EXHIBIT 10.5
LETTER AGREEMENT
THIS LETTER AGREEMENT (the "AGREEMENT") is entered into on the 21st day of
April, 2004 between Fengcheng Gold Corporation, Liaoning (an enterprise
incorporated in [FORIEGN LANGUAGE CHARACTERS OMITTED] Liaoning province, the
People's Republic of China) whose place of business is No. 65, [FORIEGN LANGUAGE
CHARACTERS OMITTED], Liaoning province, the People's Republic of China ("PARTY
A") and JHP Resources Limited (a corporation incorporated in British Columbia,
Canada), whose place of business is #000-0000 Xxxxxx Xxx, Xxxxxxxx, X.X. Xxxxxx
X0X 0X0 ("PARTY B").
WHEREAS after friendly negotiations between Party A and Party B, the parties
wish to set out in this Agreement their agreement in principle to set up a
Sino-foreign equity joint venture company (the "JOINT VENTURE") (to be named
[FORIEGN LANGUAGE CHARACTERS OMITTED] and to be incorporated in [FORIEGN
LANGUAGE CHARACTERS OMITTED] Liaoning Province, the People's Republic of China
for the purposes of, among others, exploring precious metals and other mineral
and land resources within an agreed region in [FORIEGN LANGUAGE CHARACTERS
OMITTED] district in Liaoning province (as shown in the red line diagram annexed
hereto) in the People's Republic of China.
NOW THEREFORE, the parties hereto hereby execute this Agreement to set forth
certain agreements with regard to the exploration of land resources within the
agreed region by the Joint Venture as more fully set forth below:
JOINT VENTURE
1. ESTABLISHMENT AND CAPITAL: The Joint Venture will be established [FORIEGN
LANGUAGE CHARACTERS OMITTED], in Liaoning province, THE People's Republic
of China as a sino-foreign equity joint venture company with limited
liability. The Joint Venture will be entitled to all the benefits and
incentives policies as a sino-foreign equity joint venture enterprise as
prescribed under laws and regulations of the PRC. The registered capital
of the Joint Venture shall be US$300,000 (to be contributed by Party A in
an amount of US$63,000 as the valued consideration of the exploration
rights, and by Party B in an amount of US$237,000 in cash) and the Joint
Venture will be funded by a total investment of US$1,200,000 by Party B
("TOTAL INVESTMENT"). After Party B has invested the Total Investment of
US$1,200,000, Party B shall hold 79% of the shares in the registered
capital of the Joint Venture, otherwise, Party B shall hold a pro rata
amount of its shares based on the ratio of its actual investment to the
Total Investment.
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The investments shall be invested in stages as referred to below.
INVESTMENT IN THE JOINT VENTURE
2. APPROVALS: Party A will apply and obtain (1) all approval, registrations,
permits, licences, certificates and letters of authorization
(collectively, the "CONSENTS") from all relevant government and regulatory
authorities for the establishment and operation of the Joint Venture for a
period of 25 years; (2) all Consents for the performance and
implementation of this Agreement; and (3) all Consents in connection with
the business and activities of the Joint Venture, being the exploration of
precious and non-precious metals and other mineral resources within the
region as shown in the red line diagram annexed hereto ( collectively
"FORMAL APPROVALS"). Party A shall be responsible to do all such acts,
make such applications and to prepare all such documents to secure and
obtain the Formal Approvals, including without limitation, the feasibility
study of establishing the Joint Venture and the environmental study for
the exploration of mineral resources in the agreed region.
3. EXPLORATION CONCESSIONS AND RIGHTS: Party A will be responsible, on behalf
of the Joint Venture, for the purchase or otherwise the transfer, obtain,
issue or authority of legal and valid exploration permits, concessions and
rights in the district ("EXPLORATION CONCESSIONS").
4. FIRST STAGE:
4.1 Party A shall obtain such Exploration Concessions required for the
business of the Joint Venture as contribution to the Joint Venture. Such
contribution represents 21% of the shares in the registered capital of the
Joint Venture held by Party A.
4.2 Party B agrees to bear pre-operating expenses on behalf of the Joint
Venture prior to the establishment of the Joint Venture (the
"PRE-OPERATING EXPENSES").
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4.3 A People's Republic of China legal opinion shall be delivered to Party B
confirming that Party A has obtained the Formal Approvals and the
performance of paragraph 4.1 has been completed (the "PRC OPINION").
Within 10 days of the date of the delivery of the PRC Opinion to Party B
(the "INVESTMENT DATE") and provided that Party A is in compliance with
the above paragraphs, Party B shall pay to Party A (the "FIRST STAGE
INVESTMENT") a sum of US$300,000 or its equivalent in RMB or HK$ (an
amount of US$273,000 being the contribution to the registered capital
payable by Party B and the remaining sum may be used for Pre-Operating
Expenses). For such purposes, any Pre-Operating Expenses shall be deemed
to be contributions by Party B to the First Stage Investment and such
Pre-Operating Expenses shall be deducted from the sum of US$300,000 or its
equivalent in RMB or HK$ actually paid to the Joint Venture in
satisfaction of the First Stage Investment. Any balance of the remaining
sum not used for Pre-Operating Expenses will be allocated to satisfy the
Second Stage Investment. However, Party B shall reimburse the Joint
Venture for any Pre-Operating Expenses incurred in excess of the remaining
sum of US$27,000 to be used for Pre-Operating Expenses.
5. SECOND STAGE:
Within 3 months after the incorporation of the Joint Venture, and provided
that there is no breach of the representations, warranties and
undertakings of Party A, Party B shall either:
(a) make a further contribution (the "SECOND STAGE INVESTMENT") to the
total investment of the Joint Venture in the sum of US$300,000 or
its equivalent in RMB or HK$; or
(b) to be proposed by Party B and accepted by Party A, retransfer (the
"SECOND STAGE RETRANSFER") 60% of the shares in the registered
capital held by Party B in the Joint Venture to Party A at no
further consideration such that after the Second Stage Retransfer,
Party B will hold 19% of the shares in the Joint Venture, while
Party A will hold 81% of the shares in the Joint Venture.
Should the Second Stage Retransfer be effected, the Third Stage Investment
(as hereinafter defined) or Third Stage Retransfer (as hereinafter
defined) will lapse and Party B shall have no other obligation to make any
more investments or contributions into the Joint Venture whatsoever.
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6. THIRD STAGE:
Within 6 months after expiry of the date of the Second Stage Investment,
and provided that there is no breach of the representations, warranties
and undertakings of Party A, Party B shall either:
(a) make a further contribution (the "THIRD STAGE INVESTMENT") to the
total investment of the Joint Venture in the sum of US$300,000 or
its equivalent in RMB or HK$; or
(b) to be proposed by Party B and accepted by Party A, retransfer (the
"THIRD STAGE RETRANSFER") 40% of the shares in the registered
capital held by Party B in the Joint Venture to Party A at no
further consideration such that after the Third Stage Retransfer,
Party B will hold 39% of the shares in the Joint Venture, while
Party A will hold 61% of the shares in the Joint Venture.
Should the Third Stage Retransfer be effected, the Fourth Stage Investment
(as hereinafter defined) or Fourth Stage Retransfer (as hereinafter
defined) will lapse and Party B shall have no other obligation to make any
more investments or contributions into the Joint Venture whatsoever.
7. FOURTH STAGE:
Within 6 months after the expiry of the date of the Third Stage
Investment, and provided that there is no breach of the representations,
warranties and undertakings of Party A, Party B shall either:
(a) make a further contribution (the "FOURTH STAGE INVESTMENT") to the
total investment of the Joint Venture in the sum of US$300,000 or
its equivalent in RMB or HK$; or
(b) as proposed by Party B and accepted by Party A, retransfer (the
"FOURTH STAGE RETRANSFER") 20% of the shares in the registered
capital held by Party B in the Joint Venture at no further
consideration such that after the Fourth Stage Retransfer, Party B
will hold 59% of the shares in the Joint Venture, while Party A will
hold 41% of the shares in the Joint Venture.
Should the Fourth Stage Retransfer be effected, Party B shall have no
other obligation to make any more investments or contributions into the
Joint Venture whatsoever.
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8. FURTHER CONTRIBUTION AND INTERPARTY LOANS:
8.1 After the Fourth Stage Investment has been made by Party B, any working
capital and cash requirements of the Joint Venture will be met in such
manner as the board of directors of the Joint Venture (the "BOARD") may
from time to time resolve, which may include, but not limited to, advances
from financial institutions, other third party sources or by further
advances from Parties A and Party B.
If Parties A and Party B are required to extend loans and/or any provision
of finance to the Joint Venture ("FURTHER ADVANCE"):
(1) such loans shall be made by them in accordance with the ratio of
holding in the registered capital (the "SHARED RATIO");
(2) any such loans shall be made on terms that:
(a) they shall be unsecured and interest-free and are repayable
only when the Board determines that the financial condition
and cash requirements of the Joint Venture permit repayment in
whole or in part; and
(b) they shall only be repaid in such proportions so as to ensure
that the total loans remaining due to each party shall be in
accordance with the Shared Ratio.
8.2 Should any party refuse or fail to provide Further Advances pursuant to
the Shared Ratio to the Joint Venture, the other party shall [have the
right, but not the obligation, to] provide such portion of the Further
Advance to the Joint Venture on behalf of such party and such portion of
the Further Advance be deemed as a loan from the other party to such party
(the "INTERPARTY LOAN"). The terms of the Interparty Loan are as follows:
(a) It is repayable at any time and charged at an interest rate of 8%
per annum calculated and payable on a monthly basis on the
outstanding amount of the Interparty Loan;
(b) For so long as the Interparty Loan and any accrued interest has not
been repaid in full, 75% of the share of the obliged party in any
and all future distributions of profits by the Joint Venture
pursuant to its holdings in the registered capital shall be paid to
the other party firstly towards the satisfaction of any unpaid
accrued interest on the Interparty Loan and thereafter towards
repayment of any outstanding principal of the Interparty Loan and
the obliged party shall be entitled to the remaining 25%, until the
Interparty Loan is fully repaid.
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[(c) Party B may request/ask for further guarantee/securities as it may
require to secure the Interparty Loan.]
9. FORMAL LEGAL AGREEMENTS: The parties agree that the formal legal
agreements will set out appropriate and in more detail (subject to
limitations and qualifications to be agreed) operations and arrangement in
relation to the Joint Venture, including without limitation the
constitutional documents.
10. REPRESENTATIONS AND WARRANTIES AND UNDERTAKINGS
Party A represents and warrants that the Formal Approvals, when obtained or
granted, are legal, valid, binding and enforceable and capable of
allowing the Joint Venture to conduct the intended business.
Party B represents and warrants that starting from the date that Party A on
behalf of the Joint Venture applies for the relevant Consents, Party B
shall pay the Pre-Operating Expenses to Party A in accordance with Clause
4.2 of this Agreement so that the Joint Venture can be established
smoothly.
Party A undertakes to Party B that it shall take all necessary steps to
maintain the effectiveness of the Formal Approvals. Party A must also
deal with and prohibit all illegal exploration and mining activities
within the exploration region of the Joint Venture (as shown in the red
line diagram annexed hereto).
Party B undertakes to Party A that if the Joint Venture cannot be established
due to the fault of Party B, the Pre-Operating Expenses paid by Party B
to Party A shall not be refundable. If Party A does not agree (or accept)
the terms of the retransfer proposed by Party B at the Second Investment
Stage, the Third Investment Stage or the Fourth Investment Stage, Party B
shall make investment in such amount and within such period to the Joint
Venture in accordance with this Agreement.
MANAGEMENT OF JOINT VENTURE
11. MANAGEMENT AND SUPERVISION: Management and supervision of the Joint
Venture shall be the responsibility and the sole discretion of the Board
of the Joint Venture, who shall set the Joint Venture's objectives and
policies and guidelines and supervise and review the performance of the
Joint Venture, to operate and carry out the business of the Joint Venture.
Unless otherwise agreed between the parties to this Agreement, the Board
shall have 5 members.
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12. CHAIRMAN OF THE BOARD: The chairman of the Board of the Joint Venture
shall be the director nominated by Party B, with the deputy chairman being
a director nominated by Party A.
13. DECISION OF THE BOARD: All decisions of the Board shall be passed by a
simple majority of three or more members, except the following matters
will require unanimous approval of the members of the Board:
(a) amendments to the articles of the Joint Venture and the rules
thereof;
(b) merger with, segregation of or formation of new enterprises; and
(c) dissolution of the Joint Venture.
14. APPOINTMENT TO THE BOARD:
Party B shall be entitled to appoint (and remove) 3 members to the Board,
while Party A shall be entitled to appoint (and remove) 2 members to the
Board in writing. If a retransfer is effected after the Second Stage
Investment to the Fourth Stage Investment, the entitlement to appoint
directors to the Board shall be adjusted correspondingly according to the
change in the proportion of the shares held by both parties.
15. APPOINTMENT TO SUPERVISORY COMMITTEE: The supervisory committee shall be
comprised of 3 members. Party A shall appoint (and remove) the convener to
the supervisory committee. Party B shall appoint (and remove) 2 members to
the supervisory committee.
16. SENIOR MANAGEMENT: Senior management of the Joint Venture includes the
General Manager, the Chief Financial Officer and the Chief Operating
Officer. The General Manager and the Chief Financial Officer shall be
nominated by Party B and the Chief Operating Officer shall be nominated by
Party A
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CONFIDENTIALITY
17. CONFIDENTIALITY: Each of the parties shall keep confidential and shall not
disclose to any other person, nor use for any purpose except the purposes
of the Joint Venture, any information obtained from the other party as a
result of negotiating, entering into or implementing the Joint Venture
other than information which:
(a) is required to be disclosed by operation of law or any stock
exchange regulations or any binding judgment or order, or any
request of a competent authority;
(b) is reasonably required to be disclosed in confidence to a party's
professional advisers for use in connection with the Joint Venture
and/or matters contemplated herein; or
(c) is or becomes within the public domain (otherwise than through the
default of the recipient party).
GOVERNING LAW
18. GOVERNING LAW: This Agreement shall be governed by laws of the People's
Republic of China.
PROCEDURE
19. Definitive LEGAL DOCUMENTS: Following and within [60] days of the
execution of this Agreement (the "Period"), the parties will proceed as
rapidly as possible with the preparation, negotiation and execution of the
definitive legal agreements (the "FORMAL DOCUMENTS").
20. EXCLUSIVITY: During the Period, Party A agrees not to deal, partner and/or
cooperate with any third party regarding the setting up of the Joint
Venture, the proposed business of the Joint Venture and the mining rights.
JURISDICTION
21. JURISDICTION: Each of Party A and Party B hereby irrevocably agrees that
any suit, action or proceeding (together in this Clause referred to as
"PROCEEDINGS") arising out of or in connection with this Agreement may be
brought in the courts of the People's Republic of China, submits to the
jurisdiction of such courts in connection therewith and waives any
objection which it may have now or hereafter to the laying of the venue of
any such Proceedings in any such court and any claim that any such
Proceedings have been brought in an inconvenient forum.
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DISPUTE RESOLUTION
22. In the event that any difficulty or dispute arises in relation to the
interpretation or implementation of this Agreement or the Formal
Documents, the relevant parties shall attempt to resolve such dispute
through friendly consultation or conciliation between representatives of
the parties appointed for the purpose. If the relevant parties are unable
to resolve any dispute in this manner within ninety days of such dispute
arising, then any party may elect to submit the dispute to the China
International Economic and Trade Arbitration Commission in Beijing, the
People's Republic of China for arbitration.
23. Any arbitration of any dispute in relation to this Agreement shall be
governed by the laws of the People's Republic of China. Any arbitration
award resulting from such proceedings shall be final and binding on the
parties. The costs of any arbitration proceedings shall be borne by the
losing party.
ASSIGNMENT
24. In principle, neither Party A nor Party B shall be entitled to transfer
or otherwise create any encumbrance over any interest, rights or duties
over this Agreement. If upon occurrence of certain events which are
recognized by both parties as one in which one of the parties has to
transfer or otherwise create any encumbrance over any interest, rights or
duties over this Agreement, such transfer or the creation of such
encumbrance shall be subject to the written consent of the other party
and the other party shall have the right of first refusal.
INVESTMENT RISK AND RIGHTS
25. INVESTMENT RISK: All investments made by Party B under this Agreement
shall be used as funding for exploration of land resources. If the
results of such exploration show no value for industrial mining, Party B
shall not be entitled to request for the refund of the investment. Both
parties shall hold their shares in accordance with their agreed ratio
within 6 months. In the event that no investment or transfer of the
exploration results in the whole have been made within 6 months of this
Agreement, the results of exploration shall belong to Party A and the
Joint Venture shall be dissolved.
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26. INVESTMENT RIGHTS: (a) If the result of exploration shows value for
industrial mining, the Joint Venture shall have first priority in the
mining rights and Party A and Party B shall have the rights and
obligations according to the Shared Ratio under this Agreement; (b) if
the result of exploration shows value for industrial mining but does not
fulfill the production conditions agreed by both parties, the assignment
proceeds of such exploration result shall be allocated between Party A
and Party B according to the Shared Ratio in the Joint Venture.
STATUS
28. STATUS: This Agreement represents the good faith intentions of the parties
to proceed with the proposed Joint Venture and is legally binding and
creates legal obligations on all parties. Its purpose is to set out the
principles on which the parties intend in good faith to negotiate
definitive Formal Documents.
IN WITNESS whereof this Agreement has been entered into the day and year first
above written.
SIGNED BY )
)
on behalf of FENGCHENG )
GOLD CORPORATION, )
LIAONING )
in the presence of: )
SIGNED BY )
)
on behalf of JHP )
RESOURCES LIMITED )
in the presence of: )
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