ex105.htm


    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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