THIS CONTRACT OF SINO-FOREIGN CONTRACTUAL JOINT VENTURE made this 3rd day of
February, 1994
BETWEEN:
CHINA NON-METAL MINE ENTERPRISE GROUP 701 MINE, an
enterprise incorporated under the laws of People's
Republic of China with its legal office located in
Mengyin County, Shandong Province, People's
Republic of China
(hereinafter referred to as "Party A"
OF THE FIRST PART
AND
VVS1 LIMITED, a company incorporated under the
laws of Hong Kong with its legal address located
at 2203 Cameron Commercial Centre, 000-000
Xxxxxxxx Xxxx, Xxxx Xxxx
(hereinafter referred to as "Party B")
OF THE SECOND PART
WHEREAS
A. Party A and Party B wish to form a limited liability company that will
explore for and mine diamonds in an area of approximately 1,157,000
square meters property located in Mengyin County, Xxxx Xx County,
Shandong Province, and process and sell such diamonds on the
international market; and
B. Party A and Party B wish to record their agreements relating to their
rights and obligations in respect of such company and between each
other as shareholders thereof.
C. Party A and Party B agree that their overriding purpose in entering into
and performing this Contract is to enable each party to enjoy, in a
spirit of friendship and mutual benefit, the maximum possible profit
from their respective investments.
NOW THEREFORE in consideration of the mutual covenants herein, Party A and Party
B hereby agree as follows:
ARTICLE 1 - GENERAL PROVISIONS
1.1 Definitions. The parties agree that where used in this Contract, unless
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the context otherwise requires, the following terms shall have the
meanings set forth below:
1.1.1 Approval Authority" means agencies of foreign trade of state
council and/or agencies authorized by the state council and/or
local government;
1.1.2. "Board" means the board of directors of the Company;
1.1.3 "Business Day" means Monday through Friday, both inclusive,
except for statutory holidays recognized in China;
1.1.4 "Business license" means a business license issued by SAIC to
create the Company, which license shall be valid for the Duration
of the Joint Venture and permit the Company to engage in each
item of business set out in section 4.1;
1.1.5 "Contractual Joint Venture Law" means the Law of the People's
Republic of China on Sino-Foreign Contractual Joint Venture;
1.1.6 "Company" means the limited liability company to be formed by the
Shareholders pursuant to Article 3 hereof and in accordance with
the Contractual Joint Venture Law,
"Duration of the Joint Venture" means a period of thirty (30)
years commencing on the date the Business License is issued;
1.1.8 "Marketing and Sales Agreement" means the agreement to be signed
by the Company and Party B in the form attached as Schedule "C"
hereto;
1.1.9 Existing Assets" means all of the diamond mining and processing
equipment, buildings, plant, vehicles, use of land, exploration
rights, rights of way, surface rights, electricity power source
and facilities and improvements located at Mine 701 together with
all diamond inventory relating thereto, as of the date hereof,
all as more fully described in Schedule "A" hereto;
1.1.10 "Feasibility Study" means the feasibility study prepared by the
China Planning & Design Institute of Construction Material dated
December, 1993;
1.1.11 "General Manager" means the person engaged by the Company as
its general manager pursuant to section 9.2;
1.1.12 "Independent Valuator" means any one of the International and
Chinese Joint Venture Accounting Firms licensed to practice
accounting in China and such Accounting Firm shall be selected by
Party B in writing.
1.1.13 "Investment" means for any Shareholder all of its right, title
and interest in and to the Company and this Contract;
1.1.14 "Mengyin County" means an area of approximately 1600 square
kilometers;
1.1.15 "Mine 701" means the 1,157,000 square meters mining property
located in Mengyin County and Xxxx Xx County as out lined in
Schedule "D" hereto;
1.1.16 "Mining Authority" means authority approved by relevant
government agency for mining certain mine resources described in
the Contract;
1.1.17 "Mining License" means a license issued to the Company by the
Mining Authority which shall grant to the Company for the entire
Duration of the Joint Venture to do Mining;
1.1.18 "Party A" means China Non-Metal Mine Enterprise Group 701 Mine,
a enterprise incorporated under the laws of China, and being the
Party of the First Part of this Contract;
1.1.19 "Party B" means VVS1 Limited, a company incorporated under the
laws of Hong Kong and being the Party of the Second Part of this
Contract;
1.1.20 "Prime Rate" means the prime rate of interest as determined by
the main branch of the Bank of Nova Scotia in Vancouver, Canada
as the base rate for commercial loans to its most credit-worthy
customers, provided that the Prime Rate prevailing on January 1
of any year shall be deemed to be the Prime Rate for the first
six (6) months of that year, and the Prime Rate prevailing on
July 1 of any year shall be deemed to be the Prime Rate for the
second six (6) months of that year;
1.1.21 "SAIC" means the State Administration of Industry and Commerce;
and
1.1.22 "Shareholders" means Party A and Party B collectively, and
"Shareholder" means either one of them.
1.1.23 "Parties" means Party A and Party B collectively.
1.2 Interpretation. For purposes of this Contract except as otherwise
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expressly provided:
1.2.1 "Contract" means this Contract as it may from time to time be
supplemented, amended or restated from time to time.
1.2.2 All references to designated articles, sections and other
subdivisions are to the designated articles, sections and other
subdivisions hereof.
1.2.3 The headings preceding the text, articles and sections hereof are
for convenience only, do not form a part hereof and are not
intended to interpret, define or limit the scope, extent or
intent hereof or of any provision hereof.
1.2.4 Any reference to an entity shall include and shall be deemed to
include reference to an entity that is a successor or assignee of
such entity.
1.2.5 The schedules attached to this Contract shall form integral parts
of this Contract:
Schedule "A" - List of Existing Assets
Schedule "B" - Mining Program
Schedule "C" - Marketing and Sales Agreement
Schedule "D" - Location of Mine 701
ARTICLE 2 - CONTRACTING PARTIES
2.1 Parties The parties to this Contract are as follows
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2.1.1 China Non-Metal Mine Enterprise Group 701 Mine, a enterprise
incorporated in the People's Republic of China with its legal
address at Changma Village, Mengyin County, Shandong Province,
People's Republic of China.
Legal Representative: Name: Xxxxx Xx Ling
Position: Mine Director
Nationality Chinese
2.1.2 VVS1 Limited, a company incorporated in Hong Kong with its legal
address at 2203 Cameron Xxxxxxxxxx Xxxxxx, 0X0-000 Xxxxxxxx Xxxx,
Xxxx Xxxx.
Legal Representative: Name: Po Sun Liu
Position: Chairman and Chief
Executive Officer
Nationality: Canadian
2.2 Representations of Party B. Party B represents and warrants to
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Party A as follows:
2.2.1 Party B is a duly organized company validly existing under the
laws of Hong Kong;
2.2.2 Party B has full corporate capacity, power and authority and all
necessary governmental approvals (other than those referred to in
section 7.2.1) to enter into and perform each of its obligations
hereunder;
2.2.3 the execution and delivery of this Contract and the observance
and performance hereof have been duly authorized by all necessary
corporate action on the part of Party B;
2.2.4 this Contract has been duly executed and delivered by Party B and
constitutes legal, valid and binding obligations enforceable
against it in accordance with its terms;
2.2.5 the execution, delivery and performance by Party B of this
Contract does not and will not constitute a default under any
material agreement to which it is a party, any governmental
regulation, approval or order to which it is subject, or any
provision of its incorporation documents; and
2.2.6 no governmental approvals of any kind are required from any
governmental authority in Hong Kong in respect of this Contract
or the operations of the Company as contemplated hereunder.
2.3 Representations of Party A. Party A represents and warrants to
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Party B as follows:
2.3.1 Party A is a duly organized enterprise validly existing under the
laws of People's Republic of China;
2.3.2 Party A has full corporate capacity, power and authority and all
necessary governmental approvals (other than those referred to in
section 7.2.1) to enter into and perform each of its obligations
hereunder (including Party A's obligations to arrange for the
Company to be granted the Mining License);
2.3.3 the execution and delivery of this Contract and the observance
and performance hereof have been duly authorized by all necessary
corporate action on the part of Party A;
2.3.4 this Contract has been duly executed and delivered by Party A and
constitutes legal, valid and binding obligations enforceable
against it;
2.3.5 the execution, delivery and performance by Party A of this
Contract does not and will not constitute a default under any
material agreement to which it is a party, any governmental
regulation, approval or order to which it is subject, or any
provision of its incorporation documents;
2.3.6 only government approvals from government authorities stated in
article 7.2.1 are required in respect of this contract or the
operation of the Company as contemplated hereunder;
2.3.7 the Company shall be required to pay no taxes, duties, royalties,
license fees or other payments of any kind except only for those
described in section 12.1;
2.3.8 Party A shall deliver to Party B all information concerning
diamonds in respect of Mine 701 that is in Party A's possession
or control, and such information is accurate and complete;
2.3.9 neither Party A nor any other person that has engaged in the
exploration for or the mining of diamonds at Mine 701 has
violated or is violating any environmental law or regulation to
which such property is subject, and Party A is not aware of any
adverse environmental condition on or affecting Mine 701, or of
the past or present activities of any person in respect thereof
which has caused or is likely to cause or contribute to any
adverse environmental condition at Mine 701; and
2.3.10 Party A is the owner of all the Existing Assets, free and clear
of all liens, mortgages or other encumbrances of any kind.
2.3.11 As consideration in signing this contract, Party A has
acknowledged receipt of U.S. $5,000 from Party B. This $5,000 is
payment for 50% of the cost of the Feasibility Study.
2.4 Indemnity. If any representation or warranty given herein by any
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party is untrue or inaccurate, such party shall indemnify and hold harmless
the other party for any loss or damage caused to such other party.
ARTICLE 3 - ESTABLISHMENT OF THE JOINT VENTURE COMPANY
3.1 Contractual Joint Venture. In accordance with the Sino-Foreign Contractual
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Joint Venture Law and other relevant Chinese laws and regulations, Party A
and Party B agree that the Company shall be established as a contractual
joint venture.
3.2 Name The name of the Company shall be:
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3.2.1 in Chinese: [GRAPHIC OMITTED]; and
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3.2.2 in English: VVS1 Diamond Corporation Ltd.
3.3 Legal Address. The legal address of the Company shall be
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Mengyin County, Shandong Province, China.
3.4 Laws of China. All activities of the Company shall be governed by the
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published and publicly available laws, decrees, rules and regulations of
China.
3.5 Limited Liability. The Company shall be a limited liability company. Each
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Shareholder shall be liable to the Company only for the registered capital
and shareholder's loans such Shareholder has agreed to contribute in
accordance with and subject to the provisions of Article 5 hereof. No
Shareholder shall be liable for any of the debts, losses or liabilities of
the Company or of the other Shareholder.
3.6 Legal Person. The Company shall be a legal person existing as a
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separate entity from the Shareholders.
3.7 No Partnership. The parties expressly disclaim any intent to create a
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partnership with respect to the administration or assets of the Company.
3.8 No Agency. Neither party shall have any authority, actual or implied, to
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act as agent for or to bind the other party or the Company, and is hereby
prohibited from so doing.
ARTICLE 4 - BUSINESS SCOPE AND PROJECT
4.1 Business Scope. The parties agree that the business scope of the Company
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shall include the following:
4.1.1 the exclusive right to explore for, mine and extract diamonds
throughout Mine 701;
4.1.2 the exclusive right to process and refine diamonds mined or
extracted by the Company;
4.1.3 the right to sell or market diamonds and other precious stones
and related products on the domestic and international market
with a Marketing and Sales Agreement; and
4.1.4 all such complementary activities as may be necessary or
desirable for the Company to fully engage in all activities
permitted by the Business license or the Mining License.
ARTICLE 5 - TOTAL INVESTMENT REGISTERED CAPITAL
5.1 Investment Amount and Initial Registered Capital. The total investment
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amount of the Company is set at U.S. $7,000,000 consisting of registered
capital of the Company of U.S. $6,000,000 and U.S. $1,000,000 in working
capital provided by banks. The U.S. $6,000,000 can be in United States
Dollars or in kind or the equivalent amount in Renminbi in whole or part
and shall be contributed to the Company by the Shareholders at the times
and in the forms set out in articles 5.2 and 5.3 below. Party A and Party B
shall contribute the U.S. $3,000,000 respectively.
5.2 Party B's Initial Capital Contribution. Party B may make its contribution
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under this article 5 in the form of cash, or in kind, equipment and
machinery as recommended by Party A's and Party B's Mining Engineers.
As its capital contribution, Party B shall contribute U.S. $500,000 as its
initial capital contribution within ninety (90) days of the issuance of the
Business License. Another U.S. 1,000,000 shall be contributed within one
(1) year of the issuance of the Business License.
Within the second year, an additional capital contribution U.S. $1,000,000
shall be contributed. In the third year the final capital contribution U.S.
$500,000 shall be contributed. The Shareholders agree that Party B's
obligation to contribute its initial capital contribution is subject to the
fulfillment of each of the following conditions precedent to the
satisfaction of Party B (each of which is for the sole benefit of and may
be waived by Party B):
5.2.1 the Feasibility Study, this Contract and the Charter of
Association of VVS1 Diamond Corporation limited have been
approved in writing by the Approval Authority;
5.2.2 the Business License has been issued by the SAIC to the Company;
5.2.3 the Mining License has been issued by the Mining Authority to the
Company;
5.2.4 the Existing Assets has been transferred to the Company, free and
clear of all liens, mortgages and encumbrances of any kind;
5.2.5 Party B has received a written legal opinion of a Chinese law
firm acceptable to Party B confirming (a) the issuance and
sufficiency of the foregoing approvals and licenses, (b) the
legality, validity and bindingness of this Contract and the
Marketing and Sales Agreement, (c) the completion of the transfer
of the ownership of the Existing Assets to the Company free and
clear of all
liens, mortgages and encumbrances of any kind by Party A, and
(d)the accuracy of the tax description in the contract;
5.2.6 audited financial statements of Mine 701 for the past three (3)
years has been given to Party B;
5.2.7 the Company has signed and delivered the Marketing and Sales
Agreement to Party B; and
5.2.8 the representations and warranties made by Party A in section 2.3
are true and correct as confirmed by a certificate to that effect
signed and delivered to Party B by the legal representative of
Party A.
5.3 Party A's Initial Capital Contribution Party A may make contribution under
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this article S in the form of cash, or in kind, the Existing Assets (701
Mine) which includes all existing inventory, equipment, vehicles,
buildings, labour supply, land, exploration rights, rights-of-way, surface
rights, water rights, electricity power source and any other rights and
assets required to allow the Company to explore and mine for diamonds as
listed in Schedule A.
As Party A's U.S. $1,500,000 capital contribution; Party A shall, no later
than ninety (90) Business Days after the day the Business License has been
transferred to the Company, cause ownership of the Existing Assets to be
transferred to the Company free and clear of all liens, mortgages and
encumbrances of any kind provided that:
5.3.1. Party A shall be solely responsible for and cannot charge to the
Company any costs or payments to:
any person, company, entity or governmental authority in
respect of the transfer of the Mining License,
any person, company, entity or governmental authority in
respect of releasing their claims on any diamond bearing ore
body;
any person, company, entity or governmental authority in
respect of the relocation of any individuals, businesses or
government entities;
any person, company, entity or governmental authority in
respect of existing pension fund payments or termination
costs of individuals currently employed who are dismissed or
retired because of the signing of the Contract or the
transferring of the Existing Assets.
any person, company, entity or governmental authority in
respect of any other outstanding liability, tax or any debts
whatsoever owing by Party A.
5.3.2 upon the transfer of the Mining License and the transfer of the
Existing Assets to the Company and the payment of all amounts
contemplated by article 5.3.1, Party A shall be deemed to have
made a
contribution to the Company's registered capital of U.S.
$1,500,000.
5.3.3 upon payment of any part of the remaining registered capital
contribution of U.S. $1,500,000 in the form allowed or the
equivalent amount in Renminbi in whole or part by Party B under
article 5.2, Party A shall be deemed to have made a contribution
to the Company's registered capital equal to the same amount of
that payment.
Bank Loans. If the Company requires funds in addition to Party B's initial
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capital contribution under article S.2, the parties shall use their best
efforts to obtain all such funds from Chinese or foreign banks. The Company
shall grant such security over its assets as the lender may require.
Additional Shareholder Contributions. If the Company requires funds in
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addition to the bank loans obtained under article 5.4, the Shareholders
shall contribute such funds to the Company subject to the following
conditions:
5.5.1 neither Shareholder shall be required to make any additional
contribution under this article S.5 unless both parties are
satisfied with the results of the Reverification and Mining
program and such contributions shall be used only to pay for such
exploration and mining expenditures as may be recommended by the
General Manager, and or Management Committee and approved by the
Board by a duly passed resolution;
5.5.2 neither Shareholder shall be required to make any additional
contribution hereunder in excess of the expenditure schedule
unless approved by the Board by a duly passed resolution and
further consented to in writing by both parties;
5.5.3 to the greatest extent permitted under Chinese law, such
contributions shall be made in the form of shareholders loan. and
shall be made in the form of registered capital only to the
extent required to comply with debt-to-equity ratios imposed by
Chinese law that may apply to the Company, if any;
5.5.4 if the Shareholders are required to make additional contributions
under this article 5.5. whether in the form of shareholders loans
or registered capital, each Shareholder shall provide one-half of
such contribution;
ARTICLE 6 - ASSIGNMENT. ENCUMBRANCES AND TRANSFERS
6.1 Assignment. The assets and/or shares in whole or in part of each
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Shareholder in this Contract hereunder can at any time be assigned by any
Shareholder to a subsidiary upon written notice to the other Shareholder.
6.2 Encumbrances In Favour of Lenders. If the Company agrees to borrow funds
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from a lender, any Shareholder giving a guarantee to the lender may, if
required by the lender, mortgage or otherwise encumber its Investment or
any part thereof in favour of such
lender as security for the loan but only if such lender enters into an agreement
with both Shareholders (satisfactory in form and substance to both of them)
agreeing to be bound by the provisions of this Contract.
Transfers. It is not a breach of this Contract when any Shareholder
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transfers all or part of its Investment at any time to a subsidiary if
notice is given to the other Shareholder.
ARTICLE 7 - RESPONSIBILITIES OF EACH SHAREHOLDER
Responsibilities of Party B. Party B shall be responsible for and hereby
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agrees to perform each of the following matters in a timely manner:
7.1.1 assist the Company in engaging any foreign consultants, experts
or agents the Company may wish to hire to evaluate all the
historical geological, exploration and mining data delivered to
it by Party A;
7.1.2 provide registered capital and shareholder's loans to the Company
subject to and in accordance with. the terms and conditions of
articles 5.2 and 5.5 above;
7.1.3 entrusted to purchase on behalf of the Company, any equipment,
vehicles, and machinery the Company may need to purchase from
outside China;
7.1.4 entrusted to sell on the Company's behalf on the international
market, all of the Company's diamonds and relevant products and
other precious gems; and
7.1.5 handling any other matter entrusted by the Company.
7.2 Responsibilities of Party A Party A shall be responsible for and hereby
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agrees to perform each of the following matters at its own cost and in a
timely manner:
7.2.1 obtaining all approvals, licenses. permits, export rights.
registrations and renewals necessary for establishing the Company
and enabling the Company to engage in the activities contemplated
hereunder, including but not limited to (i) the Business License.
(ii) the Mining License and (iii) all access permits,
rights-of-way, easements, occupation permits, surface rights and
other such rights in respect of places in Mine 701 in Mengyin
County as the Company may reasonably request and provided that
such licenses:
(a) shall be renewed on application by the Company (which
application shall be submitted at least 3 months and no more
than 6 months prior to its expiration date) for a further
period of thirty (30) years so long only as the Company is
engaged in exploration and/or mining operations in Mine 701
in Mengyin County during such period; and
(b) shall not be cancelable except only if the Company fails for
a period of two (2) consecutive years to carry out
exploration and/or mining of diamonds
or other precious gems in Mine 701 in Mengyin County for any
reason other than (i) force majeure (as defined in article
18) or (ii) because it has proven uneconomic for the Company
to carry on mining during such period, and the Company has
failed to recommence mining operations within six (6) months
after receiving notice to do so from the Mining Authority;
7.2.2 granting to the Company for the entire Duration of the Joint
Venture, the following rights, in each case free and clear of any
and all liens, charges, encumbrances, reservations and royalties
of any kind:
(a) the exclusive right to explore for, mine and extract
diamonds and other precious gems in the Mine 701;
(b) the exclusive right to process and refine diamonds and other
precious gems mined or extracted by the Company;
(c) the right to market and sell such diamonds and other
precious gems on the international market through Party B
under the Marketing and Sales Agreement; and
(d) all access, occupation, surface, water, power and other
complementary rights necessary or' desirable for the Company
to enjoy all of the foregoing rights;
provided that such rights:
(e) shall be renewed automatically by Party A on the same basis
as the approved licenses per article 7.2.1.
7.2.3 immediately deliver to Party B upon request true and complete
copies of all of the past three (3) years of audited financial
statements of Mine 701. production records, inventory of
diamonds. geological data including maps, reports. surveys,
exploration data, other historical data and any other data
relating to the finding and mining and processing of diamonds,
kimberlite, precious gems and ores bearing precious gems located
in Mine 701;
7.2.4 make available for consultation to Party B and its consultants
all technical experts in geology, mining and the processing of
diamonds and other precious gems, who have worked on obtaining
the data referred to in article 7.2.3 above;
7.2.5 ensure that the Company may obtain at prices not higher than
prices normally paid by Chinese Joint Venture enterprises, each
of the following:
(a) all necessary utilities, including the necessary consent
from the Power Supply Administration, as may be required for
the Company's operations; and
(b) office space at Mine 701, Mengyin County to enable the
Company to carry out its work and business; and
(c) all necessary labour and personnel as may be deemed
necessary by the Company;
7.2.6 assist the Company to deal with all local, county, provincial and
central government authorities, and any other parties as may be
necessary to ensure that the Company shall be able to operate in
the manner contemplated herein, and to ensure that all of Party
B's rights hereunder are also protected; and
7.2.7 handle such other matters as may be entrusted to it by the
Company.
ARTICLE 8 - THE BOARD OF DIRECTORS
8.1 Date of Establishment. The Board shall be established on the date the
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Business License is issued.
8.2 Representation. The Board shall comprise seven (7) directors. of which
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three (3) shall be appointed by Party A and four (4) shall be appointed by
Party B. Any director may be removed and replaced at any time and for any
reason by the Shareholder that appointed such director.
8.3 Chairman and Vice-Chairman. The Company shall have one Chairman of the
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Board and one (1) Vice-Chairman. The Chairman of the Board shall be
selected by Party B from amongst the Board members appointed by Party B,
and the Vice-Chairman shall be one of the directors selected by Party A
from amongst the Board members appointed by Party A.
8.4 Term of Office. The directors, Chairman and Vice-Chairman of the Board
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shall hold office for terms of three (3) years, and such terms of office
may be renewed by the continuous appointment of the relevant Shareholder.
8.5 Legal Representative. The Chairman of the Board shall be the legal
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representative of the Company. If the Chairman is unable to exercise his
responsibilities for any reason, he may temporarily delegate such
responsibilities to the Vice-Chairman or any other director by a written
authorization sent to such person and copied to the Company and each
Shareholder.
8.6 Board Decisions. The Board shall manage the business and affairs of the
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Company. Board issues shall be decided by the approval by vote of any four
(4) directors present at a duly constituted meeting of the Board except
that the approval by vote of all seven (7) the directors present at a duly
constituted meeting of the Board shall be required for each of the issues
set out below:
8.6.1 any amendment to the Company's Articles of Association;
8.6.2 any increase. in the registered capital of the Company other than
an increase in the registered capital resulting from a
requirement to contribute monies
pursuant to article 5.5. Such increases are hereby approved in
advance by the Shareholders, and the Shareholders each agree to
cause the Board to vote in favour thereof;
8.6.3 any merger of the Company with any other economic organization,
or the creation of another joint venture entity together with
some other economic organization; and
8.6.4 dissolution of the Company for any reason prior to the expiry of
the Duration of the Joint Venture provided always, however, that
if unanimous approval of all the directors is not achieved in
this regard at any Board meeting duly convened for such purpose,
a resolution for such dissolution may be effectively passed at
the next Board meeting duly convened for such purpose if approved
by the votes of at least four (4) of the seven (7) directors at
such later meeting.
8.7 Meetings. Board meetings shall be held at least once per year and whenever
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any two (2) of the seven (7) directors may request. Directors may appoint
alternate directors to represent and vote for them, or by written proxy
authorize another director to vote on his behalf. Board meetings may also
be held by conference telephone call whereby each participant is able to
hear and speak to each other participant. The Chairman or other person
convening a meeting of the Board shall give each director at least ten (10)
days' written notice of the time, place and proposed agenda of the meeting.
8.8 Quorum. A quorum shall be formed by any five (S) directors. For such
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purpose, a director shall be deemed present at a meeting or conference
telephone call either if he participates in person or by the representation
of a duly appointed alternate director.
8.9 Dewed Quorum. If a quorum is for any reason not present within one (1) hour
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after the time set for a Board meeting, such meeting shall automatically
stand adjourned to the fifth (5th) business day immediately following at
the same time and place, and the directors present or deemed present at
such meeting shall be deemed to constitute a quorum and able to pass
effective resolutions.
ARTICLE 9 - GENERAL MANAGER
9.1 General Manager. The Board shall delegate the day-to-day management of the
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Company to the General Manager. The General Manager shall be nominated and
hired by the Board.
9.2 Duties of the General Manager. The General Manager shall be responsible for
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the overall management of the Company. The General Manager shall report to
the Board, and his duties shall include the following:
9.2.1 preparation of annual operating and capital budgets, business
plans and financial projections for Board approval;
9.2.2 implementing budgets and plans approved by the Board;
9.2.3 maintaining an accounting system and a system of financial,
budgetary and internal controls designed by any one of the
International and Chinese Joint Venture Accounting firms licensed
to practice accounting in China and such Accounting Firm shall be
approved by the Board;
9.2.4 maintaining accounting ledgers, books and records in accordance
with internationally accepted accounting principles and standards
and regulations;
9.2.5 payroll administration;
9.2.6 labour relations and personnel administration;
9.2.7 supervising and administering all exploration, mining, processing
and marketing operations;
9.2.8 implementing a system of security designed by experts in the
security field in respect of the Company's diamonds, precious
gems and other assets that is in accordance with good
international standards and that is satisfactory to the Board;
9.2.9 doing all other things necessary or advisable to ensure that the
business of the Company and is carried out in accordance with
this Contract.
9.3 The Vice-General Managers shall be nominated by the General Manager and
must be approved by the Board.
9.3.1 The Vice-General Managers shall assist the General Manager in
carrying out his duties.
ARTICLE 10 - PURCHASES AND CONTRACTS
10.1 Purchases Outside China. If the Company needs to purchase any materials,
------------------------
equipment. vehicles. machinery or other items necessary from outside China,
Party B shall be entrusted to do so on behalf of the Company.
ARTICLE 11 - EMPLOYMENT MATTERS
11.1 Employment Contracts. All existing employees and retired employees of Party
---------------------
A are the responsibility of Party A. All employees required to be engaged
by the Company, including but not limited to the General Manager, shall be
hired pursuant to employment contracts approved by the Board. Such
contracts will set out, amongst' other things, the title and duties of the
employee, the remuneration payable and the terms on which such engagement
may be terminated by the Company. Such employees, the Company and the
parties hereto shall be required to keep confidential all the terms of the
engagement of such employees.
11.2 Labor Market. The Company shall be entitled to hire employees from the
--------------
labor market by placing advertisements or using other direct methods for
recruiting employees. either from China or from abroad. as it deems fit.
Salaries and benefits payable to
any management level employee from China shall be based on standards
prevailing in the Chinese labor market for such kind of employee. and
salaries and benefits payable to any employee from outside of China shall
be based on standards prevailing in the international market for such kind
of employee. Such employees, the Company and the parties hereto shall be
required to keep confidential all the terms of the engagement of such
employees.
11.3 Autonomous Handling of Employment Matters. The Company shall handle all
----------------------------------------------
matters relating to employment, including the hiring, payment and firing of
all employees as the Company sees fit in the best interests of the Company
and without interference from any Shareholder.
ARTICLE 12 - TAXES, FINANCE AND AUDIT
12.1 Company Taxes. The Company shall pay taxes in accordance with the
--------------
stipulations of published and publicly available Chinese laws and
regulations using the maximum deductions and allowable deductions and
preferential treatments allowed in these some laws and regulations of the
Income Tax Law for Foreign Investment Enterprises and Foreign Companies.
The Company shall apply for the maximum allowable deductions and maximum
allowable credits and maximum allowable preferential treatments allowed in
these same laws and regulations covering and taxes.
12.2 Personal Taxes. Employees of the Company shall pay individual income tax
---------------
according to the Individual Income Tax Law of the People's Republic of
China.
12.3 Three Funds. The Company shall make annual allocations for a reserve fund,
------------
an expansion fund and a welfare and bonus fund for its employees from its
after-tax profits as the Board may deem fit.
12.4 Dividend Policy. Unless the Board unanimously resolves otherwise at a duly
---------------
convened meeting. the following dividend policy shall apply throughout the
Duration of the Joint Venture and regardless of the amount of dividends
that may have been or will be paid to any Shareholder:
12.4.1 after the loan repayments contemplated in article 5.5 have been
paid to the lender the Company shall at least once each year,
distribute to the Shareholders all of the after-tax profits
remaining by declaring and paying dividends to them in equal
proportions;
12.4.2 the Company shall use United States Dollars or Renminbi as
decided by the Board to distribute dividends;
12.4.3 if the United States Dollars available from the Company's normal
operations (excluding foreign currency exchange transactions) is
sufficient. the Company shall pay the dividends of both
Shareholders with such United States Dollars;
12.4.4 if the United States Dollars available from the Company's normal
operations (excluding foreign currency exchange transactions) is
insufficient to pay the dividends of both Shareholders in foreign
exchange. the
Company shall use the United States Dollars which it does have,
if any, to pay Party B's dividend on a priority basis;
12.5 Fiscal Year. The Company's fiscal year shall commence on January 1 and end
------------
on December 31 of each year, except for the first fiscal year which will
commence on the day the Business License is issued and end on December 31
of the same year.
12.6 Books of Account. The Company shall keep its books of accounts in English
------------------
and Chinese, and in accordance with generally accepted international
accounting principles.
12.7 Accounting Currency. The Company shall use Chinese Renminbi and/or U.S.
--------------------
dollar as the base accounting currency.
12.8 Reporting to Directors. The General Manager and the management committee
------------------------
shall prepare and deliver the following statements and reports to each
member of the Board:
12.8.1 quarterly unaudited financial statements within four (4) weeks
of the end of each fiscal quarter;
12.8.2 annual unaudited financial statements by no later than the
forty-fifth (45th) day after the end of the previous fiscal year;
12.8.3 annual audited financial statements and the auditor's report
thereon by no later than the sixtieth (60th) day after the end of
the previous fiscal year; and
12.8.4 daily production records by shift including inventory of
diamonds held for sale at the end of each day.
12.9 Rights to Inspect. Each director shall have the right to inspect and copy
------------------
the books of account of the Company at any time.
12.10 Auditors. The Company's books shall be audited by any one of the
---------
International and Chinese Joint Venture Accounting Firms licensed to
practice accounting in China and such Accounting Firm shall be selected
by Party B in writing.
12.11 Bank Accounts. The Company shall open such bank accounts as deemed
---------------
necessary by the Board.
ARTICLE 13 - INSURANCE
13.1 Standards of Insurance. The Company shall, purchase insurance of such
-----------------------
kind and of such value and duration as the Board considers necessary,
having due reference to international insurance practices in respect of
similar projects.
13.2 Choice of Insurer. The Company shall purchase such insurance from
------------------
the insurance provider which the Board considers to be the most
competitive in terms of coverage, dependability and cost. If the People's
Insurance Company of China satisfies the Board that its policies are at
least as favourable to the Company as those of its competitors in respect
of all factors the Board
considers material, the Company shall purchase its insurance from that
insurer.
ARTICLE 14 - DURATION OF THE JOINT VENTURE
14.1 Initial Duration. The Project shall have an initial duration (the
-----------------
"Duration of the Joint Venture") of thirty (30) years commencing on
the day the Business License is issued.
14.2 Extended Duration. The Company and the Shareholders shall make an
------------------
application to the Approval Authority at least six (6) months prior to
the expiry date of the Duration of the Joint Venture for same to be
extended as follows:
14.2.1 if the Company has been profitable, for a further period of
thirty (30) years; or
14.2.2 if any loan owed to Party B either by the Company or by Party A
or vice versa is not completely repaid, for such further period,
if any, as Party B may consider necessary to ensure that such
loan is completely repaid.
14.3 Continuation of Contract and Licenses. If the Duration of the Joint
--------------------------------------
Venture is extended for any reason. notwithstanding any provision to the
contrary herein, this Contract shall continue in full force and effect,
as amended by such extension. Party A shall obtain such renewals of the
Business License, Mining License and other rights and permits referred to
in article 7.2.1 as may be necessary or desirable.
ARTICLE 15 - DISPOSAL OF COMPANY ASSETS ON EXPIRY OF DURATION
15.1 Liquidation of Assets. If the Duration of the Joint Venture expires or
-----------------------
is terminated pursuant to this Contract for any reason, the assets of the
Company shall be liquidated and the debts of the Company (including any
amounts owed to any Shareholder hereunder) shall be paid. The remaining
cash of the Company, if any, shall be distributed by the Company to the
Shareholders equally in accordance with the principles set forth in
article 12.4: Thereafter, the Company shall:
15.1.1 make a full report of the liquidation to each of the
Shareholders; and
15.1.2 cause the Business License to be cancelled.
15.2 Sale of Assets. The liquidation committee shall use its best efforts to
----------------
sell the non-cash assets of the Company (including the Mining Rights and
Marketing and Sales Rights) for the highest available price. Any
Shareholder may purchase all or part of those assets at a purchase price
equal to their fair market value, as determined by the parties by
agreement (or by the Independent Valuator, if no written agreement is
reached within thirty (30) days). Such price may be paid by way of
set-off against any amount that may be owed by the Company to the
purchasing Shareholder. Such Mining Right shall get approval from the
appropriate Government Agency.
15.3 Survival of Term. The provisions of this Article 15 shall survive the
------------------
expiry or early termination of the Duration of the Joint Venture for any
reason.
ARTICLE 16 - AMENDMENT AND TERMINATION OF THE CONTRACT
16.1 Amendment. This Contract and its two (2) schedules may only be amended by
----------
a written amendment agreement signed by both Party A and Party B, and
shall come into effect on the day such amendment agreement is approved by
the Approval Authority.
16.2 Term of Contract. This Contract and its two (2) schedules shall come
------------------
into effect upon approval by the Approval Authority and, subject to
article 16.3, shall remain in force until the procedures set forth in
Article 15 above have been completed following the expiry or early
termination of the Duration of the Joint Venture pursuant.
16.3 Rescission of Contract. If for any reason the conditions precedent set
------------------------
forth in article 5.2 and 5.3 have not all been fulfilled by any Party on
or prior to the 90th day after the Business License has been issued, this
Contract shall be deemed terminated and of no force and effect and the
Company shall be dissolved. The Party that has suffered damages resulting
for the breach of the contract can claim such damages against the other
Party.
16.4 Early Termination. Either Shareholder may by written notice to the
------------------
Chairman and Vice-Chairmen of the Company, request the Board to consider
and approve a resolution pursuant to article 8.6 to terminate the
Duration of the Joint Venture prior to its expiry date only for any of
the following reasons:
16.4.1 the other Shareholder has caused an Event of Default to occur,
and has failed to cure such Event of Default within thirty (30)
days of written notice by the first Shareholder, or if such Event
of Default cannot be cured within thirty (30) days, the other
Shareholder has failed to use its best efforts to cure such
default; or
16.4.2 there has been a material change in the applicable laws,
regulations or policies of the pertinent governmental authorities
that adversely affect the interests of such Shareholder.
16.5 Government Approval If any Shareholder gives a notice requesting early
-------------------
termination under article 16.4 and the Board resolves according to
article 8.6.4 to dissolve the Company, the Shareholders shall cause the
Company and the Board to make such applications to the Approval
Authority, and to take all such other steps as may be necessary to
complete the dissolution of the Company in accordance herewith.
16.6 Survival of Certain Provisions and Obligations. The provisions of
------------------------------------------------
Article 15 and this. article 16.6 and all other provisions of this
Contract necessary to give full force and effect thereto shall survive
the expiration. or early termination of the Duration of the Joint Venture
for any reason. Notwithstanding the termination of this Contract, no
Shareholder
shall by reason of such termination be relieved of any obligation or
liability accrued hereunder prior to such termination, all of which shall
remain enforceable until fully satisfied.
ARTICLE 17 - BREACH OF CONTRACT
17.1 Events of Default. Each of the following events shall be deemed to be an
------------------
Event of Default hereunder:
17.1.1 if any Shareholder shall be in breach of any of its material
obligations hereunder and such breach shall continue for a period
of thirty (30) days from the receipt of a written notice of
breach from the other Shareholder, or if such breach cannot be
cured within thirty (30) days, such Shareholder has failed to use
its best efforts to cure such breach;
17.1.2 if any Shareholder passes a resolution that it be wound up or
liquidated or a meeting is convened for the purpose of passing
any such resolution, or an order is made for the winding-up or
liquidation of such Shareholder;
17.1.3 if a receiver or receiver-manager is appointed in respect to the
whole or a substantial part of the affairs or assets of any
Shareholder; and
17.1.4 if a Shareholder is adjudged bankrupt or insolvent or files a
proposal in bankruptcy.
17.2 Remedies. If an Event of Default occurs, the Non-Defaulting Shareholder
--------
shall be entitled to exercise against the Defaulting Party any and all
rights, remedies. and recourses permitted hereunder or at law, including
without limitation, the right to obtain an injunction or order from a
court of competent jurisdiction setting aside the act giving rise to such
Event of Default. All such rights. remedies and recourses shall be
cumulative and the exercise of one shall not prevent the exercise of any
other or others.
17.3 Interest. Unless otherwise provided herein, any sum at any time owing
--------
hereunder by any Shareholder to the Company or by the Company or any
Shareholder to another Shareholder which is not paid when due shall,
without derogation from any other right or recourse of the creditor
hereunder or at law, bear interest from its due date until payment in
full at an interest rate equal to the Prime Rate.
ARTICLE 18 - FORCE MAJEURE
18.1 Event of Force Maieure. An Event of Force Majeure includes any fire.
-------------------------
explosion. accident, earthquake, tidal wave. strike, picketing, lockout,
labour dispute, flood, drought, embargo, war. riot or insurrection,
uprising, rebellion, or any other event whether similar or dissimilar to
the foregoing which shall be beyond the reasonable control of the
Shareholder affected thereby and which shall delay, interrupt or prevent
the performance in
whole or in part by such Shareholder of any of its obligations hereunder
other than an obligation to pay money.
18.2 Notice of Force Majeure. A Shareholder affected by an Event of Force
--------------------------
Majeure shall promptly give notice thereof to the other Shareholder and
shall indicate in such notice, as accurately as possible, the effect of
such Event of Force Majeure on its capacity to perform its obligations
hereunder.
18.3 Effect of an Event of Force Maieure. Subject to the giving of notice
-----------------------------------------
provided for in the immediately preceding article:
18.3.1 the non-fulfillment of any obligation of any Shareholder
hereunder by reason of an Event of Force Majeure shall not
constitute a breach or an Event of Default, and shall not give
rise to damages or to any other recourse; and
18.3.2 any time period provided for the performance of any obligation
of any Shareholder hereunder shall be postponed or extended for
and by a duration equal to the period during which the Event of
Force Majeure shall continue to exist.
18.4 No Termination. An Event of Force Majeure shall not be a cause for the
---------------
early termination. of this Contract or of the Duration of the Joint
Venture unless the Event of Force Majeure continues for a period in
excess of 12 months, in which case the Shareholder not directly affected
by such Event of Force Majeure may request the early termination of the
Project pursuant to the provisions of article 16.4.
ARTICLE 19 - APPLICABLE Law
19.1 Published Laws of China. The formation, validity and interpretation of
------------------------
this Contract shall be governed by the published and publicly available
laws of the People's Republic of China.
19.2 Effect of Future Laws. The Shareholders agree that if f any law or
----------------------
regulation of China that is amended or changed or a new law has an
adverse effect on any Shareholder then, if such Shareholder requests, the
parties shall forthwith amend this Contract so that such adverse effect
is eliminated or adjusted to the greatest extent possible, and each
Shareholder shall and shall cause the Company to use its best efforts to
cause such amendment to be approved by the Approval Authority.
ARTICLE 20 - SETTLEMENT OF DISPUTES
20.1 Overriding Principle Any dispute arising out of or relating to this
--------------------
Contract shall be resolved exclusively by the procedures set out in this
Article 20. First, there shall be friendly discussions between the
Shareholders based on the overriding principle that the Shareholders have
agreed to establish the Company in order to generate maximum profits for
each of the Shareholders.
20.2 Binding Arbitration. If the dispute is not resolved by friendly
---------------------
discussions under the immediately preceding article any Shareholder may
give to the other Shareholder written notice under this article 20.2
requesting the dispute to be resolved. If the dispute is not resolved
within forty (40) days after such notice, either Shareholder shall be
entitled to refer the dispute for arbitration by three (3) arbitrators
pursuant to the rules of and under the auspices of the International
Arbitration Institute of the Stockholm Chamber of Commerce. In their
determination, such arbitrators shall have due regard to international
practice. The award of such arbitrators shall be binding on the parties
and may be entered in any court of competent jurisdiction.
ARTICLE 21 - MISCELLANEOUS
21.1 Notices. Any and all notices or other communications required or
--------
permitted pursuant to this Contract shall be in writing and shall be:
21.1.1 personally delivered by courier (accompanied by a fax or telex)
thereof to the addressees at the addresses referred to below, in
which case such notice or other communication shall conclusively
be deemed to have been given to the addressee thereof at the time
of such delivery or on the next business day if delivered on a
day that is not a business day; or
21.1.2 telexed or telecopied to the addressee at the numbers referred
to below, confirmed by delivery by courier, in which case such
notice or other communication shall conclusively be deemed to
have been given to the addressee thereof on the day upon which it
was received if received prior to 3:00 p.m. (local time) on such
day or on the next business day if received after 3:00 p.m.
(local time) on a business day or on the next business day if
received on a day that is not a business day:
For Party A:
------------
China Non-Metal Mine Enterprise Group 701 Mine Mengyin
County
Shandong Province People's Republic of China
Attention: Xxxxx Xx Ling
Telephone: 00-0-0000-00000
Telephone: 86-0-S491-71240
For Party B:
------------
VVS1 Limited
0000 Xxxxxxx Xxxxxxxxxx Xxxxxx
000-000 Xxxxxxxx Xxxx
Xxxx Xxxx
Attention: Po Sun Liu
Telecopier: 000-000-0000
Each Shareholder may change its address for service by
written notice, given in the manner provided above, to the
other Shareholder and such change shall be effective upon
the date the notice shall be deemed to be received.
21.2 Entire Agreement. This Contract and its two (2) schedules constitute the
-----------------
entire agreement between the parties hereto. There are no, and shall not be
any, verbal or written statements, representations, warranties,
undertakings or agreements between the parties pertaining to the subject
matter hereof other than as expressly provided for herein. This Contract
supersedes the Agreement between the parties dated December 1, 1993. If any
provision hereof conflicts with any provision of the Articles of
Association of the Company or with anything in the Feasibility Study, the
provision of this Contract shall prevail.
21.3 Business Day. Where the time limit for the doing of anything hereunder
-------------
expires or falls upon a day that is not a business day the time so limited
extends to and the thing may be done on the day first following that is a
Business Day.
21.4 Time of Essence. Time and each of the terms and conditions of this Contract
----------------
shall be of the essence of this Contract and no waiver by any Shareholder
of any default by the Shareholder of any provision herein shall be deemed
to be a waiver of any other provision herein nor to release such other
Shareholder from any such provision.
21.5 Further Assurances: Cooperation. Each of the parties hereto shall do all
-------------------
things and execute all documents necessary or desirable in order to carry
out the intents of this Contract, and shall fully co-operate with each
other and the Company in all respect in good faith to ensure that the
Company operates in the manner contemplated herein and achieves the purpose
set out in article "C".
21.6 Corrective Actions. If at any time during the Duration of the Joint
-------------------
Venture, any governmental authority of China enacts or law or policy
(collectively "Unilateral Action"), and if such Unilateral Action has the
effect (a "Negative Effect") of preventing or constraining the exercise of
any right or of materially increasing the burden of performance of any
obligation (including any increase in an obligation to pay a sum of money)
of Party B or the Company hereunder the Company shall, at the Company's
cost, take such measures ("Corrective Action") as may be required to
restore Party B or the Company (as the case may be) to the position it
would have retained had such Unilateral Action not been taken. Such
Corrective Action may take any or all of the following forms:
21.6.1 obtaining from the relevant authority, an exemption from the
application of the law or policy, that is the direct or indirect
subject to the Unilateral Action or the direct or indirect cause
of the Negative Effect;
21.6.2 causing the enactment of specific legislations (including
subsidiary legislation) eliminating the Negative Effect; or
21.6.3 any other action acceptable to Party B
21.7 Language. This Contract has been written in Chinese and in English and
---------
dully executed in Chinese and in English. The Parties agree that both versions
are equal, and legally binding on both Parties. In case of discrepancy, the
meaning and spirit of the English version shall be used to interpret the
Contract.
Enurement. This Contract shall enure to the benefit of and be binding upon
---------
the parties hereto and their respective successors and permitted assigns.
IN WITNESS WHEREOF duly authorized officers of each of the parties have executed
this Contract in Beijing on this 2nd day of February, 1994.
CHINA NON-METAL MINE VVS1 LIMITED
ENTERPRISE GROUP 701 MINE
Per: /s/ Xxxxx Xx Ling Per: /s/ Po Sun Liu
-------------------------- ---------------------------
Name: Xxxxx Xx Ling Name: Po Sun Liu
Title: Mine Director Title: Chairman and Chief
Executive Officer
Witness: Witness:
/s/ Xxxxx Xxx
---------------------------- ------------------------------
Name: Xxxxx Xxx, I.L.B. LL.M Name:
[GRAPHIC OMITTED] Tel: (00)0000000 (00)0000000
DRAGON LAW OFFICE Fax: 0000000
Attorny's Attestation
Feburary 2nd 1994
China Non-metal Mine Enterprise Group 701 Mine (Party A) and WS 1 Limited
Liability Company(Party B) after friendly consultation, on February 2nd,1994 in
Hilton Hotel,Beijing signed this contract of cooperation in which they
unanimously decided to establish a limited liability company,in Mengyin and
Pingyi county, Shandong, China, to mine and process diamonds and other precious
stones as well as to sell above-mentioned products on international and local
markets.The contract also clarifies the shareholders' position for both sides
and their powers and duties.
Party A's Mine Director Mr. Xxxxx Xx Ling, Party B's president and general
manager Mr. Xxxxx Xxx represent each party in signing the contract.
Dragon Law Office's attorneys,Li Jinn Sheng,esq.Zhai Cun Zhu esq., participated
in the project's negotiations, corrected and revised the contract.They state
that the contract is in accordance with the relevant laws and regulations of the
People's Republic of China, it expresses the intent of both parties and is in
accordance with all the relevant laws and regulations.
Attested by The Dragon Law Office,Beijing,China.
/s/ Xx Xxxx Sheng
----------------------
Xx Xxxx Sheng,Attorney
/s/ Zhai Cun Zhu
----------------------
Zhai Cun Zhu,Attorney
[GRAPHIC OMITTED] 100101
Xxxxx 0000, Xxxx. X, Xxxxxxxxxxxxx Xxxxxxx Xxx.
Xxxxxxxx, Xxxxxxx 000000, P.R. China
