Shaanxi Longmen Iron & Steel Group Co., Ltd.
General Steel Holdings Inc.
Joint Venture Agreement
Shaanxi Longmen Iron & Steel Group Co., Ltd.
General Steel Holdings Inc.
June 2007
JOINT VENTURE AGREEMENT
1. GENERAL PROVISIONS
1.1 In accordance with the Law of the People's Republic of China on Company
Establishment ("Company Law") and other relevant published laws and
regulations of China, the following Parties hereby enter this initial
joint venture agreement ("Agreement") with the intention of forming a
joint venture enterprise:
Party A: Shaanxi Longmen Iron and Steel Group Co., Ltd. (Long Steel)
Party B: General Steel Holdings Inc. (GSHO)
2. PARTIES TO THE JOINT VENTURE
2.1 Parties to this Agreement are as follows:
Party A: Shaanxi Longmen Iron and Steel Group Co., Ltd.
Legal Representative: Zhang, Xxx Xx
Party B: General Steel Holidings Inc.
(Investing in Joint Venture through its subsidiaries Tianjin
Daqiuzhuang Metal Sheet Co., Ltd. and Tianjin Xxxx Xxx Steel
Company)
Legal Representative: Yu, Zuo Sheng
Parties A and B may be hereinafter referred to individually as a "Party"
and collectively as the "Parties."
Each of the Parties hereby presents and warrants that it has full legal
authority and power to enter into this Agreement and perform its
obligations hereunder and that its legal representatives named above are
duly authorized to sign this Agreement and other relevant documents on
behalf of such Party.
3. ESTABLISHMENT OF THE JOINT VENTURE
3.1 In accordance with the Company Law and other relevant laws and regulations
of the People's Republic of China, the Parties hereby agree to establish a
Joint Venture Limited Liability Company (hereinafter referred to as "Joint
Venture" or "JV").
3.2 The English name of the Joint Venture is: Shaanxi Longmen Iron and Steel
Co., Ltd. This name may be subject to change and future amendment by the
Board of Directors of the Joint Venture.
The legal address of the Joint Venture is: Longmen County, Xxx Xxxxx City,
Shaanxi Province, China.
3.3 All activities of the Joint Venture conducted shall be governed and
protected by the laws, decrees and relevant rules and regulations of the
People's Republic of China.
3.4 The form of organization of the Joint Venture shall be a limited liability
company. The liability of each Party is limited to their capital
contribution to the registered capital in accordance with Section 5 of
this Agreement, including increases and decreases in each Party's share of
ownership interest made in compliance with the Chinese regulations. The
profit of the Joint Venture will be distributed according to the ratio of
registered capital contributed by each Party. Within the first three years
of operation of the Joint Venture, 40% of the profit will be distributed
to Party A, and 60% will be distributed to Party B.
4: PURPOSES, SCOPE AND SCALE OF PRODUCTION AND BUSINESS
4.1 The purposes of the establishment of the Joint Venture shall be in
conformity with the mutual desires of each Party: to strengthen economic
cooperation and technical exchanges, to improve the product quality and
the production capacity, to develop new products and gain competitiveness
in both domestic and international markets in terms of quality, variety
and price by adopting advanced technology in the production of steel
products, and the adoption of advanced management methods, so as to
constantly raise economic results and ensure satisfactory economic
benefits for each Party.
4.2 The production and business scope of the Joint Venture shall be the
production of steel products, mainly steel products classified as "long
products." The products shall be sold in both domestic and overseas
markets.
4.3 The targeted production capacity of the Joint Venture operations will be 5
million metric tons annually.
5: TOTAL INVESTMENT, REGISTERED CAPITAL AND OWNERSHIP
5.1 The total amount of investment is 500,000,000 RMB (approximately
USD$65,780,000).
Party A will invest using its relevant net assets valued at 200,000,000
RMB (Refer to Contributed Relevant Net Assets sheet for details).
Tianjin Daqiuzhuang Metal Sheet Co., Ltd. will invest 160,000,000 RMB,
representing 32% of total registered capital.
Tianjin QiuSteel Investment Co., Ltd. will invest 140,000,000 RMB,
representing 28% of total registered capital.
The investment for registered capital will be contributed step by step.
The Parties will invest subject to physical materials and cash.
Investment of physical materials shall be subject to the appraisal value
evaluated by the appraisal agency employed by the Parties, cash investment
shall be subject to capital verification, which will be valid only upon
the agreement between the Parties.
5.2 Ownership Interest
Party A will own 40% ownership interest in the Joint Venture according to
its capital contribution.
Party B will own 60% ownership interest in the Joint Venture according to
its capital contribution.
6: RESPONSIBILITIES OF THE PARTIES
6.1 Responsibilities of the Party A:
6.1.1 Party A shall actively cooperate with Party B to sign and or provide
all necessary documents to assist Party B in the preparation of all
necessary procedures for the purpose of Business Registration.
6.1.2 Party A shall provide all relevant documents about this stock right
provide to Party B. Party A shall not withhold any relevant
information from Party B.
6.1.3 Party A verifies that except the data and information disclosed to
Party B pursuant to this agreement, Party A is not be liable for any
other debt and liability, and is not involved in any other legal
proceedings involving economic dispute and threat.
6.1.4 Party A shall ensure that from the signing date of this Agreement to
the date of the Joint Venture establishment, to maintain the current
business activity of Party A. Without the consent of Party B, Party
A shall not alter the conditions of Party A's operations at the date
of signing this contract (including but not limited to: the
financial situation of Party A disclosed to the public and various
contacts signed with others) and not enter into any agreement that
will hinder the stock interest described in this Agreement. In the
event Party A does not comply with this section of the Joint Venture
Agreement, Party A agrees to compensate Party B for all losses
caused hereby.
6.1.5 Upon the establishment of the Joint Venture, Party A ensures that it
shall provide the Joint Venture at reasonable prices which shall not
be higher than prevailing market prices the necessary raw material,
including, but not limited to: iron powder, oxygen, electricity,
water, heating, for the Joint Venture to operate at its targeted
levels of capacity.
6.2 Responsibilities of Party B.
Party B shall contribute registered capital contributions in accordance
with term 5.1 of this Agreement.
Party B shall, within reasonable levels of operating efficiencies
necessary to accomplish the stated goals in this Agreement of the Joint
Venture, endeavor to create maximum employment opportunities in Joint
Venture operations for the existing workforce of Party A.
7. FURTHER COOPERATION
7.1 In the event Party A desires to sell any subsidiary not included as part
of the relevant assets contributed to the Joint Venture as stated in this
Agreement, Party A will give Party B first right of refusal for any
purchase.
7.2 Pertaining to the further development as of the date of this Agreement of
the Daxigou Mine owned by Party A, Party A will offer Party B the right of
first refusal for any development project. In the event Party B elects not
to participate with Party A in a development project of Daxigou Mine,
Party B will have the right to approve any other entity that Party A
desires to work with in any related development project. In the event
Party B elects not to participate with Party A in a development project
and Party B approves another entity with which Party A may work with in
the development project, products derived from the project, including, but
not limited to iron ore, shall be offered first to Party B at rates not
higher than prevailing market rates.
8. PRODUCTION AND SALES OF PRODUCTS
8.1 The products of the Joint Venture shall be sold in the domestic market and
the best efforts will be made in order to sell part of the products in the
overseas market.
8.2 The products of the Joint Venture shall be sold throughout China without
geographic restriction and may be sold by the Joint Venture directly or
indirectly through approved distributors. The sales methods and prices
shall be determined by the General Manager of the Joint Venture following
recommendation of the Board of Directors of the Joint Venture based on the
domestic market conditions, competitiveness of the products and the
economic situation of the Joint Venture. The Joint Venture shall be free
to determine and raise the selling prices of its products and to sell at
its own discretion, in accordance with the preceding provisions.
9: BOARD OF DIRECTORS
9.1 Members of the Board of Directors for the Joint Venture shall be
established as follows:
Party A will appoint two of the directors; and
Party B will appoint three of the directors.
9.2 The Members of the Board of Directors at the commencement of the Joint
Venture are as follows:
1. Yu, Zuo Sheng
2. Zhang, Danli
3. Yu, Ye An
4. Yang, Xxx Xx
5. Su, Xiao Gang
The term of office for each Member of the Board of Directors is three (3)
years. The term of a Member of the Board of Directors can be renewed upon
expiration.
9.3 The Board of Directors shall decide all major issues concerning the Joint
Venture. In handling all important matters, the Board of Directors shall
reach its decision through consultation among the Members in the principle
of equality and mutual benefit. All issues of the Joint Venture shall be
discussed and approved by a minimum two thirds majority vote of the
Members of the Board of Directors. The Shareholder Meeting shall prescribe
those significant issues which need to be approved by all Members of the
Board of Directors.
9.4 The Board of Directors shall appoint a Chairman that shall be elected
through Board Meeting. The legal representative of the Joint Venture can
either be the Chairman or another Member of the Board of Directors elected
by the Board of Directors. The legal representative will carry out all
rights on behalf of the Joint Venture.
9.5 The Board of Directors shall convene at least two meetings each year. The
meetings shall be called and presided over by the Chairman of the Board of
Directors. The General Manager and the Vice General Manager of the Joint
Venture may attend as non-voting members the meetings of the Board of
Directors. Venues for the Board of Directors meetings shall be decided by
mutual agreement of both Parties. The Chairman may convene interim
meetings based on proposals made by more than one third of the Members of
the Board of Directors. The minutes of all Board of Directors meetings
will be kept on file. The Members of the Board of Directors have the right
to be represented at Board of Director Meetings by designated
representatives which shall have proxy voting ability.
9.6 A decision signed by all the Members of the Board of Directors has the
same validity as a decision made during an official Board of Directors
meeting.
10: BUSINESS MANAGEMENT ORGANIZATION
10.1 The Joint Venture shall establish a management office which shall be
responsible for its daily management. The management office shall have one
(1) General Manager, one (1) Vice General Manager as listed below:
1. Zhang, Xxx Xx
2. Su, Xiao Gang
The term of office shall be three (3) years.
10.2 The responsibilities of the General Manager shall be to carry out the
decisions of the Board of Directors, and to organize and direct the daily
management of the Joint Venture in accordance with the provisions of this
Agreement and the Articles of Incorporation. Department managers shall be
responsible for the work in the respective departments of production,
technology, business operation, finance and administration, and other
matters as may be delegated by the General Manager and the Vice General
Manager. The General Manager shall present to the Board of Directors for
approval the organizational structure of the Joint Venture and the annual
operational budget, including proposed appointments of department managers
as well as their remuneration.
10.3 The General Manager and Vice General Manager shall not serve as employees
of other entities, and shall not serve or act on behalf of other economic
entities in competition with the Joint Venture except that either of them
may be an officer, director or employee of their respective Party.
10.4 The Joint Venture shall establish company regulations, including
regulations on internal control and auditing by international standards
according to the requirements as may be required by American Stock
Exchange or similar relevant entity.
10.5 The Chief Financial Officer of the Joint Venture shall be appointed by
Party B.
11: LABOR MANAGEMENT
11.1 Policies relating to matters such as the total number of employees,
recruitment, dismissal, wages, welfare, benefits, labor insurance, bonuses
and labor discipline shall be determined by the General Manager in
accordance with Labor Law and other promulgated relevant laws and
regulations of the People's Republic of China, policies stipulated by the
Board of Directors, and the financial condition of the Joint Venture.
11.2 The Joint Venture shall have the right to recruit and hire employees
directly from any available sources including, but not limited to existing
operations of Party A. In all cases, the Joint Venture shall employ only
those employees who are sufficiently qualified for employment, as
determined through tests and/or examinations.
11.3 The Joint Venture, acting through the General Manager, will sign
individual labor agreements with each employee. Each labor agreement shall
include type of work, technical ability and wages of such employee,
according to the framework duly approved by the Board of Directors, and
shall be filed for reference at the local labor management department.
11.4 The labor agreements of all employees likely to receive confidential
information and/or particular training from the Joint Venture or from
Party B shall include, in addition to confidentiality undertakings,
non-competition clauses pursuant to which they shall not be permitted to
work for an enterprise or organization in the same field as the Joint
Venture for a period of two (2) years after leaving the Joint Venture.
12: TAXES, FINANCE, AUDIT AND PROFIT DISTRIBUTION
12.1 The Joint Venture shall pay various taxes in accordance with relevant laws
and regulations of the People's Republic of China.
12.2 Employees of the Joint Venture shall be responsible for paying their own
individual income tax or personal income adjustment tax in accordance with
relevant laws and regulations of the People's Republic of China.
12.3 The Joint Venture shall pursue all favorable government policies and
programs relevant to commercial enterprises with operations contributing
to the development of the Western Region of the People's Republic of
China.
12.4 The fiscal year of the Joint Venture shall be from January 1 to December
31. All vouchers, receipts, statistical statements, reports and account
books shall be written in Chinese, provided that any such documents upon
request of Party B shall be translated into English. Monthly, quarterly
and annual financial reports shall be prepared in Chinese and English and
submitted to the Board of Directors.
12.5 The Joint Venture shall engage a public accounting firm registered in
People's Republic of China to conduct annual financial auditing and
routine functions as may be required by relevant laws of the People's
Republic of China. In addition, the Joint Venture shall engage a public
accounting firm registered in the United States to conduct annual audit
and routine functions as may be required by the United States Securities
and Exchange Commission.
12.6 The Joint Venture shall establish bylaws, operating regulations and
general governance procedures based on those customarily used and required
for publicly traded companies in the United States. The fees for
establishing and maintain said bylaws, operating regulations and general
governance procedures shall be borne by the Joint Venture.
12.7 During the first three (3) months of each year, the General Manager shall
prepare the balance sheet, profit and loss statement and a proposal for
profit allocation of the prior year, which will be submitted to the Board
of Directors for review.
13: DURATION OF THE JOINT VENTURE
13.1 The duration of the Joint Venture shall be 30 years from the stated date
of establishment. The date of establishment of the Joint Venture shall be
the issuance date of the business license. The duration of the Joint
Venture can be extended by either Party through a written proposal
submitted to the Board of Directors at least six (6) months prior to the
stated expiration date. Approval of the duration of the Joint Venture can
only be determined by a vote at the shareholder meeting.
14: DISPOSAL OF ASSETS UPON LIQUIDATION OF THE JOINT VENTURE
14.1 Upon termination of the Joint Venture, liquidation shall be carried out
according to relevant laws and regulations of the People's Republic of
China. The remaining assets after liquidation shall be distributed in
proportion to the capital contribution made by each Party upon the
discharge of all liabilities of the Joint Venture.
15: INSURANCE
15.1 The Joint Venture shall maintain all appropriate insurance policies with
an insurance company in the People's Republic of China. The types, value
and duration of insurance shall be decided by the Board of Directors in
accordance with prevailing market standards.
16. TERMINATION OF CONTRACT AND BREACH
If any of following events occur after the effective date of this
Agreement and the establishment of the Joint Venture, either Party by
terminate this Agreement.
(i) Any event or situation that will cause significant negative effect;
(ii) Information or guarantees made by Party A relevant to this Agreement
are verified to be unauthentic or inaccurate;
(iii) Party A breaches promises made in this Agreement; or
(iv) Based on commercial, legal and accounting due diligence verification
of the on-going business of Party A, Party B reasonably considers that the
capital invested by Party A, as defined by this Agreement, receives
significant devaluation from the signing of this Agreement to the
establishment of the Joint Venture, or shall receive significant
devaluation by those effects that can not be controlled by Party B in a
short period of time after the establishment of the Joint Venture.
17: FORCE MAJEURE
17.1 Should the performance of this Agreement be directly affected or should it
become impossible to perform this Agreement in accordance with the
prescribed terms as a result of a force majeure event such as earthquake,
typhoon, flood, fire, war, civil disorder, unforeseeable events where the
occurrences and consequences are unpreventable and unavoidable without
limitation, the Party affected by such event shall notify the other
Parties by telegram or facsimile without any delay and, within fifteen
(15) days thereafter, provide the detailed information on such event and a
valid certification document giving reasons for such Party's inability to
perform all or part of this Agreement or its delay of the performance.
17.2 If possible, the said document shall be issued by a notary public office
at the location where the force majeure event occurs. The Parties shall
decide through consultations whether to terminate this Agreement or to
waive part of the obligations to be performed under this Agreement or to
delay the performance of this Agreement according to the effects of the
force majeure event on the performance of this Agreement.
18: APPLICABLE LAW
18.1 The execution, validity, interpretation and performance of this Agreement
and dispute resolution under this Agreement shall be governed and
protected by the laws of China.
19: DISPUTE RESOLUTION
19.1 Any dispute arising from the execution of or in connection with this
Agreement shall first be settled through friendly consultations between
the Parties. In the event that no settlement can be reached through
consultations, the disputes shall be submitted to the China International
Economic and Trade Arbitration Commission located in Beijing for
conciliation. The arbitration shall be final and binding on both Parties.
19.2 When the dispute, controversy or claim arising out of or in connection
with this Agreement are being resolved either through friendly
consultation or through arbitration, the Parties should take the interest
of the whole into account and shall not hinder or affect the performance
of the provisions other than in dispute, so as to guarantee the smooth
operation of the Joint Venture to the extent possible.
20: LANGUAGE
19.1 The Agreement is written in Chinese and English versions, both languages
are equally authentic.
21: OTHERS
21.2 The precondition of projected establishment of the Joint Venture in this
Agreement is that Party B shall be satisfied about the audit results
carried by those certified public accountants appointed by Party B on the
business of and assets invested by Party A according to the requirements
of United States General Accepted Accounting Principle.
21.2 This Agreement together with its appendices constitute the entire
agreement of the Parties with respect of the subject matters hereof and
shall supersede all prior agreements between both Parties.
21.3 The Parties shall take all such efforts to carry out the purposes of this
Agreement and its appendices. Neither Party shall take any action that
might have an adverse competitive effect of adverse consequence on the
operation of the Joint Venture.
21.4 Any waiver by either Party at any time of a breach of any term or
provision of this Agreement shall not be construed as a waiver by such a
Party of any subsequent breach, its rights to such term or provision, or
any of its other rights hereunder.
21.5 If any one or more of the provisions contained in this Agreement or the
appendices hereto shall be invalid, illegal or unenforceable in any
respect under any applicable law, the validity legality and enforceability
of the remaining provision contained herein or therein shall not in any
way be affected or impaired.
21.6 Unless otherwise specifically provided, notices or other communications to
either Party required or permitted hereunder shall be: (a) personally
delivered; (b) transmitted by postage prepaid registered airmail or by
international courier; or (c) transmitted by telex or facsimile with
answerback or followed by registered airmail or air courier. The addresses
of the Parties listed in this Agreement shall be their respective mailing
addresses and their respective facsimile numbers.
21.7 In witness whereof, the Parties have signed this Agreement on:
_________________________ ,2007 by their duly authorized representatives
in six originals, each Party receiving one original in each version,
Chinese and English.
Parties:
Party A: Shaanxi Longmen Iron & Steel Group Co., Ltd.
Signature:
Legal representative:
Party B: General Steel Holdings Inc.
Signature:
Legal representative
