Exhibit 10.1

EXECUTION VERSION

 

 

 

INVESTOR RIGHTS AGREEMENT

between

UNITED ENERGY GROUP LIMITED

and

TRANSMERIDIAN EXPLORATION INCORPORATED

Dated as of June 11, 2008

 

 

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TABLE OF CONTENTS

 

ARTICLE I    DEFINITIONS    SECTION 1.01    Certain Defined Terms    2 SECTION
1.02    Additional Defined Terms    3 ARTICLE II    REGISTRATION RIGHTS   
SECTION 2.01    Demand Registration    4 SECTION 2.02    Shelf Registration    5
SECTION 2.03    Limitations on Demand/Shelf Registrations    5 SECTION 2.04   
Piggy-Back Registration    6 SECTION 2.05    Blackout Periods    7 SECTION 2.06
   Registration Procedures    8 SECTION 2.07    Expenses    12 SECTION 2.08   
Rule 144 Information    13 SECTION 2.09    Indemnification and Contribution   
13 SECTION 2.10    Certain Additional Limitations on Registration Rights    16
SECTION 2.11    Limitations on Registration of Other Securities; Representation
   16 SECTION 2.12    No Inconsistent Agreements    16 SECTION 2.13    Selection
of Managing Underwriters    16 ARTICLE III    ADDITIONAL AGREEMENTS    SECTION
3.01    Oversight Committee    17 SECTION 3.02    Notification of Initiation of
Sale or Acquisition Proposal    17

 

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SECTION 3.03    Certificate of Incorporation and Bylaws to be Consistent    18
ARTICLE IV    MISCELLANEOUS    SECTION 4.01    Effectiveness    19 SECTION 4.02
   Termination    19 SECTION 4.03    Specific Performance    19 SECTION 4.04   
Amendments and Waivers    19 SECTION 4.05    Notice Generally    19 SECTION 4.06
   Successors and Assigns; Third Party Beneficiaries    20 SECTION 4.07   
Headings    21 SECTION 4.08    Governing Law; Jurisdiction    21 SECTION 4.09   
Waiver of Jury Trial    21 SECTION 4.10    Severability    21 SECTION 4.11   
Entire Agreement    21 SECTION 4.12    Cumulative Remedies    21 SECTION 4.13   
Construction    22 SECTION 4.14    Counterparts    22

 

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INVESTOR RIGHTS AGREEMENT, dated as of June 11, 2008 (this “Agreement”), by and
between UNITED ENERGY GROUP LIMITED, an exempted company with limited liability
existing under the laws of Bermuda (“Investor”), and TRANSMERIDIAN EXPLORATION
INCORPORATED, a Delaware corporation (the “Company”). All capitalized terms used
but not defined herein shall have the respective meanings ascribed thereto in
the Investment Agreement (as defined below).

WHEREAS, Investor and the Key Senior Preferred Stockholders have entered into
those certain Senior Preferred Stock Purchase Agreements, dated as of the date
hereof, pursuant to which Investor has agreed to purchase from each of the Key
Senior Preferred Stockholders, and each Key Senior Preferred Stockholder has
agreed to sell to Investor, all of the shares of the Senior Preferred Stock
owned of record and beneficially by such Key Senior Preferred Stockholder, upon
the terms and subject to the conditions set forth in the Senior Preferred Stock
Purchase Agreements (collectively, the “Rollover Transactions”);

WHEREAS, Investor and the Key Junior Preferred Stockholders have entered into
that certain Junior Preferred Stock Purchase Agreement, dated as of the date
hereof, pursuant to which Investor has agreed to purchase from each Key Junior
Preferred Stockholder, and each Key Junior Preferred Stockholder has agreed to
sell to Investor, all of the shares of the Junior Preferred Stock owned of
record and beneficially by such Key Junior Preferred Stockholder, upon the terms
and subject to the conditions set forth in the Junior Preferred Stock Purchase
Agreement (the “Sale and Purchase Transactions”);

WHEREAS, Investor and the Company have entered into that certain Investment
Agreement, dated as of the date hereof (the “Investment Agreement”), pursuant to
which (a) Investor intends to make a cash tender offer (the “Tender Offer”) to
acquire the Remaining Shares of Senior Preferred Stock and the Remaining Shares
of Junior Preferred Stock, and (b) if requested by Investor, the Company intends
to cause the 12% Senior Notes Issuer to (i) conduct an offer to exchange New
Senior Notes and the 12% Senior Notes Cash Payments for the 12% Senior Notes and
(ii) concurrently with the exchange offer, solicit consents from holders of the
12% Senior Notes to adopt certain amendments to the Indenture, in each case upon
the terms and subject to the conditions set forth in the Investment Agreement
(such exchange offer and consent solicitation being collectively referred to
herein as the “Exchange Offer”, and together with the Tender Offer, the
“Offers”);

WHEREAS, pursuant to the Investment Agreement, upon the consummation of the
Offers, the Rollover Transactions and the Sale and Purchase Transactions, the
Company intends to issue to Investor (a) the Series B-1 Preferred Stock; (b) the
Series B-2 Preferred Stock; and (c) the Warrants in exchange for (i) the
Preferred Stock tendered pursuant to the Tender Offer; (ii) the Senior Preferred
Stock purchased by Investor pursuant to the Senior Preferred Stock Purchase
Agreements; (iii) the Junior Preferred Stock purchased by Investor pursuant to
the Junior Preferred Stock Purchase Agreement; (iv) the First Tranche Price;
(v) the Second Tranche Price; and (vi) the Additional Returns, in each case upon
the terms and subject to the conditions set forth in the Investment Agreement
(collectively, the “Swap”, and together with the Rollover Transactions, the Sale
and Purchase Transactions and the Offers, the “Transactions”); and

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WHEREAS, the parties hereto desire to enter into this Agreement to establish
certain rights and obligations of Investor and the Company with respect to the
New Preferred Stock.

NOW, THEREFORE, in consideration of the premises and the covenants hereinafter
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, it is agreed as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01 Certain Defined Terms. Unless otherwise defined herein, the terms
below shall have the following meanings (such meanings being equally applicable
to both the singular and plural form of the terms defined):

“Certificate(s) of Designations” means the Certificate of Designations with
respect to the Series B-1 Preferred Stock and/or the Certificate of Designations
with respect to the Series B-2 Preferred Stock, as the case may be.

“Holder” means Investor, and any transferee of Investor to whom Registrable
Securities are permitted to be transferred in accordance with the terms of this
Agreement and the Certificates of Designations, and, in each case, who continues
to be entitled to the rights of a Holder hereunder.

“Pro Rata Percentage” means, for each class or type of securities being offered
in an underwritten public offering, (i) the number of unregistered securities of
such class or type held by a selling equity holder divided by (ii) the total
number of unregistered securities of such class or type proposed to be sold by
all selling equity holders.

“Registrable Securities” means (i) the New Preferred Stock and the Common Stock
issuable upon conversion of any shares of the New Preferred Stock or upon
exercise of any of the Warrants, and any shares of New Preferred Stock or Common
Stock issued in lieu of cash dividends on the New Preferred Stock and (ii) any
securities issuable or issued or distributed in respect of any of the New
Preferred Stock or Common Stock identified in clause (i) by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, reorganization, merger, consolidation or otherwise. For
purposes of this Agreement, (A) Registrable Securities shall cease to be
Registrable Securities when a Registration Statement covering such Registrable
Securities has been declared effective under the Securities Act by the SEC and
such Registrable Securities have been disposed of pursuant to such effective
Registration Statement and (B) the Registrable Securities of a Holder shall not
be deemed to be Registrable Securities at any time when the entire amount of
such Registrable Securities proposed to be sold by such Holder in a single sale
(i) constitute less than 1% of the then outstanding shares of Common Stock,
(ii) are or, in the opinion of counsel satisfactory to the Company and such
Holder, each in their reasonable judgment, may be, so distributed to the public
pursuant to Rule 144 (or any successor provision then in effect) under the
Securities Act in any three month period or (iii) any such Registrable
Securities have been sold in a sale made pursuant to Rule 144 under the
Securities Act (or any successor provision then in effect).

 

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“Registration Statement” means a Demand Registration Statement, Piggy-Back
Registration Statement and/or Shelf Registration Statement, as the case may be.

SECTION 1.02 Additional Defined Terms. The following terms have the meanings set
forth in the Section set forth opposite such term:

 

Agreement    Preamble Blackout Period    2.05 Company    Preamble
Demand for Registration    2.03 Demand Registration    2.01(a)
Demand Registration Statement    2.01(a) Exchange Offer    Recitals Holder Offer
   3.02(d) Indemnified Party    2.09(d) Indemnifying Party    2.09(d) Investment
Agreement    Recitals Investor    Preamble Investor Designees    3.01
Maximum Number of Securities    2.01(b) Negotiation Period    3.02(d) Notice   
3.02(a) Offers    Recitals Oversight Committee    3.01 Participating Demand
Holders    2.01(a) Participating Piggy-Back Holders    2.04(b) Piggy-Back
Registration    2.04(a) Piggy-Back Registration Statement    2.04(a) Rollover
Transactions    Recitals Sale and Purchase Transactions    Recitals Sale
Transaction    3.02(b) Shelf Registration    2.02(a) Shelf Registration Period
   2.02(b) Shelf Registration Statement    2.02(a) Swap    Recitals Tender Offer
   Recitals Third Party Offer    3.02(a) Transactions    Recitals

 

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ARTICLE II

REGISTRATION RIGHTS

SECTION 2.01 Demand Registration. (a) Upon receipt of a written request from a
Holder holding at least 25% of the Registrable Securities at such time (on an as
converted basis) requesting that the Company effect a registration (a “Demand
Registration”) under the Securities Act covering all or part of the Registrable
Securities which specifies the intended method or methods of disposition
thereof, the Company shall promptly notify all Holders in writing of the receipt
of such request and each such Holder, in lieu of exercising its rights under
Section 2.04 hereof may elect (by written notice sent to the Company within ten
(10) Business Days from the date of such Holder’s receipt of the aforementioned
notice from the Company) to have all or part of such Holder’s Registrable
Securities included in such registration thereof pursuant to this Section 2.01,
and such Holder shall specify in such notice the number of Registrable
Securities that such Holder elects to include in such registration. Thereupon
the Company shall, as expeditiously as is possible, but in any event no later
than thirty (30) days (excluding any days which occur during a permitted
Blackout Period under Section 2.05 below) after receipt of a written request for
a Demand Registration, file with the SEC and use its reasonable best efforts to
cause to be declared effective, a registration statement (a “Demand Registration
Statement”) relating to all shares of Registrable Securities which the Company
has been so requested to register by such Holders (“Participating Demand
Holders”) for sale, to the extent required to permit the disposition (in
accordance with the intended method or methods thereof, as aforesaid) of the
Registrable Securities so registered.

(b) If the Participating Demand Holders in a Demand Registration relating to a
public offering holding a majority in interest of Registrable Securities (on an
as converted basis) for which such Demand Registration was requested request
that the offering be underwritten with a managing underwriter selected in the
manner set forth in Section 2.13 below and such managing underwriter of such
Demand Registration advises the Company in writing that, in its opinion, the
number of securities to be included in such offering is greater than the total
number of securities which can be sold therein without having a material adverse
effect on the distribution of such securities or otherwise having a material
adverse effect on the marketability thereof (the “Maximum Number of
Securities”), then the Company shall include in such Demand Registration the
Registrable Securities that the Participating Demand Holders have requested to
be registered thereunder only to the extent the number of such Registrable
Securities does not exceed the Maximum Number of Securities. If such amount
exceeds the Maximum Number of Securities, the number of Registrable Securities
included in such Demand Registration shall be allocated among all of the
Participating Demand Holders on a pro rata basis (based on the number of
Registrable Securities held by each Participating Demand Holder). If the amount
of such Registrable Securities does not exceed the Maximum Number of Securities,
the Company may include in such Demand Registration any other securities of the
Company held by other security holders of the Company in an amount not to exceed
the difference between (i) the Maximum Number of Securities and (ii) the
Registrable Securities which the Company has been requested to register by the
Participating Demand Holders, as the Company may in its reasonable discretion
determine or be obligated to allow, in an amount which together with the
Registrable Securities included in such Demand Registration shall not exceed the
Maximum Number of Securities.

 

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(c) Registrations under this Section 2.01 shall be on such appropriate form of
the SEC (i) as shall be selected by the Company and (ii) as shall permit the
disposition of the Registrable Securities in accordance with the intended method
or methods of disposition specified in the applicable Holders’ request for such
registration.

(d) Notwithstanding anything to the contrary contained herein, the Company shall
not be required to prepare and file (i) more than two (2) Demand Registration
Statements in any 12-month period or (ii) any Demand Registration Statement
within ninety (90) days following the date of effectiveness of any other
Registration Statement.

SECTION 2.02 Shelf Registration. (a) Any Demand Registration Statement may be
required by Participating Demand Holders constituting a majority of the
Registrable Securities (on an as converted basis) for which such Demand
Registration was requested to be in an appropriate form under the Securities Act
(a “Shelf Registration Statement”) relating to any or all of the Registrable
Securities in accordance with the methods and distribution set forth in the
Shelf Registration Statement and Rule 415 under the Securities Act (the “Shelf
Registration”).

(b) The Company shall use its reasonable best efforts to have such Shelf
Registration Statement declared effective, subject to Section 2.05 below, and to
keep such Shelf Registration Statement continuously effective, supplemented and
amended to the extent necessary to ensure that it (i) is available for resales
of Registrable Securities by such Holders; (ii) conforms with the requirements
of this Agreement, the Securities Act and the policies, rules, regulations and
other applicable requirements of the SEC as announced from time to time; and
(iii) does not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading (provided, however, that the Company shall have no such
obligations or liabilities with respect to any written information pertaining to
any Holder and furnished to the Company by or on behalf of such Holder
specifically for inclusion therein), in each case until such time as all of the
Registrable Securities covered by the Shelf Registration Statement (A) have been
sold in the manner provided for therein and pursuant thereto, (B) have been
distributed to the public pursuant to Rule 144 under the Securities Act (or any
successor rule thereof), or (C) cease to be outstanding (the “Shelf Registration
Period”). A request of a Demand Holder under this Section 2.02 shall be deemed
to be a request for a Demand Registration for the purposes of Section 2.01(d).

(c) Registrations under this Section 2.02 shall be on such appropriate form of
the SEC (i) as shall be selected by the Company and (ii) as shall permit the
disposition of the Registrable Securities in accordance with the intended method
or methods of disposition specified in the applicable Holders’ request for such
registration.

SECTION 2.03 Limitations on Demand/Shelf Registrations. Holders shall be
entitled to an aggregate of three (3) Registrations of Registrable Securities
pursuant to Section 2.01 or Section 2.02 (each, a “Demand for Registration”);
provided, that a registration requested pursuant to Section 2.01 or Section 2.02
shall not be deemed to have been effected for purposes of this Section 2.03
unless (i) it has been declared effective by the SEC; (ii) it has remained
effective for the period set forth in Section 2.06(a), subject to Section 2.05
and Section 2.06(i); and (iii) the offering of Registrable Securities pursuant
to such registration is not subject to any

 

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stop order, injunction or other order or requirement of the SEC (for any reason
other than the acts or omissions of Holders) unless such stop order, injunction
or other order or requirement of the SEC has been withdrawn, vacated or
otherwise removed.

SECTION 2.04 Piggy-Back Registration. (a) If the Company proposes to file on its
behalf and/or on behalf of any holder of its securities (other than a Holder) a
registration statement under the Securities Act on any form (other than a
registration statement on Form S-4 or S-8 or any successor form for securities
to be offered in a transaction of the type referred to in Rule 145 under the
Securities Act or to employees of the Company pursuant to any employee benefit
plan, respectively) for the registration of Common Stock or preferred stock that
is convertible to Common Stock (a “Piggy-Back Registration”), it will give
written notice to all Holders at least thirty (30) days before the initial
filing with the SEC of such piggy-back registration statement (a “Piggy-Back
Registration Statement”), which notice shall set forth the intended method of
disposition of the securities proposed to be registered by the Company. The
notice shall offer such Holders the opportunity to include in such filing such
number of Registrable Securities as each such Holder may request.

(b) Each Holder desiring to have Registrable Securities registered under this
Section 2.04 (“Participating Piggy-Back Holders”) shall advise the Company in
writing within fifteen (15) days after the date of receipt of such offer from
the Company, setting forth the amount of such Registrable Securities for which
registration is requested. The Company shall thereupon include in such filing
the number or amount of Registrable Securities for which registration is so
requested, subject to paragraph (c) below, and shall use its reasonable best
efforts to effect registration of such Registrable Securities under the
Securities Act.

(c) If the Piggy-Back Registration relates to an underwritten public offering
and the managing underwriter of such proposed public offering advises in writing
that, in its opinion, the amount of Registrable Securities requested to be
included in the Piggy-Back Registration in addition to the securities being
registered by the Company would be greater than the Maximum Number of Securities
(having the same meaning as defined in Section 2.01 but replacing the term
“Demand Registration” with “Piggy-Back Registration”), then:

(i) in the event that the Company initiated the Piggy-Back Registration, the
Company shall include in such Piggy-Back Registration first, the securities the
Company proposes to register and second, the securities of all other selling
equity holders, including the Participating Piggy-Back Holders, to be included
in such Piggy-Back Registration in an amount which together with the securities
the Company proposes to register, shall not exceed the Maximum Number of
Securities, such amount to be allocated among such selling equity holders based
on each such holder’s Pro Rata Percentage.

(ii) in the event any holder of securities of the Company (other than a Holder)
initiated the Piggy-Back Registration, the Company shall include in such
Piggy-Back Registration first, the securities such initiating equity holder
proposes to register, second, the securities of any other selling equity holders
(including Participating Piggy-Back Holders), in an amount which together with
the securities the initiating equity holder proposes to register, shall not
exceed the Maximum Number of Securities, such

 

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amount to be allocated among such other selling equity holders based on each
such holder’s Pro Rata Percentage; and third, any securities the Company
proposes to register, in an amount which together with the securities the
initiating equity holder and the other selling equity holders propose to
register, shall not exceed the Maximum Number of Securities.

(d) The Company will not hereafter enter into any agreement, which is
inconsistent with the rights of priority provided in paragraph (c) above.

SECTION 2.05 Blackout Periods. The Company shall have the right to delay the
filing or effectiveness, or in the case of a Shelf Registration Statement, to
suspend the use, of a Registration Statement required pursuant to Section 2.01,
Section 2.02 or Section 2.04 hereof during no more than two (2) periods
aggregating to not more than forty-five (45) days in any twelve-month period
(except as a result of a review of any post-effective amendment by the SEC
before declaring any post-effective amendment to a Registration Statement
effective, provided that the Company has used its reasonable best efforts to
cause such post-effective amendment to be declared effective) (a “Blackout
Period”) in the event that in the judgment of the Board, (i) there is a
reasonable likelihood that such disclosure, or any other action to be taken in
connection with the prospectus, would materially and adversely affect or
interfere with any financing, acquisition, merger, disposition of assets (not in
the ordinary course of business), corporate reorganization or other similar
transaction in which the Company is engaged or in respect of which the Company
proposes to engage in discussions or negotiations, or has proposed or taken a
substantial step to commence, (ii) there is an event or state of facts relating
to the Company which is material to the Company the disclosure of which would,
in the reasonable judgment of the Company be adverse to its interests or
(iii) it is required by law, rule, regulation or published release or
interpretation of the SEC to supplement the Registration Statement or file a
post-effective amendment to the Registration Statement in order to incorporate
information into the Registration Statement for the purpose of (1) including in
the Registration Statement any prospectus required under Section 10(a)(3) of the
Securities Act; (2) reflecting in the prospectus included in the Registration
Statement any facts or events arising after the effective date of the
Registration Statement (or of the most-recent post-effective amendment) that,
individually or in the aggregate, represents a fundamental change in the
information set forth therein; or (3) including in the prospectus included in
the Registration Statement any material information with respect to the plan of
distribution not disclosed in the Registration Statement or any material change
to such information; provided, however, that the Company shall delay during such
Blackout Period the filing or effectiveness of any Registration Statement or
suspend the use of any Registration Statement, as applicable, required pursuant
to the registration rights of the holders of any securities of the Company. The
Company shall promptly give the Holders written notice of such determination
containing a general statement of the reasons for such postponement and an
approximation of the anticipated delay.

 

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SECTION 2.06 Registration Procedures. If the Company is required by the
provisions of Section 2.01, Section 2.02 or Section 2.04 to use its reasonable
best efforts to effect the registration of any of its securities under the
Securities Act, the Company will, as expeditiously as possible:

(a) prepare and file with the SEC a Registration Statement with respect to such
securities and use its reasonable best efforts to cause such Registration
Statement to become effective as promptly as practicable and to remain effective
for a period of time required for the disposition of such securities by the
holders (including the Holders) thereof but not to exceed thirty (30) days
(except with respect to a Shelf Registration Statement which shall remain
effective for the Shelf Registration Period); provided, however, that before
filing such Registration Statement or any amendments or supplements thereto
(including in each case all exhibits), the Company shall furnish the
representatives of the Holders referred to in Section 2.06(m) copies of all
documents proposed to be filed, which documents will be subject to the review of
such Holders and their respective representatives. The Company shall not be
deemed to have used its reasonable best efforts to keep a Registration Statement
effective during the applicable period if it voluntarily takes any action that
would result in the Holders of such Registrable Securities not being able to
sell such Registrable Securities during that period, unless such action is
required under applicable law or except to the extent contemplated by
Section 2.05 or 2.06(i)(v);

(b) prepare and file with the SEC such amendments and supplements (including in
each case all exhibits) to such Registration Statement and the prospectus used
in connection therewith as may be necessary to keep such Registration Statement
effective and to comply with the provisions of the Securities Act with respect
to the sale or other disposition of all securities covered by such Registration
Statement until the earlier of such time as all of such securities have been
disposed of in a public offering or the expiration of thirty (30) days (except
with respect to the Shelf Registration Statement, for which such period shall be
the Shelf Registration Period);

(c) furnish to such selling security holders (including the Holders) such number
of conformed copies of the applicable Registration Statement and each such
amendment and supplement thereto (including in each case all exhibits), such
copies of a summary prospectus or other prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents, as such selling security holders (including the Holders) may
reasonably request in order to facilitate the public sale or other disposition
of the securities covered by such Registration Statement. The Company consents,
subject to the provisions of this Agreement, to the use of the prospectus or any
amendment or supplement thereto by each Holder participating in the offering and
sale of the Registrable Securities covered by the prospectus, or any amendment
or supplement thereto, included in the applicable Registration Statement;

(d) prior to any public offering of the securities pursuant to the applicable
Registration Statement, register or qualify the securities covered by such
Registration Statement under such other securities or blue sky laws of such
jurisdictions within the United States as each Holder of such securities shall
reasonably request, to keep such registration or qualification in effect for so
long as such Registration Statement remains in effect, and to take any other
action which may be reasonably necessary to enable such seller to consummate the
disposition in such jurisdictions of the securities owned by such Holder, and do
such other reasonable acts and things as may be required of it to enable such
Holder to consummate the disposition in such jurisdiction of the securities
covered by such Registration Statement, provided that the Company shall not be
required to qualify generally to do business in any jurisdiction or to register
as a broker or dealer in such jurisdiction where it would not otherwise be
required to qualify but for this provision, or submit to the general service of
process in any such jurisdiction;

 

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(e) furnish, at the request of any Holder requesting registration of Registrable
Securities pursuant to Section 2.01, Section 2.02 or Section 2.04, if the method
of distribution is by means of an underwriting, on the date that the shares of
Registrable Securities are delivered to the underwriters for sale pursuant to
such registration, or if such Registrable Securities are not being sold through
underwriters, on the date that the Registration Statement with respect to such
shares of Registrable Securities becomes effective, (1) a signed opinion, dated
such date, of the independent legal counsel representing the Company for the
purpose of such registration, addressed to the underwriters, if any, and if such
Registrable Securities are not being sold through underwriters, then to the
Holders making such request, as to such matters as such underwriters or the
Holders holding a majority of the Registrable Securities (on an as converted
basis) included in such registration, as the case may be, may reasonably
request; (2) such customary documents and certificates executed and delivered by
the Company’s officers, and any updates thereof, as requested by the
underwriters, if any, and if such Registrable Securities are not being sold
through underwriters, then the Holders making such request; and (3) letters
dated such date and the date the offering is priced from the independent
certified public accountants of the Company, addressed to the underwriters, if
any, and if such Registrable Securities are not being sold through underwriters,
then to the Holders making such request (i) stating that they are independent
certified public accountants within the meaning of the Securities Act and that,
in the opinion of such accountants, the financial statements and other financial
data of the Company included in the Registration Statement or the prospectus, or
any amendment or supplement thereto, comply as to form in all material respects
with the applicable accounting requirements of the Securities Act and
(ii) covering such other financial matters (including information as to the
period ending not more than five (5) business days prior to the date of such
letters) with respect to the registration in respect of which such letter is
being given as such underwriters or the Holders holding a majority of the
Registrable Securities (on an as converted basis) included in such registration,
as the case may be, may reasonably request and as would be customary in such a
transaction; provided that, to be an addressee of such letter, each Holder may
reasonably be required to confirm that it is in the category of persons to whom
a comfort letter may be delivered in accordance with applicable accounting
literature;

(f) enter into customary agreements (including if the method of distribution is
by means of an underwriting, an underwriting agreement in customary form) and
take such other actions as are reasonably required in order to expedite or
facilitate the disposition of such Registrable Securities;

(g) comply with all applicable rules and regulations of the SEC, and make
earnings statements satisfying the provisions of Section 11(a) of the Securities
Act and Rule 158 thereunder generally available to the Holders no later than 45
days after the end of any twelve-month period (or 90 days, if such period is a
fiscal year) (i) commencing at the end of any fiscal quarter in which
Registrable Securities are sold to underwriters in an underwritten public
offering, or (ii) if not sold to underwriters in such an offering, beginning
with the first month of the Company’s first fiscal quarter commencing after the
effective date of the Registration Statement, which statements shall cover said
twelve-month periods;

 

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(h) use its reasonable best efforts to cause all such Registrable Securities to
be listed on each securities exchange or quotation system on which similar
securities issued by the Company are listed or traded;

(i) give written notice to the Holders:

(i) when such Registration Statement or any amendment thereto has been filed
with the SEC and when such Registration Statement or any post-effective
amendment thereto has become effective;

(ii) of any request by the SEC for amendments or supplements to such
Registration Statement or the prospectus included therein or for additional
information;

(iii) of the issuance by the SEC of any stop order suspending the effectiveness
of such Registration Statement or the initiation of any proceedings for that
purpose;

(iv) of the receipt by the Company or its legal counsel of any notification with
respect to the suspension of the qualification of the Common Stock for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose; and

(v) of the happening of any event that requires the Company to make changes in
such Registration Statement or the prospectus in order to make the statements
therein not misleading (which notice shall be accompanied by an instruction to
suspend the use of the prospectus until the requisite changes have been made).

(j) use its reasonable best efforts to prevent the issuance or obtain the
withdrawal of any order suspending the effectiveness of such Registration
Statement at the earliest possible time;

(k) furnish to each Holder, without charge, at least one copy of such
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, and, if the Holder so requests in writing,
all exhibits (including those, if any, incorporated by reference);

(l) upon the occurrence of any event contemplated by Section 2.06(i)(v) or
Section 2.05(iii) above, promptly prepare and file a post-effective amendment to
such Registration Statement or a supplement to the related prospectus or prepare
and file any other required document so that, as thereafter delivered to the
Holders, the prospectus will not contain an untrue statement of a material fact
or omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. If the
Company notifies the Holders in accordance with Section 2.06(i)(v) or 2.05(iii)
above to suspend the use of the prospectus until the requisite changes to the
prospectus have been made or the post-effective amendment has become effective,
as the case may be, then the Holders shall suspend use of such prospectus, and
the period of effectiveness of such Registration Statement

 

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provided for above shall be extended by the number of days from and including
the date of the giving of such notice to the date Holders shall have received
such amended or supplemented prospectus pursuant to this Section 2.06(l);

(m) make reasonably available for inspection by the Holders, any underwriter
participating in any disposition pursuant to such Registration Statement, and
any attorney, accountant or other agent retained by such Holders or any such
underwriter, all relevant financial and other records, pertinent corporate
documents and properties of the Company and cause the Company’s officers,
directors and employees to supply all relevant information reasonably requested
by any such Holder, underwriter, attorney, accountant or agent in connection
with the registration, in each case as shall be reasonably necessary to enable
such persons to conduct a reasonable investigation within the meaning of
Section 11 of the Securities Act; provided, however, that any such information
that the Company reasonably determines, in good faith, to be confidential and
notifies such Holder, attorney, accountant, agent or any such underwriter is
confidential shall not be used by the underwriters or the Holders as the basis
for any market transactions in the securities of the Company (unless and until
such information is made generally available to the public through no violation
of this Section 2.06(m)) and shall not be disclosed by such persons to any other
person unless (i) such information relates to a misstatement or omission in a
Registration Statement, (ii) the release of such information is required by
applicable law, legal process, or the rules of the SEC, a securities exchange,
market or automated quotation system, or (iii) such information has been
generally made available to the public;

(n) in connection with any underwritten offering, make appropriate officers of
the Company available to the selling security holders for meetings with
prospective purchasers of the Registrable Securities and prepare and present to
potential investors customary “road show” material, in each case in accordance
with the recommendations of the underwriters and in all respects in a manner
consistent with other new issuances of securities in an offering of a similar
size to such offering of the Registrable Securities, in connection with any
proposed sale of the Registrable Securities in an aggregate offering of at least
US$5,000,000;

(o) use its reasonable best efforts to procure the cooperation of the Company’s
transfer agent in settling any offering or sale of Registrable Securities,
including with respect to the transfer of physical stock certificates into
book-entry form in accordance with any procedures reasonably requested by the
Holders or the underwriters;

(p) (i) if requested by Investor, furnish, without charge, prior to the filing
thereof with the SEC, a copy of the Registration Statement and each amendment
thereof and each supplement, if any, to the prospectus included therein and, in
the event that Investor (with respect to any portion of an unsold allotment from
the original offering) is participating in the Registration Statement, the
Company shall use its reasonable best efforts to reflect in each such document,
when so filed with the SEC, such comments as Investor reasonably may propose;
and (ii) in the case of a Shelf Registration Statement, file pursuant to Rule
424(b) under the Securities Act a supplement to the prospectus contained in the
Shelf Registration Statement or, if required, file a post-effective amendment to
the Shelf Registration Statement, in each case, to cover new Holders of
Registrable Securities or any additional Registrable Securities acquired by
existing Holders upon at least seven (7) Business Days prior written notice by
such new Holder

 

11

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or existing Holder to such effect and the delivery by such new Holder or
existing Holder of a duly completed questionnaire in customary form necessary
for the Company to comply with the disclosure requirements of the Securities Act
and any other applicable governing or regulatory body having jurisdiction over
the Registration Statement;

(q) cooperate with the Holders to facilitate the timely preparation and delivery
of certificates representing the Registrable Securities to be sold pursuant to
the Registration Statement free of any restrictive legends and in such
denominations and registered in such names as the Holders may request a
reasonable period of time prior to sales of the Registrable Securities pursuant
to the Registration Statement, except in such cases where such Registrable
Securities are required to be issued only in book-entry form pursuant to the
terms of the applicable Certificate of Designations; and

(r) use its reasonable best efforts to take all other steps necessary to effect
the registration of the Registrable Securities covered by any Registration
Statement contemplated hereby.

It shall be a condition precedent to the obligation of the Company to take any
action pursuant to this Agreement in respect of the Registrable Securities which
are to be registered at the request of any Holder that such Holder shall furnish
to the Company a questionnaire in customary form necessary for the Company to
comply with the disclosure requirements of the Securities Act and any other
applicable governing or regulatory body having jurisdiction over the
Registration Statement and such information regarding the securities held by
such Holder and the intended method of disposition thereof as the Company shall
reasonably request and as shall be required in connection with the action taken
by the Company. Each Holder agrees that, upon receipt of any notice from the
Company of the happening of any event described in Section 2.05(iii) or
Section 2.06(i) such Holder will as promptly as reasonably practicable
discontinue disposition of Registrable Securities pursuant to a Registration
Statement until (i) any such stop order is withdrawn, vacated or otherwise
removed or (ii) such Holder receives copies of the supplemented or amended
prospectus, as the case may be.

SECTION 2.07 Expenses. All expenses incurred in connection with each
registration pursuant to Section 2.01, Section 2.02 or Section 2.04 of this
Agreement, excluding brokers’ and underwriters’ discounts and commissions and
transfer taxes, but including without limitation all registration, filing and
qualification fees and expenses, word processing, duplicating, printers’ and
accounting fees (including the expenses of any special audits or “comfort”
letters required by or incident to such performance and compliance), all
application, listing and filing fees in connection with listing on a national
securities exchange or automated quotation system pursuant to the requirements
hereof, messenger and delivery expenses, telephone usage expenses, all fees and
expenses of complying with state securities or blue sky laws, fees and
disbursements of counsel for the Company, and fees and expenses of the Company
and the underwriters relating to “road show” investor presentations, including
the cost of any aircraft chartered for such purpose, and the reasonable fees and
disbursements, which shall not exceed US$100,000, of one counsel for the selling
Holders (which counsel shall be a nationally recognized firm experienced in
securities laws matters that is chosen by the Holders holding a majority in
interest of the Registrable Securities being registered (on an as converted
basis)), shall be paid by the Company, except that:

(a) all such expenses in connection with any amendment or supplement to a
Registration Statement or prospectus filed more than thirty (30) (or in the case
of a Shelf Registration Statement, ninety (90) days) days after the effective
date of such Registration Statement because any Holder has not effected the
disposition of the Securities requested to be registered shall be paid by such
Holder;

 

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(b) the Holders shall bear and pay the underwriting commissions and discounts
applicable to securities offered for their account in connection with any
registrations, filings and qualifications made pursuant to this Agreement; and

(c) the Company will bear its internal expenses (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expenses of any annual audit and the fees and expenses
of any person, including special experts, retained by the Company.

SECTION 2.08 Rule 144 Information. With a view to making available the benefits
of certain rules and regulations of the SEC which may at any time permit the
sale of the Registrable Securities to the public without registration, at all
times after ninety (90) days after any Registration Statement covering
securities of the Company shall have become effective, the Company agrees to:

(a) make and keep public information available, as those terms are understood
and defined in Rule 144 under the Securities Act;

(b) use its best efforts to file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and

(c) furnish to each Holder of Registrable Securities forthwith upon request a
written statement by the Company as to its compliance with the reporting
requirements of such Rule 144 and of the Securities Act and the Exchange Act, a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents so filed by the Company as such Holder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing such Holder to sell any Registrable Securities without registration.

SECTION 2.09 Indemnification and Contribution. (a) The Company shall indemnify
and hold harmless each Holder, such Holder’s directors and officers, each person
who participates in the offering of such Registrable Securities, including
underwriters (as defined in the Securities Act), and each person, if any, who
controls such Holder or participating person within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which they may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or proceedings in
respect thereof) arise out of or are based on any untrue or alleged untrue
statement of any material fact contained in such Registration Statement on the
effective date thereof (including any prospectus filed under Rule 424 under the
Securities Act or any amendments or supplements thereto) or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and shall reimburse each such Holder, such Holder’s directors and
officers, such participating person or controlling

 

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person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
Section 2.09(a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld);
provided, further, that the Company shall not be liable to any Holder, such
Holder’s directors and officers, participating person or controlling person in
any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in connection with such
Registration Statement, preliminary prospectus, final prospectus or amendments
or supplements thereto, in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
any such Holder, such Holder’s directors and officers, participating person or
controlling person. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of any such Holder, such
Holder’s directors and officers, participating person or controlling person, and
shall survive the transfer of such securities by such Holder.

(b) Each Holder requesting or joining in a registration severally and not
jointly shall indemnify and hold harmless the Company, each of its directors and
officers, each person, if any, who controls the Company within the meaning of
the Securities Act, and each agent and any underwriter for the Company (within
the meaning of the Securities Act) against any losses, claims, damages or
liabilities, joint or several, to which the Company or any such director,
officer, controlling person, agent or underwriter may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or proceedings in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in such Registration Statement on the effective date thereof (including any
prospectus filed under Rule 424 under the Securities Act or any amendments or
supplements thereto) or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in such Registration
Statement, preliminary or final prospectus, or amendments or supplements
thereto, in reliance upon and in conformity with written information furnished
by or on behalf of such Holder expressly for use in connection with such
registration; and each such Holder shall reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer, controlling
person, agent or underwriter in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this Section 2.09(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of such Holder (which consent shall
not be unreasonably withheld), and provided, further, that the liability of each
Holder hereunder shall be limited to the aggregate net proceeds received by such
Holder in connection with any such registration under the Securities Act.

(c) If the indemnification provided for in this Section 2.09 from the
indemnifying party is unavailable to an indemnified party hereunder in respect
of any losses, claims, damages, liabilities or expenses referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such

 

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indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and indemnified parties in connection with the actions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified parties, and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding. If the allocation provided in
this paragraph (c) is not permitted by applicable law, the parties shall
contribute based upon the relevant benefits received by the Company from the
initial offering of the Registrable Securities on the one hand and the net
proceeds received by the Holders from the sale of such Registrable Securities on
the other.

The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 2.09(c) were determined by pro rata allocation or by
any other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.

(d) Any Person entitled to indemnification hereunder (the “Indemnified Party”)
agrees to give prompt written notice to the indemnifying party (the
“Indemnifying Party”) after the receipt by the Indemnified Party of any written
notice of the commencement of any action, suit, proceeding or investigation or
threat thereof made in writing for which the Indemnified Party intends to claim
indemnification or contribution pursuant to this Agreement; provided, that the
failure so to notify the Indemnified Party shall not relieve the Indemnifying
Party of any liability that it may have to the Indemnifying Party hereunder
unless such failure is materially prejudicial to the Indemnifying Party. If
notice of commencement of any such action is given to the Indemnifying Party as
above provided, the Indemnifying Party shall be entitled to participate in and,
to the extent it may wish, to assume the defense of such action at its own
expense, with counsel chosen by it and reasonably satisfactory to such
Indemnified Party. The Indemnified Party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be paid by the Indemnified Party unless
(i) the Indemnifying Party agrees to pay the same, (ii) the Indemnifying Party
fails to assume the defense of such action, or (iii) the named parties to any
such action (including any impleaded parties) have been advised by such counsel
that either (A) representation of such Indemnified Party and the Indemnifying
Party by the same counsel would be inappropriate under applicable standards of
professional conduct or (B) there are one or more legal defenses available to it
which are substantially different from or additional to those available to the
Indemnifying Party. No Indemnifying Party shall be liable for any settlement
entered into without its written consent, which consent shall not be
unreasonably withheld. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending or
threatened action in respect of which any Indemnified Party is or

 

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could have been a party and indemnity could have been sought hereunder by such
Indemnified Party unless such settlement (i) includes an unconditional release
of such Indemnified Party from all liability on any claims that are the subject
matter of such action and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act by or on behalf of any
Indemnified Party.

(e) The agreements contained in this Section 2.09 shall survive the transfer of
the Registered Securities by any Holder and sale of all the Registrable
Securities pursuant to any registration statement and shall remain in full force
and effect, regardless of any investigation made by or on behalf of any Holder
or such director, officer or participating or controlling Person.

SECTION 2.10 Certain Additional Limitations on Registration Rights.
Notwithstanding the other provisions of this Agreement, the Company shall not be
obligated to register the Registrable Securities of any Holder (i) if such
Holder or any underwriter of such Registrable Securities shall fail to furnish
to the Company necessary information in respect of such Person or the
distribution of such Registrable Securities, or (ii) if such registration
involves an underwritten offering, such Registrable Securities are not included
in such underwritten offering on the same terms and conditions as shall be
applicable to the other securities being sold through underwriters in the
registration or such Holder fails to enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwritten offering.

SECTION 2.11 Limitations on Registration of Other Securities; Representation.
From and after the date of this Agreement, the Company shall not, without the
prior written consent of a majority in interest of the Holders (on an as
converted basis), enter into any agreement with any holder or prospective holder
of any securities of the Company giving such holder or prospective holder any
registration rights the terms of which are as or more favorable taken as a whole
than the registration rights granted to the Holders hereunder unless the Company
shall also give such rights to the Holders hereunder.

SECTION 2.12 No Inconsistent Agreements. The Company will not hereafter enter
into any agreement with respect to its securities, which is inconsistent in any
material respects with the rights granted to the Holders in this Agreement.

SECTION 2.13 Selection of Managing Underwriters. In the event the Participating
Demand Holders have requested an underwritten offering, the underwriter or
underwriters shall be selected by the Company and shall be approved by the
Holders of a majority of the shares being so registered (on an as converted
basis), provided, that (i) all of the representations and warranties by, and the
other agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such Holders of
Registrable Securities; (ii) any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement shall be
conditions precedent to the obligations of such Holders of Registrable
Securities; and (iii) no Holder shall be required to make any representations or
warranties to or agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such Holder, the Registrable
Securities of such Holder and such Holder’s intended method of distribution and
any other representations

 

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required by law or reasonably required by the underwriter. Subject to the
foregoing, all Holders proposing to distribute Registrable Securities through
such underwritten offering shall enter into an underwriting agreement in
customary form with the underwriter or underwriters. If any Holder of
Registrable Securities disapproves of the terms of the underwriting, such Holder
may elect to withdraw all its Registrable Securities by written notice to the
Company, the managing underwriter and the other Holders participating in such
Registration. The securities so withdrawn shall also be withdrawn from
Registration.

ARTICLE III

ADDITIONAL AGREEMENTS

SECTION 3.01 Oversight Committee. As of the Swap Closing, the Board shall
designate a committee of the Board (the “Oversight Committee”) consisting of
three directors, two of whom shall be directors designated by Investor (the
“Investor Designees”). Any vacancy created by the resignation, removal or
absence of any Investor Designee shall be filled by another director designated
by Investor. Meetings of the Oversight Committee shall be held at least monthly
during each fiscal year. The Oversight Committee shall be solely responsible for
determining the appropriate allocation and use of the Proceeds by the Company.
The Proceeds shall be allocated and used in accordance with the capital
requirements schedule agreed by the parties, as reasonably determined by the
Oversight Committee. All decisions of the Oversight Committee shall require
approval of a majority of its members. Notwithstanding the foregoing, if
Investor reasonably determines that the use or allocation of Proceeds by the
Company is materially inconsistent with such capital requirements schedule,
Investor shall be entitled to instruct the Escrow Agent to cease distribution of
the Proceeds from the Escrow Account in accordance with the Escrow Agreement
until such matter is resolved by the parties hereto to the satisfaction of
Investor.

SECTION 3.02 Notification of Initiation of Sale or Acquisition Proposal.

(a) If the Company (i) desires to initiate a Sale Transaction or (ii) receives
and desires to pursue a bona fide offer from a third party to effect a Sale
Transaction (a “Third Party Offer”), the Company shall promptly, and in any
event within five (5) Business Days, deliver to the Holders written notice of,
as applicable, (x) its desire to initiate a Sale Transaction or (y) the fact
that a Third Party Offer has been made and that the Company desires to pursue
such Third Party Offer (the “Notice”).

(b) As used herein, a “Sale Transaction” shall mean, whether accomplished
through one or a series of related transactions, (i) a merger, consolidation or
other business combination following which the outstanding Common Stock
immediately prior to such transaction will represent less than 50% of the
outstanding Common Stock of the Company or other entity surviving such
transaction or any entity controlling the Company immediately after the
completion of the transaction or (ii) a sale of all or substantially all of the
assets of the Company and its Subsidiaries.

(c) The Notice shall also include the general form of the Sale Transaction
(i.e., to the extent then known, the form (stock, cash or other consideration)
and approximate

 

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amount of consideration and structure of the Sale Transaction (merger, stock
purchase or asset purchase)) and the identity of the other party. If the Sale
Transaction is with a named party, the Notice shall specify the identity of such
named party and the amount and form of consideration offered. Until the later of
(i) fifteen (15) Business Days after receipt of the Notice by the Holders and
(ii) if the Holders make a Holder Offer (as defined below) during such period,
the expiration of the Negotiation Period (as defined below), the Company may not
enter into a definitive agreement with respect to any Sale Transaction.

(d) Each Holder shall have up to fifteen (15) Business Days following the date
such Notice is received by such Holder to notify the Company in writing if it
wishes to make an offer for a Sale Transaction, which notice shall include the
form and amount of consideration and the structure of the Sale Transaction
proposed by such Holder (each, a “Holder Offer”). Any Holder that fails to so
notify the Company within such fifteen (15) Business Day period shall be deemed
to have waived its rights under this Section 3.02 with respect to such Third
Party Offer (provided that such waiver shall not affect such Holder’s rights
under this Section 3.02 with respect to any future Sale Transaction or Third
Party Offer). If the Board in good faith determines that any Holder Offer is
reasonably likely to result in a transaction that will be competitive with the
proposed transaction giving rise to the Notice, the Company and such Holder will
negotiate in good faith for a period of twenty (20) days following the Company’s
receipt of such Holder Offer (the “Negotiation Period”) to reach mutual
agreement on the terms of the Holder Offer.

(e) If, at the end of the Negotiation Period, the Holder and the Company do not
mutually agree to the terms of a Sale Transaction, then, and only then, such
Holders’ right of negotiation hereunder shall expire with respect to the Third
Party Offer and the Company shall be free thereafter (without liability to the
Holders) to enter into a definitive agreement formalizing the Third Party Offer
with such third party; provided that in the event a new Sale Transaction is
proposed by a third party other than the party initially notified by the Company
in the Notice, and the Company desires to pursue such Sale Transaction, the
procedures of this Section 3.02 shall be repeated in respect of such newly
proposed Sale Transaction.

SECTION 3.03 Certificate of Incorporation and Bylaws to be Consistent. The
Company shall take or cause to be taken all lawful action necessary or
appropriate to ensure that at all times its amended and restated certificate of
incorporation, amended and restated by-laws and any other organizational or
constitutional documents, and any amendments or supplements thereto, contain
provisions consistent with the terms of this Agreement (including without
limitation this Article III) and none of the foregoing or any of the
corresponding constituent documents of the Subsidiaries contain any provisions
inconsistent therewith or which would in any way nullify or impair the terms of
this Agreement or the rights of the Company or of the Holders hereunder. None of
the Company, the Board, any committee thereof or the Holders shall take or cause
to be taken any action inconsistent with the terms of this Agreement (including
without limitation this Article III) or the Holders’ or the Company’s rights
hereunder. Without limiting the generality of the foregoing, any stockholders’
rights plan or other anti-takeover measure adopted by the Company shall exclude
the Holders from its operation in all respects, and shall not impair in any
respect the rights of the Holders hereunder, including their rights under
Section 3.02.

 

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ARTICLE IV

MISCELLANEOUS

SECTION 4.01 Effectiveness. This Agreement shall become effective as of the Swap
Closing.

SECTION 4.02 Termination. This Agreement shall terminate only (a) by virtue of a
written agreement to that effect, signed by all parties hereto or all parties
then possessing any rights hereunder, or (b) upon the expiration of (i) all
rights created hereunder and (ii) all statutes of limitations applicable to the
enforcement of claims hereunder, provided that no termination of this Agreement
pursuant to paragraph (a) or (b) above shall affect the right of any party to
recover damages or collect indemnification for any breach of the
representations, warranties or covenants herein that occurred prior to such
termination. Notwithstanding the foregoing, the Company shall not have any
obligation to keep effective or file a Registration Statement after such time as
there are no Registrable Securities outstanding.

SECTION 4.03 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement were not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.

SECTION 4.04 Amendments and Waivers. (a) Any provision of this Agreement may be
amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by the Company and a majority in interest
of the Holders (on an as converted basis and including any holders of Warrants),
or, in the case of a waiver, by the party or parties against whom the waiver is
to be effective; provided, however, that waiver by the Holders shall require the
consent of a majority in interest of the Holders (on an as converted basis and
including any holders of Warrants).

(b) No failure or delay by any party in exercising any right, power or privilege
hereunder (other than a failure or delay beyond a period of time specified
herein) shall operate as a waiver thereof and no single or partial exercise
thereof shall preclude any other or further exercise thereof or the exercise of
any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.

SECTION 4.05 Notice Generally. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by overnight
courier, by facsimile upon written confirmation of delivery or by registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 4.05):

 

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(a)

  If to Investor, at:   United Energy Group Limited   Unit 2112, Two Pacific
Place   88 Queensway   Central, Hong Kong   Attention:   Rachel Zhang, Executive
Director   Facsimile:   +852 2522 6938   with a copy to:   Shearman & Sterling
LLP  

12th Floor Gloucester Tower

The Landmark, 11 Pedder Street

Central, Hong Kong

  Attention:   Paul Strecker   Facsimile:   +852 2978 8099

(b)

  If to the Company, at:   Transmeridian Exploration Incorporated   5847 San
Felipe, Suite 4300   Houston, Texas 77057   U.S.A.   Attention:   Chief
Financial Officer   Facsimile:   +1 713 781 6593   with a copy to:   Akin Gump
Strauss Hauer & Feld LLP  

1111 Louisiana Street, 44th Floor

Houston, Texas 77002-5200

U.S.A.

  Attention:   James L. Rice III   Facsimile:   +1 713 236 0822

(c) If to any Holder (besides Investor), at its last known address appearing on
the books of the Company maintained for such purpose or at such other address as
may be substituted by notice given as herein provided.

SECTION 4.06 Successors and Assigns; Third Party Beneficiaries. This Agreement
shall inure to the benefit of and be binding upon the successors and permitted
assigns of the parties hereto as hereinafter provided. The registration rights
of any Holder with respect to any Registrable Securities, and the other rights
of the Holders contained herein, shall be transferred to any Person who is the
transferee of such Registrable Securities. All of the obligations of the Company
hereunder shall survive any such transfer. Except as provided in Section 2.09,
no Person other than the parties hereto, the Holders, and their successors and
permitted assigns is intended to be a beneficiary of this Agreement.

 

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SECTION 4.07 Headings. The descriptive headings contained in this Agreement are
included for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.

SECTION 4.08 Governing Law; Jurisdiction. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of New York applicable
to contracts executed in and to be performed in that State (other than those
provisions set forth herein that are required to be governed by the DGCL). All
actions and proceedings arising out of or relating to this Agreement shall be
heard and determined exclusively in any New York state or federal court sitting
in The City of New York. The parties hereto hereby (a) submit to the exclusive
jurisdiction of any state or federal court sitting in The City of New York for
the purpose of any Action arising out of or relating to this Agreement brought
by any party hereto, and (b) irrevocably waive, and agree not to assert by way
of motion, defense, or otherwise, in any such Action, any claim that it is not
subject personally to the jurisdiction of the above-named courts, that its
property is exempt or immune from attachment or execution, that the Action is
brought in an inconvenient forum, that the venue of the Action is improper, or
that this Agreement or the transactions contemplated hereby may not be enforced
in or by any of the above-named courts.

SECTION 4.09 Waiver of Jury Trial. Each of the parties hereto hereby waives to
the fullest extent permitted by applicable law any right it may have to a trial
by jury with respect to any litigation directly or indirectly arising out of,
under or in connection with this Agreement or the transactions contemplated
hereby. Each of the parties hereto (a) certifies that no representative, agent
or attorney of any other party has represented, expressly or otherwise, that
such other party would not, in the event of litigation, seek to enforce that
foregoing waiver and (b) acknowledges that it and the other party hereto have
been induced to enter into this Agreement and the transactions contemplated
hereby, as applicable, by, among other things, the mutual waivers and
certifications in this Section 4.09.

SECTION 4.10 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the fullest extent possible.

SECTION 4.11 Entire Agreement. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof and supersedes all
prior agreements and undertakings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof.

SECTION 4.12 Cumulative Remedies. The rights and remedies provided by this
Agreement are cumulative and the use of any one right or remedy by any party
shall not preclude or waive its right to use any or all other remedies. Said
rights and remedies are given in addition to any other rights the parties may
have by law, statute, ordinance or otherwise.

 

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SECTION 4.13 Construction. Each party hereto acknowledges and agrees it has had
the opportunity to draft, review and edit the language of this Agreement and
that no presumption for or against any party arising out of drafting all or any
part of this Agreement will be applied in any Dispute relating to, in connection
with or involving this Agreement. Accordingly, the parties hereto hereby waive
the benefit of any rule of Law, including California Civil Code Section 1654 and
any successor or amended statute, or any legal decision that would require, in
cases of uncertainty, that the language of a contract should be interpreted most
strongly against the party who drafted such language.

SECTION 4.14 Counterparts. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.

[Signatures appear on next page]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.

 

TRANSMERIDIAN EXPLORATION INCORPORATED By:  

/s/ Lorrie T. Olivier

Name:   Lorrie T. Olivier Title:   Chairman and CEO UNITED ENERGY GROUP LIMITED
By:  

/s/ Zhang Hongwei

Name:   Zhang Hongwei Title:   Chairman and Executive Director

Investor Rights Agreement