SINOENERGY CORPORATION
Certificate of Designation
Pursuant to NRS 78.1955
Section 1. Definitions. Capitalized terms used and not otherwise defined
herein that are defined in the Purchase Agreement (as defined below) shall have
the meanings given such terms in the Purchase Agreement. For the purposes
hereof, the following terms shall have the following meanings:
"Bankruptcy Event" means any of the following events: (a) the
Company or any Significant Subsidiary (as such term is defined in Rule
1.02(s) of Regulation S-X) thereof commences a case or other proceeding
under any bankruptcy, reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law
of any jurisdiction relating to the Company or any Significant Subsidiary
thereof; (b) there is commenced against the Company or any Significant
Subsidiary thereof any such case or proceeding that is not stayed or
dismissed within 90 days after commencement; (c) the Company or any
Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any
order of relief or other order approving any such case or proceeding is
entered; (d) the Company or any Significant Subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of
its property that is not discharged or stayed within 90 days; (e) the
Company or any Significant Subsidiary thereof makes a general assignment
for the benefit of creditors; (f) the Company or any Significant
Subsidiary thereof calls a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its debts; or (g)
the Company or any Significant Subsidiary thereof, by any act or failure
to act, expressly indicates its consent to, approval of or acquiescence in
any of the foregoing or takes any corporate or other action for the
purpose of effecting any of the foregoing.
"Closing Date" means the Closing Date, as defined in the Purchase
Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's common stock, par value $.0001
per share, and stock of any other class into which such shares may
hereafter have been reclassified or changed.
"Common Stock Equivalents" means any securities of the Company or
the Subsidiaries which would entitle the holder thereof to acquire at any
time Common Stock, including without limitation, any debt, preferred
stock, rights, options, warrants or other instrument that is at any time
convertible into or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock.
"Conversion Date" shall have the meaning set forth in Section 6(a).
"Conversion Ratio" shall mean the number of shares of Common Stock
issuable upon conversion of one share of Series A Preferred Stock. The
Conversion Ratio shall initially be one (1), subject to adjustment as
provided in this Certificate of Designation.
"Conversion Price" shall mean the Purchase Price Per Share divided
by the Conversion Ratio.
"Conversion Shares" means, collectively, the shares of Common Stock
into which the shares of Series A Preferred Stock are convertible in
accordance with the terms hereof.
"Conversion Shares Registration Statement" means a registration
statement that meets the requirements of the Registration Rights Agreement
and registers the resale of all Conversion Shares by the Holder, who shall
be named as a "selling stockholder" thereunder, all as provided in the
Registration Rights Agreement.
"Dilutive Issuance" shall have the meaning set forth in Section 7(b)
hereof.
"Effective Date" means the date that the Conversion Shares
Registration Statement is declared effective by the Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exempt Issuance" shall have the meaning set forth in Section 1.3.10
of the Purchase Agreement.
"Fundamental Transaction" shall have the meaning set forth in
Section 7(f)(iv) hereof.
"Holder" shall have the meaning given such term in Section 2 hereof.
"Investors" shall mean the persons named in Schedule A to the
Purchase Agreement.
"Junior Securities" means the Common Stock and all other equity or
equity equivalent securities of the Company other than those securities
that are explicitly senior in rights or liquidation preference to the
Series A Preferred Stock.
"Net Income" shall have the meaning set forth in the Purchase
Agreement.
"Original Issue Date" shall mean the date of the first issuance of
any shares of the Series A Preferred Stock regardless of the number of
transfers of any particular shares of Series A Preferred Stock and
regardless of the number of certificates which may be issued to evidence
such Series A Preferred Stock.
"Person" means a corporation, an association, a partnership, a
limited liability company, a business association, an individual, a trust,
a government or political subdivision thereof or a governmental agency.
"Pre-tax Income" shall have the meaning set forth in the Purchase
Agreement.
"Purchase Agreement" means the Securities Purchase Agreement dated
as of June 2, 2006, relating to the issuance of the Company's 6%
Convertible Subordinated Notes due March 31, 2007 in the aggregate
principal amount of $3,500,000, as amended, modified or supplemented from
time to time in accordance with its terms, a copy of which is on file at
the principal offices of the Company.
"Purchase Price" shall have the meaning set forth in the Purchase
Agreement.
"Purchase Price per Share" shall mean the Purchase Price divided by
the number of shares of Common Stock issuable upon conversion of the
shares of Series A Preferred Stock that were issued on the Closing Date,
based on the Conversion Ratio in effect on the date this Certificate of
Designations is filed with the Secretary of State of the State of Nevada.
The initial Purchase Price per Share shall be the lesser of sixty five
cents ($.65) or the Conversion Price of the Notes, as defined in the
Purchase Agreement.
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"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Closing Date, to which the Company and the
original Holder are parties, as amended, modified or supplemented from
time to time in accordance with its terms.
"Securities" shall have the meaning set forth in Section 1.3.17 of
the Purchase Agreement.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Series A Preferred Stock" shall have the meaning set forth in
Section 2.
"Subsidiary" shall mean a corporation, limited liability company,
partnership, joint venture or other business entity of which the Company
owns beneficially or of record more than a majority of the equity
interest.
"Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
"Trading Market" means the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question:
the Nasdaq SmallCap Market, the American Stock Exchange, the New York
Stock Exchange, the Nasdaq National Market or the OTC Bulletin Board.
"Transaction Documents" shall have the meaning set forth in the
Purchase Agreement.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the primary
Trading Market on which the Common Stock is then listed or quoted as
reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30
a.m. EST to 4:02 p.m. Eastern Time) using the VAP function; (b) if the
Common Stock is not then listed or quoted on the Trading Market and if
prices for the Common Stock are then reported in the "Pink Sheets"
published by the National Quotation Bureau Incorporated (or a similar
organization or agency succeeding to its functions of reporting prices),
the most recent bid price per share of the Common Stock so reported; or
(c) in all other cases, the fair market value of a share of Common Stock
as determined by a nationally recognized-independent appraiser selected in
good faith by Purchasers holding a majority of the principal amount of
Series A Preferred Stock then outstanding.
"Warrants" shall have the meaning set forth in the Purchase
Agreement.
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Section 2. Designation, Amount and Par Value. The series of preferred
stock, par value $.0001 per share ("Preferred Stock") consisting of seven
million (7,000,000 shares) shall be designated as the Company's Series A
Convertible Preferred Stock (the "Series A Preferred Stock") and the number of
shares so designated shall be (which shall not be subject to increase without
the consent of all of the holders of 75% of the then outstanding shares of
Series A Preferred Stock (each a "Holder" and collectively, the "Holders")). In
the event of the conversion of shares of Series A Preferred Stock into this
Company's Common Stock, pursuant to Section 6 hereof, or in the event that the
Company shall otherwise acquire and cancel any shares of Series A Preferred
Stock, the shares of Series A Preferred Stock so converted or otherwise acquired
and canceled shall have the status of authorized but unissued shares of
preferred stock, without designation as to series until such stock is once more
designated as part of a particular Series by the Company's Board of Directors.
In addition, if the Company shall not issue the maximum number of shares of
Series A Preferred Stock, the Company may, from time to time, by resolution of
the Board of Directors and the approval of the holders of a majority of the
outstanding shares of Series A Preferred Stock, reduce the number of shares of
Series A Preferred Stock authorized, provided, that no such reduction shall
reduce the number of authorized shares to a number which is less than the number
of shares of Series A Preferred Stock then issued or reserved for issuance. The
number of shares by which the Series A Preferred Stock is reduced shall have the
status of authorized but unissued shares of Preferred Stock, without designation
as to series, until such stock is once more designated as part of a particular
Series by the Company's Board of Directors. The Board of Directors shall cause
to be filed with the Secretary of State of the State of Nevada such certificate
as shall be necessary to reflect any reduction in the number of shares
constituting the Series A Preferred Stock.
Section 3. Dividends and Other Distributions. No dividends shall be
payable with respect to the Series A Preferred Stock. No dividends shall be
payable with respect to the Common Stock while the Series A Preferred Stock is
outstanding. The Common Stock shall not be redeemed while the Series A Preferred
Stock is outstanding.
Section 4. Voting Rights. The Series A Preferred Stock shall have no
voting rights. However, so long as any shares of Series A Preferred Stock are
outstanding, the Company shall not, without the affirmative approval of the
Holders of 75% of the shares of the Series A Preferred Stock then outstanding,
(a) alter or change adversely the powers, preferences or rights given to the
Series A Preferred Stock or alter or amend this Certificate of Designation, (b)
authorize or create any class of stock ranking as to dividends or distribution
of assets upon a Liquidation (as defined in Section 5) senior to or otherwise
pari passu with the Series A Preferred Stock, or any of preferred stock
possessing greater voting rights or the right to convert at a more favorable
price than the Series A Preferred Stock, (c) amend its certificate of
incorporation or other charter documents in breach of any of the provisions
hereof, (d) increase the authorized number of shares of Series A Preferred
Stock, or (e) enter into any agreement with respect to the foregoing. The
holders of the Series A Preferred Stock will not be entitled to vote as a class
with respect to the increase or decrease in the number of authorized shares of
preferred stock; provided, however, that the provisions of Section 6(c) of this
Certificate of Designation may not be amended or waived.
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Section 5. Liquidation. Upon any liquidation, dissolution or winding-up of
the Company, whether voluntary or involuntary (a "Liquidation"), the Holders
shall be entitled to receive out of the assets of the Company, whether such
assets are capital or surplus, for each share of Series A Preferred Stock an
amount equal to the Purchase Price divided by the number of shares which were
issued (included shares that were issued and converted or otherwise acquired by
the Company), which amount is referred to as the "Liquidation Value," before any
distribution or payment shall be made to the holders of any Junior Securities
and after any distributions or payments made to holders of any class or series
of securities which are senior to the Series A Preferred Stock upon voluntary or
involuntary liquidation, dissolution or winding up, and if the assets of the
Company shall be insufficient to pay in full such amounts, then the entire
assets to be distributed to the Holders shall be distributed among the Holders
ratably in accordance with the respective amounts that would be payable on such
shares if all amounts payable thereon were paid in full. In the event the assets
of the Company available for distribution to the holders of shares of Series A
Preferred Stock upon dissolution, liquidation or winding up of the Company,
whether voluntary or involuntary, shall be insufficient to pay in full all
amounts to which such holders are entitled pursuant to Section 5, no such
distribution shall be made on account of any shares of any other class or series
of capital stock of the Company ranking on a parity with the shares of Series A
Preferred Stock upon such dissolution, liquidation or winding up unless
proportionate distributive amounts shall be paid on account of the shares of
Series A Preferred Stock, ratably, in proportion to the full distributable
amounts for which holders of all such parity shares are respectively entitled
upon such dissolution, liquidation or winding up. At the election of a Holder
made by written notice delivered to the Company at least two (2) business days
prior to the effective date of the subject transaction, as to the shares of
Series A Preferred Stock held by such Holder, a Fundamental Transaction
(excluding for purposes of this Section 5 any Fundamental Transaction described
in Section 7(f)(iv)(A) or 7(f)(iv)(B)) or Change of Control shall be treated as
a Liquidation as to such Holder.
Section 6. Conversion.
a) Conversions at Option of Holder. Each share of Series A Preferred
Stock shall be initially convertible (subject to the limitations set forth in
Section 6(c)), into such number of shares of Common Stock based on the
Conversion Ratio at the option of the Holders, at any time and from time to time
from and after the Original Issue Date. Holders shall effect conversions by
providing the Company with the form of conversion notice attached hereto as
Annex A (a "Notice of Conversion") as fully and originally executed by the
Holder, together with the delivery by the Holder to the Company of the stock
certificate(s) representing the number of shares of Series A Preferred Stock so
converted, with such stock certificates being duly endorsed in full for transfer
to the Company or with an applicable stock power duly executed by the Holder in
the manner and form as deemed reasonable by the transfer agent of the Common
Stock. Each Notice of Conversion shall specify the number of shares of Series A
Preferred Stock to be converted, the number of shares of Series A Preferred
Stock owned prior to the conversion at issue, the number of shares of Series A
Preferred Stock owned subsequent to the conversion at issue, the stock
certificate number and the shares of Series A Preferred Stock represented
thereby which are accompanying the Notice of Conversion, and the date on which
such conversion is to be effected, which date may not be prior to the date the
Holder delivers such Notice of Conversion and the applicable stock certificates
to the Company by overnight delivery service (the "Conversion Date"). If no
Conversion Date is specified in a Notice of Conversion, the Conversion Date
shall be the Trading Day immediately following the date that such Notice of
Conversion and applicable stock certificates are received by the Company. The
calculations and entries set forth in the Notice of Conversion shall control in
the absence of manifest or mathematical error. Shares of Series A Preferred
Stock converted into Common Stock in accordance with the terms hereof shall be
canceled and may not be reissued. If the initial Conversion Price is adjusted
pursuant to Section 7 or as otherwise provided herein, the Conversion Ratio
shall likewise be adjusted and the new Conversion Ratio shall determined by
dividing the Purchase Price Per Share by the new Conversion Price. Thereafter,
subject to any further adjustments in the Conversion Price, each share of Series
A Preferred Stock shall be initially convertible into Common Stock based on the
new Conversion Ratio.
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b) Automatic Conversion Upon Change of Control. Subject to Section
5, all of the outstanding shares of Series A Preferred Stock shall be
automatically converted into the Conversion Shares upon the close of business on
the business day immediately preceding the date fixed for consummation of any
transaction resulting in a Change of Control of the Company (an "Automatic
Conversion Event"). A "Change in Control" means a consolidation or merger of the
Company with or into another company or entity in which the Company is not the
surviving entity or the sale of all or substantially all of the assets of the
Company to another company or entity not controlled by the then existing
stockholders of the Company in a transaction or series of transactions. The
Company shall not be obligated to issue certificates evidencing the Conversion
Shares unless certificates evidencing the shares of Series A Preferred Stock so
converted are either delivered to the Company or its transfer agent or the
holder notifies the Company or its transfer agent in writing that such
certificates have been lost, stolen, or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection therewith. Upon the conversion of the Series A Preferred Stock
pursuant to this Section 6(b), the Company shall promptly send written notice
thereof, by hand delivery or by overnight delivery, to the holder of record of
all of the Series A Preferred Stock at its address then shown on the records of
the Company, which notice shall state that certificates evidencing shares of
Series A Preferred Stock must be surrendered at the office of the Company (or of
its transfer agent for the Common Stock, if applicable).
c) Beneficial Ownership Limitation. Except as provided in Section
6(b) of this Statement of Designation, which shall apply as stated therein if an
Automatic Conversion Event shall occur, the Company shall not effect any
conversion of the Series A Preferred Stock, and the Holder shall not have the
right to convert any portion of the Series A Preferred Stock to the extent that
after giving effect to such conversion, the Holder (together with the Holder's
affiliates), as set forth on the applicable Notice of Conversion, would
beneficially own in excess of 4.9% of the number of shares of the Common Stock
outstanding immediately after giving effect to such conversion. For purposes of
the foregoing sentence, the number of shares of Common Stock beneficially owned
by the Holder and its affiliates shall include the number of shares of Common
Stock issuable upon conversion of the Series A Preferred Stock with respect to
which the determination of such sentence is being made, but shall exclude the
number of shares of Common Stock which would be issuable upon (A) conversion of
the remaining, non-converted shares of Series A Preferred Stock beneficially
owned by the Holder or any of its affiliates, so long as such shares of Series A
Preferred Stock are not convertible within sixty (60) days from the date of such
determination, and (B) exercise or conversion of the unexercised or
non-converted portion of any other securities of the Company (including the
Warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any of its
affiliates, so long as such other securities of the Company are not exercisable
nor convertible within sixty (60) days from the date of such determination. For
purposes of this Section 6(c), in determining the number of outstanding shares
of Common Stock, the Holder may rely on the number of outstanding shares of
Common Stock as reflected in the most recent of the following: (A) the Company's
most recent quarterly reports, Form 10-Q, Form 10-QSB, Annual Reports, Form
10-K, or Form 10-KSB, as the case may be, as filed with the Commission under the
Exchange Act (B) a more recent public announcement by the Company or (C) any
other written notice by the Company or the Company's transfer agent setting
forth the number of shares of Common Stock outstanding. Upon the written or oral
request of the Holder, the Company shall within two (2) Trading Days confirm
orally and in writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or exercise of securities of
the Company, including the Series A Preferred Stock, by the Holder or its
affiliates since the date as of which such number of outstanding shares of
Common Stock was publicly reported by the Company. For purposes of this Section
6(c), beneficial ownership shall be calculated in accordance with Section 13(d)
of the Exchange Act. This Section 6(c) may be not be waived or amended.
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d) Mechanics of Conversion
i. Delivery of Certificate Upon Conversion. Except as
otherwise set forth herein, not later than three Trading Days after each
Conversion Date (the "Share Delivery Date"), the Company shall deliver to the
Holder (A) a certificate or certificates which, after the Effective Date, shall
be free of restrictive legends and trading restrictions (other than those
required by the Purchase Agreement) representing the number of shares of Common
Stock being acquired upon the conversion of shares of Series A Preferred Stock,
and (B) a bank check in the amount of accrued and unpaid dividends (if the
Company has elected or is required to pay accrued dividends in cash). After the
Effective Date, the Company shall, upon request of the Holder, deliver any
certificate or certificates required to be delivered by the Company under this
Section electronically through the Depository Trust Company or another
established clearing Company performing similar functions if the Company's
transfer agent has the ability to deliver shares of Common Stock in such manner.
If in the case of any Notice of Conversion such certificate or certificates are
not delivered to or as directed by the applicable Holder by the third Trading
Day after the Conversion Date, the Holder shall be entitled to elect by written
notice to the Company at any time on or before its receipt of such certificate
or certificates thereafter, to rescind such conversion, in which event the
Company shall immediately return the certificates representing the shares of
Series A Preferred Stock tendered for conversion.
ii. Obligation Absolute; Partial Liquidated Damages. The
Company's obligations to issue and deliver the Conversion Shares upon conversion
of Series A Preferred Stock in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation to
the Company or any violation or alleged violation of law by the Holder or any
other person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to the Holder in connection with the
issuance of such Conversion Shares. In the event a Holder shall elect to convert
any or all of its Series A Preferred Stock, the Company may not refuse
conversion based on any claim that such Holder or any one associated or
affiliated with the Holder of has been engaged in any violation of law,
agreement or for any other reason (other than the inability of the Company to
issue shares of Common Stock as a result of the limitation set forth in Section
6(c) hereof) unless, an injunction from a court, on notice, restraining and or
enjoining conversion of all or part of this Series A Preferred Stock shall have
been sought and obtained and the Company posts a surety bond for the benefit of
the Holder in the amount of 150% of the Conversion Value of Series A Preferred
Stock outstanding, which is subject to the injunction, which bond shall remain
in effect until the completion of arbitration/litigation of the dispute and the
proceeds of which shall be payable to such Holder to the extent it obtains
judgment. In the absence of an injunction precluding the same, the Company shall
issue Conversion Shares or, if applicable, cash, upon a properly noticed
conversion. If the Company fails to deliver to the Holder such certificate or
certificates pursuant to Section 6(d)(i) within two Trading Days of the Share
Delivery Date applicable to such conversion, the Company shall pay to such
Holder, in cash, as liquidated damages and not as a penalty, for each $5,000 of
Conversion Value of Series A Preferred Stock being converted, $50 per Trading
Day (increasing to $100 per Trading Day after three (3) Trading Days and
increasing to $200 per Trading Day six (6) Trading Days after such damages begin
to accrue) for each Trading Day after the Share Delivery Date until such
certificates are delivered. Nothing herein shall limit a Holder's right to
pursue actual damages for the Company's failure to deliver certificates
representing shares of Common Stock upon conversion within the period specified
herein and such Holder shall have the right to pursue all remedies available to
it hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.
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iii. Compensation for Buy-In on Failure to Timely Deliver
Certificates Upon Conversion. If the Company fails to deliver to the Holder such
certificate or certificates pursuant to Section 6(d)(i) by a Share Delivery
Date, and if after such Share Delivery Date the Holder purchases (in an open
market transaction or otherwise) Common Stock to deliver in satisfaction of a
sale by such Holder of the Conversion Shares which the Holder was entitled to
receive upon the conversion relating to such Share Delivery Date (a "Buy-In"),
then the Company shall pay in cash to the Holder the amount by which (x) the
Holder's total purchase price (including brokerage commissions, if any) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate number of
shares of Common Stock that such Holder was entitled to receive from the
conversion at issue multiplied by (2) the price at which the sell order giving
rise to such purchase obligation was executed. For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of shares of Series A Preferred
Stock with respect to which the aggregate sale price giving rise to such
purchase obligation is $10,000, under clause (A) of the immediately preceding
sentence the Company shall be required to pay the Holder $1,000. The Holder
shall provide the Company written notice indicating the amounts payable to the
Holder in respect of the Buy-In, together with applicable confirmations and
other evidence reasonably requested by the Company. Nothing herein shall limit a
Holder's right to pursue any other remedies available to it hereunder, at law or
in equity including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company's failure to timely deliver
certificates representing shares of Common Stock upon conversion of the shares
of Series A Preferred Stock as required pursuant to the terms hereof.
iv. Reservation of Shares Issuable Upon Conversion. The
Company covenants that it will at all times reserve and keep available out of
its authorized and unissued shares of Common Stock solely for the purpose of
issuance upon conversion of the Series A Preferred Stock, each as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holders, not less than such number of shares of
the Common Stock as shall (subject to any additional requirements of the Company
as to reservation of such shares set forth in the Purchase Agreement) be
issuable (taking into account the adjustments and restrictions of Section 7)
upon the conversion of all outstanding shares of Series A Preferred Stock. The
Company covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid,
nonassessable and, if the Conversion Shares Registration Statement is then
effective under the Securities Act, registered for public sale in accordance
with such Conversion Shares Registration Statement.
v. Fractional Shares. Upon a conversion hereunder, the Company
shall not be required to issue stock certificates representing fractions of
shares of the Common Stock. All fractional shares shall be carried forward and
any fractional shares which remain after a Holder converts all of his or her
Series A Preferred Stock shall be dropped and eliminated.
vi. Transfer Taxes. The issuance of certificates for shares of
the Common Stock on conversion of the Series A Preferred Stock shall be made
without charge to the Holders thereof for any documentary stamp or similar taxes
that may be payable in respect of the issue or delivery of such certificate,
provided that the Company shall not be required to pay any tax that may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificate upon conversion in a name other than that of the Holder of such
shares of Series A Preferred Stock so converted and the Company shall not be
required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
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vii. Absolute Obligation. Except as expressly provided herein,
no provision of this Certificate of Designation shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
liquidated damages (if any) on, the shares of Series A Preferred Stock at the
time, place, and rate, and in the coin or currency, herein prescribed.
Section 7. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Company, at any time
while the Series A Preferred Stock is outstanding: (A) shall pay a stock
dividend or otherwise make a distribution or distributions on shares of its
Common Stock or any other equity or equity equivalent securities payable in
shares of Common Stock (which, for avoidance of doubt, shall not include any
shares of Common Stock issued by the Company pursuant to this Series A Preferred
Stock), (B) subdivide outstanding shares of Common Stock into a larger number of
shares, (C) combine (including by way of reverse stock split) outstanding shares
of Common Stock into a smaller number of shares, or (D) issue by
reclassification of shares of the Common Stock any shares of capital stock of
the Company, then the Conversion Value shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock outstanding after such
event. Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
re-classification.
b) Price Adjustment. Until such time as the Investors hold no
Securities, except for (i) Exempt Issuances, (ii) issuances covered by Sections
7(a), 7(c) and 7(d) hereof or (iii) an issuance of Common Stock upon exercise or
upon conversion of warrants, options or other convertible securities for which
an adjustment has already been made pursuant to this Section 7, as to all of
which this Section 7(b) does not apply, if the Company closes on the sale or
issuance of Common Stock at a price, or issues warrants, options, convertible
debt or equity securities with a exercise price per share or conversion price
which is less than the Conversion Price then in effect (such lower sales price,
conversion or exercise price, as the case may be, being referred to as the
"Lower Price"), the Conversion Price in effect from and after the date of such
transaction shall be reduced to the Lower Price. For purpose of determining the
exercise price of warrants issued by the Company, the price, if any, paid per
share for the warrants shall be added to the exercise price of the warrants.
c) Conversion Price Adjustment Based on Income Per Share.
i. In the event the Company's consolidated Pre-Tax Income
for the year ended December 31, 2006 is less than $.212
per share on a fully-diluted basis, then the Conversion
Price shall be reduced by the percentage shortfall, up
to a maximum of 40%. Thus, if Net Income for the year
ended December 31, 2006 is $.1272 per share on a
fully-diluted basis, the Conversion Price shall be
reduced by 40%. Such reduction shall be made at the time
the Company files its Form 10-KSB for the year ended
December 31, 2006, and shall apply to the Notes or all
shares of the Series A Preferred Stock, as the case may
be, which are outstanding on the date the Form 10-KSB is
filed, or, if not filed on time, on the date that filing
was required.
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ii. In the event the Company's consolidated Pre-Tax Income
for the year ended December 31, 2007 is less than $.353
per share on a fully-diluted basis, then the Conversion
Price shall be reduced by the percentage shortfall, up
to a maximum of 40%. Thus, if Pre-Tax Income for the
year ended December 31, 2007 is $.2118 per share on a
fully-diluted basis, the Conversion Price shall be
reduced by 40%. Such reduction shall be made at the time
the Company files its Form 10-KSB for the year ended
December 31, 2007, and shall apply to the Notes or all
shares of the Series A Preferred Stock, as the case may
be, which are outstanding on the date the Form 10-KSB is
filed, or, if not filed on time, on the date that filing
was required.
iii. For purpose of determining Net Income Per Share and
Pre-Tax Income Per Share on a fully-diluted basis, all
shares of Common Stock issuable upon conversion of
convertible securities and upon exercise of warrants and
options shall be deemed to be outstanding, regardless of
whether (i) such shares are treated as outstanding for
determining diluted earnings per share under GAAP, (ii)
such securities are "in the money," or (iii) such shares
may be issued as a result of the 4.9% Limitation.
d) Pro Rata Distributions. If the Company, at any time while Series
A Preferred Stock is outstanding, shall distribute to all holders of Common
Stock (and not to Holders) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security, then in each such case the
Conversion Price shall be determined by multiplying such Conversion Price in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the VWAP determined as of the record date mentioned above,
and of which the numerator shall be such VWAP on such record date less the then
fair market value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holders of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
e) Calculations. All calculations under this Section 7 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be. The
number of shares of Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Company or any of its
subsidiaries. For purposes of this Section 7, the number of shares of Common
Stock deemed to be issued and outstanding as of a given date shall be the sum of
the number of shares of Common Stock (excluding treasury shares and shares owned
by subsidiaries, if any) actually issued and outstanding.
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f) Notice to Holders.
i. Adjustment to Conversion Price. Whenever the Conversion
Price is adjusted pursuant to any of this Section 7, the Company shall promptly
mail to each Holder a notice setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment. If the Company issues a variable rate security, despite the
prohibition thereon in the Purchase Agreement, the Company shall be deemed to
have issued Common Stock or Common Stock Equivalents at the lowest possible
conversion or exercise price at which such securities may be converted or
exercised in the case of a Variable Rate Transaction (as defined in the Purchase
Agreement), or the lowest possible adjustment price in the case of an MFN
Transaction (as defined in the Purchase Agreement).
ii. Notices of Other Events. If (A) the Company shall declare
a dividend (or any other distribution) on the Common Stock; (B) the Company
shall declare a redemption of the Common Stock; (C) the Company shall authorize
the granting to all holders of the Common Stock rights or warrants to subscribe
for or purchase any shares of capital stock of any class or of any rights; (D)
the approval of any stockholders of the Company shall be required in connection
with any reclassification of the Common Stock or any Fundamental Transaction,
(E) the Company shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company; then in each case, the
Company shall cause to be filed at each office or agency maintained for the
purpose of conversion of the Series A Preferred Stock, and shall cause to be
mailed to the Holders at their last addresses as they shall appear upon the
stock books of the Company, at least 30 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification or
Fundamental Transaction; provided, that the failure to mail -------- such notice
or any defect therein or in the mailing thereof shall not affect the validity of
the corporate action required to be specified in such notice.
iii. Exempt Issuance. Notwithstanding the foregoing, no
adjustment in the Conversion Price will be made in respect of an Exempt
Issuance.
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iv. Fundamental Transaction. If, at any time while this Series
A Preferred Stock is outstanding, (A) the Company effects any merger or
consolidation of the Company with or into another Person, (B) the Company
effects any sale of all or substantially all of its assets in one or a series of
related transactions, (C) any tender offer or exchange offer (whether by the
Company or another Person) is completed pursuant to which holders of Common
Stock are permitted to tender or exchange their shares for other securities,
cash or property, or (D) the Company effects any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or property
(in any such case, a "Fundamental Transaction"), then upon any subsequent
conversion of this Series A Preferred Stock, the Holder shall have the right to
receive, for each Conversion Share that would have been issuable upon such
conversion absent such Fundamental Transaction, the same kind and amount of
securities, cash or property as it would have been entitled to receive upon the
occurrence of such Fundamental Transaction if it had been, immediately prior to
such Fundamental Transaction, the holder of one share of Common Stock (the
"Alternate Consideration"). For purposes of any such conversion, the
determination of the Conversion Price shall be appropriately adjusted to apply
to such Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Conversion Price among the
Alternate Consideration in a reasonable manner reflecting the relative value of
any different components of the Alternate Consideration. If holders of Common
Stock are given any choice as to the securities, cash or property to be received
in a Fundamental Transaction, then the Holder shall be given the same choice as
to the Alternate Consideration it receives upon any conversion of this Series A
Preferred Stock following such Fundamental Transaction. To the extent necessary
to effectuate the foregoing provisions, any successor to the Company or
surviving entity in such Fundamental Transaction shall file a new Certificate of
Designations with the same terms and conditions and issue to the Holder new
preferred stock consistent with the foregoing provisions and evidencing the
Holder's right to convert such preferred stock into Alternate Consideration. The
terms of any agreement pursuant to which a Fundamental Transaction is effected
shall include terms requiring any such successor or surviving entity to comply
with the provisions of this paragraph (f)(iv) and insuring that this Series A
Preferred Stock (or any such replacement security) will be similarly adjusted
upon any subsequent transaction analogous to a Fundamental Transaction.
Notwithstanding the foregoing or any other provisions of this Certificate of
Designations, in the event that the agreement relating to a Fundamental
Transaction provides for the conversion or exchange of the Series A Preferred
Stock into equity or debt securities, cash or other consideration and the
agreement is approved by the holders of a majority of the. then-outstanding
shares of Series A Preferred Stock, then the holders of the Series A Preferred
Stock shall have only the rights set forth in such agreement.
Section 8. Miscellaneous.
a) Notices. Any and all notices or other communications or
deliveries to be provided by the Holders hereunder, including, without
limitation, any Notice of Conversion, shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight courier
service, addressed to the Company, at its principal address as reflected in its
most recent filing with the Commission. Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be in
writing and delivered personally, by facsimile, sent by a nationally recognized
overnight courier service addressed to each Holder at the facsimile telephone
number or address of such Holder appearing on the books of the Company, or if no
such facsimile telephone number or address appears, at the principal place of
business of the Holder. Any notice or other communication or deliveries
hereunder shall be deemed given when received, and any notice by telecopier
shall be effective if confirmation of receipt is given by the party to whom the
notice is transmitted. -
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b) Lost or Mutilated Preferred Stock Certificate. If a Holder's
Series A Preferred Stock certificate shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated certificate, or in lieu of or in
substitution for a lost, stolen or destroyed certificate, a new certificate for
the shares of Series A Preferred Stock so mutilated, lost, stolen or destroyed
but only upon receipt of evidence of such loss, theft or destruction of such
certificate, and of the ownership thereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
c) Next Business Day. Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day.
d) Headings. The headings contained herein are for convenience only,
do not constitute a part of this Certificate of Designations and shall not be
deemed to limit or affect any of the provisions hereof.
e) Rank of Series. For purposes of this Certificate of Designation,
any stock of any series or class of the Company shall be deemed to rank
(i) prior to the shares of Series A Preferred Stock, as to
dividends or upon liquidation, dissolution or winding up, as the case may be, if
the holders of such class or classes shall be entitled to the receipt of
dividends or of amounts distributable upon dissolution, liquidation or winding
up of the Company, as the case may be, in preference or priority to the holders
of shares of Series A Preferred Stock;
(ii) on a parity with shares of Series A Preferred Stock, as
to dividends or upon liquidation, dissolution or winding up, as the case may be,
whether or not the dividend rates, dividend payment dates or redemption or
liquidation prices per share or sinking fund provisions, if any, be different
from those of Series A Preferred Stock, if the holders of such stock shall be
entitled to the receipt of dividends or of amounts distributable upon
dissolution, liquidation or winding up of the Company, as the case may be, in
proportion to their respective dividend rates or liquidation prices, without
preference or priority, one over the other, as between the holders of such stock
and the holders of shares of Series A Preferred Stock; and
(iii) junior to shares of Series A Preferred Stock as to
dividends or upon liquidation, dissolution or winding up, as the case may be, if
such class shall be Common Stock or if the holders of shares of Series A
Preferred Stock shall be entitled to receipt of dividends or of amounts
distributable upon dissolution, liquidation or winding up of the Company, as the
case may be, in preference or priority to the holders of shares of such class or
classes.
f) Amendment. This Certificate of Designation may be amended with
the approval of the Company's board of directors and the consent of the holders
of seventy-five percent (75%) of the outstanding shares of Series A Preferred
Stock, except that the conversion limitation set forth in Section 6.2(b) shall
not be amended.
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ANNEX A
NOTICE OF CONVERSION
(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF
SERIES A PREFERRED STOCK)
The undersigned hereby elects to convert the number of shares of Series A
Convertible Preferred Stock indicated below, into shares of common stock, par
value $0.0001 per share (the "Common Stock"), of Sinoenergy Corporation, a
Nevada corporation (the "Company"), according to the conditions hereof, as of
the date written below. If shares are to be issued in the name of a person other
than undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the Holder for any conversion, except for such transfer taxes, if
any.
Conversion calculations:
Date to Effect Conversion:______________________________________________________
Number of shares of Common Stock owned prior to Conversion:_____________________
Number of shares of Series A Preferred Stock to be Converted:___________________
Value of shares of Series A Preferred Stock to be Converted:____________________
Number of shares of Common Stock to be Issued:__________________________________
Certificate Number of Series A Preferred Stock attached hereto:_________________
Number of Shares of Series A Preferred Stock represented by attached
certificate:____________________________________________________________________
Number of shares of Series A Preferred Stock subsequent to Conversion:__________
[HOLDER]
By:________________________
Name:___________________
Title:__________________
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