CONTRACT
Party A: Minghua Group International Holdings Ltd.
Address: Guangdong Bian Fang Building, 10th Floor
Fujing Road, Futian District, Shenzhen, 518033,
People's Republic of China
Chairman: Li Chuquan
Party B: China Cardinal Limited
Address: Xxxx/Xx 000, 0/X, Xxxxxxx Xxxxx, 00 Xxxxx Xx, Xxxxxxx, Xxxx Xxxx
Chairman: Yang Maolin
After friendly discussion and on the basis of equality and mutual benefit, both
parties have reached the following agreement on the cooperation items:
I. BRIEF INTRODUCTION TO MINGHUA GROUP INTERNATIONAL HOLDINGS LTD.
Minghua Group International Holdings Ltd. is a public reporting company whose
securities are quoted on the Over-the-Counter Bulletin Board (OTCBB: MGHA.OB).
II. INVESTMENT AMOUNT
Party B hereby agrees that it shall invest in Party A cash in the amount of
HKD18 million or USD$2,307,692 (calculated at exchange rate of 1USD=HKD7.8).
Party A hereby agrees that it shall issue to Party B, 16,483,514 shares of Party
A's common stock; provided, however, that none of such shares shall be issued
until after payment has actually been received for all of such shares. These
shares are therefore being issued at a purchase price per share of USD$0.14.
III. INVESTMENT TIME
Party B shall pay the funds referred to in Article II above into the account of
"Shenzhen Minghua Environmental Protection Vehicle Co., Ltd." as set forth below
for the benefit of, and as requested by, Party A.
Party B shall pay HKD13 million (or equivalent RMB or USD) into the
aforementioned account in installments as requested by Party A. The full HKD 13
million shall be paid into such account on or before January 18, 2004.
The remaining HKD5 million (or equivalent RMB or USD) will be paid by Party B
into the aforementioned account on or before March 31, 2004.
The name and number of the account as designated by Party A are as follows:
Name: Shenzhen Minghua Environmental Protection Vehicle Co., Ltd. Account
number: 9584055910001
Account opening bank: China Merchants Bank Shenzhen Shenfang Business Dept.
IV. STOCK ISSUANCE
Party A shall issue to Party B the full number of shares of Party A's common
stock as described above within 30 days following the date that Party B has
fully met all of its obligations hereunder and fully funded all amounts
described in Article III above.
V. MISCELLANEOUS
This contract is in quadruplicate, with two copies for each party respectively,
and it will become effective from the date of signature. Facsimile execution and
delivery of this contract is legal, valid and binding for all purposes. This
contract will be governed and construed in accordance with the laws of the State
of New York, without giving effect to the conflicts of laws principles thereof.
Each party hereto hereby consents to the jurisdiction of the federal and state
courts sitting within the State of New York. Party B shall, upon the request of
Party A, from time to time, execute and deliver promptly to Party A all
instruments and documents of further assurances or otherwise and will do any and
all such acts and things as may be reasonably required to carry out the
obligations of Party B hereunder and to consummate the transactions contemplated
hereby.
VI. LIQUIDATED DAMAGES
If either party of the contract parties is unable to fulfill the contract, the
defaulting party will be obligated to pay the non-defaulting party HKD500,000.
VII. SUPPLEMENTAL AGREEMENTS
For any unresolved issues of this contract, both parties will sign the separate
supplementary agreement, having the same legal force as this contract.
VIII. REPRESENTATIONS AND WARRANTIES OF PARTY B
Party B hereby represents and warrants to Party A as follows:
a. Access to Information. Party B, in making the decision to purchase the
Shares, has relied upon its independent investigations made by it
and/or its representatives, if any. Except as set forth in this
contract, no representations, assurances or warranties have been made
to Party B or its advisers, by Party A or by any of its respective
officers, directors, agents, employees, or affiliates, nor anyone else
on their behalf, concerning, among other things, the future
profitability of Party A or Party B's investment in it. Party B and/or
its representatives during the course of this transaction, and prior
to the purchase of any Shares, has had the opportunity to ask
questions of and receive answers from the management of Party A
concerning the business of Party A and to receive any additional
information, documents, records and books relative to the business,
assets, financial condition, results of operations and liabilities
(contingent or otherwise) of Party A. Party B has obtained copies of
the reports filed by Party A with the Securities and Exchange
Commission (the "SEC") since the filing of Party A's last annual
report on Form 10-KSB (the "SEC Filings"), including Party A's most
recently filed quarterly and current reports filed with the SEC and
has carefully reviewed all of the information contained in the SEC
Filings, including the risk factors contained in such reports and
fully understands all of the disclosure contained therein. Party B
recognizes that Party A has limited financial or operating history and
that the Shares as an investment involve significant risks.
b. Sophistication and Knowledge. Party B and/or its representatives has
such knowledge and experience in financial and business matters that
it can represent itself and is capable
of evaluating the merits and risks of the purchase of the Shares.
Party B is not relying on Party A with respect to the tax and other
economic considerations of an investment in the Shares, and Party B
has relied on the advice of, or has consulted with, only Party B's own
advisor(s). Party B represents that it has not been organized for the
purpose of acquiring the Shares.
c. Lack of Liquidity. Party B acknowledges that the purchase of the
Shares involves a high degree of risk and further acknowledges that it
can bear the economic risk of the purchase of the Shares, including
the total loss of its investment. Party B acknowledges and understands
that the Shares may not be sold to a U.S. Person (as hereinafter
defined) or into the United States for a period of one (1) year from
the date of purchase and that Party B has no present need for
liquidity in connection with its purchase of the Shares.
d. No Public Solicitation. Party B is not subscribing for the Shares as a
result of or subsequent to any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or presented at any seminar or
meeting, or any solicitation of a subscription by a person not
previously known to Party B in connection with investments in
securities generally. Neither Party A nor Party B has engaged in any
`Directed Selling Efforts in the U.S.' as defined in Regulation S
promulgated by the SEC pursuant to The Securities Act of 1933 (the
"Securities Act").
e. Authority. Party B has full right and power to enter into and perform
pursuant to this contract and make an investment in Party A, and this
contract constitutes Party B's valid and legally binding obligation,
enforceable in accordance with its terms. Party B is authorized and
otherwise duly qualified to purchase and hold the Shares and to enter
into this contract.
f. Brokers or Finders. No person has or will have, as a result of the
transactions contemplated by this contract, any right, interest or
valid claim against or upon Party A for any commission, fee or other
compensation as a finder or broker because of any act or omission by
such Party B or its respective agents.
g. Compliance with Local Laws. Any resale of the Shares during the
`distribution compliance period' as defined in Rule 902(f) to
Regulation S shall only be made in compliance with exemptions from
registration afforded by Regulation S. Further, any such sale of the
Shares in any jurisdiction outside of the United States will be made
in compliance with the securities laws of such jurisdiction. Party B
will not offer to sell or sell the Shares in any jurisdiction unless
Party B obtains all required consents, if any.
h. Regulation S Exemption. Party B understands, acknowledges and agrees
that the offering and sale of the Shares to Party B has not been
registered under the Securities Act or under any state securities laws
or regulations and that the Shares are being offered and sold to it in
reliance on an exemption from the registration requirements of United
States federal and state securities laws under Regulation S
promulgated under the Securities Act and that Party A is relying upon
the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of Party B set forth herein in
order to determine the applicability of such exemptions and the
suitability of Party B to acquire the Shares. In this regard, Party B
represents, warrants and agrees that:
i. Party B is not a U.S. Person (as defined below) and is not an
affiliate (as defined in Rule 501(b) under the Securities
Act) of Party A. A U.S. Person means any one of the
following:
(1) any natural person resident in the United States of
America;
(2) any partnership or corporation organized or
incorporated under the laws of the United States of
America;
(3) any estate of which any executor or administrator is a
U.S. person;
(4) any trust of which any trustee is a U.S. person;
(5) any agency or branch of a foreign entity located in the
United States of America;
(6) any non-discretionary account or similar account (other
than an estate or trust) held by a dealer or other
fiduciary for the benefit or account of a U.S. person;
(7) any discretionary account or similar account (other
than an estate or trust) held by a dealer or other
fiduciary organized, incorporated or (if an individual)
resident in the United States of America; and
(8) any partnership or corporation if:
(a) organized or incorporated under the laws of any
foreign jurisdiction; and
(b) formed by a U.S. person principally for the
purpose of investing in securities not registered
under the Securities Act, unless it is organized
or incorporated, and owned, by accredited
investors (as defined in Rule 501(a) under the
Securities Act) who are not natural persons,
estates or trusts.
ii. At the time of the origination of contact concerning this
contract and the date of the execution and delivery of this
contract, Party B was outside of the United States.
iii. Party B will not, during the period commencing on the date
of issuance of the Shares and ending on the first
anniversary of such date, or such shorter period as may be
permitted by Regulation S or other applicable securities law
(the "Restricted Period"), offer, sell, pledge or otherwise
transfer the Shares in the United States, or to a U.S.
Person for the account or for the benefit of a U.S. Person,
or otherwise in a manner that is not in compliance with
Regulation S. At no time shall Party B offer or sell the
Shares unless they are registered under the Securities Act
or are
exempt from the registration requirements of the Securities
Act and any applicable state or foreign securities laws or
regulations.
iv. Party B will, after expiration of the Restricted Period,
offer, sell, pledge or otherwise transfer the Shares only
pursuant to registration under the Securities Act or an
available exemption therein and, in accordance with all
applicable state and foreign securities laws.
v. Party B has not in the United States, engaged in, and prior
to the expiration of the Restricted Period will not directly
or indirectly engage in, any short selling of or any hedging
or similar transaction with respect to the Shares, including
without limitation, any put, call or other option
transaction, option writing or equity swap.
vi. Neither Party B nor or any person acting on its behalf has
engaged, nor will engage, in any directed selling efforts to
a U.S. Person with respect to the Shares and Party B and any
person acting on its behalf have complied and will comply
with the "offering restrictions" requirements of Regulation
S under the Securities Act.
vii. The transactions contemplated by this contract have not been
pre-arranged with a buyer located in the United States or
with a U.S. Person, and are not part of a plan or scheme to
evade the registration requirements of the Securities Act.
viii.Neither Party B nor any person acting on its behalf has
undertaken or carried out any activity for the purpose of,
or that could reasonably be expected to have the effect of,
conditioning the market in the United States, its
territories or possessions, for any of the Shares. Party B
agrees not to cause any advertisement of the Shares to be
published in any newspaper or periodical or posted in any
public place and not to issue any circular relating to the
Shares, except such advertisements that include the
statements required by Regulation S under the Securities
Act, and only offshore and not in the U.S. or its
territories, and only in compliance with any local
applicable securities laws.
i. Legends. Each certificate representing the shares of common stock
included in the Shares and each warrant certificate representing
the warrants included in the Unit shall be endorsed with the
following legends, in addition to any other legend required to be
placed thereon by applicable federal or state securities laws:
i. "THESE SECURITIES ARE BEING OFFERED TO INVESTORS WHO ARE NOT
U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("THE SECURITIES ACT"))
AND WITHOUT REGISTRATION WITH THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT IN RELIANCE
UPON REGULATION S PROMULGATED UNDER THE SECURITIES ACT."
ii. "TRANSFER OF THESE SECURITIES IS PROHIBITED, EXCEPT IN
ACCORDANCE WITH THE PROVISIONS OF REGULATION S, PURSUANT TO
REGISTRATION UNDER THE SECURITIES ACT, OR PURSUANT TO
AVAILABLE EXEMPTION FROM REGISTRATION. HEDGING TRANSACTIONS
MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE
SECURITIES ACT."
j. Stop Transfer Orders. Party B consents to Party A making a notation on
its records or giving instructions to any transfer agent of Party A in
order to implement the restrictions on transfer of the Shares set
forth in this agreement and as required by Regulation S.
k. PATRIOT Act. Party B is not, nor is it acting as an agent,
representative, intermediary or nominee for, a person identified on
the list of blocked persons maintained by the Office of Foreign Assets
Control, U.S. Department of Treasury. In addition, Party B has
complied with all applicable U.S. laws, regulations, directives, and
executive orders relating to anti-money laundering , including but not
limited to the following laws: (1) the Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001, Public Law 107-56; and (2) Executive
Order 13224 (Blocking Property and Prohibiting Transactions with
Persons Who Commit, Threaten to Commit, or Support Terrorism) of
September 23, 2001. Party B shall ensure that it obtains a
representation similar to the foregoing from any transferee of the
Shares of Party A's Common Stock purchased by Party B pursuant to this
contract. Further, this transaction and any resale of Shares by Party
B to transferees shall not violate the statutes mentioned in this
representation.
l. Transfers Must Comply with Regulation S. Notwithstanding anything
contained herein to the contrary, Party A may refuse to register any
transfer of the Shares of common stock of Party A that are not made in
accordance with Regulation S, pursuant to the registration under the
Securities Act or pursuant to an available exemption from
registration.
IX. INDEMNITY
Party B understands and acknowledges that Party A is relying on the
representations made by Party B herein, and, thus, hereby agrees to indemnify
Party A, and its respective officers and directors, agents, attorneys, and
employees, and agrees to hold them harmless from and against any and all loss,
damage, liability, or expense, including reasonable attorney's fees, that it or
any of them may suffer, sustain, or incur by reason of or in connection with any
misrepresentation or breach of warranty or agreement made by Party A under this
contract.
PARTY A: MINGHUA GROUP INTERNATIONAL HOLDINGS LTD.
Undersigned (Li Chuquan):
/s/ Li Chuquan
Party B: China Cardinal Limited
Undersigned (Yang Maolin):
/s/ Yang Maolin
Signed on January 13, 2004 in Hong Kong
