shares”) to
China Energy and deliver the Closing Shares to the Escrow Agent and the Escrow
Agent shall release such Closing Shares to China Energy pursuant to Clause
2.3.2.
    2.2.2  
Within twenty (20) business days after the accomplishment of the Milestone (as
defined in Clause 2.2.3 below), SES shall further issue directly to China Energy
an amount of New Shares (the “Milestone Shares”) which, when combined with the
Closing Shares, equals sixty percent (60.0%) of the issued and outstanding
Common Stock (including outstanding options or securities convertible to, or
exercisable for shares of Common Stock, and all Common Stock reserved for future
issuance pursuant to SES incentive plan) on a fully-diluted basis as of the date
on which the Milestone is achieved.
    2.2.3  
For the purpose of the above, the Milestone (the “Milestone”) will be deemed to
be achieved if the average closing price of the Common Stock for twenty (20)
consecutive trading days equals USD8.00 per share (the “Threshold Price”) or
above, provided that, the beginning of the twenty (20) consecutive trading days
may only occur upon the occurrence of both (i) ZJX and/or China Energy has
undertaken best endeavours to establish any of one of the MJVs as described in
Clause 7.2.1 for SES; and (ii) the expiration of a 6 month period after the
Closing Date.

2.3  
Escrow Arrangement

  2.3.1  
Within 30 business days upon the signing of this Agreement, China Energy and SES
shall jointly appoint a reputable law firm or accounting firm in Hong Kong as
the escrow agent (“Escrow Agent”), which shall be responsible for releasing of
the Consideration to SES and Closing Shares to China Energy, pursuant to the
terms and conditions of this Agreement.
    2.3.2  
Within three (3) business days after receipt by the Escrow Agent of joint
written instructions from ZJX, China Energy and SES confirming that all
conditions precedent set forth in Clause 4 of this Agreement have been
satisfied, the Escrow Agent shall release and wire transfer the full amount of
the Consideration to a Hong Kong bank account designated by SES, and release and
deliver the Closing Shares to China Energy.

 

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2.4  
Failure to Achieve the Milestone
     
In the event that the Milestone is not achieved within a five (5) year period
commencing on the Closing Date (such five years plus any extensions granted
pursuant to this Clause 2.4 shall be referred to as the “Deadline” in this
Agreement), and no Target Projects (as defined below) are secured by ZJX for SES
by the Deadline, SES shall then have the sole discretion to extend or not extend
the Deadline. If ZJX has secured Target Projects for SES prior to the Deadline,
but the Milestone has not been achieved by the Deadline, SES shall agree to
extend the period to achieve the Milestone by one year for each Target Project
secured by ZJX for SES, provided that the Deadline cannot be extended beyond 10
years from the Closing Date. If the Deadline is not extended pursuant to this
Agreement after it expires, China Energy’s rights to the Milestone Shares shall
be relinquished.
     
For the purpose of the above, a Target Project (“Target Project”) shall mean
either (i) the execution of a joint venture agreement, and other ancillary and
necessary documents, related to the formation of a MJV (as defined in Clause
7.2.1), or (ii) securing for SES a coal resource project that is already in
operation, a new coal chemical project or any other project that is approved by
the Board of Directors of SES (the “SES Board”), each with a total investment of
at least RMB1.5 billion (in this Agreement “RMB” shall mean the legal currency
of the PRC).
  2.5  
Failure of Issuance of Milestone Shares for Regulatory Reasons
     
In the event that the Milestone is achieved in accordance with the terms and
conditions of this Agreement but, pursuant to restriction or non-approval by any
U.S.A governmental agency or competent regulatory authority, (i) the issuance of
the Milestone Shares to China Energy is prevented from occurring or (ii) the
ownership by China Energy of the Milestone Shares is required to be divested,
SES shall be responsible to seek qualified third parties to purchase the right
of China Energy to the Milestone Shares. In the event that such can not be
accomplished within twelve (12) months (commencing from the date of the action
of such U.S.A. governmental agency or competent regulatory authority preventing
China Energy’s ownership of the Milestone Shares), then SES shall compensate
China Energy for the Milestone Shares by making a payment in an amount equal to
USD2.00 per share (the “Settlement Price”) for each Milestone Share. Such
payment may be made by SES to China Energy in the form of cash or an equivalent
amount of SES’s assets in the PRC. To avoid any doubt, if SES has paid the
compensation described above, ZJX or China Energy should not further claim for
the issuance of the Milestone Shares or make other claims under this Clause 2.5.
  2.6  
Notwithstanding anything to the contrary in this Agreement, the number of
Milestone Shares, as well as the Threshold Price and Settlement Price for the
Milestone Shares, shall be subject to proportionate adjustment in the event of a
change in the capital structure of SES, including as a result of
recapitalization, reclassification, stock split, reverse split, consolidation,
conversion, etc.
  3.  
Closing
     
Subject to other terms and conditions under this Agreement, the closing (the
“Closing”) of the payment of the Consideration by China Energy and the issuance
of the Closing Shares shall take place on a day (the “Closing Date”) within ten
(10) business days after satisfaction of all conditions precedent specified in
Clause 4.
  4.  
Conditions Precedent
     
The consummation of the transactions for Closing shall be subject to the
following conditions precedent:

 

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4.1  
Representations and Warranties.
     
The representations and warranties by each Party contained in this Agreement
shall be true and correct as of the Closing Date in all material respects as
though made at such date (except to the extent that a representation and
warranty speaks as of an earlier date, in which case such representation and
warranty shall be true as of such earlier date).
  4.2  
Incorporation of China Energy.
     
China Energy has been duly incorporated and has obtained all necessary approvals
to operate under the laws of Hong Kong.
  4.3  
Authorization and Approval.

  4.3.1  
The transactions contemplated in this Agreement shall have been approved and
adopted by the stockholders of SES and China Energy.
    4.3.2  
The issuance of the New Shares shall have been duly authorized.
    4.3.3  
All other necessary third party consents and approvals for this Agreement shall
have been obtained.

4.4  
No Orders or Legal Proceedings.
     
There shall be no law, governmental order, or legal proceeding in effect or
threatened which prohibits or restricts the transactions contemplated by this
Agreement or imposes any restrictions on the Parties with respect thereto.
  4.5  
No Material Adverse Effect.
     
Since the execution of this Agreement, there shall have occurred no Material
Adverse Effect (as defined in Clause 5.1.6 below) with respect to ZJX, China
Energy or SES.
  4.6  
Covenants and Agreements.
     
ZJX, China Energy and SES shall have performed in all material respects all
covenants and agreements required to be performed by them under this Agreement
at, or prior to, the Closing Date including, without limitation to, the
appointment of the Escrow Agent.
  4.7  
Funds for Closing
     
Prior to Closing, China Energy shall provide, in favor of SES, a bank reference
letter issued by a reputable bank in HK evidencing that China Energy has the
necessary funds to perform the payment obligations under this Agreement, of
which the form and the issuing bank should be mutually agreed upon by the
Parties. In addition, China Energy shall also provide adequate materials
evidencing that the funds are appropriately and legally obtained.
  5.  
Representations and Warranties
  5.1  
General Representations and Warranties
     
Each of the Parties (the “Warranting Party”) shall represent and warrant to the
other (the “Warranted Party”) that:

  5.1.1  
Organization, Good Standing, Qualification, Legally Bound and Authorization.
       
The Warranting Party has been duly incorporated and organized, and is validly
existing and in good standing under the laws of jurisdiction where it is
incorporated and is legally bound by the terms of this Agreement. The Warranting
Party has the corporate power and authority to (a) enter into and perform this
Agreement, or any other agreement or document necessary for the performance of
this Agreement, to (b) own and operate its properties and assets, and to
(c) carry on its business as currently conducted and as presently proposed to be
conducted.

 

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  5.1.2  
Compliance with Laws; No Violations
       
The Warranting Party is not in violation or default of any provisions of its
Articles of Association and/or Bylaws, or other similar constituent document,
and to its knowledge, except for any violations that individually or in the
aggregate would have no material adverse impact on its business, it is in
compliance with all applicable statutes, laws, regulations and executive orders
of the PRC, Hong Kong, USA or other governmental bodies and agencies having
jurisdiction over its business or properties. It has not received any notice of
any violation of any such statute, law, regulation or order which has not been
remedied. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not result in any such
violation or default, or be in conflict with or result in a violation or breach
of, with or without the passage of time or the giving of notice or both, the
Articles of Association and/or Bylaws, or other similar constituent document,
any judgment, order or decree of any court or arbitrator to which the Warranting
Party is a party or is subject, any agreement or contract of it, or, to its
knowledge, a violation of any statute, law, regulation or order, or an event
which results in the creation of any lien, charge or encumbrance upon any of its
assets.
    5.1.3  
Permits
       
Except as disclosed in the Schedule of Exceptions (attached hereto as
Appendix 1), the Warranting Party has obtained all franchises, permits, licenses
and any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect its
business, properties or financial condition and believes it can obtain, without
undue burden or expense, any similar authority for the conduct of its business
as planned to be conducted. It is not in default in any material respect under
any of such franchises, permits, licenses or other similar authority.
    5.1.4  
Consents and Third Party Approvals
       
Except as disclosed in the Schedule of Exceptions, the Warranting Party has
obtained all necessary consents and/or third party approvals to execute, deliver
and perform this Agreement.
    5.1.5  
Litigation
       
Except as disclosed in the Schedule of Exceptions, there is no action, suit,
proceeding, claim, arbitration or investigation pending (or, to its knowledge,
currently threatened) against the Warranting Party, its activities, properties
or assets or, to its knowledge, against any officer, director or employee of it
in connection with such officer’s, director’s or employee’s relationship with,
or actions taken on behalf of. The Warranting Party has no knowledge of or
belief that there is pending or threatened any claim or litigation against it
contesting its right to produce, manufacture, sell, use or offer any product,
process, method, substance, part or other material or service presently
produced, manufactured, sold, used or offered or planned to be produced,
manufacture, sold, used or offered by the Warranting Party. The Warranting Party
has no knowledge or belief that or there exists, or there is pending or planned,
any patent, invention, device, application or principle, which would materially
adversely affect the condition, financial or otherwise, or the operations of the
Warranting Party.
    5.1.6  
Absence of Material Adverse Effect and Other Changes
       
The Warranting Party knows of no information or fact or change of situation
which has or could reasonably be expected to have a Material Adverse Effect (as
defined below) on the financial condition, business or business prospects of the
Warranting Party or on the legally binding effect of this Agreement on the
Warranting Party, which has not been disclosed to the Warranted Party.

 

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For the purpose of this Agreement, a “Material Adverse Effect” shall mean that
with respect to any Party, any event, condition, circumstance, change, effect,
violation, inaccuracy or state of facts or other matter that (a) is, or would
reasonably be likely to be, adverse to the business, operations (including
results of operation), assets, liabilities or financial condition of such Party
in an amount, individually or in the aggregate, exceeding USD10 million, or (b)
impedes, or would reasonably be likely to impede, the ability of such Person to
complete the transactions contemplated herein, but, as to (a) and (b), shall
exclude any circumstance, change or effect resulting or arising from: (i) any
change in general economic conditions in the industries or markets in which the
Party operates (which changes, individually or in the aggregate, do not
disproportionately affect such Party, taken as a whole); (ii) seasonal
reductions in revenue and/or earnings of the Party in the ordinary course of
business (which seasonal reductions, individually or in the aggregate, do not
disproportionately affect such Party, taken as a whole); (iii) any adverse
change, event or effect on the global energy industry as a whole (which changes,
individually or in the aggregate, do not disproportionately affect such Party,
taken as a whole); (iv) national or international political conditions,
including any engagement in hostilities, whether or not pursuant to the
declaration of a national emergency or war, or the occurrence of any military or
terrorist attack (which conditions, individually or in the aggregate, do not
disproportionately affect such Party, taken as a whole); and (v) the entry into
or announcement of this Agreement, actions contemplated by this Agreement, or
the consummation of the transactions contemplated hereby.
    5.1.7  
Compliance with the Foreign Corrupt Practices Act
       
To the knowledge of the Warranting Party, neither itself nor any of its senior
management or directors has taken any action in violation of the United States
Foreign Corrupt Practices Act.

5.2  
Representation and Warranties of ZJX
     
ZJX hereby further represents and warrants to SES that:

  5.2.1  
ZJX has the ability of coordinating public relationships and channels necessary
to consummate the transactions and fulfill the covenants under this Agreement.

5.3  
Representations and Warranties of China Energy
     
China Energy hereby further represents and warrants to SES that:

  5.3.1  
China Energy shall have the availability of adequate funds to consummate the
transactions under this Agreement.
    5.3.2  
China Energy is duly incorporated and organized, and is validly existing under
the laws of Hong Kong, and has the power and authority to enter into and perform
this Agreement and any other agreement to which China Energy is a party.

5.4  
Representation and Warranties of SES
     
SES hereby further represents and warrants to ZJX that:

 

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  5.4.1  
Capitalization.
       
All the outstanding and issued Common Stock of SES are duly authorized and
validly issued, fully paid and non-assessable, and have been approved by all
requisite corporate and stockholder action. Except as shown on the Schedule of
Exceptions, there are no outstanding options, warrants, rights or agreements for
the purchase or acquisition from SES of any Common Stock or any securities
convertible into or ultimately exchangeable or exercisable for any Common Stock.
To avoid any doubt, as of March 30, 2011, SES had 48,449,512 issued and
outstanding shares of Common Stock, par value USD0.01, outstanding options to
acquire 6,462,455 shares of Common Stock and 969,745 shares of Common Stock
reserved for future issuance pursuant to its incentive plan.
    5.4.2  
Intellectual Property
       
Except as otherwise disclosed in the Schedule of Exceptions, SES (a) has legally
valid rights to and ownership of all its intellectual property required for use
in connection with its business and (b) does not use any intellectual property
by contest of any other person and is not required to and does not make any
payments to others with respect thereto. Except as otherwise disclosed in the
Schedule of Exceptions, all of SES’s intellectual property are fully assignable
free and clear of any encumbrances. SES has in all material respects performed
all obligations required to be performed by it, and it is no in default in any
material respect under any contract relating to any of the foregoing. SES has
not received any notice to the effect (or is otherwise aware) that any
intellectual property or any use thereof by SES conflicts with or allegedly
conflicts with or infringes the rights of any third party.

6.  
Covenants between Signing and Closing
     
Commencing from the execution of this Agreement and before the Closing Date,
each Party shall use its reasonable endeavours to fulfill the following
obligations:
  6.1  
conduct its respective business in the usual and ordinary course;
  6.2  
provide to the other Parties access to and information regarding its financial
status, executives, consultants and organizational relationships including but
limited to that SES shall provide ZJX and China Energy the financial information
for the period between the signing of this Agreement and the Closing Date;
  6.3  
obtain or assist in obtaining all necessary consents and approvals for the
transactions contemplated under this Agreement, including but not limited to all
necessary regulatory approvals;
  6.4  
respond or assist in responding to those claims, inquiries or litigations, if
any, filed by the stockholders of SES, China Energy or ZJX, in respect of the
transactions contemplated under this Agreement;
  6.5  
in the case of SES, ensure that all New Shares have been duly authorized and are
validly issued under all applicable laws and regulation; and
  6.6  
in the case of SES, ensure that all documents required by the Securities and
Exchange Commission of the United States (the “SEC”) for the issuance of the New
Shares are duly filed.
  7.  
Post-Closing Covenants and Agreements
  7.1  
Corporate Governance

  7.1.1  
As soon as practicable after the Closing Date, and until the date of (i) the
achievement of the Milestone; or (ii) the expiration of the Deadline, whichever
happens earlier, ZJX or China Energy shall have the right to appoint a Qualified
Managing Director (“QMD”) and his/her successor(s), who should be
comprehensively responsible for leading SES’s business in PRC. The qualification
and employment terms and conditions of such

 

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QMD will be subject to the approval of the SES Board and such QMD shall agree to
follow all applicable policies and procedures of SES, and the roles and
responsibilities of such QMD are set out in Appendix 2 attached hereto. The
roles and responsibilities of the QMD shall exclude: all global SES U-GAS®
technology engineering, technology operations, technology licensing and other
technology development activities, and the manufacturing of any core specialized
gasification equipment related to such technologies.
    7.1.2  
As soon as practicable after the Closing Date, and until the date of (i) the
achievement of the Milestone; or (ii) the expiration of the Deadline, whichever
happens earlier, SES agrees to increase the size of the SES Board to eleven (11)
directors and the SES Board agrees to nominate four (4) individuals identified
by China Energy for service as directors on the SES Board. Upon the achievement
of the Milestone, but not before the third anniversary of the Closing Date, SES
shall take all reasonable actions to ensure that China Energy shall have the
right to nominate a number of individuals representing one more than half of the
directors (i.e. a simple majority) on the SES Board. For the avoidance of doubt,
for so long as China Energy directly or indirectly owns any New Shares, China
Energy and ZJX shall take and cause any and all action to be taken, including,
without limitation, voting or consenting, or causing the voting or consenting,
of the New Shares so that seven (7) of the eleven (11) directors on the Board
are non-China Energy nominee directors; provided, however, that this obligation
shall terminate on either (i) the third anniversary of the Closing Date, if the
Milestone is achieved prior to that date, or (ii) the date on which the
Milestone is achieved, if such date is subsequent to the third anniversary of
the Closing Date. Election of such individuals identified by China Energy shall
be made by the stockholders of SES. Any person appointed or elected to the SES
Board must meet minimum criteria for service on the SES Board under applicable
SES guidelines, U.S. securities laws and the rules and regulations of the
NASDAQ, as determined in the reasonable discretion of the SES Board, and shall
follow all applicable policies and procedures of SES.
    7.1.3  
On or prior to the later to occur of the fifth anniversary of the Closing Date
or to the expiry date of the Deadline, China Energy shall not sell, assign or
transfer any shares of Common Stock issued to it under this Agreement, and the
key shareholders on the SES Board set forth in Appendix 3 herein shall not sell,
assign or transfer any shares of Common Stock held by them as of the Closing
Date so long as they remain on the SES Board. Notwithstanding this, the Parties
agree that China Energy and the aforementioned key shareholders shall not be
subject to these limitations after the six month anniversary of the achievement
of the Milestone; provided, however that, even if the Milestone is achieved,
until the fifth anniversary of the Closing Date, any sale, assignment or
transfer of the Common Stock by China Energy must be for a price greater than
USD8.00 per share. China Energy also acknowledges and agrees that any sale,
assignment or transfer of shares of the Common Stock must comply with all
applicable U.S. laws (including applicable U.S. stock exchange rules and
regulations). China Energy further acknowledges and agrees that its right to
nominate directors pursuant to Clause 7.1.2 above shall be reduced by one
(1) director for every 10% reduction in ownership in SES pursuant to this Clause
7.1.3, provided, however, that China Energy shall have the right to nominate
four (4) directors as long as its ownership in SES is no less than 40%.

 

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  7.1.4  
After the Closing Date, if SES proposes to issue any additional shares of its
Common Stock in (i) a public or private offering ; (ii) pursuant to its employee
and director stock incentive plans; or (iii) upon the exercise of any
outstanding securities convertible to, or exercisable for shares of Common
Stock, China Energy acknowledges and agrees that its ownership in SES could be
diluted accordingly, however pursuant to Clause 2.2.2, SES shall issue directly
to China Energy an amount of New Shares which, when combined with the Closing
Shares, equals sixty percent (60.0%) of the issued and outstanding Common Stock
(including outstanding options or securities convertible to, or exercisable for
shares of Common Stock, and all Common Stock reserved for future issuance
pursuant to SES incentive plan) on a fully-diluted basis as of the date on which
the Milestone is achieved.
    7.1.5  
ZJX has the right to appoint a securities representative for China investor
relations and public communications for SES, and SES shall also appoint a
separate investor relations specialist (the “Investor Relations Specialist”),
and both such securities representative and the Investor Relations Specialist
shall work cooperatively together and develop a coordinated approach for
investor relations and public communications and report to the CEO of SES, and
shall agree to follow all applicable policies and procedures of SES. The
qualification and employment terms and conditions of such securities
representative and the Investor Relation Specialist will be subject to the
approval of the SES Board.
    7.1.6  
Until the Deadline, except as permitted by this Agreement, none of ZJX, China
Energy or any of their affiliates, shall, without the prior written consent of
the disinterested SES Board, directly or indirectly, (a) effect or seek, offer
or propose (whether publicly or otherwise) to effect, or cause or participate in
or in any way assist any other person to effect or seek, offer or propose
(whether publicly or otherwise) to effect or participate in, (i) any acquisition
of any securities or rights to acquire any securities (or any other beneficial
ownership thereof) or assets of SES or any of its subsidiaries (provided that
the foregoing shall not apply to any acquisition of securities or assets under
the terms hereof); (ii) any merger or other business combination or tender or
exchange offer involving SES or any of its subsidiaries; (iii) any
“solicitation” of “proxies” (as such terms are used in the proxy rules of the
SEC) or consents to vote with respect to any voting securities of SES, or any
communication exempted from the definition of “solicitation” by Rule
14a-1(l)(2)(iv) under the U.S. Securities Exchange Act of 1934, as amended (the
“Exchange Act”); (b) form, join or in any way participate in a “group” (as
defined under the Exchange Act) with respect to SES; (c) have any discussions or
enter into any arrangements, understandings or agreements (oral or written)
with, or advise, finance, assist or actively encourage, any third party with
respect to any of the matters set forth in this Clause 7.1.6, or make any
investment in any other person that engages, or offers or proposes to engage, in
any of such matters; (d) take any action which might cause or require SES, China
Energy or ZJX and/or their affiliates to make a public announcement regarding
any of the types of matters set forth in this Clause 7.1.6; or (e) disclose any
intention, plan or arrangement relating to any of the foregoing.
    7.1.7  
After the Closing Date, SES shall, within 60 days after receiving a written
request from China Energy, prepare and file with the SEC a registration
statement on Form S-3 relating to sales of the Closing Shares by China Energy
provided that all costs and expenses of SES relating to the preparation and
filing of such registration statement shall be borne by China Energy, however,
all costs and expenses relating to the first time preparation and filing of the
registration statement with the SEC should be borne by SES. If SES is unable to
include the entire amount of the Closing Shares on a registration statement on
Form S-3 due to the rules and regulations of the SEC, SES shall only be
obligated to include up to the number of Closing Shares which is permissible
under the rules and regulations of the SEC.

 

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In addition, after the issuance of the Milestone Shares, SES shall, within 60
days after receiving a written request from China Energy, prepare and file with
the SEC a registration statement on Form S-3 relating to sales of the Milestone
Shares by China Energy provided that all costs and expenses of SES relating to
the preparation and filing of such registration statement shall be borne by
China Energy.
       
The rights of China Energy pursuant to this Clause 7.1.7 shall at all times be
subject to the restrictions on sale, assignment and transfer set forth in Clause
7.1.3.

7.2  
Other Post-Closing Covenants and Agreements

  7.2.1  
ZJX will use its reasonable endeavours to create at least four Major Joint
Ventures (“MJVs”) in the major products that SES U-GAS® Technology makes
possible and that are most economical.

  7.2.1.1  
Funding for each MJV will be approximately 20 billion RMB, and total funding for
the four MJVs will be approximately 80 billion RMB.
    7.2.1.2  
Each MJV will have equity from a strategic investor from the industry for the
relating product in the PRC (“Strategic Investor”) plus highly favorable loans
including interest-free facilities so as to ensure the success of the MJV
projects.
    7.2.1.3  
The first MJV would be for Synthetic Natural Gas (“SNG”) projects.
    7.2.1.4  
Other MJVs currently planned should include the following 3 areas:

  (a)  
Methanol to Gasoline (“MTG”) Projects;
    (b)  
Fertilizer Projects; and
    (c)  
Electric Power Projects.

  7.2.1.5  
Each of the above MJVs is envisioned to be funded by the relevant Strategic
Investor plus bank financing to total 20 Billion RMB.
    7.2.1.6  
SES would be part owner of each MJV via a carry provided by the Strategic
Investor as part of SES’s development of and provision of technology for the
particular projects:

  (a)  
SES’s carried ownership is targeted at 35% of each MJV; and
    (b)  
Each project will be fully funded by its respective Strategic Investor if
required by SES.

  7.2.1.7  
ZJX will help SES work with the Strategic Investors to obtain long term purchase
commitments for the products of the respective MJVs mentioned above (i.e. SNG,
gasoline, fertilizers and electric power) after government approval and prior to
the start of construction of each such project.

  7.2.2  
ZJX shall actively work with SES, to effectively communicate with current
stockholders of SES concerning the background and overview of the aforesaid
projects.
    7.2.3  
SES and ZJX would also discuss and determine a long-term plan for SES’s China
operations to be listed on either the Mainland PRC markets or the Hong Kong
Stock Exchange in the future.
    7.2.4  
SES shall ensure, subject to the discretion and approval of the SES Board, the
Consideration net of cost and expenses, shall fully be applied to a selection of
the following items or projects:

 

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  7.2.4.1  
Payment of the costs and expenses relating to the first time filing and
preparation of the registration statement with the SEC as described in Clause
7.1.7;
    7.2.4.2  
Incorporation of a PRC Headquarter of SES to consolidate the ownership of
investment projects of SES in PRC under one entity and enhance SES’s presence in
PRC and provide its working capital needs;
    7.2.4.3  
Investing in the expansion project of SES’s existing joint venture in Zaozhuang
PRC;
    7.2.4.4  
Investing to raise SES ownership interests in Phase I of existing SES’s joint
ventures in Yima, Henan (the “Yima Project”);
    7.2.4.5  
Acquiring an ownership interest in a coal mine in Yima that will provide raw
material coal to the Yima Project;
    7.2.4.6  
Investing in the Golden Concord project (i.e. the SES-GCL (Inner Mongolia) Coal
Chemical Co., Ltd.) of SES located in Xilinhaote of Inner Mongolia;
    7.2.4.7  
Other PRC projects that may be recommended to the SES Board from time to time;
    7.2.4.8  
All capital and expense requirements for the operation and business of SES in
PRC.

  7.2.5  
ZJX will use its reasonable endeavours to assist SES to obtain third party
funding (third party direct equity investment in projects or debt financing to
the projects) to (a) cover funding needs of the above projects not already
satisfied by the Consideration, (b) provide funding for SES to invest in Phase 2
and Phase 3 of the Yima Project; (c) invest in strategic coal resources in China
connected to SES projects; and (d) provide funding for SES to invest in other
new SES investment projects in PRC not listed above and assist SES to obtain
third party’s investment in any of SES’s project in any other manner.

7.3  
Acquisition of China Energy
     
Within two (2) years after the Closing Date, ZJX shall directly or indirectly
acquire no less than 60% equity of China Energy, ZJX shall ensure that such
acquisition shall be in full compliance with the laws and regulation of PRC and
Hong Kong, and all necessary approvals and authorizations shall be obtained.
  8.  
SURVIVAL; TERMINATION
  8.1  
Survival
     
The representations and warranties of the Parties as set out in Clause 5 shall
survive the Closing Date until the second anniversary of the Closing Date after
which no Party may make a claim against the other Party for a breach of
representations and warranties.
  8.2  
Termination
     
This Agreement may be terminated upon the occurrence of any of the following:

  8.2.1  
by any Party if any governmental authority shall have issued an order, decree or
ruling enjoining or otherwise prohibiting the transactions contemplated by this
Agreement;

 

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  8.2.2  
by any Party, if the stockholder meeting of SES is called and the required
stockholder approval is not obtained;
    8.2.3  
by any Party, if there shall have been a breach of any other Party’s covenants,
agreements, representations or warranties set forth in this Agreement which
breach, either individually or in the aggregate, would result in the failure of
any Condition Precedent as set out in Clause 4;
    8.2.4  
by any Party, if the Closing Date does not occur within 150 days after the
signing of this Agreement, provided that such date can be extended by mutual
agreement in writing of the Parties to the extent that the Closing Date is
delayed by any investigation, review, approval or similar procedures required by
any U.S.A governmental agency or competent authority for the consummation of the
transactions under this Agreement, as long as SES has notified ZJX and China
Energy of the potential occurrence of such delay and has provided to ZJX and
China Energy the relevant evidence; or
    8.2.5  
at any time upon the mutual agreement of the Parties.

9.  
Confidentiality
     
Each Party recognises and affirms that any oral or written information exchanged
between the Parties with respect to the subject matter of this Agreement as well
as any oral or written information concerning U-GAS® technology disclosed or to
be disclosed by SES to ZJX and China Energy are strictly confidential. Each
Party shall keep all such information in strictest confidence and shall not
disclose any information to any third party without the prior written consent of
the Party that provided such information, except if such information is:

  (a)  
made available to the public (but not as a result of unauthorised disclosure
into the public domain of such information by the Party receiving the
information);
    (b)  
required to be disclosed by any applicable law, rule or regulation, provided the
disclosing Party should notify the other Parties of the disclosed content prior
to the disclosure; and/or
    (c)  
made available by any Party to its employees, officers, legal or financial
advisers or other in connection with any of the transactions contemplated under
this Agreement and that such employees, officers, legal and/or financial
advisers be bound by confidentiality obligations similar to those set out in
this Clause 9.

10.  
Notices
     
All notices, claims, certificate, requests, demands and other communications
under this Agreement shall be made in writing and shall be delivered by hand or
sent by telecopy, or sent, postage prepaid, by reputable overnight courier
services, and shall be deemed given when so delivered by hand, or in the case of
a telecopy, upon receipt of a confirmed transmittal receipt, or if sent by
overnight courier, five (5) calendar days after delivery to or pickup by the
overnight courier service to the Parties at the addresses (or at such other
address for a Party as shall be specified by like notice) shown on Appendix 4.
  11.  
Non-Competition
     
For as long as ZJX or China Energy holds shares of the Common Stock, directly or
indirectly, ZJX and China Energy shall not:

 

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  (a)  
directly or indirectly purchase or otherwise acquire any ownership interest in
and/or any assets of any third party other than SES which is engaging in
activities that are competing with SES U-GAS® coal gasification technology;
    (b)  
render any technical, financial, marketing or sales assistance to any third
party which is engaging in activities that are competing with SES U-GAS® coal
gasification technology; or
    (c)  
develop, market, provide financing for and/or sell a solution or other
technology product that competes with SES.

12.  
Miscellaneous
  12.1  
Successors and Assigns; Third-Party Beneficiaries. Unless otherwise agreed to by
the Parties, no Party shall assign any of its rights or obligations hereunder.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the Parties hereto or their respective successors any rights or
remedies.
  12.2  
Governing Law. This Agreement shall be governed by and construed under the laws
of Hong Kong, without regard to principles of conflicts of law thereunder.
  12.3  
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.
  12.4  
Headings and Titles. Headings and titles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
  12.5  
Dispute Resolution.

  12.5.1  
Any dispute, controversy or claim arising out of or relating to this Agreement,
or the interpretation, breach, termination or validity hereof, shall be resolved
through consultation. Such consultation shall begin immediately after one Party
hereto has delivered to the other Parties hereto a written request for such
consultation. If within 60 days following the date on which such notice is given
the dispute cannot be resolved, the dispute shall be submitted to arbitration
upon the request of any Party with notice to the other Parties.
    12.5.2  
The arbitration shall be conducted in Hong Kong under the auspices and rules of
the Hong Kong International Arbitration Center (the “HKIAC”). There shall be
three arbitrators. The claimant in the arbitration shall appoint one arbitrator,
and the respondent shall appoint one arbitrator. Such arbitrators shall be
freely selected, and the Parties shall not be limited in their selection to any
prescribed list. The two arbitrators shall select the third arbitrator. The
Parties agree that none of such arbitrators shall be a citizen of PRC, U.S.A,
Taiwan China, Hong Kong or Macau China. If either the claimants or the
respondents do not appoint an arbitrator who has consented to participate within
30 days after receiving the arbitration notice, the relevant appointment shall
be made by the HKIAC.
    12.5.3  
The arbitration proceedings shall be conducted both in English and Chinese. The
arbitration tribunal shall apply the Rules of the HKIAC in effect at the time of
the arbitration. However, if such rules are in conflict with the provisions of
this Clause 12.5, including the provisions concerning the appointment of
arbitrators, the provisions of this Clause 12.5 shall prevail.
    12.5.4  
The arbitrators shall decide any dispute submitted by the Parties to the
arbitration strictly in accordance with the substantive law of Hong Kong and
shall not apply any other substantive law.
    12.5.5  
Each Party shall cooperate with the other in making full disclosure of and
providing complete access to all information and documents requested by the
other in connection with such arbitration proceedings, subject only to any
confidentiality obligations binding on such Party.

 

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  12.5.6  
The award of the arbitral tribunal shall be final and binding upon the disputing
Parties, and any prevailing Party may apply to a court of competent jurisdiction
for enforcement of such award.
    12.5.7  
Any Party shall be entitled to seek preliminary injunctive relief, if possible,
from a competent court of Hong Kong pending the constitution of the arbitral
tribunal.

12.6  
Entire Agreement; Amendments and Waivers. This Agreement (including the
Appendices hereto) constitutes the full and entire understanding and agreement
among the Parties with regard to the subjects hereof and thereof. Any term of
this Agreement may be amended and the observance of any term of this Agreement
may be waived (either generally or in a particular instance and either
retroactively), only with the mutual written consent of all the Parties.
  12.7  
Force Majeure. If a Force Majeure occurs, to the extent that any contractual
obligation in this Agreement of any Party cannot be performed as a result of
such event, such contractual obligation shall be suspended while the Force
Majeure subsists and the due date for performance thereof shall be automatically
extended, without penalty, for a period equal to such suspension.
  12.8  
Severability. If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
  12.9  
Further Assurances. The Parties agree to execute such further instruments and to
take such further actions as may be reasonably necessary to carry out the intent
of this Agreement.
  12.10  
Taxes and Costs. Each of the Parties shall pay its own taxes, costs and expenses
incidental to the negotiation, preparation and performance of this Agreement and
the transactions contemplated hereby and thereby, including, but not limited to,
all applicable taxes, the fees, expenses and disbursements of its investment
bankers, accountants and counsel and of securing third party consents and
approvals required to be obtained by it.
  12.11  
This Agreement is written both in English and Chinese. Both versions shall have
the same effect in all aspects.
  12.12  
This Agreement shall become effective upon the execution of both the English and
the Chinese versions of this Agreement by the Parties hereto.

 

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IN WITNESS OF, this Agreement has been signed by the Parties (or their duly
authorized representatives) on the date stated at the beginning of this
Agreement.

          On behalf of
Synthesis Energy Systems, Inc.
      /s/ Robert Rigdon         By: Robert Rigdon
      On behalf of
Zhongjixuan Investment Management Company Ltd.
      /s/ Feng Feng             By: Feng Feng        On behalf of
China Energy Industry Holding Group Co., Limited
      /s/ Zhao Chuan Qi             By: Zhao Chuan Qi       

 

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