Exhibit 10.1
Baotou Steel - GSHI
Special Steel
Joint Venture Agreement
BAOTOU IRON & STEEL (GROUP) CO., LTD.
GENERAL STEEL INVESTMENT CO., LTD.
DA QIU ZHUANG METAL SHEET CO., LTD.
September 28, 2005
JOINT VENTURE AGREEMENT
1. GENERAL PROVISIONS
1.1 In accordance with the Law of the People's Republic of China on Joint
Venture Using Chinese and Foreign Investment ("Joint Venture Law") and
other relevant published laws and regulations of China, the following
Parties hereby enter this initial joint venture agreement ("Agreement")
with the intention of forming a joint venture enterprise.
2. PARTIES TO THE JOINT VENTURE
2.1 Parties to this Agreement are as follows:
Party A: Chinese Party:
Baotou Iron & Steel (Group) Co., Ltd. (Baotou Steel)
Located at River West band Industrial district, Kundulun District,
Baotou City, Inner Mongolia;
Representative: Lin, Dong Lu, (Nationality: China)
Party B: General Steel Investment Co., Ltd. (General Steel)
Located at Offices of Offshore Incorporations Limited.
Offshore Incorporation Centre P.O. Box 957, Road
Town, Totoria, British Virgin Islands;
Representative: Yale Yu, (Nationality: USA)
Party C: Da Qiu Zhuang Metal Sheet Co., Ltd. (Qiu Steel)
Located at Da Qiu Zhuang, Jing Hai County, Tianjin City;
Representative Yu, Zuo Sheng (Nationality: China)
2.2 Parties A, B and C may be hereinafter referred to individually as a
"Party" and collectively as the "Parties."
2.3 Each of the Parties hereby presents and warrants to the other Parties
that it has full legal authority and power to enter into this Agreement
and perform its obligations hereunder and that its representatives
named above are duly authorized to sign this Agreement and other
relevant documents on behalf of such Party.
3. ESTABLISHMENT OF THE JOINT VENTURE
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3.1 In accordance with the Joint Venture Law and other relevant published
laws and regulations, the Parties hereby agree to establish a Joint
Venture Limited Liability Company (hereinafter referred to as "Joint
Venture" or "JV") within the territory of Inner Mongolia Autonomous
Region, the People's Republic of China.
3.2 The English name of the Joint Venture shall be: Baotou Steel - General
Steel Special Steel Joint Venture Company Limited.
3.3 The legal address of the Joint Venture will be located at Kundulun
District, Baotou City, Inner Mongolia, China.
3.4 All activities of the Joint Venture in China shall be governed by the
laws, decrees and relevant rules and regulations of China.
3.5 The form of organization of the Joint Venture shall be a limited
liability company. The liability of each Party is limited to the
capital contribution to the registered capital in accordance with
Section 5 of this Agreement, including increases and decreases in each
Party's share of ownership interest made in compliance with the Chinese
regulations.
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, to develop new
products and gain competitiveness in both domestic and international
markets in terms of quality, variety and price by adopting advanced
technology in the production of steel products, and the adoption of
advanced management methods, so as to constantly raise economic results
and ensure satisfactory economic benefits for each Party.
4.2 The products of the Joint Venture shall be special steel. The products
shall be sold in both domestic and International market. The production
scale of the Joint Venture will be 600,000 metric tons a year.
5. TOTAL INVESTMENT, REGISTERED CAPITAL AND OWNERSHIP
5.1 The total amount of investment is approximately thirty million US
DOLLARS. (USD $30,000,000 or RMB 240,000,000)
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Party A shall contribute land, existing equipment and materials. The
estimated value of its investment is 98 million RMB (approximately USD
$12,000,000);
Party A shall have 49% of ownership interest with its contribution;
Party B shall contribute cash.
The estimated investment is 62 million RMB according to the base
exchange rate announced by the People's Bank of China on the day of its
submission(approximately USD $7,500,000); Party B shall have 31% of
ownership interest with its contribution;
Party C will contribute cash.
The estimated investment is 40 million RMB (approximately USD
$5,000,000); Party C shall have 20% of ownership interest with its
contribution;
The value of land, existing equipment, materials and houses of the
factory to be contributed by Party A is subject to the Chinese
qualified accountant's appraisal. Party B and Party C shall increase or
reduce their capital investment respectively by the percentage listed
hereunder, subject to the appraisal results.
The registered capital of the Joint Venture should be RMB
(pound)*200,000,000 ( approximately USD $24,000,000);
Scope of investment:
Party A: The full payment of its contribution should be made at the
date of the approval of Joint Venture;
Party B: The payment to be made by Party B towards the registered
capital of the Joint Venture Company will be made as follows:
a. 30% of its capital contribution within 30 days of the date of
approval of the Joint Venture;
b. 30% of its capital contribution within 3 months of the date of
approval of the Joint Venture;
c. 40% of its capital contribution within 6 months of the date of
approval of the Joint Venture.
Party C: The payment to be made by Party C towards the registered
capital of the Joint Venture Company will be made as follows:
a. 30% of its capital contribution within 30 days of the date of
approval of the Joint Venture;
b. 30% of its capital contribution within 3 months of the date of
approval of the Joint Venture;
c. 40% of its capital contribution within 6 months of the date of
approval of the Joint Venture.
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5.2 After the registered capital is paid up by the Parties, an accounting
firm registered in China appointed by the Parties shall verify that
contributions of this contract have been made in accordance with the
terms and conditions of this Agreement and issue a verification report,
based on which the Joint Venture shall issue an investment certificate
to each Party. This report will be signed by both the President and the
Vice President of the Joint Venture.
5.3 Should a Party intend to assign all or part of its interest in the
Joint Venture to a third Party, written consent must be obtained from
the other parties and an affirmative decision by the Board of Directors
and approval from the appropriate examination and approval authority
shall be required. The registration procedures for the changes shall be
dealt with. In case of any transfer by any party herein in this
Agreement, the other Parties herein will have a preemptive right over
the shares to be transferred. Provided the transfer is made to a third
party, the terms for the transfer shall not be superior to those for
the Parties herein. Any transfer deviating from the rules above shall
be deemed invalid.
6. RESPONSIBILITIES OF THE PARTIES
6.1 Responsibilities of the Party A:
a. Making capital contributions at the specified time in accordance
with term 5.1 and term hereof;
b. In charge of applying 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 treatment granted to
Sino-Foreign joint ventures;
c. To promptly provide sufficient raw materials, water, electricity,
gas, transportation and other services for the Joint Venture in
accordance with the annual production plan and plan for balanced energy
usage of Party A ;
d. To provide sufficient water, electricity, gas and transportation for
the Joint Venture at prices either:
1. Compliance with government quoted prices if there is
any; or
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2. Fair market price as quoted to a third party,
provided no government quotations exist; or
3. Subject to negotiations in case neither of the above
is applicable;
e. A contract with respect to the supply of raw materials, air, water,
electricity and gas shall be signed separately by the Joint Venture and
Party A's company.
f. To acquire the benefit of national and local preferential policies
exclusively for Sino-foreign joint ventures and programs of Developing
West China.
6.2 Responsibilities of Party B.
a. Making capital contributions in accordance with term 5.1;
b. Assisting Party A for obtaining the approval, registration and
business license;
c. Making the best effort in assisting Joint Venture to develop
international market for its products.
6.3 Responsibilities of Party C
a. Making capital contributions in accordance with term 5.1;
b. Assisting Party A for obtaining the approval, registration and
business license.
7. PRODUCTION AND SALES OF PRODUCTS
7.1 Production and Products
The Joint Venture's main production lines are composed of: 1 set of
iO850 convertible slab machine, 4 sets of iO550 continues rolling
mills, push-type heating furnace, step cooling bed, nine-high jib
straighten machine and relevant automatic control system;
The Joint Venture's products are focused on Special Steel Products:
Alloy and carbon structure steel, and formed steel.
7.2 The products of the Joint Venture shall be sold in the Chinese market
and the best efforts will be made in order to sell part of the products
in the overseas market.
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7.3 The products of the Joint Venture shall be sold throughout 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 following recommendation of
the Board of Directors of the Joint Venture based on the 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 its products and to sell at
its own discretion, in accordance with the preceding provisions.
8. BOARD OF DIRECTORS
8.1 The Board of Directors shall be established at the date of issuance of
the business license.
8.2 The Board of Directors shall consist of seven ( 7) directors of which
three (3)shall be appointed by Party A, two ( 2 ) should be appointed
by Party B and two (2) should be appointed by Party C. The chairman of
board shall be appointed by Party A. The vice chairman by Party C. The
term of the directors is four ( 4) years. This term of office may be
renewed upon reappointment by the appointing party.
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 equality and mutual benefit. All issues of the Joint
Venture shall be discussed and approved by two thirds of directors
present at the board meeting.
8.4 The following major issues will require the unanimous approval of all
the directors present at the board meeting:
a. Amendment of the articles of incorporation of the Joint Venture;
b. Termination and dissolution of the Joint Venture;
c. An increase of the registered capital of the Joint Venture and any
transfer of ownership interest by any Party;
d. Merger or division of the Joint Venture.
8.5 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.
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8.6 The Board of Directors shall convene at least two meetings every year.
The meeting shall be called and presided over by the chairman of the
board. The general manager and the vice general manager could attend
the meeting. The board meeting can be held at a site as agreed upon by
the Parties of 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. Union
representative can attend meetings, however the union representative
has no voting rights.
8.7 A decision signed by all the members of the Board of Directors has the
same validity as a decision made 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
one general manager, three vice general managers and one chief
financial officer.
Party A will appoint the general manager;
Party B will appoint one vice general manager;
Party C will appoint the chief financial officer;
Two additional vice general managers will be hired by recommendation of
Party A;
9.2 The office is authorized by Board of Directors. The term of office
shall be four (4) years.
9.3 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
Agreement and the articles of incorporation.
9.4 The Vice general managers shall assist the general manager in such
duties.
9.5 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 vice 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.
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9.6 The general manager and vice general managers 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.
9.7 The Board of Directors shall have the power to dismiss the general
manager and the vice general managers in the event of graft or serious
dereliction of duty.
10. LABOR MANAGEMENT
10.1 Policies relating to matters such as the total number of workers,
recruitment, dismissal, wages, welfare, benefits, labor insurance,
bonuses and labor discipline shall be determined by the management
office in accordance with Labor Law of China, the "People's Republic of
China Administration on Labor Management of Foreign Investment
Enterprises Provisions" and other promulgated relevant 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 Baotou Steel Union You Yi
Alloy Rod Mill. 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 Agreements with each of its employees. Each labor
agreement 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.
10.4 The labor agreements 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.
10.5 The employees of the Joint Venture shall have the right to establish a
labor union in accordance with relevant P.R. China laws and
regulations.
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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 foreign 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.
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.
11.5 Renminbi shall generally be used in the settlement of accounts for the
Joint Venture.
11.6 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.
11.7 All disbursements shall be signed by the general manager or his
authorized personnel.
11.8 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 with 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 chief financial officer.
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11.9 Dividends to be paid to Party B shall be exchanged into 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
Party B 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 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 agreement.
- 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.
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.
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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 premises.
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.
14.2 The fees incurred during the liquidation and the salary for the
Liquidation Committee shall be deducted from the residual equity.
14.3 All the original copies of documents, files, contracts and books and
records of the Joint Venture shall be kept by Party A after the
liquidation. Party B and Party C can have certified copies for all the
documents, files, contracts and books for their records.
15. INSURANCE
15.1 The Joint Venture shall maintain appropriate insurance policies with an
insurance company in 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 China. The Joint Venture should
maintain the "5-insurance and 1-fund" (referring to pension insurance,
unemployment insurance, health insurance,) workers' compensation
insurance, maternity insurance and housing reserve fund) for all staff
and workers.
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16. AMENDMENT, ALTERATION AND TERMINATION OF CONTRACT
16.1 Any amendment to this Agreement 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 Agreement as a result of
force majeure, or should it become impossible 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
Agreement may be terminated prior to the date of expiration if
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
Agreement and the articles of incorporation, and if for that reason the
Joint Venture Company cannot continue its normal business or cannot
reach its target mentioned in the Agreement, then the Agreement would
be deemed to have been stopped by the Party who made the violation. The
other Parties have the right to claim damages and to apply for the
termination of the Agreement. If the other Parties agree to continue
the business, the Party which committed 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. The purchasing
price shall be the default party's ownership interest of the total
assets appraised by the public accountant at the date of default.
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 Agreement be directly affected or should
it become impossible to perform this Agreement in accordance with the
prescribed terms as a result of a force majeure 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 Parties by telegram or facsimile without any delay
and, within ten (10) 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 Agreement or its
delay of the performance.
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17.2 If possible, the said document shall be issued by a notary public
office at the location where the force majeure event occurs. The
Parties shall decide through consultations whether to terminate this
Agreement or to waive part of the obligations to be performed under
this Agreement or to delay the performance of this Agreement according
to the effects of the force majeure event on the performance of this
Agreement.
18. APPLICABLE LAW
18.1 The execution, validity, interpretation and performance of this
Agreement and dispute resolution under this Agreement shall be governed
and protected by the laws of China.
19. DISPUTE RESOLUTION
19.1 Any dispute arising from the execution of or in connection with this
Agreement 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 submitted to the Beijing
International Economic and Trade Arbitration Commission for
conciliation or arbitration. The arbitration fees and related expenses
occurred shall be borne by the losing Party.
19.2 When the dispute, controversy or claim arising out of or in connection
with this Agreement 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 Agreement is written in Chinese and English versions, both
languages are equally authentic.
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21. EFFECTIVENESS OF CONTRACT AND MISCELLANEOUS
21.1 The following appendices formulated in accordance with the principles
of this Agreement shall be integral part of this Agreement:
Appendix 1: Copies of business licenses of all the parties
herein;
Appendix 2: Credit certificates of all the parties;
Appendix 3: Identification certificated of the legal
representatives or authorized persons of all the
parties herein;
Appendix 4: Authorization Proxy executed by the representatives
of each Party;
Appendix 5: Board resolution for approval of the JV agreement;
Appendix 6: Certificates of investment from all parties to the
JV;
21.2 This Agreement and its appendices shall become effective upon approval
by the original examination and approval authority. The same applies in
event of amendment.
21.3 This Agreement together with its appendices constitutes 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 Agreement and its appendices. 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 Agreement shall not be construed as a waiver by 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 Agreement or the
appendices hereto shall be invalid, illegal or unenforceable in any
respect under any applicable law, the validity, legality and
enforceability of the remaining provisions 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 Agreement shall be
their respective mailing addresses and their respective facsimile
numbers.
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Party A's fax:0472_5155484
Party B's fax:010_68000346
Party C's fax:022_60730088
21.8 In witness whereof, the Parties have signed this Agreement on September
28, 2005 by their duly authorized representatives in eight originals,
each Party receiving one original in each version, Chinese and English.
Party A:
/s/ Lin, Dong Lu September 28, 2005
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Lin, Dong Lu Date
Baotou Iron & Steel (Group) Co., Ltd.
Party B:
/s/ Yale Yu September 28, 2005
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Yale Yu Date
General Steel Investment Co., Ltd.
Party C:
/s/ Yu, Zuo Sheng September 28, 2005
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Yu, Zuo Sheng Date
Da Qiu Zhuang Metal Sheet Co., Ltd.