THIS CONTRACT OF SING-FOREIGN CONTRACTUAL JOINT VENTURE made this 31st day of
January, 1994
BETWEEN:
MENG MOUNTAIN DIAMOND DEVELOPMENT CORPORATION,
a company incorporated under the laws of People's
Republic of China with its legal office located
at 000 Xxxxxxxx Xxxx, Xxxxxxx Xxxxxx, Xxxxxxxx
Xxxxxxxx, People's Republic of China
(hereinafter referred to as "Party A")
OF THE FIRST PART
AND
CHINA BEST (ASIA) 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 and other precious gems in Mengyin
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 Saturday, both inclusive
except for statutory holidays recognized in China;
1.1.4 "Business license" means a license issued by Industrial and
Commercial Administration department and which license shall be
valid to engage in each item of business;
1.1.5 "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;
1.1.6 "Contractual Joint Venture Law" means the Law of the People's
Republic of China on Sino-Foreign Contractual Joint Venture;
1.1.7 "Duration of the Joint Venture" means a period of thirty (30)
years commencing on the date the Business License is issued;
1.1.8 "Feasibility Study' means the verification document in
connection with the aspects of geology, resource, technology and
economics of diamond mining and processing relevant to this
co-operative project provided by Party A and Party B;
1.1.9 "General Manager" means the person engaged by the Company as its
general manager pursuant to article 9.1;
1.1.10 "Independent Valuator" means any one of the five (5) largest
Chinese registered accounting firms in the world, as selected by
Party B in writing;
1.1.11 "Investment" means for any Shareholder all of its right, title
and interest in and to the Company and this Contract;
1.1.12 "Mengyin County" means an area of approximately. 1600 square
kilometers and identified on schedule B;
1.1.13 "Mine 701" means China Construction Material 701 Mine;
1.1.14 "Mining Authority" means authority approved by relevant
government agency for mining certain mine resources described in
the Contract;
1.1.15 "Exploration License and 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 and Exploration;
1.1.16 "Exploration Rights" means that rights to explore, mine and
extract diamonds in Mengyin County;
1.1.17 "Party A" means Meng Mountain Diamond Development Corporation, a
company incorporated under the laws of China, and being the
Party of -the First Part of this Contract.
1.1.18 "Party B" means China Best (Asia) Limited, a company
incorporated under the laws of Hong Kong and being the Party of
the Second Part of this Contract;
1.1.19 "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;
1.1.20 "Reverification and Exploration Program" means the
reverification work described in relevant section of the
Feasibility Study;
1.1.21 "S.A.I.C." 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, articles and other
subdivisions are to the designated articles, articles and other
subdivisions hereof.
1.2.3 The headings preceding the text, articles and articles 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 two (2) schedules attached to this Contract shall form
integral parts of this Contract:
Schedule "A" - Expenditure Schedule;
Schedule "B" - Mengyin County Map.
ARTICLE 2 - CONTRACTING PARTIES
2.1 Parties. The parties to this Contract are as follows:
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2.1.1 Meng Mountain Diamond Development Corporation, a company
incorporated in the People's Republic of China
with its legal address at 047 Xxx Xxxxx Road, Mengyin County,
Shandong Province, People's Republic of China.
Legal Representative: Name: Xxxx Xxxxx-Xxx
Position: General Manager
Nationality: Chinese
2.1.2 China Best (Asia) Limited, a company incorporated in Hong Kong
with its legal address at 2203 Cameron Xxxxxxxxxx Xxxxxx,
000-000 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 Party A
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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
article 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 Party B
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as follows:
2.3.1 Party A is a duly organized company 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
article 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 Exploration and 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 article 12.1;
2.3.8 upon signing of this Contract, Party A shall deliver to Party B
all information concerning diamonds or other precious gems in
Mengyin County (other than Mine 701) that is in Party A's
possession or control, and such information is accurate and
complete; and
2.3.9 neither Party A nor any other person that has engaged in the
exploration for or the mining of diamonds or other precious gems
in any property in Mengyin County (other than 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 such property, or
of the past or present activities of any person in respect
thererof which has caused or is likely to cause or contribute to
any adverse environmental condition on such property.
2.4 INDEMNITY. If any representation or warranty given herein by any party
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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 CONTRACTUAL JOINT VENTURE COMPANY
3.1 CONTRACTUAL JOINT VENTURE. In accordance with the Sino-Foreign
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Contractual 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: Mengyin International Diamond Development Co. Ltd.
3.3 LEGAL ADDRESS. The legal address of the Company shall be 047 Xincheng
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Road, Mengyin County, Shandong Province, People's Republic of 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.
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Each 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 S
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,
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to 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 SCONE. The parties agree that the business scope of the
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Company shall include the following:
4.1.1 the exclusive right to explore for, mine and extract diamonds
and other precious gems throughout Mengyin County except only
for Mine 701;
4.1.2 the exclusive right to process and refine diamonds or other
precious gems mined or extracted by the Company;
4.1.3 the exclusive right to market and sell such diamonds and other
precious gems on the international market through Party B; 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 Exploration License and
Mining License.
ARTICLE 5 - TOTAL INVESTMENT REGISTERED CAPITAL
5.1 INITIAL REGISTERED CAPITAL. The total investment amount of the Company
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is set at U.S. $11,000,000 consisting of registered capital of the
Company of U.S. $10,000,000 and U.S. $1,000,000 in working capital
provided by banks. The U.S. $10,000,000 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.
$5,000,000 respectively.
5.2. PARTY B'S INITIAL CAPITAL CONTRIBUTION. Party B may make contribution
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under this article S in the form of cash, equipment and machinery,
technology and technical services recommended by the Management
Committee and approved by the Board. Equipment and machinery value shall
be verified by an accounting company and the State Administration for
the inspection of import and export commodities.
Party B shall contribute to the Company a total of U.S. $1,000,000 in
the form of United States Dollars within the first year. The remaining
U.S. $4,000,000 or the equivalent amount in Renminbi in whole or part
will be contributed in accordance with the Expenditure Schedule and
approved by the Board and subject to article 5.4.1. The Shareholders
agree that Party B's obligation to contribute such initial amount 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 and this Contract and Article of
Association have been approved in writing by the Approval
Authority;
5.2.2 the Business License has been issued by the S.A.I.C. to the
Company;
5.2.3 the Exploration and Mining License has been issued by the Mining
Authority to the Company;
5.2.4 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 and the
granting of the Exploration Rights to the Company, (b) the
legality, validity and bindingness of this Contract and the
Exclusive Marketing and Sales Contract, and (c) the accuracy of
the tax description in the Contract;
5.2.5 the Company has signed and delivered the Exclusive Marketing and
Sales Agreement;
5.2.6 the representations and warranties made by Party A in article
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 CAPITAL CONTRIBUTION. Party A may make contribution under
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this article 5 in the form of cash, labour supply, land, exploration
rights, rights-of-way, surface rights, water rights, electricity power
source and other rights required to allow the Company to explore and
mine for diamonds as required and recommended by the Management
Committee and approved by the Board. As Party A's U.S. $1,000,000
capital contribution, Party A shall, no later than sixty (60) business
days after the day the Business License has been issued, cause the
Exploration and Mining License to be issued to the Company, provided
that:
5.3.1 Party A shall be solely responsible for and cannot charge to the
Company any costs or payments to:
(a) any person, company, entity or governmental authority in
respect of the issuance of the Exploration and Mining
License;
(b) any person, company, entity or governmental authority in
respect of releasing their claims on any diamond bearing
ore body;
(c) any person, company, entity or governmental authority in
respect of the relocation of any individuals, businesses
or government entities;
(d) 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.
5.3.2 upon the issuance of the Exploration License and Mining License
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.
5.3.3. upon payment of any part of the remaining registered capital
contribution of U.S. $4,000,000 in the form allowed in article
5.2 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.
5.4 REVERIFICATION AND EXPLORATION PROGRAM. The funds contributed by Party
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B under article 5.2 shall be used for the Reverification and Exploration
Program. All diamonds and other precious gems found or extracted during
the Reverification, and Exploration Program shall belong to the Company,
and may be sold under the Exclusive Marketing and Sales Contract. The
profits arising from such sales shall be distributed as contemplated in
article 12.4.
5.4.1 if after the investment of any part of the initial investment
the results of Reverification and Exploration Program indicate
the diamond deposits are not economically feasible to mine and
Company's Management Committee's mining engineers recommend that
no further funds be expended on the property, the parties agree
that article 16.3 shall apply.
5.5. BANK LOANS. If the Company requires funds in addition to Party B's
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initial capital contribution under article 5.2, 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.
5.6 ADDITIONAL SHAREHOLDER CONTRIBUTIONS. If the Company requires funds in
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addition to the bank loans obtained under article 5.5, the Shareholders
shall contribute such funds to the Company subject to the following
conditions:
5.6.1 neither Shareholder shall be required to make any additional
contribution under this article 5.6 unless both parties are
satisfied with the results of the Reverification and Exploration
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;
5.6.2 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;
5.6.3 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;
5.6.4 if the Shareholders are required to make additional
contributions under this article 5.6, 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 obligations or liabilities of each Shareholder in this
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Contract hereunder cannot at any time be assigned by any Shareholder
without the prior express written consent of the other Shareholder.
6.2 ENCUMBRANCES IN FAVOUR OF LENDERS. If the Company agrees to borrow
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funds 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.
6.3 TRANSFERS. Any Shareholder (in this article, the "Transferring
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Shareholder") that is not in breach of the terms hereof may transfer to
a subsidiary of the Transferring Shareholder all or part of its
Investment.
ARTICLE 7 - RESPONSIBILITIES OF EACH SHAREHOLDER
7.1 RESPONSIBILITIES OF PARTY B. Party B shall be responsible for and
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hereby 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 5.6 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 diamonds and relevant products and other precious
gems mined by the Company, in accordance with the Exclusive
Marketing and Sales Agreement, and the parties agree that the
Exclusive Marketing and Sales Agreement shall be signed by the
Company and Party B within thirty (30) days after the date of
the Business License;
7.1.5 remit to Party A U.S.D. 5,000 for its share of the expenses of
the Feasibility Study on the execution date of this Contract;
and
7.1.6 handling any other matter entrusted by the Company.
7.2 RESPONSIBILITIES OF PARTY A Party A shall be-"responsible for and
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hereby 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 Exploration and Mining License and
(iii) all access permits, rights-of-way, easements, occupation
permits, surface rights and other such rights in respect of
places 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 3months
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 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 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,
royalties and taxes of any kind:
(a) the exclusive right to explore for, mine and extract
diamonds and other precious gems throughout Mengyin
County except only for Mine 701;
(b) the exclusive right to process and refine diamonds and
other precious gems mined or extracted by the Company;
(c) the exclusive right to market and sell such diamonds and
other precious gems on the international market through
Party B under the Exclusive Marketing and Sales Contract;
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 geological data including maps, reports,
surveys, exploration data and other historical data relating to
the finding and mining of diamonds, kimberlite, precious gems
and ores bearing precious gems located in Mengyin County;
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 in 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 of a 51% majority
of the votes cast by the directors present at a duly constituted meeting
of the Board except that the approval of 75% of all 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 an increase
in the registered capital resulting from a requirement to
contribute monies pursuant to article 5.6. Such increases are
hereby approved in advance by the Shareholders, and the
Shareholders each agree to cause the Board to vote unanimously
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 51% of the directors present at such
later meeting.
8.7 MEETINGS. Board meetings shall be held at least once per year and
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whenever 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 (5) 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 DEEMED QUORUM. If a quorum is for any reason not present within one (1)
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hour 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
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the 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
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for 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 five
(5) largest Chinese registered accounting firms selected 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 generally, doing all 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.
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 the 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 the maximum allowable credits and the maximum allowable
preferential treatments allowed in these same laws and regulations
covering duties 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 July 1 and
-------------
end on June 30 of each year, except for the first fiscal year which will
commence on the day the Business License is issued and end on June 30 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) days 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 the China office of
--------
one of the international accounting firms licensed to practice in China
or which has established a joint venture in China licensed to practice
in China, as selected by the Party B in writing.
12.11 BANK ACCOUNTS. The Company shall open such bank accounts as deemed
--------------
necessary by the board of directors.
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, Exploration License and 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 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 TERMS. 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 S.2 and 5.4 have not all been fulfilled or waived in
writing by Party B on or prior to the 180th day after the Business
License has been issued, at Party B's option, this Contract shall be
deemed terminated and of no force and effect, the Company shall be
dissolved, and the
Shareholders shall have no liability of any kind hereunder to each
other.
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 8.6.5 to dissolve the Company, the Shareholders shall and 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:
17.1.2 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 MAJEURE. 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 MAJEURE. 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 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:
--------------
Meng Mountain Diamond Development Corporation
047 Xxx Xxxxx Road
Mengyin County
Shandong Province
People's Republic of China
Attention: Xxxx Xxxxx-Xxx
Telephone: 000-0-00000
For Party B:
--------------
China Best (Asia) Limited
2203 Cameron Commercial Centre
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-ACTION. 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 LAUGUAGE. 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.
21.8 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 31st day of January, 1994.
------- ---- -------
MENG MOUNTAIN DIAMOND CHINA BEST (ASIA) LIMITED
DEVELOPMENT CORPORATION
Per: /s/ Xxxx Xxxxx-Xxx Per: /s/ Po Sun Liu
------------------------------- --------------------------------
Name: Xxxx Xxxxx-Xxx Name: Po Sun Liu
Title: General Manager Title: Chairman and
Chief Executive Officer
Witness: Witness:
/s/ Xxxxx Xxx /s/ Xxxxx Xxxx Pu
--------------------------------- ---------------------------------
Name: Xxxxx Xxx, LLB. LLM. Name: Xxxxx Xxxx Pu
[GRAPHIC OMITTED] Tel: (00)0000000 (00)0000000
DRAGON LAW OFFICE Fax: 0000000
Attorny' s Attestation
February lst, 1994
Shandong Mengshan Diamond Development Company (Party A) and Hong Kong China Best
(Asia) Company Ltd.(Party B) after friendly consultation, on January 31st, 1994
in Hilton Hotel, Beijing signed this contract of cooperation in which they
unanimously decided to establish a limited liability company, in Mengyin county,
Shandong, China, to explore, mine and process diamonds and other precious stones
as well as to sell above-mentioned products on international markets. The
contract also clarifies the shareholders' position for both sides and their
powers and duties.
Party A's general manager Xx. Xxxx Chuan Jie, Party B's president and general
manager Mr. Xxxxx Xxx represent each party in signing the contract.
Dragon Law Office's attorneys, Xx Xxxx 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 the relevant laws and regulations.
Attested by The Dragon Law Office, Beijing, China.
/s/ Xx Xxxx Sheng
-----------------------------------------
Xx Xxxx Sheng, Attorney
/s/ Cun Zhu
-----------------------------------------
Cun Zhu, Attomey
[GRAPHIC OMITTED]
Xxxxx 0000, Xxxx. X, Xxxxxxxxxxxxx Xxxxxxx Xxx.
Xxxxxxxx, Xxxxxxx 000000, P.R. China
