EXHIBIT 10.2
SHAREHOLDERS AGREEMENT
EXHIBIT 10.2
SHAREHOLDERS AGREEMENT
BY AND AMONG
HIGHLAND MINING INC.
TIBET TIANYUAN MINERALS EXPLORATION LIMITED
AND
SHAREHOLDERS OF HIGHLAND MINING INC.
CONTINENTAL MINERALS CORPORATION
CHINA NETTV HOLDINGS INC.
AND
▇▇▇▇ ▇▇▇
DATED 23 December 2004
TABLE OF CONTENTS
SECTION PAGE
SECTION 1 DEFINITIONS.....................................................1
SECTION 2 BOARD MATTERS, CORPORATE GOVERNANCE.............................5
SECTION 3 SHAREHOLDERS MEETINGS..........................................11
SECTION 4 RESTRICTIONS ON TRANSFER OF ORDINARY SHARES....................13
SECTION 5 NPI PAYMENT RIGHTS.............................................17
SECTION 6 EXPLORATION BUDGETS............................................18
SECTION 7 COMPANY ANNUAL BUDGETS.........................................21
SECTION 8 TIANYUAN ANNUAL BUDGETS........................................22
SECTION 9 FUNDING OF THE COMPANY.........................................23
SECTION 10 MANAGEMENT STRUCTURES..........................................27
SECTION 11 CERTAIN COVENANTS..............................................27
SECTION 12 TERMINATION OF AGREEMENT.......................................30
SECTION 13 REPRESENTATIONS AND WARRANTIES.................................31
SECTION 14 OBLIGATIONS AND LIABILITY OF WZ................................32
SECTION 15 MISCELLANEOUS..................................................32
SCHEDULE A ADHERENCE AGREEMENT............................................40
SCHEDULE B SAMPLE CALCULATIONS............................................41
SCHEDULE C SAMPLE CALCULATIONS............................................42
This SHAREHOLDERS AGREEMENT (this "Agreement") is made and entered into as of
[*], 2004 by and among:
(1) Highland Mining Inc., a British Virgin Islands company with offices at
TrustNet ▇▇▇▇▇▇▇▇, Road Town, Tortola, British Virgin Islands; Fax: (852)
▇▇▇▇-▇▇▇▇ (the "Company");
(2) Tibet Tianyuan Minerals Exploration Ltd., a wholly foreign-owned enterprise
incorporated and existing under the laws of the People's Republic of China with
a registered address at ▇▇▇, ▇▇▇▇▇▇▇ Economic and Trade Tower, 75 ▇▇▇ ▇▇▇ West
Road, Lhasa, Tibet, People's Republic of China, Fax: (▇▇ ▇▇▇) ▇▇▇▇-▇▇▇
("Tianyuan");
(3) China NetTV Holdings Inc., a Delaware corporation with offices at Suite
▇▇▇-▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇▇, ▇▇▇ ▇▇▇, Fax: (1-604)
▇▇▇-▇▇▇▇ ("CTVH");
(4) Continental Minerals Corporation, a British Columbia company with offices at
Suite 1020 - ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇
▇▇▇, Fax: (▇ ▇▇▇) ▇▇▇-▇▇▇▇ ("Continental"); and
(5) ▇▇▇▇ ▇▇▇, a citizen the United States of America with an address at Apt.
116, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ of America,
Fax: (▇▇ ▇▇) ▇▇▇▇ ▇▇▇▇ ("WZ").
WHEREAS, ▇▇▇▇▇ ▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇ Ming, ▇▇▇▇ ▇▇▇▇▇, the Company, Tianyuan, ▇▇▇▇
▇▇▇, CTVH, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Inc. and Continental have entered into a Option
Agreement dated as of 23 December 2004 (the "Option Agreement"), pursuant to
which the Company will issue, and Continental will purchase from ▇▇▇▇▇ ▇▇▇▇ Mei,
▇▇▇▇▇ ▇▇▇ Ming and ▇▇▇▇ ▇▇▇▇▇ shares of the Company representing 50% of the
issued and outstanding Ordinary Shares of the Company, as set forth in the
Option Agreement;
WHEREAS, upon the exercise of the first option under the Option Agreement,
Continental will be a shareholder of the Company;
WHEREAS, the execution and delivery of this Agreement is a condition to the
closing under the Option Agreement.
NOW, THEREFORE, on the basis of the foregoing premises and the mutual agreements
and covenants set forth in this Agreement, the parties hereto agree as follows:
SECTION 1 DEFINITIONS
1.1 Defined Terms. Unless otherwise defined herein, the following terms are
defined as follows:
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"Affiliate" shall mean in relation to an entity, any individual, partnership,
corporation, trust or other entity that directly or indirectly controls, or is
controlled by, or is under common control with, such entity, where control means
the direct or indirect ownership of more than 50% of the outstanding shares or
other ownership interests having ordinary voting power to elect directors or the
equivalent. The term Affiliate shall, in relation to Continental, include ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ Inc, and any company directly or indirectly controlled by ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ Inc., and in relation to CTVH, include any company directly or
indirectly controlled by ▇▇▇▇ ▇▇▇.
"Applicable Law" means with respect to any Person, any and all provisions of any
constitution, treaty, statute, law, regulation, ordinance, code, rule, judgment,
rule of common law, order, decree, award, injunction, judgment, Governmental
Approval, concession, grant, franchise, license, agreement, directive,
guideline, policy, requirement, or other governmental restriction or any similar
form of decision of, or determination by, or any interpretation or
administration of any of the foregoing by, any Governmental Authority, whether
in effect as of the date hereof or thereafter and in each case as amended,
applicable to such Person or its subsidiaries or their respective assets.
"Board" means the board of directors of the Company from time to time.
"Business Day" shall mean any day (excluding Saturdays, Sundays and public
holidays in Vancouver, Canada or PRC) on which banks generally are open for
business in Vancouver, Canada, and PRC.
"CEO" means the chief executive officer of the Company, appointed in accordance
with Section 10.1.
"Company Annual Budget" means, for any financial year, a budget for the
Company's operations during such financial year prepared by the CEO in
accordance with Section 7.
"Confidential Information" means:
(a) any information, data, samples or material concerning the Party supplying or
disclosing such information or material including but not limited to information
concerning such Party's business, financial condition, operations, technology,
plans, research and development, assets or liabilities;
(b) any information or materials concerning any other entity or person in
respect of which the disclosing Party is bound by obligations of
confidentiality, as the disclosing Party identifies to any other Party (the
"Recipient") from time to time; and
(c) the terms and conditions of this Agreement, the Option Agreement and all
exhibits and schedules attached hereto and thereto. Confidential Information
shall not include information that:
(i) was known by the Recipient prior to disclosure by the disclosing Party;
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(ii) is or becomes public knowledge other than through the Recipient's breach of
Section 15.4 of this Agreement; or
(iii) was obtained by the Recipient from a third party where the Recipient was
not aware that the third party was under an obligation of confidentiality with
respect to such informa -tion.
"Consent" means any consent, approval, authorization, waiver, permit, grant,
franchise, concession, agreement, license, exemption or order of, registration,
certificate, declaration or filing with, or report or notice to, any Person,
including any Governmental Authority.
"Continental" means Continental Minerals Corporation, a British Columbia company
with offices at Suite 1020 - ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇ ▇▇▇.
"Continental Exploration Program" means an annual exploration program and budget
in relation to the Property submitted by Continental in accordance with Section
6.4.
"CTVH Exploration Program" means an annual exploration program and budget in
relation to the Property submitted by CTVH in accordance with Section 6.5.
"Director" means a member of the Board.
"Encumbrance" means any lien, pledge, mortgage, deed of trust, security
interest, claim, lease, charge, option, right of first refusal, transfer
restriction, hypothecation, encumbrance or other security interest of any kind
or nature whatsoever, or any agreement to give or make any of the foregoing.
"First Expenditure Period" means the period from the date of the Option
Agreement to November 10, 2006.
"GAAP" means Canadian generally accepted accounting principles, consistently
applied.
"General Manager" means the general manager of Tianyuan, appointed in accordance
with Section 10.2.
"Governmental Approvals" shall mean any action, order, authorization,
consent, approval, license, lease, waiver, franchise, concession, agreement,
license, ruling, permit, tariff, rate, certification, exemption of, filing or
registration by or with, or report or notice to, any Governmental Authority.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof, any entity exercising executive, legislative,
judicial regulatory or administrative functions of or pertaining to any
government with competent jurisdiction.
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"Group Company" means a Person (other than a natural person or an individual)
that is controlled by the Company.
"Net Profits" for a particular financial year means the profits of the Company
available for distribution in respect of that year to the shareholders of the
Company, in accordance with GAAP, after deduction of operating expenses,
applicable taxes, loan repayments and other costs and financial commitments, as
well as, working capital and reserves either required by law or determined to be
reasonable by the Board in order to provide for working capital or for
environmental reclamation in relation to the Company, Group Companies and the
Property.
"Offered Ordinary Shares" shall mean the Ordinary Shares proposed to be
Transferred by a Selling Shareholder.
"Ordinary Shares" means the Ordinary Shares of the Company, par value US$1.00,
which shall be the only class of shares of the Company.
"Party" means a reference to either CTVH, the Company, Continental, Tianyuan, a
Group Company or WZ and "Parties" shall mean a reference to two or more of the
foregoing.
transferee has executed and delivered to the Company an Adherence Agreement
substantially in the form attached hereto as Schedule A, assuming the
obligations of the transferring Shareholder with respect to the transferred
shares, and (iii) where the Company is given written notice at the time of such
transfer stating the name and address of the transferee and identifying the
shares of the Company that are being transferred.
"Person" means any individual, corporation, partnership, limited liability
company, firm, joint venture, association, joint-stock company, trust,
unincorporated organization, governmental body or other entity.
"PRC" means the People's Republic of China.
"Property" means the Xietongmen Copper Property, which is located near ▇▇▇▇▇
Village, Xietongmen County, Rikaze area, Tibet Autonomous Region, the PRC.
"Restated Articles" means the Articles of Association of the Company, filed with
the Registrar of Companies in British Virgin Islands as the same may be further
amended from time to time after the date hereof in accordance with the terms
hereof and the terms therein.
"Restated Memorandum" means the Memorandum of Association of the Company dated
June 18, 2004, filed with the Registrar of Companies in British Virgin Island as
the same may be further amended from time to time after the date hereof in
accordance with the terms hereof and the terms therein.
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"Second Expenditure Period" means the period from November 10, 2006 to November
10, 2007.
"Shareholder" means CTVH, Continental and such other Person as may from time to
time hold Ordinary Shares of the Company and have become a party to this
Agreement in accordance with Section 15.5(b).
"Selling Shareholder" means the Shareholder that plans to sell, transfer, pledge
or otherwise dispose of or permit the sale, transfer, pledge, or other
disposition of any interest in any of its Ordinary Shares.
"Taxes" shall mean any domestic or foreign taxes, charges, fees, levies or other
assessments, including any interest, penalties or additions relating thereto,
imposed by any Governmental Authority or other taxing authority.
"Tianyuan" shall mean Tibet Tianyuan Minerals Exploration Ltd., a company
incorporated under the law of the PRC, all of the shares of which are held by
Company.
"Tianyuan Annual Budget" means, for any financial year, a budget for the
Company's operations during such financial year prepared by the General Manager
in accordance with Section 8.
"Tianyuan Board" shall mean the Board of Directors of Tianyuan.
"Transfer," "Transferring" (or any correlative term) shall mean a sale,
assignment, pledge, gift, placement in trust (voting or otherwise) or transfer
by operation of law of, or disposal (directly or indirectly and whether or not
voluntary), and shall include any transfer by will or intestate succession.
"UNCITRAL Rules" means the Arbitration Rules of the United Nations Commission on
International Trade Law.
"US$" means the legal currency of the United States.
"Warrantors" means the Company, Tianyuan, CTVH and WZ.
1.2 Rules of Construction. Words such as "herein", "hereinafter", "hereto",
"hereby" and "hereunder", when used with reference to this Agreement, refer to
this Agreement as a whole, unless the context otherwise requires. The words
"include", "includes", "included" and "including" shall be construed as if
followed by the phrase "without being limited to." A reference to a particular
gender means a reference to any gender.
SECTION 2 BOARD MATTERS, CORPORATE GOVERNANCE
2.1 Election of Directors to the Board.
(a) The Board shall initially consist of six (6) Directors.
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(b) For so long as (1) Continental and CTVH are shareholders of the Company and
the Company has no other shareholders and (2) Continental holds at least 50% of
the outstanding Ordinary Shares:
(i) CTVH shall be entitled to designate three Directors and
(ii) Continental shall be entitled to designate three Directors.
(c) If a party other than Continental and CTVH holds Ordinary Shares or
Continental holds less than 50% of the outstanding Ordinary Shares, then the
Board shall be reconstituted with a maximum of nine (9) Directors and each
Shareholder shall be entitled to designate one Director for each full eleven
percent (11%) of outstanding Ordinary Shares held by such Shareholder.
(d) The Shareholders shall take all action (including, without limitation,
voting the Ordinary Shares owned by each, calling extraordinary meetings of
shareholders and executing and delivering written consents, and obtaining the
resignation or removal of incumbent directors) necessary to elect the Directors
designated by the Shareholders in accordance with the provisions of (b) and (c)
of this Section 2.1, including amendments, if any, to the Restated Articles.
(e) The Directors elected pursuant to this Section 2.1 shall be entitled to
appoint alternates to serve at any meeting of the Board or of any committee
thereto, and such alternates shall be permitted to attend all meetings of the
Board or of any committee and vote on the Director's behalf. An alternate
director, whilst acting in the place of a Director who appointed him or her,
shall exercise and discharge all the duties and functions of the Director he or
she represents. The appointment of an alternate director shall cease on the
happening of any event which, if he or she were a Director, would cause him or
her to cease to be a Director, or if a Director gives notice to the secretary of
the Company that the alternate director representing him or her shall have
ceased to represent such Director.
(f) No Director shall be removed except by the affirmative vote of the
Shareholder designating such Director, however the other Shareholders may remove
a Director due to bad faith, willful misconduct, fraud, or a breach of the
standards of behavior while in Tibet that may be reasonably expected to
adversely affect Tibet's political stability or national harmony or to offend
Tibet's customs and traditions, provided, however, that the Shareholder that
designated such Director shall be entitled to designate the replacement of a
Director so removed.
(g) Subject to Section 2.1(h), in the event of a deadlock amongst the Board, the
Chairman of the Board shall have the casting vote. Continental shall have the
right to appoint the Chairman of the Board, provided, however, that if
Continental holds less than 50% of the outstanding Ordinary Shares, the
Shareholder holding the largest percentage of outstanding Ordinary Shares in the
Company shall have the right to appoint the Chairman of the Board.
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(h) In the event that Tianyuan undertakes a CTVH Exploration Program, the
following supplementary provisions shall apply:
(i) one of the Directors designated by CTVH, and not the Chair -man of the
Board, shall have a casting vote in respect of all matters relating to the CTVH
Exploration Program for so long as the activities under the CTVH Exploration
Program are conducted in a good workmanlike, safe and efficient manner in
accordance with sound mining and applicable industry standards and practice in
China, including the issuance of shares by the Company to fund the CTVH
Exploration Program; and
(ii) the Chairman of the Board shall have a casting vote on all other deadlocked
matters, if any, excluding matters relating to the CTVH Exploration Program.
(i) Subject to the limitations in this Agreement, the Shareholders shall not
take any action that may result in Continental not having control of the Board.
2.2 Election of Directors to Tianyuan.
(a) The Parties shall take such actions as shall be necessary to ensure that the
Tianyuan Board shall be the same size and include the same individuals as the
Board from time to time.
(b) The Parties shall procure that, to the extent permitted by relevant law, all
corporate actions of Tianyuan and any other direct or indirect subsidiary of the
Company, shall follow the instruction of the Board, subject always to the
approval requirement of Section 3.
2.3 Board Meetings.
(a) The Board shall appoint a secretary, who need not be a Director. The
secretary shall, on the instructions of the Chairman of the Board, give the
required notice to the Directors, shall duly record the minutes of all meetings
of the Board and shall distribute such minutes to the Directors. The secretary
shall certify in such minutes that proper notice of a meeting of the Board was
given in accordance with this Section 2.3.
(b) Notice of each Board meeting shall be given at least twenty-one
(21) days prior (exclusive of the day of receipt). The secretary shall send such
notice together with a draft agenda for the meeting to all the Directors. The
secretary shall at least fourteen (14) days prior to the meeting send to all the
Directors the final agenda for the meeting, with such additions to the agenda a
Director may have requested. The secretary shall also circulate minutes of each
Board meeting to all the Directors within fourteen (14) days after the date of
each such meeting. The Directors shall confirm in writing its receipt of the
notice and agenda within seven (7) days upon its receipt of such notice.
(c) Topics or proposals not listed in the final agenda set forth in
Section 2.3(b) shall not be put to vote in the meeting of the
7
directors, unless unanimously approved by all Directors of the Company, present
or not.
(d) Board meetings shall be held at such times and at such places and in any
such manner as the Directors may from time to time decide but shall be held at
least semi-annually until such time as mine development work commences. Any
Director shall have the right to convene a Board meeting at any time upon due
notice.
(e) The Board shall meet quarterly to discuss:
(i) the performance of the Company's business;
(ii) detailed management accounts prepared by the Company to show its results
for the prior quarter for each Group Company and on a consolidated basis; (iii)
the Company's performance vis-a-vis the Company Annual Budget; (iv) personnel
matters, including performance and retention issues; and (v) any other
significant matters.
(f) Meetings of the Board and of any committee of the Board may be held by
telephone or other electronic means whereby all persons participating in the
meeting can hear each other. Directors may elect to attend any Board or
committee meeting by such electronic means.
(g) For so long as (1) Continental and CTVH are shareholders of the Company and
the Company has no other shareholders and (2) Continental holds 50% or more of
the outstanding Ordinary Shares, a quorum of the Board or the Tianyuan Board
shall consist of four directors present in person or by alternate or proxy, at
least two of whom shall be the directors designated by Continental. Quorum
otherwise shall consist of a majority of directors present in person or by
alternate or proxy, provided that (so long as such party has the right to
designate a director) one of the directors constituting quorum shall be a
director designated by CTVH and one of the directors constituting quorum shall
be a director designated by Continental.
2.4 Resolutions and Voting.
(a) Except for matters required by law to be dealt with by the Company's
shareholders and the restrictions contained in Section 3, the Restated Articles
of the Company shall provide that all decisions of the Company shall be resolved
by simple majority vote of the Board at a properly constituted meeting. In the
event that a quorum for a meeting of the Board or Tianyuan Board is not present
within thirty (30) minutes after the time at which such meeting was to have
commenced according to the terms of the notice convening such meeting, the
meeting shall stand adjourned to a place, date, and time determined by the
directors present, which date shall not be sooner than five (5) Business Days
later. The directors not present shall forthwith be informed in writing of the
adjournment of the meeting and the place, date and time for the resumption of
the adjourned meeting. If by thirty (30) minutes after the time at which such
resumed meeting was to have commenced a quorum is not present, the members of
the Board or Tianyuan Board then present shall constitute a quorum.
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(b) The Board may adopt any resolution without a meeting if such resolution is
signed by at least the number of directors required for a quorum at a Board
meeting. Information supporting such resolution must be sent in written form to
all of the directors then holding office and the resolution for signature must
be sent to the directors no sooner than seven (7) days after the supporting
information having been sent to the directors.
(c) Directors nominated by Continental shall have no right to vote on the
approval of the costing of the provision by Continental or an Affiliate of
Continental of technical or other services to the Company or Group Companies as
set out in the Company Annual Budget, except matters associated with the
implementation of a Continental Exploration Budget.ii
(d) Directors nominated by CTVH shall have no right to vote on matters involving
CTVH or an Affiliate of CTVH, excluding matters related to the subscription by
CTVH or an Affiliate of CTVH for the issuance of Ordinary Shares of the Company
and matters associated with the implementation of a CTVH Exploration Budget.
2.5 Expenses.
The Company shall reimburse the Directors elected pursuant to Sections 2.1 and
2.2 for all reasonable expenses relating to all Board and Tianyuan Board
activities, including, without limitation, expenses or fees incurred in relation
to attending the Board and Tianyuan Board meetings or meetings of any committee.
Directors expenses incurred shall form part of the expenditure in terms of the
Continental Exploration Program or CTVH Exploration Program (as the case may
be).
2.6 Committees.
2.6.1 At such time as the Company engages in mining activities in
relation to the Property, the Board shall establish committees
in accordance with this Section 2.6 consisting of Directors of
the Company to deal with matters delegated to such committees
by the Board.
2.6.2 Audit Committee.
---------------
(a) The audit committee, if any, shall consist of four
(4) members, of which at least one member shall be a
Director designated by CTVH as long as CTVH holds not
less than twenty-five percent (25%) of the Ordinary
Shares of the Company. A Director designated by the
largest shareholder of the Company shall be the
chairman of the audit committee. The chairman shall
have a casting vote.
(b) The duties of the audit committee shall include:
(i) recommending the selection of the external auditor to the Board;
(ii) reviewing the external audit plan;
(iii) evaluating the annual audited financial statements;
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(iv) overseeing the external audit process and audit results;
(v) monitoring the external auditor's indepen- dence;
(vi) monitoring internal control over financial reporting;
(vii) overseeing the internal audit function; and
(viii) evaluating interim financial statements and the external auditor's review
of those state -ments.
2.6.3 Management Committee.
(a) The management committee, if any, shall consist of four (4) members, of
which at least one member shall be a Director designated by CTVH as long as CTVH
holds not less than twenty-five percent (25%) of the Ordinary Shares in the
Company. A Director designated by the largest shareholder of the Company shall
be the chairman of the management committee. The chairman shall have a casting
vote.
(b) The duties of the management committee shall include:
(i) reviewing the operations of the Company and Group Companies;
(ii) reviewing the detailed management accounts of the Company and Group
Companies; and
(iii) reviewing the financial accounts of the Company and Group Companies
2.6.4 Compensation Committee.
(a) The compensation committee, if any, shall consist of four (4) members, of
which at least one member shall be a Director designated by CTVH as long as CTVH
holds not less than twenty-five percent (25%) of the Ordinary Shares of the
Company. A Director designated by the largest shareholder of the Company shall
be the chairman of the compensation committee. The chairman shall have a casting
vote.
(b) The duties of the compensation committee shall include:
(i) determining remuneration policies; and
(ii) recommending the remuneration of senior officers, consultants and technical
person- nel of the Company and Group Companies to the Board.
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2.6.5 Procedures for Committee Meetings.
Meetings of each committee shall be held in accordance with the following
procedures:
(a) Meetings of each committee shall be held no less often than every six months
and at such places and in any such manner as the members of such committee may
from time to time decide.
(b) The quorum of the meeting of a committee shall be two members, and decisions
shall be passed by simple majority.
(c) A resolution in writing circulated to all the members of a committee or
their representatives and signed by all of the members or their representatives
shall be as valid and effectual as if it had been passed at a duly held meeting
of the committee. For such purposes, a signature sent by facsimile, or by email
using a PDF file or some other similar electronic imaging software, shall be
deemed a written signature.
2.7 Director Information.
The Company shall furnish to each Director of the Board:
(a) promptly after the delivery thereof, all management letters of accountants
relating to the Company or any Group Company;
(b) promptly upon any executive officer obtaining actual knowledge thereof and
in any event promptly upon delivery or receipt by the Company or any Group
Company of any notice relating thereto, written notification of:
(i) the occurrence of any default or breach under any material agreement to
which the Company or any Group Company is a party; and
(ii) the commencement of any material legal or regulatory proceeding, action or
investigation to which the Company or any Group Company is a party.
2.8 Officers.
Unless stated otherwise in this Agreement, the Board shall have the absolute
right, in its sole discretion, to appoint or remove senior officers of the
Company or any Group Company (other than the CEO), with or without cause,
subject to all Applicable Laws.
SECTION 3 SHAREHOLDERS' MEETINGS
3.1 Quorum.
The quorum for meetings of the Shareholders of the Company shall be the presence
of the duly authorized representative (whose authority shall be in writing) of
each Shareholder at the commencement of the meeting.
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3.2 Adjournment.
If a quorum is not present within thirty (30) minutes of the time at which a
Shareholders' meeting should have commenced at which such meeting was to have
commenced according to the terms of the notice convening such meeting, the
meeting shall stand adjourned to a place, and a time and on a date not sooner
than the fifth (5th) day following the date on which the meeting was adjourned,
of which adjournment the Shareholder not present shall forthwith be informed in
writing of the meeting and the place, date and time for the resumption of the
adjourned meeting. If within thirty (30) minutes after the time to which the
meeting was adjourned as aforesaid, the quorum is still not present, the
Shareholders then present shall constitute a quorum.
3.3 Actions Requiring Special Consent.
Notwithstanding anything herein that may be to the contrary, each of the
Shareholders undertakes to each other that it shall exercise all its powers in
relation to the Company so as to procure (insofar as it is able) that, in
addition to any other approvals required by Applicable Law, the Restated
Memorandum and the Restated Articles or any equivalent organizational documents
of any Group Company, the following matters shall not be effected in relation to
the Company or any Group Company, without the unanimous consent of the
Shareholders:
(a) the amendment, alteration, or repeal of any provision of the Restated
Memorandum or Restated Articles, or the constitutional documents of any Group
Company;
(b) any alteration or reorganization of the share capital or registered capital
of the Company or any Group Company, including, without limitation, reduction,
consolidation,
subdivision or conversion thereof, or the rights in respect of
any share capital, but excluding any increase in the share
capital;
(c) except as provided herein, the payment or declaration of a distribution or
dividend, including, without limitation, the redemption or repurchase of any
such capital shares;
(d) any issuance of capital share of the Company in class other than Ordinary
Shares;
(e) the merger, amalgamation or consolidation of the Company or any Group
Company with any Person, or the sale, lease, exchange, transfer, contribution,
Encumbrance or other disposition of all or substantially all of the consolidated
assets of the Company or any Group Company (whether in an individual transaction
or a series of related transactions), or the purchase or other acquisition of
all or substantially all of the assets of another Person, or the reorganization
of the Company or any Group Company;
(f) any voluntary dissolution, winding-up or liquidation of the Company or any
Group Company;
12
(g) except as provided herein, any increase or decrease in the size of the Board
or the board of directors or similar governing body of any Group Company;
(h) any major corporate or financial commitment, expenditure or cash
disbursement on the part of the Company or any Group Company that could result
in a variance from the Company Annual Budget of greater than twenty percent
(20%);
(i) the giving of any guarantee or indemnity by the Company or any Group Company
regarding or in connection with any borrowing, other than borrowings by the
Company or a Group Company in the normal course of business;
(j) any change in accounting principles of the Company or any Group Company,
except as required by the Applicable Law;
(k) the creation of any Encumbrance (other than those created by operation of
law) with respect to assets of the Company or any Group Company, other than in
the normal course of business; and
(l) the consideration of and, as may be appropriate, the approval of any
material diversification or investment, or a change of business, subject to the
appropriate governmental approvals (if required).
SECTION 4 RESTRICTIONS ON TRANSFER OF ORDINARY SHARES
4.1 Legends.
Each certificate representing Ordinary Shares of the Company shall be stamped or
otherwise imprinted with a legend in substantially the following form in the
English language pursuant to this Agreement:
"THE SALE, PLEDGE, HYPOTHECATION, ASSIGNMENT OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A
CERTAIN SHAREHOLDERS AGREEMENT BY AND AMONG THE COMPANY AND CERTAIN SHAREHOLDERS
OF THE COMPANY. COPIES OF THE SHAREHOLDERS AGREEMENT MAY BE OBTAINED UPON
WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY."
4.2 Right of First Refusal.
(a) Parties' Respective Rights of First Refusal.
(i) Continental shall have the right to Transfer its Ordinary Shares provided
that the other Shareholders then holding Ordinary Shares have first been offered
the Ordinary Shares on the same terms as Continental proposes to accept in
accordance with this Section 4.2. Any Transfer of Ordinary Shares to an
Affiliate
13
of Continental shall not require Continental to first offer the Ordinary Shares
to be Transferred to the Other Shareholders.
(ii) Each Shareholder other than Continental shall have the right to Transfer
its Ordinary Shares in the Company provided that such Shareholder has first
offered Continental the Ordinary Shares on the same terms as the Shareholder
that is selling proposes to accept in accordance with this Section 4.2. Any
Transfer of Ordinary Shares to an Affiliate of CTVH shall not require CTVH to
first offer the Ordinary Shares to be Transferred to Continental.
(iii) The transferee in relation to a Transfer permitted under this Section 4.2
shall execute and deliver to the Company an Adherence Agreement substantially in
the form attached hereto as Schedule A, assuming the obligations of the
transferring Shareholder with respect to the transferred shares.
(b) Transfer Notice.
Each Shareholder agrees that if at any time it plans to Transfer any of its
Offered Ordinary Shares, then such Selling Shareholder shall give the
Shareholder having a right of first refusal in relation to the Offered Ordinary
Shares in accordance with Section 4.2(a) (the "RFR Shareholders") a written
notice of its intention to make such Transfer ("First Transfer Notice"), which
such First Transfer Notice shall include:
(i) the number of Offered Ordinary Shares;
(ii) the identity of the prospective transferee(s); and
(iii) the consideration and the material terms and conditions upon which the
proposed Transfer is to be made.
The First Transfer Notice shall certify that such Selling Shareholder has
received a firm offer from a third party transferee(s) and in good faith
believes a binding agreement for the Transfer is obtainable on the terms set
forth in the First Transfer Notice. The First Transfer Notice shall also include
a copy of any written proposal, term sheet or letter of intent or other
agreement relating to the proposed Transfer.
(c) Purchase Notice.
Within thirty (30) days following the receipt of the First Transfer Notice
(subject to extension as provided in Sections 4.2(d)(iii) and 4.2(d)(iv)), RFR
Shareholders may exercise their right of first refusal by giving notice,
pursuant to Sections 4.2(d), to the Selling Shareholder ("Purchase Notice"),
with a copy to the Company. If an RFR Shareholder fails to deliver the Purchase
Notice within thirty (30) days following the receipt of a First Transfer Notice,
it may not exercise its right of first refusal in such Transfer.
14
(d) RFR Shareholders' Right of First Refusal.
(i) If an RFR Shareholder elects to exercise its right of first refusal, its
Purchase Notice shall set forth the number of Offered Ordinary Shares such
Remaining Shareholder wishes to purchase, subject to a maximum of its right of
first refusal pro rata amount, calculated immediately prior to the time of the
purchase hereunder from the Selling Shareholder.
(ii) Immediately following the expiration of the thirty
(30) day period referred to in Section 4.2(c) above, the Selling Shareholder
shall send out a second notice ("Second Transfer Notice") to each RFR Share-
holder that exercised its right of first refusal regarding the First Transfer
Notice ("Purchasing Shareholder"), with a copy to the Company, setting forth the
number of shares that remain unpurchased from the First Transfer Notice
("Remaining Shares"). Each Purchasing Shareholder shall have fifteen (15)
Business Days from the date of receipt of the Second Transfer Notice to purchase
up to that portion of the Remaining Shares equal to the proportion that the
number of Ordinary Shares held by such Purchasing Shareholder bears to the total
number of Ordinary Shares held by all Purchasing Shareholders who wish to
purchase the Remaining Shares by giving Notice to the Selling Shareholder
("Second Purchase Notice").
(iii) Should any Shareholder be wound-up, liquidated, placed under judicial
management, whether provision- ally or finally and whether voluntarily or
compulsorily (other than for the purposes of a recon- struction or amalgamation)
then the Shareholder shall be deemed, on the day immediately preceding the
occurrence of such event, to have offered all its Ordinary Shares in the Company
to the other Share- holders, and the price per Ordinary Share shall be the
greater of the original subscription price paid by the Selling Shareholder for
such Offered Ordinary Shares (appropriately adjusted for share splits, share
dividends, combinations and the like) or the fair market value of such Offered
Ordinary Shares, which shall be a price determined in good faith by the Board
reflecting the current value of the Offered Ordinary Shares in view of the
present earnings and future prospects of the Company, determined within thirty
(30) days after receipt by the RFR Sharehold- ers of the First Transfer Notice.
In the event that the Selling Shareholder or his or her executor dis- agrees
with such valuation as determined by the Board, the Selling Shareholder or his
or her executor shall be entitled to have the valuation determined by an
independent appraiser to be mutually agreed upon by the RFR Shareholders and the
Selling Shareholder or his or her executor, the fees of which appraiser shall be
borne by the Selling Shareholder or his or her estate. The thirty (30) day
period specified in Section 4.2(c) shall be extended to the fifth (5th) Business
Day after a valuation pursuant to this Section 4.2(d)(iii) has been determined
to be final and binding.
15
(iv) In the event the consideration for the Offered Shares specified in a First
Transfer Notice is payable in property other than cash and the Selling
Shareholder and the RFR Shareholders who wish to purchase the Offered Shares
(acting together) cannot agree on the cash value of such property within thirty
(30) days after such RFR Shareholders' receipt of the First Transfer Notice, the
value of such property shall be determined by an independent appraiser to be
mutually agreed upon by the Selling Shareholder and such RFR Shareholders
(acting together) within one month from its appointment, and such determination
shall be final and binding on the Selling Shareholder and such RFR Shareholders.
The cost of such appraisal shall be paid by the Shareholders whose value is the
furthest away from the value determined by the independent appraiser. The thirty
(30) day period specified in Section 8.1(c) shall be extended to the fifth (5th)
Business Day after a valuation pursuant to this Section 8.1(d)(iv) has been
determined to be final and binding.
(v) The exercise (whether in full or in part) or non-exercise of any right of
first refusal by any Remaining Shareholder to purchase or participate in one or
more proposals to Transfer any Offered Ordinary Shares shall not adversely
affect its rights to purchase or participate in subsequent Transfers of Offered
Ordinary Shares.
(vi) Notwithstanding any rights or rights of first refusal in this Section 4.2,
in the event the RFR Shareholders do not purchase all of the offered Ordinary
Shares that remain available in the Second Transfer Notice, the Selling
Shareholder may cancel all sales to RFR Shareholders and Transfer all of the
Offered Ordinary Shares to the third party transferee(s) on the terms set forth
in the First Transfer Notice.
4.3 Non-Exercise of Rights.
Completion of the Transfer of the Offered Ordinary Shares to the third party
transferee(s) set forth in the First Transfer Notice (and if applicable, the
Purchasing Shareholders) shall occur no later than the later of (i) thirty (30)
days after the receipt of the Second Transfer Notice or (ii) the determination
of the value of the shares by an independent appraiser pursuant to Sections
4.2(d)(iii) and 4.2(d)(iv). If no RFR Shareholder elects to exercise the right
of first refusal, all but not less than all Offered Ordinary Shares may be
transferred in accordance with the First Transfer Notice. The Selling
Shareholder shall procure, as a condition of the effectiveness of the Transfer
of the Offered Ordinary Shares, that the third party transferee(s) assume the
obligations of the Selling Shareholder under this Agreement by executing and
delivering to the Company an Adherence Agreement substantially in the form
attached hereto as Schedule A. Unless written consent of each RFR Shareholder is
obtained, if such Transfer is not completed within the time period prescribed in
this Section 4.3, or if any proposed terms or conditions with respect to the
Transfer of the Offered Shares become more favorable to the proposed purchaser
than those set forth in the First Transfer Notice, then such proposed Transfer
shall again be subject to the right of first refusal, and the procedures in
connection therewith, set forth in Section 4.2.
16
4.4 Disclosure to Proposed Transferees.
Each holder of Ordinary Shares shall be entitled to disclose to any third party
transferee(s) of Ordinary Shares any information, documents, or materials
concerning the Company and Group Companies known to or in the possession of such
holder, and the Company shall provide any assistance or cooperation reasonably
requested by such holder or any third party transferee in connection with such
third party transferee's due diligence investigation of the Company subject to
appropriate nondisclosure arrangements.
SECTION 5 NPI PAYMENT RIGHTS
5.1 The Shareholders of the Company will be entitled to share in dividends of
the Company and in the distribution of net proceeds upon a liquidation of the
assets of Company according to their respective shareholdings in the Company,
provided that if the shareholding in the Company in aggregate held by either
CTVH or Continental, and only CTVH or Continental (as the case may be), (such
party a "Selecting Shareholder") falls below 15%, then the Selecting Shareholder
will have an once-off option, exercisable by notice to the other Shareholder, no
later than 30 days after its aggregated shareholding falls below the
aforementioned 15%, to:
(a) continue to hold its Ordinary Shares to be entitled to receive its share of
dividends of the Company according to its shareholding and to be liable to make
equity contributions according to its shareholding in accordance with Section 9;
or
(b) to the extent permitted by law, redeem its Ordinary Shares in exchange for
an annual payment, payable ninety (90) days after the financial year end of the
Company or the date that the Company distributes dividends to its shareholders,
whichever date is the later, (a "BVI NPI Payment") in respect of each financial
year of the Company following the date of redemption, calculated at a fixed rate
of 12.5% of the Net Profits, which BVI NPI Payments shall be subject to the
following provisions:
(i) subject to subclauses (ii), (iii) below, BVI NPI Payments will not accrue or
be payable to the Selecting Shareholder until after the other Shareholder or
Shareholders (as the case may be) have recovered through their receipt of
dividends from the Company all of their "BVI Excess Investment" (as defined
below);
(ii) in respect of any financial year before BVI NPI Payments have accrued and
become payable in accordance with subclause (i) above, and provided that in any
event that the Company has BVI Net Profits of no less than US$2 million, the
Selecting Shareholder shall be entitled to a fixed interim payment of
US$250,000;
(iii) once BVI NPI Payments have accrued and become payable in accordance with
subclauses (i) and (ii) above, then the first US$250,000 of the BVI NPI Payments
for each year
17
shall be paid to the Selecting Shareholder, and the remaining amounts accrued,
on an aggregated basis, shall be reduced by the amount of any interim payments
the Selecting Shareholder has received in accordance with subclause (ii) above
until all such previously paid fixed interim amounts have been accounted for as
a credit to the amounts otherwise due to the Selecting Shareholder; and
(iv) the Company shall provide the Selecting Shareholder with an audit
certificate evidencing the calculation of the BVI NPI Payment for that year.
5.2 The term "BVI Excess Investment" means all loan and equity capital invested,
provided and or contributed to the Company by the other Shareholders, as well as
any additional investment not accounted for in such loan or equity capital and
made by the other Shareholders in relation to the Company, Group Companies and
the Property directly or indirectly under the terms hereof and not otherwise
accounted for as part of the Company's loan or equity capital after the point at
which the shareholding of the Selecting Shareholder falls below 15% of the total
shareholders equity capital, plus interest on such funds at the interest rate
published calculated in accordance with the prime overdraft rate charged by the
Bank of Montreal, Canada to its corporate customers.
5.3 The Parties will enter into a Net Profits Agreement concurrently with such
Shareholders exercising their option to receive the Net Profits, in a form
satisfactory to the other Shareholders. An example of the calculations above is
attached as Schedule B.
SECTION 6 EXPLORATION BUDGETS
6.1 Business.
The business of the Group Companies shall be the exploration for minerals on and
under the Property, the compilation of a bankable feasibility study on
exploiting the minerals on and under the Property, and the mining and
beneficiation of the minerals on and under the Property.
6.2 Exploration Programs and Budgets.
The Company and Group Companies' exploration operations shall be conducted,
expenses shall be incurred, and assets shall be acquired only pursuant to an
approved exploration program and budget. The Parties undertake to set the term
of each exploration program and budget so that the program runs over the same
period as the Company's financial year after completion of the First Expenditure
Period or the Second Expenditure Period (as the case may be).
6.3 Preparation of Exploration Programs and Budgets.
(a) Continental shall prepare "the Continental Exploration Program" and submit
its Continental Exploration Program to
18
each Director no later than forty-five (45) days after the end of the existing
Continental Exploration Program, for the Directors' review and adoption in
accordance with Section 6.4.
(b) The annual expenditure under a Continental Exploration Program shall be at
least US$1,000,000, except that if the expenditure under the previous
Continental Exploration Program exceeded the budgeted expenditure amount, then
the excess amount ("Excess Amount") shall be credited toward such minimum
US$1,000,000 budgeted annual expenditure for the subsequent Continental
Exploration Program. In the event that the budgeted expenditure for a
Continental Exploration Program is less than US$1,000,000, then the shortfall
shall nonetheless be budgeted for and Continental shall in any case invest no
less than US$1,000,000 in Ordinary Shares of the Company except in the event
where there is an Excess Amount in which event the amount invested by Continual
shall be no less than the difference between US$1,000,000 and the Excess Amount.
Any amounts so invested shall be first used to fund expenditure under a
subsequent Continental Exploration Program.
(c) Continental may elect to provide suitable engineering expertise to the
Company and Tianyuan, charged at the market rates contemplated under the terms
of the Continental Exploration Program approved by the Board, and the Company
and Tianyuan shall engage personnel recommended by Continental to operate all
the engineering programs. Continental may elect to have the costs of such
provision of expertise be either (i) reimbursed to it by Tianyuan or (ii)
credited as Continental's expenditure incurred in relation to the Property. The
costing of such services shall be approved as a separate budget item in
accordance with Section 2.3. This Section shall apply mutatis mutandis to CTVH
if it proposes a CTVH Exploration Program.
6.4 Review and Adoption of Proposed Programs.
(a) Within fourteen (14) days of receipt of a proposed Continental Exploration
Program, each Director shall provide their comments or proposed modifications to
the proposed Continental Exploration Program, if any, to Continental. Failure to
provide comments or modifications shall not preclude a Director from voting for
or against the adoption of a Continental Exploration Program.
(b) No earlier than fourteen (14) days, but no later than twenty-eight (28) days
after submitting the proposed Continental Exploration Program to the Directors,
Continental shall submit the Continental Exploration Program, as amended in his
sole discretion to take account of Directors' comments and proposed
modifications, to the Board.
(c) Within fourteen (14) days after receipt of the Continental Exploration
Program, the Board and the Tianyuan Board shall convene in accordance with
Sections 2.3 and 2.4 for the purpose of reviewing and voting upon the
Continental Exploration Program. The Board shall give its written notice to all
Shareholders as to whether it has approved or rejected the Continental
Exploration Program. In the event that the Board approves the Continental
19
Exploration Program with the exception of the budget items relating to services
to be rendered by a Shareholder or its Affiliates to the Company or a Group
Company, the CEO will be entitled to continue the operations of the Company in
accordance with such Continental Exploration Program excluding the unapproved
budget items and the Shareholders will meet to resolve the outstanding budgetary
items. Until such time that the Shareholders resolve the outstanding budgetary
items, the CEO shall be entitled to incur expenditures for those items up to the
limit approved for those items under the previous Continental Exploration
Program having been approved by the Board.
(d) If the Board rejects the Continental Exploration Program, the Shareholders
shall meet within fourteen (14) days in order to determine a new exploration
program and budget and in the event that the Shareholders are unable to agree on
a new exploration program and budget within twenty -eight (28) days of the Board
rejecting the Continental Exploration Program, the matter shall be referred for
arbitration in terms of Section 15.10.
(e) Notwithstanding the foregoing, any Continental Exploration Program may be
approved and adopted by the unanimous written consent of the Board.
6.5 In the event that Continental fails to submit or fund a Continental
Exploration Program in accordance with Section 6.3 upon expiry of the First
Expenditure Period (or if Continental exercises the Second Option (as defined in
the Option Agreement), then upon expiry of the Second Expenditure Period), CTVH
shall be entitled to submit the CTVH Exploration Program no later than sixty
(60) days after the end of the existing exploration program and budget to the
Board for approval and Continental undertakes that it will approve and
Continental will cause the directors it designated to approve the CTVH
Exploration Program if it is in accordance with sound mining and applicable
industry standards and practices in China.
6.6 In the event that Continental:
(a) does not elect to fund the CTVH Exploration Program;
(b) elects to fund less than US$1,000,000 of the funding required under the
terms of the CTVH Exploration Program; or
(c) elects to fund less than its pro rata share of the CTVH Exploration Program
if that is less than US$1,000,000.
then CTVH shall be entitled to implement its proposed exploration program
according to the CTVH Exploration Program and CTVH may elect to assume the
operatorship, management and administration of the CTVH Exploration Program. In
the event that Tianyuan undertakes a CTVH Exploration Program, the Board voting
procedures as set out in Section 2.1(h) will apply.
6.7 In the event that Continental submits a Continental Exploration Program in
any period during which CTVH has assumed the operatorship, management and
administration under a CTVH Exploration Program, the operatorship, management
and administration of the exploration program and budget under the Continental
Exploration Program following the expiration of the CTVH Exploration Program
shall revert to Continental
20
and Continental shall have a casting vote for all matters before the Board so
long as Continental holds 50% or more of the shares of the Company.
6.8 The provisions of Section 6.3 will apply mutatis mutandis to CTVH and the
provisions of 6.5 will apply mutatis mutandis to Continental if CTVH's
shareholding rises above 50%.
6.9 Program Review.
The progress of each Continental Exploration Program and each CTVH Exploration
Program adopted by the Board shall be reviewed at least quarterly at meetings of
the Board.
SECTION 7 COMPANY ANNUAL BUDGETS
7.1 Company Annual Budgets.
The Company's operations shall be conducted, expenses shall be incurred, and
assets shall be acquired only pursuant to an approved annual budget which shall
include on a consolidated basis the Tianyuan Annual Budget approved in terms of
Section 8 or the Continental Exploration Budget or CTVH Exploration Budget (as
the case may be) approved in terms of Section 6. The annual budget shall include
a two-year rolling forecast.
7.2 Preparation of the Company Annual Budget.
The CEO shall on an annual basis prepare and submit a proposed Company Annual
Budget to each Director no later than forty-five (45) days before the end of the
current financial year, for the Directors' review in accordance with Section
7.3. The provision of services by a Shareholder or its Affiliates to the Company
or a Group Company and the costing of such services shall be approved as
separate budget items in accordance with Section 2.3.
7.3 Review and Adoption of Company Annual Budget.
(a) Within fourteen (14) days of receipt of a proposed Company Annual Budget,
each Director shall provide their comments or proposed modifications to the
proposed Company Annual Budget, if any, to the CEO. Failure to provide comments
or modifications shall not preclude a Director from voting for or against the
adoption of a Company Annual Budget.
(b) No earlier than fourteen (14) days, but no later than twenty -eight (28)
days after submitting the proposed Company Annual Budget to the Directors, the
CEO shall submit the Company Annual Budget, as amended in his sole discretion to
take account of Directors' comments and proposed modifications, to the Board.
21
(c) Within fourteen (14) days after receipt of the Company Annual Budget, the
Board shall convene for the purpose of reviewing and voting upon the Company
Annual Budget. The Board shall give written notice to all Shareholders as to
whether it has approved or rejected the Company Annual Budget. In the event that
the Board approves the Company Annual Budget with the exception of the budget
items relating to services to be rendered by a Shareholder or its Affiliates to
the Company or a Group Company, the CEO will be entitled to continue the
operations of the Company in terms of the Company Annual Budget, excluding the
unapproved budgetary items, and the Shareholders will meet to resolve the
outstanding budgetary item. The CEO may incur expenditure for unapproved budget
items if such budget items were approved in the previous year's Company Annual
Budget having been approved by the Board.
(d) If the Board rejects the Company Annual Budget, the Shareholders shall meet
within fourteen (14) days in order to determine a new Company Annual Budget and
in the event that the Shareholders are unable to agree on a new Company Annual
Budget within twenty -eight (28) days of the Board rejecting the Company Annual
Budget, the CEO shall be entitled to operate the Group Companies under the terms
of the then existing approved Company Annual Budget until such time as the Board
approves a new Company Annual Budget.
SECTION 8 TIANYUAN ANNUAL BUDGETS
8.1 Tianyuan Annual Budgets.
Tianyuan's operations shall be conducted, expenses shall be incurred, and assets
shall be acquired only pursuant to an approved annual budget. During the period
that the Company operates under either a Continental Exploration Program or a
CTVH Exploration Program (as the case may be), the Continental Exploration
Program or a CTVH Exploration Program (as the case may be) shall be the deemed
to be the Tianyuan Annual Budget. The annual budget shall include a two year
rolling forecast.
8.2 Preparation of the Tianyuan Annual Budget.
The General Manager shall on an annual basis prepare and submit a Tianyuan
Annual Budget to each Tianyuan Director no later than sixty (60) days before the
end of the current financial year, for the Tianyuan Directors' review in
accordance with Section 8.3. Continental may elect to provide suitable
engineering expertise, charged at market related rates, as agreed in terms of
the annual exploration budget and program approved by the Board, to the Company
and Tianyuan, and the Company and Tianyuan shall engage personnel recommended by
Continental to operate such engineering programs. Continental may elect to have
the costs of such provision of expertise be either (i) reimbursed to it by
Tianyuan or (ii) credited as Continental's expenditure incurred in
22
relation to the Property. The costing for such services shall be approved as
separate budget items in accordance with Section 2.3. This Section 8.2 shall
apply mutatis mutandis to CTVH if it proposes a CTVH Exploration Program.
8.3 Review and Adoption of Tianyuan Annual Budget.
(a) Within fourteen (14) days of receipt of a proposed Tianyuan Annual Budget,
each Tianyuan Director shall provide their comments or proposed modifications to
the proposed Tianyuan Annual Budget, if any, to the General Manager. Failure to
provide comments or modifications shall not preclude a Tianyuan Director from
voting for or against the adoption of a Tianyuan Annual Budget.
(b) No earlier than fourteen (14) days, but no later than twenty -eight (28)
days after submitting the proposed Tianyuan Annual Budget to the Tianyuan
Directors, the General Manager shall submit the Tianyuan Annual Budget, as
amended in his sole discretion to take account of the Tianyuan Directors'
comments and proposed modifications, to the Tianyuan Board.
(c) Within fourteen (14) days after receipt of the Tianyuan Annual Budget, the
Tianyuan Board shall convene for the purpose of reviewing and voting upon the
Tianyuan Annual Budget. In the event that the Board approves the Tianyuan Annual
Budget with the exception of the budget items relating to services to be
rendered by a Shareholder or its Affiliates to the Company or a Group Company,
the General Manager will be entitled to continue the operations of the Company
in terms of the Tianyuan Annual Budget and the Shareholders will meet to resolve
the outstanding budgetary item. The General Manager may incur expenditure for
unapproved budget items up to the limit approved for such items in the previous
year's Tianyuan Annual Budget having been approved by the Tianyuan Board.
(d) If the Tianyuan Board rejects the Tianyuan Annual Budget, the Shareholders
shall meet within fourteen (14) days in order to determine a new Tianyuan Annual
Budget and in the event that the Shareholders are unable to agree on a new
Tianyuan Annual Budget within twenty -eight (28) days of the Tianyuan Board
rejecting the Tianyuan Annual Budget, the General Manager shall be entitled to
operate Tianyuan under the terms of the then existing approved Tianyuan Annual
Budget until such time as the Tianyuan Board approves a new Tianyuan Annual
Budget
SECTION 9 FUNDING OF THE COMPANY
9.1 Continental having completed its investment into the Company in connection
with the First Option or Second Option (as the case may be) as provided in the
Option Agreement, the Board may from time to time by simple majority resolution
determine that the Company requires additional funding in accordance with a
Company Annual Budget having been approved by the Board. The then Shareholders
of Company shall have first right to supply such additional funding.
9.2 In the event that the Board determines by simple majority resolution that
the Company requires additional funding in accordance with the terms of an
approved Company Annual Budget, the Shareholders shall agree to make either
equity contributions or shareholders loans to
23
Company. If the Shareholders cannot reach agreement on the form of funding, the
funding will be in the form of shareholders equity and the Company shall
undertake an issuance of Ordinary Shares to permit such funding.
9.3 Pre-emptive Right.
The Company hereby grants to each Shareholder a right of first refusal to
subscribe for its pro rata share of any such increase in shareholders equity
capital that the Company may, from time to time, propose. A Shareholder's "pro
rata share", for purposes of this pre-emptive right, shall be determined
according to the number of Ordinary Shares owned by such Shareholder immediately
prior to the issuance of the Ordinary Shares in relation to the total number of
Ordinary Shares outstanding immediately prior to the issuance of the Ordinary
Shares. Each Shareholder shall have a right of over-allotment such that, if any
Shareholder fails to exercise its right hereunder to subscribe for its pro rata
share of the increase in shareholders equity capital, the other Shareholders may
subscribe for the non-subscribing Shareholder's portion on a pro rata basis in
accordance with Section 9.4 below.
9.4 Issuing Of Ordinary Shares: Procedures.
(a) First Participation Notice.
In the event that the Company proposes to undertake an issuance of Ordinary
Shares, it shall give to each Shareholder Notice indicating its intention to
issue Ordinary Shares, describing the amount of shareholders' equity that the
Company proposes to raise and the general terms upon which the Company proposes
to issue such Ordinary Shares ("First Participation Notice"). Each Shareholder
shall have thirty (30) Business Days from the date of receipt of any such First
Participation Notice to agree in writing to subscribe for such Shareholder's pro
rata share of such shareholders equity upon the terms and conditions specified
in the First Participation Notice by giving written notice to the Company and
stating in such notice the quantity of shareholders equity to be subscribed for
(not to exceed such Shareholder's pro rata share). If any Shareholder fails to
so agree in writing within such thirty (30) Business Day period to subscribe for
such Shareholder's full pro rata share of the shareholders' equity, then such
Shareholder shall forfeit the right hereunder to subscribe for that part of its
pro rata share of such shareholders equity that it did not so agree to
subscribe.
(b) Second Participation Notice; Oversubscription.
If any Shareholder fails to exercise its rights under the First Participation
Notice in full in accordance with subsection (a) above, the Company shall
promptly give each Shareholder that has exercised its rights under the First
Participation Notice in full ("Participating Shareholder") a Second
Participation Notice indicating the amount of shareholders equity remaining
available for subscription. Each such Participating Shareholder shall have five
(5) Business
24
Days from the date of receipt of the Second Participation Notice to elect by
written notice to the Company to subscribe for that portion of the remaining
shareholders' equity equal to the proportion that the number of Ordinary Shares
held by such Participating Shareholder bears to the total number of Ordinary
Shares held by all Participating Shareholders who wish to subscribe for the
remaining shareholders' equity. If the shareholders equity made available for
subscription is not fully subscribed for by the Shareholders following issuance
of the Second Participation Notice, the Board may invite investors who are not
Shareholders to subscribe for the shareholders equity still available for
subscription, subject to the investors being acceptable to the Shareholders and
becoming party to this Agreement in accordance with Section 15.5(b).
9.5 Failure to Exercise.
In the event that the Shareholders together fail to subscribe for all the
Ordinary Shares offered in terms of Section 9.4, the Company may reduce the
amount of Ordinary Shares to be subscribed for to an amount equal to the amount
subscribed, or it may offer any unsubscribed Ordinary Shares to third parties
approved by the holder of a majority of Ordinary Shares upon terms not more
favorable to the third parties than specified in the First Participation Notice.
In the event that the Company has not issued and sold such Ordinary Shares
within ninety (90) days after the Shareholders receipt of the First
Participation Notice, then the Company shall not thereafter issue or sell any
Ordinary Shares without again first offering such Ordinary Shares to the
Shareholders pursuant to Section 9.4.
9.6 Timing of Subscription.
The payment for Ordinary Shares by Shareholders pursuant to this
Section 9.6 shall occur no later than the time stipulated by the Board,
provided, however, that the Board shall not require payment earlier than thirty
(30) days following the Shareholders' receipt of the First Participation Notice
(or the Second Participation Notice, if such is given).
9.7 Termination.
The right of each Shareholder under this Section 9 shall terminate upon such
Shareholder ceasing to hold any Ordinary Shares.
9.8 Board Voting for New Issuance of Shares.
Where CTVH and Continental subscribe the shares to be issued in accordance with
the above, the new issuance of shares shall be approved by the Board with a
simple majority.
9.9 Formula for Issuance of New Shares by Company.
(a) If Continental has exercised the First Option but not the Second Option
under the Option Agreement:
(i) Determination of Shareholders Interest.
CTVH's shareholders interest = A divided by (A plus
25
B), expressed as a percentage.
Continental's shareholders interest = B divided by (A plus B), expressed as a
percentage.
Where:
A = The aggregate amount of contributions, including share capital
and surplus, to the Company, expressed as a US$ amount after
Continental has completed its required expenditure in relation to
the First Option, if any, plus US$5,000,000 as a deemed amount
for the purpose of calculating CTVH's shareholders interests,
less subscription monies paid to acquire CTVH's pro rata number
of shares in relation to the First Option.
B = the aggregate amount of contributions, including share capital
and surplus, to the Company, expressed as a US$ amount, after
Continental has completed its required expenditure in relation to
the First Option if any, plus US$5,000,000.
(ii) Determination of number of shares to be issued.
The Company will issue at par the number of shares required to equate the
shareholding of the Shareholders with their respective shareholders interests as
calculated above and the balance of the subscription price will be allocated to
the surplus account of the Company.
An example calculation is appended as Schedule C.
In the event that the Company has Shareholders other than Continental and CTVH,
the formula will be amended to include such other Shareholders.
(b) If Continental has exercised the Second Option under the Option Agreement
and has completed its expenditure under the Second Option, then:
(i) Determination of Shareholders Interest.
CTVH's shareholders interest = A divided by (A plus
B), expressed as a percentage
Continental's shareholders interest = B divided by (A plus B),
expressed as a percentage.
Where:
A = The aggregate amount of contributions, including share
capital and surplus, to the Company, expressed as a US$ amount
after Continental has completed its required expenditure in
relation to the Second Option, if any, plus US$5,333,330 as a
deemed amount for the purpose of calculating
26
CTVH's shareholders interests, less
subscription monies paid to acquire ABC's
pro rata number of shares in relation to the
First and Second Option.
B = the aggregate amount of contributions,
including share capital and surplus, to the
Company, expressed as a US$ amount, after
Continental has completed its required
expenditure in relation to the Second
Option, if any, plus US$8,000,000.
(ii) Determination of number of shares to be issued.
----------------------------------------------
The Company will issue at the nominal value the
number of Ordinary Shares required to equate the
shareholding of the parties with their respective
shareholders interests as calculated above and the
balance of the subscription price will be allocated
to the surplus account of the Company.
An example calculation is appended as Schedule C.
In the event that the Company has Shareholders other than Continental
and CTVH, the formula will be amended to include such other
Shareholders.
9.10 Bank Accounts.
The Group Companies shall from time to time open an account or accounts
with such bank or banks as the Board may determine, such accounts to be
maintained in the name of the relevant Group Company. All monies from
time to time received by, or on account of, the Group Companies shall
be deposited forthwith preferably by electronic transfer in such Group
Company accounts and all disbursements on account of the Group
Companies shall be drawn upon such Group Company account or accounts.
Such persons as may from time to time be designated by resolution of
the Board, may draw cheques in the name of the Group Companies and may
sign, endorse and accept in the name of the Group Companies, any bills,
notes, cheques, drafts or other instruments for the purpose of the
Business of the Group Companies, subject to such restrictions as may
from time to time be prescribed by the Board.
SECTION 10 MANAGEMENT STRUCTURES
10.1 The Company shall have a management organization that is under the
leadership of the CEO, who shall be an individual nominated by the
Shareholder holding the largest number of Ordinary Shares of the
Company and appointed by the Board. In the event that Tianyuan is
operating a CTVH Exploration Program, CTVH shall have the right to
remove and nominate the CEO.
10.2 The Company shall cause Tianyuan to set up a management organization
that is under the leadership of the General Manager, who shall be an
individual nominated by the CEO of the Company and appointed by the
Tianyuan Board by simple majority vote.
10.3 In the event that Tianyuan is operating a CTVH Exploration Program,
CTVH shall have the right to remove any of the personnel of Tianyuan
27
and appoint replacement personnel for the duration of the CTVH Exploration
Program.
SECTION 11 CERTAIN COVENANTS
11.1 Covenants of the Company.
(a) Accounting; Financial Statements and Other Information; Inspection Rights.
The Company covenants to the each of the Shareholders as follows:
(i) Accounting. The Company shall maintain and cause each Group Company to keep
complete accounts and records, maintain a system of accounting established and
admini- stered in accordance with GAAP, and shall set aside on its books and
cause each Group Company to set aside on its books, all such proper reserves as
shall be required by GAAP and the Board. The Company shall engage an
international firm of auditors to audit its accounts and annual financial
statements and to prepare an audit report and KPMG shall be the initial auditors
of the Company appointed by the Board.
(ii) Financial Statements and Other Information.
The Company shall deliver to the Shareholders and the Selecting Shareholder (as
the case may be), promptly after the period covered thereby, and in any event
within ninety (90) days thereafter, annual audited financial statements of the
Company and each Group Company, prepared in accordance with GAAP and certified
by an independent reputable international certified public accounting firm or an
Affiliate thereof approved by the Board.
The Company shall deliver to the Shareholders then holding more than ten percent
(10%) of the outstanding Ordinary Shares:
(A) promptly after the period covered thereby, and in any event within thirty
(30) days thereafter, quarterly unaudited financial statements of the Company
and each Group Company, prepared in accordance with GAAP,
(B) monthly operational and management reports or reviews detailing key
operational performance indicators of the Company and each Group Company within
thirty (30) days after the end of each month,
(C) copies of any resolutions, minutes or written consents of the Board or
committees of the Company (or similar bodies for any Group Company), or the
Shareholders of the
28
Company or any Group Company, in each case within fourteen (14) days following
the date of the applicable meeting or within five (5) days following the
complete execution of the unanimous written consent,
(D) no later than thirty (30) days before the commencement of each financial
year, the Company Annual Budget for the upcoming financial year of the Company
and each Group Company,
(E) general communications from the Company or any Group Company to its
shareholders, directors or the public at large,
(F) reports or other materials filed by the Company or any Group Company with
any Governmental Authority;
(G) notice of any material adverse event, condi- tion or litigation affecting
the Company or any Group Company,
(H) such other information and copies of documents concerning the business and
operations of the Company or any Group Company as the Shareholder may request
including without limitation, information and returns on Taxes, Governmental
Approvals and Consents; and
(I) any information that such Shareholder reasonably requests in connection with
any domestic or foreign tax or other governmental filing to be made by such
Shareholder or its Affiliates, provided that such Shareholder reimburses the
Company for the incidental out-of-pocket costs incurred by the Company in
preparing and delivering any such information (including reasonable costs in
respect of the Company's own personnel and facilities).
(iii) Inspection Rights.
The Company shall permit any representative designated by any Shareholder
holding no less than ten percent (10%) of the outstanding Ordinary Shares of the
Company, at such Shareholder's expense, to visit and inspect any of the
properties or assets of the Company or any Group Company, including its and
their books of account (and to make copies thereof and to take extracts
therefrom), and to discuss its and their affairs, Taxes, finances and accounts
with its and their officers or employees, all at such reasonable times and as
often as may be reasonably requested; provided, however, that such rights shall
be exercised in a manner so as not to materially and adversely disrupt the
ordinary course of business of the Company or any Group Company.
The Company shall permit any international accounting firm designated by the
Selecting Shareholder, at the Selecting Shareholder's expense, to inspect the
books of account of the Company or any Group Company (and to make copies thereof
and to take extracts
29
therefrom), all at such reasonable times and as often as may be reasonably
requested; provided, however, that such rights shall be exercised in a manner so
as not to materially and adversely disrupt the ordinary course of business of
the Company or any Group Company.
(b) Insurance.
The Company shall, and shall cause each Group Company to maintain or cause to be
maintained, with financially sound and reputable insurers, insurance with
respect to their properties and business against loss or damage of the kinds
customarily insured against by corporations of established reputation engaged in
the same or similar business in the country or countries in which each of the
Company and the Group Company conducts its business, in such amounts as are
customarily carried under similar circumstances by such other corporations in
such countries. In addition, the Company shall maintain with sound and reputable
insurers, insurance with respect to actions of the Board and the officers of the
Company in amounts and with insurance carriers satisfactory to Shareholders.
30
(c) Disclosure and Cooperation with Respect to Transfers.
Upon the request of any Shareholder, the Company shall:
(i) promptly supply to such Shareholder or its third party transferees permitted
hereunder, all information regarding the Company required to be delivered in
connection with such transfer, if applicable, provided that such transferee
enters into a reasonable and customary confidentiality agreement with respect to
such information; and
(ii) otherwise cooperate and take all other actions as reasonably requested by
such Shareholder in connection with any transfer.
(d) Compliance with Applicable Laws; Maintenance of Governmental Approvals.
(i) The Company shall (and shall cause each Group Company to) comply at all
times in all material respects with all Applicable Laws applicable to the
Company or any Group Company.
(ii) The Company shall, and shall cause each Group Company, as applicable, to:
(1) keep in full force and effect all such Govern- mental Approvals and
Consents, that may be required for:
(a) the carrying on of its business and the business of each Group Company, in
each case as it is presently carried on and is contemplated to be carried on,
and
(b) the exercise by any Shareholders of its rights and remedies under any of
such agreements to which it is a party.
(2) obtain any other Governmental Approvals and Consents required to be
obtained, as soon as such Governmental Approvals and Consents become necessary.
SECTION 12 TERMINATION OF AGREEMENT
12.1 This Agreement shall terminate with respect to each Shareholder at the
time at which such Shareholder ceases to own any Ordinary Shares of the
Company, except that such termination shall not affect:
(a) rights perfected or obligations incurred by such Shareholder
under this Agreement prior to such termination, and
(b) obligations expressly stated to survive such cessation of
ownership of any Ordinary Shares of the Company.
31
SECTION 13 REPRESENTATIONS AND WARRANTIES
13.1 Representations and Warranties of the Warrantors.
The Warrantors hereby jointly and severally represent and warrant to
Continental that on the date of this Agreement:
(a) Each of the Group Companies, the Company, Tianyuan and CTVH is
a company duly organized, validly existing and in good
standing under the laws of the jurisdiction of its
incorporation;
(b) Each of the Warrantors and the Group Companies has full power
and authority, and has obtained all necessary consents and
approvals to enter into this Agreement and to exercise its
rights and perform its obligations under this Agreement. All
corporate and other actions required to authorize the
execution and delivery of this Agreement and the performance
of the obligations in this Agreement has been duly taken by
the Warrantors and the Group Companies.
(c) Each of the Warrantors has full capacity to enter into this
Agreement.
(d) Neither the execution and delivery of this Agreement, nor any
of the agreements referred to herein or contemplated hereby,
nor the consummation of the transactions hereby contemplated
conflict with, result in the breach of, or accelerate the
performance required by, any agreement to which each of the
Warrantors is a party;
(e) The execution and delivery of this Agreement and the
agreements contemplated hereby by the Warrantors will not
violate or result in the breach of the laws of any
jurisdiction applicable or pertaining to the Warrantors (as
the case may be) or their respective constitutional documents
(as the case may be);
(f) This Agreement constitutes a legal, valid and binding obliga-
tion of each of the Warrantors.
13.2 Representations and Warranties of Continental.
Continental hereby represents and warrants to CTVH, the Company,
Tianyuan, and WZ that on the date of this Agreement:
(a) It is a company duly organized, validly existing and in good
standing under the laws of the province of British Columbia;
(b) It has full power and authority to carry on its business and
to enter into this Agreement and any agreement or instrument
referred to or contemplated by this Agreement;
32
(c) Neither the execution and delivery of this Agreement, nor any of the
agreements referred to herein or contemplated hereby, nor the consummation of
the transactions hereby contemplated conflict with, result in the breach of, or
accelerate the performance required by, any agreement to which it is a party;
(d) The execution and delivery of this Agreement and the agreements contemplated
hereby by it will not violate or result in the breach of the laws of any
jurisdiction applicable or pertaining to it or of its constitutional documents;
and
(e) This Agreement constitutes a legal, valid and binding obliga- tion of
Continental.
13.3 Survival.
The representations and warranties in this Section 13 are conditions on which
the Parties have relied in entering into this Agreement and shall survive until
the termination of this Agreement. The Parties confirm for the avoidance of
doubt that no Party may make a claim against another Party for a breach of any
representation or warranty in this Section 13 if such breach has no adverse
effect on the benefits, rights or interests of the Party entitled to make a
claim.
SECTION 14 OBLIGATIONS AND LIABILITY OF WZ
14.1 Obligations.
WZ shall actively assist Continental, the Company, Group Companies and
Tianyuan to apply for and maintain the Governmental Approvals and other
approvals, registrations, licenses, permits, authorizations and support
necessary or desirable in order for the Company and Tianyuan to
undertake the exploration and development of the Property and for
Continental to participate in those activities. The parties confirm for
the avoidance of doubt that by agreeing to provide his active
assistance, WZ does not guarantee to the other parties that such
Government Approvals or such other approvals, registrations, licenses,
permits, authorizations and support will be available.
14.2 Liability.
WZ's hereby agrees that he shall be liable to Continental for any
breach of any representation or warranty under Section 13.1 and such
aggregated liability under Section 13.1 shall not exceed USD$2,000,000.
Unless terminated earlier by the relevant provision(s) of this
Agreement, WZ's liability to Continental under Section 13.1 shall be
terminated two years from the date of this Agreement.
33
SECTION 15 MISCELLANEOUS
15.1 Area of Interest.
Continental, CTVH and WZ agree that if any of them either becomes aware
of any interests in any mineral properties within 10 kilometres of the
perimeter of the Property that may be available for purchase, or if it
actually makes a purchase of such interests, that any such interests
will first be offered to Tianyuan for purchase at that party's cost of
acquisition as paid or payable to a third party, with the decision as
to whether Tianyuan should purchase the interest being at the sole
discretion of the Tianyuan Board. The Tianyuan Board shall make a
decision whether to purchase such interests within twenty (20) days
after Tianyuan is offered to purchase such interests. The directors
appointed by the party (or the party itself if it is a director) shall
abstain from voting on the acquisition of the mineral property in
question. If the Tianyuan Board cannot make a decision within such time
period, Tianyuan shall be deemed to have waived the right to purchase
such interests.
15.2 Laws, Customs and Traditions in Tibet.
Each Party acknowledges that it will comply with all laws and
regulations applicable in Tibet.
The Parties shall make reasonable efforts to cause their employees to
comply with the laws and regulations applicable in Tibet, and not to
engage in any activities, or spread any information, while in Tibet
that may reasonably be expected to adversely affect Tibet's political
stability or national harmony or to offend Tibet's customs and
traditions. Such efforts will include:
(a) Training employees on the laws and regulations applicable in,
and the customs and traditions of, Tibet and the standards of
behavior to be maintained while working in Tibet. CTVH shall
assist Continental to prepare and deliver the training;
(b) To the extent allowed by law, providing in all employment
agreements that the employer has the right to terminate the
employment of any employee who commits a serious breach of
such standards of behavior;
(c) To the extent allowed by law, terminating the employment of
employees who commit a serious breach of such standards of
behavior, provided that the Company has received notice of
such breach from the public security bureau or other
government department with authority over the employee.
If any Party breaches the requirements of this Section 15.2, it must
commence to remedy the breach on receipt of notice of such breach and
complete remedy of the breach within one year of receiving the notice
of such breach, as well as use its reasonable endeavors to mitigate
the damages.
15.3 Notices.
All notices, requests, demands, approvals, consents, waivers or other
communications required or permitted to be given hereunder (each, a
"Notice") shall be in writing and shall be (a) personally delivered,
(b) transmitted by telecopy facsimile, provided that the original copy
thereof also is sent by pre-paid, first class, certified or registered
34
mail or by next-day or overnight mail or courier or by an internationally
recognized express delivery service, (c) sent by first class, registered or
certified mail or by next-day or overnight mail or courier return receipt
requested, postage and charges prepaid, or (d) delivered by an internationally
recognized express delivery service with all postage and charges prepaid:
(a) if to any Shareholder, at the address set forth on the Registry of Members
of the Company, or at such other address as the Shareholder
may specify in a Notice to the Company; and
(b) if to the Company, at Suite 1020 - ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇ ▇▇▇, Fax: (▇ ▇▇▇) ▇▇▇-▇▇▇▇ or at such other
address as may have been furnished by the Company in a Notice to the other
Parties.
Any Notice shall be deemed effective or given upon receipt (or refusal of
receipt).
15.4 Confidentiality.
(a) Disclosure of Terms.
Confidential Information, including the existence of such Confidential
Information, shall not be disclosed by any Party to any third party during the
term of this Agreement and for two (2) years thereafter, except in accordance
with the provisions set forth below.
(b) Permitted Disclosures.
Notwithstanding the foregoing any Party may disclose any of the Confidential
Information to its (i) respective employees, contractors and advisors where such
disclosure of Confidential Information is required for such Party to undertake
the activities contemplated by this Agreement, or (ii) current or bona fide
prospective investors, employees, investment bankers, lenders, accountants and
attorneys, in each case only where such persons or entities are under
appropriate nondisclosure obligations;
(c) Legally Compelled Disclosure.
In the event that any Party is requested or becomes legally compelled (including
without limitation, pursuant to securities laws and regulations) to disclose the
existence of this Agreement or any of the Confidential Information in
contravention of the provisions of this Section 15.4, such Party shall provide
the other parties with prompt written notice of that fact so that the
appropriate Party may seek (with the cooperation and reasonable efforts of the
other Parties) a protective order, confidential treatment or other appropriate
remedy. In such event, the Party disclosing Confidential Information shall
furnish only that portion of the information that is legally required and shall
exercise reasonable efforts to obtain reliable assurance that confidential
treatment will be accorded such information to the extent reasonably requested
by any such other non-disclosing Party.
35
(d) Relief.
The Group Companies and Shareholders acknowledge that monetary damages may not
be a sufficient remedy for an unauthorized disclosure of Confidential
Information and that in the event of such disclosure by any Party to this
Agreement, the other Party shall be entitled, without waiving any other rights
or remedies, to seek injunctive relief or similar judicial or administrative
remedies.
15.5 Binding Effect; Assignment.
(a) Assignment. Except as otherwise provided in this Agreement, the rights of
each Shareholder shall be transferred to any person who acquires shares of the
Company in a Permitted Transfer, and who becomes a "Shareholder" hereunder
pursuant to their execution of an Adherence Agreement. Any such transferee shall
receive such assigned rights subject to all the terms and conditions of this
Agreement, including without limitation the provisions of this Section 15.5.
(b) Adherence Agreement. Any Shareholder Transferring Ordinary Shares
of the Company shall procure that the transferee shall execute
and deliver to the Company an Adherence Agreement substantially
in the form and substance attached hereto as Schedule A, thereby
assuming the rights and obligations of such Shareholder under
this Agreement. Upon the execution and delivery of an Adherence
Agreement by any transferee, such transferee shall be deemed to
be a Shareholder hereunder. By their execution hereof, each of
the Parties appoints the Company as its attorney-in-fact for the
limited purpose of executing any Adherence Agreement which may be
required to be delivered pursuant to this Section 15.5(b).
15.6 Severability.
Should any Section or any part of a Section within this Agreement be
rendered void, invalid or unenforceable by any court of law for any
reason, such invalidity or unenforceability shall not void or render
invalid or unenforceable any other Section or part of a Section in this
Agreement.
15.7 Amendments.
Except as otherwise provided in this Agreement, any provision of this
Agreement may be amended only with the written consent of the Company,
Tianyuan and the Shareholders. The observance of any provision of this
Agreement may be waived (either generally or in a particular instance
and either retroactively or prospectively) as to any Party only with
the written consent of that Party and any Party may waive any of its
rights hereunder without obtaining the consent of any other Party. Any
amendment or waiver effected in writing in accordance with this Section
15.7 shall be binding upon the Company, Tianyuan, each Shareholder, and
their respective successors in interest.
34
15.8 Entire Agreement.
This Agreement, together with all schedules and exhibits hereto, which
are hereby expressly incorporated herein by this reference, constitute
the entire understanding and agreement between the Parties with regard
to the subjects hereof.
15.9 Delays or Omissions.
No delay or omission to exercise any right, power or remedy accruing to
any Party hereto upon any breach or default of any other Party hereto
under this Agreement, shall impair any such right, power or remedy of
the aggrieved Party nor shall it be construed to be a waiver of any
such breach or default, or an acquiescence therein, or of any similar
breach of default thereafter occurring; nor shall any waiver of any
other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the
part of any Party hereto of any breach of default under this Agreement
or any waiver on the part of any Party hereto of any provisions or
conditions of this Agreement, must be in writing and shall be effective
only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, or by law or otherwise afforded
to the parties shall be cumulative and not alternative
15.10 Dispute Resolution.
The Parties agree to negotiate in good faith to resolve any dispute
between them regarding this Agreement. If the negotiations do not
resolve the dispute to the reasonable satisfaction of all Parties
within thirty (30) days after one Party has given notice to the others
requesting such negotiations, then such dispute shall be settled by
arbitration in accordance with the UNCITRAL Rules as at present in
force, as amended by the following provisions:
(a) The appointing authority shall be the Hong Kong International Arbitration
Centre (the "HKIAC").
(b) The place of arbitration shall be in Hong Kong at the HKIAC.
(c) There shall be only one arbitrator chosen by the Parties by agreement in
accordance with the UNCITRAL Rules, provided that if they do not reach agreement
on the choice of a sole arbitrator, then three arbitrators shall be appointed in
accordance with the UNCITRAL Rules. The sole or presiding arbitrator shall not
be a citizen of any of Canada, United States of America and People's Republic of
China.
(d) Any such arbitration shall be administered by the HKIAC in accordance with
the HKIAC Procedures for Arbitration in force at the date of this Agreement
including such additions to the UNCITRAL Rules as are therein contained.
(e) The language to be used in the arbitral proceedings shall be English.
(f) CTVH and Continental shall each submit to the arbitrators in writing a
description of the facts relating to, and a requested remedy for, the dispute.
The arbitrators shall select between the remedy requested by CTVH and that
requested
37
by Continental and it shall award the entire remedy selected and only that
remedy. In no event may the arbitrators issue an award that provides a remedy
less than, more than, or in any other way different from the Party-requested
remedy that the arbitrators have selected.
(g) The arbitration award shall be final and binding on the Parties.
38
15.11 Force Majeure.
A Party shall not be deemed in default of this Agreement to the extent
that performance of its obligations or attempts to cure any breach are
delayed, restricted or prevented by reason of any acts of God, war,
civil strife, fire, natural disaster, acts of terrorism, acts of
government, strikes or labor disputes, inability to obtain on
reasonably acceptable terms any public or private license, permit or
other authorization, delay or failure by suppliers or transporters of
materials, parts, supplies, services or equipment, or any other act or
condition beyond the reasonable control of the Parties provided that
the affected Party gives the other Party written notice thereof and
uses its best efforts to cure the delay. In the event that any act of
force majeure prevents any Party from carrying out its obligations
under this Agreement for a period of more than six months (or such
other period as may be agreed by the Parties), the other Parties may
terminate this Agreement without liability upon thirty (30) days'
notice.
15.12 Supremacy of this Agreement.
(a) The provisions of this Agreement shall take precedence over
the Restated Articles and in the event of any conflict between
the Restated Articles and this Agreement, the provisions of
this Agreement will prevail.
(b) The Shareholders agree that operation of any provision of the
Restated Articles which may from time to time conflict with
this Agreement shall be deemed to be suspended during the
subsistence of this Agreement.
(c) In the event of any conflict between the Articles and this
Agreement, upon written request by any Shareholder, the
Parties undertake to procure an amendment of the Restated
Articles to eliminate such inconsistency, and the Shareholders
undertake irrevocably to vote, or execute written consents, to
effect any such amendment.
15.13 Legal Fees.
In the event of any action at law, suit in equity or arbitration
proceeding in relation to this Agreement or the rights conferred
hereunder, the Parties shall be responsible for each Party's respective
attorney's fees and out-of-pocket expenses incurred in relation to the
above mentioned action at law, suit in equity or arbitration
proceeding.
15.14 Language of Performance.
All notices, communications, and proceedings relating to this Agreement
and the exercise or performance of the Parties' respective rights and
duties hereunder shall be in the English language.
15.15 Further Assurances.
Each Party shall from time to time and at all times hereafter make, do,
execute, or cause or procure to be made, done and executed such further
acts, deeds, conveyances, consents and assurances without further
39
consideration, which may reasonably be required to effect the
transactions contemplated by this Agreement.
15.16 Captions and Section Headings.
Section titles or captions contained in this Agreement are inserted as
a matter of convenience and for reference purposes only, and in no way
define, limit, extend or describe the scope of this Agreement or the
intent of any provision hereof.
15.17 Schedules.
The schedules attached hereto are hereby incorporated into this
Agreement and are an integral part of this Agreement.
15.18 Counterparts.
This Agreement may be executed (including by facsimile transmission)
with counterpart signature pages or in one or more counterparts, each
of which shall be deemed an original and all of which together shall be
considered one and the same agreement.
15.19 Shares Subject to this Agreement.
This Agreement shall apply to (a) the Ordinary Shares held by the
parties hereto, as well as any Ordinary Shares hereafter acquired by
any such party, and (b) any and all shares in the capital of the
Company which may be issued in respect of, exchanged for, or
substituted for Ordinary Shares, by reason of any stock dividend,
split, reverse split, combination, reclassification, merger,
recapitalization, share exchange or other transaction.
15.20 Governing Law.
This Agreement shall be governed by the laws of British Columbia,
Canada without giving effect to any choice of law rule that would cause
the application of the laws of any jurisdiction other than the laws of
British Columbia, Canada to the rights and duties of the Parties.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
HIGHLAND MINING INC.
By:
---
Name:
Title:
40
TIBET TIANYUAN MINERALS EXPLORATION LIMITED
By:
---
Name:
Title:
CONTINENTAL MINERALS CORPORATION
By:
---
Name:
Title:
CHINA NETTV HOLDINGS INC.
By:
---
Name:
Title:
▇▇▇▇ ▇▇▇
41
SCHEDULE A
ADHERENCE AGREEMENT
This Adherence Agreement ("Adherence Agreement") is executed by the undersigned
(the "Transferee") pursuant to the terms of that certain Shareholders Agreement
dated as of _____________, 2004 (the "Agreement") by and among Highland Mining
Inc. (the "Company"), Tibet Tianyuan Minerals Exploration Limited and certain of
its shareholders, and is in consideration of the shares purchased by the
Transferee and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged. Capitalized terms used but not
defined in this Agreement shall have the respective meanings ascribed to such
terms in the Agreement. By the execution of this Adherence Agreement, the
Transferee agrees as follows:
1. Acknowledgment. Transferee acknowledges that Transferee is acquiring
[number] of ordinary shares of the Company (the "Shares") from [name of
transferor] (the "Transferor"), subject to the terms and conditions of the
Agreement.
2. Agreement. Immediately upon transfer of the Shares, Transferee (i) agrees
that the Shares acquired by Transferee shall be bound by and subject to the
terms of the Agreement applicable to the Transferor, and (ii) hereby adopts the
Agreement with the same force and effect as if Transferee were originally a
"Shareholder" thereunder.
3. Notice. Any notice required or permitted by the Agreement shall be given to
Transferee at the address listed beside Transferee's signature below.
EXECUTED AND DATED this ______ day of _________________, ____.
TRANSFEREE:
By: _______________________
Name: _________________________
Accepted and Agreed: Title: _______________________
--------------------
HIGHLAND MINING INC.
By: _______________________ Address: ____________________ Name: ___________________________ Fax: _______________________
Title:_______________________
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SCHEDULE B
SAMPLE CALCULATIONS
BVI NET PROFITS CALCULATION EXAMPLE
CS$
Net income before interest and taxes 10,000,000
Interest (1,000,000)
Net income before taxes 9,000,000
Taxes (3,000,000)
Distributable Income 6,000,000
Less: Loan repayments (1,000,000)
Less: Financial Commitments (1,000,000)
Less: Working Capital requirements (1,000,000)
Less: Reserves (1,000,000)
Company Net Profits 2,000,000
BVI EXCESS INVESTMENT CALCULATION EXAMPLE
Month 1 Month 2 Month 3
Days 31 30 31
Interest rate 2.00% 2.00% 2.00%
Opening balance 0 1,001,699 2,004,989
Share equity (par value) 10,000 0 0
Surplus 990,000 0 0
Shareholders loan 0 1,000,000 1,000,000
Total 1,000,000 2,001,699 3,004,989
Interest 1,699 3,290 5,104
Closing balance 1,001,699 2,004,989 3,010,093
43
SCHEDULE C
SAMPLE CALCULATIONS
SAMPLE CALCULATION WHERE CONTINENTAL HAS EXERCISED THE FIRST OPTION BUT NOT THE
SECOND OPTION IN TERMS OF THE
OPTION AGREEMENT
CTVH's shareholders interest before subscription = 50%
Continental's shareholders interest before subscription = 50%
Funding required by the Company = USD2,000,000
CTVH subscribes for US$400,000
Continental subscribes for US$1,600,000
Calculation of Shareholders Interest
A = 400,000 + 5,000,000 B = 1,600,000 + 5,000,000
A = 5,400,000 B = 6,600,000
CTVH shareholders interest = A / (A+B)
= 5,400,000 / (5,400,000 + 6,600,000)
= 5,400,000 / (12,000,000)
= 45%
Continental's shareholders interest = B / (A+B)
= 6,600,000 / (5,400,000 + 6,600,000)
= 6,600,000 / (12,000,000) = 55%
SAMPLE CALCULATION WHERE CONTINENTAL HAS EXERCISED THE
SECOND OPTION IN TERMS OF THE OPTION AGREEMENT
CTVH's shareholders interest before subscription = 40%
Continental's shareholders interest before subscription = 60%
Funding required by the Company = USD2,000,000
CTVH subscribes for US$340,000
44
Continental subscribes for US$1,660,000
Calculation of Shareholders Interest
A = 340,000 + 5,333,330 B = 1,660,000 + 8,000,000
A = 5,673,330 B = 9,660,000
CTVH shareholders interest = A / (A+B)
= 5,673,330/ (5,673,330+ 9,660,000)
= 5,673,330/ (15,333,330)
= 37%
Continental's shareholders interest = B / (A+B)
= 9,660,000/ (5,673,330+ 9,660,000)
= 9,660,000/ (15,333,330) = 63%
45