<PAGE>
As filed with the Securities and Exchange Commission on October 24, 1995
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE
PERIOD ENDED JUNE 30, 1995
----------------------
HENG FAI CHINA INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 0-7619 93-063633
(State or other jurisdiction (Commission (IRS Employer
of incorporation or organization) File Number) Identification Number)
650 West Georgia Street, Suite 588, P.O. Box 11586
Vancouver, B.C. CANADA V6B 4N8
(604) 685-8318
(Address and telephone number of Registrant's principal executive offices)
----------------------
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
As of October 20, 1995, there were 10,819,542 shares of common stock of Heng Fai
China Industries, Inc. outstanding.
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
FORM 10-Q
FOR THE
QUARTER ENDED JUNE 30, 1995
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Financial Statements.......................................................................... 1
Condensed Consolidated Balance Sheets as at
June 30, 1995 and December 31, 1994........................................................... 2
Condensed Consolidated Statements of Operations for the
six and three months ended June 30, 1995 and 1994............................................. 3
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1995 and 1994....................................................... 4
Notes to Condensed Consolidated Financial Statements.......................................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................................... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................. 12
Item 2. Changes in Securities......................................................................... 12
Item 3. Defaults Upon Senior Securities............................................................... 12
Item 4. Submission of Matters to a Vote of Securityholders............................................ 12
Item 5. Other Information............................................................................. 12
Item 6. Exhibits and Reports on Form 8-K.............................................................. 12
Signature Page............................................................................................Last Page
</TABLE>
i
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The following financial statements of Heng Fai China Industries, Inc.
(the "Company") are provided herewith:
(a) Condensed Consolidated Balance Sheets as at June 30, 1995 and
December 31, 1994;
(b) Condensed Consolidated Statements of Operations for each of
the six months ended June 30, 1995 and June 30, 1994 and each
of the three months ended June 30, 1995 and June 30, 1994;
(c) Condensed Consolidated Statements of Cash Flows for each of
the six months ended June 30, 1995 and June 30, 1994; and
(d) Notes to the Condensed Consolidated Financial Statements.
1
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(United States Dollars)
<TABLE>
<CAPTION>
As at As at
Notes June 30, 1995 December 31, 1994
----- ------------- -----------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash $348,849 $191,731
Accounts receivable 63,995 2,393
Prepaids 51,895 2,024
Inventories 1 72,711 --
----------- --------------
537,450 195,986
FIXED ASSETS, net 4 956,257 933,710
DEFERRED EXPENDITURE 5 1,465,075 --
---------- --------------
$2,958,782 $1,129,696
========== ==========
CURRENT LIABILITIES
Accounts payable $116,433 $20,545
Short-term borrowings 71,568 --
Interest payable 27,840 19,733
Security deposits payable 9,769 11,071
Other payable 26,683 --
Unearned rent -- 12,053
Due to related parties 14,574 32,617
Current portion of mortgage 14,830 14,785
------------ -----------
281,697 110,804
============ ===========
LONG-TERM LIABILITIES
Mortgages payable 984,871 971,611
Deferred exchange gains -- 50,153
----------- -----------
1,266,568 1,132,568
----------- ----------
DEFICIENCY IN ASSETS
Preferred stock, $10 par value,
500,000 shares authorized,
none issued -- --
Share capital, $.01 par value,
30,000,000 shares authorized,
10,759,542 and 10,384,542
shares issued and outstanding 6 107,595 103,845
Contributed surplus 2,218,472 193,296
Deficit (633,853) (300,013)
----------- -----------
1,692,214 (2,872)
---------- ------------
$2,958,782 $1,129,696
========== ==========
</TABLE>
See accompanying notes to the Condensed Consolidated Financial Statements.
2
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(United States Dollars)
<TABLE>
<CAPTION>
Six Six Three Three
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
Notes 1995 1994 1995 1994
----- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues
Rental income $171,496 $161,712 $88,139 $80,231
Sales of cement 55,220 -- 55,220 --
Interest income 5,290 2,456 2,484 1,833
Foreign exchange gain 7,490 -- 3,424 (8,620)
---------- ------------ --------- ---------
239,496 164,168 149,267 73,444
--------- -------- -------- --------
Expenses
Cost of cement sales 49,362 -- 49,362 --
Amortization and
depreciation 23,611 18,188 13,487 7,078
Legal and professional
expenses 41,581 172 41,581 --
Consulting fees 5 277,925 -- 277,925 --
Interest expenses 46,030 44,378 23,804 22,380
Land lease 40,095 39,855 20,377 19,945
Real estate management
fees 8,984 7,609 6,439 4,134
Other administrative
expenses 85,748 49,901 44,756 27,948
---------- --------- ---------- ---------
573,336 160,103 477,731 81,485
---------- -------- ---------- ---------
Net income (loss) $(333,840) $ 4,065 $(328,464) $ (8,041)
========== ========= ========== =========
Net income (loss) per
common share $(.03) $.02 $(.03) $(.03)
====== ==== ====== ======
Weighted average common
shares outstanding 10,445,207 258,943 10,505,896 258,943
========== ======= ========== =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(United States Dollars)
<TABLE>
<CAPTION>
Six Six
Months Months
Ended Ended
June 30, June 30,
Notes 1995 1994
----- -------- --------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) $(333,840) $4,065
Adjustments to reconcile loss to net cash
used for operating activities:
Depreciation and amortization 23,811 18,188
Consulting fees paid in common stock 5 277,925 --
Changes in working capital components:
Accounts receivable (61,764) 36,755
Prepaids (49,871) --
Inventories (72,711) --
Accounts payable (95,888) --
Interest payable 8,107 --
Security deposits payable (1,302) --
Other payable 14,680 --
---------- -----------
Net cash used in operating activities (99,327) 59,008
---------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of fixed assets (83,775) --
---------- -----------
Net cash used in investing activities (83,775) --
---------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Issue of shares 300,000 --
New short-term borrowings 71,568 --
Repayment of mortgage (13,305) (7,600)
Advances (Repayment) of related party advances (18,043) (58,813)
---------- ---------
Net cash provided by financing activities 340,220 (66,413)
---------- ---------
Net increase in cash and cash equivalents 157,118 (7,405)
Cash and cash equivalents:
Beginning of the period 191,731 5,764
---------- ---------
End of the period 348,849 (1,641)
========== =========
ANALYSIS OF THE BALANCES OF CASH AND
CASH EQUIVALENTS
Bank Balances and Cash 348,849 --
Short-term Borrowings -- (1,641)
--------- ---------
$ 348,849 $ (1,641)
========= =========
</TABLE>
See accompanying notes to the Condensed Consolidated Financial Statements.
4
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(United States Dollars)
1. BASIS OF PRESENTATION
In June 1994, Heng Fai China Industries, Inc., then known as
Alpine International Corporation ("Alpine") entered into a business
combination with Vancouver Hong Kong Properties, Ltd. ("Vancouver Hong
Kong"), which owns and operates a residential rental property in North
Vancouver, British Columbia. The business combination resulted in the
shareholders of Vancouver Hong Kong being issued 10,357,700 shares of
Alpine's common stock and 10,357,700 common stock purchase warrants. As
a part of the business combination, a company related to Vancouver Hong
Kong agreed to subscribe for 1,500,000 shares of Alpine's common stock
and 1,500,000 common stock purchase warrants for an aggregate of
US$120,000 in cash. The business combination was accounted for as a
reverse acquisition whereby the purchase method of accounting has been
used with Vancouver Hong Kong being the accounting parent. Accordingly,
results of operations for periods prior to the reverse acquisition are
those of Vancouver Hong Kong, and the results of Alpine's operations
are included only from the date of such reverse acquisition. Subsequent
to the business combination, the name of the legal parent Alpine was
changed to Heng Fai China Industries, Inc. (hereinafter referred to as
"HFCI" as the context may require).
The condensed consolidated financial statements include the
accounts of HFCI and its wholly-owned subsidiaries (collectively, the
"Company"). The condensed consolidated financial statements included
herein have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not
misleading. The condensed consolidated financial statements and the
notes thereto should be read in conjunction with the consolidated
financial statements included in the Company's Annual Report on Form
10-K for the year ended December 31, 1994.
In the opinion of the management of the Company, the
accompanying unaudited condensed consolidated financial statements
contain all necessary adjustments to present fairly the financial
position, the results of operations and cash flows for the periods
reported. All adjustments are of a normal recurring nature.
The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full year.
5
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(United States Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES
Inventories - Inventories relating to the Company's cement
operations are stated at the lower of cost (determined on the first-in,
first-out method) or market. Inventories at June 30, 1995 represent
cement raw materials.
Translation of foreign currency - The Company's functional
currency is the Canadian dollar (C$). Consolidated financial statements
are stated in United States dollars (US$) which is the reporting
currency of the Company. Assets, liabilities, revenues and expenses
denominated in other currencies are translated into Canadian dollars at
current exchange rates. Gains and losses arising from foreign currency
transactions are included in income. The translation of the C$ amounts
into US$ amounts, for the purposes of reporting in US$, is, with
respect to assets and liabilities, based on the exchange rate in effect
at the date of the balance sheet (C$1.3717 to US$1.00 at June 30, 1995)
and, with respect to revenues and expenses, based on the average
exchange rate during the period (C$1.3532 to US$1.00 for the six months
ended June 30, 1995). Changes in the exchange rate between the C$ and
the US$ have not had a significant effect on financial condition or the
results of operations.
3. ACQUISITIONS
On January 9, 1995, HFCI acquired from the chairman of its
board of directors 100% of the common stock of Heng Fai China and Asia
Industries, Limited ("Asia") in exchange for nominal consideration.
Asia's only assets, owned by its wholly-owned subsidiaries, Heng Fai
China Industries Limited ("China") and Heng Fai Light Products Limited
("Light"), were options to acquire operating or lease interests in
three cement manufacturing operations located in the People's Republic
of China ("PRC"), as follows:
A. Light, through its newly formed subsidiary, Cangzhou Citizen
Cement Product Co., Ltd. ("Citizen") may acquire the use, for
a period of five years commencing January 1, 1995, of a
production line at the Hebei Cangzhou City Chemical
Corporation Factory (the "Cangzhou Factory"). Citizen may
exercise its option to lease the existing facilities for five
years at a nominal rental, by expending RMB$1.2 million
(US$144,000) on the expansion and modernization of the
Cangzhou Factory plant.
B. China has the option to acquire an interest in a joint
venture, the Cangzhou Jiuhe Cement Co., Ltd. ("Jiuhe"), which
would acquire the use of the existing facilities of the
Qingxian Cement Factory for 30 years. In exchange for
contributing RMB$17 million (US$2,043,000) for the expansion
and modernization of the existing factory, China would be
entitled to 100% of the profits of the joint venture until it
recovers its contribution, and thereafter 70% of the profits
of the joint venture. The control of Jiuhe would be shared by
China and the PRC government, which would contribute a 30 year
lease on the existing facilities for its interest. The assets
of the joint venture would revert to the PRC government at the
termination of the joint venture.
6
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(United States Dollars)
C. China has the option to acquire an interest in a joint
venture, the Hebei Iron Lion Cement Co., Ltd. ("Hebei"), which
would acquire the use of the existing facilities of the Hebei
Cangzhou Area Construction Materials Factory for 30 years. In
exchange for contributing RMB$70 million (US$8,190,000) for
the expansion and modernization of the existing factory, China
would be entitled to 100% of the profits of the joint venture
until it recovers its contribution, and thereafter 52% of the
profits of the joint venture. The control of Hebei would be
shared by China and the PRC government, which would contribute
a 30 year lease on the existing facilities for its interest.
The assets of the joint venture would revert to the PRC
government at the termination of the joint venture.
China and Light acquired the foregoing options for nominal
consideration and, as a result, no financial statement recognition is
accorded to the unexercised options.
On April 17, 1995, China exercised its option to acquire,
through Citizen, the use for five years of a production line at the
Cangzhou Factory. Through June 30, 1995, the Company had expended
approximately RMB$658,000 on the expansion and modernization of the
factory.
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
June 30, 1995
---------------------------------------------
Accumulated
Depreciation
and Net Book
Cost Amortization Value
---------- -------- --------
<S> <C> <C> <C>
Residential Rental Property
Building $748,669 $287,394 $461,275
Leasehold improvement 601,932 186,051 415,881
Cement factory leasehold improvements 79,101 -- 79,101
---------- -------- --------
$1,429,702 $473,445 $956,257
========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
---------------------------------------------
Accumulated
Depreciation
and Net Book
Cost Amortization Value
---------- -------- --------
<S> <C> <C> <C>
Building $748,669 $257,654 $491,015
Leasehold improvement 601,932 159,237 442,695
---------- -------- --------
$1,350,601 $416,891 $933,710
========== ======== ========
</TABLE>
7
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(United States Dollars)
5. DEFERRED EXPENDITURE
In June 1995, HFCI entered into a consulting agreement with
previously unaffiliated parties pursuant to which it receives various
investor relations and financial advisory services. The consulting
agreement has a term of 12 months, subject to earlier termination
thereof or renewal for subsequent periods. Pursuant to the terms of the
agreement, the Company: (a) in June 1995, issued to the consultant an
aggregate of 260,000 shares of its common stock and (b) is obligated to
issue to the consultant 20,000 shares of its common stock each month
during the term of the agreement.
The value attributable to the 260,000 shares issued to the
consultant pursuant to the consulting agreement, $1,510,600, has been
capitalized and is being amortized over the 12 month term of the
consulting agreement. The value attributable to the shares of common
stock being issued on a monthly basis is being charged to expense as
such shares of common stock are issued.
6. SHARE CAPITAL
The changes in share capital during the six months ended June
30, 1995 were as follows:
<TABLE>
<CAPTION>
Common Shares
----------------------------
Number of Contributed
Shares Amount Surplus
---------- --------- ----------
<S> <C> <C> <C>
Balance, December 31, 1994 10,384,542 $103,845 $193,296
Private Placement 75,000 750 299,250
Consulting Agreement (Note 5) 300,000 3,000 1,725,926
---------- --------- ----------
Balance, June 30, 1995 10,759,542 $107,595 $2,218,472
========== ======== ==========
</TABLE>
As of June 30, 1995, there were outstanding warrants
exercisable to purchase 296,443 shares of common stock, at an exercise
price of $3.00 per share through July 1, 1999.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Background
Heng Fai China Industries, Inc. (the "Company") was originally
organized on March 24, 1958 as Time Saver Markets, Inc. pursuant to the laws of
the State of California. On October 29, 1973, Alpine International Corporation,
a private Oregon corporation merged with and into Time Saver Markets, Inc.
Subsequent thereto, Time Saver Markets, Inc. changed its name to Alpine
International Corporation. In August 1994, Alpine International Corporation
changed its name to Alpine Merger Corporation ("Alpine-California") after having
entered into a merger agreement with a Delaware corporation named Alpine
International Corporation ("Alpine-Delaware") which was formed for the purpose
of facilitating the reincorporation of Alpine-California in the State of
Delaware through a merger with and into Alpine-Delaware. Subsequently, in
November 1994, Alpine-Delaware changed its name to Heng Fai China Industries,
Inc. Alpine-California and Alpine-Delaware may be collectively referred to
hereinafter as "Alpine."
Alpine conducted no significant operations between April 1992, when it
emerged from reorganization under Chapter 11 of Title II of the U.S. Bankruptcy
Code, and June 1994, when it acquired Vancouver Hong Kong Properties Limited
("Vancouver Hong Kong") which owns an apartment building in North Vancouver,
British Columbia. In connection therewith, Alpine obtained equity financing of
US$120,000 in exchange for the issuance of 1,500,000 shares of its common stock
and 1,500,000 common stock purchase warrants exercisable for a period of _____
years. See Note 1 of the Notes to the Condensed Consolidated Financial
Statements included elsewhere herein.
Throughout the remainder of fiscal 1994, the Company's operations were
limited to the operation of the real estate acquired through the Company's
acquisition of Vancouver Hong Kong. In January 1995, the Company acquired its
wholly-owned subsidiary, Heng Fai China & Asia Industries Limited ("Asia"), a
company incorporated in Hong Kong, along with Asia's two wholly-owned
subsidiaries, Heng Fai China Industries Limited ("China") and Heng Fai Light
Products Limited ("Light"). China and Light were incorporated in Hong Kong and
the Peoples' Republic of China ("PRC"), respectively. China and Light (through
its wholly-owned subsidiary, Cangzhou Citizen Cement Product Co., Ltd., referred
to hereinafter as "Citizen") have the rights to acquire direct or joint venture
operating lease interests for three cement factories in the Hebei province of
the PRC: (i) the Hebei Cangzhou City Chemical Corporation Factory (the "Cangzhou
Factory"); (ii) the Qingxian Cement Factory (the "Qingxian Factory"); and (iii)
the Hebei Cangzhou Area Construction Materials Factory (the "Hebei Factory").
See Note 3 of the Notes to the Condensed Consolidated Financial Statements
included elsewhere herein.
On April 17, 1995, Light (through Citizen) exercised its option to
lease the Cangzhou Factory. The Company is currently making the expansion and
modernization expenditures
9
<PAGE>
required to exercise pursuant to the terms of the agreement governing the lease
option. The Cangzhou Factory suspended operations during the expansion and
modernization, which were completed in June 1995, at which time the operations
thereof were resumed.
Results of Operations
The Company generates revenue through the leasing of the apartment
building in North Vancouver, British Columbia and the sale of cement products.
In the six month period ended June 30, 1995, approximately 73.82% of the
Company's total revenue was derived from the leasing of the apartment building
while 23.6% was contributed by the sale of cement products.
There were no significant changes in the revenues and expenses
attributable to the operation of Vancouver Hong Kong's real estate between the
second quarter or first half of fiscal 1995 and the comparable periods of fiscal
1994.
Revenues and expenses for Citizen's cement operations represent
operations from April 17, 1995. As previously discussed, Citizen's facilities
were undergoing expansion and modernization, and the operations during the
second quarter of fiscal 1995 were limited to the purchase and resale of
finished cement products.
Legal and professional fees, and other administrative expenses,
increased significantly during the second quarter and first half of fiscal 1995.
The increased expenses resulted from personnel added during 1995 to establish a
Hong Kong office to support the Company's activities in the PRC. Continued
increases in the Company's investigation and acquisition of business
opportunities in the PRC are expected, and will result in additional increases
in legal, professional and administrative expenses.
In June 1995, the Company entered into a consulting agreement pursuant
to which it receives investor relations and financial advisory services. As a
result, the Company recorded consulting expenses of US$277,925 during the second
quarter of fiscal 1995. See Note 5 of the Notes to the Condensed Consolidated
Financial Statements included elsewhere herein.
Liquidity and Capital Resources
To date, the Company has financed its operations primarily through
private placements of its common stock, short term borrowings and cash flow from
operations. As at June 30, 1995, the Company had cash of US$348,849 together
with short term borrowings amounting to US$71,568.
The Company had net cash outflow of approximately US$99,327 from
operating activities during the first half of fiscal 1995 as compared to net
cash inflow of US$59,008 during the first half of fiscal 1994. The outflow was
mainly attributable to the current year six month net loss. The Company financed
the net loss, and capital additions, through the private placement of shares of
its common stock for cash proceeds of $300,000. The proceeds from that private
10
<PAGE>
placement are also being used to fund the expenditures incurred by Citizen in
connection with the expansion and modernization of the Cangzhou Factory
described above.
As discussed in Note 3 of the Notes to Condensed Consolidated Financial
Statements, the Company, through Asia, holds options to acquire joint venture
interests in two additional PRC cement factories: (i) the Qingxian Factory; and
(ii) the Hebei Factory. The exercise of those options would require that the
Company expend US$2 million and US$8.2 million, respectively, on the expansion
and modernization of the plants. The Company currently expects that the funds
for such investments, if the options are exercised, would be derived from the
Company's issuance of shares of its common stock.
11
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any pending or ongoing
litigation.
Item 2. Changes in Securities
There have been no changes in the securities of the Company
required to be disclosed pursuant to this item.
Item 3. Defaults upon Senior Securities
There has been no material default with respect to any
indebtedness of the Company required to be disclosed pursuant
to this item.
Item 4. Submission of Matters to a Vote of Securityholders
There have been no matters submitted to a vote of
securityholders during the six months ended June 30, 1995.
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: The following exhibits are incorporated by
referenced into this report:
Exhibit No. Exhibit Name
10.1 Contract, dated June 25, 1994, between Heng
Fai China Industries, Ltd. and Qingxian
Cement Factory
10.2 Contract, dated September 3, 1994, between
Heng Fai China Industries, Ltd. and Hebei
Cangzhou Area Construction Material Factory
10.3 Contract of Tenancy, dated October 20, 1994,
between China Hebei Cangzhou City Chemical
Corporation and Heng Fai Light Products Co.,
Ltd.
(b) Reports on Form 8-K: None.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HENG FAI CHINA INDUSTRIES, INC.
Dated: October 13, 1995 By: /s/ Robert H. Trapp
-------------------
Robert H. Trapp
Secretary and Treasurer
<PAGE>
EXHIBIT 10.1
<PAGE>
CONTRACT
Chapter 1. General Provisions
Qingxian Cement Factory, China, and Heng Fai China Industries Ltd.,
Hong Kong, in accordance with The Law of the People's Republic of China on
Chinese-Foreign Contractual Joint Ventures and other relevant laws and
regulations of the People's Republic of China and through friendly negotiations
on the principle of equality and mutual benefit, agree to the establishment in
Qingxian County, Cangzhou, China, of a contractual joint venture, the contract
of which is as follows.
Chapter 2. The Parties
1. The Parties of this Contract:
Qingxian Cement Factory (hereinafter referred to as Party A),
registered in Qingxian.
Legal address: 47, Group 9, Lizhen, Qingzhou, Qingxian.
Legal representative: Zhang Jicheng.
Position: Factory director.
Nationality: P.R. China.
Heng Fai China Industries Ltd. (hereinafter referred to as
Party B), registered in Hong Kong.
Legal address: 7th Floor, Baskerville House, 22 Ice Street,
Central, Hong Kong. Legal representative: Heng Fai Chan.
Position: Chairman of the Board.
Nationality: Britain.
Chapter 3. Incorporation
2. Party A and Party B, in accordance with The Law of the People's
Republic of China on Chinese-Foreign Contractual Joint Ventures and other
relevant laws and regulations, agree to the incorporation of the Contractual
Joint Venture (hereinafter referred to as the CJV), Cangzhou Jiuhe Cement Co.,
Ltd., within the territory of the People's Republic of China.
3. The name of the CJV shall be: Cangzhou Jiuhe Cement Co., Ltd. Legal
address: East Nanhuan Road, Qingxian, Hebei.
4. All the activities of the CJV must be governed by the laws, decrees
and pertinent rules and regulations of the People's Republic of China.
1
<PAGE>
5. The CJV shall be a limited liability corporation. The two Parties
shall share the profits according to the prescribed rate and shall share the
risks and losses according to their capital to the CJV. On the day the two
Parties inject into the CJV their due capital the distributable profits produced
by the existing production line of Party A during the construction period of the
new production line shall be distributed at the rate of 3:7, i.e. Party A shall
get 30% of the total profits produced by the existing production line of Party A
and Party B shall get 70% of the total profits. After the new production line is
put into operation, the distributable profits produced by the CJV shall first go
to Party B until a total amount of 17 million RBM yuan which is the total
contribution of Party B to the CJV. After that, the distributable profits
produced by the CJV shall be distributed to Party A and Party B at the rate of
4.5:5.5:, i.e. Party A shall have 45% of the total profits and Party B shall
have 55% of the total profits.
Chapter 4. Business Objectives, Scope and Scale
6. The objectives of the CJV shall be, on the basis of economic
cooperation and technical exchange and by adopting domestic advanced
technologies, to improve the quality of cement through scientific management so
that the cement the CJV produced shall enjoy priority both in quality and price
in the market competition and to increase economic returns and satisfactory
profits.
7. The business scope of the CJV shall be to produce and sell cement.
8. The business scale of the CJV shall be to produce, annually, 171,00
[sic] tons of portland blast-furnace cement.
Chapter 5. Total Investment and Registered Capital
9. The total investment of the CJV shall be 28 million RMB yaun.
10. The two Parties shall contribute to the CJV a total of 24 million
RMB yuan as the registered capital, of which Party A shall contribute 7 million
which shall be 30% of the total registered capital and Party B shall contribute
1.954 million USD (equal to 17 million RMB yuan) which shall be 70% of the total
registered capital.
11. The two Parties shall contribute to the CJV in the following
manner:
Party A shall inject all the equipment and facilities of the 71000-ton
production line and other fixed assets. The injection shall be valued for the
purpose of equity participation at 7 million RMB yuan.
Party B shall inject a total of U.S. dollars 1.954 in cash.
12. The two Parties, subject to the prescriptions, shall inject all
their respective capital within 6 months after obtaining the business license.
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13. In case one Party should transfer part or all of its contributions
to a third Party, it must have the consent of the other Party and obtain the
approval from the initial authorities concerned. When one Party should transfer
part or all of its contributions, the other Party shall enjoy the priority in
purchasing it.
Chapter 6. Responsibilities
14. Party A and Party B shall assume the responsibilities set forth
below:
Responsibilities of Party A:
1) Applying for and obtaining approval and business license from
China's authorities concerned; business registration;
2) Injecting in time due capital into the CJV according to the
Stipulations of Articles 11 and 12 of this Contract;
3) Purchasing and leasing for the CJV equipment, raw materials, office
equipment, vehicles and telecommunication sets;
4) Water, electricity and transportation;
5) Employing Chinese managerial and technical personnel and other work
force needed;
6) Foreign working staffs' entry visa, work certificate and travel;
7) Other affairs entrusted by the CJV.
Responsibilities of Party B:
1) Injecting into the CJV due capital according to the Stipulations of
Articles 11 and 12 of this Contract;
2) Entrusted by the CJV, purchasing equipment and raw materials for the
CJV outside China;
3) Injecting into Party A's bank 100,000 RMB yuan within 10 days after
this Contract is signed as the first contribution;
4) Other affairs entrusted by the CJV.
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Chapter 7. The Board of Directors
15. The day on which the CJV is registered shall be the day on which
the Board of Directors is established.
16. The Board shall consist of 5 members, two of which, including the
Vice-chairman, shall be appointed by Party A, and three of which, including the
Chairman, shall be appointed by Party B. The terms of the Directors shall be 4
years and they shall continue their terms upon appointment by each Party.
17. The Board shall be the highest authority to decide all the
important businesses of the CJV.
The following items shall have the unanimous consent of the Board:
1) Modification of the Articles of Association;
2) Termination and disincorporation of the CJV;
3) Increasing and transferring of the registered capital of the CJV;
4) Merging of the CJV with other economic organizations.
Decisions for other affairs shall be made by simple majority of the
Board.
18. The Chairman of the Board shall be the legal representative of the
CJV. When the Chairman is not able to perform his duties, he shall appoint
temporarily the Vice-Chairman or other Directors to be his representative.
19. The Chairman shall at least convene the Board meeting once a year.
Temporary meetings shall be called by the Chairman at the proposal of one third
of the Directors. The records of the meetings shall be kept.
Chapter 8. Managerial Organs
20. The CJV shall establish the managerial organs to be in charge of
the daily operation. The candidate for the General Manager shall be nominated by
Party A and the candidates for the two deputy managers shall be nominated by
both Party A and Party B respectively. Both the General Manager and the deputy
General Managers shall be finally appointed by the Board and their terms shall
be four years.
21. The General Manager, with the assistance of the deputy managers,
shall carry out all the decisions by the Board and Direct the daily operation of
the CJV. The deputy General Manager nominated by Party B shall be the standing
General Manager in charge of the finance of the CJV. Decisions on important
issues of the CJV shall come into effect only with the
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signatures by both the General Manager and the deputy General Manager. The Board
shall specify the issues requiring the signatures of both the General Manager
and the deputy General Manager.
A number of department managers shall be appointed in charge
of their departments respectively. They shall handle business assigned by the
general manager and the deputy General Manager and be responsible to the General
Manager and the deputy General Managers.
22. The Board shall at any time make decisions to discharge the general
manager and the deputy general managers in case they should engage in
malpractice for selfish end and severely neglect their duties.
Chapter 9. Purchase of Materials
23. Raw materials, fuel, spare parts, vehicles for transport and office
equipment (hereinafter are referred to as the material) shall be purchased first
in China under the same circumstances.
24. When Party B, entrusted by the CJV, purchases the materials for the
CJV at international market, Party B shall have the consent of Party A on the
price and the quality of the material, Party A may send agents to participate in
the purchase in case considering it necessary.
Chapter 10. Labor
25. The employing and dismissing of workers, the employees' wages,
labor insurance, welfare, reward and punishment shall be made by the Board in
accordance with the Regulations of the People's Republic of China on the Labor
Management in Chinese-Foreign Equity Joint Ventures and the Rules for the
implementation of these Regulations and shall be specified in the contracts by
and between the CJV and the Labor Union or by and between the CJV and the
individual employee respectively.
The labor contracts shall be reported to the local labor
management for reference after the contracts are signed.
26. The Board shall make decisions for the employment of senior
employees recommended by the two Parties and shall make decisions for the wages,
insurance, welfare and travel expenses for these senior employees.
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Chapter 11. Tax, Finance and Audit
27. The CJV shall pay all the due taxes according to the relevant laws
and regulations of the People's Republic of China.
28. The employees of the CJV shall pay the due individual income tax
and the individual regulating tax according to the laws of PRC on individual
income.
29. The CJV shall, in accordance with the Law of the People's Republic
of China on Chinese-Foreign Contractual Joint Ventures, withdraw reserve fund,
enterprise extension fund, employees' welfare fund and bonus fund. The ratio of
these funds per year shall be decided by the Board according to the operation of
the CJV.
30. The accounting year of the CJV shall coincide with the calendar
year, i.e. from January 1 to December 31 on the Gregorian calendar.
All the CJV's accounting books, statements and documents shall be made
in Chinese.
31. The CJV shall invite the public accountants chartered in China to
examine and retrace its finance and shall report the results to the Board and
the General Manager.
In case Party B thinks it necessary to invite foreign auditors to carry
out annual audit, Party A shall agree to it and Party B shall bear all the
expenses.
32. The General Manager shall, within the first three months of each
operating year, be in charge of making the balance sheet, the statement of
profits and losses and the program of distributing the profits and shall report
them to the Board for approval.
Chapter 12. Duration for Cooperation
33. The term of the CJV shall be 30 years. The day on which the
business license is issued shall be the day on which the CJV is established.
The CJV shall, at one Party's proposal and with the approval of the
Board, submit, 6 months prior to the expiration of the CJV, an application to
the Ministry of Foreign Trade and Economic Cooperation or the authorities
entitled by the Ministry for prolonging the CJV.
Chapter 13. Property of the CJV at the Expiration
34. The residual assets of the CJV shall belong to Party A at the
expiration of the CJV. In case this Contract should be terminated in advance,
the CJV shall carry out the liquidation, and the assets after liquidation shall
first be distributed to each Party as the balance between the profits each Party
has already got and the contribution each Party made to the CJV,
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and the surplus after this distribution shall be paid to each Party at the
prescribed rate, i.e. Party A shall get 30% of the surplus and Party B shall get
70% of the surplus.
Chapter 14. Insurance
35. The CJV shall have insurances in The People's Insurance Company of
China. The kinds of insurance, the insured value and the term shall be decided
by the Board according to the rules of the Insurance Company.
Chapter 15. Modification, Change and Dissolution of This Contract
36. A written agreement shall be made and signed by both Parties to
modify this Contract. The modified contract shall come into effect only with the
approval of the authorities concerned.
37. In case there is accidental force so that this Contract cannot be
carried out, or in case there are successive losses so that the CJV cannot
continue its operation, the cooperation shall be terminated and this Contract
shall be dissolved in advance with the unanimous consent of the Board and with
the approval of the initial authorities concerned.
38. In case one Party should fail to perform its duties or severely
breach the stipulations of this Contract and breach severely the stipulations of
the Articles of Association so that the operation of the CJV cannot be continued
or the operation goals cannot be achieved, it will all be considered to break
the Contract unilaterally, and the other Party shall have the right to claim
from the break promiser and shall have the right to, according to the rules of
this Contract and with the approval of the initial authorities concerned,
terminate this Contract. In case both Parties should agree to continue the
cooperation, the break promiser shall indemnify the CJV for the losses incurred.
Chapter 16. Liabilities for the Breach of this Contract
39. In case one Party should fail to contribute in time the capital to
the CJV specified in Chapter 5 of this Contract and still fail to make the
contribution after 3 months, the observant Party shall have the right to
terminate this Contract according to Article 38 of this Contract and shall have
the right to claim from the break promiser.
40. In case this Contract and the appendices cannot be implemented or
part of them cannot be implemented due to one Party's fault, this Party shall
bear the responsibilities. In case this contract and the appendices cannot be
implemented or part of them cannot be implemented due to both Parties' fault,
each Party shall bear its own responsibilities according to the actual
situation.
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Chapter 17. Force Majeure
41. In case there should be earthquake, typhoon, flood, fire, war and
other unpredicted Force Majeure whose occurrence cannot be prevented and whose
aftermath cannot be avoided so that this Contract should fail to be carried out
according to the agreed schedule, the Party who meets with the accidents shall
inform the other Party by telegram of the accident and the details of the
accident within 15 days and provide the other Party with the valid documents
issued by the local notary office which bear the descriptions for the
unimplementation or partial unimplementation or for delaying implementation of
this Contract, and the two Parties shall, according to the aftermath of the
accident, hold negotiations on whether or not to dissolve this Contract or
partly to implement this Contract or to delay the implementation of this
Contract.
Chapter 18. Law Affairs
42. The conclusion, validity, interpretation and implementation of this
Contract shall be governed by the laws of the People's Republic of China.
Chapter 19. Disputes
43. All disputes in connection with this Contract or the execution
thereof shall be resolved through friendly negotiation. Where no settlement can
be reached, the disputes shall be referred to the Arbitration Committee of the
China Council for the Promotion of International Trade for arbitration according
to the rules of the Arbitration Committee. The decisions of the Arbitration
Committee shall be accepted as final and binding upon both Parties. The losing
Party shall bear the arbitration expenses.
44. During arbitration, the articles of this Contract shall continue to
be carried out except those parts under arbitration.
Chapter 20. The Contractual Language
45. This Contract is made in the Chinese language.
Chapter 21. Validity of This Contract and Others
46. The appendices, including the Articles of Association and the List
of Imported Materials, shall all be parts of this Contract.
47. This Contract and the appendices shall come into force on the day
of approval by the Ministry of Foreign Trade and the Economic Cooperation of the
People's Republic of China or by entitled authorities by the Ministry.
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48. In case one Party should send notices to the other Party by fax or
telegram and the notices should involve the other Party's right and liabilities,
it shall send the other Party a letter bearing the same information. The
addresses of both Parties in this Contract shall be the addresses to which to
send the information.
49. This Contract is signed by the legal representatives from both
Parties on June 25, 1994 in Cangzhou, China.
Party A: Party B:
Qingxian Cement Factory Heng Fai China Industries Limited
Legal Representative: Legal Representative:
/s/ Zhang Jicheng /s/ Fai H. Chan
- ---------------------------------- -----------------------------
Zhang Jicheng Fai H. Chan
June 25, 1994
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Supplementary Agreement
This Supplementary Agreement is made by and between China Qingxian
Cement Factory (hereinafter referred to as Party A) and Heng Fai China
Industries Limited, Hong Kong (hereinafter referred to as Party B) on the basis
of equality and mutual benefit and in accordance with the Law of the People's
Republic of China on Chinese-Foreign Contractual Joint Ventures and other
relevant laws and regulations and with the Contract and the Articles of
Association of Cangzhou Jiuhe Cement Co., Ltd (hereinafter referred to as the
CJV).
1. Party B, in order to continue the operation in the initial period of
the CJV, shall agree to the use by the CJV of the existing working capital of
Party A for one year after the CJV is established and the CJV shall pay Party A
the interest according to the interest rate of the contemporaneous bank loan and
shall pay back the capital to Party A by installment within the current year.
The CJV shall apply for loan from banks for the shortage of the working capital.
2. The two Parties shall inject into the CJV their due capital within 6
months from the day on which the business license is issued. Party B shall,
within 10 days after the Contract of the CJV is signed, inject into Party A's
account 11,500 US dollars (equal to 100,000 RMB yuan) as the first contribution
of Party B. In case Party A should fail to perform its duties specified in the
Contract and the Articles of Association of the CJV before the business license
is obtained, Party B shall have the right to terminate the Contract and Party A
shall pay back to Party B the first contribution. In case Party B should fail to
perform the Contract and the Articles of Association, Party A shall have the
right to terminate the Contract and the first contribution of Party B shall
finally belong to Party A.
3. Appropriation of Profits
Profits of the CJV shall be distributed to each Party every six months
according to the prescribed rate. The distributing program and the amount
payable to each Party shall be published within 2 months after each
semi-accounting year.
4. Party A shall agree to the commission of Cangzhou Keng Fong
Investment & Consultancy Co., Ltd (hereinafter referred to as CZ Keng Fong) by
Party B to act as Party B's agent in charge of all affairs of Party B in the
CJV.
1) On the day Party B makes its due contribution to the CJV, Party A
and Party B shall pay CZ Keng Fong a consulting fee which is 3% of the total
contribution of Party B, of which Party A shall pay 0.9% and Party B shall pay
2.1%. The consulting fee shall be entered into the CJV's organization expenses
as the item of deferred assets.
2) After the first contribution of Party B to the CJV, Party A shall
agree that a team of three members by CZ Keng Fong representing Party B will
come to the Cement Factory to carry out examination of the Factory and present a
report on whether to continue or terminate the Contract.
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3) Party A shall agree, after Party B injects all the due capital into
the CJV, that CZ Keng Fong, entitled by Party B, will send accountants and
managerial personnel to the CJV to participate in the daily management of the
CJV. The wages and salaries of the personnel shall be paid by the CJV to CZ Keng
Fong.
5. The Board of Directors shall appoint the first General Manager and
the deputy General Manager who are nominated by Party A and shall appoint the
standing deputy General Manager who is nominated by CZ Keng Fong and entitled by
Party B. The wages of the standing deputy Manager entitled by Party B shall be
paid by the CJV per month to CZ Keng Fong.
6. This Supplementary Agreement, as the major appendix to the Contract
of the CJV, shall be of the equal validity of the Contract.
7. All disputes in connection with this Agreement shall be settled
through friendly negotiations. Where no settlement can be reached, the disputes
shall be submitted to the Arbitration Committee of the China Council for the
Promotion of International Trade or its Shenzhen Office for arbitration. The
decisions of the Arbitration Committee shall be accepted as final and binding
upon both Parties.
8. After this Agreement comes into effect, both Parties shall observe
it earnestly. In case one Party should fail to perform this Agreement, the other
Party shall have the right to claim from it.
9. This Agreement is made in the Chinese language.
10. This Agreement shall come into force with the signatures of the
representatives from both Parties and with the approval of Cangzhou Bureau of
Foreign Trade and Economic Cooperation.
11. This Agreement is signed by the authorized representatives from
both Parties on June 25, 1994 in Cangzhou, China.
Party A: Party B:
Qingxian Cement Factory Heng Fai China Industries Limited
Legal Representative: Legal Representative:
/s/ Zhang Jicheng /s/ Fai H. Chan
- ------------------------------------- --------------------------------
Zhang Jicheng Fai H. Chan
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I hereby certify that the foregoing is a fair and accurate translation
of this document which was originally prepared in Chinese.
/s/ Heng Fai Chan
Heng Fai Chan, President
Heng Fai China Industries, Inc.
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EXHIBIT 10.2
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CONTRACT
Chapter 1. General Provisions
In accordance with the Law of the People's Republic of China on Joint
Ventures Using Chinese and Foreign Investment and other relevant Chinese laws
and regulations, Hebei Cangzhou Area Construction Material Factory, China, and
Heng Fai China Industries Ltd., Hong Kong, adhering to the principle of equality
and mutual benefit, through friendly negotiations, agree to the establishment of
a joint venture company in Shijiazhuang City Hebei, China. The contract
hereunder is worked out.
Chapter 2. Parties of the Joint Venture
1. The parties of this contract are as follows:
Hebei Cangzhou Area Construction Material Factory, China
(hereinafter referred to as Party A), registered in Cangzhou City.
Legal address: Yian zhen, Shijiazhuang City, China.
Legal representative: Zhao Zhenguo.
Position: Factory director.
Nationality: P.R. China.
Heng Fai China Industries Ltd (hereinafter referred to as
Party B), registered in Hong Kong.
Legal address: 7th Floor, Baskerville House, 22 Ice Street,
Central, Hong Kong. Legal representative: Heng Fai Chan.
Position: Chairman of the Board. Nationality: Britain.
Chapter 3. Establishment of the Joint Venture
2. Party A and Party B, in accordance with the Law of the People's
Republic of China on Joint Ventures Using Chinese and Foreign Investment and
other relevant Chinese laws and regulations, agree to set up the Joint Venture
Company (hereinafter referred to as the JVC), Hebei Iron Lion Cement Co., Ltd.,
within the territory of the People's Republic of China.
3. The name of the JVC shall be: Hebei Iron Lion Cement Co., Ltd.
Legal address: Yian zhen, Shijiazhuang City, China.
4. All the activities of the JVC must be governed by the laws, decrees
and pertinent rules and regulations of the People's Republic of China.
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5. The organization form of the JVC shall be a limited liability
company. Each party to the JVC is liable to the JVC within the limit of the
capital scribed by it. The profits, risks, and losses of the JVC shall be shared
by the parties in proportion to their contributions of the registered capital.
Chapter 4. The Purpose, Scope and Scale of Production and Business
6. The objectives of the JVC shall be, on the basis of economic
cooperation and technical exchange and by adopting domestic advanced
technologies, to establish 200,000-ton vertical-kiln production lion [sic],
partly transform the technology, develop the mine resources, so as to reach the
production capacity of 800,000 tons and at last 1,200,000 tons to improve the
quality of cement through scientific management so that the cement the JVC
produced shall enjoy priority both in quality and price in the market
competition and to increase economic returns and satisfactory profits.
7. The business scope of the JVC shall be to produce and sell series
products of cement; to develop new products.
8. The business scale of the JVC shall be to produce, annually, 800,000
tons of series products of cement, and 1,200,000 tons within 10 years.
Chapter 5. Total Amount of Investment and the Registered Capital
9. The total investment of the JVC is 134,615 million RMB yaun (equal
to 14,473 million USD), among which the registered capital shall be 134,615
million RMB yaun (equal to 14,473 million USD). The JVC can get 2.30 million USD
of loan from foreign financial institution.
10. Party A shall contribute 64.615 million which shall be 48% of the
total registered capital and Party B shall contribute 8.04 million USD (equal to
70 million RMB yuan) which shall be 52% of the total registered capital.
11. The two Parties shall contribute to the JVC in the following
manner:
Party A shall inject its 60,000-ton production line and the premises,
infrastructure, the right to use the site, and the industrial property right
(see the attached appendix).
The total assets of Party A shall be appraised by the appraising
organization which the two parties both agree before injection. The appraised
value shall be the basis of its injection. The Party A's assets transcend 64,615
million yuan will be rented by the JVC. Party B shall provide its injection in
cash, and shall provide the concerned technology freely. Party B shall be in
charge of getting 2.30 million (equal to 20 million RMB yuan) of loan from
foreign financial institution according to the requirement.
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12. The two Parties shall inject all their respective capital in stages
after obtaining the business license. Party A shall totally contribute its
injection in one time within 3 months after obtaining the license, in the same
time Party B shall inject 40 million RMB yuan as the first installment of its
contribution, the remaining shall be injected within 12 months after obtaining
the license according to requirement of the subject.
13. The JVC can't reduce its registered capital in the duration of the
coorperation [sic].
In case the JVC should increase or transfer its registered capital, it
must have the board's unanimous consent and approval of the Bureau of Foreign
Trade and Economic Coorperation [sic] of Cangzhou, and handle the registration
procedures for such changing in the Administration Bureau for Industry and
Commerce of Cangzhou.
In case one Party should transfer part or all of its registered
contributions to a third Party, it must have the consent of the other Party and
obtain the approval from the Administrative Bureau for Industry and Commerce of
Cangzhou City. When one Party should transfer part or all of its contributions,
the other Party shall enjoy the priority in purchasing it.
Chapter 6. Responsibilities
14. Party A and Party B shall assume the responsibilities set forth
below:
Responsibilities of Party A:
1) Handling the application for approval, registration, business
license concerning the establishment of the JVC from relevant department in
charge in China; the expenses will be shared by the two Parties;
2) Injecting in time due capital into the JVC according to the
Stipulations of Articles 11 and 12 of this Contract;
3) Assisting the JVC in purchasing or leasing equipment, materials, raw
materials, articles for office use, means of transportation, and communication
facilities;
4) Assisting the JVC in contacting and settling the fundamental
facilities such as water, electricity and transportation etc.;
5) Assisting the JVC in recruiting Chinese management and technical
personnel, workers and other personnel needed;
6) Assisting foreign workers and staffs in applying for the entry visa,
work license and processing their travelling matters;
7) Handle the changing procedure of the exploit right of the mine;
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8) Other affairs entrusted by the JVC.
Responsibilities of Party B:
1) Injecting into the JVC due capital according to the Stipulations of
Articles 11 and 12 of this Contract, assisting Party A for applying for and
obtaining approval and business license and registrating affairs, providing the
materials needed;
2) Assisting JVC develop and import new products, sell part of its
products abroad;
3) Sending staffs into the factory to make investigation and study
after the contract signed, and to attend the construction and management affairs
of JVC after the first lot of capital is injected;
3) [sic] In charge of collecting capitals needed for the JVC to reach
its designed capacity of 100,000 tons of cement within 10 years;
4) [sic] Put into Party A's bank 11,500 USD (equal to 100,000 RMB yuan
within 20 days after this contract is signed as down payment;
4) [sic] Other affairs entrusted by the JVC.
Chapter 7. Distribution of Profits
15. The JVC shall draw the profits after duties 10% as accumulation
fund, 5-10% as public welfare fund. The particular rate for every year shall be
decided by the board adhering to the business situation.
16. The profits after duties and funds shall be distributed every half
year or one year. After the first lot of injection contributed, Party B can
attend distribution of profits, the term shall be counted from the injection
date. The profit shall be distributed according to the ratio of actual capital
to registrated capital, after Party B has actually injected its capital, the
profits shall be distributed at the following rate: Party A 48%, Party B 52%.
Party B can remit its annual net profit to the appointed bank abroad according
to the stipulations of the Provisional Regulations of the People's Republic of
China on Foreign Exchange Control.
17. After the first lot of injection from Party B is actually
contributed to the JVC, in case there is loss, it should be shared by the
parties according to their ratio to the registered capital.
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Chapter 8. Selling of Products
18. The products are mainly sold on the domestic market, when it is
possible the products will be sold on overseas markets.
19. The JVC may export the products through following channels:
1) The JVC may export the products directly;
2) Sign the sales contract with Chinese foreign trade corporations,
entrusting them to be the sales agencies and the exclusive sales agencies;
With the reference to the price on the international market and foreign
trade corporation's export price, the board shall decide the export price
according to the quality of the product. The specific price General President
decided shall be approved by the Chairman of the Board.
20. The sales affairs on Chinese market shall be in charged by the JVC.
21. "Iron Lion" is the trade mark of the JVC's products.
Chapter 9. The Board of Directors
22. The day on which the JVC is registered shall be the day on which
the Board of Directors is established. Party B can't interfere with the normal
business management of the original factory before its capital is injected.
23. The Board shall consist of 7 members, three of which, including the
Vice-Chairman, shall be appointed by Party A, and four of which, including the
Chairman, shall be appointed by Party B. The terms of the Chairman and Directors
shall be 5 years and their terms can be renewed if continuously appointed by
each Party.
24. The Board shall be the highest authority to decide all the
important businesses of the JVC adhering to the principle of equality and mutual
benefit. The following items shall have the unanimous consent of the Board:
1) Modification of the Articles of Association;
2) Transferring of the registered capital of the JVC;
3) Termination and disincorporation of the JVC;
4) Merging of the JVC with other economic organizations.
Decisions for other affairs shall be made by simple majority of the
Board. Decisions to recruit or dismiss the General President, standing
vice-President, the developing plan for the
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JVC, the production and business plan, the budget program, distribution of
profits and the plan for wages shall be made by more than two thirds of
Directors.
25. The Chairman of the Board is the legal representative of the JVC.
When the Chairman is not able to exercise his responsibilities, he shall
authorize the Vice-Chairman or other Directors to be his representative
temporarily.
26. The Board of Directors shall convene at least twice every year. The
Meeting shall be called and presided over by the Chairman of Board. Temporary
meetings shall be called by the Chairman at the proposal of one third of the
Directors. The minutes of the meetings shall be written in Chinese and be filed.
Chapter 10. Business Management Office
27. The JVC shall establish the business management office to be in
charge of the daily management. The General Manager shall be nominated by Party
A and the standing deputy manager in charge of financial affairs shall be
nominated by Party B. Some deputy managers shall be appointed by the board
according to the sum put forward by the General President. Both the General
Manager and the deputy General Managers shall be finally engaged by the Board
and their terms shall be three years.
28. The responsibilities of the General Manager is to carry out all the
decisions by the Board Meeting and organize and conduct the daily management of
the JVC. The standing deputy General Manager shall assist the General President
in his work and act on the General President's behalf with his authorize when he
is absent. The chief engineer, chief accountant, chief auditor shall be
responsible to the General President, and in charge of technology, financial and
audit affairs respectively. The chief accountant shall be recommended by Party
A. In management office, some department managers shall be appointed. Among
which, the financial manager and vice-manager shall be recommended by Party B
and Party A respectively.
29. The Board Meeting shall make decisions to dismiss the General
Manager and the deputy General Managers in case they should engage in
malpractice for selfish end and severely neglect their duties.
Chapter 11. Purchase of Materials
30. In purchasing required raw materials, fuel, spare parts, machinery
and equipment, vehicles of transportation and articles for office use shall be
purchased firstly in China.
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Chapter 12. Preparation and Construction
31. During the period of preparation and construction, a Preparation
and Construction Office shall be set up under the Board of the Directors.
32. The Preparation and Construction Office is responsible for the
following concrete activities: examining the design of the project, signing
project construction contract, organizing the purchasing and inspecting of
relevant equipment, materials, etc., working out the general schedule of project
construction, complying the expenditure plans, controlling project financial
payments and final accounts of the project, drawing up managerial methods, and
keeping and piling documents, drawings, files, and materials, etc. during the
construction period of the project.
33. The Preparation and Construction Office shall be in charge of
examining, supervising, inspecting, testing, checking, and accepting, evaluating
the project design, the equipment and materials.
34. The establishment, remuneration and the expenses of the staff of
Preparation and Construction Office, when agreed by both parties shall be
covered in the project budget.
35. After completing the project and finishing the turning over of the
procedures, the Preparation and Construction Office shall be dissolved upon the
approval of the Board of Directors.
Chapter 10. Labor Management
36. The labor contracts covering the recruitment, employment,
dismissal, and registration, wages, labor insurance, welfare, rewards, penalty
and other matters concerning the staff and workers of the JVC shall be drawn up
between the JVC and the Trade Union of it as a whole in accordance with the
concerned regulations and implementations of China.
37. The JVC must pay Party A fees of labor insurance and medical
treatment and the subsidies in accordance with the state enterprise's standard
in time, then Trade Union will supervise the usage of it and turn over to the
financial department.
38. The salary standard of the staff from other countries, Hong Kong
and Macao shall be decided by the board according to the standard of where they
come from.
The Board of Directors shall decide appointment of high-ranking
administrative personnel recommended by both parties and the salary, social
insurance, welfare and the standard of travel expenses etc for them. The
high-ranking administrative personnel from Party A and Party B shall enjoy the
equal pay for equal work.
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39. The JVC shall be governed by the Labor Law of the People's Republic
of China and the relevant laws, regulations and detailed rules, then the JVC can
employ workers and have the full power in the management of salary and
personnel.
40. The JVC implement the vacation and sick leave system referring that
of Cangzhou Area Construction Materials Factory, and pay the salaries as ruled
originally.
41. The JVC shall arrange fitable posit [sic] for old and sick workers,
otherwise implement the retire system inior [sic] the factory, and pay them
according the rules of Cangzhou Area Construction Materials Factory.
42. The JVC shall comply with the Protection Regulations on Female
Workers, protect the legitimate rights and interests, the female workers shall
enjoy the equal pay for equal work. The JVC shall employ not less than 20%
female workers.
43. The Trade Union
1) The Trade Union must be organized with the democratically selected
representatives.
2) The Trade Union shall protect the legitimate rights and interests
according to the stipulations of laws and regulations, coorporate [sic] with the
JVC for development.
3) The Trade Union can consult with the JVC or araise for arbitration
or take lawsuits in case the JVC invade the interests of staffs and workers.
4) The Chairman shall join in making decisions concerning the major
affairs.
5) The Trade Union have the right to work independently without the
restriction from the JVC.
6) The expenses for the Trade Union shall be paid from salaries
according to the stipulations of the People's Republic of China.
Chapter 14. Foreign Exchanges Control
44. The JVC shall manue [sic] the foreign exchange affairs according to
the Provisional Regulations on Foreign Exchange Control of the People's Republic
of China and other regulations.
45. The JVC shall open the account in Bank of China or other banks it
agrees. All the foreign exchange incomes shall put into the account, and the
expenditures shall be drawn from the account.
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46. The JVC shall apply for foreign exchange and RMB loans according to
the Provisional Regulations on the Bank of China manue [sic] Loans for the Joint
Venture Companies Using Foreign and Chinese Investment.
Chapter 15. Taxes, Finance and Audit
47. The JVC shall pay all the due taxes according to the relevant laws
and regulations of the People's Republic of China.
48. The JVC shall draw the accumulation fund, and public welfare fund
according to the stipulations of the Company Laws of the People's Republic of
China. The particular rate for every year shall obey the stipulations of Article
15.
49. The accounting year of the JVC shall coincide with the calendar
year, i.e. from January 1 to December 31 on the Gregorian calendar.
All the JVC's accounting books, statements and documents shall be
written in Chinese.
50. The JVC shall invite the public accountants chartered in China to
examine and retrace its finance and shall report the results to the Board and
the General Manager.
In case Party B thinks it necessary to invite foreign auditors to carry
out annual audit, Party A shall agree to it and Party B shall bear all the
expenses.
51. The general manager shall, within the first three months of each
operating year, be in charge of making the balance sheet, the statement of
profits and losses and the program of distributing the profits and shall report
them to the Board for approval.
Chapter 16. Duration of the JVC
52. The term of the JVC shall be 30 years. The day on which the
business license is issued shall be the day on which the JVC is established.
53. With the unanimously approval of the two parties and decision of
the Board, the JVC shall submit an application to the Bureau of Foreign Trade
and Economic Cooperation of Cangzhou for prolonging the JVC 6 months prior to
the expiration of the JVC. If approved, the JVC shall be prolonged.
Chapter 17. The Disposal of Assets After the Expiration of the Duration
54. Upon the expiration of the duration or termination before the date
of expiration of the JVC, liquidation shall be carried out according to relevant
laws. The liquidated assets shall be distributed in accordance with the
proportion of investment by Party A and Party B.
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Chapter 18. Insurance
55. All-risks insurance policies of the JVC shall be underwritten with
The People's Insurance Company of China. The type, value, and duration shall be
decided by the Board of Directors in accordance with the stipulations of the
People's Insurance Company of China.
Chapter 19. The Amendment, Alteration and Discharge of the Contract
56. The amendment of the contract or other appendices shall come into
force only after the written agreement signed by Party A and Party B and
approved by the original examination and approval authority.
57. In case of inability to fulfill the contract or to continue
operation due to heavy loss in successive years as a result of force majeure,
the duration of Joint Venture and the contract shall be terminated before the
time of expiration after unanimously agreed upon by the Board of Directors and
approved by the original examination and approval authority.
58. Should the JVC be unable to continue its operations or achieve the
business purpose stipulated in contract due to the fact that one of the
contracting parties fails to fulfill obligations prescribed by the contract and
the articles of association, or seriously violate the stipulations of the
contract and articles of association, that party shall be deemed as the
unilaterally terminates the contract. The other party, apart from claiming
damages, shall have the rights to terminate the contract in accordance with the
provisions of the contract after it is approved by the original examination and
approval authority. If Party A and Party B of the JVC, agree to continue the
operation, the party who fails to fulfill the obligations shall be liable for
the economic losses thus caused to the JVC.
Chapter 20. Liabilities for the Breach of Contract
59. In case Party B should fail to contribute in time the capital to
the JVC specified in Chapter 5 of this Contract and still fail to make the
contribution after 3 months, Party A shall have the right to terminate this
contract according to Article 53 of this Contract and shall have the right to
expropriate the down payment.
60. In case Party A should fail to contribute in time the capital to
the JVC specified in Chapter 5 of this Contract and still fail to make the
contribution after 3 months, Party B shall have the right to terminate this
contract according to Article 53 of this Contract and shall have the right to
demand Party B to return two times of the down payment.
61. In case this Contract and the appendices cannot be implemented or
part of them cannot be implemented due to one Party's fault, this Party shall
bear the responsibilities thus caused. Should it be fault of two parties they
shall bear their respective responsibilities according to actual situations.
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Chapter 21. Force Majeure
62. Should either of the parties to the contract be prevented from
executing contract by force majeure, such as earthquake, typhoon, flood, fire,
war and other unforeseen events, and their happening and consequences are
unpreventable and unavoidable, the prevented party shall notify the other party
by cable without any delay, and within 15 days thereafter provide the detailed
information of the event and a valid document for evidence issued by the
relevant public notary organization for explaining the reason of its inability
to execute or delay the execution of all or part of the contract. Both parties
shall, through consultations, decide whether to terminate the contract or to
exempt the part of obligations for implementation of the contract or whether to
delay the execution of the contract according to the effects of the events on
performance of the contract.
Chapter 22. Applicable Laws
63. The formation of this contract, its validity, interpretation,
execution and settlement of disputes shall be governed by related laws of the
People's Republic of China.
Chapter 23. Settlement of Disputes
64. All disputes arising from the execution of, or in connection with,
the contract shall be settled through friendly consultations between both
parties. In case no settlement can be reached through consultation, the dispute
shall be submitted to arbitration organizations of China. The arbitral award is
final and binding upon two parties. The losing Party shall bear the arbitration
expenses.
65. During arbitration, the contract shall be executed continuously by
both parties except for matters in disputes.
Chapter 24. Language
66. The contract shall be written in Chinese and in English. Both
language have the equally authenticity. In event of any discrepancy between the
two aforementioned versions, the Chinese version shall prevail. Both parties
shall have the two versions.
Chapter 25. Effectiveness of the Contract and Miscellaneous
67. The appendices, including the Articles of Association, shall all be
parts of this Contract. In case there is any discrepancies between the contract
and the articles, the contract shall prevail.
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68. This Contract and the appendices shall come into force on the day
of approval by the Bureau of Foreign Trade and the Economic Corperation [sic] of
Cangzhou City.
69. Should notices in connecting with any party's rights and
obligations be sent either by Party A or by Party B telegram or telex, etc., the
written letter notice shall be also required afterwards. The legal address
listed in the contract shall be the posting address.
70. The contract is signed in Shijiazhuang City, China by the
authorized representatives of both Parties on September 3, 1994.
Party A: Party B:
Cangzhou Area Construction Materials Heng Fai China Industries Limited
Factory
Legal Representative: Legal Representative:
/s/ Zhao Zhenguo /s/ Fai H. Chan
- ------------------------------ ------------------------------------
Zhao Zhenguo Fai H. Chan
September 3, 1994
I hereby certify that the foregoing is a fair and accurate translation
of this document which was originally prepared in Chinese.
/s/ Heng Fai Chan
Heng Fai Chan, President
Heng Fai China Industries, Inc.
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EXHIBIT 10.3
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Contract of Tenancy
Lessor: China Hebei Cangzhou City Chemical Corporation
Lessee: Heng Fai Light Products Co., Ltd.
According to the "Economical Contract Law of the People's Republic of
China" and other relative regulations, after negotiation between the two
parties, the lessor and lessee get to the following contract about the renting
of the cement plant property:
1. The nomenclature, quantity, quality and use of the property, please
see Attachment 1.
2. The total renting term is 5 years, starting from January 1, 1995 and
ending by December 31, 1999.
3. The total rent is RMB 1.2 million Yuan. Both parties agreed that the
rent be used on the revolution of the cement technology, expanding the
production capacity to 20,000 tons within one year (by the end of 1995). Other
capitals such as profit and loans can also be used to increase the production
capacity to 38,000 T/year within 5 years, reaching the designed production
capacity.
4. The lessor agrees that the lessee can use the nomenclature, label
and the land using rights free of charge. However, if the lessor finds out that
the lessee is cheating the consumers with unqualified or not properly
quality-controlled products and so on, the renter has the right to stop the
lessee's using of the registered label and the lessee should be responsible for
all losses so caused.
5. The treatment of stocks
a. With both parties checking the capitals, the lesser should give the
current stock (not including the products) as well as the renting property to
the lessee. And the lessee should take the actual accounting price after
checking and rearrange it as the starting accounting. When the lessee does the
liquidation at the end of the renting period, or if any part quits the renting
or if the rentee would reform the managing forming and do the property checking,
the last accounting price should be the actual accounting after checking,
rearranging and adjusting by both parties. If the last accounting is larger than
the initial one, the lessee should pay the lessor what that is more than the
initial accounting; and if the last accounting is smaller, the lessor should pay
the lessee back the actual amount.
b. While checking the property, the lessor should give the current
products as well as the renting property to the lessee. And the lessee should do
the accounting according to the balance of the yearly average selling price of
1994. At the time when the renting period is due,
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the renting is stopped or if the economical form is reformed and the lessee is
doing the property checking, the products and stock after checking by both
parties should be accounted according to the average yearly selling price in the
current year. The balance should be accounted according to what it is stated in
"a".
c. The above items that need checking should be paid within a month
after the ending of this renting.
6. Some relative items
a. The lessor should supply to the lessee water, power and gas
according to the yearly production plan (The water and power should be charged
according to the unified price of the Chemical Corporation), and the gas price
is a little lower than that of the market and higher than the lessor's checking
price. However, the calcium powder can be used free of charge according to the
actual cement production.
b. During the renting period, the lessor and lessee should keep the
relationship with the lessor and the original cement plant in the using of raw
materials and the manufacturing of spare parts as well as the craning of large
equipments. And the lessee should pay out at the end of each season according to
the original paying system.
c. Public equipment (such as warm gas, means of communication, etc.)
using fee will be charged by the lessor according to general standards. If the
lessee needs renting office equipment and transportation means for raw materials
and products in the production process, payments should be made according to the
checking price of the lessor. The price unit is T/mile.
d. The lessor agrees to do the contacting of the railway transportation
for the lessee free of charge.
e. The lessor agrees to supply the lessee bank working capital, loan
guarantee with the total amount less than 30% of the yearly sales income.
7. Rights and obligations
a. The lessor should transfer all the property items in good condition
to the lessee according to the time limit agreed by both parties. Every
production equipment should meet the process demands.
b. During the renting period the lessor has the right to supervise the
using and maintaining work of the equipment to keep the rented properties
complete.
c. During the renting period the lessor should guarantee that the legal
rights of the lessee will not be infringed and that the production supplies
(water, power, roads, etc.) will be
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properly supplied. The lessor should not interfere with the production and
managing activities of the lessee.
d. During the renting period, the lessor has the obligation to educate
the employees who come from the lessor's side to obey all the regulations of the
lessee and work hard. At the same time, the lessor has the right to supervise
that the legal rights of the employees not be infringed.
e. During the renting period, the lessee should keep the rented
properties complete and in good condition through proper using and maintaining.
f. If the lessee needs to reform the rent equipment and the plant for
production needs, agreement from the lessor is necessary. Or else the loss so
caused should be paid by the lessee.
g. Rent should be paid in time.
h. During the renting period, the lessee should do the managing
independently according to the law and take full responsibility of winning and
losses. While enjoying production and managing rights, the lessee should also
take the responsibility of paying the tax, industry and commerce managing fee,
environmental fee and fees that should be paid to the quality supervising
department and soon. Fees for water and power should be paid to the lessor in
time.
i. After the renting, the lessee rerecruits the workers and has the
right to decide the managing formality. The lessee also has the right to
terminate the contract according to the law and relative regulations and dismiss
or fire employees. The lessee also has the responsibility to do the
birth-control work of the employees and accept the relative work arrangement of
the managing people from the lessor's party.
j. The rentee should organize the occupational organization and mass
democratic managing organizations (Worker's Association) and at the same time
accept the supervising of the General Worker's Association of the Chemical
corporation.
8. The obligation and liability of enterprise and the treatment of left
over losses.
a. The lessor should be responsible for the left over loss, obligation
and liability before the renting. And because of the business contact the rentee
should appoint a person be specially in charge of the left over problem-solving
and report to the lessor every month, accept checking until the problem-solving
is completed. This should not influence the daily production work during the
renting period.
b. The obligations and liabilities happened during the renting period
should be taken back or paid back by the lessee.
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9. The employees hired by the lessee from the lessor's part (who belong
to the lessor's part before the end of the October, 1994) enjoy the same right
with those still working at the lessor's plant in housing and other welfare and
should have the same responsibility as well. The lessor agrees to supply work
meals for employees of the lessee's plant and the cost should be paid by the
lessee by month.
10. The changing and terminating of the contract
a. None of the cooperating side should terminate the contract without
negotiation with the other side except under one of the following circumstances
when the contract can't be implemented.
a.1. Force majeure or causes from outside world that the concerned side
cannot do anything about and that it is not the fault of the party concerned.
a.2. One side breaks the contract.
b. If one side demands to change or terminate the contract, a written
announcement should be made and the original contract is valid before getting to
an agreement.
After getting the written announcement, the receiving side should give
its reply within 15 days. Or else the other side may regard it as silent
agreement.
c. On the condition that the lessor agrees that the legal
representative is not changed, the lessee may change the plant's name or
continue the renting in the name of other enterprise of the lessee with the same
renting conditions listed on this present contract. If the lessor wants to
continue with the renting, the present lessee should be the first consideration.
d. During the renting period, the renting relation can be terminated
after negotiation between both parties and a cooperative corporation can be set
up under another negotiation.
11. If any party breaks the contract, all economical loss so caused
should be paid to the other side.
12. If any party breaks the contract, RMB 40,000 Yuan should be paid to
the other side for punishment.
13. The returning and liquidation of property at end of renting period.
a. 6 months before the ending of the contract, both parties should get
to a decision as to whether further renting is necessary.
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b. At the end of the renting period, if the lessee doesn't want to
continue renting, cooperative checking of the enterprise property should be made
and the lessee should make sure that the property can be working under normal
circumstances.
14. The details of this contract should be made definite by the end of
December 1994. And it should be signed by both parties together with Attachment
1 and become valid afterwards.
Other unfinished matters should be negotiated later.
15. The settlement of disputes
When there is a dispute over this contract, negotiation should be made
first. If no negotiation can be made, the cooperative parties should go to the
Economical Contract Arbitration Committee of the Industry and Commerce Executive
Managing Bureau. It's arbitration is final.
16. This contract is valid on the day both parties finish the signing.
There should be two copies of the original and each party holds one.
17. This contract should be signed by representatives of both parties
in Hong Kong on October 20, 1994.
Legal representative from Legal representative from
the lessor's party: the lessee's party:
Signature: Signature:
China Hebei Cangzhou City Heng Fai Light Products Co., Ltd.
Chemical Corporation
I hereby certify that the foregoing is a fair and accurate translation
of this document which was originally prepared in Chinese.
/s/ Heng Fai Chan
Heng Fai Chan, President
Heng Fai China Industries, Inc.
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