U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or 12(g) of
The Securities Exchange Act of 1934
Asian Alliance Ventures, Inc.
(Exact name of registrant as specified in its charter)
NEVADA 98-0204780
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Suite 1000-355 Burrard Street, Vancouver, British Columbia, Canada V6C 2G8
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(Address of registrant's principal executive offices) (Zip Code)
604.482.1288
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(Registrant's Telephone Number, Including Area Code)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which
to be so Registered: Each Class is to be Registered:
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None None
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Securities to be registered under Section 12(g) of the Act:
Common Stock, Par Value $.001
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(Title of Class)
Preferred Stock, Par Value $.001
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(Title of Class)
Copies to:
Thomas E. Stepp, Jr.
Stepp & Beauchamp, LLP
1301 Dove Street, Suite 460
Newport Beach, California 92660
949.660.9700
Facsimile: 949.660.9010
Page 1 of 19
Exhibit Index is specified on Page 17
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Asian Alliance Ventures, Inc.,
a Nevada corporation
Index to Registration Statement on Form 10-SB
<TABLE>
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Item Number and Caption Page
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<S> <C> <C>
1. Description of Business 3
2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7
3. Description of Property 12
4. Security Ownership of Certain Beneficial Owners and Management 13
5. Directors, Executive Officers, Promoters and Control Persons 13
6. Executive Compensation - Remuneration of Directors and Officers 14
7. Certain Relationships and Related Transactions 14
8. Description of Securities 14
PART II
1. Market Price of and Dividends on the Registrant's Common Equity and Related
Stockholder Matters 15
2. Legal Proceedings 15
3. Changes in and Disagreements with Accountants 16
4. Recent Sales of Unregistered Securities 16
5. Indemnification of Directors and Officers 16
PART F/S
Financial Statements F-1 through F-8
PART III
1(a). Index to Exhibits
1(b). Exhibits E-1 through E-63
Signatures 19
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Item 1. Description of Business.
Asian Alliance Ventures, Inc. (the "Company"), was incorporated in the State of
Nevada on October 2, 1998, and maintains its principal executive offices at 355
Burrard Street, Suite 1000, Vancouver, British Columbia, Canada V6C 2G8.
The Company. The Company was originally incorporated with the purpose of
investing in businesses in China. During 1998 and 1999 we examined the
feasibility of numerous Chinese prospects.
The Investment. Following extensive research and feasibility studies, in August,
1999, we finalized a Joint Venture Agreement ("Agreement") with Shandong
Hengtong Chemical Industrial Company, Ltd. ("Shandong Industrial"), a large,
well established company in Linyi City, partially owned by the Peoples Republic
of China ("PRC") located in the Southeast of Shandong Province, adjacent to the
Beijing-Shanghai highway. This is an advantageous geographical position with a
rich coal and water supply, and access to the heartland of China's agricultural
output. Shandong Industrial was incorporated in China in 1993. It was
restructured from a state-owned enterprise to a joint-stock ownership company in
1996. Its authorized share capital is $15,164,082.00. The Tancheng state-owned
Assets Management Bureau holds 64.25% of the equity interest and 35.75% is held
by the workers of Shandong Industrial's fertilizer plant. Shandong Industrial
owns and operates three plants in Linyi: Chemical Fertilizer, Chemical and
Thermoelectricity. The Chemical Fertilizer Plant and the Thermoelectricity Plant
are to be sold to Shandong Development. The Fertilizer Plant manufactures urea
and refined methyl alcohol for sale to customers. The Thermoelectricity Plant
generates electricity and steam for sale to the local power grid and for
Shandong Industrial's own use. All sales are made to customers in China.
Shandong Industrial is registered with the Shandong Provincial Administrative
Bureau for Industry and Commerce. Its business license number is 26717136-X-1.
The Agreement provides for the establishment of Shandong Hengtong Development
Chemical Co. Ltd ("Shandong Development"). The Agreement provides for Shandong
Development to acquire all the assets of Shandong Industrial necessary to
manufacture chemical fertilizer ("Urea") and thermoelectricity. Current Urea
produced by Shandong Industrial amounts to 200,000 tons per year. We hope to
increase that production to 300,000 tons per year. Current levels of
thermoelectricity produced by Shandong Industrial amounts to 200 Million KWh per
year. We anticipate that the thermoelectricity can be increased to 375,000 KWh
per year.
Under the Agreement, Shandong Industrial will contribute its existing
manufacturing facilities for a 49% interest in the Joint Venture. In exchange
for a 51% ownership interest in Shandong Development, we will infuse
approximately Thirteen Million Dollars ($13,000,000) into Shandong Development.
Negotiations have begun with several international companies interested in
providing the necessary funds for our initial investment in Shandong
Development. All discussions are preliminary, however, and we have not executed
any written agreements. We anticipate that we will enter into such written
agreements with these private investors by the end of the second quarter of
2000. The initial funds provided by us will be used to increase Urea and
thermoelectric power production capacity in order to meet existing market
demand. The balance of our investment will be used for financing expenses,
project development and working capital.
Urea. China is a large developing country, with a solid agricultural foundation
providing food for a population of 1.2 Billion people. In the past decade, the
traditional cultivation method, using manure, is rapidly being replaced by the
scientific method of fertilizer application. Nitrogenous fertilizer is a type of
fertilizer that is in demand for a great variety of crops. Nitrogen is an
important element of fertilizer. Nitrogen can help crops produce protein.
Unfortunately, Nitrogen is very easily washed out of the soil; therefore,
constant application of Nitrogen is required to maintain or expand a crops
yield. Urea occupies the first position in the list of nitrogenous fertilizers.
It contains 46% nitrogen which is the highest among solid fertilizers. It is
easy to handle, slow in release of nutrient nitrogen and non-toxic, factors that
are making it more and more popular among the Chinese farming community.
In general, the Chinese government has always promoted the fertilizer industry.
For years, they have subsidized power used for producing fertilizers; e.g., the
current "Subsidized Utility Price" is approximately 87% of the market rate
charged by the local state-owned Power Bureau. Moreover, the government offers
the chemical fertilizer manufacturers
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a tax exemption from the value-added tax assessed on imports. The import tariff
for chemical fertilizer in China is low, about 5%, which means that even if
China is allowed to join the World Trade Organization in the near future, we
believe the advantages of the relationship established by the Agreement will not
be significantly reduced.
Geographically, the project is located on the Yellow River and Huaihe River
Valley flood plain, which has 6,000,000 hectare of cultivated land. Wheat, corn,
rice, beans, and malt are the main crops grown. The estimated demand for Urea is
more than 4,000,000 tons per year in Shandong, Shandong Industrial's prime
market area makes up about 10% of the China market. According to estimates from
the Statistic Bureau of Shandong Province, the consumption of nitrogen-based
chemical fertilizers in China has consistently exceeded production in recent
years. The shortage has been met by imports, mainly from Japan and Russia. This
supply shortage has allowed Shandong Industrial production at the near full
capacity of 200,000 tons of Urea in 1999. It also gives Shandong Development a
solid market for increased sales. Furthermore, with continuing education and
promotion, the market is growing larger year by year. As the biggest seller and
manufacturer of chemical fertilizer in the region, Shandong Industrial has
earned an outstanding reputation for its quality products, pricing, delivery and
customer services. Shandong Development will inherit this legacy and has a ready
market for its planned 100,000 tons per year increase in Urea production.
Prices, set by the international market, have been relatively stable and are
marginally higher in 1999 from 1998 levels.
We believe that our investment will allow us the opportunity to (i) participate
in Chinese development in agriculture industry and power; (ii) realize above
average returns on our investment; (iii) take advantage of an established
enterprise with a preferred competitive position; (iv) work with premium Chinese
partners and excellent management; (v) produce environmentally positive products
such as Urea and thermoelectricity; (vi) benefit from immediate growth potential
of existing and new products; and (vii) enjoy the benefit of agreements and
approvals already in place.
The Joint Venture Agreement. The Agreement was drafted and entered into in
accordance with the Chinese-Foreign Co-operative Joint Venture Law of the
People's Republic of China, its implementation regulations and other relevant
Chinese laws and regulations. In the Agreement, Shandong Industrial and the
Company agreed to set up Shandong Development in Shandong, China. Shandong
Development has the status of a Chinese legal person and is subject to the
jurisdiction of, and protected by the laws of the PRC. The Agreement
specifically provides that all activities of Shandong Development shall be
governed by the relevant laws, rules and regulations of the PRC.
Shandong Development is a limited liability company. Our liability to Shandong
Development is limited to the capital invested in Shandong Development. We shall
share profits, risks and losses of Shandong Development with Shandong Industrial
in proportion to our respective contributions to the registered capital of
Shandong Development.
The business scope of Shandong Development shall be to develop, produce and
distribute chemical fertilizer, power and steam and other related products. The
initial production scale of Shandong Development is anticipated to be an annual
output of 200,000 tons of Urea and 2X12 thousand KW thermal power.
Total Amount of Investment and Registered Capital. The total amount of
investment in Shandong Development will be $29,928,916 ("Total Investment"). The
registered capital of Shandong Development is $25,600,000 ("Registered
Capital").
We have agreed to contribute a total of $13,000,000.00 towards the Registered
Capital, representing a 51% ownership interest. Within three months of Shandong
Development obtaining its business license (the "Business License"), we have
agreed to deliver $6,500,000.00 to Shandong Development. The remaining
$6,500,000.00 will be delivered to Shandong Development within eight months of
the issuance of the Business License to Shandong Development. Within three
months of the date that Shandong Development obtains the Business License,
Shandong Industrial will contribute equipment, facilities and materials valued
at $12,600,000.00 for a 49% ownership interest in Shandong Development. The
difference between the Total Investment and Registered Capital of Shandong
Development shall be raised by assuming current liabilities of $4,328,000.00 of
Shandong Industrial.
The Agreement provides that Shandong Development shall lease the land, factory
and facilities and the remaining equipment, facilities and materials within
three months from the date the Business License is issued.
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Should one of the parties to the Agreement fail to make its Registered Capital
contribution in full within the time prescribed under the Agreement, that party
shall be deemed to have breached the Agreement. Upon the request of the
non-breaching party, the defaulting party shall consent to the termination of
the Agreement without prejudice.
The Agreement provides that when more funds are raised by one party from time to
time by agreement of each party, and the other party cannot raise enough funds
to keep its original equity proportion, such other party shall, upon the former
party's request, be obligated to transfer its comparable equity interests in
Shandong Development to the former party or the former party's associated
companies, parent companies, or subsidiaries.
Specific Responsibilities of Shandong Industrial. Shandong Industrial has agreed
to (i) contribute the necessary equipment, facilities and materials to allow
Shandong Development to conduct operations; (ii) be responsible for applying to
the relevant authorities for approval of the Agreement and the registration of
Shandong Development; (iii) assist Shandong Development in importing and
obtaining importation license for all raw materials, machinery and equipment
necessary for the operation of business; obtaining effective insurance coverage
and renewing same in a timely manner; informing us of related Chinese laws,
regulations, notices and any other information affecting the operations of
Shandong Development; obtaining and providing to Shandong Development and us
with available information on the Chinese market necessary to facilitate
Shandong Development's operations; (iv) assist Shandong Development in
purchasing and handling all procedures of all necessary equipment and materials
in China; (v) assist Shandong Development in obtaining all necessary utilities
and supplies, including, but not limited to, water, electricity and
communication capabilities; (vi) recommend to Shandong Development (without
obligation on the part of Shandong Development to employ) persons suitable to
undertake managerial and technical positions, and render all assistance to
Shandong Development in the recruitment of such and other personnel; (vii)
assist foreign workers, staff and their family members in obtaining all entry
visas, work permits and other necessary travel documents; (viii) assist Shandong
Development in solving legal, administrative and other problems arising from
time to time with respect to the business operations of Shandong Development;
(ix) assist Shandong Development in obtaining the preferential status and
treatment that it should be entitled to from the Chinese government; (x) manage
Shandong Development according to the management agreement ("Management
Agreement") contemplated by Shandong Development, Shandong Industrial and us;
(xi) assist Shandong Development in convening meetings of the Board of Directors
of Shandong Development in China, such reasonable expenses to be borne by
Shandong Development; and (xii) use its best efforts to assist Shandong
Development in any other matters entrusted to it or reasonably requested by
Shandong Development.
Specific Responsibilities of the Company. We have agreed to (i) contribute the
cash contributions in United States Dollars; (ii) supervise the management and
financial affairs of Shandong Development pursuant to the Management Agreement;
(iii) recommend (without obligation on the part of Shandong Development to
employ) managerial and technical personnel to Shandong Development, and render
all assistance to Shandong Development in the recruitment of such personnel;
(iv) assist Shandong Development in convening meetings of the Board of Directors
in the United States of America whenever the Board of Directors of Shandong
Development shall decide to meet in the United States of America, such
reasonable expenses to be borne by Shandong Development; and (v) use our best
efforts to assist Shandong Development in any other matters entrusted to it or
reasonably requested by Shandong Development.
The parties to the Agreement also agreed that the Board of Directors of Shandong
Development shall be comprised of 5 directors, of which 3 directors shall be
appointed by us and 2 directors shall be appointed by Shandong Industrial,
provided that the ratio representation on Shandong Development's Board of
Directors shall reflect as near as practicable the proportion of each party's
contributions to the Registered Capital and the ratio representation on Shandong
Development's Board of Directors shall be adjusted to take effect immediately
upon the date of change in proportion of Registered Capital contributions. The
Chairman of the Board of Directors of Shandong Development shall be appointed by
the party that maintains a majority proportion of the Registered Capital of
Shandong Development.
Distribution of Profits. The Agreement provides that the profits of Shandong
Development shall not be distributed unless the losses of previous fiscal years
have been paid in full. Otherwise, no less than 80% of profits of Shandong
Development shall be distributed annually. Shandong Industrial shall receive 49%
of distributed profits, and we shall receive 51% of distributed profit.
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For the fiscal year ended 1998, Shandong Industrial earned revenue of
$38,500,000.00. Shandong Industrial projects $55,600,000.00 revenue for the
fiscal year ended 1999.
Duration of the Joint Venture. The term of the Agreement is thirty (30) years
from the date on which the Business License is issued. The term may be extended
upon the agreement of all parties.
Competition. Shandong Industrial is the largest chemical fertilizer manufacturer
in Southern Shandong, Northern Jiangsu, and the Northern Anhui provinces. Most
of the region's agricultural wholesalers have traded with Shandong Industrial
for many decades and have established long-term relationship. The nearest
domestic competitor is in Yucheng City at the outer edge of Shandong
Industrial's primary market area.
Shandong Industrial's urea products meet the quality standards laid down by the
Shandong Provincial Bureau of Standard and have received many awards. We believe
that price and quality are the major factors in the fertilizer industry in
China. Based on our research, we believe that Shandong Industrial has a
competitive advantage in both. We believe that Shandong Development can maintain
Shandong Industrial's dominant market position, remain competitive and grow with
the increasing demand in the region as (i) Shandong Industrial's brand name Urea
product has earned its quality image; (ii) cost of production is lower than the
competitors because of production volumes; (iii) high integration of resources,
for instance, raw material, by-products (steam), and co-product (power) avoids
damage from power shortages; (iv) excellent customer service; (v) proven sales
and marketing strategies; and (vi) highly qualified executive managers.
In order to maintain and increase the competitive advantage that Shandong
Industrial has established, Shandong Development must pre-empt competitors by
expanding present operations to improve cost structures and profitability.
Shandong Development must also capitalize on its capacity to develop other
refined chemical products which use urea as raw materials, and chemical products
which use, for example, local ginkgo as raw material.
There are several competitors such as Chin-I Chemical Fertilizer, Chin-Shun
Chemical Fertilizer, and Bo-Yong Chemical Fertilizer. However, we believe that
all of these competitors produce lower amounts of fertilizer with higher
production costs. Although most of these manufacturers are relatively small, and
struggling to survive, some do have expansion plans which have not yet been
fully approved and funded.
Japan and Russia are the principal countries that export urea to China. We
believe that such importers lack a competitive advantage in the Shandong region
because (i) long distance shipments can damage packaging and the products lose
visual appeal, are hard to handle and give rise to questions regarding quality;
(ii) transport costs add to the cost or price to customers; (iii) storage and
delivery costs are added; and (iv) customer service is practically non-existent.
The National government controls the import of chemical fertilizers into China,
through the requirement to obtain import licenses and the imposition of an
import tariff, which is currently levied at 5%. Based on historical experience
and the fact that the price of the imported urea is normally higher than that
produced within China, we believe that imports will have no material adverse
effect on its sales despite imported urea being generally of a higher quality.
Even if the 5% levy on imported fertilizers is eliminated after China joins the
World Trade Organization, imports should not adversely affect Shandong
Development's competitive position.
Employees. The Company does not currently have any employees. Shandong
Industrial currently has 2,300 employees.
Reports to Security Holders. The Company is filing this Registration Statement
on Form 10-SB in order to cause the Company to be listed on the Over-the-Counter
Bulletin Board Quotation Service ("OTCBB") maintained by the National
Association of Securities Dealers, Inc. As soon as this Registration Statement
on Form 10-SB becomes effective, the Company will be required to provide an
annual report to its security holders, which will include audited financial
statements, and quarterly reports, which will contain unaudited financial
statements. The Company is not yet a reporting company. The public may read and
copy any materials filed with the Securities and Exchange Commission
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("SEC") at the SEC's Public Reference Room at 450 Fifth Street NW, Washington,
D.C. 20549. The public may also obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC. The address
of that site is http://www.sec.gov.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Our hope is that we will become the dominant and most profitable supplier of
quality agricultural chemicals in Eastern China. Our short-term goals include
(i) secure Chinese and Foreign financing of about $30 Million during 1999 and
2000; (ii) acquire the chemical fertilizer and thermoelectric power assets and
business of Shandong Industrial; (iii) commence operations in or around the
second quarter of the year 2000; (iv) review and approve Shandong Industrial's
feasibility reports for expansion of Urea and power production at Linyi; (v)
obtain all necessary approvals and increase capacity of Urea from 200,000 tons
per year to 300,000 tons per year, and power from 25,000 KW to 37,500 KW; (vi)
achieve the sales and profitability targets developed by Shandong Industrial;
and (vii) earn a reputation for quality and service. Our long-term goals include
(i) develop and market new products; (ii) acquire one or more new businesses
with related products; and (iii) expand customer base to all of Central and
Western China.
Management of Shandong Industrial. Shandong Industrial will manage the
operations of Shandong Development. Shandong Industrial has agreed to continue
using its present management philosophy, which focuses on financial management
and includes comprehensive management of human, financial and material
resources. Shandong Industrial defines management in the context of an
enterprise with profit centers and cost control centers. Their experienced
executives have studied advanced projects from abroad, adopted the double-zero
management method (target: no interruptions and no rejects) and implemented
policies of Just-In-Time and exact credit check, thus reducing the working
capital and credit losses.
Shandong Industrial's Board of Directors has established a three member
Management Committee. The Management Committee is made up of individuals
appointed from the experienced and qualified executive staff of Shandong
Industrial. Those members include:
Mr. Wang Yongli is the President and General Manager. Mr. Wang was born in 1949.
He joined Shandong Industrial in 1970. He is a senior economist, and
successively held the posts of technician, workshop leader and President of
Shandong Industrial. Under Mr. Wang's leadership, Shandong Industrial has
expanded from a relatively small-scale operation into the largest chemical
fertilizer manufacturer regionally.
Mr. Wan Shanhua is a director and Vice General Manager of Shandong Industrial.
He was born in 1955 and joined Shandong Industrial in 1976. He has held
positions as workshop dispatcher, workshop leader, director of the dispatcher's
office, Vice President and President of the fertilizer factory branch.
Mr. Li Ruiqing is the Vice President and Vice Manager of Shandong Industrial. He
was born in 1950 and joined Shandong Industrial in 1968. He has held the
position as the director of the Political Work Department in the fertilizer
factory.
Ms. Qin is Shandong Industrial's Chief Accountant. She also heads the Finance
Department with about 20 accounting staff members. She has played a leading role
in developing the financial plan for Shandong Industrial and has effectively
managed the liaison with outside parties, including, but not limited to,
Shandong Industrial auditors Arthur Andersen & Co., Access International Capital
Corporation and Jun He Law Offices.
Product Production. Shandong Industrial's Linyi facility consists of a Thermo
power and Steam Plant, a Chemical Fertilizer Plant and office facilities. All
are relatively modern and well maintained. They are contiguous on a single site
of about 200 hectares of land in Tan Cheng County, occupied under a land use
right granted from the state. Linyi is located in southeastern Shandong Province
adjacent to the Beijing-Shanghai highway. Shandong Industrial has excellent
communication and transportation services, including high speed Internet, road,
rail and air transportation. Beijing is an
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hour by air to the north; Qingdao, on the Pacific coast is five hours by road to
the east. Qingdao is a hub city with an International airport, rail and port
facilities.
For every different technological stage during the manufacturing process, there
is a separate management level of accountability: Quality Control, Measurement
Control, Equipment and Power Management, Safety and Environmental Protection
Management, and Technology and Expenditure Reduction Control. These Professional
Management Offices are focus on the policy of "identify the reason, correct the
mistake, and learn the lesson" and "combine treatment with prevention". In order
to maintain quality of their products, Shandong Industrial has (i) installed
quality control detectors in the systems; and (ii) taken precautionary actions
to prevent down time and rejects. The plant has won awards for "Best
Management", "Expenditure Reduction", "Environmental Protection", "Clean Plant
Model", and "Golden Products for Customers" from the county and state.
Shandong Industrial places a strong emphasis on quality control. The quality
control department and production management department has approximately 30
staff members. This department is responsible for the quality control of
incoming raw materials and the chemical fertilizer products. All raw materials
purchased by Shandong Industrial are subject to random inspections or testing in
accordance with quality standards set by Shandong Industrial. Shandong
Industrial also carries out random inspections or testing on its finished
products in accordance with standards that are set by Shandong Industrial with
reference to national quality standards.
Shandong Industrial's current equipment uses highly developed technology to
control industrial pollutants. It has recently solved a problem with "amino
nitrogen", and chilled water is now recycled in closed circuits. There are no
harmful gas emissions in Shandong Industrial's factory, and its slag from Urea
production has been used in the thermoelectricity plant. Shandong Industrial has
instituted safety policies and procedures, complete and effective safety
standards, and clear-cut duties. Full time safety inspectors supervise all
workshops everyday and check the fire prevention equipment regularly. The plant
has complete first-aid facilities. In its clinic, doctors, and nurses can give
health care service and inspections for each employee and family, and regularly
provide prevention treatments
Power and Steam. The Thermoelectricity Plant is tied into the regional power
grid which buys all the energy not needed by Shandong Industrial. It has two
generating sets of 15,000KW, capable of producing 200 million KWh of power
annually and heat generating capacity of 1.2 million tons of steam. Both power
units are relatively new; the latest was installed in 1997-1998. The Plant is
coal fired, using regional sources. We anticipate that a third power unit will
be added in 2000-2001 increasing capacity to 45,000KW and 375 million KWh per
year. The capital cost of the unit has been estimated at $7.2 Million.
Urea. The main product of the Chemical Fertilizer plant is "Caiyun" carbamide
(Urea) with an annual production capacity of about 230,000 tons. Ammonia and CO2
are the required raw materials for the production of Urea. Both these raw
materials are produced in the Shandong Industrial plant using coal as raw
material (some urea producers use natural gas as primary feedstock). Like many
such operations, Shandong Industrial has both ammonia and urea plants together
in one complex at the Linyi facility. Shandong Industrial's Urea has won the
gold prize in the national "Farmers Most Trusted Products" competition.
We anticipate that annual capacity will being increased from the 230,000-ton
range to 300,000 tons per annum during 2000-2001. The capital costs to generate
such an increase have been estimated at $7.8 Million.
New Products. The chemical fertilizer plant can also produce 20,000 tons of
carbinol per year which is widely used in medicine, pesticide production and
other products. This capability and other strategic investments may result in
some new products being introduced by Shandong Industrial in or around 2004.
Projected new products include (i) a new ionic film caustic soda system for
caustic soda production of 100,000 tons per year; (ii) development of a cyanic
uric acid system producing 10,000 tons annual output; (iii) the production of
100,000 tons of compound fertilizer; and (iv) the increased production of
chlorine cyanic uric acid.
After expanding Shandong Industrial's major existing production lines, we
anticipate that Shandong Development's focus will include developing its
by-products from the major lines, by using Shandong Industrial's superiority in
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product markets, the combination of steam and power, high added value, and high
technology. Such by-products include (i) progesterone glycoside and ginkgo
products; (ii) lysine; (iii) chlorinated polypropylene; (iv) chlorinated
polyvinyl chloride; (v) Methane chloride; (vi) Furanidine; and (vi) Adipic acid.
New Chemical Products. Early planning has commenced to develop, produce and sell
significant volumes of caustic soda and chlorine and minor quantities of
methanol, hydrochloric acid, hydrogen and one kind of chlorinated polypropylene.
Resources. We believe that one of the most attractive aspects of acquiring the
well-established business from Shandong Industrial is the elimination of the
need to secure additional sources of resources. Sufficient quantities of coal,
power, water, buildings, equipment and people are already in place, with
increases readily available.
Urea's source material is coal. Coal is also the key input for steam and power
production. The coal is mainly supplied from the Shanxi Coal Mine, and refined
on site. Based on relevant studies, we believe that ample quantities of coal are
available. The price appears to be stable. Shandong Industrial currently pays
$47.00 a ton.
Electricity for fertilizer production is purchased from the Power Bureau's
network, which offers preferred capacity at a subsidized price for agriculture
related production of 3.4 cents per KWh. All other power requirements are
supplied by Shandong Industrial's thermoelectric plant. The main resource for
power production is smoked coal, which is available locally for $25.00 a ton.
A local utility provides all the water needed by Shandong Industrial. Once used
in the manufacturing process, the industrial water is recycled through specially
constructed cooling towers.
We believe that all necessary buildings and equipment are in place for the
continuation of the business carried on by Shandong Industrial and to be
continued by Shandong Development.
Shandong Industrial will provide management, production and administrative
staff. As part of its contract to provide management services, Shandong
Industrial retains all personnel obligations, including those related to
housing, welfare, and pensions. Staffing proposed include many employees with
university level qualifications and extensive experience in the relevant
industries. Most employees are from Tancheng County.
Technology. In order to manage the facility effectively and efficiently,
Shandong Industrial has invested in a computer support system which has
integrated computer network technology, and information management to provide a
high quality, comprehensive information management platform for forecasting,
decision-making, operation, production control, and general management. Based on
the factory's current management system and method, we believe that the system
can precisely and effectively recognize changes in the external and internal
circumstances at different times and various places, implement uniform and
optimal management information, and form a decision support system, thus
speeding up the decision-making processes and saving administration costs.
The facility for power production is only 3-years old. The thermoelectricity
plant, a regional thermoelectricity station, integrates heat generation, heat
supply and environmental protection using modern processes and technology.
The Company has two sets of Urea equipment, which were recently improved.
Shandong Industrial was the first operator to combine two towers in China. With
this new combined system its annual output has risen. Shandong Industrial
further plans the output of the system with technology from Japan or France.
For new product development, Shandong Industrial has established a Product
Research Department. It has its own experienced research technicians and
engineers for developing new products and adding extra value to existing
products to meet the constantly changing demand of the markets. Shandong
Industrial has budgeted annual expenditures for technology transformation,
technology upgrade, employee development, and feasibility studies to improve
production quality and quantities.
9
<PAGE>
Risks Associated with Operations in China. Shandong Development will be
conducting its operations in China and accordingly will be subject to risks not
typically associated with operations in the United States. These include risks
associated with the political, economic, and legal environment as well as the
foreign currency exchange.
Political Environment. Shandong Development's results may be adversely affected
by changes in the political and social conditions in China and by, among other
things, changes in governmental policies with respect to laws and regulations,
inflationary measures, currency conversion and remittance abroad, and rates and
methods of taxation. While the Chinese government is expected to continue its
economic reform policies, many of the reforms are new or experimental and may be
refined or changed. It is also possible that a change in the Chinese leadership
could lead to changes in economic policy.
Economic Environment. The economy of the PRC differs significantly from the
United States economy in many respects, including its structure, levels of
development and capital reinvestment, growth rate, government involvement,
resource allocation, self-sufficiency, rate of inflation and balance of payments
position. The adoption of economic reform policies since 1978 has resulted in a
gradual reduction in the role of state economic plans in the allocation of
resources, pricing and management of such assets, an increased emphasis on the
utilization of market forces, and rapid growth in the PRC economy. However, such
growth has been uneven among various regions of the country and among various
sectors of the economy.
Legal System. The PRC Constitution promulgated by the National People's Congress
("NPC") is the backbone for the PRC's legal system and is the highest and most
authoritative set of laws in the country. National laws in the PRC are
promulgated by the NPC or its Standing Committee. The State Council also has the
power to formulate and promulgate administrative regulations, decisions and
orders based on the Constitution and laws.
The power to promulgate local laws, administrative regulations, rules and
regulations is vested in local People's Congresses at the provincial and
municipal levels. These administrative regulations, decisions or orders and any
local laws and administrative regulations, however, must be consistent with the
existing national laws.
Although the PRC is still developing a comprehensive system of laws, a
significant number of laws and regulations governing general economic matters,
foreign investment, protection of intellectual property, taxation, technology
transfer and trade have been developed since the start of its economic reform
policy in 1978. In 1982, the PRC adopted a new Constitution which, among other
things, authorized foreign investment and guaranteed the "lawful rights and
interests" of foreign investors in the PRC. This law was amended in 1988, 1993,
and March 1999 to provide for a "socialist market economy." The most recent
amendments also provide protection for private economic entities.
All foreign individuals, enterprises and other entities are given the same
rights and obligations as PRC citizens, enterprises and other entities in
instituting or defending proceedings in PRC courts. If, however, the rights and
obligations of PRC individuals, enterprises or other entities to institute or
defend legal proceedings are subject to any restrictions in a foreign
jurisdiction, then reciprocal restrictions shall be imposed by the PRC courts on
the rights and obligations of the individuals, enterprises and other entities of
such jurisdictions to institute or defend legal proceedings in the PRC. All
foreign individuals, enterprises and other entities may retain only lawyers
qualified in the PRC to institute or defend any proceedings in PRC courts.
Individuals, enterprises or other entities whose rights are infringed by the
legal acts or omissions of any administrative departments of the government or
any officials of such departments may proceed to litigation under the Law of the
People's Republic of China on Litigation. Under this law, individuals,
enterprises or other entities may ask the court to order the other party to
perform, or refrain from, some act and order the other party to pay damages.
In short, the PRC's legal system is based on written statutes under which prior
court decisions may be cited as authority but do not have binding precedence.
The PRC's legal system is relatively new, and the government is still in the
process of developing a comprehensive system of laws, a process that has been
ongoing since 1979. Considerable progress has been made in the promulgation of
laws and regulations dealing with economic matters such as corporate
organization and governance, foreign investment, commerce, taxation and trade.
Such legislation has significantly
10
<PAGE>
enhanced the protection afforded to foreign investors. However, experience with
respect to the implementation, interpretation and enforcement of such laws is
limited.
Foreign Currency Exchange. Renminbi ("RMB") is the Chinese currency. Renminbi is
not freely convertible into foreign currencies at this time. The State
Administration for Foreign Exchange ("SAFE") is responsible for the
administration of foreign exchange in China. Prior to January 1, 1994, China had
a dual foreign exchange system consisting of two independent exchange rates.
Foreign exchange transactions involving Renminbi were conducted either at the
official exchange rate set from time to time by SAFE or, with government
permission, at official foreign exchange adjustment centers ("Swap Centers") at
rates largely determined by supply and demand existing in the different Swap
Centers' local markets. Established in 1986, Swap Centers were designed to
provide marketplaces for importers and exporters to buy and sell foreign
currency for use in Development trade.
Effective January 1, 1994, a new unitary, managed floating-rate system was
introduced to replace the dual foreign exchange system. Under the new system,
the People's Bank of China ("PBOC") sets and publishes a daily exchange rate for
Renminbi ("PBOC Rate"). To determine this rate the PBOC primarily refers to the
supply and demand of Renminbi versus the United States dollar in the prior day's
market. The PBOC also takes into account factors such as general conditions in
the development foreign exchange markets. Authorized banks and financial
institutions are allowed to quote buy and sell rates for Renminbi within a
specific range around the daily PBOC Rate. Currently, SAFE Renminbi trading is
within a range of 0.15 percent above and below the daily PBOC Rate.
All foreign exchange transactions involving Renminbi must take place either
through the Bank of China or other institutions authorized to buy and sell
foreign currencies, or at swap centers. Sino-foreign equity joint venture
enterprises may also maintain foreign currency accounts. Payment for imported
materials and remittance of earnings outside the PROC are permitted but are
subject to the availability of foreign currencies. For capital transactions in
foreign currencies, approval is required from the State Administration of
Foreign Exchange.
Exchange Rate Fluctuations. Under the current system, the PBOC quotes a daily
exchange rate for Renminbi to United States dollars based on the market rate for
foreign exchange transactions conducted by the designated banks in the China
foreign exchange market during the preceding day. The PBOC also quotes the
exchange rates of Renminbi to other foreign currencies based on the Development
market rate. Since 1994 the exchange rate for Renminbi against United States
dollars has been relatively stable at approximately RMB 8.50 to US$1.00. Because
the exchange rate is based primarily on market forces, the exchange rates for
the Renminbi against other currencies, including United States dollars, are
susceptible to movements based on external factors and there can be no assurance
that the Renminbi may not be subject to devaluation. Any devaluation could
adversely affect the value of the Agreement since Shandong Development's
revenues will be received, and its profits and dividends will be expressed, in
Renminbi.
Liquidity and Capital Resources. At December 31, 1998, we did not have any cash
resources. At August 31, 1999, we had cash resources of $10,634.00. The increase
was almost exclusively due to the sale of the Company's $.001 par value common
stock. At August 31, 1999, the Company had total assets of $10,634.00 and total
current liabilities of $2,734.00. At August 31, 1999, total current assets
exceeded total current liabilities by $7,900.00. The cash and equivalents
constitute the Company's present internal sources of liquidity. Because the
Company is not generating any significant revenues, the Company's only external
source of liquidity is the sale of its capital stock.
Results of Operations. The Company has not yet realized any significant revenue
from operations. Loss from operations increased from $250.00 for the period from
October 2, 1998 (inception) to December 31, 1998, to $1,850.00 for the
nine-month period ending August 31, 1999.
We will require additional cash to implement its business strategies, including
cash for (i) payment of increased operating expenses and (ii) further
implementation of those business strategies. No assurance can be given, however,
that we will have access to the capital markets in the future, or that financing
will be available on acceptable terms to satisfy the cash requirements of the
Company to implement our business strategies. Our inability to access the
capital markets or obtain acceptable financing could have a material adverse
effect on the results of operations and financial conditions of the Company.
11
<PAGE>
Our forecast of the period of time through which our financial resources will be
adequate to support our operations is a forward-looking statement that involves
risks and uncertainties, and actual results could vary as a result of a number
of factors.
We anticipate that we will need to raise additional capital within the next 12
months in order to implement our business strategies. Such additional capital
may be raised through additional public or private financings, as well as
borrowings and other resources. To the extent that additional capital is raised
through the sale of equity or equity-related securities, the issuance of such
securities could result in dilution of the Company's stockholders. There can be
no assurance that additional funding will be available on favorable terms, if at
all. If adequate funds are not available within the next 12 months, we may be
required to curtail its operations significantly or to obtain funds through
entering into arrangements with collaborative partners or others that may
require us to relinquish rights that we would not otherwise relinquish.
We do not anticipate any significant research and development within the next 12
months, nor do we anticipate that we will lease or purchase any significant
equipment within the next 12 months. We do not anticipate a significant change
in the number of our employees within the next 12 months.
We anticipate that we will begin to realize a positive revenue stream beginning
in or about the first quarter of Shandong Development's operations as a result
of the profit sharing provided for under the Agreement. Specifically, the
Company believes that the historical financial data provided by Shandong
Industrial demonstrates that we will begin to realize a positive revenue stream
very soon after the terms and conditions under the Agreement are met.
Marketing. Shandong Industrial currently sells three main products from its
Linyi facility: urea, power and steam. The power and steam is mostly consumed in
urea production with the remainder sold to Shandong Industrial's chemical plant
and the regional Power Bureau. The urea is sold to the agricultural community,
primarily in eastern China.
The power produced by Shandong Industrial is used mainly for its chemical line
and urea production, and the excess has always been sold to the state utility
grid where it is highly in demand. Shandong Development will continue this
practice to use or sell all its power and earn some income from steam sales to
Shandong Industrial's chemical plant which will be reduced when more is required
by Shandong Development's own operations.
About ten full-time staff work on increasing the market share of Shandong
Industrial's Urea sales. They also handle the day-to-day sales and delivery
operation with the sales agents, authorized distributors, and other channel
partners. Independent contractors, mainly using trucks and tractors, through a
well-developed distribution network, handle delivery. They have articulated
sales and market strategies, target markets and key product and service
objectives. Prices, set by the international market, have been relatively stable
and are marginally higher in 1999 from 1998 levels.
Item 3. Description of Property.
Property held by the Company. As of the dates specified in the following table,
we held the following property in the following amounts:
============================ =========================== =======================
Property December 31, 1998 August 31, 1999
- ---------------------------- --------------------------- -----------------------
Cash $0 $10,634.00
============================ =========================== =======================
We do not presently own any interests in real estate. We do not presently own
any inventory or equipment.
The Company's Facilities. The Company does not own any real or personal
property. However, the Company does lease office space from Automation Plus
located at Suite 1000, 355 Burrard Street, Vancouver, British Columbia, Canada
V6C 2G8. The Company leases the office space for $1,118.05 a month.
A director of the Company provides office services without charge.
12
<PAGE>
Item 4. Security Ownership of Certain Beneficial Owners and Management.
(a) Security Ownership of Certain Beneficial Owners. Other than officers and
directors, there are no beneficial owners of 5% or more of the Company's issued
and outstanding common stock.
(b) Security Ownership by Management. As of August 31, 1999, the directors and
principal executive officers of the Company beneficially owned, in the
aggregate, 545,620 shares of the Company's common stock, or approximately 11% of
the issued and outstanding shares, as set forth on the following table:
<TABLE>
<CAPTION>
Title of Class Name of Beneficial Owner Amount and Nature of Percent of Class
-------------- ------------------------ -------------------- ----------------
Beneficial Owner
----------------
<S> <C> <C> <C>
Robert Clarke
Common Stock 915 Leyland Street 225,000 4.5%
West Vancouver, British Columbia,
Canada V7T 2L6
Benjamin Leboe
Common Stock 16730 Carrs Landing Road 320,620 6.5%
Lake Country, British Columbia,
Canada V4R 1B2
-------------------- ----------------
Totals 545,620 11.0%
</TABLE>
Changes in Control. Management of the Company is not aware of any arrangements
which may result in "changes in control" as that term is defined by the
provisions of Item 403 of Regulation S-B.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
The directors and principal executive officers of the Company are as specified
on the following table:
<TABLE>
<CAPTION>
===================================== ========== ================================ =================================
Name and Address Age Position Term as Director
- ------------------------------------- ---------- -------------------------------- ---------------------------------
<S> <C> <C> <C>
Robert Clarke 55 Director October 2, 1998 (inception) to
915 Leyland Street present.
West Vancouver, British Columbia,
Canada V7T 2L6
- ------------------------------------- ---------- -------------------------------- ---------------------------------
Benjamin Leboe 54 President, Secretary, Treasurer October 2, 1998 (inception) to
16730 Carrs Landing Road and a Director present.
Lake Country, British Columbia,
Canada V4R 1B2
===================================== ========== ================================ =================================
</TABLE>
Robert Clarke, age 55, is a director of the Company. Mr. Clarke has earned a
Bachelor of Commerce as well as a Masters Degree in Business Administration.
During portions of the last 5 years he has acted as an independent business
consultant for various companies. From January, 1997 to December, 1997, Mr.
Clarke was the President, Chief Executive Officer and a Director of Waverider
Communications Inc. which is listed on the OTCBB under Symbol "WAVC". From
September 18, 1995 to October 17, 1996, and again from February 11, 1998, to
October 11, 1999, Mr. Clarke was a Director of Global CT & T Telecommunications
Inc. a company that trades under the symbol "GLC" on the Vancouver Stock
Exchange. Mr. Clarke was the Secretary of Pacific Western Capital Corporation
(traded on Vancouver Stock Exchange) from August 15, 1995 to October 17, 1996.
13
<PAGE>
Benjamin Leboe, age 54, is the President, Secretary, Treasurer and a director of
the Company. Mr. Leboe holds a Bachelor of Commerce and Business Administration
from the University of British Columbia. He is also a British Columbia Chartered
Accountant and Certified Management Consultant. From 1978 to 1981, Mr. Leboe was
a Partner in the accounting firm of KPMG. From in or around 1991 to June 1995,
he was the Vice-President and Chief Financial Officer of VECW Industries Ltd.
Mr. Leboe was a Director and the President of CPT Pemberton Technologies Ltd., a
company that trades on Vancouver Stock Exchange under the symbol of "CPT", from
March, 1995 to June, 1995 and then again from July 1995 to present. He is also
the owner and manager of Independent Management Consultants of British Columbia.
There are no orders, judgments, or decrees of any governmental agency or
administrator, or of any court of competent jurisdiction, revoking or suspending
for cause any license, permit or other authority to engage in the securities
business or in the sale of a particular security or temporarily or permanently
restraining Mr. Clarke or Mr. Leboe from engaging in or continuing any conduct,
practice or employment in connection with the purchase or sale of securities, or
convicting such person of any felony or misdemeanor involving a security, or any
aspect of the securities business or of theft, nor are Mr. Clarke or Mr. Leboe
the officers or directors of any corporation or entity so enjoined.
Item 6. Executive Compensation - Remuneration of Directors and Officers.
Executive Compensation. Specified below, in tabular form, is the aggregate
annual remuneration of the Company's Chief Executive Officer and the four (4)
most highly compensated executive officers other than the Chief Executive
Officer who were serving as executive officers at the end of the Company's last
completed fiscal year. The officers of the Company are reimbursed for expenses
incurred on behalf of the Company.
<TABLE>
<CAPTION>
================================== ====================================== ==========================
Name of Individual or Identity of Capacities in which Remuneration Aggregate Remuneration
Group was received
- ---------------------------------- -------------------------------------- --------------------------
<S> <C> <C>
Executive Officers None None
================================== ====================================== ==========================
</TABLE>
Directors' Compensation. The directors of the Company do not receive
compensation in their capacities as directors. However, the directors of the
Company are reimbursed for expenses incurred on behalf of the Company.
Item 7. Certain Relationships and Related Transactions.
Our joint venture partner, Shandong Industrial, has loaned us funds for working
capital. Shandong Industrial has agreed that the loan will be repaid, when, and
if, funds are available in the future. Shandong Industrial has also agreed that
any outstanding amounts will bear no interest.
With regard to any future related party transaction, the Company plans to fully
disclose any and all related party transactions, including, but not limited to,
(i) disclosing such transactions in prospectus' where required; (ii) disclose in
any and all filings with the Securities and Exchange Commission, where required;
(iii) obtain uninterested directors consent; and (iv) obtain shareholder consent
where required.
Transactions with Promoters. The services of promoters have not been used.
Item 8. Description of Securities.
The Company is authorized to issue 50,000,000 shares of common stock, $.001 par
value, each share of common stock having equal rights and preferences, including
voting privileges. As of August 31, 1999, 5,000,000 shares of the Company's
common stock were issued and outstanding. The Company is also authorized to
issue 10,000,000 shares of preferred stock, $.001 par value, each share of
preferred stock having those rights, powers, designations, privileges,
preferences, limitations and restrictions as determined by the Company's Board
of Directors and to the extent allowable under the applicable state and federal
law. As of August 31, 1999, none of the Company's authorized preferred shares
were issued and outstanding. The shares of $.001 par value common stock of the
Company constitute equity interests in
14
<PAGE>
the Company entitling each shareholder to a pro rata share of cash distributions
made to shareholders, including dividend payments. The holders of the Company's
common stock are entitled to one vote for each share of record on all matters to
be voted on by shareholders. There is no cumulative voting with respect to the
election of directors of the Company or any other matter, with the result that
the holders of more than 50% of the shares voted for the election of those
directors can elect all of the Directors. The holders of the Company's common
stock are entitled to receive dividends when, as and if declared by the
Company's Board of Directors from funds legally available therefor; provided,
however, that cash dividends are at the sole discretion of the Company's Board
of Directors. In the event of liquidation, dissolution or winding up of the
Company, the holders of common stock are entitled to share ratably in all assets
remaining available for distribution to them after payment of liabilities of the
Company and after provision has been made for each class of stock, if any,
having preference in relation to the Company's common stock.
Holders of the shares of Company's common stock have no conversion, preemptive
or other subscription rights, and there are no redemption provisions applicable
to the Company's common stock. All of the outstanding shares of the Company's
common stock are duly authorized, validly issued, fully paid and non-assessable.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters.
As of August 31, 1999, there were no warrants outstanding.
The Company has not entered into any stock option agreements.
Penny Stock Regulation. The Commission has adopted rules that regulate
broker-dealer practices in connection with transactions in "penny stocks". Penny
stocks are generally equity securities with a price of less than $5.00 (other
than securities registered on certain national securities exchanges or quoted on
the Nasdaq system, provided that current price and volume information with
respect to transactions in such securities is provided by the exchange or
system). The penny stock rules require a broker-dealer, prior to a transaction
in a penny stock not otherwise exempt from those rules, deliver a standardized
risk disclosure document prepared by the Commission, which (i) contained a
description of the nature and level of risk in the market for penny stocks in
both public offerings and secondary trading; (ii) contained a description of the
broker's or dealer's duties to the customer and of the rights and remedies
available to the customer with respect to violation to such duties or other
requirements of Securities' laws; (iii) contained a brief, clear, narrative
description of a dealer market, including "bid" and "ask" prices for penny
stocks and significance of the spread between the "bid" and "ask" price; (iv)
contains a toll-free telephone number for inquiries on disciplinary actions; (v)
defines significant terms in the disclosure document or in the conduct of
trading in penny stocks; and (vi) contains such other information and is in such
form (including language, type, size and format), as the Commission shall
require by rule or regulation. The broker-dealer also must provide, prior to
effecting any transaction in penny stock, the customer (i) with bid and offer
quotations for the penny stock; (ii) the compensation of the broker-dealer and
its salesperson in the transaction; (iii) the number of shares to which such bid
and ask prices apply, or other comparable information relating to the depth and
liquidity of the market for such stock; and (iv) month account statements
showing the market value of each penny stock held in the customer's account. In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from those rules; the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written acknowledgement of the receipt
of a risk disclosure statement, a written agreement to transactions involving
penny stocks, and a signed and dated copy of a written suitably statement. These
disclosure requirements may have the effect of reducing the trading activity in
the secondary market for a stock that becomes subject to the penny stock rules.
If any of the Company's securities become subject to the penny stock rules,
holders of those securities may have difficulty selling those securities.
Item 2. Legal Proceedings.
We are not aware of any pending litigation nor does it have any reason to
believe that any such litigation exists
15
<PAGE>
Item 3. Changes in and Disagreements with Accountants.
There have been no changes in or disagreements with our accountants since the
formation of the Company required to be disclosed pursuant to Item 304 of
Regulation S-B.
Item 4. Recent Sales of Unregistered Securities.
There have been no sales of unregistered securities within the last three (3)
years which would be required to be disclosed pursuant to Item 701 of Regulation
S-B except for the following:
On or about March 6, 1999, we completed an offering of our $.001 par value
common stock. Pursuant to that offering, we sold 5,000,000 shares of our $.001
par value common stock for $.002 per share. The shares were issued in reliance
upon the exemption from the registration and prospectus delivery requirements of
the Securities Act of 1933, as amended ("Act"), which exemption is specified by
the provisions of Section 3(b) of the Act and Rule 504 of Regulation D
promulgated by the Securities and Exchange Commission pursuant to that Section
3(b). There were 34 purchasers of shares. Gross proceeds from that offering were
$10,000.00. The majority of those funds were used for administration expenses
and working capital.
Item 5. Indemnification of Directors and Officers.
Article IX of the Company's Articles of Incorporation provides that no officer
or director of the Company shall be personally liable for obligations of the
Company or for any duties or obligations arising out of any acts or conduct of
such an officer or director performed for on behalf of the Company except for
(i) acts or omissions that involve intentional misconduct, fraud or a knowing
violation of law or (ii) payment of dividends in violation of the Nevada Revised
Statutes Section 78.300. Article X of the Company's Articles of Incorporation
also provides that the Company shall indemnify each officer and director from
and against any and all claims, judgments and liabilities by reason of any
action taken or omitted to have been taken by him or her as a director or
officer, and also provides that the Company shall reimburse each officer and
director for all legal and other expenses reasonably incurred in connection with
such a claim or liability; provided, however, that such officers and directors
shall not be indemnified against, or be reimbursed for, any expense incurred in
connection with any claim or liability arising out of such a person's own
negligence or willful misconduct.
The Company anticipates that it will enter into indemnification agreements with
each of its officers and directors pursuant to which the Company will agree to
indemnify each such officer and director for all expenses and liabilities,
including criminal monetary judgments, penalties and fines, incurred by such
officer and director in connection with any criminal or civil action brought or
threatened against such officer or director by reason of such officer or
director being or having been an officer or director of the Company. In order to
be entitled to indemnification by the Company, such officer or director must
have acted in good faith and in a manner such person believed to be in the best
interests of the Company and, with respect to criminal actions, such officer or
director must have had no reasonable cause to believe his or her conduct was
unlawful.
DISCLOSURE OF POSITION OF COMMISSION REGARDING INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES:
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF
1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE COMPANY
PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT IN THE
OPINION OF THE SECURITIES AND EXCHANGE COMMISSION THAT SUCH INDEMNIFICATION IS
AGAINST PUBLIC POLICY AS EXPRESSED IN THE SECURITIES ACT OF 1933 AND IS,
THEREFORE, UNENFORCEABLE.
16
<PAGE>
PART F/S
Copies of the financial statements specified in Regulation 228.310 (Item 310)
are filed with this Registration Statement, Form 10-SB.
(a) Index to Financial Statements. Page
- ----------------------------------- ----
1 Independent Auditor's Report F-1
2 Audited Balance Sheet
as at December 31, 1998 and as at
August 31, 1999 F-2 through F-3
3 Audited Statement of Operations
for Periods Ended December 31, 1998
and August 31, 1999 F-4
4 Audited Statements of Stockholders'
Equity for Period Ended December 31, 1998
and August 31, 1999 F-5
5 Audited Statements of Cash Flows
for Period Ended December 31, 1998
and August 31, 1999 F-6
6 Notes to Audited Financial Statements F-7 through F-8
PART III
Item 1. Index to Exhibits
- --------------------------
Copies of the following documents are filed with this Registration Statement on
Form S-B, as exhibits:
1 Corporate Charter of Asian
Alliance Ventures, Inc. E-1
2 Articles of Incorporation of
Asian Alliance Ventures, Inc. E-2 through E-8
3 Bylaws of Asian Alliance Ventures, Inc. E-9 through E-27
4 Joint Venture Agreement Between Shandong
Hengtong Chemical Industrial Company Ltd.
and Asian Alliance Ventures, Inc. E-28 through E-50
5 Articles of Association of Shandong Hentong E-51 through E-63
Development Chemical Company Ltd.
SIGNATURES
In accordance with the provisions of Section 12 of the Securities Exchange
Act of 1934, the Company has duly caused this Registration Statement on Form
10-SB to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Vancouver, British Columbia, Canada, on March __, 2000.
Asian Alliance Ventures, Inc.,
a Nevada corporation
By: /s/
-------------------------
Ben Leboe
Its: President
17
<PAGE>
BARRY L. FRIEDMAN, P.O.
Certified Public Accountant
1582 TULITA DRIVE OFFICE (702) 361-8414
LAS VEGAS, NEVADA 89123 FAX NO. (702) 896-0278
INDEPENDENT AUDITORS' REPORT
Board Of Directors November 15, 1999
Asian Alliance Ventures, Inc.
Reno, Nevada
I have audited the Balance Sheet of Asian Alliance Ventures, Inc., (A
Development Stage Company), as of August 31, 1999, and December 21, 1998, and
the related Statements of Operations, Stockholders' Equity and Cash Flows for
the periods January 1, 1999, to August 31, 1999, and October 2, l998 (inception)
to December 31, 1998. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Asian Alliance Ventures,
Inc., (A Development Stage Company) as of August 31, 1999, and December 31,
1998, and the results of its operations and cash flows for the periods January
1, 1999, to August 31, 1999, and October 2, 1998, (inception) to December 31,
1998, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note #3 to the
financial statements, the Company has no established source of revenue. This
raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note #3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Barry L. Friedman
- ---------------------------
Barry L. Friedman
Certified Public Accountant
F-1
<PAGE>
ASIAN ALLIANCE VENTURES, INC.
(A Development Stage Company)
BALANCE SHEET
ASSETS
August December
31, 1999 31, 1998
-------- --------
CURRENT ASSETS
Cash $10,634 $ 0
------- -------
TOTAL CURRENT ASSETS $10,634 $ 0
------- -------
OTHER ASSETS $ 0 $ 0
------- -------
TOTAL OTHER ASSETS $ 0 $ 0
------- -------
TOTAL ASSETS $10,634 $ 0
======= =======
The accompanying notes are an integral part of these financial statements
-2-
F-2
<PAGE>
ASIAN ALLIANCE VENTURES, INC.
(A Development Stage Company)
BALANCE SHEET
LIABILITIES AND STOCKHOLDERS EQUITY
August December
31, 1999 31, 1998
-------- --------
CURRENT LIABILITIES
Accounts Payable $ 1,734 $ 0
Officer/Shareholder Advances (Note#6) 1,000 250
-------- --------
TOTAL CURRENT LIABILITIES $ 2,734 $ 250
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value
authorized 10,000,000 shares
issued and outstanding at
December 31, 1998-NONE $ 0
August 31, 1999-NONE $ 0
Common stock, $.001 par value
authorized 50,000,000 shares;
issued and outstanding at
December 31, 1998-NONE 0
August 31, 1999-5,000,000 shares 5,000
Additional paid-in capital 5,000 0
Deficit accumulated during
the development stage (2,100) (250)
-------- --------
TOTAL STOCKHOLDER'S EQUITY $ 7,900 $ (250)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 10,634 $ 0
======== ========
The accompanying notes are an integral part of these financial statements
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ASIAN ALLIANCE VENTURES, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
Jan. 1, Oct. 2, Oct. 2, 1998
1999, to 1998, to (inception)
Aug.31, Dec. 31, to Aug. 31,
1999 1998 1999
----------- ----------- -----------
INCOME
Revenue $ 0 $ 0 $ 0
----------- ----------- -----------
EXPENSES
Legal Fees $ 1,850 $ 250 $ 2,100
----------- ----------- -----------
TOTAL EXPENSES $ 1,850 $ 250 $ 2,100
----------- ----------- -----------
NET LOSS $ (1,850) $ (250) $ (2,100)
=========== =========== ===========
Net Loss per share $ (.0004) $ .0000 $ (0.0004)
=========== =========== ===========
Weighted average
number of common
shares outstanding 5,000,000 NONE 5,000,000
=========== =========== ===========
The accompanying notes are an integral part of these financial statements
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ASIAN ALLIANCE VENTURES INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
Deficit
Accumulated
Additional during
Common Stock paid-in development
Shares Amount capital stage
--------- --------- --------- ---------
Net loss, October
2, 1998, to
December 31, 1998 $ (250)
--------- --------- --------- ---------
Balance,
December 31, 1998 0 $ 0 0 $ (250)
March 6, 1999
completed Rule
504 offering 5,000,000 5,000 5,000
Net loss, January
1, 1999 to
August 31, 1999 $ (1,850)
--------- --------- --------- ---------
Balance,
August 31, 1999 5,000,000 $ 5,000 $ 5,000 $ (2,100)
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements
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ASIAN ALLIANCE VENTURES INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
Jan. 1, Oct. 2, Oct. 2, 1998
1999, to 1998, to (inception)
Aug.31, Dec. 31, to Aug. 31,
1999 1998 1999
----------- ----------- -----------
Cash Flows from
Operating Activities
Net Loss $ (1,850) $ (250) $ (2,l00)
Adjustment to
reconcile net loss
to net cash
provided by operating
activities 0 0 0
Changes in assets and
1iabilities
Increase in current
liabilities
Accounts Payable 1,734 1,734
Officers/Shareholder Advances 750 250 1,000
-------- -------- --------
Net cash used in
operating activities $ 634 $ 0 $ 634
Cash Flows from
investing activities 0 0 0
Cash Flows from
Financing Activities
Issuance of common
Stock For Cash l0,000 0 10,000
-------- -------- --------
Net increase (decrease)
in cash $ 10,634 $ 0 $ 10,634
Cash, beginning of
period 0 0 0
-------- -------- --------
Cash, end of period $ 10,634 $ 0 $ 10,634
======== ======== ========
The accompanying notes are an integral part of these financial statements
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ASIAN ALLIANCE VENTURES INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
August 31, 1999, and December 31, 1998
NOTE 1 - HISTORY AND ORGANIZATION OF THE COMPANY
The Company was organized October 2, 1993, under the laws of the State of
Nevada, as Asian Alliance Ventures, Inc. The Company has no operations and in
accordance with SFAS #7, and is considered a development stage company.
On March 6, 1999, the Company completed an offering of its Common Stock
under Regulation "D", Rule 504 for 5,000,000 Common Shares of stock at $.002 per
share or $10,000.
NOTE 2 - ACCOUNTING POLICIES AND PROCEDURES
Accounting policies and procedures have not been determined except as
follows:
1. The Company uses the accrual method of accounting.
2. Earnings per share is computed using the weighted average number of
shares of common stock outstanding.
3. The Company has not yet adopted any policy regarding payment of
dividends. No dividends have been paid since inception.
NOTE 3 - GOING CONCERN
The Company's financial statements are prepared using the generally
accepted accounting principles applicable to a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal course of
business. However, the Company has no current source of revenue. Without
realization of additional capital, it would be unlikely for the Company to
continue as a going concern. It is management's plan to seek additional capital.
NOTE 4 - WARRANTS AND OPTIONS
There are no warrants or options outstanding to issue any additional
shares of common or preferred stock as of August 31, 1999.
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ASIAN ALLIANCE VENTURES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS CONTINUED
August 31, 1999, and December 31, 1998
NOTE 5 - RELATED PARTY TRANSACTION
The Company neither owns or leases any real property. Office services are
provided without charge by a director. Such costs are immaterial to the
financial statements and, accordingly, have not been reflected therein. The
officers and directors of the Company are involved in other business activities
and may, in the future, become involved in other business opportunities. If a
specific business opportunity becomes available, such persons may face a
conflict in selecting between the Company and their other business interests.
The Company has not formulated a policy for the resolution of such conflicts.
NOTE 6 - OFFICER/SHAREHOLDER ADVANCES
While the Company is seeking additional capital, an officer/shareholder of
the Company has advanced funds on behalf of the Company to pay for any costs
incurred by it. These funds are interest free.
NOTE 7 - JOINT VENTURE
The Company has signed in August, 1999, a Joint Venture Agreement with
Shandong Hengtong Chemical Industrial Company Ltd. of Shandong Province, China
to acquire and expand a well established chemical fertilizer (urea) and power
facility. The Company is required to invest $13 Million to activate its 51% of
the Joint Venture.
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SECRETARY OF STATE
[SEAL]
STATE OF NEVADA
CORPORATE CHARTER
I, DEAN HELLER, the duly elected and qualified Nevada Secretary of State, do
hereby certify that ASIAN ALLIANCE VENTURES, INC. did on October 2,1998 file in
this office the original Articles of Incorporation; that said Articles are now
on file and of record in the office of the Secretary of State of the State of
Nevada, and further, that said Articles contain all the provisions required by
the law of said State of Nevada.
IN WITNESS WHEREOF, I have hereunto set my hand and
affixed the Great Seal of State at my office, in
Carson City, Nevada, on October 5,1998.
/s/ Dean Heller
[SEAL] Secretary of State
By /s/ [ILLEGIBLE]
Certification Clerk
ARTICLES OF INCORPORATION
OF
ASIAN ALLIANCE VENTURES, INC.,
a Nevada corporation
The undersigned natural person hereinafter named as incorporator and
acting as such, for the purpose of associating to establish a corporation under
the provisions and subject to the requirements of Nevada Revised Statutes,
Chapter 78, and the acts amendatory thereof, hereby adopts and makes the
following Articles of Incorporation:
ARTICLE I
The name of the corporation is Asian Alliance Ventures, Inc. (the
"Corporation").
ARTICLE II
The name of the Corporation's resident agent in the State of Nevada is
Woodburn and Wedge, Chartered, and the street address of such resident agent
where process may be served on the Corporation is One East First Street,
Sixteenth Floor, Reno, Nevada 89501. The mailing address of the Corporation's
resident agent is One East First Street, P.O. Box 2311, Reno, Nevada 89505.
ARTICLE III
The Corporation may engage in any lawful activity.
ARTICLE IV
Section 1. Authorized Capital Stock. The Corporation is authorized to
issue 60,000,000 shares of capital stock, of which (a) 50,000,000 shares shall
be designated shares of "Common Stock" having a par value of $0.001 each, and
(b) 10,000,000 shares shall be designated shares of "Preferred Stock" having a
par value of $0.001 each.
Section 2. Preferred Stock; Blank Check Authority. The Board of Directors
is authorized, from time to time, to issue the shares of Preferred Stock as
shares of Preferred Stock of any series, and, in connection with the creation of
each such series, the Board of Directors is authorized to fix by resolution or
resolutions providing for the issuance of such shares thereof the number of
shares of such series and the powers, designations, privileges, preferences,
limitations, restrictions, price and relative rights of such series to the full
extent
<PAGE>
now or hereafter permitted by the laws of the State of Nevada. Different series
of Preferred Stock shall not be deemed or construed to constitute different
classes of shares for the purposes of voting by classes unless so expressly
provided in these Articles of Incorporation.
Without limiting the generality of the foregoing, and except as otherwise
specifically provided in the express terms of any previously-issued series of
Preferred Stock, the resolution or resolutions of the Board of Directors
providing for the issuance of any other series of Preferred Stock may provide
that such other series of Preferred Stock shall be superior to or rank equally
with or be junior to the Preferred Stock of any or all other series of Preferred
Stock to the extent permitted by law. Except as otherwise specifically provided
in these Articles of Incorporation or in the express terms of any
previously-issued Series of Preferred Stock, no vote of the holders of Common
Stock or Preferred Stock shall be a prerequisite to any issuance of shares of
any series of Preferred Stock authorized by and complying with these Articles of
Incorporation, the right to have such vote, except as otherwise specifically
provided in the express terms of any series of Preferred Stock, hereby being
expressly waived by all present and future holders of the capital stock of the
Corporation. All shares of Preferred Stock that may be redeemed, purchased or
otherwise acquired by the Corporation may be reissued except as otherwise
provided by law.
Subject to the express terms of any series of Preferred Stock created and
issued by the Board of Directors in accordance with the provisions of this
ARTICLE IV, Section 2, the Board of Directors is authorized, from time to time,
to increase the number of shares of that series of Preferred Stock after the
issuance of shares of that series of Preferred Stock. The Board of Directors is
authorized from time to time, to decrease the number of shares of any series of
Preferred Stock after the issuance of shares of that series of Preferred Stock,
but not below the number of shares of that series of Preferred Stock then
outstanding. Upon each event of a decrease of the number of shares of any series
of Preferred Stock pursuant to the immediately-preceding sentence hereof, the
shares constituting such decrease shall resume the status that they had before
the adoption of the resolution or resolutions of the Board of Directors
originally fixing the number of shares of that series of Preferred Stock.
Section 3. Fully-Paid Stock Not Subject to Assessment. The capital stock
of the Corporation, after the amount of consideration therefor has been paid in
money, property or services as the Board of Directors shall determine, shall not
be subject to assessment to pay the debts of the Corporation or for any other
purpose. No capital stock of the Corporation issued as fully paid shall ever be
assessable or assessed, and these Articles of Incorporation shall not be amended
in this respect.
Section 4. No Cumulative Voting Rights. No class or series of any class
of the capital stock of the Corporation shall have any cumulative voting right.
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ARTICLE V
Section 1. Governing Board of Directors. The governing board of the
Corporation shall be styled as a "Board of Directors," and any member of such
Board of Directors shall be styled as a "director."
The remaining provisions of this ARTICLE V, Section 1 shall cease to have
effect upon the closing of any sale to the public in a firm committment
underwritten offering of Common Stock registered under the Securities Act of
1933, as amended, on Form SB-1, Form SB-2 or Form S-1, by the Corporation
(and/or selling stockholders, if any) at a per share public offering price of
not less than FIVE DOLLARS ($5.00) (as equitably adjusted for any stock split,
stock combination or similar event that occurs after the date on which these
Articles of Incorporation are filed with the Nevada Secretary of State but
before such sale) and an aggregate offering price greater than FIVE MILLION
DOLLARS ($5,000,000.00) (a "Qualifying Public Offering"),
The authorized number of members constituting the Board of Directors
shall be ONE (1), except in the case of any increase in the number of directors
by reason of any provision entitling the holders of shares of any one or more
series of Preferred Stock, voting as such, to elect additional directors in
specified circumstances.
The name and the post office box or street address, either residence or
business, of the current sole director of the Corporation are as follows;
Name Address
---- -------
ROBERT G. CLARKE 915 Leyland Street
West Vancouver, B C. V7T 2L6
The authorized number of directors of the Corporation may be increased or
decreased in the manner provided in the Bylaws of the Corporation, provided that
the authorized number of directors shall never be less than one (1). In the
interim between elections of directors by stockholders entitled to vote, all
vacancies on the Board of Directors, including vacancies caused by an increase
in the authorized number of directors of Corporation, and including vacancies
resulting from the removal of directors by the stockholders entitled to vote,
may be filled by the remaining directors, though less than a quorum.
Notwithstanding the foregoing, for so long as the holders of shares of
any one or more series of Preferred Stock issued by the Corporation have the
right, voting separately by series, to elect directors, the election, removal,
filling of vacancies and other features of such directorships shall be governed
by the resolution or resolutions adopted by the Board of Directors pursuant to
ARTICLE IV, Section 2 of these Articles of Incorporation creating
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<PAGE>
such series of Preferred Stock and the express terms of such series of Preferred
Stock.
Section 2. Governing Board of Directors Upon the Closing of a Qualifying
Public Offering. The provisions of this ARTICLE V, Section 2 shall become
effective upon the closing of a Qualifying Public Offering.
Immediately upon the closing of a Qualifying Public Offering, the
authorized number of directors shall be not less than THREE (3) nor more than
NINE (9), except in the case of any increase in the number of directors by
reason of any provision entitling the holders of any one or more series of
Preferred Stock, voting as such, to elect additional directors in specified
circumstances. The exact number of members constituting the Board at Directors
shall be fixed from time to time exclusively by the Board of Directors pursuant
to a resolution adopted by a majority of the total number of authorized
directors (whether or not any vacancy in previously-authorized directorships
exists at the time when any such resolution is presented to the Board of
Directors for adoption).
The Board of Directors (exclusive of directors who maybe elected by the
holders of one or more series of Preferred Stock) shall be divided into THREE
(3) classes, as nearly equal in number as possible. The directors of the
Corporation shall serve staggered terms, with the term of office of the first
class to expire at the annual meeting of the stockholders of the Corporation
(the "First Annual Meeting") to be held within TWELVE (12) months after the date
of the closing of the Qualifying Public Offering, the term of office of the
second class to expire at the annual meeting of the stockholders of the
Corporation (the "Second Annual Meeting") to be held within TWELVE (12) months
after the First Annual Meeting, and the term of office of the third class to
expire at the annual meeting of the stockholders of the Corporation to be held
within TWELVE (12) months after the Second Annual Meeting. Each class of
directors whose terms then shall expire shall be elected to hold office for a
THREE (3) year term.
In the interim between elections of directors by stockholders entitled to
vote, a11 vacancies on the Board of Directors, including vacancies caused by an
increase in the authorized number of directors of the Corporation, and including
vacancies resulting from the removal of directors by the stockholders entitled
to vote, may be filled, by the remaining directors, though less than a quorum.
Every director appointed by the remaining directors to fill a vacancy on the
Board of Directors shall serve for the remainder of the term of the director
being replaced or, in the case of an additional director, for the remainder of
term of the class to which such director has been assigned. When the number of
directors is changed, any newly-created directorship and any decrease in
directorships shall be so assigned among the classes of directors by a majority
of the directors as nearly equal in number as possible. No decrease in the
number of directors shall have the effect of shortening the term of any
incumbent director. The election of directors need not be effected by written
ballot unless
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the Corporation's Bylaws so provide.
Notwithstanding the foregoing, for so long as the holders of shares of
any one or more series of Preferred Stock issued by the Corporation have the
right, voting separately by series to elect directors, the election, removal,
filling of vacancies and other features of such directorships shall be governed
by the resolution or resolutions adopted by the Board of Directors pursuant to
ARTICLE IV, Section2 of these Articles of Incorporation creating such series of
Preferred Stock and the express terms of such series of Preferred Stock.
ARTICLE VI
The provisions of this ARTICLE VI shall become effective upon the closing
of a Qualifying Public Offering.
Except as otherwise provided in these Articles of Incorporation, any
action required or permitted be taken by the stockholders of the Corporation
must be effected at an annual or special meeting of the stockholders of the
Corporation, and no action required to be taken or that may be taken at any
annual or special meeting of the stockholders of the Corporation may be taken
without a meeting except by the unanimous written consent of all stockholders
entitled to vote on such action, and the power of stockholders to consent in
writing to the taking of any action by less than unanimous consent of all such
stockholders is specifically denied.
ARTICLE VII
The provisions of this ARTICLE VII shall became effective upon the
closing of a Qualifying Public Offering.
Advance notice of stockholder nominations for the election of directors
and of business to be brought by stockholders before any meeting of the
stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
ARTICLE VIII
The period of existence of the Corporation is perpetual.
ARTICLE IX
The personal liability of the directors and officers of the Corporation
hereby is eliminated to the fullest extent permitted by Nevada Revised Statutes,
Chapter 78, as the same may be amended and supplemented. No director or officer
of the Corporation will be liable to the Corporation or its stockholders for
damages for breach of fiduciary duty as a
5
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director or officer, except for (a) act or omissions that involve intentional
misconduct, fraud or a knowing violation of law or (b) the payment of dividends
in violation of Nevada Revised Statutes Section 78.300. No amendment or repeal
of this ARTICLE IX applies to or has any effect on the liability or alleged
liability of any director or officer having occurred before such amendment or
repeal, except as otherwise required by law.
ARTICLE X
The Corporation shall, to the fullest extent permitted by Nevada Revised
Statutes, Chapter 78, as the same may be amended and supplemented, indemnify all
persons whom it shall have power to indemnify under Nevada Revised Statutes,
Chapter 78, as the same may be amends and supplemented, from and against all of
the expenses, liabilities or other matters referred to in or covered by Nevada
Revised Statutes, Chapter 78. The indemnification provided for herein shall not
be deemed exclusive of any other right to which a person indemnified may be
entitled under any Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to actions of such person in such person's
official capacity and as to actions of such person in another capacity while
holding such office. The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, limited
- -liability company, partnership, joint venture, trust or other enterprise,
against any liability asserted against such person in any such capacity or
arising out of such person's status as such, whether or not the Corporation
would have the power to indemnify such person against such liability under the
provisions of Nevada Revised Statutes, Chapter 78, as the same may be amended
and supplemented. The indemnification provided for herein shall continue as to a
person who has ceased to be a director, officer, employee or agent of the
Corporation, or to a person who has ceased to serve at the request of the
Corporation as a director, officer, employee or agent of another corporation,
limited-liability company, partnership, joint venture, trust or other
enterprise, existing at the time of such amendment or repeal.
ARTICLE XI
In furtherance and not in limitation of the rights, powers, privileges
and discretionary authority granted or conferred by Nevada Revised Statutes,
Chapter 78, or other statutes or laws of the State of Nevada, the Board of
Directors is expressly authorized (a) to make,
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adopt, amend alter or repeal the Bylaws of the Corporation; except as and to the
extent provided in such Bylaws; (b) from time to time to adopt Bylaw provisions
with respect to indemnification of directors, officers, employees, agents and
other persons as it shall deem expedient and in the best interests of the
Corporation and to the extent permitted by law; and (c) to fix and determine
designations, preferences, privileges, rights and powers, and relative,
participating, optional or other special rights, qualifications, limitations or
restrictions, on the capital stock of the Corporation as provided by Nevada
Revised Statutes Section 78.195, unless otherwise provided herein.
ARTICLE XII
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in these Articles of Incorporation in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders of
the Corporation herein are granted subject to this reservation.
ARTICLE XIII
The name and post office box or street address, either residence or
business, of the incorporator signing these Articles of lncorporation are as
follows:
Name Address
---- -------
IRENE DUGGAN One East First Street
Suite 1600
Reno, Nevada 89501
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand and executed these Articles of Incorporation on this 2nd day of October
1998.
/s/ Irene Duggan
------------------------------
Irene Duggan
BYLAWS FOR THE REGULATION
EXCEPT AS OTHERWISE PROVIDED BY STATUTE
OR ITS ARTICLES OF INCORPORATION OF
ASIAN ALLIANCE VENTURES, INC.,
A NEVADA CORPORATION
ARTICLE I.
Offices
Section 1. PRINCIPAL OFFICE. The principal office for the transaction of
the business of the corporation is hereby fixed and located at Suite 880, Bank
of America Plaza, 50 West Liberty Street, Reno, Nevada 89501, being the offices
of THE NEVADA AGENCY AND TRUST COMPANY. The board of directors is hereby granted
full power and authority to change said principal office from one location to
another in the State of Nevada.
Section 2. OTHER OFFICES. Branch or subordinate offices may at any time be
established by the board of directors at any place or places where the
corporation is qualified to do business.
ARTICLE II.
Meetings of Shareholders
Section 1. MEETING PLACE. All annual meetings of shareholders and all other
meetings of shareholders shall be held either at the principal office or at any
other place within or without the State of Nevada which may be designated either
by the board of directors, pursuant to authority hereinafter granted to said
board, or by the written consent of all shareholders entitled to vote thereat,
given either before or shareholders entitled to
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vote thereat, given either before or after the meeting and filed with the
Secretary of the corporation.
Section 2. ANNUAL MEETINGS. The annual meetings of shareholders shall be
held on the second Thursday of September of each year, at the hour of 10:00 A.M.
of said day commencing with the year 1999; provided, however, that should said
day fall upon a legal holiday then any such annual meeting of shareholders shall
be held at the same time and place on the next day thereafter ensuing which is
not a legal holiday.
Written notice of each annual meeting signed by the president, a vice
president, the secretary, an assistant secretary, or by such other person or
persons as the directors shall designate, shall be given to each shareholder
entitled to vote thereat, either personally or by mail or other means of written
communication, charges prepaid, addressed to such shareholder at his address
appearing on the books of the corporation or given by him to the corporation for
the purpose of notice. If a shareholder gives no address, notice shall be deemed
to have been given to him, if sent by mail or other means of written
communication addressed to the place where the principal office of the
corporation is situated, or if published at least once in some newspaper of
general circulation in the county in which said office is located. All such
notices shall be sent to each shareholder entitled thereto not less than ten
(10) nor more than sixty (60) days before each annual meeting, and shall specify
the place, the day and the hour of such meeting, and shall also state the
purpose or purposes for which the meeting is called.
Section 3. SPECIAL MEETINGS. Special meetings of the shareholders, for any
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purpose or purposes whatsoever, may be called at any time by the president or by
the board of directors, or by one or more shareholders holding not less than 10%
of the voting power of the corporation. Except in special cases where other
express provision is made by statute, notice of such special meetings shall be
given in the same manner as for annual meetings of shareholders. Notices of any
special meeting shall specify in addition to the place, day and hour of such
meeting, the purpose or purposes for which the meeting is called.
Section 4. ADJOURNED MEETINGS AND NOTICE THEREOF. Any shareholders'
meeting, annual or special, whether or not a quorum is present, may be adjourned
from time to time by the vote of a majority of the shares, the holders of which
are either present in person or represented by proxy thereat, but in the absence
of a quorum, no other business may be transacted at any such meeting.
When any shareholders' meeting, either annual or special, is adjourned for
thirty (30) days or more, notice of the adjourned meeting shall be given as in
the case of an original meeting. Save as aforesaid, it shall not be necessary to
give any notice of an adjournment or of the business to be transacted at an
adjourned meeting, other than by announcement at the meeting at which such
adjournment is taken.
Section 5. ENTRY OF NOTICE. Whenever any shareholder entitled to vote has
been absent from any meeting of shareholders, whether annual or special, an
entry in the minutes to the effect that notice has been duly given shall be
conclusive and incontrovertible evidence that due notice of such meeting was
given to such shareholders,
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as required by law and the Bylaws of the corporation.
Section 6. VOTING. At all annual and special meetings of stockholders
entitled to vote thereat, every holder of stock issued to a bona fide purchaser
of the same, represented by the holders thereof, either in person or by proxy in
writing, shall have one vote for each share of stock so held and represented at
such meetings, unless the Articles of Incorporation of the company shall
otherwise provide, in which event the voting rights, powers and privileges
prescribed in the said Articles of Incorporation shall prevail. Voting for
directors and, upon demand of any stockholder, upon any question at any meeting
shall be by ballot. Any director may be removed from office by the vote of
stockholders representing not less than two-thirds of the voting power of the
issued and outstanding stock entitled to voting power.
Section 7. QUORUM. The presence in person or by proxy of the holders of a
majority of the shares entitled to vote at any meeting shall constitute a quorum
for the transaction of business. The shareholders present at a duly called or
held meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum.
Section 8. CONSENT OF ABSENTEES. The transactions of any meeting of
shareholders, either annual or special, however called and noticed, shall be as
valid as though at a meeting duly held after regular call and notice, if a
quorum be present either in person or by proxy, and if either before or after
the meeting, each of the shareholders entitled to vote, not present in person or
by proxy, sign a written waiver of Notice, or a
4
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consent to the holding of such meeting, or an approval of the minutes thereof.
All such waivers, consents or approvals shall be filed with the corporate
records or made a part of the minutes of this meeting.
Section 9. PROXIES. Every person entitled to vote or execute consents shall
have the right to do so either in person or by an agent or agents authorized by
a written proxy executed by such person or his duly authorized agent and filed
with the secretary of the corporation; provided that no such proxy shall be
valid after the expiration of eleven (11) months from the date of its execution,
unless the shareholder executing it specifies therein the length of time for
which such proxy is to continue in force, which in no case shall exceed seven
(7) years from the date of its execution.
ARTICLE III
Section 1. POWERS. Subject to the limitations of the Articles of
Incorporation or the Bylaws, and the provisions of the Nevada Revised Statutes
as to action to be authorized or approved by the shareholders, and subject to
the duties of directors as prescribed by the Bylaws, all corporate powers shall
be exercised by or under the authority of, and the business and affairs of the
corporation shall be controlled by the board of directors. Without prejudice to
such general powers, but subject to the same limitations, it is hereby expressly
declared that the directors shall have the following powers, to wit:
First - To select and remove all the other officers, agents and employees
of the corporation, prescribe such powers and duties for them as may not be
inconsistent with law, with the Articles of Incorporation or the Bylaws, fix
their compensation, and require
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from them security for faithful service.
Second - To conduct, manage and control the affairs and business of the
corporation, and to make such rules and regulations therefore not inconsistent
with law,, with the Articles of incorporation or the Bylaws, as they may deem
best.
Third - To change the principal office for the transaction of the business
of the corporation from one location to another within the same county as
provided in Article I, Section 1, hereof; to fix and locate from time to time
one or more subsidiary offices of the corporation within or without the State of
Nevada, as provided in Article I, Section 2, hereof; to designate any place
within or- without the State of Nevada for the holding of any shareholders I
meeting or meetings; and to adopt, make and use a corporate seal, and to
prescribe the forms of certificates of stock, and to alter the form of such seal
and of such certificates from time to time, as in their judgment they may deem
best, provided such seal and such certificates shall at all times comply with
the provisions of law.
Fourth - To authorize the issue of shares of stock of the corporation from
time to time, upon such terms as may be lawful, in consideration of money paid,
labor done or services actually rendered, debts or securities canceled, or
tangible or intangible property actually received, or in the case of shares
issued as a dividend, against amounts transferred from surplus to stated
capital.
Fifth - To borrow money and incur indebtedness for the purposes of the
corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations or
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other evidences of debt and securities therefore.
Sixth - To appoint an executive committee and other committees and to
delegate to the executive committee any of the powers and authority of the board
in management of the business and affairs of the corporation, except the power
to declare dividends and to adopt, amend or repeal Bylaws. The executive
committee shall be composed of one or more directors.
Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number of
directors of the corporation shall be not less than one (1) and no more than
fifteen (15).
Section 3. ELECTION AND TERM OF OFFICE. The directors shall be elected at
each annual meeting of shareholders, but if any such annual meeting is not held,
or the directors are not elected thereat, the directors may be elected at any
special meeting of shareholders. All directors shall hold office until their
respective successors are elected.
Section 4. VACANCIES. Vacancies in the board of directors may be filled by
a majority of the remaining directors, though less than a quorum, or by a sole
remaining director, and each director so elected shall hold office until his
successor is elected at an annual or a special meeting of the shareholders.
A vacancy or vacancies in the board of directors shall be deemed to exist
in case of the death, resignation or removal of any director, or if the
authorized number of directors be increased, or if the shareholders fail at any
annual or special meeting of shareholders at which any director or directors are
elected to elect the full authorized number of directors
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to be voted for at that meeting.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors. If the board of directors
accept the resignation of a director tendered to take effect at a future time,
the board or the shareholders shall have the power to elect a successor to take
office when the resignation is to become effective.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of his term of office.
Section 5. PLACE OF MEETING. Regular meetings of the board of directors
shall be held at any place within or without the State which has been designated
from time to time by resolution of the board or by written consent of all
members of the board. In the absence of such designation, a regular meeting
shall be held at the principal office of the corporation. Special meetings of
the board may be held either at a place so designated, or at the principal
office.
Section 6. ORGANIZATION MEETING. Immediately following each annual meeting
of shareholders, the board of directors shall hold a regular meeting for the
purpose of organization, election of officers, and the transaction of other
business. Notice of such meeting is hereby dispensed with.
Section 7. OTHER REGULAR MEETINGS. Other regular meetings of the board of
directors shall be held without call on the eighth (8th) day of each month at
the hour of 10:00 clock A.M. of said day; provided, however, should said day
fall upon a legal holiday, then said meeting shall be held at the same time on
the next day thereafter ensuing
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which is not a legal holiday. Notice of all such regular meetings of the board
of directors is hereby dispensed with.
Section 8. SPECIAL MEETINGS. special meetings of the board of directors for
any purpose or purposes shall be called at any time by the president, or, if he
is absent or unable or refuses to act, by any vice president or by any two (2)
directors.
Written notice of the time and place of special meetings shall be delivered
personally to the directors or sent to each director by mail or other form of
written communication, charges prepaid, addressed to him at his address as it is
shown upon the records of the corporation, or if it is not shown on such records
or is not readily ascertainable, at the place in which the meetings of the
directors are regularly held. In case such notice is mailed or telegraphed, it
shall be deposited in the United States mail or delivered to the telegraph
company in the place in which the principal office of the corporation is located
at least forty-eight (48) hours prior to the time of the holding of the meeting.
In case such notice is delivered as above provided, it shall be so delivered at
least twenty-four (24) hours prior to the time of the holding of the meeting.
Such mailing, telegraphing or delivery as above provided shall be due, legal and
personal notice to such director.
Section 9. NOTICE OF ADJOURNMENT. Notice of the time and place of holding
an adjourned meeting need not be given to absent directors, if the time and
place be fixed at the meeting adjourned.
Section 10. ENTRY OF NOTICE. Whenever any director has been absent from
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any special meeting of the board of directors, an entry in the minutes to the
effect that notice has been duly given shall be conclusive and incontrovertible
evidence that due notice of such special meeting was give to such director, as
required by law and the Bylaws of the corporation.
Section 11. WAIVER OF NOTICE. The transactions of any meeting of the board
of directors, however called and noticed or wherever held, shall be as valid as
though had a meeting duly held after regular call and notice, if a quorum be
present, and if, either before or after the meeting, each of the directors not
present sign a written waiver of notice or a consent to the holding of such
meeting or an approval of the minutes thereof. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Section 12. QUORUM. A majority of the authorized number of directors shall
be necessary to constitute a quorum for the transaction of business, except to
adjourn as hereinafter provided. Every act or decision done or made by a
majority of the directors present at a meeting duly held at which a quorum is
present, shall be regarded as the act of the board of directors, unless a
greater number be required by law or by the Articles of Incorporation.
Section 13. ADJOURNMENT. A quorum of the directors may adjourn any
directors' meeting to meet again at a stated day and hour; provided, however,
that in the absence of a quorum, a majority of the directors present at any
directors' meeting, either regular or special, may adjourn from time to time
until the time fixed for the next regular
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meeting of the board.
Section 14. FEES AND COMPENSATION. Directors shall not receive any stated
salary for their services as directors, but by resolution of the board, a fixed
fee, with or without expenses of attendance may be allowed for attendance at
each meeting. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation therefor.
ARTICLE IV.
Officers
Section 1. OFFICERS. The officers of the corporation shall be a president,
a vice president and a secretary/treasurer. The corporation may also have, at
the discretion of the board of directors, a chairman of the board, one or more
vice presidents, one or more assistant secretaries, one or more assistant
treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 3 of this Article. Officers other than president and
chairman of the board need not be directors. Any person may hold two or more
offices.
Section 2. ELECTION. The officers of the corporation, except such officers
as may be appointed in accordance with the provisions of Section 3 or Section 5
of this Article, shall be chosen annually by the board of directors, and each
shall hold his office until he shall resign or shall be removed or otherwise
disqualified to serve, or his successor shall be elected and qualified.
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Section 3. SUBORDINATE OFFICERS, ETC. The board of directors may appoint
such other officers as the business of the corporation may require, each of whom
shall hold office for such period, have such authority and perform such duties
as are provided in the Bylaws or as the board of directors may from time to time
determine.
Section 4. REMOVAL AND RESIGNATION. Any officer may be removed, either with
or without cause, by a majority of the directors at the time in office, at any
regular or special meeting of the board.
Any officer may resign at any time by giving written notice to the board of
directors or to the president, or to the secretary of the corporation. Any such
resignation shall take effect at the date of the receipt of such notice or at
any later time specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in the Bylaws for regular appointments to such office.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the board, if there shall
be such an officer, shall, if present, preside at all meetings of the board of
directors, and exercise and perform such other powers and duties as may be from
time to time assigned to him by the board of directors or prescribed by the
Bylaws.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be
given by the board of directors to the chairman of the board, if there be such
an officer,
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the president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction and control of the business and officers of the corporation. He shall
preside at all meetings of the shareholders and in the absence of the chairman
of the board, or if there be none, at all meetings of the board of directors. He
shall be ex-officio a member of all the standing committees, including the
executive committee, if any, and shall have the general powers and duties of
management usually vested in the office of president of a corporation, and shall
have such other powers and duties as may be prescribed by the board of directors
or the Bylaws.
Section 8. VICE PRESIDENT. In the absence or disability of the president,
the vice presidents in order of their rank as fixed by the board of directors,
or if not ranked, the vice president designated by the board of directors, shall
perform all the duties of the president and when so acting shall have all the
powers of, and be subject to all the restrictions upon, the president. The vice
presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the board of directors
or the Bylaws.
Section 9. SECRETARY. The secretary shall keep, or cause to be kept, a book
of minutes at the principal office or such other place as the board of directors
may order, of all meetings of directors and shareholders, with the time and
place of holding, whether regular or special, and if special, how authorized,
the notice thereof given, the names of those present at directors' meetings, the
number of shares present or represented at
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shareholders' meetings and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal office, a
share register, or a duplicate share register, showing the names of the
shareholders and their addresses; the number and classes of shares held by each;
the number and date of certificates issued for the same, and the number and date
of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all the meetings
of the shareholders and of the board of directors required by the Bylaws or by
law to be given, and he shall keep the seal of the corporation in safe custody,
and shall have such other powers and perform such other duties as may be
prescribed by the board of directors or the Bylaws.
Section 10. TREASURER. The treasurer shall keep and maintain, or cause to
be kept and maintained, adequate and correct accounts of the properties and
business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursement, gains, losses, capital, surplus and shares.
Any surplus, including earned surplus, paid-in surplus and surplus arising from
a reduction of stated capital, shall be classified according to source and shown
in a separate account. The books of account shall at all times be open to
inspection by any director.
The treasurer shall deposit all moneys and other valuables in the name and
to the credit of the corporation with such depositories as may be designated by
the board of directors. He shall disburse the funds of the corporation as may be
ordered by the board
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of directors, shall render to the president and directors, whenever they request
it, an account of all of his transactions as treasurer and of the financial
condition of the corporation, and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or the Bylaws.
ARTICLE V.
Miscellaneous
Section 1. RECORD DATE AND CLOSING STOCK BOOKS. The board of directors may
fix a time, in the future, not exceeding fifteen (15) days preceding the date of
any meeting of shareholders, and not exceeding thirty (30) days preceding the
date fixed for the payment of any dividend or distribution, or for the allotment
of rights, or when any change or conversion or exchange of shares shall go into
effect, as a record date for the determination of the shareholders entitled to
notice of and to vote at any such meeting, or entitled to receive any such
dividend or distribution, or any such allotment of rights, or to exercise the
rights in respect to any such change, conversion or exchange of shares, and in
such case only shareholders of record on the date so fixed shall be entitled to
notice of and to vote at such meetings, or to receive such dividend,
distribution or allotment of rights, or to exercise such rights, as the case may
be, notwithstanding any transfer of any shares on the books of the corporation
after any record date fixed as aforesaid. The board of directors may close the
books of the corporation against transfers of shares during the whole, or any
part of any such period.
Section 2. INSPECTION OF CORPORATE RECORDS. The share register or
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duplicate share register, the books of account, and minutes of proceedings of
the shareholders and directors shall be open to inspection upon the written
demand of any shareholder or the holder of a voting trust certificate, at any
reasonable time, and for a purpose reasonably related to his interests as a
shareholder, or as the holder of a voting trust certificate, and shall be
exhibited at any time when required by the demand of ten percent (10%) of the
shares represented at any shareholders' meeting. Such inspection may be made in
person or by an agent or attorney, and shall include the right to make extracts.
Demand of inspection other than at a shareholders' meeting shall be made in
writing upon the president, secretary or assistant secretary of the corporation.
Section 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
payment of money, notes or other evidences of indebtedness, issued in the name
of or payable to the corporation, shall be signed or endorsed by such person or
persons and in such manner as, from time to time, shall be determined by
resolution of the board of directors.
Section 4. ANNUAL REPORT. The board of directors of the corporation shall
cause to be sent to the shareholders not later than one hundred twenty (120)
days after the close of the fiscal or calendar year an annual report.
Section 5. CONTRACT, ETC., HOW EXECUTED. The board of directors, except as
in the Bylaws otherwise provided, may authorize any officer or officers, agent
or agents, to enter into any contract, deed or lease or execute any instrument
in the name of and on behalf of the corporation, and such authority may be
general or confined to specific
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instances; and unless so authorized by the board of directors, no officer, agent
or employee shall have any power or authority to bind the corporation by any
contract or engagement or to pledge its credit to render it liable for any
purpose or to any amount.
Section 6. CERTIFICATES OF STOCK. A certificate or certificates for shares
of the capital stock of the corporation shall be issued to each shareholder when
any such shares are fully paid up. All such certificates shall be signed by the
president or a vice president and the secretary or an assistant secretary, or be
authenticated by facsimiles of the signature of the president and secretary or
by a facsimile of the signature of the president and the written signature of
the secretary or an assistant secretary. Every certificate authenticated by a
facsimile of a signature must be countersigned by a transfer agent or transfer
clerk.
Certificates for shares may be issued prior to full payment under such
restrictions and for such purposes as the board of directors or the Bylaws may
provide; provided, however, that any such certificate so issued prior to full
payment shall state the amount remaining unpaid and the terms of payment
thereof.
Section 7. REPRESENTATIONS OF SHARES OF OTHER CORPORATIONS. The president
or any vice president and the secretary or assistant secretary of this
corporation are authorized to vote, represent and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority herein
granted to said officers to vote or represent on behalf of this corporation or
corporations may be exercised either by such
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officers in person or by any person authorized so to do by proxy or power of
attorney duly executed by said officers.
Section 8. INSPECTION OF BYLAWS. The corporation shall keep in its
principal office for the transaction of business the original or a copy of the
Bylaws as amended, or otherwise altered to date, certified by the secretary,
which shall be open to inspection by the shareholders at all reasonable times
during office hours.
Section 9. REFUSAL TO REGISTER TRANSFER. The Corporation shall not register
any transfer of securities issued by the Corporation in any transaction that
qualifies for the exemption from registration requirements specified by the
provisions of Regulation S, unless such transfer is made in accordance with the
provisions of Regulation S.
ARTICLE VI.
Amendments
Section 1. POWER OF SHAREHOLDERS. New Bylaws may be adopted or these Bylaws
may be amended or repealed by the vote of shareholders entitled to exercise a
majority of the voting power of the corporation or by the written assent of such
shareholders.
Section 2. POWER OF DIRECTORS. Subject to the right of shareholders as
provided in Section 1 of this Article VI to adopt, amend or repeal Bylaws,
Bylaws other than a Bylaw or amendment thereof changing the authorized number of
directors may be adopted, amended or repealed by the board of directors.
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Section 3. ACTION BY DIRECTORS THROUGH CONSENT IN LIEU OF MEETING. Any
action required or permitted to be taken at any meeting of the board of
directors or of any committee thereof, may be taken without a meeting, if a
written consent thereto is signed by all the members of the board or of such
committee. Such written consent shall be filed with the minutes of proceedings
of the board or committee.
19
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Joint Venture Contract
Between
Shandong Hengtong Chemical Industrial Company
Ltd.
And
Asian Alliance
Ventures
Incorporated
_____ _____, 1999
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Table of Contents
1 GENERAL PROVISIONS AND PARTIES TO THE JOINT VENTURE.....................1
2 STANDING, AUTHORISATIONS AND LEGAL REPRESENTATIVES OF THE PARTIES.......1
3 ESTABLISHMENT OF THE JOINT VENTURE COMPANY..............................2
4 PURPOSE, SCOPE AND SCALE OF PRODUCTION OF THE JV CO.....................3
5 TOTAL AMOUNT OF INVESTMENT AND REGISTERED CAPITAL.......................3
6 TRANSFER AND INCREASE OF REGISTERED CAPITAL.............................4
7 RESPONSIBILITIES OF EACH PARTY TO JV CO.................................4
8 THE BOARD OF DIRECTORS..................................................6
9 BUSINESS MANAGEMENT ORGANISATION........................................8
10 PURCHASE OF EQUIPMENT AND RAW MATERIALS...............................9
11 TECHNOLOGY AND TRADEMARK..............................................9
12 BANK ACCOUNT AND FOREIGN EXCHANGE ADMINISTRATION......................9
13 TAXES, FINANCE AND AUDIT.............................................10
14 DISTRIBUTION OF PROFITS AND CASH SURPLUSES...........................11
15 CONFIDENTIALITY AND NON-COMPETITION..................................11
16 FORCE MAJEURE........................................................12
17 DURATION OF THE JOINT VENTURE........................................12
18 DISSOLUTION AND LIQUIDATION OF THE JOINT VENTURE.....................12
19 INSURANCE............................................................13
20 LIABILITY FOR BREACH OF THE CONTRACT.................................13
21 APPLICABLE LAW.......................................................13
22 SETTLEMENT OF DISPUTES AND ARBITRATION...............................14
23 AMENDMENT AND ALTERATION OF THIS CONTRACT............................14
24 SUPPLEMENTARY ARTICLES...............................................14
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1 GENERAL PROVISIONS AND PARTIES TO THE JOINT VENTURE Shandong Hengtong Chemical
Industrial Company Ltd. from China and Asian Alliance Ventures Incorporated from
the United States of America agree to, jointly invest in Tancheng County,
Shandong Province of the People's Republic of China to establish Shandong
Hengtong Development Chemical Co., Ltd. (hereinafter referred to as the "JV
Co.") in accordance with the "Chinese-Foreign Co-operative Joint Venture Law of
the Peoples' Republic of China", its implementation regulations and other
related laws and regulations, on the principle of mutual benefits and through
friendly consultations, and hereby conclude the joint venture contract
(hereinafter referred to as "Contract") as follows:
The Parties to this Joint Venture Contract (the "Parties") are:
Party A
Name : Shandong Hengtong Chemical Company Ltd.
Registered Country : China
Legal Address : No. 187, The People Road, Tancheng County,
Shandong Province, China
Postal Code : 276100
Legal representative : Wang, Yongli
Position : Chairman and General Manager
Nationality : China
Telephone : 86 539 622-2583
Facsimile : 86 539 622-5058
Registered with the Shandong Provincial Administrative Bureau for Industry and
Commerce with its business license No. 26717136-X-1.
Party B
Name : Asian Alliance Ventures Incorporated
Registered Country : United States of America
Legal Address : Suite 1600, 1 East First Street, Reno, Nevada. 89505,
USA
Legal Representative : Robert Clarke
Position : President, Director
Nationality : Canadian
Telephone : 1 604-482-0188
Facsimile : 1 604-482-1231
Incorporated in Nevada, USA
2 STANDING, AUTHORISATIONS AND LEGAL REPRESENTATIVES OF THE PARTIES
2.1 Each Party hereto represents and warrants that it is a valid legal
person duly established under the laws of China or the United
States of America respectively, and represents that it enters into
this Contract on its own account and has all necessary corporate
powers and authority to enter into this Contract and to perform
its obligations or undertake the liabilities hereunder.
2.2 Each Party to the JV Co., shall have delivered to the other Party
certified authenticated copies or notarized and chopped (under
seal) copies of the certificates
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of incorporation or business license, powers of attorney and
copies of other documents to confirm the good standing and duly
authority of each Party and each legal representative to enter
into and be bound by the terms and conditions of this Contract.
2.3 Party A represents and warrants that it has the authority to
contribute or lease the following assets (collectively referred to
as "Assets") to the JV Co. :
2.3.1 Equipment, facilities and material listed in Exhibit C
attached hereto ("Equipment, Facilities and Materials");
2.3.2 Land use right as shown in Exhibit B and factory and its
facilities as shown in Exhibit E will be leased to the JV
Co.("Land, Factory and Facilities")
2.3.3 The above Land, Factory and Facilities shall be ready and
able to provide sufficient water, power, steam, drainage
etc, to enabled the JV Co. to reach its projected
production scale as prescribed in Article 4 of this
Contract.
2.4 Party A represents and warrants that there is no mortgage or
encumbrance exists or created over the Equipment, Facilities and
Materials it contributed to and the Land, Factory and Facilities
it lease to the JV Co. and there are no existing, pending or
threatened litigation, disputes or court, arbitration or
administrative proceedings, against Party A and its Assets. To the
best knowledge of Party A, there is no governmental investigation
against Party A and its Assets for violation of any laws or
regulations.
2.5 Party A hereby further represents and warrants that there are no
past or existing petitions, suits or claims against it due to
environmental pollution. Should it be found following the
establishment of the JV Co., that there is any environmental
pollution as a result of the past operations of Party A, Party A
shall indemnify the JV Co. against any losses suffered therefrom
by it.
3 ESTABLISHMENT OF THE JOINT VENTURE COMPANY
3.1 In accordance with the "Chinese-Foreign Co-operative Joint Venture
Law of the People's Republic of China", its implementation
regulations and other relevant Chinese laws and regulations, the
Parties agree to set up Shandong Hengtong Development Chemical
Co., Ltd. in Shandong, China.
Name and address of the JV Co.
Chinese Name: [CHINESE CHARACTERS]
English Name: Shandong Hengtong Development Chemical Co., Ltd.
Legal Address: Tancheng County, Shandong, China
Postal Code: 276100
The JV Co. has the status of a Chinese legal person and is subject to the
jurisdiction of, and protected by the laws of the Peoples Republic of
China ("PRC"). All activities of the JV Co. shall be governed by the
relevant laws, rules and regulations of the PRC, and enjoy the relevant
favorable policies thereof.
The JV Co. is a limited liability company. The liability of each Party to
the JV Co. is limited to the registered capital subscribed by it. Each
Party shall share profits, risks and losses of the JV Co. in proportion
to their respective contributions to the registered capital of the JV Co.
Creditors of the JV Co. (including taxation and other authorities) shall
have recourse only to the assets of the JV Co.
The date of issuance of the Business License of the JV Co. shall be the
date of establishment of the JV Co. Upon establishment of the JV Co., the
Parties shall through the Board of
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Directors procure that the Articles of Association agreed by the Parties
and attached hereto as Exhibit A will be adopted by the JV Co. as its
Articles of Association.
4 PURPOSE, SCOPE AND SCALE OF PRODUCTION OF THE JV CO.
4.1 The purpose of the JV Co. is to use the internationally and
domestically advanced technology to produce and sell high quality
products to enable the Parties to obtain satisfactory economical
results.
4.2 The business scope of the JV Co. shall be to develop, produce and
distribute chemical fertilizer, power and steam and other related
products.
4.3 The initial production scale of the JV Co. is anticipated to be
annual output of Urea 200,000 tonne, plus 2X12 thousand KW thermal
power. The Board of Directors shall study and decide from time to
time the scale of production for each type of products according
to any changes in market conditions.
5 TOTAL AMOUNT OF INVESTMENT AND REGISTERED CAPITAL
5.1 The total amount of Investment of the JV Co. is RMB248,410,000,
equivalent to US$29,928,916 at 1US$=8.3RMB (the "Total
Investment"). The registered capital of the JV Co. is
RMB212,480,000, equivalent to US$25,600,000 at 1US$=8.3RMB (the
"Registered Capital").
5.2 The proportion of Registered Capital to be contributed by each
Party shall be as follows:
5.2.1 The equity to be contributed by Party A shall be worth
RMB104,580,000, constitutes 49% of the Registered Capital
of the JV Co. The form of the investment shall be
Equipment, Facilities and Materials;
5.2.2 The equity to be contributed by Party B shall be
US$13,000,000, equivalent to RMB107,900,000 at 1US$=8.3RMB,
constitutes 51% of the Registered Capital of the JV Co.
5.2.3 The difference between the Total Investment of the JV Co.
and Registered Capital of the JV Co. shall be raised by
assuming current liabilities of RMB35,930,000 of Party A.
5.3 The investment of each Party shall be contributed as follows:
5.3.1 Party A shall contribute part of the Equipment, Facilities
and Materials worth RMB 104,580,000 to the JV Co. within
three months from the date when the Business License of the
JV Co. is issued;
5.3.2 Party B shall contribute US$13,000,000 in cash; 6.5 Million
within three months and 6.5 Million within eight months
from the date when the Business License of the JV Co. is
issued.
5.4 The JV Co. shall lease the Land, Factory and Facilities and the
rest of the Equipment, Facilities and Materials within three
months from the date the Business License of the JV Co. is issued.
5.5 After each Registered Capital contribution is made by each Party,
the JV Co. shall engage a certified public accountants firm of
International standing registered in China to verify the
Registered Capital contribution and to issue a Certificate of
Verification. The JV Co. shall issue an Investment Certificate to
each Party in accordance with the Certificate of Verification. The
Investment Certificates shall be the evidence of the Parties'
Registered Capital contributions to the JV Co.
5.6 Should one Party fail to make its Registered Capital contributions
in full within the time prescribed under this Contract, it shall
be deemed to have breached this Contract. Upon the request of the
non-breaching Party, the defaulting Party shall consent to the
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termination of this Contract without prejudice to any rights or
obligations of all Parties accrued prior to such termination. The
non-breaching Party shall have the right to seek compensation from
the breaching Party for damages under Article 20 hereof. However,
no compensation will be due or payable for any actions or damages
incurred prior to the date when the Business Licence of the JV Co.
is issued and any damages are specifically restricted to those
resulting from the operation and activities of the JV Co.
5.7 Should either Party fail to make its equity contributions to the
JV Co. within three months after the issuing of business license,
the other Party shall have the right but not the obligation to
terminate this Contract or extend the date.
6 TRANSFER AND INCREASE OF REGISTERED CAPITAL
6.1 If any Party intends to transfer all or part of its interests in
the JV Co., such transfer shall be subject to Article 6 of this
Contract and to the approval of the original approval authority.
6.2 If any Party intends to transfer all or part of its equity
interests in the JV Co., it shall give the other Party a 30 days'
prior written notice. The other Party shall have pre-emptive right
to purchase such equity interests. None of the Parties shall
transfer its equity interests to any third party at more favorable
terms than it offered to the other Party of the JV Co.
6.3 The Parties hereby agree that, when more funds are raised by one
Party from time to time by agreement of each Party, and the other
Party cannot raise enough funds to keep its original equity
proportion, such other Party shall, upon the former Party's
request, be obligated to transfer its comparable equity interests
in the JV Co. to the former Party or the former Party's associated
companies, parent companies, or subsidiaries. The price of such
transfer shall be determined by an accounting firm hired by the JV
Co. which is registered in China with international standing. In
the case of Party A, in addition to the above conditions, such
accounting firm shall be recognized by the relevant administrative
department for state-owned assets.
6.4 Subject to the above, the JV Co. may, in accordance with this
Contract and subject to the approval of the Board of Directors and
the original examination and approval authority, increase, reduce,
transfer or otherwise change its Registered Capital based on the
needs of its operation.
6.5 Notwithstanding the provisions hereunder or elsewhere, a Party
may, subject to the approval of the original examination and
approval authority, transfer all of its interests in the JV Co. to
its wholly-owned subsidiaries or parent companies or the
wholly-owned subsidiaries of its parent companies. The transfer
shall be notified to the other Party in writing 30 days in advance
and the other Party shall give its consent to such transfer
PROVIDED THAT the proportion of Registered Capital of the original
Parties before such transfer remains the same and the
transferee(s) agree in writing to be bound by the terms of this
Contract. Or in case of any reorganization of one Party,
including, but not limited to division, merger, acquisition or
restructure of share holding, the obligations and rights of such
Party shall be borne by the succeeding party after such
reorganization. Any transfer under this Article 6.5 is not subject
to the pre-emptive right under in Article 6.2.
7 RESPONSIBILITIES OF EACH PARTY TO JV CO.
7.1 Party A shall undertake the following responsibilities and duties:
7.1.1 Contribute to the JV Co. Equipment, Facilities and
Materials in accordance with the provisions of Article 5 of
this Contract;
7.1.2 Be responsible for applying to the relevant authorities for
approval of this Contract and the registration of the JV
Co. The JV Co. shall reimburse
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Party A all reasonable expenses and government registration
fees for obtaining the Business License;
7.1.3 Assist the JV Co. in dealing with the following
formalities: (i) importing and obtaining importation
license for all raw materials, machinery and equipment
necessary for the business of the JV Co. and effective
insurance coverage thereof and renewing same in a timely
manner, (ii) informing Party B of related Chinese laws,
regulations, notices and any other information affecting
the operations of the JV Co., (iii) obtaining and providing
to the JV Co. and Party B available information on the
Chinese market necessary to facilitate the JV Co.'s
operations;
7.1.4 Assist the JV Co. in purchasing and handling all procedures
of all necessary equipment, materials, etc. in China when
needed;
7.1.5 Assist the JV Co. in obtaining all necessary utilities and
supplies including without limitation to water,
electricity, communication, etc.;
7.1.6 Recommend to the JV Co. (without obligation on the part of
the JV Co. to employ) persons suitable to undertake
managerial and technical positions, and render all
assistance to the JV Co. in the recruitment of such and
other personnel;
7.1.7 Assist foreign workers and staff and their family members
in obtaining all entry visas, work permits and other
necessary travel documents;
7.1.8 Assist the JV Co. in solving problems arising from time to
time in respect of the business operations of the JV Co.,
and without limitation, in the event that any measure of
legal or administrative force is introduced or taken or any
commercial measure is implemented by any Chinese authority
having detrimental effect either on the JV Co. or any
Party, to liase with the authorities responsible for such
measure and to use its best efforts to remove or limit such
measure or such detrimental effect to the benefit of the JV
Co. or the relevant Party;
7.1.9 Assist the JV Co. in obtaining preferential status and
treatment that it should be entitled to from the Chinese
government;
7.1.10 manage the JV Co. according to the Management Agreement
concluded among Party A, Party B and the JV Co.;
7.1.11 Assist the JV Co. in convening meetings of the Board of
Directors in China, such reasonable expenses to be borne by
the JV Co.; and
7.1.12 Use its best endeavors to assist the JV Co. in any other
matters entrusted to it or reasonably requested by the JV
Co.
7.2 Party B shall undertake the following responsibilities and duties:
7.2.1 Contribute the cash contributions in US Dollars in
accordance with the provisions of Article 5 of this
Contract;
7.2.2 Supervise the financial and management of the JV Co.
according to the Management Agreement concluded among Party
A, Party B and the JV Co.;
7.2.3 Recommend (without obligation on the part of the JV Co. to
employ) managerial and technical personnel to the JV Co.,
and render all assistance to the JV Co. in the recruitment
of such and other personnel;
7.2.4 Assist the JV Co. in convening meetings of the Board of
Directors in America whenever the Board of Directors shall
decide to meet in America,
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such reasonable expenses to be borne by the JV Co.; and
7.2.5 Use its best endeavors to assist the JV Co. in any other
matters entrusted to it or reasonably requested by the JV
Co.
8 THE BOARD OF DIRECTORS
8.1 The date of issuance of Business License of the JV Co. shall be
the date of establishment of the Board of Directors of the JV Co.,
and the Board of Directors shall convene its first meeting as soon
as practicable so that the business of the JV Co. may commence
without delay.
8.2 The appointment of the Directors
8.2.1 The Board of Directors shall comprise of 5 Directors, of
which 2 Directors shall be appointed by Party A and 3
Directors shall be appointed by Party B, PROVIDED ALWAYS
that the ratio representation on the Board of Directors
shall reflect as near as practicable the proportion of each
Party's contributions to the Registered Capital and the
ratio representation on the Board of Directors shall be
adjusted to take effect immediately upon the date of change
in proportion of Registered Capital contributions.
8.2.2 The Chairman of the Board of Directors shall be appointed
by one Party so long as such Party maintains a majority
proportion of the Registered Capital of the JV Co. The
other Party shall appoint a Vice-Chairman. The Chairman and
Vice-Chairmen of the Board of Directors shall have the
right to vote at any Board meeting but shall not have a
second or casting vote.
8.2.3 The term of office of a Director shall be 3 years. However,
the appointing Party shall give a 14 days' prior written
notice to the other Party (except in case of emergency
immediate notice may be given) of its intention to renew,
terminate or replace any of its Directors. In case a
Director is removed or replaced before the expiry of
his/her term of office, his/her successor shall be
appointed as Director for the residue of the term only.
8.3 The authority of the Board of Directors
8.3.1 The Board of Directors shall be the highest power of
authority of the JV Co.
8.3.2 An unanimous approval of the Directors present at the Board
meeting shall be required before any decisions are made
concerning the following issues:
8.3.2.1 Amendment of the Articles of Association of the JV
Co.;
8.3.2.2 Increase, decrease or transfer of the Registered
Capital subject to the provisions of Article 6 of
this Contract;
8.3.2.3 Termination or extension of the duration of the JV
Co.;
8.3.2.4 Amendment to the Authorized Debt level of the JV
Co.;
8.3.2.5 Capital expenditures in excess of RMB 800,000;
8.3.2.6 Joint venture, merger or amalgamation with another
economic entity;
8.3.2.7 Any change in the stated business purpose of the JV
Co. or conducting any business beyond what is set
out in Article 4 of this Contract;
8.3.2.8 Advances or loans to any individual or entity,
other than credit issued in the normal course of
business;
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8.3.2.9 Encumbrances on any JV Co.'s assets;
8.3.2.10 Removal or relocation of any JV Co.'s assets
valued over RMB 800,000; and
8.3.2.11 Changes in legal or audit engagements.
8.3.3 Unless otherwise specified in the other provisions of this
Contract, all other issues shall be resolved at Board
meetings by a simple majority vote of all Directors present
at the Board meeting.
8.4 Board Meeting
8.4.1 The Board of Directors shall hold a Board meeting at least
once a year. The place and time of meeting shall be decided
by the Chairman of the Board of Directors.
8.4.2 At least thirty working days' prior written notice of a
Board meeting shall be given to each Director, and such
notice shall state the time and place of the Board meeting
and shall be accompanied with an agenda of the business to
be transacted at the meeting. Shorter notice may be given
only by written consent of all the Directors.
8.4.3 All Board meetings shall be convened and presided over by
the Chairman. If the Chairman is unable to attend the
meeting, the Chairman shall appoint Vice Chairman or any
other Director to chair and preside over the Board meeting.
The Chairman shall convene an interim Board meeting upon
the request of more than two Directors, at least one of
them shall be appointed by each Party, in the event that
major matters need to be solved.
8.4.4 A Director who is unable to attend a Board meeting may
appoint another Director or any other person as his/her
proxy. The duly executed proxy shall be delivered to the
Chairman at the commencement of the Board meeting.
8.4.5 The quorum for any Board meeting shall be two thirds of the
Directors comprising of at least 1 Director appointed by
each Party. If, within half an hour from the time scheduled
for the holding of the Board meeting, a quorum is not
present, the meeting shall be automatically adjourned till
the 7th day from the original meeting day at the same time
and place. If the postponed 7th date for the adjourned
Board meeting falls on a holiday, then such Board meeting
shall be held on the next working day. Any 2 Directors
present in person or by proxy (at least one of them is
appointed by each Party) shall constitute a quorum for the
adjourned meeting but, under such circumstances, no
business shall be conducted at the adjourned meeting except
those specified in the agenda for the original meeting.
8.4.6 Board meetings may be held in Chinese or English as
determined by the Chairman. Detailed minutes of each Board
meeting shall be recorded in both Chinese and English and
shall be signed by all Directors present at the meeting and
properly filed. A copy of the minutes of the Board meeting
shall be delivered to each Party. Each Party may have an
interpreter present at the Board meetings, the expense of
which shall be paid by the JV Co..
8.4.7 Any action required or permitted to be taken at any Board
meeting may be taken without convening a meeting if a
resolution in writing, setting forth the action to be
taken, is signed by all the Directors of the Board. Any
such
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resolution may consist of several identical documents in
like form each signed by one or more Directors.
8.5 The JV Co. shall not pay any salary to the Chairman, Vice Chairman
and any Director unless he/she holds office as a General Manager,
Chief Financial Officer, Deputy General Manager or other Senior
Manager of the JV Co., and under such circumstances salary shall
be paid only in accordance with his/her contract of employment.
The traveling and lodging expenses of Directors for attending the
Board meeting shall be borne by the JV Co.
9 BUSINESS MANAGEMENT ORGANISATION
9.1 The Board hereby entrusts Party A to manage the JV Co. in
accordance with the Management Agreement concluded among Party A,
Party B and the JV Co. The Management Agreement shall contain but
not limited to the following terms:
9.1.1 the principles and policies of the management of the JV Co.
to be followed by Party A;
9.1.2 the rights and obligations of Party A in managing the JV
Co.;
9.1.3 the rights and obligations of Party B in supervising the
management of the JV Co.;
9.1.4 the appointment, replacement, authorities, duties,
obligations, functions and compensation of the General
Manager, Chief Financial Officer and Deputy General Manager
of the JV Co.
9.1.5 terms and conditions of leasing Land, Factory and
Facilities and offices from Party A;
9.1.6 terms and conditions of supplying power, water, steam, and
other necessary public utility by Party A;
9.1.7 terms and conditions of supplying paid services by Party A;
9.1.8 terms and conditions of supplying raw materials by Party A;
9.1.9 terms and conditions of sale of products of the JV Co.
9.1.10 terms and conditions of other services provided by Party A.
9.2 Party A, Party B or the Board may request to revise the Management
Agreement. If the agreement cannot be reached in revising the
Management Agreement, the Board, by a simply majority vote, may
suspend or terminate the Management Agreement and take over the
management of the JV Co. till the Management Agreement is revised
to its satisfaction (hereinafter referred to as "Board
Management").
9.3 Board Management
9.3.1 Upon the Board taking over the management in accordance
with Article 9.2, the Board shall establish a Management
Committee as soon as practicable to manage the daily
operation of the JV Co.
9.3.2 The Management Committee shall comprise of a General
Manager, one Chief Financial Officer and one Deputy General
Manager. The General Manager shall be appointed by the
Board by the affirmative vote of the majority thereof. Upon
the recommendation of the General Manager, the Board shall
appoint or dismiss the Deputy General Manager and Chief
Financial Officer by the affirmative vote of the majority
thereof. The Deputy General Manager and the Chief Financial
Officer shall be responsible to the General Manager.
9.3.3 The General Manager shall be fully responsible for the
management of the
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JV Co. under the leadership of the Board of Directors. The
General Manager shall be responsible for executing and
carrying out the resolutions of the Board and perform
his/her following duties within the authorization of the
Board:
9.3.3.1 manage the daily operation of the JV Co.;
9.3.3.2 propose budget and operation plan to the Board and
carry out the budget and operation plan approved by
the Board;
9.3.3.3 formulate the operation rules and regulations of
the JV Co.;
9.3.3.4 formulate all rules and regulations and policies on
recruitment, employment, dismissal, and resignation
of employees, wages, salaries, discipline, labor
protection, insurance, welfare, rewards, and other
matters concerning the staff and workers of the JV
Co. in accordance with the "Labor Law of the PRC"
and "Regulations of the PRC on Labor Management in
Foreign Invested Enterprises" and all other
relevant rules and regulations;
9.3.3.5 sign contract on behalf of the JV Co., PROVIDED
THAT the entering into or performance of any
contract, arrangement, obligation, liability,
expenditure or commitment by or for the JV Co.
shall not exceed the amount described by the Board
for any one transaction or exceed an aggregate of
the amounts described by the Board outstanding at
any one time; if the amount exceeds the above
mentioned amount, approval from the Board shall be
obtained; PROVIDED FURTHER THAT the entering into
any contracts between the JV Co. and any of the
Parties, or any entity which is a subsidiary,
affiliate or related entity to a Party, approval
from the Board shall be obtained;
9.3.3.6 other matters entrusted by the Board.
9.3.4 The Deputy General Manager shall assist the General Manager
in his/her work.
9.3.5 The Chief Financial Officer shall be responsible for the
financial matters of the JV Co. under the leadership of the
Board, including the preparation and delivery of monthly
financial reports in a form acceptable to the Board.
10 PURCHASE OF EQUIPMENT AND RAW MATERIALS
10.1 The JV Co. shall, as far as possible, purchase locally produced
equipment and raw materials required for the production facilities
whenever the terms of supply (including price and quality) are
more favorable than that offered by overseas suppliers.
11 TECHNOLOGY AND TRADEMARK
The JV Co. shall use technical know-how, patent and other technology in
accordance with the requirements that Party A has made when contributing them to
the JV Co. The JV Co. shall make royalty payments to Party A for its use of
Party A's technical know-how, patent and other technology, if and when required,
which are not defined as Party A's Assets, necessary for the JV Co.'s business
needs.
12 BANK ACCOUNT AND FOREIGN EXCHANGE ADMINISTRATION
12.1 The JV Co. shall open an account in RMB and an account in foreign
currency with the Bank of China or any other bank registered in
China. All payments made by the JV Co. shall be examined, approved
and signed by designated signatories agreed by both Parties.
12.2 All cheques, promissory notes, drafts, bills of exchange, and
other negotiable
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instruments payable by, and all receipts or discharges for money
paid to the JV Co., shall be executed as follows:
12.2.1 in respect of an amount not more than a certain amount (the
"Described Amount") the payment shall be effected upon the
signature of the General Manager;
12.2.2 in respect of an amount more than the Described Amount, the
payment shall be effected upon the signature of the General
Manager subject to the Board's approval;, and
12.2.3 the aforesaid Described Amount shall be decided by the
Board from time to time based on the operation of the JV
Co.
12.3 All matters concerning foreign exchange shall be settled in
accordance with the regulations of the State Administration of
Foreign Exchange of PRC and in accordance with this Contract.
12.4 The foreign currency of the JV Co. shall be paid in the following
order of priority:
12.4.1 principal and interests payable of foreign currency loan;
12.4.2 payment for equipment, spare parts and materials purchased
from overseas market for the operation of the JV Co.;
12.4.3 salaries payable to the expatriates hired by the JV Co.;
and
12.4.4 after-tax profits distributable to Party B.
13 TAXES, FINANCE AND AUDIT
13.1 The JV Co. shall pay income tax and other taxes and fees in
accordance with relevant laws and regulations of the PRC.
13.2 Employees of the JV Co. shall pay individual income taxes
according to the "Individual Income Tax Law of the People's
Republic of China".
13.3 The JV Co. shall apply for all applicable favorable tax treatment
for itself and its employees.
13.4 The fiscal year of the JV Co. shall be from 1 January to 31
December of every year.
13.5 The JV Co. shall adopt RMB as its accounts keeping currency unit.
All vouchers, receipts, statistics statements and reports, account
books and records shall be written in Chinese, all financial
reports and other financial statements shall be written in both
Chinese and English and submitted to both Parties. Reports of
English versions shall indicate U.S. Dollar amounts converted from
RMB using the exchange rate published by the People's Bank of
China on the last day of the reporting period.
13.6 The JV Co. shall adopt financial and accounting rules in
accordance with relevant regulations and rules on accounting
standards implemented by the Ministry of Finance of the PRC and
generally accepted international accounting principles and
practices in keeping its accounts.
13.7 A profit and loss account statement, a statement of assets and
liabilities and a financial report of the JV Co. shall be prepared
on a monthly, quarterly and yearly basis in both Chinese and
English by the accountants of the JV Co., and submitted to the
Board of Directors and each Party and the relevant government
authority in accordance with the relevant regulations.
13.8 The JV Co. shall within 1 month after each fiscal year complete
the final draft of the annual financial report for the preceding
fiscal year.
13.9 The annual audit of the JV Co. shall be conducted by a certified
public accountants
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firm registered in China and appointed by the Board. The audited
annual report shall be submitted to the Board of Directors for
review before filing with the relevant authorities.
13.10 Each Party shall have the right to invite an auditor to undertake
at its own expense re-audit of the accounts of the JV Co., to
which the JV Co. and the other Party shall give their consents.
When there is any disputes arising from any discrepancies between
the results of the auditing and re-auditing, the temporary Board
meeting shall be called to resolve the difference.
14 DISTRIBUTION OF PROFITS AND CASH SURPLUSES
14.1 The JV Co. shall not distribute profits unless the losses of
previous fiscal years have been made up.
14.2 Before distributing any profits, the JV Co. shall pay all taxes to
which it is liable and make all contributions to the reserve fund,
expansion fund and reward and social welfare fund for staff and
workers as required by law. The General Manager shall decide the
proportion of contribution to each fund as long as such
distribution complies with the law and regulations and does not in
total exceed 20% of after tax earnings annually.
14.3 Profits of the JV Co. shall be distributed annually. Party A shall
share 49%, and Party B shall share 51% of the distributable
profit. The details of the profit distribution plan including the
date of distribution shall be determined by two-thirds of the
Board of Directors within 3 months after the end of each fiscal
year.
14.4 Cash surpluses declared and approved by the Board will be
distributed to retire debt and, subject to the approval of the
approval authority, reduce registered capital as and when approved
by the Board.
15 Confidentiality and non-competition
15.1 Each of the Parties undertakes irrevocable obligation to keep the
confidence of all the secret information of the JV Co. obtained
through its performance of the JV Contract and Articles of
Association.
15.2 Starting from the effective date of this Contract, Party A shall
not:
15.2.1 directly or indirectly engage itself in the business in
competition with the business of the JV Co.;
15.2.2 provide or assist a third party to provide services
including but not limited to consulting, marketing,
services, maintenance and repair to the past, current or
future customers of, or entities that maintain business
relationship with the JV Co.
15.2.3 employ or try to employ employees of the JV CO.
15.3 Article 15.1 shall not apply to:
15.3.1 each Party's Directors, the General Manager(s) and any
other employees and its bankers, accountants, auditors,
attorneys, suppliers, consultants and potential JV Co.'s
partners who need to have access to such information or
data to make their decisions and to perform their
responsibilities, PROVIDED THAT the disclosing Party shall
take appropriate measures to assure that such entities and
persons shall keep the disclosed information and data
private and confidential;
15.3.2 information that a Party is required to disclose under
applicable laws to any government or governmental agency or
to its shareholders or to the public or to any applicable
Stock Exchange; and
15.3.3 each Party's affiliated enterprises, PROVIDED THAT such
affiliated
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enterprises to which such disclosure is made agree in
writing to maintain confidentiality in accordance with the
terms of Article1 5.1.
16 FORCE MAJEURE
16.1 In case of any force majeure event including earthquakes,
typhoons, flood, fire, war, strike or any other events that is
unforeseeable and the occurrence and consequence of which is
inevitable and which affects the performance of the relevant term
of this Contract, the Party affected shall immediately notify the
other Party in writing and shall within twenty (20) days provide
full written particulars of the force majeure event and
certification of the cause of the failure or delay of performance
of the relevant term of this Contract. Such certification shall be
issued by a notary public of the place where such force majeure
event occurred. The Parties to this Contract shall then determine
whether to terminate this Contract in accordance with Article 18
or to exempt the Party affected from, or postpone the performance
of, the relevant term of this Contract.
17 DURATION OF THE JOINT VENTURE
17.1 The term of the JV Co. is thirty years from the date on which the
Business License is issued.
17.2 The term may be extended upon the agreement of all Parties. Any
application for extension of the term shall be submitted to the
original examination and approval authority at least 6 months
prior to its expiration. The JV Co. shall continue its operation
for the extended term upon approval of the said authority.
18 DISSOLUTION AND LIQUIDATION OF THE JOINT VENTURE
18.1 Upon the occurrence of any of the following events, subject to the
approval of the relevant authorities, the Board of Directors may
unanimously decide to dissolve the JV Co. and this Contract shall
be terminated. However, any dissolution of the JV Co. or
termination of this Contract shall not affect any rights,
obligations or claims of any Party prior to such termination or
dissolution.
18.1.1 the JV Co. incurs substantial losses and is unable to carry
on its business;
18.1.2 any Party or the JV Co. breaches any of its obligations
under this Contract, the Articles of Association of the JV
Co. or the Management Agreement, and such breach adversely
affects the interests of any Party or renders it impossible
for the JV Co. to continue its operation;
18.1.3 the JV Co. incurs substantial losses arising from the force
majeure event as provided in Article 16 and is unable to
carry on its business;
18.1.4 there is any change in Chinese or any foreign laws or
regulations or in interpretation thereof that has a
material adverse effect on the JV Co. or any Party;
18.1.5 there is a confiscation or requisition of all or a material
part of the assets or revenues of the JV Co. or Registered
Capital contributed by any Party;
18.1.6 any Party goes into or files for bankruptcy, liquidation,
receivership or is unable to meet its debts as they fall
due;
18.1.7 Any deadlock in decisions by the Parties or the Board of
Directors pursuant to this Contract; or
18.1.8 occurrence of any other event or events upon which all
Parties of the JV Co. agree will result in the termination
of the term of the JV Co.
18.2 Upon the expiry or termination of this Contract for any reason
whatsoever (the "Termination Date"), the Management Contract shall
likewise be deemed to expire or terminate on the Termination Date
and the Board shall by two-thirds of the Board of Directors
determine the procedure for and principles of liquidation and
shall, subject to
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the approval of the original examination and approval authority,
appoint a Liquidation Committee to conduct the sale or liquidation
of the JV Co.
18.3 The Liquidation Committee shall re-evaluate all assets of the JV
Co., including, but not limited to the Equipment, Facilities and
Materials.
18.4 All expenses of liquidation (including remuneration of the members
of the Liquidation Committee) shall be paid in priority before any
distribution of assets. The Liquidation Committee shall pay and
discharge all debts and liabilities of the JV Co., including any
debts to any Party before distribution of assets and may, if
necessary, convert any asset into money for purposes of such
payment PROVIDED ALWAYS that Liquidation Committee shall as far as
possible ensure that the assets is sold at the best possible
market price.
18.5 The remaining assets of the JV Co. after liquidation shall be
distributed to the Parties in accordance with the proportion of
the Registered Capital contribution of each Party. When
distributing the assets to the Parties, the Liquidation Committee
shall take into account the following:
18.5.1 Priority shall be given to Party A for the allocation of
fixed assets;
18.5.2 Priority shall be given to Party B for the allocation of
foreign currency.
18.6 On completion of liquidation, the JV Co. shall submit a
liquidation report to the original examination and approval
authority and comply with all formalities de-registering the JV
Co. (including the surrender of the Business License) at the local
Administration for Industry and Commerce whereupon announcement
shall be published in newspapers.
18.7 Upon the winding-up of the JV Co., all original books of accounts
and records shall be kept with Party A and copies of the same
shall be provided to Party B.
19 INSURANCE
19.1 The JV Co. shall take up its insurance policies with any insurance
company permitted under the Chinese laws. The type, amount and
duration of insurance shall be decided by the General Manager.
20 LIABILITY FOR BREACH OF THE CONTRACT
20.1 In the event of any breach of any Party of its obligations under
this Contract or the Articles of Association, the other Party (the
"Non-breaching Party") may issue a written warning requiring the
Party in breach to remedy such breach within one month from
receipt of such warning. In case the Party in breach fails to
remedy the breach the Non-breaching Party may, subject to the
approval of the relevant authority, terminate the JV Co. and this
Contract and/or claim for damages against the Party in breach.
20.2 If the JV Co. or the Non-breaching Party incurs any expense or
additional obligation or liability, including any obligation or
liability to pay money, or suffers any loss, including loss
occurred or loss of profits, as a result of breach of this
Contract, the Party in breach shall indemnify the JV Co. and/or
the relevant Party, as the case may be, for the amount of such
expense, obligation or liability or loss which it has incurred,
including any interest paid, payable or foregone as a result
thereof and for all legal costs incurred in enforcing this
Contract.
21 APPLICABLE LAW
21.1 This Contract, including its formation, existence, validity,
interpretation, execution and termination, shall be governed by
the laws of the PRC.
21.2 If after the signing of this Contract (i) any existing measure of
Chinese law or administrative regulation is changed which is
applicable to the JV Co. or any Party,
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and (ii) such changed or new measure is either to provide for
preferential treatment to or to have an adverse effect on the JV
Co. or any Party, then:
21.2.1 if the changed or new measure is more favorable to the JV
Co. or any Party than the measure in effect on the date
this Contract was signed (and the other Party is not
materially and adversely affected), the JV Co. or the Party
concerned shall promptly take steps necessary to make
applications for obtaining the benefits of such changed or
new measure. The Parties shall use their best efforts to
cause such application to be approved by the relevant
authorities; and
21.2.2 if, because of such changed or new measure, the JV Co.'s or
any Party's economic benefits under this Contract are
materially and adversely affected, directly or indirectly,
the Parties shall consult promptly and make all amendments
to this Contract and the Articles of Association as
necessary to maintain the JV Co. and affected Party's
economic benefits under this Contract.
22 SETTLEMENT OF DISPUTES AND ARBITRATION
22.1 Any disputes arising out of or in connection with this Contract or
the Articles of Association (including any dispute as to the
formation, existence, validity, interpretation, execution and
termination) shall be settled by all Parties through consultation.
22.2 If within three months starting from the date when any dispute
arises no settlement is reached through consultation, the dispute
shall be submitted to the China International Economic and Trade
Arbitration Commission ("CIEAC") for arbitration. The arbitration
shall take place in Beijing, China in Chinese in accordance with
the rules of CIEAC. The arbitration award shall be final and
binding upon both Parties. The arbitration fees and legal costs
shall be borne by the losing Party unless otherwise ordered by the
arbitration tribunal.
23 AMENDMENT AND ALTERATION OF THIS CONTRACT
23.1 Any amendment, alternation or supplement of this Contract shall be
in writing and shall come into force only after it is signed by
the duly authorized representatives of each Party and approved by
the original examination and approval authority.
24 SUPPLEMENTARY ARTICLES
24.1 This Contract, the Articles of Association, Exhibits, and the
Management Agreement constitute the entire agreement among the
Parties concerning the subject matter covered therein and shall
supersede all previous negotiations, discussions, letters of
intent, memorandum of understanding, heads of agreement and
agreements in respect of such subject matter. The terms of this
Contract shall prevail if specific provisions are available in
this Contract, otherwise, the terms of the Articles of Association
and the Management Agreement shall apply.
24.2 Should any article of this Contract or any part thereof be
unenforceable, invalid or void under any applicable law, such
article or part thereof shall not affect the validity or
enforceability of the remaining Articles of this Contract.
24.3 Unless as otherwise expressly provided herein, the failure of a
Party at any time to enforce a provision of this Contract shall in
no way constitute a waiver of its right under the provision or in
any way affect the validity of this Contract or any part hereof or
the right of such Party thereafter to enforce each and every
provision herein.
24.4 Notices to be given under this Contract shall be given by
facsimile or registered airmail to the other Party at addresses
and numbers set out at the beginning of this Contract, or at the
changed addresses or numbers one Party has notified in writing to
the JV Co. and other Party. Notices shall be deemed to have been
duly served if sent by
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registered airmail upon 15th working day from the date of sending,
and if sent by facsimile upon 2nd working day from the date of
dispatch. Where the notice is given by facsimile, the original
copy shall be mailed by registered airmail or hand delivered to
the JV Co. and/or the other Party immediately thereafter.
24.5 The replacement or substitution of the authorized representatives
of any Party shall not in any way affect the validity of this
Contract.
24.6 The Articles 18, 20, 21 and 22 of this Contract shall survive the
termination of this Contract.
24.7 This Contract is written in both Chinese and English and signed in
____________ on the ____ day of _____, _____1999.
24.8 There are 8 copies of this Contract in both English and Chinese.
Each Party shall retain 2 copies of this Contract and the
remaining copies shall be submitted to the examination and
approval or registration authorities. Texts in both languages
shall be equally authoritative.
24.9 This Contract is subject to the approval of the competent
government authorities and shall come into force on the date of
approval.
IN WITNESS WHEREOF the duly authorized representatives of the Parties have
signed this Contract.
Party A: Party B:
Shandong Hengtong Chemical Industrial Asian Alliance Ventures Incorporated
Company Ltd.
Signature:/s/ Wang Yong Li Signature: /s/ Robert Clarke
------------------ ------------------
Name: Wang Yong Li Name: Robert Clarke
Position: President and general manager Position: President
Date: 18 Aug. 1999 Date: August 18, 1999
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EXHIBIT A (Article 3.5)
The Articles of Association of the JV Co.
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EXHIBIT B (Article 2.3.2)
The map of the Land Use Right contributed from Party A
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EXHIBIT C (Article 2.3.1)
The Equipment, Facilities and Materials contributed by Party A
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EXHIBIT E (Article 5.2)
Factory and Facilities Party A leased to the JV Co.
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Articles of Association
of
Shandong Hengtong Development Chemical Co., Ltd.
____ ____, 1999
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Table of Contents
1 GENERAL PROVISIONS........................................................1
2 PURPOSE, SCOPE AND SCALE OF PRODUCTION OF THE JV CO.......................2
3 TOTAL AMOUNT OF INVESTMENT AND REGISTERED CAPITAL.........................2
4 THE BOARD OF DIRECTORS....................................................3
5 BUSINESS MANAGEMENT ORGANISATION..........................................5
6 PURCHASE OF EQUIPMENT AND RAW MATERIALS...................................6
7 TECHNOLOGY AND TRADEMARK..................................................6
8 BANK ACCOUNT AND FOREIGN EXCHANGE ADMINISTRATION..........................7
9 TAXES, FINANCE AND AUDIT..................................................7
10 DISTRIBUTION OF PROFITS AND CASH SURPLUSES................................8
11 DURATION OF THE JOINT VENTURE.............................................8
12 DISSOLUTION AND LIQUIDATION OF THE JOINT VENTURE..........................8
13 Rules and Regulations....................................................10
14 MISCELLANEOUS............................................................10
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1 GENERAL PROVISIONS
1.1 THIS ARTICLES OF ASSOCIATION (the "Articles") is made by and between the
Parties hereto in accordance with the "Chinese-Foreign Cooperative Joint Venture
Law of the People's Republic of China", its implementing regulations and other
related laws and regulations, based on the Joint Venture Contract signed by and
between the Parties hereto (the "Joint Venture Contract").
1.2 Name and address of the Joint Venture Company (the "JV Co.")
Chinese Name : [CHINESE LETTERS]
English Name : Shandong Hengtong Development Chemical Co., Ltd.
Legal address : Tancheng County, Shandong, China
Postal Code : 276100
1.3 The Parties to the Joint Venture Contract (the "Parties") are:
Party A
Name : Shandong Hengtong Chemical Industrial Company Ltd.
Registered Country : China
Legal Address : No. 187, The People Road, Tancheng County,
Shandong Province, China
Postal Code : 276100
Legal representative : Wang, Yongli
Position : Chairman and General Manager
Nationality : China
Telephone : 86 539 622-2583
Facsimile : 86 539 622-5058
Registered with the Shandong Provincial Administrative Bureau for
Industry and Commerce with its business license No. 26717136-X-1.
Party B
Name : Asian Alliance Ventures Incorporated
Registered country: United States of America
Legal address : Suite 1600, 1 East First Street, Reno,
Nevada. 89505, USA
Legal representative : Robert Clarke
Position : President, Director
Nationality : Canadian
Telephone : 1 604-482-0188
Facsimile : 1 604-482-1231
Incorporated in Nevada, USA
1.4 The JV Co. has the status of a Chinese legal person and is subject to the
jurisdiction of, and protected by the laws of the People's Republic of China
("PRC"). All activities of the JV Co. shall be governed by the relevant laws,
rules and regulations of the PRC, and enjoy the relevant favorable policies
thereof.
1.5 The JV Co. is a limited liability company. The liability of each Party to
the JV Co. is limited to the registered capital subscribed by it. Each Party
shall share profits, risks and losses of the JV Co. in proportion to their
respective contributions to the registered capital of the JV Co. Creditors of
the JV Co. (including taxation and other authorities) shall have recourse only
to the assets of the JV Co.
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2 PURPOSE, SCOPE AND SCALE OF PRODUCTION OF THE JV CO.
2.1 The purpose of the JV Co. is to use the internationally and domestically
advanced technology to produce and sell high quality products to enable the
Parties to obtain satisfactory economical results.
2.2 The business scope of the JV Co. shall be to develop, produce and distribute
chemical fertilizerpower and steam and other related products.
2.3 The initial production scale of the JV Co. is anticipated to be annual
output of Urea of 200,000 tonne, plus 2X12 thousand KW thermal power. The Board
of Directors shall study and decide from time to time the scale of production
for each type of products according to any changes in market conditions.
3 TOTAL AMOUNT OF INVESTMENT AND REGISTERED CAPITAL
3.1 The total amount of Investment of the JV Co. is RMB248,410,000, equivalent
to US$29,928,916 at 1US$=8.3RMB (the "Total Investment"). The registered capital
of the JV Co. is RMB212,480,000,equivalent to US$25,600,000 at 1US$=8.3RMB (the
"Registered Capital").
3.2 The proportion of the Registered Capital to be contributed by each Party
shall be as follows:
3.2.1 The equity to be contributed by Party A shall be worth RMB104,580,000,
constitutes 49% of the Registered Capital of the JV Co. The form of the
investment shall be Equipment, Facilities and Materials;
3.2.2 The equity to be contributed by Party B shall be US$13,000,000, equivalent
to RMB107,900,000 at 1US$=8.3RMB, constitutes 51% of the Registered Capital of
the JV Co.
3.2.3 The difference between the Total Investment of the JV Co. and Registered
Capital of the JV Co. shall be raised by assuming current liabilities of
RMB35,930,000 of Party A.
3.3 The investment of each Party shall be contributed as follows:
3.3.1 Party A shall contribute part of the Equipment, Facilities and Materials
within three months from the date when the Business License of the JV Co. is
issued;
3.3.2 Party B shall contribute US$13,000,000 in cash; 6.5 Million within three
months and 6.5 Million within eight months from the date when the Business
License of the JV Co. is issued.
3.4 The JV Co. shall lease the Land, Factory and Facilities and the rest of the
Equipment, Facilities and Materials within three months from the date the
Business License of the JV Co. is issued.
3.5 After each Registered Capital contribution is made by each Party, the JV Co.
shall engage a certified public accountants firm of International standing
registered in China to verify the Registered Capital contribution and to issue a
Certificate of Verification. The JV Co. shall issue an Investment Certificate to
each Party in accordance with the Certificate of Verification. The Investment
Certificates shall be the evidence of the Parties' Registered Capital
contributions to the JV Co.
3.6 If any Party intends to transfer all or part of its interests in the JV Co.,
such transfer shall be subject to Article 6 of Joint Venture Contract and to the
approval of the original approval
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authority.
3.7 If any Party intends to transfer all or part of its equity interests in the
JV Co., it shall give the other Party a 30 days' prior written notice. The other
Party shall have pre-emptive right to purchase such equity interests. None of
the Parties shall transfer its equity interests to any third party at more
favorable terms than it offered to the other Party of the JV Co.
3.8 The Parties hereby agree that, when more funds are raised by one Party from
time to time by agreement of each Party, and the other Party cannot raise enough
funds to keep its original equity proportion, such other Party shall, upon the
former Party's request, be obligated to transfer its comparable equity interests
in the JV Co. to the former Party or the former Party's associated companies,
parent companies, or subsidiaries. The price of such transfer shall be
determined by an accounting firm hired by the JV Co. which is registered in
China with international standing. In the case of Party A, in addition to the
above conditions, such accounting firm shall be recognized by the relevant
administrative department for state-owned assets.
3.9 Subject to the above, the JV Co. may, in accordance with the Joint Venture
Contract and subject to the approval of the Board of Directors and the original
examination and approval authority, increase, reduce, transfer or otherwise
change its Registered Capital based on the needs of its operation.
3.10 Notwithstanding the provisions hereunder or elsewhere, a Party may, subject
to the approval of the original examination and approval authority, transfer all
of its interests in the JV Co. to its wholly-owned subsidiaries or parent
companies or the wholly-owned subsidiaries of its parent companies. The transfer
shall be notified to the other Parties in writing 30 days in advance and the
other Party shall give its consent to such transfer PROVIDED THAT the proportion
of Registered Capital of the original Parties before such transfer remains the
same and the transferee(s) agree in writing to be bound by the terms of the
Joint Venture Contract. Or in case of any reorganization of one Party,
including, but not limited to division, merger, acquisition or restructure of
share holding, obligations and rights of such Party shall be borne by the
succeeding party after such reorganization. Any transfer under this Article 3.10
is not subject to the pre-emptive right under in Article 3.7.
4 THE BOARD OF DIRECTORS
4.1 The date of issuance of Business License of the JV Co. shall be the date of
establishment of the Board of Directors of the JV Co., and the Board of
Directors shall convene its first meeting as soon as practicable so that the
business of the JV Co. may commence without delay.
4.2 The appointment of the Directors
4.2.1 The Board of Directors shall comprise of 5 Directors, of which 2 Directors
shall be appointed by Party A and 3 Directors shall be appointed by Party B,
PROVIDED ALWAYS that the ratio representation on the Board of Directors shall
reflect as near as practicable the proportion of each Party's contributions to
Registered Capital and the ratio representation on the Board of Directors shall
be adjusted to take effect immediately upon the date of change in proportion of
Registered Capital contributions.
4.2.2 The Chairman of the Board of Directors shall be appointed by one Party so
long as such Party maintains a majority proportion of the Registered Capital of
the JV Co. The other Party shall appoint a Vice-Chairman. The Chairman and
Vice-Chairmen of the Board of Directors shall have the right to vote at any
Board meeting but shall not have a second or casting vote.
4.2.3 The term of office of a Director shall be 3 years. However, the appointing
Party shall give a 14 days' prior written notice to the other Party (except in
case of emergency immediate
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notice may be given) of its intention to renew, terminate or replace any of its
Directors. In case a Director is removed or replaced before the expiry of
his/her term of office, his/her successor shall be appointed as Director for the
residue of the term only.
4.3 The authority of the Board of Directors
4.3.1 The Board of Directors shall be the highest power of authority of the JV
Co.
4.3.2 An unanimous approval of the Directors present at the Board meeting shall
be required before any decisions are made concerning the following issues:
4.3.2.1 Amendment of this Articles of the JV Co.;
4.3.2.2 Increase, decrease or transfer of the Registered Capital subject to the
provisions of Article 6 of the Joint Venture Contract;
4.3.2.3 Termination or extension of the duration of the JV Co.;
4.3.2.4 Amendment to the Authorized Debt level of the JV Co.;
4.3.2.5 Capital expenditures in excess of RMB 800,000;
4.3.2.6 Joint venture, merger or amalgamation with another economic entity;
4.3.2.7 Any change in the stated business purpose of the JV Co. or conducting
any business beyond what is set out in Article 4 of the Joint Venture Contract;
4.3.2.8 Advances or loans to any individual or entity, other than credit issued
in the normal course of business;
4.3.2.9 Encumbrances on any JV Co.'s assets;
4.3.2.10 Removal or relocation of any JV Co.'s assets valued over RMB 800,000;
and
4.3.2.11 Changes in legal or audit engagements.
4.3.3 Unless otherwise specified in the other provisions of this Articles, all
other issues shall be resolved at Board meetings by a simple majority vote of
all Directors present at the Board meeting.
4.4 Board Meeting
4.4.1 The Board of Directors shall hold a Board meeting at least once a year.
The place and time of meeting shall be decided by the Chairman of the Board of
Directors.
4.4.2 At least thirty working days' prior written notice of a Board meeting
shall be given to each Director, and such notice shall state the time and place
of the Board meeting and shall be accompanied with an agenda of the business to
be transacted at the meeting. Shorter notice may be given only by written
consent of all the Directors.
4.4.3 All Board meetings shall be convened and presided over by the Chairman. If
the Chairman is unable to attend the meeting, the Chairman shall appoint Vice
Chairman or any other Director to chair and preside over the Board meeting. The
Chairman shall convene an interim Board meeting upon the request of more than
two Directors, at least one of them shall be appointed by each Party, in the
event that major matters need to be solved.
4.4.4 A Director who is unable to attend a Board meeting may appoint another
Director or any other person as his/her proxy. The duly executed proxy shall be
delivered to the Chairman at the commencement of the Board meeting.
4.4.5 The quorum for any Board meeting shall be two thirds of the Directors
comprising of at least 1 Director appointed by each Party. If, within half an
hour from the time scheduled for the
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holding of the Board meeting, a quorum is not present, the meeting shall be
automatically adjourned till the 7th day from the original meeting day at the
same time and place. If the postponed 7th date for the adjourned Board meeting
falls on a holiday, then such Board meeting shall be held on the next working
day. Any 2 Directors present in person or by proxy (at least one of them is
appointed by each Party) shall constitute a quorum for the adjourned meeting
but, under such circumstances, no business shall be conducted at the adjourned
meeting except those specified in the agenda for the original meeting.
4.4.6 Board meetings may be held in Chinese or English as determined by the
Chairman. Detailed minutes of each Board meeting shall be recorded in both
Chinese and English and shall be signed by all Directors present at the meeting
and properly filed. A copy of the minutes of the Board meeting shall be
delivered to each Party. Each Party may have an interpreter present at the Board
meetings, the expense of which shall be paid by the JV Co..
4.4.7 Any action required or permitted to be taken at any Board meeting may be
taken without convening a meeting if a resolution in writing, setting forth the
action to be taken, is signed by all the Directors of the Board. Any such
resolution may consist of several identical documents in like form each signed
by one or more Directors.
4.5 The JV Co. shall not pay any salary to the Chairman, Vice Chairmen and any
Director unless he/she holds office as a General Manager, Chief Financial
Officer, Deputy General Manager or other Senior Manager of the JV Co., and under
such circumstances salary shall be paid only in accordance with his/her contract
of employment. The traveling and lodging expenses for attending the Board
meeting shall be borne by the JV Co.
5 BUSINESS MANAGEMENT ORGANISATION
5.1 The Board hereby entrusts Party A to manage the JV Co. in accordance with
the Management Agreement concluded among Party A, Party B and the JV Co. The
Management Agreement shall contain but not limited to the following terms:
5.1.1 the principles and policies of the management of the JV Co. to be followed
by Party A;
5.1.2 the rights and obligations of Party A in managing the JV Co.;
5.1.3 the rights and obligations of Party B in supervising the management of the
JV Co.;
5.1.4 the appointment, replacement, authorities, duties, obligations, functions
and compensation of the General Manager, Chief Financial Officer and Deputy
General Manager of the JV Co.
5.1.5 terms and conditions of leasing Land, Factory and Facilities and offices
from Party A;
5.1.6 terms and conditions of supplying power, water, steam, and other necessary
public utility by Party A;
5.1.7 terms and conditions of supplying paid services by Party A;
5.1.8 terms and conditions of supplying raw materials by Party A;
5.1.9 terms and conditions of sale of products of the JV Co.;
5.1.10 terms and conditions of other services provided by Party A.
5.2 Party A, Party B or the Board may request to revise the Management
Agreement. If the agreement cannot be reached in revising the Management
Agreement, the Board, by a simply majority vote, may suspend or terminate the
Management Agreement and take over the management of the JV Co. till the
Management Agreement is revised to its satisfaction (hereinafter referred to as
"Board Management").
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5.3 Board Management
5.3.1 Upon the Board taking over the management in accordance with Article 5.2,
the Board shall establish a Management Committee as soon as practicable to
manage the daily operation of the JV Co.
5.3.2 The Management Committee shall comprise of a General Manager, one Chief
Financial Officer and one Deputy General Manager. The General Manager shall be
appointed by the Board by the affirmative vote of the majority thereof. Upon the
recommendation of the General Manager, the Board shall appoint or dismiss the
Deputy General Manager and Chief Financial Officer by the affirmative vote of
the majority thereof. The Deputy General Manager and the Chief Financial Officer
shall be responsible to the General Manager.
5.3.3 The General Manager shall be fully responsible for the management of the
JV Co. under the leadership of the Board of Directors. The General Manager shall
be responsible for executing and carrying out the resolutions of the Board and
perform his/her following duties within the authorization of the Board:
5.3.3.1 manage the daily operation of the JV Co.;
5.3.3.2 propose budget and operation plan to the Board and carry out the budget
and operation plan approved by the Board;
5.3.3.3 formulate the operation rules and regulations of the JV Co.;
5.3.3.4 formulate all rules and regulations and policies on recruitment,
employment, dismissal, and resignation of employees, wages, salaries,
discipline, labor protection, insurance, welfare, rewards, and other matters
concerning the staff and workers of the JV Co. in accordance with the "Labor Law
of the PRC" and "Regulations of the PRC on Labor Management in Foreign Invested
Enterprises" and all other relevant rules and regulations;
5.3.3.5 sign contracts on behalf of the JV Co., PROVIDED THAT the entering into
or performance of any contract, arrangement, obligation, liability, expenditure
or commitment by or for the JV Co. shall not exceed the amount described by the
Board for any one transaction or exceed an aggregate of the amounts described by
the Board outstanding at any one time; if the amount exceeds the above mentioned
amount, approval from the Board shall be obtained; PROVIDED FURTHER THAT the
entering into any contracts between the JV Co. and any of the Parties, or any
entity which is a subsidiary, affiliate or related entity to a Party, approval
from the Board shall be obtained;
5.3.3.6 other matters entrusted by the Board.
5.3.4 The Deputy General Manager shall assist the General Manager in his/her
work.
5.3.5 The Chief Financial Officer shall be responsible for the financial matters
of the JV Co. under the leadership of the Board, including the preparation and
delivery of monthly financial reports in a form acceptable to the Board.
6 PURCHASE OF EQUIPMENT AND RAW MATERIALS
6.1 The JV Co. shall, as far as possible, purchase locally produced equipment
and raw materials required for the production facilities whenever the terms of
supply (including price and quality) are more favorable than that offered by
overseas suppliers.
7 TECHNOLOGY AND TRADEMARK
7.1 The JV Co. shall use technical know-how, patent and other technology in
accordance with the requirements that Party A has made when contributing them to
the JV Co. The JV Co. shall make royalty payments to Party A for its use of
Party A's technical know-how,
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patent and other technology, if and when required, which are not defined as
Party A's Assets, necessary for the JV Co.'s business needs.
8 BANK ACCOUNT AND FOREIGN EXCHANGE ADMINISTRATION
8.1 The JV Co. shall open an account in RMB and an account in foreign currency
with the Bank of China or any other bank registered in China. All payments made
by the JV Co. shall be examined, approved and signed by designated signatories
agreed by both Parties.
8.2 All cheques, promissory notes, drafts, bills of exchange, and other
negotiable instruments payable by, and all receipts or discharges for money paid
to the JV Co., shall be executed as follows:
8.2.1 in respect of an amount not more than a certain amount (the "Described
Amount") the payment shall be effected upon the signature of the General
Manager;
8.2.2 in respect of an amount more than the Described Amount, the payment shall
be effected upon the signature of the General Manager subject to the Board's
approval; and
8.2.3 the aforesaid Described Amount shall be decided by the Board from time to
time based on the operation of the JV Co.
8.3 All matters concerning foreign exchange shall be settled in accordance with
the regulations of the State Administration of Foreign Exchange of PRC and in
accordance with the Joint Venture Contract.
8.4 The foreign currency of the JV Co. shall be paid in the following order of
priority:
8.4.1 principal and interests payable of foreign currency loan;
8.4.2 payment for equipment, spare parts and materials purchased from overseas
market for the operation of the JV Co.;
8.4.3 salaries payable to the expatriates hired by the JV Co.; and
8.4.4 after-tax profits distributable to Party B.
9 TAXES, FINANCE AND AUDIT
9.1 The JV Co. shall pay income tax and other taxes and fees in accordance with
relevant laws and regulations of the PRC.
9.2 Employees of the JV Co. shall pay individual income taxes according to the
"Individual Income Tax Law of the People's Republic of China".
9.3 The JV Co. shall apply for all applicable favorable tax treatment for itself
and its employees.
9.4 The fiscal year of the JV Co. shall be from 1 January to 31 December of
every year.
9.5 The JV Co. shall adopt RMB as its accounts keeping currency unit. All
vouchers, receipts, statistics statements and reports, account books and records
shall be written in Chinese, all financial reports and other financial
statements shall be written in both Chinese and English and submitted to both
Parties. Reports of English versions shall indicate U.S. Dollar amounts
converted from RMB using the exchange rate published by the People's Bank of
China on the last day of the reporting period.
9.6 The JV Co. shall adopt financial and accounting rules in accordance with
relevant regulations and rules on accounting standards implemented by the
Ministry of Finance of the PRC and generally accepted international accounting
principles and practices in keeping its accounts.
9.7 A profit and loss account statement, a statement of assets and liabilities
and a financial
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report of the JV Co. shall be prepared on a monthly, quarterly and yearly basis
in both Chinese and English by the accountants of the JV Co., and submitted to
the Board of Directors and each Party and the relevant government authority in
accordance with the relevant regulations.
9.8 The JV Co. shall within 1 month after each fiscal year complete the final
draft of the annual financial report for the preceding fiscal year.
9.9 The annual audit of the JV Co. shall be conducted by a certified public
accountants firm registered in China and appointed by the Board. The audited
annual report shall be submitted to the Board of Directors for review before
filing with the relevant authorities.
9.10 Each Party shall have the right to invite an auditor to undertake at its
own expense re-audit of the accounts of the JV Co., to which the JV Co. and the
other Party shall give their consents. When there is any disputes arising from
any discrepancies between the results of the auditing and re-auditing, the
temporary Board meeting shall be called to resolve the difference.
10 DISTRIBUTION OF PROFITS AND CASH SURPLUSES
10.1 The JV Co. shall not distribute profits unless the losses of previous
fiscal years have been made up.
10.2 Before distributing any profits, the JV Co. shall pay all taxes to which it
is liable and make all contributions to the reserve fund, expansion fund and
reward and social welfare fund for staff and workers as required by law. The
General Manager shall decide the proportion of contribution to each fund as long
as such distribution complies with the law and regulations and does not in total
exceed 20% of after tax earnings annually.
10.3 Profits of the JV Co. shall be distributed annually. Party A shall share
49%, and Party B shall share 51% of the distributable profit. The details of the
profit distribution plan including the date of distribution shall be determined
by two-thirds of the Board of Directors within 3 months after the end of each
fiscal year.
10.4 Cash surpluses declared and approved by the Board will be distributed to
retire debt and, subject to the approval of the approval authority, reduce
registered capital as and when approved by the Board.
11 DURATION OF THE JOINT VENTURE
11.1 The term of the JV Co. is thirty years from the date on which the Business
License is issued.
11.2 The term may be extended upon the agreement of all Parties. Any application
for extension of the term shall be submitted to the original examination and
approval authority at least 6 months prior to its expiration. The JV Co. shall
continue its operation for the extended term upon approval of the said
authority.
12 DISSOLUTION AND LIQUIDATION OF THE JOINT VENTURE
12.1 Upon the occurrence of any of the following events, subject to the approval
of the relevant authorities, the Board of Directors may unanimously decide to
dissolve the JV Co. and the Joint Venture Contract shall be terminated. However,
any dissolution of the JV Co. or termination of the Joint Venture Contract shall
not affect any rights, obligations or claims of any Party prior to such
termination or dissolution.
12.1.1 the JV Co. incurs substantial losses and is unable to carry on its
business;
12.1.2 any Party or the JV Co. breaches any of its obligations under the
Joint Venture
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Contract, this Articles or the Management Agreement, and such breach
adversely affects the interests of any Party or renders it impossible for
the JV Co. to continue its operation;
12.1.3 the JV Co. incurs substantial losses arising from the force majeure
event as provided in Article 16 of the Joint Venture Contract and is unable
to carry on its business;
12.1.4 there is any change in Chinese or any foreign laws or regulations or
in interpretation thereof that has a material adverse effect on the JV Co.
or any Party;
12.1.5 there is a confiscation or requisition of all or a material part of
the assets or revenues of the JV Co. or Registered Capital contributed by
any Party;
12.1.6 any Party goes into or files for bankruptcy, liquidation,
receivership or is unable to meet its debts as they fall due;
12.1.7 Any deadlock in decisions by the Parties or the Board of Directors
pursuant to the Joint Venture Contract; or
12.1.8 occurrence of any other event or events upon which all Parties of
the JV Co. agree will result in the termination of the term of the JV Co.
12.2 Upon the expiry or termination of the Joint Venture Contract for any reason
whatsoever (the "Termination Date"), the Management Contract shall likewise be
deemed to expire or terminate on the Termination Date and the Board shall by
two-thirds of the Board of Directors determine the procedure for and principles
of liquidation and shall, subject to the approval of the original examination
and approval authority, appoint a Liquidation Committee to conduct the sale or
liquidation of the JV Co.
12.3 The Liquidation Committee shall re-evaluate all assets of the JV Co.,
including, but not limited to the Equipment, Facilities and Materials.
12.4 All expenses of liquidation (including remuneration of the members of the
Liquidation Committee) shall be paid in priority before any distribution of
assets. The Liquidation Committee shall pay and discharge all debts and
liabilities of the JV Co., including any debts to any Party before distribution
of assets and may, if necessary, convert any asset into money for purposes of
such payment PROVIDED ALWAYS that Liquidation Committee shall as far as possible
ensure that the assets is sold at the best possible market price.
12.5 The remaining assets of the JV Co. after liquidation shall be distributed
to the Parties in accordance with the proportion of the Registered Capital
contribution of each Party. When distributing the assets to the Parties, the
Liquidation Committee shall take into account the following:
12.5.1 Priority shall be given to Party A for the allocation of fixed
assets;
12.5.2 Priority shall be given to Party B for the allocation of foreign
currency.
12.6 On completion of liquidation, the JV Co. shall submit a liquidation report
to the original examination and approval authority and comply with all
formalities de-registering the JV Co. (including the surrender of the Business
License) at the local Administration for Industry and Commerce whereupon
announcement shall be published in newspapers.
12.7 Upon the winding-up of the JV Co., all original books of accounts and
records shall be kept with Party A and copies of the same shall be provided to
Party B.
13 Rules and Regulations
Following are the rules and regulations formulated by the Management
Organization of JV Co.:
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13.1 Management regulations, including the powers and functions of the
management branch and its working rules and procedures;
13.2 Rules for the staff and workers;
13.3 System of labor and salary;
13.4 System of work attendance record, promotion and awards and penalty for
staff members and workers;
13.5 Detailed rules of staff and worker's welfare;
13.6 Financial system;
13.7 Other necessary rules and regulations.
14 MISCELLANEOUS
14.1 This Articles is written in both Chinese and English languages, each
version of which are made into 8 copies. Each of the Parties shall retain two
copies, and the remaining copies shall be submitted to the examination and
approval and registration authorities. Both versions are equally authentic.
14.2 This Articles shall take effect upon the approval of the examination and
approval authority. The amendments to this Articles shall take effect upon the
approval of the original approval authority.
14.3 The matters not specifically covered by this Articles shall be handled in
accordance with the terms of the Joint Venture Contract, the Management
Contract, resolutions passed by the Board of Directors and the relevant laws and
regulations of the PRC. In the event that the provisions of this Articles
conflict with those of the Joint Venture Contract, this Articles shall be
amended accordingly. In addition, the Joint Venture Contract shall prevail
before such amendments have been made and approved.
14.4 This Articles is signed in Beijing, China on the ________ day of ________,
1999 by the authorized representatives of the Parties.
Party A: Party B:
Shandong Hengtong Chemical Industrial Asian Alliance Ventures Incorporated
Company Ltd.
Signature: /s/ Wang Yong Li Signature:/s/ Robert Clarke
------------------------- ---------------------------
Name: Wang Yong Li Name: Robert Clarke
Position: President and general Manager Position: President
Date: 18 Aug. 1999 Date: August 18, 1999
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