DEBT REDUCTION AGREEMENT
THIS
AGREEMENT is dated as of February 13, 2007, between China Precision Steel,
Inc.,
a Colorado corporation (the “Company”), Partner Success Holdings Limited, a
British Virgin Islands Business Company (“PSHL”), and Mr. Wo Xxxx Xx, a Hong
Kong national (“Li”), on the basis of the terms and conditions set forth herein.
WHEREAS,
certain
amounts (the “Debt”) are owed by the Company to Li as a result of (i) advances
made by Li on behalf of the Company’s subsidiaries and affiliates and (ii)
certain other obligations and transactions, during each of the fiscal years
ended June 30, 2003, 2004, 2005, and 2006 and continuing in fiscal year ending
June 30, 2007 as set forth on Exhibit A hereto; and
WHEREAS,
Li is a
director of PSHL, a principal shareholder of the Company and is the Chairman
of
the Board of Directors of the Company and its President; and
WHEREAS,
Shanghai Chengtong Precision Strip Co., Ltd. (“Chengtong”), a wholly foreign
owned enterprise established under the laws of the People’s Republic of China
(“PRC”), is an indirect wholly-owned subsidiary of the Company, and Shanghai
Tuorong Precision Steel Co., Ltd. (“Tuorong”) is a company organized under the
laws of the People’s Republic of China (“PRC”) and controlled by Li;
and
WHEREAS,
Li
intends to contribute certain assets of Tuorong to the Company, including,
but
not limited to land use rights and facility construction costs (the “Tuorong
Assets”), upon approval from the relevant governmental authorities in the PRC
(“Approval”) for the transformation of Tuorong into a wholly foreign owned
enterprise (the “Transformation”), and Approval for the transfer of certain land
use rights from Tuorong to Chengtong (the “Land Transfer”); and
WHEREAS,
the
Company proposes to raise capital through one or more private placements of
its equity securities on terms and conditions to be agreed as appropriate and
consistent with market practice and in reliance upon available exemptions from
the registration requirements of the U.S. Securities Act of 1933, as amended
(a
“Placement”); and
WHEREAS,
the
Company now considers it in the best interests of the Company and its
shareholders to reduce such Debt as set forth herein;
NOW,
THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, the
receipt of which is hereby acknowledged, the Company, PSHL and Li agree as
follows:
1. Subject
to the terms and conditions of this Agreement, the parties agree that, as of
December 31, 2006, the amount of Debt outstanding and payable to Li, subject
to
certain adjustments as set forth on Exhibit A hereto, was $1,798,066 (the
“Conversion Amount”).
CONFORMED
COPY
2. The
Conversion Amount shall be converted (the “Conversion”) by the Company into such
number of shares (the “Shares”) of Common Stock, to be issued to Li or his
designees, as shall be determined pursuant to a price per share equal to that
of
the Common Stock sold in a Placement (the “Purchase Price”), such Conversion to
be effected contemporaneous with the closing of a Placement (the “Closing”);
provided, however, that no Conversion shall be required to be effected hereunder
if the aggregate amount of gross proceeds payable at Closing to the Company
is
less than $19,000,000.
3. At
the
Closing, share certificates representing the Shares shall be delivered to Li
and
such Shares shall be validly issued, fully paid and non-assessable.
4.
The
parties agree that the fair market value of the Tuorong Assets is $8,840,990
at
December 31, 2006, which amount is subject to adjustment based upon existing
exchange rates between the U.S. Dollar and the Chinese Yuan.
5. The
parties further agree that, upon receipt of the Approvals for the Transformation
and Land Transfer, they will take all actions necessary to effect the following
transactions as soon as practicable, subject to applicable law:
(i) Li
shall
contribute the Tuorong Assets to the Company for consideration in the amount
of
$8,840,990, as may be adjusted in accordance with paragraph 4 above (the
“Tuorong Consideration”);
(ii) That
certain dividend declared by the Board of Directors of PSHL on June 30, 2004,
for the fiscal year then ended, in the amount of $3,839,607 and remaining unpaid
as of the date hereof shall be rescinded (the “Dividend Rescission”) by the
Board of Directors of PSHL and such amount restored to the Company’s
shareholders’ equity account; and
(iii) The
Tuorong Consideration, after deduction therefrom for the amount of the Dividend
Rescission, shall be converted (the “Second Conversion”) into such number of
shares of Common Stock, to be issued to Li or his designees, at a price per
share that is the greater of (i) the Purchase Price, as defined in paragraph
2
above, and (ii) the average closing price of the Common Stock as reported on
The
NASDAQ Capital Market for the five (5) trading days prior to the transfer of
the
Tuorong Assets.
6. Upon
consummation of each of Conversion and the Second Conversion as contemplated
hereby, Li waives any further claim or right to, or interest in, the Conversion
Amount and the amount of the Second Conversion, as the case may be, whether
in
equity or at law, and forever releases and discharges the Company, its
subsidiaries and affiliates from any and all obligations with respect to the
Conversion Amount and the amount subject to the Second Conversion, respectively.
In furtherance thereof, Li agrees to enter into a Deed of Release in favor
of
the Company, PSHL and Chengtong, substantially in the form of Exhibit B hereto
simultaneous with the execution of this Agreement.
7. The
actions to be taken by the parties pursuant to this Agreement as set forth
in
paragraphs 2, 3, 5 and 6 are wholly conditional upon and subject to the
consummation of a Placement in an aggregate amount of gross proceeds to the
Company of $19,000,000.
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8. Each
of
the parties hereto represents and warrants to each other that this Agreement
has
been entered into as an arm’s length transaction. The Company further represents
and warrants that this Agreement has been duly authorized by the independent
members of the Board of Directors and when duly executed and delivered by the
Company will constitute a legal and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as such
enforcement may be affected by bankruptcy, reorganization, insolvency,
moratorium or similar laws affecting creditor’s rights generally and except for
general principles of equity.
9. This
Agreement shall be governed by and construed in accordance with the laws of
the
State of New York, without regard to conflict of laws principles.
10. This
Agreement constitutes the entire agreement and understanding between the parties
relating to the subject matter herein and supersedes all previous written or
oral negotiations, commitments and writings.
11. This
Agreement may be signed in counterpart and each counterpart when taken together
with the others shall evidence the entire Agreement.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
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IN
WITNESS THEREOF, THIS AGREEMENT is
duly
executed as of the date set forth above.
| CHINA PRECISION STEEL, INC. | WO XXXX XX | |
| By : /s/ Leada Tak Xxx Xx |
/s/Wo
Xxxx
Xx
|
|
| Name: Leada Tak Xxx Xx | Wo Xxxx Xx | |
| Title: Chief Financial Officer | ||
| PARTNER SUCCESS HOLDINGS LIMITED | ||
| By: /s/ Xxxxx Xxx Xxxxx | ||
| Name: Xxxxx Xxx Keung | ||
| Title: Director |
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