Exhibit 1.1
Initial Stage Joint Venture Agreement
1. GENERAL PROVISIONS
1.1 In accordance with the "Law of the P.R. China on Joint Venture Using
Chinese and Foreign Investment" and other relevant published laws and
regulations of China, the following Parties
Party A: Chinese Party:
Party C: Foreign Party
Party B: Chinese Party;:
have an intention to invest in the Joint Venture Enterprise:
2. PARTIES TO THE JOINT VENTURE
2.1 Parties to the Intended Joint Venture under this contract are as
follows:
Party A: Chinese Party:
Baogang Steel Union ( Baotou Steel )
President Cao Zhongkui
Nationality: China
China Inner Mongolia Boagang Steel Union (Baotou Steel) is
incorporated in Inner Mongolia, People's Republic of China, with
registered capital of RMB 12.5 Billion Yuan. Baotou Steel is listed in
Shanghai Stock Exchange. Baotou Steel's business is steel products
production, marketing and sales;
Party B: General Steel Investment Holding, ( General Steel )
President Yale
Nationality: USA
General Steel is part of a United States Public Company; incorporated
in British Virgin Island. General Steel's business is focused on
investing in Chinese Steel industry via US capital market vehicle;.
Party C: Da Qiu Zhuang Metal Plate Company ( Qiu Steel)
President Yu Zuo Sheng
Nationality: China
Daqiuzhuang Metal Plate Company is registered in Daqiuzhuang Tianjing
City, People's Republic of China; Qiu Steel's business is hot roll
sheet metal production, marketing and sales.
Parties A, B and C may as the contract requires be herein after
referred to individually as a "Party" and collectively as the
"Parties."
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Each of the Parties hereby presents and warrants to the other Party
that it has full legal authority and the power to enter into this
contract and perform its obligations hereunder and that its
representation named above is duly authorized to sign this contract
and other relevant documents on behalf of such Party.
3. ESTABLISHMENT OF THE JOINT VENTURE
3.1 In accordance "Law of the P.R. China on Joint Venture Using Chinese
and Foreign Investment" and other relevant published laws and
regulations, the Parties agree to establish a Joint Venture Limited
Liability Company (hereinafter referred to as "Joint Venture" or "JV")
within the Chinese territory.
3.2 The name of the Joint Venture shall be: Baotou General Plate Company
Limited; The name is subject to further discussion and decision of the
Board of Directors. The legal address of the Joint Venture will be
located at West River Band Industrial District, United Baotou Steel
Corporation facility; Kung Du district, Baotou City, Inner Mongolia,
Peoples' Republic of China;
3.3 All activities of the Joint Venture in China shall be governed by the
laws, decrees and relevant rules and regulations of the People's
Republic of China.
3.4 The form of organization of the Joint Venture shall be a limited
liability company. The liability of each Party is limited to making
contribution to the registered capital in accordance with item 5 of
this contract, including each Party's stake in all other capital
increases decided in compliance with the Chinese regulations; The
profits of the Joint Venture shall be shared by the Parties in
proportion to their respective subscribed contributions to the
registered capital of the Joint Venture. The Joint Venture equity
interest and profits shall be shared 49% by Party A , 41% to Party B
and 10% by Party C. The liability of each Party to the Joint Venture
is limited up to the Parties respective contribution of the registered
capital of the Joint Venture.
4: PURPOSES, SCOPE AND SCALE OF PRODUCTION AND BUSINESS
4.1 The purposes of the Joint Venture shall be, in conformity with the
wish of strengthening economic cooperation and technical exchanges, to
improve the product quality and the production capacity, develop new
products and gain competitive position in both the domestic and
international markets in quality, variety and price by adopting
advanced technology in the production of Steel Plate, and scientific
management methods, so as to constantly raise economic results and
ensure satisfactory economic benefits for each Party.
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4.2 The scope of business of the Joint Venture shall be to: The produce
and sell Steel Plate. The products made by the Joint Venture shall be
sold on the domestic market and International market;
JV will form a Organization Team (Team) of five person for this
project; Party A will recommend one person as team leader in charge of
the project; Party B will recommend one person as vice team leader;
The Team will have two department: Technical and Business;
Team has duties as follow:
- Will classify duties of all parties and technical issues of
the project;
- Will propose and monitor the processing of JV company;
- Will propose management team, company structure and nominees
of Board of Directors of JV;
- Will prepare JV corporation articles, proposals and report
for Board of Directors of JV;
- Will coordinated with all parties
The Technical department of the Team has duties as follow:
- Collect all the information relate with production line, out
sourcing to related parties and coordinate with all parties;
- Make Technical proposal, and getting approved by experts
- Design production line the blue print, and define detail
technical issue and getting solution for the project;
- Coordinated will all parties;
The Business Department of Team has duties as follow:
- Collect all the legal and financial documents of all
parties;
- Make proposal for JV Memorandums if necessary;,
- Propose article of cooperation of JV company;
- Apply for government approval;
- And all business related issues;
The team will dissolved one the joint venture company is established;
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4.3 The production scale of the Joint Venture shall be as follows:
- JV will purchase, dissemble and shipping back the production
of Platco Plate Mill in Canada to site of JV company's
address: West River Band Industrial District, United Baotou
Steel Corporation facility; Kung Du district, Baotou City,
Inner Mongolia, Peoples' Republic of China; Plateco Plate
mill is designed for producing steel plates with 3.8 meter
width, 800000 tons annually; The dissemble, shipping and
installation time is estimated for 12 months;
- Production capacity will be improved to 12,000,000 metric
tons a year;
- The production will connected with United Baotou Steel's two
furnaces- continues costing production lines with 210 tons
of capability, which is capable to satisfy all the raw
material needs for JV production line;
5: TOTAL INVESTMENT, REGISTERED CAPITAL AND OWNERSHIP
5.1 The total amount of the investment and the registered capital of the
Joint Venture is estimate as Ninety million U.S. DOLLARS ($90,000,000
US DOLLARS); The exact investment amount is subject the cost of
project;
Party A shall contribute partially cash, land, and existing materials;
Party B shall contribute the purchased Platco production line, spare
parts, and cost of dissemble, shipping and installation; Party C will
contribute cash;
The amount of contributions is subject to third party's appraisal and
valuation; If the investment is access the estimated amount, all
parties shall continue to invest to the JV with designated portion;
with cash, material or raised funds;
5.2 Ownership interest:
Party A owns 49% of JV `s ownership interest with its contribution;
Party B owns 41% of JV's ownership interest with its contribution;
Party C owns 10% of JV's ownership interest with its contribution;
6: RESPONSIBILITIES OF THE PARTIES
6.1 Responsibilities of the Party A:
To assist JV to apply for and obtaining the approval, registration and
Business License and dealing with other formalities with relevant
Chinese Governmental Departments for the establishment and operation
of the Joint Venture and for obtaining the best advantages granted to
sino-foreign joint ventures.
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b. Making capital contributions at the specified time in accordance
with term 5.1 and term hereof.
c. Provide all the raw material- steel slab from United Baotou Steel
at fair market and acceptable price;
d. Provide water, electricity, gas and transportation from United
Baotou Steel at reasonable, acceptable price;
6.2 Responsibilities of the Party B.
a. Making capital contributions in accordance with term 5.1;
b. Party B will honoring the priority of hiring Baotou steel's
employees, includes engineers, worker and clerks in accordance with
item 10.3.
c. Can not sell Platco production line to any other party with Party's
knowledge;
6.3 Responsibilities of Party C
a. Making capital contributions in accordance with term 5.1;
b. Arrange due diligent study in Canada and United States;
c. Oversee, assistant and coordinate with all party of the processing
of purchasing Platco production line;
7.: SALES OF PRODUCTS
7.1 The products of the Joint Venture shall be sold on the Chinese markets
and the best efforts will be made in order to sell part of the
production on the overseas markets.
7.2 The products of the Joint Venture shall be sold throughout the
People's Republic of China without geographic restriction and may be
sold by the Joint Venture directly or by appropriate distributors. The
sales methods and prices shall be determined by the General Manager's
decision following recommendation of the board of directors with
respect to domestic market conditions, competitiveness of the products
and the economic situation of the Joint Venture. The Joint Venture
shall be free to determine and raise the selling prices of, and sell
at its own discretion, in accordance with the preceding provisions.
8: BOARD OF DIRECTORS
8.1 The board of directors shall be established within one month after the
date of issuance of the Business License.
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8.2 The board of directors shall consist of five (5) directors. Nominees
of the Chairman and Vice Chairman will be discussed by all parties.
8.3 The highest authority of the Joint Venture shall be its board of
directors. It shall decide all major issues concerning the Joint
Venture. In handling all important matters, the board of directors
shall reach its decision through consultation among the participants
in the principle of equity and mutual benefit. All issues of the Joint
Venture shall be discussed and approved by two thirds of the members
of the board of directors.
The following major issues will require the unanimous approval of all
the members of the board: a. Amendment of the articles of association
of the joint venture. b. Termination and dissolution of the Joint
Venture. c. An increase of the registered capital of the Joint Venture
and a transfer of the ownership. d. Merger of the Joint Venture with
another economic organization.
8.4 The chairman of the board is the legal representative of the joint
venture. Should the chairman be unable to exercise his
responsibilities, he should authorize the vice chairman of the board
of directors to represent the Joint Venture.
8.5 The board of directors shall convene at least on meeting every year.
The meeting shall be called and presided over by the chairman of the
board. The general manager and the deputy general manager could attend
the meeting. The board meeting can be held at a site as agreed upon by
the Parties to the Joint Venture. The Chairman may convene an interim
meeting based on proposal made by more than one third of the
directors. The minutes of all meetings will be kept on file. The
directors will have the right to be represented by a designated
representative.
8.6 A decision signed by all the members of the board of directors has the
same validity as a decision taken during an official board meeting.
9: BUSINESS MANAGEMENT ORGANIZATION
9.1 The Joint Venture shall establish a management office which shall be
responsible for its daily management. The management office shall have
a general manager and a deputy general manager. The general manager
shall be recommended by the Foreign Party; the deputy general manager
shall be recommended by the Party A. The term of office shall be three
(3) years.
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9.2 The responsibilities of the general manager shall be to carry out the
decisions of the board, and to organize and direct the daily
management of the Joint Venture in accordance with the provisions of
this contract and the articles of association. The deputy general
manager shall assist the general manager in such duties. The
department managers shall be responsible for the work in the
respective departments of production, technology, business operation,
finance and administration, handle the matters handed over by the
general manager and the deputy manager and shall be accountable to
them. The general manager shall be present for approval by the board
of directors organizational structure of the Joint Venture and budget
for the coming year, including proposed appointments of department
managers as well as their remuneration.
9.3 The general manager and deputy general manager shall not serve as
employees of other entities, and shall not serve or act on behalf of
other economic entities in competition with the Joint Venture except
that either of them may be an officer, director or employee of their
respective Party. The board of directors shall have the power to
dismiss the general manager and the deputy general manager in the
event of graft or serious dereliction of duty.
10: LABOR MANAGEMENT
10.1 Policies relating to matters as the total number of workers,
recruitment, dismissal, wages, welfare, benefits, labor insurance,
bonuses and labor discipline shall be determined by the general
manager in accordance with Labor Law of the P.R. China, the "People's
Republic of China Administration on Labor Management of Foreign
Investment Enterprises Provisions" and other promulgated relevant P.R.
China laws and regulations, the policies stipulated by the board of
directors, and the actual financial conditions of the Joint Venture.
10.2 The Joint Venture shall have the right to recruit and hire employees
directly from any available sources in the United Baotu Steel. In all
cases, the Joint Venture shall employ only those employees who are
sufficiently qualified for employment, as determined through tests
and/or examinations.
10.3 The Joint Venture, acting through the general manager, will sign
individual labor contracts with each of its employees. Each labor
contract shall include type of work, technical ability and wages of
such employee, according to the framework duly approved by the board
of directors, and shall be filed for reference at the local labor
management department.
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10.4 The labor contracts of all staff and workers likely to receive
confidential information and/or particular training from the Joint
Venture or from Party B shall include, in addition to confidentiality
undertakings, non-competition clauses pursuant to which they shall not
be entitled to work for an enterprise or organization in the same
field for a period of two (2) years after leaving the Joint Venture.
11: TAXES, FINANCE, AUDIT AND PROFIT DISTRIBUTION
11.1 The Joint Venture shall pay various taxes in accordance with relevant
Chinese laws and regulations.
11.2 Staff members and workers of the Joint Venture shall be responsible
for paying their own individual income tax or personal income
adjustment tax in accordance with relevant Chinese laws and
regulations. After paying their taxes, the expatriate members of the
Joint Venture can remit their money abroad.
11.3 In accordance with the "Laws of the People's Republic of China on the
Joint Ventures using Chinese and Foreign Investment," allocations for
a reserve fund, an enterprise expansion fund and a bonuses and welfare
fund for the staff and workers shall be decided by the board of
directors each year according to the actual business situation and
profitability of the Joint Venture of the after tax profit (the total
of these 3 funds will not exceed 8% of the total profit). The Joint
Venture will benefit of all the best fiscal privileges available in
Inner Mongolia Province;
11.4 Finance and accounting of the Joint Venture shall be handled in
accordance with the "Regulations of the People's Republic of China on
the Financial Administration for Foreign Investment Enterprises" and
the "Accounting System for the Foreign Investment Enterprises." The
fiscal year of the Joint Venture shall be from January 1 to December
31 of each year. All vouchers, receipts, statistical statements,
reports and account books shall be written in Chinese, provided that
any such documents upon request of Party B shall be translated into
English. Monthly, quarterly and annual financial reports shall be
prepared in Chinese and English and submitted to the board of
directors.
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11.5 The Joint Venture shall engage an accountant registered in China
agreed upon by both Parties to conduct its annual financial audit and
examination and to provide a report for submission to the board of
directors and the general manager, in the event that Party B considers
it necessary, a foreign auditor may be engaged to conduct a separate
annual financial audit.
11.6 All disbursements shall be signed by the general manager or his
authorized personnel.
11.7 Within the first three (3) months of each fiscal year, the general
manager shall organize the preparation of a balance sheet and a profit
and loss statement in respect of the preceding year as well as a
proposal regarding the allocation and distribution of profits, and
submit them to the board of directors for approval after being
examined and signed by the auditor. Dividends to be paid to Foreign
Party shall be transferred in foreign currencies.
12: FOREIGN EXCHANGE CONTROL
12.1 All foreign exchange matters of the Joint Venture shall be handled in
accordance with the provision of the "Provisional Regulations of the
People's Republic of China on Foreign Exchange Control" and other
relevant regulations. The Joint Venture shall remit the profit due to
the Foreign Party to bank accounts designated by the Foreign Party
respectively in accordance with the "Regulations of the People's
Republic of China on the Foreign Exchange Control."
12.2 The Joint Venture is entitled to open foreign exchange deposit
accounts and Renminbi deposit accounts with the Bank of China or other
designated banks. All foreign exchange receipts of the Joint Venture
(including capital contributions made by Party B, loans from foreign
banks, export revenues, and so forth) shall be deposited in the Joint
Venture's foreign exchange deposit account. All normal foreign
exchange disbursements, as listed here below but not limited to, by
order of priority: - principal and interest repayments for foreign
bank loans. - import of raw materials. - salaries of foreign staff,
overseas traveling expenses. - technical assistance contract. -
transportation expenses. - dividends to the Foreign Party.
12.3 Based on its business needs, the Joint Venture may borrow foreign
exchange funds from banks abroad or in Hong Kong, provided that the
Joint Venture shall file such matters with the local Administration of
Foreign Exchange Control for the record within fifteen (15) days of
borrowing as required by law.
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12.4 Renminbi shall generally be used in the settlement of accounts for
transactions between the Joint Venture and the Chinese entities,
enterprises or individuals unless otherwise approved by the local
Administration of Foreign Exchange Control or where relevant
government regulations permit the Joint Venture to use foreign
exchange in the settlement of accounts.
12.5 The Joint Venture will be entitled to utilize all legal means in order
to obtain the foreign currencies needed such as swap centers or all
other legal exchange structure.
13: DURATION OF THE JOINT VENTURE
13.1 The duration of the Joint Venture shall be 30 years. The date of
establishment of the Joint Venture shall be the date of issuance of
the business license. The duration can be prolonged if one Party
suggests it before six months of the expiring date and if it is
approved by the board of directors.
14: DISPOSAL OF ASSETS UPON LIQUIDATION OF THE JOINT VENTURE
14.1 Upon termination of the Joint Ventures, liquidation shall be carried
out according to relevant laws and regulations. The liquidated assets
shall be distributed in proportion to the capital contribution made by
all Parties.
15: INSURANCE
15.1 The Joint Venture shall maintain appropriate insurance policies with
an insurance company in P.R. China. The types, value and duration of
insurance shall be decided by the board of directors in accordance
with the standards of the insurance company in P.R. China. The Joint
Venture should maintain the insurance for all staff and workers in the
local labor management department.
16. AMENDMENT, ALTERATION AND TERMINATION OF CONTRACT
16.1 Any amendment to this contract or its appendices shall come into force
only by written agreement signed by All Parties and approved by the
original examination and approval authority.
16.2 Should it become impossible to fulfill this contract as a result of
force Majuro, or should it become not possible to continue the
operations of the Joint Venture as a result of heavy losses sustained
by the Joint Venture in successive years, the Joint Venture and this
contract may be terminated prior to the date of expiration if
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unanimously decided by the board of directors and approved by the
original examination and approval authority. The registration of the
Joint Venture must then be canceled at the original registration
office. The Joint Venture may be terminated prior to its expiration
date in the event that both Parties agree that termination of the
Joint Venture is the mutual and the best interest of the Parties.
16.3 If due to any one Party being unable to fulfill the obligations of
this contract and the articles of association, and if for that reason
the Joint Venture Company cannot continue its normal business or
cannot reach its target mentioned in the contract, then the contract
would be deemed to have been stopped by the Party who made the
violation. The other Party has the right to claim damage and to apply
for the termination of the contract. If the other Party agrees to
continue the business, the Party who made the violation should
compensate the economic damage. The other Party would have in that
case a buying option for the shares owned by the defaulting Party.
16.4 In the event that the Joint Venture intends to merge with or acquire
another production enterprise or economic organization in the future,
approval by all the Parties shall be required.
17: FORCE MAJEURE
17.1 Should the performance of this contract be directly affected or should
it become impossible to perform this contract in accordance with the
prescribed terms as a result of a force Majuro event such as
earthquake, typhoon, flood, fire, war, civil disorder, unforeseeable
events where the occurrences and consequences are unpreventable and
unavoidable without limitation, the Party affected by such event shall
notify the other Party by telegram or facsimile without any delay and,
within fifteen (15) days thereafter, provide the detailed information
on such event and a valid certification document giving reasons for
such Party's inability to perform all or part of this contract or its
delay of the performance.
17.2 If possible, the said document shall be issued by a notary public
office at the location where the force Majuro event occurs. The
Parties shall decide through consultations whether to terminate this
contract or to waive part of the obligations to be performed under
this contract or to delay the performance of this contract according
to the effects of the force Majuro event on the performance of this
contract.
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18: APPLICABLE LAW
18.1 The execution, validity, interpretation and performance of this
contract and dispute resolution under this contract shall be governed
and protected by the laws of the P.R. China.
19: DISPUTE RESOLUTION
19.1 Any disputes arising from the execution of or in connection with this
contract shall first be settled through friendly consultations between
the Parties. In the event that no settlement can be reached through
consultations, the disputes shall be first submitted to the China
International Economic and Trade Arbitration Commission for
conciliation. If no settlement can be reached within six months after
the beginning of this procedure, the claim will be submitted and
definitely settled through the rules and the procedure of the
International Chamber of Commerce (Paris). The arbitration will be
held in Paris, France and the English language will be used. The
arbitration fee shall be borne by the losing Party.
19.2 When the dispute, controversy or claim arising out of or in connection
with this contract are being resolved either through friendly
consultation or through arbitration, the Parties should take the
interest of the whole into account and shall not hinder or affect the
performance of the provisions other than in dispute, so as to
guarantee the smooth operation of the Joint Venture to the extent
possible.
20. LANGUAGE
20.1 The contract is written in Chinese and English versions, both
languages are equally authentic.
21: EFFECTIVENESS OF CONTRACT AND MISCELLANEOUS
21.1 The following annexes formulated in accordance with the principles of
this contract shall be integral part of this contract: Annex 1:
business licenses Annex 2: board resolution for approval JV agreement
In the event of any discrepancy between this contract and the annexes
hereto, the provisions of this contract shall prevail.
21.2 This contract and its annexes shall become effective subject to the
successful purchase of this production line, and upon approval by the
original examination and approval authority. The same applies in event
of amendment.
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21.3 This contract together with its annexes constitute the entire
agreement of the Parties with respect of the subject matters hereof
and shall supersede all prior agreements between the Parties with
respect to the matters hereof.
21.4 The Parties shall take all such efforts to carry out the purposes of
this contract and its annexes. Neither Party shall take any action
that might have an adverse competitive effect of adverse consequence
on the operation of the Joint Venture.
21.5 Any waiver by either Party at any time of a breach of any term or
provision of this contract shall not be construed as a waiver b such a
Party of any subsequent breach, its rights to such term or provision,
or any of its other rights hereunder.
21.6 If any one or more of the provisions contained in this contract or the
annexes hereto shall be invalid, illegal or unenforceable in any
respect under any applicable law, the validity legality and
enforceability of the remaining provision contained herein or therein
shall not in any way be affected or impaired.
21.7 Unless otherwise specifically provided, notices or other
communications to either Party required or permitted hereunder shall
be: (a) personally delivered; (b) transmitted by postage prepaid
registered airmail or by international courier; or (c) transmitted by
telex or facsimile with answerback or followed by registered airmail
or air courier. The addresses of the Parties listed in this contract
shall be their respective mailing addresses and their respective
facsimile numbers.
21.8 In witness whereof the Parties have signed this contract on 21st Oct.
by their duly authorized representatives in four originals, each Party
receiving one original in each version, Chinese and English.
The Party A
/s/ Cao Zhongkui
The Party B
/s/ Yale Yu
The party C
/s/ Yu Zuo Sheng