Unassociated Document


    Exhibit
10.5

     

    INDEBTEDNESS
CONVERSION AGREEMENT

     

    This Indebtedness Conversion Agreement
(this “Agreement”) is entered into and dated as of September 28, 2010 (the
“Closing Date”) by and among New Oriental Energy & Chemical Corp., a
Delaware corporation, with headquarters located at Xicheng Industrial Zone of
Luoshan, Xinyang Henan Province, The People’s Republic of China (the “Company”)
and Yu Zhiyang (the “Holder”), with reference to the following:

     

    WHEREAS, the Holder is a stockholder of
the Company;

     

    WHEREAS, from time to time until August
2010 the Holder has
advanced money to the Company that was used to fund the construction of the
Company’s methanol production facility (the “Loans”);

     

    WHEREAS, such Loans were recorded by
the Company as a related party loan under “Construction in progress” on the
Company’s balance sheet;

     

    WHEREAS, the Loans are unsecured, have
an interest rate of 9.6% per annum, and are due on January 2, 2011;
and

     

    WHEREAS, in lieu of cash payment of RMB
368,500 (US$54,351) (the “Converted Loan Amount”), the Company desires to issue
to the Holder and the Holder desires to accept 54,351 shares of common stock of
the Company, par value $0.001 (the “Converted Shares”), for such portion of the
Loans, on the terms and conditions set forth in this Agreement;

     

    NOW, THEREFORE, for and in
consideration of the mutual covenants and agreements hereinafter set forth and
the mutual benefits to the parties to be derived here from, and intending to be
legally bound, it is hereby agreed as follows:

     

    1.           Purchase.  Subject
to the terms and conditions set forth in this Agreement, the Company hereby
agrees to issue and deliver to the Holder, and the Holder hereby agrees to
purchase and accept from the Company the Converted Shares.

     

    2.           Consideration.  In
full consideration for the Converted Shares, at Closing, the Holder shall cancel
the portion of the Loans equal to the Converted Loan Amount.

     

    3.           Representations And
Warranties.  The parties represent and warrant to the other as
set forth below.  All such representations and warranties shall
survive the Closing.

     

    A.           Representations and
Warranties of the Company.  The Company represents and warrants
to the Holder and indemnifies the Holder as follows:

     

    (i)           Organization.  The
Company is a corporation duly organized and validly existing in good standing
under the laws of the State of Delaware, and has the requisite corporate power
and authorization to own its properties and to carry on its business as now
being conducted.

     

    (ii)           Authorization; Enforcement;
Validity.  The Company has the requisite corporate power and
authority to enter into and perform its obligations under this Agreement and to
issue the Converted Shares in accordance with the terms hereof.  This
Agreement has been duly executed and delivered by the Company, and constitutes
the legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies.

     

    
      
         

      

      
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    (iii)           Issuance of
Securities.  The Converted Shares are duly authorized and, upon
issuance in accordance with the terms hereof, shall be validly issued and free
from all taxes, liens and charges and shall be fully paid and nonassessable with
the holders being entitled to all rights accorded to a holder of common stock of
the Company. The issuance by the Company of the Converted Shares is exempt from
registration under the 1933 Act.

     

    (iv)           Disclosures.  No
representation or warranty by the Company contained in this Agreement or any
exhibits referenced herein and no document or certificate furnished or to be
furnished to Holder in connection herewith, or with the transactions
contemplated hereby, contain, or on the Closing Date will contain, an untrue
statement of a material fact, or omit, or on the Closing Date will omit, to
state a material fact necessary to make the statements of fact contained herein
or therein not misleading.

     

    (v)           No Other
Consents.  Other than as set forth herein, the execution and
delivery of this Agreement by the Company does not, and the performance of this
Agreement by the Company will not require any consent, approval, authorization
or other action by, or filing with or notification to, any governmental body or
any other person.

     

    B.           Representations, Warranties
and Indemnification of the Holder.  The Holder represents and
warrants to the Company and indemnifies the Company as follows:

     

    (i)           No Public Sale or
Distribution.  The Holder is acquiring the Converted Shares in
the ordinary course of business for its own account and not with a view towards,
or for resale in connection with, the public sale or distribution thereof,
except pursuant to sales registered or exempted under the 1933 Act and the
Holder does not have a present arrangement to effect any distribution of the
Converted Shares to or through any person or entity; provided, however, that by
making the representations herein, the Holder does not agree to hold any of the
Converted Shares for any minimum or other specific term and reserves the
right to dispose of the Converted Shares at any time in accordance with or
pursuant to a registration statement or an exemption under the 1933
Act.  The Holder is acquiring the Converted Shares hereunder in the
ordinary course of his business.  The Holder does not presently
have any agreement or understanding, directly or indirectly, with any individual
or corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government
(or an agency or subdivision thereof) or other entity of any kind (a “Person”)
to distribute any of the Converted Shares.

     

    (ii)           Accredited Investor
Status.  The Holder is an “accredited investor” as that term is
defined in Rule 501(a) of Regulation D.

     

    (iii)           Reliance on
Exemptions.  The Holder understands that the Converted Shares
are being issued to him in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and the
provinces of Canada, and that the Company is relying in part upon the truth and
accuracy of, and the Holder’s compliance with, the representations, warranties,
agreements, acknowledgments and understandings of the Holder set forth herein in
order to determine the availability of such exemptions and the eligibility of
the Holder to acquire the Converted Shares.

     

    
      
         

      

      
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    (iv)           Legends.  The
Holder understands that the certificates or other instruments representing the
Converted Shares and, until such time as the resale of the Converted Shares have
been registered under the 1933 Act, the stock certificates representing the
Converted Shares shall bear any legend as required by the “blue sky” laws of any
state and a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of such stock
certificates):

     

    THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND ARE “RESTRICTED SECURITIES” AS
THAT TERM IS DEFINED IN RULE 144 UNDER THE SECURITIES ACT.  SUCH
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND THE
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
THEREUNDER, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE REASONABLE
SATISFACTION OF COUNSEL TO THE ISSUER.

     

    (v)           Validity;
Enforcement.  This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Holder and shall constitute
the legal, valid and binding obligations of the Holder enforceable against the
Holder in accordance with their respective terms, except as such enforceability
may be limited by general principles of equity or to applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation and other similar laws
relating to, or affecting generally, the enforcement of applicable creditors’
rights and remedies.

     

    (vi)           No
Conflicts.  The execution, delivery and performance by such
Holder of this Agreement and the consummation by the Holder of the transactions
contemplated hereby and thereby will not (i) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Holder is a party, or (ii) result in a violation of any law, rule,
regulation, order, judgment  or decree (including federal and state
securities laws) applicable to the Holder, except for such conflicts, defaults,
rights or violations which would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the ability of the
Holder to perform his obligations hereunder.

     

    (vii)           Due
Diligence.  In entering into this Agreement and the
transactions contemplated herein, the Holder is relying on his own due diligence
investigation and assessment of the Company and not upon any statements,
comments, representations, or remarks made by the Company.  The Holder
acknowledges that the Company has made no statement, comment, representation, or
remark concerning the Company or its business or the advisability of an
investment in the Company.

     

    
      
         

      

      
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    (viii)        Disclosures.  No
representation or warranty by the Holder contained in this Agreement or any
exhibits referenced herein and no document or certificate furnished or to be
furnished to the Company in connection herewith, or with the transactions
contemplated hereby, contain, or on the Closing Date will contain, an untrue
statement of a material fact, or omit, or on the Closing Date will omit, to
state a material fact necessary to make the statements of fact contained herein
or therein not misleading.

     

    (ix)           No Other
Consents.  Other than as set forth herein, the execution and
delivery of this Agreement by the Holder does not, and the performance of this
Agreement by the Holder will not require any consent, approval, authorization or
other action by, or filing with or notification to, any governmental body or any
other person.

     

    4.           Closing.

     

    A.           Closing.  The
Closing shall take place on the Closing Date at the offices of the Company, or
at such other time and place as the parties may mutually agree
upon.

     

    B.           Deliveries by the
Company.  Within five (5) days of the later of (i) the Closing
Date, or (ii) receipt by the Company of approval of the proposed issuance of the
Converted Shares contemplated in this Agreement from the Nasdaq Stock Market,
the Company shall submit a letter to Corporate Stock Transfer, the Company’s
transfer agent (the “Transfer Agent”), instructing the Transfer Agent to deliver
to the Holder the certificates representing the Converted Shares.

     

    C.           Deliveries by
Holder.  At the Closing, the Holder shall deliver to the
Company a written certificate evidencing the irrevocable cancellation of
indebtedness owed to Holder in the principle amount equal to the Converted Loan
Amount.

     

    5.           Release of Liability.
The Holder releases the Company, its successors and assigns, and each of their
respective officers, directors, employees and agents, from any and all claims,
liability, losses and damages whatsoever with respect to any and all payment or
other obligations, covenants or commitments of the Company to or in favor of the
Holder arising under or in relation to the portion of the Loans cancelled in
connection with the issuance of the Converted Shares. THE HOLDER HEREBY
ACKNOWLEDGES AND AGREES THAT THE COMPANY’S SUCCESSORS AND ASSIGNS, AND EACH OF
THE COMPANY’S AND ITS SUCCESSORS AND ASSIGNS’ RESPECTIVE OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS SHALL BE DEEMED TO BE THIRD PARTY BENEFICIARIES OF THE
RELEASE SET FORTH ABOVE IN THIS PARAGRAPH.

     

    6.           Miscellaneous.

     

    A.           Further Assurances.
Each of the Holder and the Company hereby acknowledges, agrees and covenants
that it shall promptly execute and deliver to any other party hereto any and all
instruments, agreements or other documents that shall be prepared and reasonably
request to be so executed and delivered by such other party, and to take all
other action reasonably requested by any other party hereto that is consistent
with the cancellation and discharge of the Loans in the principle amount equal
to the Converted Loan Amount and all other express purposes of this
Agreement.

     

    B.           Governing Law;
Attorneys’ Fees. This Agreement
shall be governed by and construed in accordance with the laws of the State of
Delaware, without regard to principles of conflicts of law. If any suit, action,
or proceeding is brought to enforce any term or provision of this Agreement, the
prevailing party shall be entitled to recover reasonable attorneys’ fees, costs,
and expenses incurred, in addition to any other relief to which such party may
be legally entitled.

     

    
      
         

      

      
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    C.           Construction.  The
captions and headings contained herein are for convenient reference only and
shall not in any way affect the meaning or interpretation of this
Agreement.  Notwithstanding any rule or maxim of construction to the
contrary, any ambiguity or uncertainty in this Agreement shall not be construed
against either party based upon authorship of any of the provisions
hereof.

     

    D.           Entire Agreement.
This Agreement constitutes the only agreement or understanding between the
parties with respect to the subject mater hereof, and supersedes and is
controlling over any and all prior existing agreements or communications between
the parties. All negotiations, commitments, and understandings acceptable to
both parties have been incorporated into this Agreement.

     

    E.           Amendment or
Waiver.  This Agreement may by amended by a writing signed by
all parties hereto, with respect to any of the terms contained herein, and any
term or condition of this Agreement may be waived or the time for performance
may be extended by a writing signed by the party or parties for whose benefit
the provision is intended.

     

    F.           Counterparts. This
instrument may be executed in counterparts, each of which shall constitute an
original but all of which shall constitute but one and the same instrument. One
or more counterparts of this instrument may be delivered via facsimile, with the
intention that they shall have the same effect as an original counterpart
hereof.

     

    
      
         

      

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

     

     

    
      
        
          	 	NEW
      ORIENTAL ENERGY & CHEMICAL CORP.	 
	 	 	 	 
	
                   

                	
                  By:
      

                	/s/
      Chen Siqiang	 
	 	 	Name:
      Chen Siqiang	 
	 	 	Title:   Chairman
      and CEO	 


        

      

    

     

     

    
      
        
          
            
              
                	 	LOAN
      HOLDER:	 
	 	 	 	 
	
                         
      

                      	
                         
      

                      	/s/
      Yu Zhiyang	 
	 	Yu
      Zhiyang	 


              

            

          

        

      

    

     

    
      
         

      

      
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