EXHIBIT 10.1
ACQUISITION AGREEMENT
This ACQUISITION AGREEMENT (the "Agreement") is dated as of January 24,
2006, by and among China Natural Resources, Inc., a British Virgin Islands
company (the "Company"), Feishang Mining Holdings Limited, a British Virgin
Islands company ("Feishang") and Feishang Group Limited, a British Virgin
Islands company (the "Feishang Shareholder").
RECITALS
WHEREAS, the Feishang Shareholder owns 1 share at US$1 of Feishang,
representing 100% of the issued and outstanding capital stock (hereinafter
referred to as the "Feishang Stock");
WHEREAS, the Company desires to acquire the Feishang Stock from the
Feishang Shareholder in exchange for (a) a total of 9,980,593 common shares of
the Company, no par value (the "Company Common Shares"), which 9,980,593 Company
Common Shares (the "Exchange Shares") shall equal, in aggregate, 86.4% of the
aggregate issued and outstanding Company Common Shares following the closing
referred to in Section 7 hereof, and (b) common share purchase warrants to
purchase an aggregate of 4,500,000 Company Common Shares, substantially in the
form attached to this Agreement as Schedule 3 (the "Exchange Warrants" and
together with the Exchange Shares, the "Exchange Consideration");
WHEREAS, the Feishang Shareholder desires to exchange its Feishang Stock
for the Exchange Consideration, upon the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the premises herein contained, the
mutual covenants hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto covenant and agree as follows:
TERMS
1. Acquisition of the Feishang Stock
Subject to the terms and conditions hereinafter set forth, at the time of
the closing referred to in Section 7 hereof (the "Closing Date"), the
Company will issue and deliver the Exchange Consideration to the Feishang
Shareholder (or its nominees), in exchange for which the Feishang
Shareholder will deliver, or cause to be delivered to the Company, the
Feishang Stock, free and clear of all liens, charges, encumbrances and
security interests (the "Exchange"). The Exchange Warrants shall be
evidenced by three separate warrant certificates. Each of the warrant
certificates shall be identical to the others, except that (a) Exchange
Warrants to purchase 2,000,000 Company Common Shares will be exercisable
for two years following the Closing Date at an exercise price of $4.00
per share, (b) Exchange Warrants to purchase 1,500,000 Company Common
Shares will be exercisable for three years following the Closing Date at
an exercise price of $4.50 per share and (c) Exchange Warrants to
purchase 1,000,000 Company Common Shares will be exercisable for four
years following the Closing Date at an exercise price of $5.00 per share.
2. Representations and Warranties by Feishang and Feishang Shareholder
Feishang and Feishang Shareholder jointly and severally represent and
warrant to the Company that, as of the date hereof and as of the Closing
Date:
(a) Feishang is a corporation duly organized, validly existing and in good
standing under the laws of British Virgin Islands and has the
corporate power to own its properties and carry on its business as now
being conducted and as proposed to be conducted. Certified copies of
the Certificate of Incorporation and the Memorandum and Articles of
Association of Feishang have been furnished by Feishang to the Company
and such documents are true and correct copies of the Certificate of
Incorporation and the Memorandum and Articles of Association of
Feishang and include all amendments thereto.
(b) Feishang has an authorized capital consisting of 50,000 shares, of
which one share is duly and validly issued and outstanding, is fully
paid and non-assessable and is owned of record by the Feishang
Shareholder. There are no outstanding options, rights or other
agreements pursuant to which Feishang could become obligated to issue
any shares of its capital stock. Feishang has not granted to any party
registration or similar rights with respect to its capital stock.
(c) Feishang is the beneficial owner of 100% of the issued and outstanding
capital stock in Wuhu Feishang Mining Development Co. Ltd. ("Wuhu"), a
company established under the laws of the People's Republic of China
("PRC"). Wuhu is owned of record 90% by Feishang and 10% by Wuhu
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Feishang Enterprises Development Limited, as trustee under a
Declaration of Trust dated April 27, 2005 (the "Trust"), in each case
free and clear of all liens, charges, encumbrances and security
interests. The sole beneficiary of the Trust is Feishang. Feishang has
paid its capital contribution in Wuhu in full, in accordance with the
provisions of all applicable laws and regulations of the PRC, and no
portion of such capital contribution is due and owing on the date
hereof and on the Closing Date.
(d) Wuhu is a corporation duly organized, validly existing and in good
standing under the applicable laws, rules and regulations of the PRC
and has the corporate power to own its properties and carry on its
business as now being conducted and as proposed to be conducted.
Copies of the articles of association, approval certificates, letters
and business licenses and all amendments thereto of Wuhu have been
supplied to the Company, and such copies are complete and accurate in
all respects and all legal and procedural requirements and all other
formalities concerning the said documents have been duly and properly
complied with in all material respects. There are no outstanding
options, rights or other agreements pursuant to which Wuhu could
become obligated to issue any shares of its capital stock.
(e) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary corporate action on the part of
Feishang. This Agreement constitutes the valid and binding obligations
of Feishang enforceable in accordance with their respective terms,
except as the enforceability thereof may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditor's rights and
by general principles of equity.
(f) The execution, delivery and performance by Feishang of this Agreement
and the consummation of the transactions contemplated by this
Agreement (i) do not and will not require the authorization, consent,
permit or approval of, or declaration to or filing with, any court,
regulatory or public body or governmental authority not already
obtained or made, or result in the creation of any lien, security
interest, charge or encumbrance upon the capital stock or assets of
Feishang or Wuhu, and (ii) will not violate or cause a default, with
or without the passage of time, under (A) any provision of law, rule
or regulation applicable to Feishang or Wuhu, (B) any order of any
court or other governmental agency with jurisdiction over Feishang or
Wuhu, (C) the Memorandum and Articles of Association of Feishang, the
organizational documents of Wuhu or (D) any indenture, agreement or
other instrument to which Feishang or Wuhu is a party, or by which any
of their respective properties are bound.
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(g) The balance sheet of Feishang as at December 31, 2004, and the
statement of income of Feishang for the period from September 3, 2004
(date of incorporation) to December 31, 2004, prepared by Feishang,
are attached hereto as Schedule 1(a). The balance sheets of Wuhu for
each of the years ended December 31, 2003 and 2004 and the statements
of income, changes in stockholders' equity and cash flows of Wuhu for
the year ended December 31, 2002, the four months ended April 30,
2003, the eight months ended December 31, 2003 and the year ended
December 31, 2004, prepared by Feishang and audited by GHP Xxxxxxx,
P.C., are attached hereto as Schedule 1(b). The financial statements
of Feishang and Wuhu described in this paragraph are sometimes
hereinafter collectively referred to as the "Feishang Financial
Statements." Feishang and Wuhu are sometimes collectively referred to
herein as the "Feishang Mining Group." The Feishang Financial
Statements fairly present, as of such dates the financial condition of
the Feishang Mining Group and the results of operations, and in the
case of Wuhu, changes in stockholders equity and cash flows, for the
periods then ended. There are no liabilities or obligations of the
Feishang Mining Group, whether direct or indirect, contingent,
absolute or otherwise, except as set forth on the Feishang Financial
Statements, other than liabilities or obligations incurred in the
ordinary course of business subsequent to the date of the most recent
Feishang Financial Statements.
(h) Since December 31, 2004, the Feishang Mining Group has experienced no
material adverse changes with respect to its business or financial
condition, results of operations, assets, liabilities or prospect
taken as a whole. Without limiting the generality of the foregoing;
(i) Neither Feishang nor Wuhu has issued any shares of its
capital stock or any security convertible into shares of
capital stock, or entered into any agreement under which
Feishang or Wuhu could become obligated to issue shares of
its capital stock;
(ii) The financial year-end of Feishang and Wuhu is and continues
to be, and has not changed from, December 31;
(iii) No event has occurred which would entitle any third party
(with or without the giving of notice, the lapse of time, or
both) to call for the repayment of indebtedness prior to its
stated maturity date;
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(iv) The business of the Feishang Mining Group has been carried
on in the ordinary and usual course and in the same manner
(including nature and scope) as in the past; no fixed asset
or stock has been written up nor any debt of an aggregate
amount more than US$100,000 written off, and no contract has
been entered into by the Feishang Mining Group except in the
ordinary course of its business as heretofore conducted
during the preceding 12 months;
(v) No asset of the Feishang Mining Group has been acquired or
disposed of, or has been agreed to be acquired or disposed
of, otherwise than in the ordinary course of business and
there has been no disposition or parting with possession of
any of its property, assets (including know-how) or stock in
trade or any payments by the Feishang Mining Group, and no
contract involving capital expenditures by it has been
entered into by the Feishang Mining Group, and no liability
has been created or has otherwise arisen (all other than in
the ordinary course of business as heretofore conducted
during the preceding 12 months);
(vi) There has been no disposition of any asset (including stock)
or supply of any service or business facility of any kind
(including a loan of money or the letting, hiring or
licensing of any property whether tangible or intangible)
under circumstances where the consideration actually
received or receivable for such disposition or supply was
less than the consideration which could be deemed to have
been received for tax purposes;
(vii) No event has occurred which gives rise to a tax liability to
the Feishang Mining Group or deemed (as opposed to actual)
income, profits or gains or which results in the Feishang
Mining Group becoming liable to pay or bear a tax liability
directly or primarily chargeable against or attributable to
another person or entity, other than in the ordinary course
of business or in connection with the transactions
contemplated by this Agreement; and
(viii) No remuneration (including bonuses) or benefit payable to
any officer or employee of the Feishang Mining Group has
been increased nor has any member of the Feishang Mining
Group undertaken any obligation to increase any such
remuneration at any future date with or without
retrospective effect other than in the ordinary course of
business as heretofore conducted during the preceding 12
months.
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(i) Feishang and Wuhu have each complied, in all material respects, with
the terms and provisions of all agreements to which it is a party and
all laws, rules, regulations and orders or to which it or its assets
are subject.
(j) Except for matters that would not, individually or in the aggregate,
have or reasonably be expected to result in a material adverse effect
on the Feishang Mining Group, taken as a whole, Feishang and Wuhu have
each filed all necessary tax returns and has paid or accrued all taxes
shown as due thereon, and neither Feishang nor the Feishang
Shareholder has knowledge of a tax deficiency which has been asserted
or threatened against Feishang or Wuhu.
(k) Neither Feishang nor Wuhu has provided any guarantees to any third
party except as disclosed in the Feishang Financial statements.
(l) Except as otherwise disclosed in the Feishang Financial Statements,
neither Feishang nor Wuhu is a party to any pension plan, profit
sharing plan, or stock-purchase plan for the benefit of any of its
employees.
(m) Neither Feishang nor Wuhu is a party to any pending litigation which
could reasonably be foreseen to materially and adversely affect the
Feishang Mining Group taken as a whole, which has not been provided
for or described in the Feishang Financial Statements, and there are
no facts or circumstances known to Feishang or the Feishang
Shareholder which could reasonably be foreseen to give rise to any
such litigation; and there are no unsatisfied judgments or court
orders against any member, manager, officer or director of the
Feishang or Wuhu.
(n) Feishang and Wuhu have good and marketable title to their respective
properties owned by them, free and clear of all liens, security
interests, charges, encumbrances and defects, except for such liens,
security interests, charges, encumbrances and defects as are disclosed
in the Feishang Financial Statements, and that could not reasonably be
foreseen to have a material adverse effect on the Feishang Mining
Group taken as a whole.
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(o) Feishang and Wuhu each maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP
and to maintain asset accountability, (iii) access to assets is
permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(p) Neither Feishang nor Wuhu (i) is in default under or in violation of
(and no event has occurred that has not been waived that, with notice
or lapse of time or both, would result in a default by Feishang or
Wuhu under), nor has Feishang or Wuhu received notice of a claim that
it is in default under or that it is in violation of, any indenture,
loan or credit agreement or any other agreement or instrument to which
it is a party or by which it or any of its properties is bound
(whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body,
or (iii) is or has been in violation of any statute, rule or
regulation of any governmental authority, including without limitation
all laws applicable to its business except in each case as could not
have a material adverse effect on the Feishang Mining Group taken as a
whole. Feishang and Wuhu possess all certificates, authorizations and
permits issued by the appropriate federal, state, local or foreign
regulatory authorities necessary to conduct their respective
businesses as now being conducted and as proposed to be conducted,
except where the failure to possess such permits could not have or
reasonably be expected to result in a material adverse effect on the
Feishang Mining Group, taken as a whole, and neither Feishang nor Wuhu
has received any notice of proceedings relating to the revocation or
modification of any license, permit or authorization applicable to its
business.
(q) No brokerage or finder's fees or commissions are or will be payable by
Feishang or Wuhu to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other person
relating to the transactions contemplated by the this Agreement and
the Company shall have no obligation with respect to any fees or with
respect to any claims made by or on behalf of other persons for fees
of a type contemplated in this Section that may be due in connection
with the transactions contemplated by this Agreement.
(r) Feishang and the Feishang Shareholder understand and confirm that the
Company will rely on the foregoing representations and covenants in
issuing the Exchange Consideration. The representations and warranties
of Feishang and the Feishang Shareholder are true and correct and do
not contain any untrue statement of a material fact or omit to state
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any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
3. Representations and Warranties by Feishang Shareholder
Feishang Shareholder represents and warrants to the Company that, as of
the date hereof and as of the Closing Date:
(a) The Feishang Shareholder is a corporation duly organized, validly
existing and in good standing under the laws of the British Virgin
Islands and has the corporate power to own its properties and carry on
its business as now being conducted and as proposed to be conducted.
(b) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary corporate action on the part of the
Feishang Shareholder. This Agreement constitutes the valid and binding
obligations of the Feishang Shareholder enforceable in accordance with
their respective terms, except as the enforceability thereof may be
limited by applicable bankruptcy, insolvency or similar laws affecting
creditor's rights and by general principles of equity.
(c) The execution, delivery and performance by the Feishang Shareholder of
this Agreement and the consummation of the transactions contemplated by
this Agreement (i) do not and will not require the authorization,
consent, permit or approval of, or declaration to or filing with, any
court, regulatory or public body or governmental authority not already
obtained or made, or result in the creation of any lien, security
interest, charge or encumbrance upon the capital stock or assets of the
Feishang Shareholder, and (ii) will not violate or cause a default,
with or without the passage of time, under (A) any provision of law,
rule or regulation applicable to the Feishang Shareholder, (B) any
order of any court or other governmental agency with jurisdiction over
the Feishang Shareholder, (C) the charter or other organization
documents of the Feishang Shareholder, or (D) any indenture, agreement
or other instrument to which the Feishang Shareholder is a party, or by
which any of its properties are bound.
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(d) The Feishang Shareholder is the sole owner of the Feishang Stock and on
the Closing Date, will deliver to the Company good and marketable title
to the Feishang Stock, free and clear of any and all liens, charges,
encumbrances and security interests.
(e) The Feishang Shareholder hereby acknowledges that neither the Exchange
Consideration to be issued by the Company in the Exchange, nor the
Company Common Shares issuable upon exercise of the Exchange Warrants
(the "Warrant Shares," and together with the Exchange Consideration,
the "Exchange Securities") have been registered under the Securities
Act of 1933, as amended (the "Securities Act") or the laws of any other
jurisdiction and is subject to restrictions on its transfer and resale
under applicable law. The Feishang Shareholder understands that in
agreeing to issue the Exchange Securities, the Company is relying upon
an exemption from registration under the Securities Act, which relates
to private offerings of securities. The Feishang Shareholder is
acquiring the Exchange Securities for its own account, for investment
purposes only, and not with a view to the sale, pledge, hypothecation,
or other distribution or disposition thereof or of any interest
therein. The Feishang Shareholder understands that resale or transfer
of the Exchange Securities may be prohibited indefinitely unless resale
of the Exchange Securities is registered under the Securities Act or an
exemption from such registration is available, and such resale or
transfer will not otherwise violate applicable securities laws.
(f) The Company has made available to the Feishang Shareholder and its
representative, if any, the opportunity to ask questions of and receive
answers from the Company concerning the terms and conditions of the
Exchange and to obtain any additional information desired by the
Feishang Shareholder concerning the Company. The Feishang Shareholder
has received all information requested by it pursuant to the preceding
sentence. The Feishang Shareholder has relied solely upon the
representations and warranties contained in this Agreement and the
written materials and investigations made by the Feishang Shareholder
in making the decision to consummate the Exchange, and has not relied
upon any other representations of the Company.
(g) The Feishang Shareholder understands and confirms that the Company will
rely on the foregoing representations and covenants in delivering the
Exchange Consideration to the Feishang Shareholder. The representations
and warranties of the Feishang Shareholder are true and correct and do
not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
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4. Representations and Warranties by the Company
The Company represents and warrants to the Feishang Shareholder that,
except as otherwise set forth in reports filed by the Company (the "SEC
Filings") with the United States Securities and Exchange Commission (the "SEC")
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
information in such SEC Filings qualifying the following representations and
warranties, as of the date hereof and as of the Closing Date:
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of British Virgin Islands and has the
corporate power to own its properties and carry on its business as now
being conducted and as proposed to be conducted. Certified copies of
the Certificate of Incorporation and the Memorandum and Articles of
Association of the Company have been furnished by the Company to
Feishang and such documents are true and correct copies of the
Certificate of Incorporation and the Memorandum and Articles of
Association of the Company and include all amendments thereto.
(b) The Company has an authorized capital consisting of (i) 200,000,000
shares of Company Common Shares, 1,247,823 shares of Company Common
Shares are duly and validly issued and outstanding, fully paid and
non-assessable and (ii) 10,000,000 shares of preferred shares of no
par value (the "Company Preferred Shares"), 320,000 shares of Company
Preferred Shares are duly and validly issued and outstanding, fully
paid and non-assessable. There are no outstanding options, rights or
other agreements pursuant to which Feishang could become obligated to
issue any shares of its capital stock. The Company has not granted to
any party registration or similar rights with respect to its capital
stock
(c) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary corporate action on the part of the
Company. This Agreement constitutes the valid and binding obligations
of the Company enforceable in accordance with their respective terms,
except as the enforceability thereof may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditor's rights and
by general principles of equity.
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(d) The execution, delivery and performance by the Company of this
Agreement and the consummation of the transactions contemplated by
this Agreement (i) do not and will not require the authorization,
consent, permit or approval of, or declaration to or filing with, any
court, regulatory or public body or governmental authority not already
obtained or made, or result in the creation of any lien, security
interest, charge or encumbrance upon the capital stock or assets of
the Company, and (ii) will not violate or cause a default, with or
without the passage of time, under (A) any provision of law, rule or
regulation applicable to the Company, (B) any order of any court or
other governmental agency with jurisdiction over the Company, (C) the
Memorandum and Articles of Association of the Company, or (D) any
indenture, agreement or other instrument to which the Company is a
party, or by which any of its properties are bound.
(e) The Exchange Shares deliverable hereunder will, upon their delivery in
accordance with the terms hereof, be duly authorized, validly issued,
fully paid and non-assessable and will comprise 86.4% of the issued
and outstanding Company Common Shares as at the Closing Date. The
Exchange Warrants deliverable hereunder will, upon their delivery in
accordance with the terms hereof, be duly authorized, validly issued,
fully paid and non-assessable. The Warrant Shares have been duly
authorized and reserved and, upon delivery in accordance with the
terms of the Exchange Warrants, will be validly issued, fully paid and
non-assessable.
(f) The Company Common Shares are currently listed for trading on the
Nasdaq SmallCap Market, and the Company has received no notice that
its Common Shares are subject to being delisted therefrom.
(g) The consolidated balance sheets of the Company and its consolidated
subsidiaries (the "Company Group") prepared by the Company and audited
by GHP Xxxxxxx, P.C., as at December 31, 2003 and 2004, and the
consolidated statements of operations and cash flow for each of the
years ended December 31, 2002, 2003 and 2004, and the consolidated
statements of changes in shareholders' equity for each of the years
ended December 31, 2002, 2003 and 2004 attached hereto as Schedule 2
(the "Company Financial Statements"), present fairly as of such dates
the consolidated financial condition of the Company Group and the
results of the operations for the periods then ended. The audited
consolidated financial statements of the Company have been prepared in
accordance with US GAAP. There are no liabilities or obligations of
the Company Group, whether direct or indirect, contingent, absolute or
otherwise, except as set forth on the Company Financial Statements,
other than liabilities or obligations incurred in the ordinary course
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of business subsequent to the date of the most recent Company
Financial Statements.
(h) Since December 31, 2004, the Company Group has experienced no material
adverse changes with respect to its business or financial condition,
results of operations, assets, liabilities or prospect taken as a
whole. Without limiting the generality of the foregoing;
(i) The Company Group has not declared, paid or made nor is
proposing to declare, pay or make any dividend or other
distribution of capital, surplus or profits, in redemption
of its outstanding shares or otherwise; the Company Group
has not issued any shares of its capital stock or any
security convertible into shares of capital stock, or
entered into any agreement under which the Company Group
could become obligated to issue shares of its capital stock;
(ii) The financial year-end of the Company is and continues to
be, and has not changed from, December 31;
(iii) No event has occurred which would entitle any third party
(with or without the giving of notice, the lapse of time, or
both) to call for the repayment of indebtedness prior to its
stated maturity date;
(iv) The business of the Company Group has been carried on in the
ordinary and usual course and in the same manner (including
nature and scope) as in the past; no fixed asset or stock
has been written up nor any debt of an aggregate amount more
than US$100,000 written off, and no contract has been
entered into by the Company Group except in the ordinary
course of its business as heretofore conducted during the
preceding 12 months;
(v) No asset of the Company Group has been acquired or disposed
of, or has been agreed to be acquired or disposed of,
otherwise than in the ordinary course of business and there
has been no disposition or parting with possession of any of
its property, assets (including know-how) or stock in trade
or any payments by the Company Group, and no contract
involving capital expenditures by it has been entered into
by the Company, and no liability has been created or has
otherwise arisen (all other than in the ordinary course of
business as heretofore conducted during the preceding 12
months);
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(vi) There has been no disposition of any asset (including
stock) or supply of any service or business facility of any
kind (including a loan of money or the letting, hiring or
licensing of any property whether tangible or intangible)
under circumstances where the consideration actually
received or receivable for such disposition or supply was
less than the consideration which could be deemed to have
been received for tax purposes;
(vii) No event has occurred which gives rise to a tax liability
to the Company Group or deemed (as opposed to actual)
income, profits or gains or which results in the Company
Group becoming liable to pay or bear a tax liability
directly or primarily chargeable against or attributable to
another person or entity, other than in the ordinary course
of business or in connection with the transactions
contemplated by this Agreement; and
(viii) No remuneration (including bonuses) or benefit payable to
any officer or employee of the Company Group has been
increased nor has any member of the Company Group
undertaken any obligation to increase any such remuneration
at any future date with or without retrospective effect
other than in the ordinary course of business as heretofore
conducted during the preceding 12 months.
(i) The Company Group has each complied, in all material respects, with
the terms and provisions of all agreements to which it is a party and
all laws, rules, regulations and orders or to which it or its assets
are subject.
(j) Except for matters that would not, individually or in the aggregate,
have or reasonably be expected to result in a material adverse effect
on the Company Group, taken as a whole, the Company has filed all
necessary tax returns and has paid or accrued all taxes shown as due
thereon, and the Company has no knowledge of a tax deficiency which
has been asserted or threatened against the Company Group.
(k) The Company Group has not provided any guarantees to any third party
except as disclosed in the Company Financial Statements.
(l) Except as otherwise disclosed in the Company Financial Statements, the
Company Group is not a party to any pension plan, profit sharing plan,
or stock-purchase plan for the benefit of any of its employees.
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(m) The Company Group is not a party to any pending litigation which could
reasonably be foreseen to materially and adversely affect the Company
Group taken as a whole, which has not been provided for or described
in the Company Financial Statements, and there are no facts or
circumstances known to the Company which could reasonably be foreseen
to give rise to any such litigation; and there are no unsatisfied
judgments or court orders against any member, manager, officer or
director of the Company Group.
(n) The Company Group has good and marketable title to its properties,
free and clear of all liens, security interests, charges, encumbrances
and defects, except for such liens, security interests, charges,
encumbrances and defects as are disclosed in the Company Financial
Statements, and that could not reasonably be foreseen to have a
material adverse effect on the Company Group taken as a whole.
(o) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted
only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(p) The Company Group (i) is not in default under or in violation of (and
no event has occurred that has not been waived that, with notice or
lapse of time or both, would result in a default by the Company
under), nor has the Company Group received notice of a claim that it
is in default under or that it is in violation of, any indenture, loan
or credit agreement or any other agreement or instrument to which it
is a party or by which it or any of its properties is bound (whether
or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body,
or (iii) is or has been in violation of any statute, rule or
regulation of any governmental authority, including without limitation
all foreign, federal, state and local laws applicable to its business
except in each case as could not have a material adverse effect on the
Company Group taken as a whole. The Company Group possess all
certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to
conduct their respective businesses as now being conducted and as
14
proposed to be conducted, except where the failure to possess such
permits could not have or reasonably be expected to result in a
material adverse effect on the Company Group, taken as a whole, and
the Company has received no notice of proceedings relating to the
revocation or modification of any license, permit or authorization
applicable to its business.
(q) No brokerage or finder's fees or commissions are or will be payable by
the Company Group to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other person
relating to the transactions contemplated by the this Agreement and
the Feishang Mining Group shall have no obligation with respect to any
fees or with respect to any claims made by or on behalf of other
persons for fees of a type contemplated in this Section that may be
due in connection with the transactions contemplated by this
Agreement.
(r) Except for its shares of capital stock in its subsidiaries and its
investment in Hainan Sundiro Motorcycle Co., Ltd., the Company does
not have any subsidiary or hold directly or indirectly any equity
security or interest in any third party.
(s) The Company is a "private foreign issuer" within the meaning of the
Exchange Act and is current in its filings thereunder. All of the
Company's SEC Filings comply with the requirements thereof and the
rules and regulations of the SEC thereunder. None of the SEC Filings
made by the Company make any untrue statement of a material fact or
omit to state a material fact necessary in order to make the
statements made, in light of the circumstances under which they were
made, not misleading.
(t) Except as disclosed in the Company Financial Statements, the Company
has no contracts, agreements, leases, licenses, arrangements,
commitments or other undertakings (collectively, the "Company
Contracts") to which the Company is party or to which it or its
property is subject. The Company is not in material default, or
alleged to be in material default, under any Company Contract and no
other party to any Company Contract to which the Company is a party is
in default thereunder nor, to the knowledge of the Company, does there
exist any condition or event which, after notice or lapse of time or
both, would constitute a default by any party to any such Company
Contract.
(u) There are no contracts, agreements, arrangements or other transactions
between the Company and any officer, director, or any shareholder who
15
owns at least 5% of the Company's currently issued and outstanding
stock (a "5% shareholder"), a member of any such officer, director or
5% shareholder's family, or any affiliate of any such officer,
director or 5% shareholder which will continue to subsist after the
Closing Date.
(v) The Company hereby acknowledges that the Feishang Stock to be
exchanged for the Exchange Consideration is not registered under the
Securities Act or the laws of any other jurisdiction and are subject
to restrictions on their transfer and resale under applicable law. The
Company understands that in agreeing to transfer the Feishang Stock to
the Company in the Exchange, the Feishang Shareholder is relying upon
an exemption from registration under the Securities Act, which relates
to private resales of securities. The Company is acquiring the
Feishang Stock for its own account, for investment purposes only, and
not with a view to the sale, pledge, hypothecation, or other
distribution or disposition thereof or of any interest therein.
(w) Feishang has made available to the Company and its representative, if
any, the opportunity to ask questions of and receive answers from
Feishang concerning the terms and conditions of the Exchange and to
obtain any additional information desired by the Company concerning
Feishang. The Company has received all information requested by it
pursuant to the preceding sentence. The Company has relied solely upon
the representations and warranties contained in this Agreement and the
written materials and investigations made by the Company in making the
decision to effect the Exchange, and has not relied upon any other
representations of Feishang or Feishang Shareholder.
(x) The Company understands and confirms that Feishang will rely on the
foregoing representations and covenants in delivering the Feishang
Stock to the Company. The representations and warranties of the
Company are true and correct and do not contain any untrue statement
of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
5. Conditions to the Obligations of the Company
The obligation of the Company to consummate the Exchange pursuant to
Section 1 is subject to the satisfaction of the following conditions as
of the Closing Date:
16
(a) The representations and warranties made by the Feishang
Shareholder and Feishang shall be accurate in all material
respects as of the date hereof and as of the Closing Date and the
terms and conditions of this Agreement to be performed and
complied with by the Feishang Shareholder on or prior to the
Closing Date shall have been performed and complied with by the
Feishang Shareholder on or prior to the Closing Date;
(b) Feishang and Feishang Shareholder shall have received all
corporate regulatory and other third party approvals and
authorizations necessary to consummate the Exchange;
(c) No material adverse change shall have taken place with respect to
Feishang, and no event shall have occurred, that could result in a
material adverse effect on the Company, taken as a whole.
(d) Feishang and the Feishang Shareholder shall have paid all of their
respective costs and expenses associated with the sale of the
Feishang Stock to the Company;
(e) Feishang and the Feishang Shareholder shall have delivered
evidence reasonably satisfactory to the Company regarding the
approval of the Exchange and the transactions contemplated by this
Agreement by the board of directors and, if required the
shareholders, of Feishang.
6. Conditions to the Obligations of Feishang and Feishang Shareholder
The obligation of Feishang Shareholder to consummate the Exchange
pursuant to Section 1 is subject to the satisfaction of the following
conditions as of the Closing Date:
(a) The representations and warranties made by the Company shall be
accurate in all material respects as of the date hereof and as of
the Closing Date and the terms and conditions of this Agreement to
be performed and complied with by the Company on or prior to the
Closing Date shall have been performed and complied with by the
Company on or prior to the Closing Date;
(b) The Company shall have received all of the regulatory, shareholder
and other third party approvals and authorizations necessary to
consummate the Exchange;
17
(c) The Company shall have paid all of its own costs and expenses
associated with the acquisition of the Feishang Stock by the
Company;
(d) No material adverse change shall have taken place with respect to
Feishang, and no event shall have occurred, that could result in a
material adverse effect on the Company, taken as a whole;
(e) The Company shall have delivered evidence reasonably satisfactory
to Feishang and Fieshang Shareholder regarding the approval of the
Exchange and the transactions contemplated by this Agreement by
the board of directors of the Company.
(f) Winsland Capital Limited shall have exchanged the 320,000
preferred shares of the Company owned by it for 320,000 Company
Common Shares.
7. Closing Date
The Closing shall take place on, or prior, to February 3, 2006 at Xxxx
0000, Xxxx Xxxxx, Xxxx Tak Centre, 200 Connaught Road Central, Xxxxxx
Xxx, Hong Kong, or at such other time and place as the parties hereto
shall mutually agree ("Closing Date").
8. Actions at Closing
On the Closing Date, the Company and the Feishang Shareholder will each
deliver, or cause to be delivered to the other, certificates representing
the Exchange Shares, the Exchange Warrants and Feishang Stock (including
any Feishang Stock beneficially owned by the Feishang Shareholder, as to
which the record owner is the nominee of the Feishang Shareholder) to be
exchanged in accordance with Section 1 respectively, and each party shall
pay any and all taxes required to be paid in connection with the issuance
and delivery of its own securities. All share certificates shall be in
the name of the party to which the same are deliverable or its nominees
except the Feishang Stock, which will be accompanied by an instrument of
transfer executed in favor of the Company.
In addition, the Company will deliver to the Feishang Shareholder:
(1) copies of all corporate resolutions and other corporate
proceedings taken by the Company to authorize the execution,
delivery and performance of this Agreement;
18
(2) copies of resolutions of the directors of the Company electing or
appointing (as the case may be) such number of new directors and
officers of the Company as may be designated by the Feishang
Shareholder;
(3) the written resignations of all directors and such officers of the
Company required by the Feishang Shareholder, which resignations
will contain an acknowledgment from each of them that they have no
claims against the Company for loss of office, unpaid
compensation, or otherwise; and
(4) all registration certificates, statutory books, minute books and
common seal of the Company, all account books and all documents
and papers in connection with the affairs of the Company and all
documents of title relating to the Company's assets (unless
already in the possession of the Feishang Shareholder) as are
reasonably required by the Feishang Shareholder.
Feishang and the Feishang Shareholder will deliver to the Company
(a) copies of all corporate resolutions and other corporate
proceedings taken by their respective board of directors and
shareholders, if necessary, to authorize the execution, delivery
and performance of this Agreement, (b) the corporate record books
of Feishang and (c) the corporate record books of Wuhu, including
all registration certificates, statutory books, minute books and
common seal of Feishang and Wuhu, all account books and all
documents and papers in connection with the affairs of Feishang
and Wuhu and all documents of title relating to the assets of
Feishang and Wuhu (unless already in the possession of the
Company) as are reasonably required by the Feishang Shareholder.
Feishang Shareholder will deliver to the Company copies of all
corporate resolutions and other corporate proceedings taken by
their respective boards of directors to authorize the execution,
delivery and performance of its obligations under this Agreement.
9. Undertaking by Feishang Shareholder
Feishang Shareholder hereby irrevocably undertakes to the Company that it
will not, within 2 years from the Closing Date, sell, transfer, pledge,
19
mortgage or otherwise dispose of any of the Exchange Shares received by
Feishang Shareholder in accordance with the provisions of this Agreement.
10. Continuing Obligations Under the Exchange Act
Feishang and the Feishang Shareholder acknowledge that consummation of
the transactions contemplated by this Agreement will require the Company
to make certain filings with the SEC under the Exchange Act and Feishang
and the Feishang Shareholder hereby covenant and agree to cause all such
information to be prepared and filed with the SEC on a timely basis so
that the Company continues to comply with its obligations under the
Exchange Act. In addition, Feishang and the Feishang Shareholder hereby
covenant and agree that, following the Closing and for a period of at
least three years thereafter, it (a) will cause the Company to file all
reports required to be filed by the Company under the Exchange Act and
(b) will use its reasonable best efforts to cause the Company's
securities to continue to be listed on the Nasdaq SmallCap market.
11. Confidential Information; Delivery; Return; Non-Disclosure
(a) Delivery of Information. Until the earlier of the Closing Date or
the termination of this Agreement (such date hereinafter the
"Termination Date"), pursuant to the terms of this Agreement:
(1) Feishang will provide the Company and its officers, directors,
employees, agents, counsel, accountants, financial advisors,
consultants and other representatives (together "Company
Representatives") with reasonable access, upon reasonable
prior notice, to all officers, employees and accountants of
Feishang and Wuhu and to their assets, properties, contracts,
books, records and all such other information and data
concerning the business and operations of Feishang or Wuhu as
the Company Representatives reasonably may request in
connection with such investigation, but only to the extent
that such access does not unreasonably interfere with the
business and operations of Feishang or Wuhu.
(2) The Company will provide the Feishang Shareholder and Feishang
and their officers, directors, employees, agents, counsel,
accountants, financial advisors, consultants and other
representatives (together "Feishang Representatives") with
reasonable access, upon reasonable prior notice, to all
20
officers, employees and accountants of the Company and to its
assets, properties, contracts, books, records and all such
other information and data concerning the business and
operations of the Company as the Feishang Representatives
reasonably may request in connection with such investigation.
(b) Acknowledgements; Definitions:
(1) The Company has been and, pursuant to the terms of this
Section, shall continue to be privy to certain proprietary and
confidential information of Feishang, Wuhu and/or the Feishang
Shareholder (the "Feishang Confidential Information"). As used
herein, the term "Feishang Confidential Information" shall
include, but not be limited to, any and all information or
documentation whatsoever which has been disclosed or made
available to the Company Representatives by Feishang, the
Feishang Shareholder or Wuhu, regarding their products,
services, techniques, manufacturing or other processes,
activities, businesses, properties, operations, clients,
customers, prospective clients, price lists, suppliers,
business associates equipment, Trade Secrets (as defined
herein), computer software, scientific discoveries,
experiments, data, equipment designs, training, devices,
charts, manuals, payroll, financial statements and
improvements thereto and any other information or materials
disclosed or delivered to the Company Representatives which
the disclosing party may from time to time designate and treat
as confidential, proprietary or as a trade secret, including
without limitation all information relating (directly or
indirectly) to the material set forth in the Feishang business
plan delivered or to be delivered to the Company
Representatives.
(2) Feishang and/or the Feishang Shareholder have been and,
pursuant to the terms of this Section, shall continue to be
privy to certain proprietary and confidential information of
the Company (the "Company Confidential Information"). As used
herein, the term "Company Confidential Information" shall
include, but not be limited to, any and all information or
documentation whatsoever which has been disclosed or made
available to Feishang Representatives by the Company regarding
its products, services, techniques, manufacturing or other
processes, activities, businesses, properties, operations,
clients, customer, prospective clients, price lists,
suppliers, business associates, equipment, Trade Secrets (as
defined herein), computer software, scientific discoveries,
experiments, data, equipment designs, training devices,
charts, manuals, payroll, financial statements and
21
improvements thereto and any other information or materials
disclosed or delivered to Feishang Representatives which the
disclosing party may from time to time designate and treat as
confidential, proprietary or as a trade secret.
(3) Reference to "Confidential Information" herein shall include
and relate to both Feishang Confidential Information and the
Company Confidential Information.
(4) As used herein, the term "Trade Secret" shall mean the whole
or any portion of any formula, pattern, device, combination of
devices, or compilation of information which is for use, or is
used in the operation of the other party's businesses and
which provides such party's business as advantage, or an
opportunity to obtain an advantage, over those who do not know
or use it. For purposes of interpretation hereunder the
following shall apply:
Irrespective of novelty, invention, patentability, the state
of the prior art, and the level of skill in the business, art
or field to which the subject matter pertains, when the owner
thereof takes measures to prevent it from becoming available
to persons other than those selected by the owner to have
access thereto for limited purposes, a trade secret is
considered to be a secret, of value, for use or in use by the
business, and of advantage to the business, or providing an
opportunity to obtain an advantage, over those who do not know
or use it.
In addition, a "Trade Secret" shall include information (not
readily compiled from publicly available sources) which has
been made available by Feishang, Wuhu and/or the Feishang
Shareholder to the Company Representatives or by the Company
to the Feishang Representatives, as the case may be, during
the course of their involvement with each other, including but
not limited to the names, addresses, telephone numbers,
qualifications, education, accomplishments, experience and
resumes of all persons who have applied or been recruited for
employment, for either or both permanent and temporary jobs,
job order specifications and the particular characteristics
and requirements of persons generally hired by the disclosing
party, as well as specific job listings from companies with
whom the disclosing party does, or attempts to do, business,
as well as mailing lists, computer runoffs, financial or other
information not generally available to others.
22
(c) Non-Disclosure; the Company:
(1) The Company, for itself, its officers, employees, directors,
agents, affiliates, subsidiaries, independent contractors, and
related parties, (all of whom are to be deemed included in any
reference herein to the Company) agrees that it will not at
any time during or after the termination or expiration of this
Agreement, except as authorized or directed herein or in
writing by Feishang and/or the Feishang Shareholder, use for
the Company's own benefit, copy, reveal, sell, exchange or
give away, disclose, divulge or make known or available in any
manner to any person, firm, corporation or other entity
(whether or not the Company receives any benefit therefrom),
any Feishang Confidential Information.
(2) The Company will take all actions necessary to ensure that the
Feishang Confidential Information is maintained as secret and
confidential and its disclosure shall only be made to the
extent necessary, to a limited group of the Company's
employees, officers and/or directors who are actually engaged
in the evaluation of the Feishang Confidential Information;
provided however, the Company acknowledges and agrees that it
shall be responsible and held liable for the actions or
inactions of such employees, officers and directors
(regardless whether or not such actions or inactions are
within their scope of employment) with respect to the
maintenance of the secrecy and confidentiality of the Feishang
Confidential Information.
(3) The Company understands that if it discloses to others, use
for its own benefit (other than as part of an agreement with
Feishang and the Feishang Shareholder, which expressly
provides for such use) or for the benefit of any person or
entity other than Feishang and/or the Feishang Shareholder,
copies or makes notes of any such Feishang Confidential
Information, such conduct will constitute a breach of the
confidence and trust bestowed upon the Company by Feishang and
the Feishang Shareholder and will constitute a breach of this
Agreement and render the Company responsible for any and all
damages suffered by Feishang and/or the Feishang Shareholder
as a result thereof.
(4) Provided, however, notwithstanding the foregoing, the terms of
this subsection (c) shall not be applicable to any information
which the Company is compelled to disclose by judicial or
administrative process or by other requirements of law
(including, without limitation, in connection with obtaining
the necessary approvals of governmental or regulatory
authorities for the Exchange), except that the Company shall
procure the confidential treatment of any Feishang
Confidential Information which it is compelled to disclose by
this Section 11(c)(4) and that access thereto shall be
strictly restricted to persons to whom such judicial and
23
administrative process requires. In the event of any such
disclosure of any Feishang Confidential Information, Feishang
and the Feishang Shareholder shall have the right to petition
any court of competent jurisdiction for any remedy or order
(interim or otherwise) for the protection of confidentiality
of such Feishang Confidential Information.
(d) Non-Disclosure: Feishang and the Feishang Shareholder:
(1) Feishang and the Feishang Shareholder, for themselves, their
officers, employees, directors, agents, affiliates,
subsidiaries, independent contractors, and related parties
(all of whom are to be deemed included in any reference herein
to Feishang and the Feishang Shareholder) severally (but not
jointly) agree that they will not at any time during or after
the termination or expiration of any agreement or negotiations
for an agreement with the Company, except as authorized or
directed herein or in writing by the Company, use for Feishang
and the Feishang Shareholder's own benefit, copy, reveal,
sell, exchange or give away, disclose, divulge or make known
or available in any manner to any person, firm, corporation or
other entity (whether or not Feishang and the Feishang
Shareholder receives any benefit therefrom), any Company
Confidential Information.
(2) Feishang and the Feishang Shareholder severally (but not
jointly) agree to take all actions necessary to ensure that
the Company Confidential Information is maintained as secret
and confidential and its disclosure shall only be made, to the
extent necessary, to a limited group of Feishang and/or the
Feishang Shareholder' own employees, officers, directors
and/or professional advisors who are actually engaged in the
evaluation of the Company Confidential Information; provided,
however, Feishang and the Feishang Shareholder severally (but
not jointly) acknowledge and agree that they shall be
responsible and held liable for the actions or inactions of
such employees, officers, directors and/or professional
advisors (regardless whether or not such actions or inactions
are within their scope of employment) with respect to the
maintenance of the secrecy and confidentiality of the Company
Confidential Information.
(3) Feishang and the Feishang Shareholder understand that if they
disclose to others, use for their own benefit (other than as
24
part of an agreement with the Company, which contemplates such
use) or for the benefit of any person or entity other than the
Company, copies or make notes of any such Company Confidential
Information, such conduct will constitute a breach of the
confidence and trust bestowed upon Feishang and the Feishang
Shareholder by the Company and will constitute a breach of
this Agreement and render Feishang and the Feishang
Shareholder severally (but not jointly) responsible for any
and all damages suffered by the Company as a result thereof.
(4) Provided, however, notwithstanding the foregoing, the terms of
this subsection (d) shall not be applicable to (i) any
information which Feishang and/or the Feishang Shareholder are
compelled to disclose by judicial or administrative process or
by other requirements of law (including, without limitation,
in connection with obtaining the necessary approvals of
governmental or regulatory authorities for the Exchange), (ii)
information that is publicly available, (iii) information
previously in the possession of Feishang and/or the Feishang
Shareholder, (iv) information obtained independently from
third parties and (v) with respect to the Feishang
Shareholder, information that is disclosed for inter-fund
reporting purposes.
(e) Return of Information:
(1) At any time after the Termination Date, upon request of
Feishang or any Feishang Shareholder, the Company will, and
will cause the Company Representatives to promptly (and in no
event later than five days after such request) redeliver or
cause to be redelivered to Feishang or the Feishang
Shareholder (as applicable) all Feishang Confidential
Information and destroy or cause to be destroyed all notes,
memoranda, summaries, analyses, compilations and other
writings relating thereto or based thereon prepared by the
Company or any Company Representative. Such destruction shall
be certified in writing to Feishang and the Feishang
Shareholder by an authorized officer supervising such
destruction.
(2) At any time after the Termination Date, upon request of the
Company, the Feishang Shareholder and/or Feishang will, and
will cause the Feishang Representatives to, promptly (and in
no event later than five days after such request) redeliver or
cause to be redelivered to the Company all Company
Confidential Information, and destroy or cause to be destroyed
all notes, memoranda, summaries, analyses, compilations and
other writings relating thereto or based thereon prepared by
25
Feishang or the Feishang Shareholder or any Feishang
Representative. Such destruction shall be certified in writing
to Feishang and the Feishang Shareholder by an authorized
officer supervising such destruction.
12. Equitable Relief.
The Company, Feishang and the Feishang Shareholder agree that money
damages would not be a sufficient remedy for any breach or threatened
breach of any provision set forth in Sections 11, 13(b) or 14 by the
other, and that, in addition to all other remedies which any party hereto
may have, each party will be entitled to specific performance and
injunctive or other equitable relief as a remedy for any such breach or
threatened breach. No failure or delay by any party hereto in exercising
any right, power or privilege hereunder will operate as a waiver thereof,
nor will any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any right, power or privilege
hereunder.
13. Conduct and Business.
(a) Between the date hereof and the Closing Date, Feishang shall
conduct its business and the business of all members of the
Feishang Mining Group in substantially the same manner in which it
has heretofore been conducted, and the Feishang Shareholder will
not permit any member of the Feishang Mining Group to: (1) enter
into any contracts, agreements or arrangements, other than in the
ordinary course of business, (2) declare or make any distribution
of any kind to the Feishang Shareholder or (3) take any action
that causes any the representations or warranties of Feishang or
the Feishang Shareholder to become inaccurate in any material
respect, or causes Feishang or the Feishang Shareholder to fail to
perform any of their respective obligations under this Agreement,
or could adversely affect the benefits to be received by the
Company under this Agreement or consummation of the transactions
contemplated hereby.
(b) Between the date hereof and the Closing Date, the Company shall
conduct its business in substantially the same manner in which it
has heretofore been conducted, and the Company will not; (1) enter
into any contracts, agreements or arrangements, other than in the
ordinary course of business, (2) declare or make any distribution
26
of any kind to the shareholders of the Company. Further, also
during such time period, the Company hereby agrees that neither
the Company nor any of its affiliates or associates (as such terms
are defined in Rule12b-2 under the Exchange Act) will, and the
Company and they will not assist or encourage others to, directly
or indirectly, except as expressly permitted by this Agreement (A)
sell or dispose of or agree, offer, seek or propose to sell or
dispose of (or request permission to do so from any person)
ownership (including, but not limited to beneficial ownership as
defined in Rule 13d-3 under the Exchange Act) of (a) any of the
assets or business of the Company, (B) any securities of the
Company (whether outstanding or to be issued) or (C) any rights or
options to acquire such ownership (including to or from a person
other than the Company), or (B) enter into any discussions,
negotiations, arrangements or understandings with any person or
entity with respect to any of the foregoing save and except for
the Disposal Agreement or (3) take any action that causes any the
representations or warranties of the Company to become inaccurate
in any material respect, or causes the Company to fail to perform
any of its obligations under this Agreement, or could adversely
affect the benefits to be received by Feishang or the Feishang
Shareholder under this Agreement or consummation of the
transactions contemplated hereby .
14. No Public Disclosure.
(a) Feishang and the Feishang Shareholder hereby acknowledge that they
are aware (and that the Feishang Representatives who have been
apprised of this Agreement and the Feishang Shareholder's
consideration of the Exchange have been, or upon becoming so
apprised will be advised) of the restrictions imposed by federal
and state securities laws on a person possessing material
non-public information about a company with a class of securities
registered under the Exchange Act. In this regard, Feishang
Shareholder agrees that while it is in possession of material
non-public information with respect to the Company and its
subsidiaries, Feishang Shareholder will not purchase or sell any
securities of the Company, or communicate such information to any
third party, in violation of any such laws.
(b) Without the prior written consent of the other, neither the
Feishang Shareholder or Feishang, on the one hand, nor the
Company, on the other, will, and will each cause their respective
representatives not to, make any release to the press or other
public disclosure with respect to either the fact that discussions
27
or negotiations have taken place concerning the Exchange, the
existence or contents of this Agreement or any prior
correspondence relating to this transaction, except for such
public disclosure as may be necessary, in written opinion of
outside counsel (reasonably satisfactory to the other party) for
the party proposing to make the disclosure not to be in violation
of or default under my applicable law, regulation or governmental
order. If either party proposes to make any disclosure based upon
such an opinion, that party will deliver a copy of such opinion to
the other party, together with the text of the proposed
disclosure, as far in advance of its disclosure as is practicable,
and will in good faith consult with and consider the suggestions
of the other party concerning the nature and scope of the
information it proposes to disclose.
15. Brokerage Fee.
Each party hereto represents that no brokers have been employed in this
transaction.
16. Agreement to Indemnify.
Subject to the terms and conditions of this Agreement, the Company herby
agrees to indemnify, defend and hold the Feishang Shareholder harmless
from and against all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs and expenses, including
without limitation, interest, penalties, court costs and reasonable
attorneys' fees (including paralegal and law clerk fees and other legal
expenses and costs) and expenses, asserted against, relating to, imposed
upon or incurred by the Feishang Shareholder by reason of or resulting
from (i) a breach of any agreement set forth in this Agreement by the
Company or the Company Representatives, or (ii) a breach of any
representation or warranty given by the Company contained in or made
pursuant to this Agreement; provided that, in the case of clause (ii),
notice of such breach of representation or warranty is given to the
Company within two years of the Closing Date, except with respect to the
representations and warranties contained in Sections 4(a) through 4(d),
4(k) and 4(l), which shall survive without limitation.
Subject to the terms and conditions of this Agreement, each of Feishang
and the Feishang Shareholder hereby agrees, severally and not jointly, to
indemnify, defend and hold the Company harmless from and against all
demands, claims, actions or causes of action, assessments, losses,
damages, liabilities, costs and expenses, including without limitation,
28
interest, penalties, court costs and reasonable attorneys' fees
(including paralegal and law clerk fees and other legal expenses and
costs) and expenses, asserted against, relating to, imposed upon or
incurred by the Company by reason of or resulting from a breach of (i)
any agreement set forth in this Agreement by Feishang or Feishang
Shareholder, or (ii) any representation or warranty given by Feishang or
Feishang Shareholder contained in or made pursuant to this Agreement,
provided that notice of such breach of representation or warranty is
given to Feishang or Feishang Shareholder within two years of the Closing
Date, except with respect to the representations and warranties contained
in Section 2(a) - 2(b), 3(a) and 3(b), which shall survive without
limitation. All of the foregoing are hereinafter collectively referred to
as "Claims" and singularly as a "Claim."
(a) Conditions of Indemnification
The obligations and liabilities of the Feishang Shareholder,
Feishang and the Company, with respect to Claims resulting from
the assertion of liability by any of them, shall be subject to the
following terms and conditions:
(1) The party hereto seeking indemnification (the "Indemnitee")
will give the other party hereto from whom indemnification
is sought (the "Indemnitor") notice of any such Claim
reasonably promptly after the Indemnitee receives notice
thereof, and the Indemnitor will have the right to
undertake the defense thereof by representatives of its own
choosing. The failure of any Indemnitee to give notice as
provided herein shall not relieve the Indemnitor of its
obligations under Section 14 above, except to the extent
that the Indemnitor is prejudiced by the failure to give
such notice. When the Indemnitor undertakes the defense of
any claim, the Indemnitee shall have the right to
participate in contesting such claim at its own costs and
expense.
(2) In the event that the Indemnitor, within ten (10) business
days after notice of any such Claim, fails to defend such
Claim, the Indemnitee will (upon giving written notice to
the Indemnitor) have the right, but not the obligation, to
undertake the defense, compromise or settlement of such
Claim on behalf of and for the account and risk of the
Indemnitor, subject to the right of the Indemnitor to
assume the defense of such Claim at any time prior to
settlement, compromise or final determination thereof.
(3) The Indemnitor shall not, without the Indemnitee's written
consent, settle or compromise any Claim or consent to entry
of any judgment which does not include an unconditional
release from all liability in respect of such Claim, other
than liability specified in the settlement, from the
claimant or plaintiff to the Indemnitee. To the greatest
extent reasonably possible, the parties shall attempt to
obtain general releases from such plaintiff or claimant.
29
17. Cost and Expenses.
Each party hereto shall pay its own costs and expenses incident to the
negotiation and preparation of this Agreement and to the consummation of
the transactions contemplated herein and therein, provided that if the
transactions contemplated by this Agreement are not completed because (i)
Feishang and the Feishang Shareholder cannot deliver to the Company any
of the documents mentioned in Section 2(d) or any of the Feishang
representations and warranties in Section 2 is not accurate in all
material respects, Feishang shall forthwith indemnify and reimburse the
Company for the costs and expenses incurred by the Company; provided that
the aggregate liability of Feishang and Feishang Shareholder shall not
exceed HK $600,000 or (ii) the Company cannot satisfy any of the
conditions contemplated by Section 6 hereof or any of the Company
representations and warranties in Section 4 is not accurate in all
material respects, the Company shall forthwith indemnify and reimburse
Feishang and Feishang Shareholder collectively for the costs and expenses
incurred in relation to this Agreement provided that the aggregate
liability of the Company hereunder shall not exceed HK $600,000. Such
amounts shall constitute liquidated damages and, upon receipt of such
amount, the parties shall be released from any further liability and
obligation hereunder.
18. Miscellaneous.
(a) Waiver; Strict Construction:
No change or modification of this Agreement shall be valid unless
the same is in writing and signed by all the parties hereto. No
waiver of any provision of this Agreement shall be valid unless in
writing and signed by the person against whom sought to be
enforced. The failure of any party at any time to insist upon
strict performance of any condition, promise, agreement or
understanding set forth herein shall not be construed as a waiver
of relinquishment of the right to insist upon strict performance
of the same condition, promise, agreement or understanding at a
future time.
(b) Entire Agreement.
This Agreement, together with all schedules and exhibits hereto
sets forth all of the promises, agreements, conditions,
30
understandings, warranties and representations among the parties
hereto, and there are no promises, agreements, conditions,
understandings, warranties or representations, oral and written,
express or implied, among them other than as set forth herein.
This Agreement is, and is intended by the parties to be, an
integration of any and all prior agreements or understandings,
oral and written.
(c) Headings.
The headings in this Agreement are inserted for
convenience of reference only and are not to be used in construing
or interpreting the provisions of this Agreement.
(d) Counterparts
This Agreement may be executed in two or more identical
counterparts, each of which will be deemed an original and all of
which will constitute one instrument.
(e) Construction. Unless the context clearly otherwise requires the
use of the singular will include the plural and the use of the
plural will include the singular, and the use of any gender will
include the other two genders.
(f) Severability.
If a covenant or provision provided in this Agreement is deemed to
be contrary to law, that covenant or provision will be deemed
ineffective and will not affect the validity, interpretation, or
effect of the other provisions of either this Agreement or any
agreement executed pursuant to it or the application of that
covenant or provision to other circumstances not contrary to law.
(g) Computation of Time. Whenever the last day for the exercise of any
privilege or the discharge of any duty hereunder falls upon
Saturday, Sunday, or any public or legal holiday, the party having
the privilege or duty will have until 5:00 p.m. Hong Kong Time on
the next succeeding regular business day to exercise the privilege
or discharge the duty.
(h) Interpretation.
No provision of this Agreement will be construed against or
interpreted to the disadvantage of any party by any court or other
governmental or judicial authority by reason of such party having
or being deemed to have structured or dictated such provision.
31
(i) Governing Law.
This Agreement and the obligations of the parties hereunder will
be interpreted, construed, and enforced in accordance with the
Laws of the British Virgin Islands.
(j) Attorneys' Fees.
In the event a lawsuit is brought by any party to enforce or
interpret the terms hereof, or for any dispute arising out of this
transaction, the party prevailing in any such lawsuit shall be
entitled to recover from the non-prevailing party its costs and
expenses thereof, including its legal fees in reasonable amount
and prejudgment and post-judgment interest at the highest rate
allowable under British Virgin Islands law.
(k) Assignment.
This Agreement shall not be assignable by any party without the
prior written consent of the other.
(l) Notices.
All notices, requests, instructions or other documents to be given
hereunder shall be in writing and sent by registered mail or
overnight courier:
If to Feishang and Feishang Shareholder, then:
26/F., Securities Building,
5020 Binhe Road, Futian District,
Shenzhen, PRC
Attn: Xx. Xx Feilie
If to the Company, then:
Xxxx 0000, Xxxx Xxxxx,
Xxxx Tak Centre, Connaught Road C.,
Xxxxxx Xxx, Hong Kong
Attn: Xx. Xxx Xxxxx Xx
(m) Benefit and Burden.
This Agreement shall inure to the benefit of, and shall be binding
upon, the parties hereto and their legatees, distributes, estates,
executors or administrators, successors and assigns, and personal
and legal representatives.
32
IN WITNESS WHEREOF, on the date first written above, the parties hereto
have duly executed this Agreement and the Company and Feishang have caused their
corporate seals to be affixed hereto as of the date and year first above
written.
China Natural Resources, Inc.
By: /s/ Tam Xxxxx Xx
----------------
Name: Tam Xxxxx Xx
Its: Director
Feishang Mining Holdings Limited
By: /s/ Li Feilie
-------------
Name: Li Feilie
Its: Director
Feishang Group Limited
By: /s/ Li Feilie
-------------
Name: Li Feilie
Its: Director
33
Schedule 1(a)
Financial Statements of Feishang Mining Holdings Limited
BALANCE SHEET
As at 31st December 2004
(in Hong Kong Dollars)
CURRENT ASSET
Bank balance 90,280
CURRENT LIABILITY
Due to a director 103,192
--------
NET LIABILITY (12,912)
========
DEFICIENCY IN ASSETS
Share capital 8
Accumulated loss (12,920)
--------
(12,912)
========
STATEMENT OF INCOME
For the period from 3rd September 2004 (date of incorporation) to
31st December 2004 (in Hong Kong Dollars)
General and administrative expenses and
Loss for the period 12,920
======
Schedule 1(b)
Financial Statements of Wuhu Feishang Mining Development Co. Ltd.
WUHU FEISHANG MINING DEVELOPMENT CO., LTD.
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2002
FOUR MONTHS ENDED APRIL 30, 2003
EIGHT MONTHS ENDED DECEMBER 31, 2003
YEAR ENDED DECEMBER 31, 2004
WUHU FEISHANG MINING DEVELOPMENT CO., LTD.
INDEX TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2002
FOUR MONTHS ENDED APRIL 30, 2003
EIGHT MONTHS ENDED DECEMBER 31, 2003
YEAR ENDED DECEMBER 31, 2004
Pages
-----
Report of independent registered public accounting firm F-1
Statements of operations F-2
Balance sheets F-3
Statements of equity F-4
Statements of cash flows F-5 - F-6
Notes to financial statements F-7 - F-20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Wuhu Feishang Mining Development Co., Ltd.
We have audited the accompanying balance sheets of Wuhu Feishang Mining
Development Co., Ltd. (Successor Company) (note 1) as of December 31, 2003 and
2004, and the related statements of operations, equity, and cash flows for the
eight months ended December 31, 2003 and the year ended December 31, 2004
(Successor Company Period); and we have audited the statements of operations,
equity and cash flows of Anhui Fanchang Zinc and Iron Mine (Predecessor Company)
(note 1) for the year ended December 31, 2002 and the four months ended April
30, 2003 (Predecessor Company Period). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wuhu Feishang Mining
Development Co., Ltd. at December 31, 2003 and 2004, and the results of its
operations and its cash flows for the Successor Company Period and the results
of operations and cash flows of Anhui Fanchang Zinc and Iron Mine for the
Predecessor Company Period, in conformity with accounting principles generally
accepted in the United States of America.
As discussed in note 1 to the financial statements, the Predecessor Company was
acquired on May 1, 2003. The financial statements of the Successor Company
reflect the impact of adjustments to reflect the fair values of assets acquired
and liabilities assumed under the purchase method of accounting. As a result,
the financial statements of the Successor Company are presented on a different
basis from those of the Predecessor Company and, therefore, are not comparable
in all respects.
GHP Xxxxxxx, P.C.
Denver, Colorado
September 15, 2005, except for Note 10(b) and (c) as to which
the date is November 30, 2005
F-1
WUHU FEISHANG MINING DEVELOPMENT CO., LTD.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2002
FOUR MONTHS ENDED APRIL 30, 2003
EIGHT MONTHS ENDED DECEMBER 31, 2003
YEAR ENDED DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
The statements of operations for the year ended December 31, 2002 and for the
four months ended April 30, 2003 reflect operations of the Predecessor Company
(see note 1 to the financial statements)
Predecessor | Successor
----------- ---------
Four | Eight
Year months | months Year
Ended ended | ended ended
December 31, April 30, | December 31, December 31,
Notes 2002 2003 | 2003 0000
XXX RMB | RMB RMB US$
|
NET SALES 36,129 10,439 | 31,893 77,939 9,413
|
COST OF SALES (27,757) ( 7,402) | (19,892) (29,667) ( 3,583)
----- ----- | ----- ----- -----
|
GROSS PROFIT 8,372 3,037 | 12,001 48,272 5,830
|
SELLING, GENERAL AND |
ADMINISTRATIVE EXPENSES (7,943) ( 2,154) | ( 4,541) ( 6,435) ( 777)
----- ----- | ----- ----- -----
|
INCOME FROM OPERATIONS 429 883 | 7,460 41,837 5,053
|
INTEREST INCOME 21 13 | 44 162 20
|
INTEREST EXPENSE ( 405) ( 51) | ( 22) - -
|
OTHER INCOME/(EXPENSE), NET 5 ( 87) ( 67) | ( 22) 6 1
----- ----- | ----- ----- -----
|
INCOME/(LOSS) FROM CONTINUING |
OPERATIONS BEFORE INCOME TAXES ( 42) 778 | 7,460 42,005 5,074
|
INCOME TAXES 6 - ( 25) | - - -
----- ----- | ----- ----- -----
|
INCOME/(LOSS) FROM CONTINUING OPERATIONS ( 42) 753 | 7,460 42,005 5,074
|
DISCONTINUED OPERATIONS |
Income/(loss) from discontinued |
bleaching earth segment 4 ( 1,825) ( 159) | ( 72) 12 1
----- ----- | ----- ----- -----
|
NET INCOME/(LOSS) ( 1,867) 594 | 7,388 42,017 5,075
===== ===== | ===== ===== =====
The accompanying notes are an integral part of these financial statements.
F-2
WUHU FEISHANG MINING DEVELOPMENT CO., LTD.
BALANCE SHEETS
DECEMBER 31, 2003 AND 2004
(AMOUNTS IN THOUSANDS)
December 31,
2003 2004 2004
Notes RMB RMB US$
ASSETS
CURRENT ASSETS
Cash and cash equivalents 10,519 19,229 2,322
Trade receivables, net of allowance of RMB66 in
2003 and RMB215 in 2004 3,417 712 86
Bills receivable 350 1,047 126
Other receivables, deposits and prepayments 845 419 51
Amount due from related companies 10 - 41,122 4,966
Amount due from a shareholder 10 9,000 9,000 1,087
Inventories 7 4,285 3,518 425
------ ------ ------
TOTAL CURRENT ASSETS 28,416 75,047 9,063
PROPERTY AND EQUIPMENT, NET 8 34,377 34,250 4,137
ASSETS HELD FOR SALE 4 9,101 - -
------ ------ ------
TOTAL ASSETS 71,894 109,297 13,200
====== ====== ======
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable 1,822 1,350 163
Other payables 9 14,775 15,579 1,882
Advances from suppliers 8,111 2,200 265
Accrued liabilities 1,375 1,506 182
Amount due to a shareholder 10 25,183 25,115 3,033
Taxes payable 1,248 2,150 260
------ ------ ------
TOTAL LIABILITIES - ALL CURRENT 52,514 47,900 5,785
------ ------ ------
EQUITY
Registered capital 13 12,000 12,000 1,449
Retained earnings 7,380 49,397 5,966
------ ------ ------
TOTAL EQUITY 19,380 61,397 7,415
------ ------ ------
TOTAL LIABILITIES AND EQUITY 71,894 109,297 13,200
====== ====== ======
The accompanying notes are an integral part of these financial statements.
F-3
WUHU FEISHANG MINING DEVELOPMENT CO., LTD.
STATEMENTS OF EQUITY
YEAR ENDED DECEMBER 31, 2002
FOUR MONTHS ENDED APRIL 30, 2003
EIGHT MONTHS ENDED DECEMBER 31, 2003
YEAR ENDED DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
The statements of equity for the year ended December 31, 2002 and for the four
months ended April 30, 2003 reflect equity of the Predecessor Company (see note
1 to the financial statements)
Predecessor Registered Retained earnings/
equity capital (accumulated deficit) Total
-----------------------------------------------------------------------------------------
THE PREDECESSOR: XXX XXX XXX XXX
Balances at January 1, 2002 23,003 - - 23,003
Net loss for the year ended
December 31, 2002 ( 1,867) - - ( 1,867)
----- ----- ----- -----
Balances at December 31, 2002 21,136 - - 21,136
Net income for the four months
ended April 30, 2003 594 - - 594
----- ----- ----- -----
Balances at April 30, 2003 21,730 - - 21,730
===== ===== ===== =====
THE SUCCESSOR:
Balances at inception, May 1, 2003 12,000 ( 8) 11,992
Net income for the eight months ended
December 31, 2003 - 7,388 7,388
----- ----- -----
Balances at December 31, 2003 12,000 7,380 19,380
Net income for the year ended
December 31, 2004 - 42,017 42,017
----- ----- -----
Balances at December 31, 2004 12,000 49,397 61,397
===== ===== =====
US$ 1,449 5,966 7,415
===== ===== =====
The accompanying notes are an integral part of these financial statements.
F-4
WUHU FEISHANG MINING DEVELOPMENT CO., LTD.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2002
FOUR MONTHS ENDED APRIL 30, 2003
EIGHT MONTHS ENDED DECEMBER 31, 2003
YEAR ENDED DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
The statements of cash flows for the year ended December 31, 2002 and for the
four months ended April 30, 2003 reflect cash flows of the Predecessor Company
(see note 1 to the financial statements)
Predecessor | Successor
----------- ---------
Four | Eight
Year months | months Year
Ended ended | ended ended
December 31, April 30, | December 31, December 31,
2002 2003 | 2003 0000
XXX XXX | RMB RMB US$
OPERATING ACTIVITIES |
Net income/(loss) ( 1,867) 594 | 7,388 42,017 5,075
Adjustments to reconcile net income/(loss) to net |
cash provided by operating activities: |
Depreciation 2,395 715 | 1,018 1,715 207
Amortization of mining rights - - | 207 312 37
Loss on disposal of property and equipment - 38 | - 255 31
|
Changes in operating assets and liabilities: |
Trade receivables 730 1,666 | ( 1,260) 2,705 327
Bills receivable - - | ( 350) ( 697) ( 84)
Inventories 2,108 ( 458) | 1,544 767 93
Other receivables, deposits and prepayments 3,970 ( 68) | 713 426 51
Accounts payable 11 1,170 | (242) ( 472) ( 57)
Other payables 130 1,418 | ( 7,621) 724 88
Advances from suppliers - - | 8,111 ( 5,911) ( 714)
Accrued liabilities - - | 1,375 131 16
Taxes payable ( 120) ( 769) | ( 773) 902 109
Discontinued operations 62 ( 675) | 454 886 106
----- ----- | ----- ----- -----
|
Net cash provided by operating activities 7,419 3,631 | 10,564 43,760 5,285
----- ----- | ----- ----- -----
|
INVESTING ACTIVITIES |
Advances to related companies - - | - (33,069) ( 3,994)
Advances to a shareholder - - | ( 9,000) - -
Purchases of property and equipment ( 2,988) ( 38) | ( 391) ( 1,981) ( 239)
Cash paid for business acquisition - - | (11,313) - -
Discontinued operations ( 219) - | - - -
----- ----- | ----- ----- -----
|
Net cash used in investing activities ( 3,207) ( 38) | (20,704) (35,050) ( 4,233)
----- ----- | ----- ---- ----
|
FINANCING ACTIVITIES |
Initial capital contribution - - | 12,000 - -
----- ----- | ----- ----- -----
|
Net cash provided by financing activities - - | 12,000 - -
----- ----- | ---- ----- ----
(Continued)
F-5
WUHU FEISHANG MINING DEVELOPMENT CO., LTD.
STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR ENDED DECEMBER 31, 2002
FOUR MONTHS ENDED APRIL 30, 2003
EIGHT MONTHS ENDED DECEMBER 31, 2003
YEAR ENDED DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
Predecessor | Successor
----------- ---------
Four | Eight
Year months | months Year
Ended ended | ended ended
December 31, April 30, | December 31, December 31,
2002 2003 | 2003 0000
XXX RMB | RMB RMB US$
|
|
NET INCREASE IN CASH AND 4,212 3,593 | 1,860 8,710 1,052
CASH EQUIVALENTS |
|
CASH AND CASH EQUIVALENTS, BEGINNING 854 5,066 | 8,659 10,519 1,270
----- ----- | ----- ----- -----
|
CASH AND CASH EQUIVALENTS, ENDING 5,066 8,659 | 10,519 19,229 2,322
===== ===== | ===== ===== =====
|
|
Supplemental disclosure of cash flow information: |
Cash paid for: |
Interest 403 50 | 20 - -
===== ===== | ===== ===== =====
Income taxes 203 500 | - - -
===== ===== | ===== ===== =====
|
Supplemental disclosure of non-cash investing and financing activities: |
Amount due from related company for sale of assets |
of discontinued operations - - | - 8,050 972
===== ===== | ===== ===== =====
|
Offset other receivables against amount due to a
shareholder - - | - ( 68)( 8)
===== ===== | ===== ===== =====
The accompanying notes are an integral part of these financial statements.
F-6
WUHU FEISHANG MINING DEVELOPMENT CO., LTD.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2002
FOUR MONTHS ENDED APRIL 30, 2003
EIGHT MONTHS ENDED DECEMBER 31, 2003
YEAR ENDED DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
In May 2003, Anhui Fanchang Zinc and Iron Mine, a stated-owned
enterprise (the "Predecessor Company") underwent a corporate
reorganization (the "Reorganization"). Pursuant to the Reorganization,
the Predecessor Company sold its entire business to an unrelated
entity, Wuhu Feishang Mining Development Co., Ltd. (the "Company" or
"WFM" or the "Successor"). WFM was established as a Sino-foreign joint
venture company in the People's Republic of China ("PRC") with the
venturers being Wuhu Feishang Enterprise Development Limited ("WFE")
("50%") and Feishang International Holdings Limited ("FIH") ("50%") on
June 21, 2002 with a tenure of 20 years from the date of the business
license. Xx. Xx Feilie is the majority owner of WFE and FIH. The tenure
can be extended by agreement between the joint venture partners with
the necessary approval from the relevant government agencies. The
registered capital of WFM is RMB12,000 (US$1,449), of which RMB6,000
(US$725) was each contributed by WFE and FIH.
The financial statements for the Predecessor Period for the year ended
December 31, 2002 and the four months ended April 30, 2003 were
prepared using the historical basis of accounting. As a result of the
Reorganization, WFM applied purchase accounting and a new basis of
accounting began on May 1, 2003. WFM has reflected a Predecessor Period
for the year ended December 31, 2002 and the four months ended April
30, 2003 and a Successor Period from May 1, 2003 through December 31,
2003 and the year ended December 31, 2004. Accordingly, the results of
operations of the Predecessor and the Successor are not comparable in
all respects.
The principal activity of the Company is the mining of zinc, iron,
activated bleaching earth, metallurgy bentonite and other minerals for
distribution in the PRC. In early 2004, the Company sold its mining
business in activated bleaching earth and metallurgy bentonite to Wuhu
Feishang Non-Metal Material Co. Ltd. ("WFNM"), a related party, for
consideration of RMB8,050 (US$972). The Company owns the mining rights
to two mines: Xxxx-xxxxx Mine contains iron and zinc minerals and
Zao-yun Mine contains mainly iron minerals. The cash flows and
profitability of the Company's current operations are significantly
affected by the market price of zinc and iron. These commodity prices
can fluctuate widely and are affected by factors beyond the Company's
control.
F-7
WUHU FEISHANG MINING DEVELOPMENT CO., LTD.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2002
FOUR MONTHS ENDED APRIL 30, 2003
EIGHT MONTHS ENDED DECEMBER 31, 2003
YEAR ENDED DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Accounting principles
The financial statements of the Company are prepared in
accordance with accounting principles generally accepted in
the United States of America ("US GAAP").
(b) Use of estimates
The preparation of the financial statements in conformity with
US GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting year. Actual results could
differ from those estimates.
(c) Cash and cash equivalents
The Company considers all highly liquid investments and cash
deposits with financial institutions with original maturities
of three months or less to be cash equivalents.
(d) Inventories
Inventories are stated at the lower of average cost or net
realizable value. For products, we determine net realizable
value by estimating value based on current metals prices, less
cost to convert stockpiled and in-process inventories to
finished products. Major types of inventories include:
Raw materials consists of raw ore extracted and auxiliary
material - costs are limited to those directly related to
mining
Work in progress consists of semi-finished iron and zinc ore
- valued at the cost of production through the point at
which inventory has been processed
Finished goods - valued at the lower of full cost of
production or net realizable value based on current metal
prices
F-8
WUHU FEISHANG MINING DEVELOPMENT CO., LTD.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2002
FOUR MONTHS ENDED APRIL 30, 2003
EIGHT MONTHS ENDED DECEMBER 31, 2003
YEAR ENDED DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(e) Property and equipment
Property and equipment are stated at cost less accumulated
depreciation. Expenditures for routine repairs and maintenance
are expensed as incurred.
Depreciation is calculated on the straight-line basis to write
off the cost less estimated residual value of each asset over
its estimated useful life.
In April 2004, the FASB issued FASB Staff Position ("FSP") FAS
141-1 and FAS 142-1 "Interaction of FASB Statements Xx. 000,
Xxxxxxxx Xxxxxxxxxxxx, xxx Xx. 000, Xxxxxxxx and Other
Intangible Assets, and Emerging Issues Task Force ("EITF")
Issue 04-2, "Whether Mineral Rights are Tangible or Intangible
Assets". This FSP amends SFAS Nos. 141 and 142 and requires
mineral rights to be accounted for as tangible assets based on
the consensus reached in EITF 04-2.
The Company has determined that the mining rights acquired
from the Predecessor are mineral rights, and accordingly are
classified as property and equipment.
Mining rights are stated at cost less accumulated amortization
and any impairment losses. The mining rights are amortized
based on actual units of production over the proven and
probable reserves of the mines, not to exceed 20 years. The
weighted average amortization period for these reserves is 18
years as of December 31, 2004. Reserves designated as proven
and probable are supported by a study indicating that the
reserves have had the requisite geological, technical and
economic work performed, and are legally extractable at the
time of reserve determination. The Company's rights to extract
minerals are contractually limited by time. However, the
Company believes that it will be able to extend licenses, as
it has in the past, without incurring substantial costs, and
therefore, believes that assigned lives are appropriate. All
costs, other than acquisition costs, are expensed prior to the
establishment of proven and probable reserves. Once proven and
probable reserves are established, all development and other
site specific costs are capitalized, including general and
administrative charges for actual time and expenses incurred
in connection with site supervision.
Estimated useful lives are as follows:
Buildings and mine development 15 - 35 years
Machinery and equipment 6 - 15 years
Motor vehicles 8 years
Mining rights 18 years
F-9
WUHU FEISHANG MINING DEVELOPMENT CO., LTD.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2002
FOUR MONTHS ENDED APRIL 30, 2003
EIGHT MONTHS ENDED DECEMBER 31, 2003
YEAR ENDED DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(e) Property and equipment (continued)
Management assesses the carrying values of its long-lived
assets for impairment when circumstances warrant such a
review. Generally, long-lived assets are considered impaired
if the estimated fair value is less than the assets' carrying
values. If an impairment is indicated, the loss is measured
based on the amounts by which the carrying values of the
assets exceed their fair values.
(f) Revenue recognition
Revenue from product sales is recognized when title passes to
the customer in accordance with the sales agreement, generally
upon product acceptance by the customer.
Freight and handling costs paid to third party carriers are
recorded as cost of sales.
(g) Income taxes
Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled.
(h) Foreign currency translation
The functional currency of all the operations of the Company
is the Renminbi ("RMB"), the national currency of the PRC.
Transactions denominated in currencies other than the RMB are
translated into RMBs at the applicable rates of exchange
prevailing at the dates of the transactions. Monetary assets
and liabilities denominated in other currencies have been
translated into RMBs at the rate of exchange at the balance
sheet date. The resulting exchange gains or losses are
credited or charged to the consolidated statements of
operations.
The financial statements are stated in RMB. The translation of
amounts from RMB into US$ is included solely for the
convenience of the reader and has been made at the rate of
exchange quoted by the People's Bank of China on December 31,
2004 of US$1.00 = RMB8.28. No representation is made that the
RMB amounts could have been, or could be, converted into US$
at that rate on December 31, 2004 or at any other date.
(i) Interest income
Interest on bank balances is recorded when earned.
F-10
WUHU FEISHANG MINING DEVELOPMENT CO., LTD.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2002
FOUR MONTHS ENDED APRIL 30, 2003
EIGHT MONTHS ENDED DECEMBER 31, 2003
YEAR ENDED DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(j) Recently issued accounting pronouncements
In December 2004, the Financial Accounting Standards Board
("FASB") issued SFAS No. 123 (R) "Share Based Payment" which
addresses the accounting for share-based payment transactions.
SFAS No. 123 (R) eliminates the ability to account for
share-based compensation transactions using XXX Xx. 00, and
generally requires instead that such transactions be accounted
and recognized in the statement of income based on their fair
values. SFAS No. 123 (R) will be effective for public
companies that file as small business issuers as of the first
interim period in fiscal years that begin after December 15,
2005. The Company is evaluating the provisions of SFAS No. 123
(R). Depending upon the numbers and terms of options that may
be granted in future periods, the implementation of this
standard could have a material impact on the Company's
financial position and results of operations.
In March 2005, the Emerging Issues Task Force ("EITF") issued
EITF 04-6, "Accounting for Stripping Costs Incurred during
Production in the Mining Industry". EITF 04-6 requires that
stripping costs incurred during the production phase of a mine
should be included in the cost of inventory produced during
the period the stripping costs are incurred. EITF 04-6 is
effective for the first reporting period in fiscal years
beginning after December 15, 2005, with initial adoption being
accounted for in a manner similar to a cumulative-effect
adjustment. Management is assessing the impact that the
adoption of EITF 04-6 will have on its financial statements.
3. BUSINESS ACQUISITION
In May 2003, the Company acquired assets and assumed liabilities of
Anhui Fanchang Mining Co., for total consideration of RMB11,310,000
(US$1,366,000). The acquisition has been accounted for as a purchase.
The following table summarizes the estimated fair values of the assets
acquired and the liabilities assumed at the date of the acquisition.
F-11
WUHU FEISHANG MINING DEVELOPMENT CO., LTD.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2002
FOUR MONTHS ENDED APRIL 30, 2003
EIGHT MONTHS ENDED DECEMBER 31, 2003
YEAR ENDED DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
3. BUSINESS ACQUISITION (continued)
Net assets acquired RMB
Cash 8,659
Accounts receivable 853
Inventories 7,987
Prepaid and other assets 1,648
Property and equipment 34,361
Mining rights 9,229
Exploration right 255
Accounts payable and accrued expenses (24,475)
Amount due to a shareholder (25,183)
Income tax provision (2,021)
-----
Net assets acquired 11,313
Less: cash acquired ( 8,659)
-----
Cash paid for business acquisition 2,654
=====
4. DISCONTINUED OPERATIONS
Pursuant to a January 1, 2004 agreement, the Company disposed of its
interest in the mining of activated bleaching earth operation to a
related party, Wuhu Feishang Non-Metal Material Co. Ltd. ("WFNM") for
total consideration of RMB8,050 (US$972), which has been included as an
amount due from a related company at December 31, 2004. The assets of
the activated bleaching earth segment have been classified as assets
held for sale as of December 31, 2003, and consisted of fixed assets of
RMB8,050 (US$972). Inventories of the bleaching earth segment with a
carrying value of RMB796 (US$96) were not sold to WFNM and were sold by
the Company to unrelated third parties in 2004. The sale price of the
bleaching earth segment equaled its carrying value and accordingly
there was no gain or loss on the sale. As a result of the disposition,
the Company has ceased its activated bleaching earth operations. The
results of the activated bleaching earth segment have been
retroactively restated as discontinued operations. Revenues from the
discontinued activated bleaching earth segment were RMB6,047 (US$730),
RMB1,088 (US$131), RMB7,146 (US$863) and RMB808 (US$98), respectively,
for the year ended December 31, 2002, the four months ended April 30,
2003, the eight months ended December 31, 2003 and year ended December
31, 2004. Income/(loss) before income taxes from the discontinued
activated bleaching earth segment was (RMB1,825) (US$220), (RMB159)
(US$19), (RMB72) (US$9) and RMB12 (US$1), respectively, for the year
ended December 31, 2002, the four months ended April 30, 2003, the
eight months ended December 31, 2003 and year ended December 31, 2004.
Also included in assets held for sale is RMB255 (US$31) relating to
mine exploration rights acquired from the Predecessor and sold to an
unrelated third party in December 2004.
F-12
WUHU FEISHANG MINING DEVELOPMENT CO., LTD.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2002
FOUR MONTHS ENDED APRIL 30, 2003
EIGHT MONTHS ENDED DECEMBER 31, 2003
YEAR ENDED DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
5. OTHER INCOME/ (EXPENSE), NET
Other income/ (expense), net represents:
Predecessor | Successor
----------- ---------
Four | Eight
Year months | months Year
Ended ended | ended ended
December 31, April 30, | December 31, December 31,
2002 2003 | 2003 0000
XXX RMB | RMB RMB US$
|
Loss on disposal of property & equipment - ( 38) | - - -
Other ( 87) ( 29) | ( 22) 6 1
----- ----- | ----- ----- -----
|
( 87) ( 67) | ( 22) 6 1
===== ===== | ===== ===== =====
6. INCOME TAXES
Pre-tax income (loss) for the years ended December 31, 2002, 2003 and
2004 was taxable in the PRC.
The reconciliation of income taxes/ (tax benefit) computed at the PRC
federal statutory tax rate applicable to foreign investment enterprises
operating in Anhui in the PRC, to income tax expense is as follows:
Predecessor | Successor
----------- ---------
Four | Eight
Year months | months Year
Ended ended | ended ended
December 31, April 30, | December 31, December 31,
2002 2003 | 2003 0000
XXX RMB | RMB RMB US$
|
PRC Federal statutory tax rate 30% 30% | 30% 30% 30%
|
Computed expected income tax expense - ( 225) | (2,075) (12,798) (1,546)
Non-deductible expenses - 200 | - - -
Preferential tax treatment - - | 2,075 (12,798) (1,546)
----- ----- | ----- ----- -----
|
- ( 25) | - - -
===== ===== | ===== ===== =====
The Company is governed by the Income Tax Laws of the PRC. Being a
Sino-foreign joint venture, the Company is exempt from income taxes for
a period of two years commencing from its first profitable year and is
entitled to a preferential income tax rate of 15% for three consecutive
years commencing from its third profitable year. Thereafter, the
profits will be charged at the full rate of 30%.
F-13
WUHU FEISHANG MINING DEVELOPMENT CO., LTD.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2002
FOUR MONTHS ENDED APRIL 30, 2003
EIGHT MONTHS ENDED DECEMBER 31, 2003
YEAR ENDED DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
7. INVENTORIES
At December 31, 2003 and 2004, inventories consisted of:
December 31,
2003 2004 0000
XXX RMB US$
Raw materials 2,500 2,208 267
Work in progress 219 123 15
Finished goods 1,566 1,187 143
------ ------ ------
4,285 3,518 425
====== ====== ======
8. PROPERTY AND EQUIPMENT
At December 31, 2003 and 2004, property and equipment consisted of:
December 31,
2003 2004 0000
XXX RMB US$
At cost:
Buildings and mine development 22,330 22,943 2,771
Machinery and equipment 3,877 4,095 494
Motor vehicles 166 901 109
Mining rights 9,229 9,229 1,115
------ ------ ------
35,602 37,168 4,489
Accumulated depreciation and depletion ( 1,225) ( 2,918) ( 352)
------ ------ ------
34,377 34,250 4,137
====== ====== ======
At December 31, 2003 and 2004, accumulated depreciation and depletion
included accumulated depletion of mining rights of RMB207 and RMB519,
respectively.
F-14
WUHU FEISHANG MINING DEVELOPMENT CO., LTD.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2002
FOUR MONTHS ENDED APRIL 30, 2003
EIGHT MONTHS ENDED DECEMBER 31, 2003
YEAR ENDED DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
9. OTHER PAYABLES
At December 31, 2003 and 2004, other payables consisted of:
December 31,
2003 2004 2004
RMB RMB US$
Anhui Investment Group Co. Ltd (a) 2,350 2,350 284
China Huarong Asset Management Co. Ltd. (a) 1,116 1,116 135
Fanchang County Economic Development
Department (b) 2,257 2,257 273
Natural resources fee (c) 1,978 3,186 385
Staff compensation fund (d) 4,711 4,398 531
Other 2,363 2,272 274
------ ------ ------
14,775 15,579 1,882
====== ====== ======
(a) These balances represented liabilities assumed by the
Company upon acquisition of the entire business of the
Predecessor and were settled pursuant to settlement
agreements on February 2, 2005 and March 29, 2005,
respectively.
(b) This balance represents a liability assumed by the Company
upon acquisition of the entire business of the Predecessor.
(c) Natural resources fee represents fees payable to the PRC
Government and is calculated as a percentage of sales. The
Company has no asset retirement obligations in connection
with its mining operations.
(d) The staff compensation fund represents a PRC government
required contribution to a fund established to compensate
employees for the loss of their state-sponsored pension and
post employment benefits as a result of the Reorganization.
The fund will be distributed to employees at the termination
of their employment with the Company. The Company is not
required to make any additional contributions to the fund.
F-15
WUHU FEISHANG MINING DEVELOPMENT CO., LTD.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2002
FOUR MONTHS ENDED APRIL 30, 2003
EIGHT MONTHS ENDED DECEMBER 31, 2003
YEAR ENDED DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
10. RELATED PARTY BALANCES AND TRANSACTIONS
At December 31, 2003 and 2004, amounts due from related companies and
to and from a shareholder comprise:
December 31,
2003 2004 0000
XXX RMB US$
Due from related companies
Wuhu Hengxin Copper Co. Ltd. ("Hengxin") - 30,000 3,623
Wuhu Feishang Non-Metal Material Co. Ltd.
("WFNM") - 11,122 1,343
------ ------ ------
- 41,122 4,966
====== ====== ======
Due from a shareholder:
Wuhu Feishang Enterprise Development
Co. Ltd. ("WFE") 9,000 9,000 1,087
====== ====== ======
Due to a shareholder:
Wuhu Feishang Enterprise Development
Co. Ltd. ("WFE") 25,183 25,115 3,033
====== ====== ======
(a) The amounts due from Hengxin and WFE represented advances
made to them by the Company. The amount due from WFNM
represented consideration for assets sold by the Company and
expenses paid on behalf of WFNM. These amounts were settled
subsequent to December 31, 2004 (see note 10(b)). The amount
due to WFE represented liabilities assumed by the Company
upon acquisition of the entire business of the Predecessor.
The balances with the above related companies and shareholder are
unsecured, interest-free and are repayable on demand.
F-16
WUHU FEISHANG MINING DEVELOPMENT CO., LTD.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2002
FOUR MONTHS ENDED APRIL 30, 2003
EIGHT MONTHS ENDED DECEMBER 31, 2003
YEAR ENDED DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
10. RELATED PARTY BALANCES AND TRANSACTIONS (continued)
The transactions with related companies are summarized as follows:
Year ended December 31,
2002 2003 2004 2004
-----------------------------------
RMB RMB RMB US$
Sales of finished goods to WFNM - - 428 52
Sales of finished goods to Pingxing Steel Co. Ltd.
("Pingxing") - - 57 7
Purchases of raw materials from WFNM - - 82 10
Sale of property and equipment to WFNM - - 8,050 972
Expenses paid on behalf of WFNM - - 2,670 322
====== ====== ====== ======
Both Hengxin and Pingxing are controlled by Xx. Xx Feilie who is also
the majority owner of the Company.
(b) WFNM's obligation to the Company was assumed by WFE. On November
30, 2005, the Company and WFE agreed to offset this amount against
the RMB25,115 owed by WFM to WFE.
(c) On September 25, 2003, the Company advanced RMB9,000 to WFE, a
company controlled by Xx. Xx Feilie. On February 4, 2005, the
Company advanced RMB25,000 to Pingxing, a company controlled by
Xx. Xx Feilie. On February 28, 2005, the board of directors of WFM
declared dividends of RMB44,005. On October 31, 2005 and November
30, 2005, the advances of RMB34,000 were offset against dividends
payable to Xx. Xx Feilie.
F-17
WUHU FEISHANG MINING DEVELOPMENT CO., LTD.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2002
FOUR MONTHS ENDED APRIL 30, 2003
EIGHT MONTHS ENDED DECEMBER 31, 2003
YEAR ENDED DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
11. CONCENTRATION OF RISK
Concentration of credit risk:
Financial instruments that potentially subject the Company to
significant concentration of credit risk consist principally of cash
deposits, trade receivables and bills receivable.
(i) Cash and cash deposits
The Company maintains its cash and cash deposits primarily with
various PRC State-owned banks. The Company performs periodic
evaluations of the relative credit standing of those financial
institutions.
(ii) Trade receivables
The Company sells zinc and iron products to companies in the
PRC. Management considers that the Company's current customers
are generally creditworthy and credit is extended based on an
evaluation of the customers' financial conditions and,
therefore, generally collateral is not required. At December 31,
2003 and 2004, the largest five customers accounted for 84% and
95% trade receivables, respectively. During the year ended
December 31, 2002, two customers accounted for 51% and 16%,
respectively, of the Company's sales. During the four months
ended April 30, 2003, two customers accounted for 60% and 33%,
respectively, of the Company's sales. During the eight months
ended December 31, 2003, one customer accounted for 66% of the
Company's sales. During the year ended December 31, 2004, three
customers accounted for 47%, 24% and 10%, respectively, of the
Company's sales.
(iii) Bills receivable
Bills receivable represent letters of credit obtained by the
customers of the Company to finance purchases which have been
presented to banks for payment after delivery of goods to
customers. As of December 31, 2004, bills receivable amounted to
RMB350 (2003: RMB1,047) and their collectability was guaranteed
by banks. The bills receivable have normal terms of maturity of
six months.
F-18
WUHU FEISHANG MINING DEVELOPMENT CO., LTD.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2002
FOUR MONTHS ENDED APRIL 30, 2003
EIGHT MONTHS ENDED DECEMBER 31, 2003
YEAR ENDED DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
(i) Cash and cash equivalents
The carrying amount reported in the consolidated balance sheet
for cash and cash equivalents approximate their fair value.
(ii) Trade receivables, bills receivable, other receivables, accounts
payable and other payables
The carrying amounts reported in the balance sheet for trade
receivables, bills receivable, other receivables, accounts
payable and other payables approximate their fair values due to
their short maturities.
(iii) Amounts due from/to related parties
The fair values of amounts due from/to the related parties cannot be
determined due to the related party nature of those balances.
13. REGISTERED CAPITAL, RESERVES AND DISTRIBUTION OF PROFITS
The registered capital of the Company is RMB12 million, being WFE's and
FIH's initial contributions of RMB6 million each upon the formation of
the Company.
In accordance with the relevant PRC regulations and the Articles of
Association of the Company (the "Articles of Association"),
appropriations of net income as reflected in its statutory financial
statements is to be allocated to each of the general reserve,
enterprise expansion reserve and staff bonus and welfare reserve,
respectively, as determined by the resolution of the Board of Directors
annually.
On February 28, 2005, the Board of Directors approved appropriations of
RMB1,956, RMB1,956 and RMB978 to the general reserve, the enterprise
expansive reserve and the staff bonus and welfare reserve,
respectively. The Board of Directors also declared dividends of
RMB44,005.
F-19
WUHU FEISHANG MINING DEVELOPMENT CO., LTD.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2002
FOUR MONTHS ENDED APRIL 30, 2003
EIGHT MONTHS ENDED DECEMBER 31, 2003
YEAR ENDED DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
14. FOREIGN CURRENCY EXCHANGE
The RMB is not freely convertible into foreign currencies.
From January 1, 1994 through July 2, 2005, a single rate of exchange
was quoted daily by the People's Bank of China (the "Unified Exchange
Rate"). Beginning July 23, 2005, the rate of exchange was revalued by
2.1% and the RMB is now to fluctuate according to the value of a group
of currencies (the "managed float"). However, the unification or
managed float of the exchange rates does not imply convertibility of
RMB into US$ or other foreign currencies. All foreign exchange
transactions continue to take place either through the Bank of China or
other banks authorized to buy and sell foreign currencies at the
exchange rates quoted by the People's Bank of China.
F-20
Schedule 2
Consolidated Financial Statements of China Natural Resources, Inc.
Incorporated by Reference to the Audited Consolidated Financial Statements for
China Natural Resources, Inc., as filed with the Securities and Exchange
Commission in its Annual Report on Form 20-F
for the Year Ended December 31, 2004
Schedule 3
Form of Exchange Warrant
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE
OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
Warrant No. Number of Shares:_____
Date of Issuance: January __, 2006 (the "ISSUE DATE") (subject to adjustment
pursuant to Section 2)
CHINA NATURAL RESOURCES, INC.
COMMON SHARES PURCHASE WARRANT
China Natural Resources, Inc., a British Virgin Islands company (the
"COMPANY"), for value received, hereby certifies that Feishang Group Limited, or
its registered assigns (the "REGISTERED HOLDER"), is entitled, subject to the
terms set forth below, to purchase from the Company, at any time after the date
hereof and on or before the Expiration Date (as defined in Section 5 below), up
to ________ Common Shares of the Company, at a purchase price of $____ per share
(each as adjusted from time to time pursuant to the provisions of this Warrant).
The shares purchasable upon exercise of this Warrant and the purchase price per
share, as adjusted from time to time pursuant to the provisions of this Warrant,
are sometimes hereinafter referred to as the "WARRANT SHARES" and the "PURCHASE
PRICE," respectively.
This Warrant is one of a series of warrants issued pursuant to the
terms of that certain Acquisition Agreement (the "Acquisition Agreement") dated
as of January ___, 2006, by and among the Company, Feishang Mining Holdings
Limited and Feishang Group Limited.
1. EXERCISE.
(a) MANNER OF EXERCISE. This Warrant may be exercised by the
Registered Holder, in whole or in part, by surrendering this Warrant, with the
purchase/exercise form appended hereto as Exhibit A duly executed by such
Registered Holder or by such Registered Holder's duly authorized attorney, at
the principal office of the Company, or at such other office or agency as the
Company may designate, accompanied by payment in full of the aggregate Purchase
Price payable in respect of the number of Warrant Shares purchased upon such
exercise. The Purchase Price may be paid by cash, check or wire transfer to a
bank account designated by the Company.
(b) EFFECTIVE TIME OF EXERCISE. Each exercise of this Warrant
shall be deemed to have been effected immediately prior to the close of business
on the day on which this Warrant shall have been surrendered to the Company as
provided in Section 1(a) above. At such time, the person or persons in whose
name or names any certificates for Warrant Shares shall be issuable upon such
exercise as provided in Section 1(d) below shall be deemed to have become the
holder or holders of record of the Warrant Shares represented by such
certificates.
(d) DELIVERY TO HOLDER. As soon as practicable after the
exercise of this Warrant in whole or in part, and in any event within ten (10)
days thereafter, the Company at its expense will cause to be issued in the name
of, and delivered to, the Registered Holder, or as such Holder (upon payment by
such Holder of any applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of shares
of Warrant Shares to which such Registered Holder shall be entitled, and
(ii) in case such exercise is in part only, a new warrant
or warrants (dated the date hereof) of like tenor, calling in the aggregate on
the face or faces thereof for the number of shares of Warrant Shares equal
(without giving effect to any adjustment therein) to the number of such shares
called for on the face of this Warrant minus the number of such shares purchased
by the Registered Holder upon such exercise as provided in Section 1(a) above.
2. ADJUSTMENTS.
(a) STOCK SPLITS AND DIVIDENDS. If outstanding shares of the
Company's Common Shares shall be subdivided into a greater number of shares or a
dividend in Common Shares shall be paid in respect of Common Shares, the
Purchase Price in effect immediately prior to such subdivision or at the record
date of such dividend shall simultaneously with the effectiveness of such
subdivision or immediately after the record date of such dividend be
proportionately reduced. If outstanding Common Shares shall be combined into a
smaller number of shares, the Purchase Price in effect immediately prior to such
combination shall, simultaneously with the effectiveness of such combination, be
proportionately increased. When any adjustment is required to be made in the
Purchase Price, the number of shares of Warrant Shares purchasable upon the
exercise of this Warrant shall be changed to the number determined by dividing
(i) an amount equal to the number of shares issuable upon the exercise of this
Warrant immediately prior to such adjustment, multiplied by the Purchase Price
in effect immediately prior to such adjustment, by (ii) the Purchase Price in
effect immediately after such adjustment.
(b) RECLASSIFICATION, ETC. In case of any reclassification or
change of the outstanding securities of the Company or of any reorganization of
the Company (or any other company the stock or securities of which are at the
time receivable upon the exercise of this Warrant) or any similar corporate
reorganization on or after the date hereof, then and in each such case the
holder of this Warrant, upon the exercise hereof at any time after the
consummation of such reclassification, change, reorganization, merger or
conveyance, shall be entitled to receive, in lieu of the stock or other
securities and property receivable upon the exercise hereof prior to such
consummation, the shares or other securities or property to which such holder
would have been entitled upon such consummation if such holder had exercised
this Warrant immediately prior thereto, all subject to further adjustment as
provided in Section 2(a); and in each such case, the terms of this Section 2
2
shall be applicable to the shares or other securities properly receivable upon
the exercise of this Warrant after such consummation.
(c) ADJUSTMENT CERTIFICATE. When any adjustment is required to
be made in the Warrant Shares or the Purchase Price pursuant to this Section 2,
the Company shall promptly mail to the Registered Holder a certificate setting
forth (i) a brief statement of the facts requiring such adjustment, (ii) the
Purchase Price after such adjustment and (iii) the kind and amount of shares or
other securities or property into which this Warrant shall be exercisable after
such adjustment.
3. TRANSFERS.
(a) UNREGISTERED SECURITY. Each holder of this Warrant
acknowledges that this Warrant and the Warrant Shares have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), and agrees
not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose
of this Warrant or any Warrant Shares issued upon its exercise in the absence of
(i) an effective registration statement under the Securities Act as to this
Warrant or such Warrant Shares and registration or qualification of this Warrant
or such Warrant Shares under any applicable U.S. federal or state securities law
then in effect or (ii) an opinion of counsel, satisfactory to the Company, that
such registration and qualification are not required. Each certificate or other
instrument for Warrant Shares issued upon the exercise of this Warrant shall
bear a legend substantially to the foregoing effect.
(b) TRANSFERABILITY. Subject to the provisions of Section 3(a)
hereof and the Acquisition Agreement, this Warrant and all rights hereunder are
transferable, in whole or in part, upon surrender of the Warrant with a properly
executed assignment (in the form of Exhibit B hereto) at the principal office of
the Company.
(c) WARRANT REGISTER. The Company will maintain a register
containing the names and addresses of the Registered Holder of this Warrant.
Until any transfer of this Warrant is made in the warrant register, the Company
may treat the Registered Holder of this Warrant as the absolute owner hereof for
all purposes; provided, however, that if this Warrant is properly assigned in
blank, the Company may (but shall not be required to) treat the bearer hereof as
the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary. Any Registered Holder may change such Registered Holder's address as
shown on the warrant register by written notice to the Company requesting such
change.
4. NO IMPAIRMENT. The Company will not, by amendment of its
charter or through reorganization, consolidation, merger, dissolution, sale of
assets or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will (subject to Section 13
below) at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the holder of this Warrant against impairment.
5. TERMINATION. This Warrant (and the right to purchase
securities upon exercise hereof) shall terminate upon the earliest to occur of
3
the following (the "EXPIRATION DATE"): (a) January ___, 2008 or (b) the sale,
conveyance or disposal of all or substantially all of the Company's property or
business or the Company's merger with or into or consolidation with any other
corporation (other than a wholly-owned subsidiary of the Company) or any other
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of the Company is disposed of, provided that this
Section 5(b) shall not apply to a merger effected exclusively for the purpose of
changing the domicile of the Company or to an equity financing in which the
Company is the surviving corporation.
6. NOTICES OF CERTAIN TRANSACTIONS. In case:
(a) the Company shall take a record of the holders of its
Common Shares (or other stock or securities at the time deliverable upon the
exercise of this Warrant) for the purpose of entitling or enabling them to
receive any dividend or other distribution, or to receive any right to subscribe
for or purchase any shares of any class or any other securities, or to receive
any other right, to subscribe for or purchase any shares of any class or any
other securities, or to receive any other right, or
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company, any consolidation or merger of the Company with or into
another corporation (other than a consolidation or merger in which the Company
is the surviving entity), or any transfer of all or substantially all of the
assets of the Company, or
(c) of the voluntary or involuntary dissolution, liquidation
or winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or such other stock or securities at the
time deliverable upon such reorganization, reclassification, consolidation,
merger, transfer, dissolution, liquidation or winding-up) are to be determined.
Such notice shall be mailed at least ten (10) days prior to the record date or
effective date for the event specified in such notice.
7. RESERVATION OF SHARES. The Company will at all times reserve
and keep available, solely for the issuance and delivery upon the exercise of
this Warrant, such Warrant Shares and other stock, securities and property, as
from time to time shall be issuable upon the exercise of this Warrant.
8. EXCHANGE OF WARRANTS. Upon the surrender by the Registered
Holder of any Warrant or Warrants, properly endorsed, to the Company at the
principal office of the Company, the Company will, subject to the provisions of
Section 3 hereof, issue and deliver to or upon the order of such Holder, at the
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Company's expense, a new Warrant or Warrants of like tenor, in the name of such
Registered Holder or as such Registered Holder (upon payment by such Registered
Holder of any applicable transfer taxes) may direct, calling in the aggregate on
the face or faces thereof for the number of Common Shares called for on the face
or faces of the Warrant or Warrants so surrendered.
9. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
10. NOTICES. Any notice required or permitted by this Warrant
shall be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile, or
forty-eight (48) hours after being deposited in the regular mail as certified or
registered mail (airmail if sent internationally) with postage prepaid,
addressed (a) if to the Registered Holder, to the address of the Registered
Holder most recently furnished in writing to the Company and (b) if to the
Company, to the address set forth below or subsequently modified by written
notice to the Registered Holder.
11. NO RIGHTS AS SHAREHOLDER. Until the exercise of this Warrant,
the Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a shareholder of the Company.
12. NO FRACTIONAL SHARES. No fractional Common Shares will be
issued in connection with any exercise hereunder. In lieu of any fractional
shares which would otherwise be issuable, the Company shall pay cash equal to
the product of such fraction multiplied by the fair market value of one Common
Share on the date of exercise, as determined in good faith by the Company's
Board of Directors.
13. AMENDMENT OR WAIVER. Any term of this Warrant may be amended
or waived only with the written consent of the Company and the Registered
Holder. Any amendment or waiver effected in accordance with this paragraph shall
be binding upon the Company and the Registered Holder.
14. HEADINGS. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
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15. GOVERNING LAW. This Warrant shall be governed, construed and
interpreted in accordance with the laws of the British Virgin Islands.
CHINA NATURAL RESOURCES, INC.
By:
------------------------
Ching Lung Po, President
Address: Xxxx 0000, 00/X., Xxxx Xxxxx,
Xxxx Tak Centre,
000 Xxxxxxxxx Xxxx Xxxxxxx,
Xxxx Xxxx
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EXHIBIT A
PURCHASE/EXERCISE FORM
To: CHINA NATURAL RESOURCES, INC. Dated: ____________
The undersigned, pursuant to the provisions set forth in the attached
Warrant No. ___, hereby irrevocably elects to (a) purchase Common Shares covered
by such Warrant and herewith makes payment of $ _________, representing the full
purchase price for such shares at the price per share provided for in such
Warrant, or (b) exercise such Warrant for shares purchasable under the Warrant
pursuant to the Net Issue Exercise provisions of Section 1(c) of such Warrant.
The undersigned acknowledges that the Common Shares to be issued upon
exercise hereof are being acquired solely for the account of the undersigned and
not as a nominee for any other party, and for investment and that the
undersigned will not offer, sell or otherwise dispose of any such Common Shares
except under circumstances that will not result in a violation of the Securities
Act of 1933, as amended, or any state securities laws..
Signature:_____________________________
Name (print):__________________________
Title (if applic.)_____________________
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED, _________________________________________ hereby
sells, assigns and transfers all of the rights of the undersigned under the
attached Warrant with respect to the Common Shares covered thereby set forth
below, to:
NAME OF ASSIGNEE ADDRESS/FAX NUMBER NO. OF SHARES
---------------- ------------------ -------------
Dated:_________________ Signature:_________________________
Witness: _________________________
