Document:

exv10w3

 

Exhibit 10.3

Amended and Restated License Agreement

This Amended and Restated License Agreement (the “Agreement”) is made and entered into this
31ST day of August, 2006 by and between Synthesis Energy Systems, Inc., a Delaware
corporation having its principal place of business at 6330 West Loop South, Suite 300, Houston,
Texas 77401 and a representative office at 680 Zhao Jia Bang Road, Unit 916 Jin Zhong Building,
Shanghai, 200031 P.R. China (hereinafter referred to as “SES”) and Gas Technology Institute, an
Illinois non-profit corporation having its principal place of business at 1700 South Mount Prospect
Road, Des Plaines, Illinois 60018 (hereinafter referred to as “GTI”).

WITNESSETH

WHEREAS, GTI and Synthesis Energy Systems, LLC. (the predecessor to Synthesis Energy Systems, Inc)
entered into a LICENSE AGREEMENT dated January 22, 2004, as amended; and

WHEREAS, GTI and Synthesis Energy Systems, Inc. wish to replace and supersede the LICENSE AGREEMENT
dated January 22, 2004, and its amendments, in its entirety with this Amended and Restated License
Agreement.

NOW THEREFORE, in consideration of the promises and mutual promises contained herein and other good
and valuable consideration, receipt of which is hereby acknowledged by both parties, the parties do
hereby agree as follows:

ARTICLE 1. DEFINITIONS

1.1 “U-GAS” shall mean a process involving conversion of Coal or a Coal and Biomass Mixture to fuel
gas by reaction of Coal or a Coal and Biomass Mixture with air with the addition of steam, carbon
dioxide or other diluent gases in a fluidized bed reactor system with a sloping grid and central
nozzle in which high carbon conversion is obtained by utilizing techniques with or without ash
agglomeration with control of ash sintering and the withdrawal of high ash material or
agglomerates, wherein crushed Coal or a Coal and Biomass Mixture is fed directly into the fluidized
bed with recycle of Coal dust or char fines entrained in effluent gas back into the fluidized bed.

1.2 “Effective Date” of this Agreement is defined as the date first written hereinabove.

1.3 “Know-How” shall mean all technical information, including trade secrets, pertaining to GTI’s
proprietary U-GAS system including, but not limited to, theses, designs, drawings, blueprints,
specifications, test data, charts, fabrication techniques,

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materials of construction, and formulations, graphs, operating and test procedures, shop practices
and instruction manuals.

1.4 “Affiliate” shall mean any entity that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control, with a party.

1.5 “Coal” shall mean anthracite, bituminous, sub-bituminous, lignite, cannel, waste from coal
cleaning/preparation facilities (including but not limited to middlings, coarse refuse, gob, culm
and gangue). Additionally, for the purposes of this license agreement, the term Coal would
additionally include oil shale, petroleum coke and other non-biomass solid and heavy liquid
hydrogen-carbon materials.

1.6 “Improvements” shall mean any improvements, modifications, further inventions and designs that
SES or its Affiliate may discover, make or develop at any time during the term of this Agreement
with respect to the Licensed Process, and the methods and apparatus used in the operation of the
Licensed Process.

1.7 “Licensed Process” shall mean any Coal or Coal and Biomass Mixture gasification process that
incorporates Know-How as defined hereinabove.

1.8 “Territory” shall mean the world.

1.9 “Biomass” shall mean organic material such as wood, municipal waste, manures, agricultural
residue and crops that can be converted to energy.

1.10 “Coal and Biomass Mixture” shall mean a feed stock for the gasifier that consists of no less
than sixty percent (60%) Coal and no more than forty percent (40%) Biomass.

ARTICLE 2. LICENSE GRANT

2.1(a) GTI hereby grants to SES within the Territory, and SES hereby accepts, an irrevocable
exclusive license to manufacture, make, use and sell U-GAS Coal gasification systems incorporating
or using the Know-How of GTI. GTI also hereby grants to SES as its non-exclusive licensee within
the Territory, and SES hereby accepts, an irrevocable non-exclusive license to manufacture, make,
use and sell Coal and Biomass Mixture gasification systems incorporating or using the Know-How of
GTI within the Territory. Affiliates of SES shall be permitted to access and use the Know-How
provided such access and use is only for the business purposes of SES, is subject to written
agreements of strict confidentiality and is in accordance with the terms of this Agreement.
Subcontractors, including but not limited to third party manufacturers, of SES and its Affiliates
shall be permitted to access and use the Know-How provided such

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access and use is only for the business purposes of SES, is subject to written agreements of strict
confidentiality and is in accordance with the terms of this Agreement. SES shall not sell products
that use the Know-How of GTI other than as part of a U-GAS system within the Territory.

2.2 Sublicense and Use Rights. SES shall have no right to grant sublicenses to the U-GAS
system to other than customers of SES for whom SES has constructed a U-GAS system without GTI’s
prior written approval, which may be withheld by GTI at its sole discretion for no reason.

2.3 As soon as practicable after the Effective Date and within sixty (60) days of the Effective
Date, GTI shall deliver to SES copies of any data, documentation, and other written materials that
GTI in good faith determines is necessary for and would enable SES to exploit its rights granted
under Section 2.1 of this Agreement. Upon request by SES, during the sixty (60) day period, GTI
shall explain such information and reasonably assist SES in its interpretation. Unless the parties
otherwise mutually agree, such description, explanation and assistance during such sixty (60) day
period shall be limited to eighty (80) hours in the aggregate by any employee of GTI. At the end
of this period, the technology will have been successfully transferred from GTI to SES.

ARTICLE 3. CONFIDENTIAL DISCLOSURE AND NON-USE

3.1 SES and GTI acknowledge and agree that GTI owns and/or controls certain information and trade
secrets relating to the Improvements and Know-How which is confidential and which affords GTI an
advantage over its competitors which do not have such information. For purposes of this Agreement,
information required to be maintained secret (hereinafter referred to as “CONFIDENTIAL
INFORMATION”) is defined to be all information related to the Know-How and Improvements which is
disclosed by GTI to SES pursuant to this Agreement, except that which:

	 	(a)	 	was in the public domain prior to receipt under this Agreement or which
thereafter becomes part of the public domain through no fault or breach of duty to
maintain it confidential by SES; or
	 
	 	(b)	 	SES can show was in its possession at the time of receipt under this
Agreement; or
	 
	 	(c)	 	SES receives from a third party which was not under an obligation of
confidentiality or non-use to GTI, either directly or indirectly.

3.2 CONFIDENTIAL INFORMATION disclosed pursuant to this Agreement shall, where possible, be reduced
to writing, pictorial form, or electronic recording and marked “Confidential” or “Proprietary” or
with words of similar import. Neither party shall be

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deemed to have disclosed CONFIDENTIAL INFORMATION due to the fact that such CONFIDENTIAL
INFORMATION can be discerned from a U-GAS system sold by such party, either through reverse
engineering or observation or due to the nature of the product itself.

3.3 All CONFIDENTIAL INFORMATION disclosed pursuant to this Agreement by GTI shall remain the
property of GTI and, except as otherwise licensed hereunder, no license or grant of rights in any
of the CONFIDENTIAL INFORMATION covered hereunder is conveyed by GTI solely by its disclosure
hereunder.

3.4 SES agrees that during the term of this Agreement and for a period of ten (10) years
thereafter, the SES will hold secret and confidential, will not disclose in any manner to any
person or concern, except to any of its or its Affiliates’ employees or contractors as are required
to use such information, and only then under an obligation of secrecy binding upon such employees
or contractors, and as otherwise permitted under the provisions of this Agreement, and will not
use, except pursuant to this Agreement, any of the CONFIDENTIAL INFORMATION.

3.5 SES hereby agrees to indemnify and hold harmless GTI and its Affiliates against any liability
or loss resulting from unauthorized disclosure or use of the CONFIDENTIAL INFORMATION by itself,
its agents, or its Affiliates, to whom the CONFIDENTIAL INFORMATION is disclosed pursuant to this
Agreement. No indemnity payments hereunder shall relieve the breaching party from liability under
applicable patent, copyright or trade secret laws, nor shall such payments constitute a grant or
continuation of a grant of any express or implied license or covenant not to sue under any patents,
copyrights or trade secrets of the disclosing party.

3.6 In the event that CONFIDENTIAL INFORMATION of GTI shall be required by law to be made available
to any government agency by SES, SES shall notify GTI in writing of the requirement of such
disclosure at least thirty (30) days prior to such disclosure, unless disclosure in less than
thirty (30) days is required, in which case SES shall immediately notify disclosing party of the
requirement. A copy of the disclosed CONFIDENTIAL INFORMATION shall be sent to GTI coincidental
with the transmission of the CONFIDENTIAL INFORMATION to the government.

3.7 Notwithstanding anything herein to the contrary, SES hereby provides GTI with the assurance
that no CONFIDENTIAL INFORMATION disclosed to SES pursuant to this Agreement shall be re-exported
or trans-shipped directly or indirectly to any destination requiring the approval of the United
States Government for such export or shipment until a request to do so has been submitted to and
approved by the United States Government.

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ARTICLE 4. CONSIDERATION

4.1 In consideration of the license grants from GTI to SES pursuant to this Agreement, SES (i)
shall not offer for sale within the Territory any competing Coal or a Coal and Biomass Mixture
gasification technology for the first ten (10) years of this Agreement.; (ii) shall pay to GTI a
five hundred thousand dollar ($500,000.00US) fee no later than five (5) days after the Effective
Date; and (iii) shall deliver to GTI one hundred ninety thousand five hundred shares (190,500) of
SES restricted Common Stock no later than ten (10) days after the Effective Date.

4.2 Royalty. SES agrees to pay to GTI for each U-GAS unit licensed, designed, built and/or
operated by or for SES an upfront royalty of * for each Thermal MegaWatt/hr
(MWt) of dry syngas production of rated design capacity of the U-GAS system using Coal
or a Coal and Biomass Mixture as the feed stock. The Royalty shall be paid in two equal
installments: the first installment shall be paid upon the execution of the license and/or contract
for the construction of the U-GAS system; and the last installment shall be paid upon the
completion of the build of the U-GAS system. If the U-GAS system consists of more than one unit to
be built over a period of years, then the second installment of the Royalty shall be paid
proportionately at the completion of each unit. Payment shall be made to GTI no later than 30 days
after the triggering event.

4.3. SES shall provide GTI with a copy of each contract entered into by SES for the licensing,
design, construction or operation of a U-GAS system. SES shall report to GTI either in writing or
by e-mail its progress in commercializing the U-GAS system at least every six months beginning with
the EFFECTIVE DATE.

4.4 Failure of SES to complete any of the requirements of Section 4.1, 4.2 or 4.3 shall allow GTI
to terminate this Agreement pursuant to the provisions of ARTICLE 10 hereof.

4.5 In order to maintain this Agreement, SES must meet the following milestones: SES shall (i)
develop and commercialize U-GAS systems for sale in the Territory by having a contract for the sale
of a U-GAS system signed with a customer no later than one (1) year after the Effective Date; (ii)
fabricate and put into operation within the Territory by July 31, 2008 at least one (1) commercial
U-GAS system; and (iii) fabricate and put into operation at least one (1) U-GAS system for each
calendar year of this Agreement, beginning with the calendar year 2009. If SES fails to comply
with any of the above milestones, then GTI may terminate this license grant as to any future U-GAS
systems by giving SES a twelve (12) month notice of termination. If SES remedies such default and
places into operation of all the required U-GAS systems needed to meet the milestones that have
come to pass prior to the date of Agreement termination, then this Agreement shall continue in
effect. If any milestone is not met because of an unexpected delay in receiving the proper permits
for construction or operation of a system, notwithstanding SES’s diligence in pursuing such
permits, an additional six (6) months shall be added to the respective milestone date.

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[*]
This information has been omitted in reliance upon Rule 24b-2 under
the Securities Exchange Act of 1934, as amended, and has been filed
separately with the Securities and Exchange Commission.

5

 

ARTICLE 5. Improvements

5.1 SES hereby agrees to disclose to GTI upon conception SES’s Improvements, and shall fully
disclose the nature and manner of applying and utilizing such Improvements. SES hereby grants to
GTI a royalty-free non-exclusive irrevocable license, with the right to grant sublicenses, to make,
have made, manufacture, have manufactured, use, market, import, offer for sale, and sell systems
incorporating said Improvements, but excluding therefrom any market or product to which SES enjoys
the exclusive rights granted by GTI, such as the U-GAS Coal gasification system.

ARTICLE 6. INDEMNIFICATION

6.1 SES agrees to hold harmless, defend and indemnify GTI and its Affiliates against all damage,
expense and liability, including attorneys fees, resulting from injury to or death of any person or
damage to any property by reason of SES’s use of the Know-How and relating to U-GAS systems.
Notwithstanding, GTI reserves the right to be represented, at its own expense, by legal counsel of
its choice, in any proceedings arising under this Article 6.1.

6.2 GTI shall promptly notify SES in writing of any claim asserted against GTI that SES has an
obligation to indemnify and defend GTI against pursuant to this Agreement; provided,
however, that a failure to so notify SES shall not relieve SES of its indemnity obligations
unless SES can demonstrate that it was substantially prejudiced by GTI’s failure to notify. The
SES shall not settle such claim or cause of action prior to obtaining the consent of GTI. In the
event that there is an actual or potential conflict of interest between SES and GTI with respect to
any such claim or cause of action, such that counsel selected by SES cannot represent both SES and
GTI without waivers of such conflict, SES shall pay the reasonable costs and expenses of GTI’s
separate legal representation, in addition to the cost of counsel selected by SES.

ARTICLE 7. REPRESENTATIONS AND WARRANTIES.

7.1 GTI represents that at the time of execution hereof:

	 	(a)	 	There are no agreements, assignments, encumbrances or licenses in existence
that are inconsistent with the provisions of this Agreement;
	 
	 	(b)	 	GTI owns or has a right to license all right, title and interest in and to
Know-How licensed to SES hereunder;

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	 	(c)	 	The Know-How licensed to SES hereunder are not known to infringe upon or
otherwise violate, nor to be inconsistent with, the rights of any other person or
entity;
	 
	 	(d)	 	There are no disputes, conflicts, claims (actual or threatened), actions,
litigation, arbitrations, suits, proceedings, judgments, or decrees existing, pending,
threatened by or against, or affecting or relating to the Know-How licensed to SES
hereunder (collectively, the “Claims”).

7.2 It is understood and agreed that there shall be no warranty by GTI, express or implied, as to
the results to be obtained utilizing the CONFIDENTIAL INFORMATION and Know-How of GTI.

7.3 GTI states that:

	 	(a)	 	GTI is aware of the provisions of Rule 144 promulgated under the Securities Act of
1933 (“Rule 144”) which permit limited resale of securities purchased in a private
placement (a) by nonaffiliates of a company not less than two (2) years after such
nonaffiliate has purchased and paid for the security to be sold, or (b) subject to the
satisfaction of certain conditions, including among other things, the existence of a
public market for the securities, the availability of certain current public information
about SES, the resale occurring not less than one (1) years after the securities to be
sold have been purchased and paid for, the resale being effected through a “broker’s
transaction” or in transactions directly with a “market maker” (as provided by Rule
144(f)) and the number of securities sold during any three (3) month period not exceeding
specified limitations. SES has no obligation to supply the information required for sales
under Rule 144.
	 
	 	(b)	 	GTI is acquiring the Common Stock for investment for its own account and not with the
view to, or for resale in connection with, any distribution thereof. It understands that
the Common Stock have not been registered under the Act by reason of a specified exemption
from the registration provisions of the Act, which requires, among other things, the bona
fide nature of the GTI’s investment intent as expressed herein.
	 
	 	(c)	 	GTI is authorized and otherwise duly qualified to acquire and hold the Common Stock
and has not been formed or reorganized for the specific purpose of acquiring the Common
Stock.
	 
	 	(d)	 	GTI believes it is an “accredited investor” (as defined in Section 501 of Regulation
D under the Securities Act of 1933), but if it is not an “accredited investor”, then it is
by virtue of its business or financial experience or its relationship to SES or SES’s
management, capable of evaluating the merits and risks of an investment in the Common
Stock and the GTI is capable of protecting its own interest with respect to its investment
in the Common Stock, and is financially capable of bearing the risk of that investment.

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7.4 Sole Licensee. GTI, for as long as this Agreement remains exclusive, hereby agrees
that it shall not license the Know-How to anyone else to manufacture, make, use, or sell in the
Territory U-GAS Coal gasification systems incorporating the Know-How.“

ARTICLE 8. CONFIDENTIAL INFORMATION ENFORCEMENT

8.1 Upon learning of the possible misuse or misappropriation of GTI’s trade secrets or CONFIDENTIAL
INFORMATION by a third party, SES shall inform GTI of that fact, and shall supply GTI with any
evidence available to it pertaining to the possible misuse or misappropriation. GTI shall have the
sole right to determine whether or not and how to proceed to protect such trade secrets and
CONFIDENTIAL INFORMATION. SES agrees to cooperate with GTI in any enforcement action and will join
suit as a co-plaintiff at GTI’s request, if required for jurisdictional purposes. Any damage
recovery shall be shared by the parties in proportion to their contribution to the legal expenses
of any such lawsuit. GTI shall have the primary authority to settle any action or claim brought
hereunder.

8.3 When SES mentions the U-GAS system that is the subject matter of this Agreement in writing in
any press release or other promotional documentation, SES shall include the phrase “Licensed from
Gas Technology Institute.” in said release or promotional documentation.

ARTICLE 9. NOTICES

9.1 All important notices to be given in connection with this Agreement or its performance shall be
given to each head office in writing. Any urgent matters shall be informed by telex or telefax,
however, important notices in such matter shall be confirmed in writing thereafter. Such notices
shall be deemed to be duly given when they have reached the addressees. All correspondence and
reports under this Agreement should be sent to the following addresses:

For SES:

Synthesis Energy Systems, Inc

6330 West Loop South, Suite 300

Houston, Texas 77401

Attn: _David Eichinger

For GTI:

Gas Technology Institute

1700 South Mount Prospect Road

Des Plaines, IL 60018-1804

Attn: Licensing Manager

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or such other address to which either party shall give due written notice from time to time.

ARTICLE 10. TERM AND TERMINATION

10.1 This Agreement shall continue in full force and effect for ten (10) years from the Effective
Date of this Agreement, unless otherwise terminated earlier pursuant to Section 10.2 or 10.3
herein. Notwithstanding the above, the Term of this Agreement may be extended for an additional
ten (10) years by SES giving GTI, no earlier than 180 days and no later than 90 days prior to the
end of the original Term, written notice of its election to extend this Agreement under the same
terms and conditions, provided that SES has satisfied and is in compliance with all of its duties
and obligations under this Agreement, including, but not limited to, its obligations under Article
4 hereof. Prior to the end of the second ten (10) year term, SES may extend the Term of this
Agreement for an additional ten (10) years by SES giving GTI, no earlier than 180 days and no later
than 90 days prior to the end of the second ten (10) year Term, written notice of its election to
extend this Agreement under the same terms and conditions, provided that SES has satisfied and is
in compliance with all of its duties and obligations under this Agreement, including, but not
limited to, its obligations under Article 4 hereof.

10.2 Subject to the terms of Section 4.5 hereof regarding SES’s obligations to meet certain
milestones, in the event that either party shall default by failing or refusing to perform any of
its obligations hereunder, the other party, may, without waiving other rights, provide the
defaulting party with a written notice specifying the particulars of such default and stating the
notifying party’s intent to terminate this Agreement on a date not less than ninety (90) days after
such notice is sent unless such default shall be fully remedied by such date, and this Agreement
shall terminate on such date.

10.3 This Agreement shall terminate immediately and automatically upon the act of SES admitting in
writing its inability to pay its debts generally as they become due, filing a petition in
bankruptcy or under any other insolvency act, making an assignment for the benefit of creditors, or
upon a petition in bankruptcy, or for the appointment of a receiver being filed against it, failing
to have the petition or appointment dismissed or vacated within sixty (60) days from the date
thereof.

10.4 Termination of this Agreement shall not relieve the parties of their obligations under ARTICLE
3 and ARTICLE 5 of this Agreement, said obligations to continue for ten (10) years after the date
of any such termination.

10.5 The waiver, express or implied, by either SES or GTI of any right hereunder or of any right to
seek remedies arising from any failure to perform or breach hereof by SES or GTI, shall not
constitute or be deemed a waiver of any other right hereunder, whether of a similar or dissimilar
nature thereto.

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ARTICLE 11. GENERAL

11.1 Arbitration. All disputes, controversies or differences arising between SES and GTI
out of, or in relation to, or in connection with, this Agreement or for the breach hereof, which
SES and GTI are unable to resolve between themselves shall be settled finally and bindingly by
arbitration under the Rules of Arbitration of the International Chamber of Commerce by one or more
arbitrators in accordance with the Rules. All costs of the said arbitration shall be borne equally
by SES and GTI. The language used in the arbitral proceedings shall be English. The arbitration
shall be held in Chicago, Illinois, USA. The decision of the arbitrator shall be enforceable by
and through any court that has jurisdiction over the subject matter hereof.

11.2 If any article, paragraph, section, term, condition or provision of this Agreement shall
finally be adjudged to be unlawful or unenforceable for any reason, such article, paragraph,
section, term, condition, or provision hereof shall be deemed to be severable here from and shall
be deemed thereby to be stricken here from and this Agreement shall thereafter otherwise remain in
full force and effect as amended by such adjudication.

11.3 This Agreement shall not be assignable by either party except that either party may assign all
of its rights hereunder together with all of its obligations hereunder to an Affiliate, any third
party with which it may merge or consolidate or to a purchaser of substantially all of the assets
of such party. The parties shall notify each other hereunder immediately of any assignment made
pursuant to this Article 11.3. This Agreement shall be binding upon and inure to the benefit of
the parties hereto, and their respective heirs, assigns, successors, and legal representatives.

11.4 Time and diligence of the parties are of the essence to this Agreement, it being understood
that in the event of any act of God, war, insurrection, strike or wildcat labor disturbance, or act
or occurrence solely outside the direction or control of the parties, which occasions some delay,
the time periods set forth hereunder shall be extended for the duration of such act or occurrence.

11.5 This Agreement, when executed by the parties hereto, together with its exhibits, shall
constitute the entire Agreement between the parties with reference to the subject matter hereof and
may only be amended in a writing signed by the parties. There are no other understandings,
agreements or representations, express or implied, not specified herein.

11.6 Governing Law. The parties agree that, in the event of a dispute regarding this Agreement,
this Agreement shall be governed in all respects by the laws of the State of Illinois, excluding
its conflict of laws principles.

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11.7 Headings. The headings used in this Agreement are intended for convenience only and shall not
be deemed to supersede or modify any provisions.

ARTICLE 12. EXPORT RESTRICTIONS, TAXES AND DUTIES.

12.1 SES acknowledges that the INDUSTRIAL PROPERTY RIGHTS referenced in this Agreement may be
subject to export control under U.S. Export Administration Regulations. SES accepts and assumes
all responsibility for compliance with United States and Territory export regulations with respect
to their exportation. SES covenants and agrees to comply strictly with these regulations, to
cooperate fully with GTI in any official or unofficial audit or inspection that relates to said
regulations, and not to export, re-export, divert, transfer or disclose directly or indirectly, or
permit the export of any item, component, or combination of the U-GAS system or Know-How to any
country for which the United States Export Administration Act of 1979 and the regulations issued
thereunder, or any other United States law or regulation, requires export or re-export
authorization or approval under a validated export license. SES will bear the expense of its
compliance with all applicable United States laws and regulations in this connection without
reimbursement or offset.

12.2 SES acknowledges and agrees that GTI has no responsibility or liability for taxes or customs
duties, harbor fees or storage or transportation charges, related in any way to the U-GAS system or
Know-How licensed hereunder. SES agrees to assume all responsibility for their collection and/or
payment including, without limitation, for value added taxes, sales taxes, use taxes, excise taxes,
service taxes, customs duties, customs storage fees, or withholding taxes, if any, all without
reimbursement by GTI.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly
authorized representatives as of the Effective Date.

	 	 	 	 	 	 	 	 	 	 	 
	Synthesis Energy Systems, Inc.	 	 	 	Gas Technology Institute	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ David Eichinger
	 	 	 	By:	 	/s/ Paul Chromek	 	 
	 

	 	 

	 	 
	 	 	 	 

	 	 
	 
	Title: Chief Financial Officer	 	 	 	Title: General Counsel	 	 

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11exv10w4

 

Exhibit 10.4

Cooperative Joint Venture Contract

of

SES (Zaozhuang) New Gas Company Ltd

between

Shandong Hai Hua Coal & Chemical Company Ltd

and

Synthesis Energy Systems Investments, Inc.

 

 

This Cooperative Joint Venture Contract (the “Contract”) is executed on 6 July 2006 by and
between the following Parties:

Shandong Hai Hua Coal & Chemical Company Ltd (“Hai Hua”); and

Synthesis Energy Systems Investments, Inc. (“SES”)

Preamble

The JV Company seeks, in the spirit of economic cooperation and technological exchange, to
rely on the industry and market advantages in Zaozhuang City, Shandong Province and the amiable
investment environment and favourable investment policy in Xue Cheng Industrial Development Zone,
and to benefit from favorable policies on comprehensive utilization of resources, gangue, and the
development of clean coal technologies, all of which are highly encouraged by the Chinese
government. The JV Company’s plant will use advanced equipment, technology and management systems
to produce synthesis gas and steam in an economical and environemtally friendly manner. The JV
Company seeks satisfactory economic returns through quality and price competitiveness.

Chapter I

General Principles

Hai Hua and SES have entered into this Contract in the spirit of equality and mutual benefit
through friendly consultations and in accordance with the “Law of the People’s Republic of China on
Sino-Foreign Cooperative Joint Ventures”, the “Detailed Rules for the Implementation of the Law of
the PRC on Sino-Foreign Cooperative Joint Ventures”, and other Chinese laws and regulations.

This Contract and the Articles of Association shall take effect as of the date of approval by the
examination and approval authority.

Chapter II

Parties to the Contract

Article 1 The parties to this Contract (the “Parties” or a “Party”) are:

Shandong Hai Hua Coal & Chemical Company Ltd. a company established and registered under the laws
of the People’s Republic of China (the “PRC” or “China”).

Legal Address: No. 68 , Linquan Road, Zaozhuang City, Xue Cheng area industrial zone, Shandong,
Post Code: 277000

Legal Representative (Nationality): Ding, Zhongmin (PRC)

Synthesis Energey Systems Investments, Inc. a company established and registered under the laws of
Mauritius.

Legal
Address: 3rd Floor, Amod Building, 19 Poudriere Street, Port, Louis, Mauritius)

Legal Representative (Nationality): Lorenzo Lamadrid (USA)

-1-

 

Chapter III

Cooperative Joint Venture

Article 2 SES (Zaozhuang) New Gas Company Ltd (the “JV Company”) is a cooperative joint
venture company formed by Hai Hua and SES in accordance with the provisions of the “Law of the PRC
on Sino-Foreign Cooperative Joint Ventures” and other Applicable Laws.

Article 3 The name of the JV Company shall be  in Chinese and SES
(Zaozhuang) New Gas Company Ltd in English.

The legal address of the JV Company shall be at Shandong Province, Zaozhuang City, Xue Cheng
Development Zone, Post Code: 277000.

Article 4 All activities of the JV Company shall be in compliance with Applicable Laws.

Article 5 The JV Company shall adopt the organizational form of a limited liability company with
independent legal person status, carry out independent business accounting and enjoy benefits or
assume losses on its own. The Parties hereto shall distribute profits in accordance with the terms
set forth herein and shall bear risks and losses to the limit of their respective contributions to
the registered capital of the JV Company.

Chapter IV

Purpose, Business Scope and Scale

Article 6 The aims of the Parties to the JV Company are: to adapt to the industrial
development of Shandong Province; to meet the requirements for increasing synthesis gas production
efficiency; to employ comprehensive utilization to make use of waste coal available from Hai Hua;
to reduce atmospheric pollution; and, based on the principles of strengthening economic cooperation
and mutual benefit, to introduce foreign capital, advanced foreign production equipment and
management methods in building a coal gasification plant in order to improve economic results and
enable the Parties to obtain satisfactory economic benefits.

The JV Company seeks, in the spirit of economic cooperation, to rely on the industry and market
advantages in Zaozhuang City, Shandong Province and the amiable investment environment and
favourable investment policy in Xue Cheng District, and to benefit from the regulations to utilize
resources, waste coal and gangue, and the development of a gasification production facility. The JV
Company’s plant will use advanced equipment, technology and management systems to produce synthesis
gas and steam in an economical and environemtally friendly manner, which will be used by Hai Hua
and later other customers, as well as flyash which will be sold to to industries in and around
Zaozhuang City. The plant will be located on Hai Hua’s property or in the Xue Cheng Economic
Development Zone near Hai Hua.

Article 7 The business scope of the JV Company is: to develop, construct, own, operate and manage a
gasification production plant; and to produce and sell synthesis gas and steam and the plant’s
by-products including fly ash, sulphur, hydrogen and argon (the “Project”).

Article 8 The JV Company is to own a gasification production plant (hereinafter referred to as the
“Plant”). The Plant will include the following basic equipment: fuel unloading and bulk storage;
fuel preparation equipment, circulating fluidized bed gasifiers, downstream particulate separation
and ash handling; syngas heat recovery equipment; particulate removal equipment including a
multi-chamber

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dust removal system; carbon dioxide removal equipment; syngas compression equipment, acid gas
removal system, sulphur recovery equipment, air separation unit, integrated control system to
monitor and control the plant equipment along with providing operations optimization; maintenance
and operations support facility; backup fuel storage and handling – including a bulk fuel tank: and
other necessary equipment. The initial scale of the plant is shall be approximately 28,000
Ncum/hour of gross synthesis gas output.

Chapter V

Total Investment, Registered Capital and Form of Investment

Article 9 The total investment in the JV Company shall be USD 18,000,000 (approximately RMB
150,000,000).

Article 10 The registered capital of the JV Company shall be USD 6,300,000 (35% of the total
investment).

	 	(1)	 	SES shall contribute US$6,300,000 in cash as its registered capital
contribution to the JV Company for a 95% Ownership Share in the JV Company; and
	 
	 	(2)	 	Hai Hua shall contribute 50-years of unencumbered and mortgage-free
land use rights for 50 mu of land within Hai Hua’s plant site, as well as coal
storage facilities, and allow the JV Company to share certain services with Hai
Hua, as its registered capital contribution to the JV Company for a 5% Ownership
Share in the JV Company. If SES decides to build the Plant outside of Hai Hua’s
site, Hai Hua shall assist the JV Company to obtain 100 mu of land, with 50 years
of land use rights, which the government has agreed to provide free of charge in
the Xue Cheng Economic Development Zone. In such case the JV Company shall be
responsible for all costs in connection with such land acquisition and transfer and
Hai Hua shall be responsible for investing in and building syngas, coke oven gas
and steam pipelines from Hai Hua’s plant to the Plant’s fence line. Hai Hua shall
also provide suitable office space on Hai Hua’s site for the JV Company’s project
preparation office, and shall provide a warehouse (currently occupied by a water
glass work shop) for coal storage facilities.

Article 11 SES’s registered capital will be contributed in separate instalments. A first
instalment of 15% of the registered capital will be made by SES within ninety (90) days of the date
of issuance of the business licence of the JV Company. Further instalments will be contributed
within two years of the date of issuance of the business license of the JV Company, as required by
the Plant’s construction schedule. If the JV Company decides to build the Plant inside Hai Hua’s
fence, Hai Hua shall contribute the Plant’s land use rights within 30 days of the receipt by the JV
Company of the business license of the JV Company. The land use rights shall be registered under
the name of the JV Company, and all costs in connection with such contributions and transfers shall
be borne by the party responsible in accordance with the relevant laws.

Article 12 The JV Company shall appoint an internationally recognised accounting firm registered in
China to verify each Party’s registered capital contributions and issue verification reports with
respect to such contributions.

Article 13 Unless otherwise agreed by both Parties and approval is obtained from the Relevant State
Agencies, the JV Company shall not reduce its registered capital during the Term.

	 	 	 	 	 	 	 
	Article 14

	 	 	(1	)	 	Where a Party makes any transfer of all or a portion of its Ownership Share, it
shall obtain the prior approval of the Board of Directors and such transfer shall

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	 	 	 	take effect only after approval has been given by the original examination
and approval authority.
	 
	 	(2)	 	Subject to Article 14(1), if either Party (the “Transferring Party”)
proposes to transfer all or a portion of its Ownership Share to a third party, the
other Party (the “Other Party”) shall have the right of first refusal in purchasing
such Ownership Share at the same terms and conditions as offered by the
Transferring Party to that third party. The Transferring Party shall provide a
written notice to the Other Party, specifying the terms and conditions to the
proposed transfer of such Ownership Share. If the Other Party fails to exercise its
right of first refusal with respect to such Ownership Share within fifteen (15)
days of receipt of the written notice, then, the Transferring Party may opt to sell
such Ownership Share to any third party under the same terms and conditions;
provided that if such transfer has not occurred within sixty (60) days of the
receipt by the Other Party of the Transferring Party’s notice, such notice shall be
deemed ineffective.
	 
	 	(3)	 	If either Party transfers all or a portion of its Ownership Share
pursuant to the terms of this Contract, the transferee of such Ownership Share
shall agree to perform its obligations and responsibilities hereunder with respect
to such Ownership Share. In addition, such transferee shall be able to enjoy its
rights hereunder with respect to such Ownership Share.
	 
	 	(4)	 	Each Party herby consents to any future transfer by the other Party of
all or a portion of its Ownership Share to an Affiliate of such Party.

Article 15 Subject to the approval by the original examination and approval authority, any increase
or decrease in the registered capital of the JV Company shall require the unanimous approval of the
Board of Directors, and formalities for the alteration of registration with the original
registration office shall be undertaken.

Article 16 The difference between the total investment in the Project and the registered capital of
the JV Company shall be financed by way of SES shareholder loans or bank loans.

Chapter VI

Responsibilities of the Parties

Article 17 The Parties shall be respectively responsible for the following matters:

Responsibilities of Hai Hua:

	 	(1)	 	Providing its registered capital contribution to the JV Company in
accordance with the stipulations of this Contract;
	 
	 	(2)	 	Assisting the JV Company to obtain all necessary approvals and permits
from the Relevant State Agencies to bring about the effectiveness of this Contract,
the Articles of Association and Other Project Documents of the JV Company and to
enable the Parties and the JV Company to perform the responsibilities under all the
above documents;
	 
	 	(3)	 	Assisting the JV Company to obtain its Business License from the State
Administration for Industry and Commerce or from the institutions authorized
thereby;

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	 	(4)	 	Assisting the JV Company to obtain all necessary consents, approvals or
licenses;
	 
	 	(5)	 	Assisting the JV Company to apply for and obtain tax preference or
exemption, value added tax rebates for gange projects, and other preferential
policies or tax treatment for investment which the JV Company is entitled to
pursuant to Chinese national, provincial or local laws, regulations and policies;
	 
	 	(6)	 	Assisting the JV Company to apply for in a timely manner and obtain all
documents required for the contractor under the construction contract to start and
complete construction of the Plant;
	 
	 	(7)	 	Assisting the JV Company to undergo all formalities for the import of
necessary machines and equipment, raw materials and goods, and helping the JV
Company to arrange for domestic transportation;
	 
	 	(8)	 	Performing its obligations under this Contract and Other Project
Documents; and
	 
	 	(9)	 	Handling other matters entrusted to it by the JV Company.

Responsibilities of SES:

	 	(1)	 	Providing its registered capital contribution to the JV Company in
accordance with the stipulations of this Contract;
	 
	 	(2)	 	Performing its obligations under this Contract and Other Project
Documents;
	 
	 	(3)	 	Assisting the JV Company to obtain all necessary approvals and permits
from the Relevant State Agencies to bring about the effectiveness of this Contract,
the Articles of Association and Other Project Documents of the JV Company and to
enable the Parties and the JV Company to perform the responsibilities under all the
above documents;
	 
	 	(4)	 	Assisting the JV Company to obtain its Business License from the State
Administration for Industry and Commerce or from the institutions authorized
thereby;
	 
	 	(5)	 	Assisting the JV Company to obtain all necessary consents, approvals or
licenses to enable the JV Company to obtain sufficient foreign exchange required
for performing all its foreign exchange obligations, and for purchasing foreign
exchange and remitting it abroad;
	 
	 	(6)	 	Assisting the JV Company to raise financings, and in particular, to
liaise with international banks, to structure the relevant financing plan and to
review the relevant financing documentation;
	 
	 	(7)	 	Assisting the JV Company to apply for and obtain tax preference or
exemption, VAT rebates for gange project, and other preferential treatment for
investment which the JV Company is entitled to pursuant to Chinese national or
local laws, regulations and policies;
	 
	 	(8)	 	Assisting the JV Company to undergo all formalities for the import of
necessary machines and equipment, raw materials and goods, and helping the JV
Company to arrange for domestic transportation;

-5-

 

	 	(9)	 	Assisting the JV Company with the design and construction of the Plant
and with procurement of equipment for the Plant: and
	 
	 	(10)	 	Handling other matters entrusted to it by the JV Company.

Chapter VII

Commodity Purchase

Article 18 The Plant, upon Commercial Operation, shall supply synthesis gas and steam to Hai
Hua and Hai Hua shall be required to pay a fee for such synthesis gas and steam in accordance with
the Tolling Contract. In addition, the JV Company shall seek to sell synthesis gas, steam,
hydrogen or other products to third parties. After the Commercial Operation Date of the Plant, if
the JV Company invests capital to expand the Plant’s synthesis gas output, such additional
synthesis gas shall not be sold to third parties at a price lower than the synthesis gas price
outlined in the Tolling Contact, assuming such synthesis gas is of the same quality and the
contract terms are similar.

Article 19 All payments under the Tolling Contract shall be made to the JV Company in RMB.

Article 20 The plant’s fly ash, elemental sulphur and argon shall be sold in the open market or
pursuant to long-term off take agreements.

Chapter VIII

Board of Directors

Article 21 The date of issuance of the Business License of the JV Company shall be the date of
formation of the new board of directors (“Board of Directors”) of the JV Company.

Article 22 The Board of Directors shall be composed of six (6) directors. From the date of
issuance of the Business License of the JV Company until 20 years after the Commercial Operation
Date of the Plant, five (5) directors shall be appointed by SES, and one (1) by Hai Hua. From 20
years after the Commercial Operation Date of the Plant until the end of the Term, three (3)
directors shall be appointed by SES, and three (3) by Hai Hua. The position of the Chairman shall
be appointed by SES, and the Vice Chairman shall be appointed by Hai Hua. The term of the Chairman,
the Vice Chairman and each director of the Board of Directors shall be three (3) years.

Article 23 The term of each director of the Board of Directors shall commence on the date of
issuance of the Business License of the JV Company. In case of any vacancy in the Board of
Directors due to the retirement, resignation, sickness, disability or death of any director, or the
removal of any director by the appointing Party, the Party which made the original appointment
shall appoint a replacement for the remaining term of office of such director.

	 	 	 	 	 	 	 
	Article 24

	 	 	(1	)	 	The Board of Directors shall be the highest authority of the JV Company. The Board
of Directors shall decide all the major matters of the JV Company, and conduct overall
supervision on the business activities of the JV Company.

	 	(2)	 	Decisions on the following matters shall be made only with the
unanimous approval of each director attending in person or by proxy a duly convened
Board of Directors meeting:

	 	(a)	 	any increase or decrease in the registered
capital of the JV Company or the total investment made by the JV
Company;
	 
	 	(b)	 	the change of form of organization of the JV
Company through merger, division or consolidation with another economic
entity;

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	 	(c)	 	the termination, early termination, liquidation
or dissolution of the JV Company, except in the case of termination
contemplated under Article 56 of this Contract in which case no
unanimous approval is required; and
	 
	 	(d)	 	Any mortgage of any assets of the JV Company, and
the Parties hereby agree that they shall cause their respective
representatives on the Board of Directors to allow the mortgage of the
JV Company’s assets or cash flows for the purposes of securing debt
financing for the JV Company.

	 	(3)	 	In the event that the Board of Directors fails to reach an agreement
due to any reason on a matter requiring unanimous approval of all the directors,
Hai Hua and SES shall conduct friendly consultation and make all reasonable efforts
in order to reach a unanimous decision on the relevant matter.
	 
	 	(4)	 	All matters except those set forth in Article 24(2) shall be decided by
a simple majority of the directors attending in person or by proxy a Board of
Directors meeting.
	 
	 	(5)	 	The Chairman of the Board of Directors shall be the legal
representative of the JV Company. In the event that the Chairman is unable to
perform his duties, the Vice Chairman or any other director shall be authorized by
the Chairman to temporarily act on his behalf.
	 
	 	(6)	 	The Board of Directors shall hold a meeting at least twice a year, to
be called and presided over by the Chairman. A special Board of Directors meeting
shall be called by the Chairman at the request of at least three directors. Minutes
of each Board of Directors meeting shall be kept on file. Notices of such Board of
Directors meetings shall be provided in writing at least 15 days prior to the date
of such meeting. If proper notice is given and a Party does not send enough
directors to constitute a quorum as outlined in paragraph (7) below, then the
Chairman may provide a second notice of such meeting in writing at least five (5)
days prior to the date of such meeting.
	 
	 	(7)	 	From the date of issuance of the Business License of the JV Company
until 20 years after the Commercial Operation Date of the Plant, the quorum for a
Board of Directors meeting shall be three (3) SES appointed directors and one (1)
Hai Hua appointed director. From 20 years after the Commercial Operation Date of
the Plant until the end of the Term, the quorum for a Board of Directors meeting
shall be two (2) SES appointed directors and two (2) Hai Hua appointed directors.
If proper notice of a Board of Directors meetings is given and a quorum can not be
formed because a Party’s director(s) do not attend, then a second notice of such
meeting may be given pursuant to paragraph (6) above and a quorum shall be deemed
to exist even if such Party again fails to send the requisite number of directors
to form a quorum.

Article 25 The meeting of the Board of Directors shall be held in principle at the location of the
JV Company.

Chapter IX

Operation and Management Office

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Article 26 The JV Company shall establish an operation and management office, to be
responsible for daily operation and management. The operation and management office shall have one
General Manager whose terms shall be three (3) years. From the date of issuance of the Business
License of the JV Company until 20 years after the Commercial Operation Date of the Plant, the
General Manager shall be nominated by SES. From 20 years after the Commercial Operation Date of
the Plant until the end of the Term the General Manager shall be nominated by Hai Hua. The General
Manager shall be appointed or removed by the Board of Directors. A director may hold concurrently
the position of General Manager and that of another senior officer.

Article 27 The Board of Directors shall approve the organizational structure plan formulated on the
basis of the actual production and operation of the JV Company. The JV Company shall have one Chief
Accountant whose term shall be three (3) years. The Chief Accountant shall be nominated by the
General Manager. From the date of issuance of the Business License of the JV Company until 20 years
after the Commercial Operation Date of the Plant, The Vice-Chief Accountant shall be nominated by
Hai Hua. From 20 years after the Commercial Operation Date of the Plant until the end of the Term
the Vice-Chief Accountant shall be nominated by SES. The JV Company shall have one Chief Engineer,
to be nominated by the General Manager. Both Parties shall have the right to recommend other
management and finance personnel deemed appropriate at their own discretion. The above personnel
shall be appointed by the Board of Directors.

Article 28 The JV Company shall adopt the structure of General Manager responsibility under the
leadership of the Board of Directors. The General Manager shall, in accordance with Board of
Directors resolutions, supervise the daily business in connection with the production, operation
and business development of the JV Company. The General Manager shall maintain contact with the
Board of Directors, and submit to the Board of Directors at the Board of Directors’ request reports
on any material changes affecting the business operation or business prospects of the JV Company.
The Deputy General Manager, the Chief Accountant and the Chief Engineer shall assist the General
Manager in his work.

Article 29 The Parties hereby acknowledge and agree that the Parties and the officers and employees
of the JV Company will observe in a strict manner all Applicable Laws including all anti-corruption
regulations, and have not made and will not make directly or indirectly, any payment or present any
valuable gifts to any government officials for the purpose of obtaining or retaining business. A
Party in violation of the foregoing provision shall indemnify and hold harmless the non-breaching
Party from any claim, losses or liability arising from such breaching activities.

Article 30 In the event that the Chairman, Vice Chairman, any director, the General Manager or any
other employee is found (i) to be engaged in any business activities other than those of the JV
Company, which compete with the JV Company; (ii) to intentionally harm the interest of the JV
Company; and such act causes damages to the JV Company; or (iii) to profiteer or be in serious
breach of his duties, the JV Company shall have the right to dismiss such person from his position,
and demand compensation therefrom for such economic losses.

Article 31 The JV Company may, with the approval of the Board of Directors, enter into an agreement
with a third party for operations and maintenance services for the Plant.

Chapter X

Purchase of Equipment

Article 32 The Parties intend that the JV Company will import a portion of its equipment, and
all such imported equipment shall be imported free from customs duties and VAT. A list of the
equipment

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initially planned for import is attached as Exhibit III, which list may be amended from time to
time to meet the business needs of the JV Company. Hai Hua shall assist the JV Company in securing
such VAT and duty free import benefits, while SES will assist the JV Company with the procurement
of such overseas equipment.

Chapter XI

Preparation and Construction

Article 33 During the preparation and construction period of the JV Company, a preparation and
construction office shall be established under the Board of Directors. The JV Company shall entrust
SES to organize and manage the preparation and construction office.

Article 34 It is the responsibility of the preparation and construction office to review and
examine the engineering design, assess the construction contracts for the Project, organize the
procurement, inspection and acceptance of the relevant equipment and materials, formulate the
construction milestone schedule, prepare the capital investment plan, control the finances for the
engineering works, make construction payments upon final settlement, formulate the relevant
administrative measures, and maintain and file documents, drawings and materials during the
construction period.

Article 35 The JV Company shall entrust SES to form a technical group, which, under the leadership
of the preparation and construction office, shall be responsible for the review, supervision and
inspection and acceptance of the design, construction quality, imported equipment and materials of
the Project. Notwithstanding the provisions in this Chapter XI, neither the preparation and
construction office established under Article 33 nor the technical group established under this
Article 35 nor SES shall have the power to grant acceptance of any performance and reliability test
of the Plant. Only the JV Company shall have such power.

Article 36 The preparation and construction office shall be dissolved pursuant to the approval of
the Board of Directors, after the completion of the construction of the Plant and the ancillary
distribution engineering works and the completion of the taking over procedures.

Article 37 If the Plant is built on land adjacent to Hai Hua:

	 	(1)	 	Hai Hua agrees to form a construction and operations cooperation committee to assist
and cooperate with the JV Company on all matters that relate to construction coordination;
and
	 
	 	(2)	 	Hai Hua herby grants the JV Company certain rights of way to use any of Hai Hua’s roads
or passage ways for access to and from the Plant site for construction of the Plant, and
for the on-going operation of the Plant including the delivery of all materials necessary
to build the Plant and carry on the JV Company’s business, and for sale of the JV Company’s
products, and to move coal, other fuels or spare parts.

Chapter XII

Labor Management

Article 38 The employees of the JV Company shall have the right to establish a labor union
organization and carry out labor union activities in accordance with the provisions of the “Labor
Union Law of the People’s Republic of China”. The JV Company shall set aside and use labor union
funds in accordance with Applicable Laws.

Article 39 Matters regarding recruitment, employment, dismissal, wage, labor insurance and labor
protection, and welfare benefits, as well as awards and disciplinary actions, shall be proposed by
the

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General Manager and approved by the Board of Directors with reference to the relevant PRC labour
laws and regulations, and shall be set forth in the collective or individual labor contracts
between the JV Company and the labor union of the JV Company or individual employees of the JV
Company. All such labor contracts shall be filed by the JV Company at the Relevant State Agencies
for labor administration.

Article 40 Matters of remuneration, social insurance, welfare and the standards for business travel
expenses for the management of the JV Company shall be determined at the meeting of the Board of
Directors in accordance with Applicable Laws.

Chapter XIII

Profit Distribution; Risks and Losses

Article 41 Unless otherwise provided herein, during the Term, the Parties shall share the
profits of the JV Company strictly according to the provisions set forth in Article 42 and Article
43, and bear the risks and losses of the JV Company in proportion to their respective capital
contributions to the JV Company.

Article 42 Subject to the approval by the Relevant State Agencies and the provisions in this
Article 42 and Article 43, the JV Company shall distribute to the Parties Distributable Profits
every half year during any calendar year as follows:

From the date of execution of this Contract until 20 years after the Commercial
Operation Date of the Plant:

To SES: 95%

To Hai Hua: 5%

 

AND

 

From 20 years after the Commercial Operation Date of the Plant until the end of the
Term:

To SES: 10%

To Hai Hua: 90%

Any Distributable Profits shall be distributed to the Parties within thirty (30) days of a Board of
Directors resolution authorising the distribution of such Distributable Profits to the Parties.

The Parties agree that SES may recover in advance all of its contribution to the registered capital
of the JV Company through depreciation of Fixed Assets and amortisation of Deferred Assets,
Intangible Assets and Pre-operating Expenses of the JV Company.

Article 43 Any losses of the JV Company from previous years shall be recovered from the profits of
the JV Company in the current year before making any distribution to the Parties. If the amount of
profits is insufficient to recover such losses, the Reserve Fund shall be utilized for such
recovery.

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Chapter XIV

Taxation, Financial Accounting, Audit,

Bank Account and Foreign Exchanges

Article 44 The JV Company shall pay all applicable taxes in accordance with Applicable Laws.

Article 45 The staff and workers of the JV Company shall pay their individual income tax in
accordance with the provisions of the “Individual Income Law of the People’s Republic of China”.

Article 46 The JV Company shall allocate funds to the Three Funds in accordance with the provisions
of the “Law of the People’s Republic of China on Sino-Foreign Cooperative Joint Ventures”. The
annual allocation of funds to the Three Funds shall be determined by the Board of Directors.

The Reserve Fund may be used for the reduction of any losses and for making up any shortage of the
Enterprise Expansion Fund of the JV Company; the Employee Welfare and Bonus Fund may be used for
the payment of bonuses and the collective welfare of the staff and workers; the Enterprise
Expansion Fund of the JV Company may be used for the expansion, improvement and maintenance of the
production facilities of the JV Company.

Article 47 The first fiscal year of the JV Company shall commence on the date of the issuance of
the JV Company’s business licence and end on December 31 of the same year. Afterwards, the fiscal
year shall begin on January 1 and end on December 31 of each year. All financial statements,
reports and accounting books shall be written in Chinese and English. Any Party shall be entitled
to examine (on its own or through an agent) the accounting books and other financial records of the
JV Company during normal office hours, and, if necessary, to make copies thereof. The expenses of
such examination shall be borne by such Party. Such examination shall not interfere with the normal
operation of the JV Company. The JV Company shall draft a report each quarter, which shall be
submitted to the Parties. The contents of such report shall include the total synthesis gas, steam
and fly ash output generated by the Plant, the revenues and expenditures of the JV Company and the
situation regarding spare capacity and the efficiency of the Plant, in the previous quarter.

Article 48 The Board of Directors of the JV Company shall engage an internationally recognised
accounting firm registered in China to act as its independent auditor, who shall carry out its
duties in accordance with Applicable Laws and international accounting standards (insofar as they
are consistent with Applicable Laws). Such accounting firm shall conduct annual examinations and
audits of financial statements of the JV Company and issue relevant certificates and reports. In
addition, such accounting firm shall assist in the formulation of the JV Company’s annual financial
statements and shall jointly examine, verify and sign-off on such annual financial statements, and
any other relevant documents, certificates, reports and statements.

Within two (2) months of the commencement of each half of a fiscal year, the General Manager shall
organize and produce a balance sheet, a profit and loss statement for the previous half fiscal year
and a proposal for profit distribution, which shall be submitted to the Board of Directors for
examination and approval.

Article 49 The JV Company shall use RMB as its standard accounting currency. The JV Company shall
open USD and RMB accounts. All matters of the JV Company concerning foreign exchange shall be
conducted in accordance with the relevant stipulations of the “Regulations on Foreign Exchange
Control of the People’s Republic of China”. All foreign exchange obtained by the JV Company through
conversion of its RMB revenue shall be directly deposited into the JV Company’s USD account. All
foreign exchange expenditures of the JV Company as well as the return on investment and profits

-11-

 

payable by the JV Company to SES shall be drawn from such USD account. The JV Company shall take
all measures permitted by Applicable Laws to balance the requirements of its foreign exchange.

Subject to receiving all necessary PRC government approvals, Fixed Assets (including, but not
limited to all buildings, machinery and equipment of the Plant) shall be depreciated and Intangible
Assets (including, but not limited to land use rights and know-how) shall be amortised on a
straight-line basis over twelve (12) years, with no residual value. In addition, Deferred Assets
and Pre-operating Expenses shall be amortized in accordance with Applicable Laws. The depreciation
and amortisation term shall commence on the Commercial Operation Date of the Plant.

Chapter XV

Construction, Operation, Management

and Supply of Fuel of the Plant

Article 50 The JV Company may employ a third party construction contractor to construct the
Plant.

The Board of Directors shall be entitled to appoint an independent supervising engineer to oversee
the performance of the relevant contractors and sub-contractors under the construction contract. In
addition, SES shall be entitled to appoint a site representative engineer, whose responsibilities
shall include the monitoring of construction, staff training and health and safety matters and
witnessing of commissioning and relevant testing of the Plant.

Article 51 In accordance with the provisions of the Tolling Contract, the JV Company shall sell the
synthesis gas and steam generated by it to Hai Hua, and Hai Hua shall purchase synthesis gas and
steam from the JV Company. The synthesis gas and steam price shall be determined in accordance with
the provisions of the Tolling Contract. The JV Company shall also sell ash on the open market or
pursuant to a long-term off take agreement.

Article 52 The JV Company may enter into a long-term operations and maintenance agreement with a
third party.

Chapter XVI

Term, Termination and Liquidation

Article 53 The term of the JV Company (the “Term”) shall commence from the issuance of the
business license and end fifty (50) years after the “Commercial Operation Date” as defined in the
Tolling Contract. Subject to complying with Applicable Laws, upon the recommendation of the Board,
the Parties may apply, at least six (6) months prior to the expiry of the Term, to the original
examination and approval authority for an extension of the Term.

Article 54 This Contract shall lapse at the expiry of the Term, unless it is terminated earlier in
accordance with the provisions of Article 56.

	 	 	 	 	 	 	 
	Article 55

	 	 	(1	)	 	At the expiry of the Term, the liquidation of assets of the JV Company shall be
conducted in accordance with Applicable Laws and the Articles of Association. Upon payment of
wages owed to staff and workers, labor insurance premiums, PRC taxes and other liabilities of
the JV Company, the ownership in the Fixed Assets of the JV Company shall, subject to Article
55(2), belong to Hai Hua without compensation paid to SES, and the remaining assets of the JV
Company shall be distributed pro rata to each Party according to such Party’s Ownership Share.

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	 	 	(2	)	 	If SES is unable to recover by the end of the Term the total of (a) its
original USD registered capital contribution (through depreciation and amortisation
in accordance with Article 42), (b) all shareholder’s loans then owing to SES, and
(c) an amount representing the interest calculated on the basis of an interest rate
of 12% per annum (compounded annually) on SES’s original USD contribution to the
registered capital of the JV Company for the duration of the Term, the Term may be
extended for a period not exceeding five (5) years on the written agreement of the
Parties. If the Parties cannot agree to an extension of the Term, Hai Hua may, at
its option, pay SES an amount equal to the difference between (i) the sum of the
above items (a), (b) and (c) and (ii) the amount actually paid to SES by the JV
Company in the form of distribution of depreciation and amortisation of the JV
Company’s assets and Distributable Profits by the end of the Term. If Hai Hua
decides not to make such a payment, then the Fixed Assets of the JV Company shall
not automatically vest in Hai Hua at the expiry of the Term but shall instead be
liquidated in accordance with Applicable Laws and the Articles of Association. Any
remaining assets of the JV Company, after the discharge of the JV Company’s
liabilities, shall be distributed to SES and Hai Hua in accordance with the ratio
of each Parties’ Ownership Share.
	 
	 	 	 	 	 	 
	Article 56

	 	 	 	 	 	Under any of the following circumstances, any Party shall be entitled to issue a written
notice prior to the expiration of the Term to the other Party, which expresses its intention
to terminate this Contract:
	 
	 	 	 	 	 	 
	 

	 	 	(1	)	 	if the JV Company goes bankrupt, becomes the subject of liquidation and
dissolution procedures, ceases business operation or becomes insolvent;
	 
	 	 	 	 	 	 
	 

	 	 	(2	)	 	if the Tolling Contract is terminated (including a termination as a
result of Force Majeure), or if the other Party fails to perform any material
duties and obligations under this Contract or the Tolling Contract, but only the
non-breaching Party may terminate this Contract and the breaching Party shall not
have termination rights under this Article 56 (2). If a Party issues a written
notice pursuant to this Article 56 (2) requesting an early termination hereof, the
Parties shall commence consultation within thirty (30) days of issuance of such
notice, and shall try their best to resolve the matters resulting in such notice.
If the relevant matters are not resolved in a form satisfactory to the Parties
within a further period of thirty (30) days, the Party issuing the notice may issue
to the other Party a second written notice (“Notice of Termination”) notifying the
other Party of the immediate termination of this Contract and dissolution of the JV
Company.
	 
	 	 	 	 	 	 
	Article 57

	 	 	(1	)	 	If this Contract is terminated in advance pursuant to Article 56(1), the JV Company
shall use its assets to settle its liabilities. After clearing its debts, all other remaining
assets shall be liquidated in accordance with Applicable Laws and the Articles of Association.
However, account shall be given to funds that have already been distributed to the Parties by
the JV Company.
	 
	 	 	 	 	 	 
	 

	 	 	(2	)	 	If this Contract is terminated in advance pursuant to Article 56(2) for
reasons due to a material default by either party, then the breaching Party shall
be liable to the non-breaching Party for all damages and lost profits in accordance
with relevant PRC law.

-13-

 

Chapter XVII

Change in Law

Article 58 If the economic benefits to a Party under this Contract are adversely affected
after the date of execution of this Contract as a result of either a change in Applicable Laws or
the adoption of any new Applicable Laws, the Parties shall consult promptly with each other and
amend this Contract and Other Project Documents as are required so as to put that Party back to the
position had the relevant change or adoption not occurred. Notwithstanding the above provision, the
Parties are not required to so amend if to do so would materially prejudice the interests of the
other Party.

Chapter XVIII

Liabilities for Breach of Contract

Article 59 If default by either Party makes this Contract and its Exhibits incapable of being
performed in part or in full, the defaulting Party shall bear the full liability for the breach of
the Contract.

Chapter XIX

Force Majeure

Article 60 In the event that the performance of this Contract is directly affected or that the
Contract cannot be performed in accordance with the agreed-upon terms and conditions due to a Force
Majeure event (which shall be limited to war, earthquake, lightning, flood and tornado and other
natural disasters which are unforeseeable and the happening and consequences of which could not
have been prevented or avoided), the Party affected by the above Force Majeure events shall do its
utmost to reduce the damages to the lowest extent, notify the other Party of the situation
resulting from such events, and provide a detailed report on the Force Majeure event together with
a valid document evidencing the reasons for which this Contract cannot be performed fully or
partially or why performance must be delayed within fifteen (15) days of the occurrence of such
Force Majeure event. Such documents shall be issued by the notary public organization or the
Relevant State Agencies at the location in which such Force Majeure event occurred. The Parties
shall hold discussions and consultations regarding the extent to which the Parties’ ability to
carry out this Contract has been affected by such Force Majeure event, to decide whether this
Contract shall be terminated, whether the affected Party shall be fully or partially exempted from
the responsibility to perform this Contract or whether the affected Party shall be given an
extension of the Term.

Chapter XX

Applicable Laws

	 	 	 	 	 	 	 
	Article 61

	 	 	(1	)	 	The execution, effectiveness, performance of this Contract and the settlement
of disputes shall be governed by PRC law; and
	 
	 	 	 	 	 	 
	 

	 	 	(2	)	 	The JV Company and the Parties shall try their best to obtain favorable
tax treatment, preferential investment treatment and other preferential interests
and benefits promulgated after the execution of this Contract in addition to those
stipulated by this Contract.

-14-

 

Chapter XXI

Settlement of Disputes

Article 62 Any dispute arising from the performance of or in connection with this Contract
shall be governed by the laws of PRC, and shall be settled through friendly consultation by the
Parties. If the dispute cannot be resolved within three (3) months after written notice confirming
the existence of a dispute has been submitted by either Party to the other Party, the dispute shall
be referred to arbitration by the Party submitting such notice to CIETAC as outlined below, in
accordance with the Arbitration Rules of CIETAC (the “Arbitration Rules”).

Article 63 Any dispute, difference or claim (in each such case, of whatsoever nature) arising out
of, in connection with or relating to (in each such case, in any manner whatsoever) this Contract
(each a “Dispute”) shall be referred to CIETAC and shall be determined by arbitration in accordance
with the provisions of this Article 63:

	 	(1)	 	any arbitration shall be conducted in accordance with the CIETAC
Arbitration Rules and the provisions of this Article 63;
	 
	 	(2)	 	Either Party may refer a dispute to CIETAC for arbitration regardless
of whether or not it has exercised its termination rights under Article 56 above.
	 
	 	(3)	 	the arbitration tribunal shall consist of three arbitrators, one
appointed by SES, one by Hai Hua and the third arbitrator (the “Presiding
Arbitrator”) appointed by agreement between the Parties, or, if the Parties cannot
agree, by the Chairman of CIETAC;
	 
	 	(4)	 	no arbitrator may be (i) a national of the PRC or of the United States
of America or (ii) a permanent resident of the Hong Kong Special Administrative
Region or Macau Special Administrative Region or Taiwan Province, and if either of
the Parties fails to appoint an arbitrator within the time specified in Article 16
of the CIETAC Arbitration Rules, the Chairman of CIETAC shall make such appointment
taking into consideration the criteria set out in this Article 63;
	 
	 	(5)	 	the Presiding Arbitrator (and any successor or replacement appointed in
place of any Presiding Arbitrator initially appointed) shall be a national of one
of the following countries:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	(1	)	 	Australia
	 	 	(5	)	 	Sweden
	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	(2	)	 	Belgium
	 	 	(6	)	 	Switzerland	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	(3	)	 	The Philippines
	 	 	(7	)	 	India	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	(4	)	 	The Netherlands
	 	 	(8	)	 	New Zealand	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	and, the Chairman of CIETAC shall make the appointment of the
Presiding Arbitrator taking into consideration the criteria set out in
this Article 63;	 

	 	(6)	 	the place of arbitration shall be Shanghai and the arbitration shall be
conducted in the English and Chinese languages;
	 
	 	(7)	 	the Parties undertake:

-15-

 

	 	(a)	 	to comply strictly with the time limits specified in
the CIETAC Arbitration Rules for the taking of any step or the performance
of any act in or in connection with any arbitration; and
	 
	 	(b)	 	to comply with and to carry out, in full and without
delay, any procedural orders (including, without limitation, any interim
measures of protection ordered) or any award (interim or final) made by the
arbitral tribunal;

	 	(8)	 	Each of the Parties irrevocably:

	 	(a)	 	agrees that any arbitral award shall be final and
binding;
	 
	 	(b)	 	undertakes that it will execute and perform the
arbitral award fully and without delay;
	 
	 	(c)	 	waives any right which it may have to contest the
validity of the arbitration agreement set forth in this Contract or the
jurisdiction of CIETAC to hear and to determine any arbitration begun
pursuant to this Article 63;
	 
	 	(d)	 	the costs of the arbitration, the arbitration fees and
the liability for other expenses shall be borne by the losing Party, unless
otherwise determined by the arbitration tribunal;
	 
	 	(e)	 	the provisions of Chapter III of the CIETAC Arbitration
Rules (concerning summary procedure) are excluded to the maximum extent
permissible.

	 	(9)	 	During any dispute, both Parties shall continue to comply with their
obligations under this Contract.

Article 64 During the period when arbitration is conducted in accordance with Article 63, except
for the matters being arbitrated, all aspects of this Contract shall remain fully effective. Except
for the relevant obligations in dispute, the Parties shall continue to exercise their respective
rights under this Contract, and continue to perform their respective obligations.

Chapter XXII

Language

Article 65 This Contract and its Exhibits shall be written in Chinese and English and both
versions have equal legal effect. This Contract shall be executed in five (5) counterparts: one
(1) counterpart for each Party, one (1) for the original examination and approval authority, one
(1) for the relevant Administrative Departments of Industry and Commerce, and one (1) for the JV
Company for filing.

Chapter XXIII

Effectiveness and Confidentiality of Contract and Miscellaneous

Article 66 This Contract shall be executed by the legal representatives of the Parties (or
representatives authorised by the Parties) and reported to the COFTEC for approval. The Contract
shall enter into force as of the approval date.

Article 67 During the term of effectiveness of this Contract:

	 	(1)	 	upon reasonable request, the Parties shall provide to each other and to
the JV Company confidential information necessary for the performance of this
Contract;

-16-

 

	 	(2)	 	the Parties agree that all confidential information (regardless of
whether such information is in writing or otherwise) provided (directly or
indirectly) by the Parties to each other and to the JV Company must be kept
confidential, information required to be disclosed by this Contract or information
disclosed in accordance with the provisions of the laws excepted;
	 
	 	(3)	 	the Parties are hereby authorised to disclose any confidential
information obtained from each other to their respective Affiliates and
professional advisers so long as such Affiliates or advisors are also bound by the
same confidentiality provisions hereunder.
	 
	 	(4)	 	“confidential information” as referred to in Article 67 of this
Contract shall include all information and data disclosed (regardless of whether
such information is in writing or otherwise, or whether provided directly or
indirectly) by the Parties or their Affiliates to the other Party or its Affiliates
prior or after the execution of this Contract, including but not limited to
information related to their products, plan, proprietary technology, design rights,
technical information, technical designs or drawings, commercial secrets,
confidential market information and any information relating to their businesses.
However, this Article shall not apply to (a) any information in the public domain
otherwise than by breach of this Contract; (b) information in the possession of the
receiving party before divulgence as aforesaid, and which was not obtained under
any obligation of confidentiality; (c) information obtained from a third party who
is free to divulge the same, and which is not obtained under any obligation of
confidentiality; and (d) information required to be disclosed by applicable law, a
judicial order or the rules of a recognised stock exchange.

Article 68 Hai Hua and SES acknowledge and agree that the US Gas Technology Institute (“GTI”) owns
and/or controls certain patents, know-how, information and trade secrets (the “Intellectual
Property”) relating to GTI gasification technology, which is confidential and which affords GTI and
SES an advantage over their competitors which do not have such information, and that GTI has
granted SES an exclusive right to such GTI technology, including any improvements and know how, in
China. All such Intellectual Property shall remain the sole property of SES and (if applicable)
GTI and, except as otherwise licensed hereunder, no license or grant of rights in any of the
Intellectual Property is conveyed by SES to the JV Company or Hai Hua or any of its Affiliate or
Related Company. Hai Hua agrees that it and its Affiliated and Related companies shall not compete
with SES with respect to fluidized bed gasification technology.

Article 69 The JV Company shall, at its own expense, wholly and fully insure itself against fire,
lightning, storm, flood, earthquake, other bad weather conditions and other risks that are usually
insured against during the construction and operation of the Project. The JV Company shall maintain
the validity of all such insurances in order to exempt the JV Company from losses or damages. Any
insurance required in connection with the Project shall be purchased from insurance companies
registered in China, unless such insurance companies are incapable of providing such coverage. The
coverage, insurance amount and insurance period shall be determined by the Board of Directors of
the JV Company.

Article 70 Any amendment to this Contract (including the Exhibits hereof) shall be agreed upon by
the Parties in writing, and shall come into force upon approval by the original examination and
approval authority.

-17-

 

Article 71 During the Term of this Contract, should SES wish to invest in another coal gasification
project within Zaozhuang City, Hai Hua shall be given the first right of refusal to invest in up to
25% of the registered capital of such project company. During the Term of this Contract, should
Hai Hua wish to invest in another methanol project within Zaozhuang City, SES shall be given the
first right of refusal to invest in up to 25% of the registered capital of such project.

Chapter XXIV

Representations, Warranties and Indemnity

	Article 72	 	 	Each of the Parties represents and warrants to the other Party that:

	 	(1)	 	it is established under the laws of its country of incorporation with
effective legal status and possesses full power and authority to enter into this
Contract and to perform its obligations hereunder;
	 
	 	(2)	 	the execution and performance of the terms of this Contract will not
contravene or constitute a default under its constitution documents or any other
agreement or document by which it is bound or any law or regulation to which it is
subject; and
	 
	 	(3)	 	on the date of this Contract, it is not subject to any litigation,
arbitration or other dispute resolution proceeding, nor is, to the best of its
knowledge, any such litigation, arbitration or other dispute resolution proceeding
pending against it.

	Article 73	 	 	Hai Hua represents and warrants to SES that:

	 	(1)	 	If the Plant is built on land contributed to the JV Company by Hai Hua,
that the site of the Plant is suitable for the construction of the Plant and is
free from ground, surface water or underground water contamination or other
environmental defects that may have a material adverse effect on the JV Company;
	 
	 	(2)	 	the JV Company will be entitled to import equipment constituting the
Plant free from import duties and VAT, and Hai Hua has not done anything, nor is
Hai Hua aware of any circumstances, which may adversely affect the JV Company’s
entitlement to legally import such equipment without the payment of import duties
or VAT; and
	 
	 	(3)	 	all information represented or disclosed by Hai Hua to SES or SES’s
professional advisers, orally or in writing, prior to the date of this Contract in
respect of the Project (“Disclosed Information”) does not contain anything which
is, or which renders the Disclosed Information, untrue, inaccurate or misleading in
any material respect or omits to state any fact the omission of which makes or will
make any of the Disclosed Information materially untrue, inaccurate or misleading
and all estimates, forecasts and projections and all expressions of opinion
contained therein were honestly prepared and made on reasonable grounds after due
and careful enquiry by Hai Hua.

	 	SES represents and warrants to Hai Hua that:

	 	(1)	 	All information represented or disclosed by SES to Hai Hua’s
professional advisers, orally or in writing, prior to the date of this Contract in
respect of the Project (“Disclosed Information”) does not contain anything which
is, or which

-18-

 

	 	 	 	renders the Disclosed Information, untrue, inaccurate or misleading in any
material respect or omits to state any fact the omission of which makes or
will make any of the Disclosed Information materially untrue, inaccurate or
misleading and all estimates, forecasts and projections and all expressions
of opinion contained therein were honestly prepared and made on reasonable
grounds after due and careful enquiry by SES;
	 
	 	(2)	 	On the date of this Contract, SES is not subject to any litigation,
arbitration or other dispute resolution proceeding, nor is, to the best of its
knowledge, any such litigation, arbitration or other dispute resolution proceeding
pending against SES; and
	 
	 	(3)	 	An Affiliate of SES is the sole and exclusive licensee of the
gasification technology to be used by the Project and there are no existing
disputes with regards to such rights.

Article 74 A Party in breach of its representations and warranties made in Articles 72 or 73 shall
indemnify the other Party (and the JV Company as the case may be) in respect of any loss or damage
suffered by the other Party as a result of such breach.

Article 75 The indemnity in Article 74 includes all costs and expenses reasonably incurred in
connection with the making and/or enforcement of any claim by the Parties in connection with these
indemnities. All payments made by any Party to the other Party pursuant to these indemnities shall
be grossed up to offset any applicable taxes or withholding levied thereon.

Chapter XXV

Notices

Article 76 Notices or other communication required to be given by any Party or the JV Company
shall be given by registered mail or facsimile to the following addresses or such other addresses
as designated by the Parties from time to time:

To Hai Hua:

Address: Shandong Coal & Chemical Company Ltd – No. 68, Linquan Road, Xuecheng District, Zaozhuang
City, Shandong Province; Post Code: 277000

	 	 	 
	To SES:
	 	 
	 
	 	 
	Address:

	 	Synthesis Energy Systems
Investments, Inc, 916 Jin Zhong
Building, 680 Zhao Jia Bang Road, Shanghai 200031 China, Post
Code: 200031
	Fax:

	 	(86-21) 6415-5172

Notices given to Hai Hua by registered mail or facsimile shall be written in Chinese, and notices
given to SES by registered mail or facsimile shall be written in English. Notices shall be deemed
to have been effectively given under the following circumstances:

	 	(1)	 	Notices given by personal delivery shall be deemed effective at the
time of delivery to the designated address;

-19-

 

	 	(2)	 	Notices given by registered mail shall be deemed effective on the
seventh day after the date on which they were sent by registered airmail, postage
prepaid (as indicated by the postmark).
	 
	 	(3)	 	Notices given by facsimile transmission shall be deemed effective on
the first business day (at the location of the recipient) following the date of
transmission, if confirmed.

Chapter XXVI

Miscellaneous

Article 77 The definitions given in Exhibit I shall apply to this Contract (including Preamble
and exhibits attached hereto).

Article 78 Entire Agreement. This Contract (including all exhibits attached hereto) and the Other
Project Documents constitute the entire understanding between the Parties with respect to the
subject matter of this Contract and the Other Project Documents and supersede all previous written
and oral understandings and agreements with respect to the subject matter; neither Party shall have
relied upon any representations or warranties, whether express or implied, other than those made in
this Contract.

Article 79 Binding Effect of the Contract: the terms of this Contract shall inure to the benefit of
and be binding upon the Parties and their respective successors and permitted assigns. The
provisions of this Contract, whether express or implied, are not intended to, nor shall give any
others any form of rights, interests or remedies hereunder or arising herefrom.

Article 80 Severability. If any provision of this Contract shall be prohibited or become
unenforceable in any jurisdiction, such provision shall be invalid within such jurisdiction only to
the extent of such prohibition and unenforceability. However, the validity of other provisions
shall not be affected.

Article 81 Postponement and Waiver. To the extent permitted by Applicable Laws, the postponement or
failure of a Party to exercise any accumulated rights, power or remedies arising as a result of any
default by the Other Party hereunder shall not be construed as a waiver to pursue such default or
as a tacit consent to such default, and a waiver to pursue any single default shall not be
construed as a waiver to pursue other prior or future defaults.

This Contract is executed on 6 July 2006 in Zaozhuang City, Shandong Province, PRC by the legal
representatives (or their authorized proxies) of the Parties.

	 	 	 	 	 	 	 	 	 	 	 
	Shandong
Hai Hua Coal & Chemical Company Ltd.

	 	 	 	Synthesis Energy Systems Investments, Inc.
	 	 
	 
	By:

	 	/s/ Ding Zhongmin
 

	 	 
	 	By:
	 	/s/ Donald P. Bunnell
 

	 	 
	 

	 	Name: Ding Zhongmin
	 	 	 	 	 	Name: Donald P. Bunnell	 	 
	 

	 	Title: Chairman
	 	 	 	 	 	Title: Authorized Representative	 	 

-20-

 

Exhibit I

Definitions

“Affiliate” means any person or entity that owns or controls, is owned or controlled by or is
under common ownership or control with a Party. For the purposes of the Contract, control means the
direct or indirect ownership of more than 50% of the voting right or interest in such entity.

“Applicable Laws” mean the laws, regulations, provisions, rules of the PRC or any applicable state,
provincial or municipal laws, regulations, provisions, rules or any conditions attached to any
necessary approvals or consents.

“Articles of Association” means the articles of association of the JV Company.

“Board of Directors” shall assume the meaning assigned to it under Article 21.

“Business Licence” means the business licence of the JV Company to be issued by the local
Administration for Industry and Commerce following the signing by the Parties and the approval by
COFTEC of this Contract.

“CIETAC” means the China International Economic and Trade Arbitration Commission.

“CIETAC Arbitration Rules” means the arbitration rules for the time being of CIETAC.

“COFTEC” means the local Commission of Foreign Trade and Economic Cooperation of the People’s
Republic of China.

“Commercial Operation” has the meaning given to such term in the Tolling Contract.

“Commercial Operation Date of the Plant” has the meaning given to such term in the Tolling
Contract.

“Deferred Assets” mean any assets which would in accordance with generally accepted accounting
standards in the PRC be considered as deferred assets.

“Disclosed Information” shall assume the meaning assigned to it under Article 73.

“Dispute” has the meaning given in Article 63.

“Distributable Profits” for a given year or half year mean the profits distributable to the Parties
hereunder after deduction of the following items from the total revenue of the JV Company in any
given year or half year:

	(1)	 	all costs of the JV Company (including but not limited to operating and financing costs);
	 
	(2)	 	all taxes or reserves for taxes payable by the JV Company;
	 
	(3)	 	amount to be credited to the Three Funds of the JV Company.

“Enterprise Expansion Fund” shall assume the meaning as assigned to it in the “Law of the People’s
Republic of China on Sino-Foreign Cooperative Joint Ventures”.

“Employee Welfare and Bonus Fund” shall assume the meaning as assigned to it in the “Law of the
People’s Republic of China on Sino-Foreign Cooperative Joint Ventures”.

“Fixed Assets” mean any assets which would in accordance with generally accepted accounting
standards in the PRC be considered as fixed assets.

“Intangible Assets” mean any assets which would in accordance with generally accepted accounting
standards in the PRC be considered as intangible assets.

“Notice of Termination” shall assume the meaning assigned to it under Article 56.

-21-

 

“Other Party” shall assume the meaning assigned to it under Article 14(2).

“Other Project Documents” means the various contracts and agreements in connection with the
Project, including but not limited to the construction contract, and the Tolling Contract.

“Ownership Share” means a Party’s share in the registered capital of the JV Company as outlined in
Article 10.

“Plant” shall assume the meaning assigned to it under Article 8.

“PRC” or “China” means the People’s Republic of China.

“Pre-operating Expenses” means any expenses which would, in accordance with generally accepted
accounting standards in the PRC, be considered as pre-operating expenses.

“Project” shall assume the meaning assigned to it under Article 7.

“Related Company” means any person or entity that owns or controls, is owned or controlled by or is
under common ownership or control with a Party. For the purposes of this Contract, control means
the direct or indirect ownership of more than 5% of the voting right or interest in such entity.

“Relevant State Agencies” mean the PRC Government, the Shandong Provincial People’s Government, the
Zaozhuang City People’s Government, any ministry, department, political sub-division,
instrumentality, agency, company, corporation, government undertaking or commission under the
direct or indirect control of the PRC Government, the Shandong Provincial People’s Government, the
Zaozhuang City People’s Government or any political sub-division of them.

“Reserve Fund” shall assume the meaning as assigned to it in the “Law of the People’s Republic of
China on Sino-Foreign Cooperative Joint Ventures”.

“RMB” means the Renminbi, the lawful currency of the PRC.

“SES” means Synthesis Energey Systems Investments, Inc

“Taxation” means all forms of taxation, duties, rates or other impositions of the PRC and without
prejudice to the generality of the foregoing includes profits tax, individual income tax, value
added tax, import duty, stamp duty. withholding tax, penalty or other liability arising in
connection with the imposition or non-payment or delay in payment of such forms of taxation,
duties, rates or other impositions.

“Term” shall assume the meaning assigned to it under Article 53.

“Three Funds” mean the Reserve Fund, Employee Welfare and Bonus Fund and Enterprise Expansion Fund
of the JV Company.

“Tolling Contract” means the contract for the sale and purchase of synthesis gas and steam, to be
entered into between the JV Company and Hai Hua.

“Transferring Party” shall assume the meaning assigned to it under Article 14(2).

“USD” means the United States Dollar, the lawful currency of the United States of America.

-22-

 

Exhibit II

Drawing of Land to be used by the JV Company for the Plant — Allocated Land Use Rights

to be Contributed by Hai Hua to the JV Company

-23-

 

Exhibit III

Schedule of Imported Equipment

The following is a list of equipment the JV Company may import for the Project:

	 	•	 	Engine-generators sets for compression of gas
	 
	 	•	 	Air Separation Unit
	 
	 	•	 	Gasifier external and internal equipment
	 
	 	•	 	Plant control systems
	 
	 	•	 	Ultra-fine filter
	 
	 	•	 	Other equipment

-24-

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