Exhibit 10.5

 
MAKE GOOD ESCROW AGREEMENT
 
This Securities Escrow Agreement (the "Make Good Escrow Agreement"), dated as of
October 29, 2009, is entered into by and among Longwei Petroleum Investment
Holding Limited, a Colorado corporation (the "Company"), Mr. Cai Yongjun and Mr.
Xue Yongping (collectively the “Make Good Pledgors”), the Investors (as defined
below), National Securities Corporation, as placement agent ("Placement Agent)
and Corporate Stock Transfer, Inc., as escrow agent ("Escrow Agent").
 
WHEREAS, each of the investors in the private offering of securities of the
Company (the “Investors”) has entered into a Securities Purchase Agreement,
dated as of the date hereof (the “SPA”), evidencing their participation in the
Company's private offering (the “Offering”) of securities.  As an inducement to
the Investors to participate in the Offering and as set forth in the SPA, the
Make Good Pledgors have agreed to place the “Escrow Shares” (as defined in
Section 2 hereto) into escrow for the benefit of the Investors in the event the
Company fails to satisfy certain financial thresholds.
 
WHEREAS, pursuant to the requirements of the SPA, the Company and the Make Good
Pledgors have agreed to establish an escrow on the terms and conditions set
forth in this Make Good Agreement;
 
WHEREAS, the Escrow Agent has agreed to act as escrow agent pursuant to the
terms and conditions of this Make Good Agreement; and
 
WHEREAS, all capitalized terms used but not defined herein shall have the
meanings assigned them in the SPA;
 
NOW, THEREFORE, in consideration of the mutual promises of the parties and the
terms and conditions hereof, the parties hereby agree as follows:
 
1.           Appointment of Escrow Agent. The Make Good Pledgors and the Company
hereby appoint Corporate Stock Transfer, Inc. as Escrow Agent to act in
accordance with the terms and conditions set forth in this Make Good Agreement,
and Escrow Agent hereby accepts such appointment and agrees to act in accordance
with such terms and conditions.
 
2.           Establishment of Escrow. Within three Trading Days of the execution
of the SPA, the Make Good Pledgors shall deliver, or cause to be delivered, to
the Escrow Agent certificates evidencing 13,499,274 shares (the “Escrow Shares”)
of the Company's common stock, no par value per share (“Common Stock”), along
with medallion guaranteed stock powers (or such other signed instrument of
transfer acceptable to the Company’s transfer agent to enable the transfer of
such Escrow Shares in accordance with Section 4).  The Make Good Pledgors hereby
agree that their  obligation to transfer shares of Common Stock to Investors
pursuant to Section 4.11 of the SPA and this Make Good Agreement shall continue
to run to the benefit of any Investor who shall have transferred or sold all or
any portion of its Series A Preferred Stock, and that Investors shall have the
right to assign its rights to receive all or any such shares of Common Stock to
other Persons in conjunction with negotiated sales or transfers of any of its
Series A Preferred Stock.
 
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3.           Representations of Make Good Pledgors and the Company.  The Make
Good Pledgors and the Company hereby represent and warrant, severally and not
jointly, as to itself only, to the Investors as follows:
 
a.           The Escrow Shares of the Make Good Pledgors are validly issued,
fully paid and nonassessable shares of the Company, and free and clear of all
pledges, liens and encumbrances.  Upon any transfer of Escrow Shares to
Investors hereunder, Investors will receive full right, title and authority to
such shares as holders of Common Stock of the Company.
 
b.           Performance of this Make Good Agreement and compliance with the
provisions hereof will not violate any provision of any applicable law and will
not conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon, any of the properties or
assets of any of the Make Good Pledgors pursuant to the terms of any indenture,
mortgage, deed of trust or other agreement or instrument binding upon any of the
Make Good Pledgors, other than such breaches, defaults or liens which would not
have a material adverse effect taken as a whole.
 
4.           Disbursement of Escrow Shares.
 
 
a.           If the After Tax Net Income reported in the 2010 Annual Report is
less than $23,900,000 (the “2010 Guaranteed ATNI), then the Investors shall be
entitled to receive on a “pro rata” basis (determined by dividing each
Investor’s Investment Amount by the aggregate of all Investment Amounts
delivered to the Company by the Investors under the SPA) for no consideration
other than their part of their respective Investment Amount at Closing, some or
all of the Escrow Shares determined according to the following formula:

E
Minus
C
((A / B) X D)

For the purposes of the foregoing formula:
 
 
A = Actual ATNI 2010
B = 2010 Guaranteed ATNI  ($23,900,000)
C = Escrow Shares (13,499,274)
D = Initial Conversion Price of Series A Preferred Stock ($1.10)
E = Total Investment Amount ($14,849,201.50)
 
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For example if the actual ATNI was $ 20 million the number of Escrow Shares that
would be distributed prorate to the Investors would be 2,632,395 calculated as
follows:

$14,849,201.50
                                                        Minus     13,499,274
(20,000,000/23,900,000) X 1.10

 
b.           The determination regarding the number and the distribution, if
any, of the Escrow Shares to be distributed to the Investors pursuant to this
Section shall be made by the Company and the Placement Agent within five (5)
Business Days after the date the Company is required to file its 2010 Annual
Report with the Commission (after giving effect to any extension pursuant to
Rule 12b-25 of the Exchange Act).  In the event that the Company does not file
its 2010 Annual Report with the Commission within thirty (30) days after the
date such filing was required, after giving effect to any extension pursuant to
Rule 12b-25 of the Exchange Act, all of the Escrow Shares shall be delivered to
the Investors on a pro rata basis within five (5) Business Days following the
expiration of such thirty (30) day period.
 
c.           Within five Business Days after the determination by the Company of
the number of Escrow Shares to which the Investors are entitled, calculated in
the manner set forth above, the Placement Agent and the Company shall give joint
written instructions to the  Escrow Agent to, and upon receipt of such written
instructions, the Escrow Agent shall, within five Business Days after receipt of
such instructions deliver to the Investors on a “pro rata” basis such number of
Escrow Shares as set forth in the  joint instructions.  If less than all of the
Escrow Shares are delivered to the Investors, the Escrow Agent shall return the
undistributed Escrow Shares to the Make Good Pledgors pursuant to the joint
instructions of the Placement Agent and the Company.
 
d.           Notwithstanding anything to the contrary set forth herein, in the
event of the conversion of shares of Series A Preferred, the shares of Series A
Preferred so converted shall remain outstanding for the purpose of receiving
distribution of Escrow Shares pursuant to this Section.
 
e.           Notwithstanding anything to the contrary set forth herein, only
those Investors who own shares of Series A Preferred issued hereunder and remain
shareholders of the Company at the time that any Escrow Shares become
deliverable hereunder shall be entitled to their pro rata portion of the Escrow
Shares calculated based on their ownership interest at the time when the
applicable Escrow Shares become deliverable hereunder.
 
 f.           The parties agree that for purposes of determining whether or not
the 2010 Guaranteed ATNI has been achieved, (i) the release of any or all of the
Escrow Shares shall not be counted as an expense, charge, or other deduction
from revenues in calculating net income even though GAAP may require contrary
treatment, (ii) any registration delay payments arising under the Registration
Rights Agreement that are accrued or paid by the Company to any Investor will be
excluded from the calculation of After-Tax Net Income, and (iii) any increase in
taxes payable by the Company or any Subsidiary as a result of PRC tax laws or
implementing regulations promulgated for the purpose of making more equal the
tax treatment of foreign invested entities (including sino-foreign joint
ventures) and domestic entities which may become effective and applicable to the
Company after the date of this Make Good Agreement shall not be included as an
expense.
 
 
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g.           For so long as the Escrow Shares remain in escrow, such shares
shall not be counted in calculating a quorum for stockholder voting purposes nor
shall such shares be voted at any meeting of stockholders or included in a
shareholders written consent.
 
h.           The Company will provide the Placement Agent with (i) the Company’s
audited financial statements for 2010, prepared in accordance with GAAP, on or
before September 30, 2010 (or such later date that the Company files its 2010
Annual Report so as to allow the Placement Agent the opportunity to evaluate
whether the 2010 Guaranteed ATNI has been attained.
 
 
5.           Duration. This Make Good Agreement shall terminate on the
distribution of all the Escrow Shares.  The Company agrees to provide the Escrow
Agent written notice of the filing with the Commission of any financial
statements or reports referenced herein.
 
 
6.           Escrow Shares.  If any Escrow Shares are deliverable to the
Investors pursuant to the SPA and in accordance with this Make Good Agreement,
(i) the Make Good Pledgors covenants and agrees to execute all such instruments
of transfer (including stock powers and assignment documents) as are customarily
executed to evidence and consummate the transfer of the Escrow Shares from the
Make Good Pledgors to the Investors and (ii) following its receipt of the
documents referenced in Section 6(i), the Company covenants and agrees to
promptly reissue such Escrow Shares in the applicable Investor’s name and
deliver the same as directed by such Investor.  Until such time as (if at all)
the Escrow Shares are required to be delivered pursuant to the SPA and in
accordance with this Make Good Agreement, any dividends payable in respect of
the Escrow Shares and all voting rights applicable to the Escrow Shares shall be
retained by the Make Good Pledgors.  Should the Escrow Agent receive dividends
or voting materials, such items shall be passed immediately on to the Make Good
Pledgors and shall not be invested or held for any time longer than is needed to
effectively re-route such items to the Make Good Pledgors.
 
7.           Interpleader.  Should any controversy arise among the parties
hereto with respect to this Make Good Agreement or with respect to the right to
receive the Escrow Shares, Escrow Agent and/or National Securities Corp. shall
have the right to consult counsel and/or to institute an appropriate
interpleader action to determine the rights of the parties. Escrow Agent and/or
National Securities Corp. are also each hereby authorized to institute an
appropriate interpleader action upon receipt of a written letter of direction
executed by the parties so directing either Escrow Agent or National Securities
Corp. . If Escrow Agent or National Securities Corp. is directed to institute an
appropriate interpleader action, it shall institute such action not prior to
thirty (30) days after receipt of such letter of direction and not later than
sixty (60) days after such date. Any interpleader action instituted in
accordance with this Section 7 shall be filed in any court of competent
jurisdiction in the State of New York, and the Escrow Shares in dispute shall be
deposited with the court and in such event Escrow Agent and National Securities
Corp. shall be relieved of and discharged from any and all obligations and
liabilities under and pursuant to this Make Good Agreement with respect to the
Escrow Shares and any other obligations hereunder.
 
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8.           Exculpation and Indemnification of Escrow Agent and National
Securities Corp.
 
a.           Escrow Agent is not a party to, and is not bound by or charged with
notice of any agreement out of which this escrow may arise.  Escrow Agent acts
under this Make Good Agreement as a depositary only and is not responsible or
liable in any manner whatsoever for the sufficiency, correctness, genuineness or
validity of the subject matter of the escrow, or any part thereof, or for the
form or execution of any notice given by any other party hereunder, or for the
identity or authority of any person executing any such notice. Escrow Agent will
have no duties or responsibilities other than those expressly set forth
herein.  Escrow Agent will be under no liability to anyone by reason of any
failure on the part of any party hereto (other than Escrow Agent) or any maker,
endorser or other signatory of any document to perform such person's or entity's
obligations hereunder or under any such document.  Except for this Make Good
Agreement and instructions to Escrow Agent pursuant to the terms of this Make
Good Agreement, Escrow Agent will not be obligated to recognize any agreement
between or among any or all of the persons or entities referred to herein,
notwithstanding its knowledge thereof.  National Securities Corp.’s sole
obligation under this Make Good Agreement is to provide prompt written
instruction to Escrow Agent (following such time as the Company files certain
periodic financial reports as specified in Section 4 hereof) directing the
distribution of the Escrow Shares.  National Securities Corp. will provide such
written instructions upon review of the relevant earnings per share and/or
After-Tax Net Income amount reported in such periodic financial reports as
specified in Section 4 hereof.  National Securities Corp. is not charged with
any obligation to conduct any investigation into the financial reports or make
any other investigation related thereto.  If any actual or alleged mistake or
fraud of the Company, its auditors or any other person (other than National
Securities Corp.) in connection with such financial reports of the Company,
National Securities Corp. shall have no obligation or liability to any party
hereunder.
 
b.           Escrow Agent will not be liable for any action taken or omitted by
it, or any action suffered by it to be taken or omitted, absent gross negligence
or willful misconduct.  Escrow Agent may rely conclusively on, and will be
protected in acting upon, any order, notice, demand, certificate, or opinion or
advice of counsel (including counsel chosen by Escrow Agent), statement,
instrument, report or other paper or document (not only as to its due execution
and the validity and effectiveness of its provisions, but also as to the truth
and acceptability of any information therein contained) which is reasonably
believed by Escrow Agent to be genuine and to be signed or presented by the
proper person or persons.  The duties and responsibilities of the Escrow Agent
hereunder shall be determined solely by the express provisions of this Make Good
Agreement and no other or further duties or responsibilities shall be implied,
including, but not limited to, any obligation under or imposed by any laws of
the State of New York upon fiduciaries.
 
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c.           The Company and the Make Good Pledgors each hereby, jointly and
severally, indemnify and hold harmless each of Escrow Agent, National Securities
Corp. and any of their principals, partners, agents, employees and
affiliates from and against any expenses, including reasonable attorneys' fees
and disbursements, damages or losses suffered by Escrow Agent or National
Securities Corp. in connection with any claim or demand, which, in any way,
directly or indirectly, arises out of or relates to this Make Good Agreement or
the services of Escrow Agent or National Securities Corp.  hereunder; except,
that if Escrow Agent or National Securities Corp. is guilty of willful
misconduct, gross negligence or fraud under this Make Good Agreement, then
Escrow Agent or National Securities Corp., as the case may be, will bear all
losses, damages and expenses arising as a result of such willful misconduct,
gross negligence or fraud.  Promptly after the receipt by Escrow Agent or
National Securities Corp.  of notice of any such demand or claim or the
commencement of any action, suit or proceeding relating to such demand or claim,
Escrow Agent or National Securities Corp., as the case may be, will notify the
other parties hereto in writing.  For the purposes hereof, the terms “expense”
and “loss” will include all amounts paid or payable to satisfy any such claim or
demand, or in settlement of any such claim, demand, action, suit or proceeding
settled with the express written consent of the parties hereto, and all costs
and expenses, including, but not limited to, reasonable attorneys' fees and
disbursements, paid or incurred in investigating or defending against any such
claim, demand, action, suit or proceeding.  The provisions of this Section 8
shall survive the termination of this Make Good Agreement.
 
9.           Compensation of Escrow Agent.  Escrow Agent shall be entitled to
compensation for its services as stated in the fee schedule attached hereto as
Exhibit B, which compensation shall be paid by the Company. The fee agreed upon
for the services rendered hereunder is intended as full compensation for Escrow
Agent's services as contemplated by this Make Good Agreement; provided, however,
that in the event that Escrow Agent renders any material service not
contemplated in this Make Good Agreement, or there is any assignment of interest
in the subject matter of this Make Good Agreement, or any material modification
hereof, or if any material controversy arises hereunder, or Escrow Agent is made
a party to any litigation pertaining to this Make Good Agreement, or the subject
matter hereof, then Escrow Agent shall be reasonably compensated by the Company
for such extraordinary services and reimbursed for all costs and expenses,
including reasonable attorney's fees, occasioned by any delay, controversy,
litigation or event, and the same shall be recoverable from the Company.  Prior
to incurring any costs and/or expenses in connection with the foregoing
sentence, Escrow Agent shall be required to provide written notice to the
Company of such costs and/or expenses and the relevancy thereof and Escrow Agent
shall not be permitted to incur any such costs and/or expenses prior to
receiving written approval from the Company, which approval shall not be
unreasonably withheld.
 
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10.           Resignation of Escrow Agent.  At any time, upon ten (10) days'
written notice to the Company, Escrow Agent may resign and be discharged from
its duties as Escrow Agent hereunder. As soon as practicable after its
resignation, Escrow Agent will promptly turn over to a successor escrow agent
appointed by the Company the Escrow Shares held hereunder upon presentation of a
document appointing the new escrow agent and evidencing its acceptance
thereof.  If, by the end of the 10-day period following the giving of notice of
resignation by Escrow Agent, the Company shall have failed to appoint a
successor escrow agent, Escrow Agent may interplead the Escrow Shares into the
registry of any court having jurisdiction.
 
11.           Records.  Escrow Agent shall maintain accurate records of all
transactions hereunder.  Promptly after the termination of this Make Good
Agreement or as may reasonably be requested by the parties hereto from time to
time before such termination, Escrow Agent shall provide the parties hereto, as
the case may be, with a complete copy of such records, certified by Escrow Agent
to be a complete and accurate account of all such transactions.  The authorized
representatives of each of the parties hereto shall have access to such books
and records at all reasonable times during normal business hours upon reasonable
notice to Escrow Agent and at the requesting party’s expense.
 
12.           Notice.  All notices, communications and instructions required or
desired to be given under this Make Good Agreement must be in writing and shall
be deemed to be duly given if sent by registered or certified mail, return
receipt requested, or overnight courier, to the addresses listed on the
signature page hereto.
 
13.           Execution in Counterparts.  This Make Good Agreement may be
executed in counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
 
14.           Assignment and Modification.  This Make Good Agreement and the
rights and obligations hereunder of any of the parties hereto may not be
assigned without the prior written consent of the other parties hereto and the
Investors.  Subject to the foregoing, this Make Good Agreement will be binding
upon and inure to the benefit of each of the parties hereto and their respective
successors and permitted assigns.  No other person will acquire or have any
rights under, or by virtue of, this Make Good Agreement.  No portion of the
Escrow Shares shall be subject to interference or control by any creditor of any
party hereto, or be subject to being taken or reached by any legal or equitable
process in satisfaction of any debt or other liability of any such party hereto
prior to the disbursement thereof to such party hereto in accordance with the
provisions of this Make Good Agreement.  This Make Good Agreement may be amended
or modified only in writing signed by all of the parties hereto and the
Investors.
 
15.           Applicable Law.  This Make Good Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to the principles of conflicts of laws thereof.
 
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16.           Headings.  The headings contained in this Make Good Agreement are
for convenience of reference only and shall not affect the construction of this
Make Good Agreement.
 
17.           Attorneys' Fees.  If any action at law or in equity, including an
action for declaratory relief, is brought to enforce or interpret the provisions
of this Make Good Agreement, the prevailing party shall be entitled to recover
reasonable attorneys' fees from the other party (unless such other party is the
Escrow Agent or National Securities Corp. . Inc.), which fees may be set by the
court in the trial of such action or may be enforced in a separate action
brought for that purpose, and which fees shall be in addition to any other
relief that may be awarded.
 
18.           Authorized Signers.  The Company will execute Exhibit C-1 and
deliver an executed Exhibit C-2 to this Make Good Agreement concurrent with the
execution hereof.
 
 
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IN WITNESS WHEREOF, the parties have duly executed this Make Good Agreement as
of the date set forth opposite their respective names.
 

 
LONGWEI PETROLEUM INVESTMENT HOLDING LIMITED.
         
By:
/s/ Cai Yongjun      
Name: Cai Yongjun
Title: Chief Executive Officer
               

 

 
 
 
 

  Make Good Pledgors           Cai Yongjun      
Cai Yongjun
 
     
Mr. Xue Yongping
     
Mr. Xue Yongping
 

 

 

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INVESTORS:
 
 
          By:      
 
      Address          

 
 
 

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ESCROW AGENT:
 
CORPORATE STOCK TRANSFER, INC.
          By:      
 
      Address          

 
 

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NATIONAL SECURITIES CORP:
 
          By:      
 
      Address          

 
 

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