OPERATING AGREEMENT
EXHIBIT
10.2
This
Operating Agreement ("Agreement") is entered into on June 24, 2005, by and
among
the following parties:
PARTY
A: TAIYUAN PUTAI BUSINESS CONSULTING CO., LTD.
LEGAL
ADDRESS: 000 Xxxxx Xxxxxx, Xxxxxxx, Xxxxxx Xxxxxxxx, Xxxxx
PARTY
B: SHANXI PUDA RESOURCES
CO., LTD.
LEGAL
ADDRESS: 000 Xxxxx Xxxxxx, Xxxxxxx, Xxxxxx Xxxxxxxx, Xxxxx
PARTY
C: Xxxx Xxxx
ADDRESS:
00-0 Xxxxxxxxx Xxxxxxx, Xxxxxxxxxxx Xxxxxxxx, Xxxxxxx, Xxxxxx Xxxxxxxx,
Xxxxx
PARTY
D: Zhao Yao
ADDRESS:
Meiyun Jiashu Yuan, Liulin County, Shanxi Province, China.
WHEREAS,
Party A
is a wholly foreign owned enterprise registered in The People's Republic
of
China (the "PRC") under the laws of the PRC;
WHEREAS,
Puda
Investment Holding Limited (“Puda”), an International Business Company
incorporated in the British Virgin Islands, owns all of the registered capital
of Party A;
WHEREAS,
Party B
is a domestic company with exclusively domestic capital registered in the
PRC
and is engaged in the business of coal crushing,
preparation and cleaning (“Business”);
WHEREAS,
Party A
has established a business relationship with Party B by entering into an
Exclusive Consulting Agreement dated as of the same date hereof (“Consulting
Agreement”) and a Technology License Agreement dated as of the same date hereof
(“License Agreement”);
WHEREAS,
Party B
is an affiliated Chinese entity of Party A;
WHEREAS,
pursuant to the Consulting Agreement and License Agreement between Party
A and
Party B, Party B shall pay Party A certain fees as set forth in the Consulting
Agreement and the License Agreement (“Other Fees”), and Party B’s daily
operations will have a material effect on its ability to pay the fees payable
to
Party A;
WHEREAS,
Party C
presently owns 80% of the registered capital of Party B;
WHEREAS,
Party D
presently owns 20% of the registered capital of Party B; and
WHEREAS,
Party
A, Party B, Party C and Party D agree to further clarify matters relating
to the
operation of Party B and its Business pursuant to provisions of this
Agreement.
NOW
THEREFORE,
Party
A, Party B, Party C and Party D through negotiations hereby agree as
follows:
1. |
During
the term of this Agreement, in order to ensure the normal operation
of
Party B and its Business, Party A agrees that subject to Party
B’s
satisfaction of the provisions of this Agreement described below,
Party A
shall guarantee the performance of contracts, agreements and transactions
executed by Party B related to its Business (“Party B’s Obligations”); and
in return, Party B agrees to pay to Party A a fee (“Fee”) equal to 50% of
Party B’s cash flows from operating activities (“Operating Cash Flow”).
The
Fee shall be paid monthly by Party B to Party A within 10 days
following
the end of each month based on the Operating Cash Flow for such
month as
estimated by Party A and Party B in good faith (“Estimated Monthly
Amount”). Within sixty (60) days after the end of each fiscal quarter,
Party A and Party B shall make a final determination of the actual
Operating Cash Flow for such quarter (“Final Quarterly Amount”) based on
the financial statements of Party B, which have been reviewed or
audited
by the Parties’ registered certifying accountant for U.S. financial
reporting purposes (“Accountant”). To the extent the Final Amount is
greater than the Estimated Monthly Amounts for such quarter, the
Fee shall
be adjusted and Party B shall promptly remit to Party A the additional
Fee
due and owing. To the extent the Final Amount is less than the
Estimated
Monthly Amounts for such quarter, the Fee shall be adjusted and
Party A
shall promptly remit to Party B the amount by which the Fee was
overpaid.
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Notwithstanding
anything to the contrary contained in this Agreement, for each fiscal year
of
Party B, (i) in the event that 50% of Party’s B Net Income (as defined below)
for the fiscal year is less than the Fee for such fiscal year, the Fee shall
be
adjusted such that it shall be equal to 50% of Party B’s Net Income for such
fiscal year, and (ii) in the event that 50% of Party B’s Net Income is greater
than the Fee for such fiscal year, the Fee shall be increased such that it
shall
be equal to 50% of Party B’s Net Income for such fiscal year.
For
purposes of this Agreement, the determination and calculation of Net Income
and
Operating Cash Flow shall made in accordance with U.S. generally accepted
accounting principles (“U.S. GAAP”) as reflected on Party B’s U.S. GAAP
financial statements, which have been reviewed or audited by the Accountant,
before giving effect to the Fee paid or payable hereunder and the Other Fees
paid or payable under the Consulting Agreement and the License Agreement.
Any
disputes with respect to the determination or calculation of the Fee, Net
Income
or Operating Cash Flow shall be resolved by the Accountant, and such
determination shall be final.
As
further consideration for Party A’s guarantee of Party B’s Obligations
hereunder, Party B hereby
pledges all of its accounts receivable and assets to Party A as security
for the
payment of Party
B’s
Obligations under the guarantee. Upon the request of Party A at any time
and
from time
to
time, Party B will execute such
further pledge and/or guarantee contracts in favor of Party
A
and will take any and all actions
necessary to register such pledge and/or guarantee contracts
with the appropriate PRC government authorities.
According
to the aforementioned performance guarantee arrangements, Party A shall execute
written
guarantee contracts separately with the other parties to Party B’s contracts,
agreements and
transactions as Party B’s performance guarantor, as required in order to
undertake liabilities
as guarantor.
2. |
In
consideration of the requirements of Article 1 herein and to ensure
the
performance of the Consulting Agreement, the License Agreement
and this
Agreement between Party A and Party B, and to ensure the payment
of all
amounts owed by Party B to Party A, Party B together with its shareholders
Party C and Party D hereby jointly and severally agree that Party
B shall
not conduct any transaction which may materially affect its assets,
obligations, rights or the Business unless it obtains a prior written
consent from Party A, including without limitation the following
actions:
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2.1 |
To
borrow money from any third party or assume any
debt;
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2.2 |
To
sell to any third party or acquire from any third party any assets
or
rights, including without limitations, any plant, equipment, real
property
or personal property, or any intellectual property
rights;
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2.3 |
To
provide any guaranty for any third party obligations;
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2.4 |
To
assign to any third party any agreements related to the
Business;
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2.5 |
To
engage in any other business consulting agreements with any third
party or
to engage in any other business activities other than the Business;
and
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2.6 |
To
pledge any of its assets or intellectual property rights to any
third
party as a security interest.
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3. |
To
ensure the performance of the Consulting Agreement, the License
Agreement
and this Agreement between Party A and Party B, and to ensure the
payment
of all amounts owed by Party B to Party A, Party B together with
its
shareholders Party C and Party D hereby jointly and severally agree
to
accept the operation guidance set by Party A on, including but
not limited
to, business and marketing strategies, business planning, business
operation guidance, the appointment and dismissal of its directors
and
officers (as described in Article 4 below), the hiring and firing
employees, its daily operation of the Business, and its financial
and
budgeting system.
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4. |
Party
B together with its shareholders Party C and Party D hereby jointly
and
severally agree that Party B, Party C and Party D shall appoint
personnel
recommended by Party A as the directors of Party B, and Party B
shall
appoint those candidates recommended by Party A as Party B's General
Manager, Chief Financial Officer, and other high level managerial
positions.
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5. |
Any
amendment and supplement of this Agreement shall come into force
only
after a written agreement
in the English language is signed by all parties. The amendment
and
supplement duly executed
by all parties shall
be part of this Agreement and shall have the same legal effect
as
this
Agreement.
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6. |
This
Agreement shall be governed by and construed in accordance with
the PRC
laws.
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7. |
The
parties shall strive to settle any dispute arising from the
interpretation or performance, or in connection with this Agreement
through friendly negotiation.
In case no settlement can be reached through negotiation, except
as
provided in Article 1, either party may submit such
dispute to China International Economic and Trade Arbitration Commission
("CIETAC") for arbitration in accordance with the current rules
of CIETAC.
The arbitration proceedings shall take place in Hong Kong and shall
be
conducted in English. The arbitration award shall be final and
binding
upon the parties.
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8. |
Any
notice which is given by the parties hereto for the purpose of
performing
the rights, duties and
obligations hereunder shall be in writing in the English language.
Where
such notice is delivered personally, the time of notice is the
time when
such notice actually reaches the addressee; where such notice is
transmitted by telex or facsimile, the notice time is the time
when such
notice is transmitted. If such
notice does not reach the addressee on business date or reaches
the
addressee after the business time, the next business day following
such
day is the date of notice. The delivery place is the address first
written
above of the parties hereto or the address advised in writing from
time to
time. The writing form includes facsimile and
telex.
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9. |
This
Agreement shall be executed by a duly authorized representative
of each
party and shall become
effective as of the date first written above. The term of this
Agreement
is ten (10) years, unless
early termination occurs in accordance with the relevant provisions
herein.
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This
Agreement shall be automatically renewed for additional ten (10) year periods
upon the expiration
of the initial term hereof or any renewal term, unless this Agreement has
been
previously
terminated as provided herein.
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10. |
During
the term of this Agreement or any renewal term, Party B, Party
C and Party
D shall not terminate
this Agreement. Notwithstanding the above stipulation, Party A
shall have
the right to terminate
this Agreement at any time by issuing a thirty days prior written
notice
to Party B, Party
C and Party D.
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11. |
This
Agreement is executed in English only, and the executed English
language
Agreement shall prevail in all cases. This Agreement may be executed
in
counterparts, each of which shall
constitute one and the same agreement, and by facsimile or electronic
signature.
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12. |
Any
provision of this Agreement that is invalid or unenforceable
in any
jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity
or
unenforceability, without affecting
in any way the remaining provisions hereof in such jurisdiction
or
rendering that any other
provision of this Agreement invalid or unenforceable in any other
jurisdiction
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IN
WITNESS WHEREOF the parties hereto have caused this Agreement to be duly
executed on their behalf by a duly authorized representative as of the date
first written above.
PARTY
A: TAIYUAN PUTAI BUSINESS CONSULTING CO., LTD
By:
/s/ Zhao Xxxx
Xxxx
Ming, Chairman and CEO
PARTY
B: SHANXI PUDA RESOURCES CO., LTD.
By:
/s/ Zhao Xxxx
Xxxx
Ming, Chairman and CEO
PARTY
C:
/s/
Zhao
Xxxx
Xxxx
Ming
PARTY
D:
/s/
Zhao
Xxx
Xxxx
Yao
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