FINANCIAL ADVISORY AGREEMENT
Exhibit
10.14
THIS
FINANCIAL ADVISORY AGREEMENT (“Agreement” or “FAA”) is made and entered into on
this the 3rd of July, 2006, by and among HFG International, Limited, a Hong
Kong
corporation (“HFG”), Changshu Huaye Steel Strip Co., Ltd (“CHSS”) and
Jiangsu Cold-Rolled Technology Co., Ltd (“JCT”
and collectively with CHSS, “the Company”), with each Company being organized
under the laws of The People’s Republic of China.
WITNESSETH:
WHEREAS,
the Company desires to engage HFG to provide certain financial advisory and
consulting services as specifically enumerated below commencing as of the date
hereof related to the Restructuring, the Going Public Transaction and the
Post-Transaction Period (each as hereinafter defined), and HFG is willing to
be
so engaged; and
WHEREAS,
HFG will advise the Company with regard to matters related to their efforts
to
complete a capital raising transaction generating gross offering proceeds of
at
least $25 million USD to the restructured entity based on a valuation of 12
X
(target P/E) June 30, 2006 trailing 12 month U.S. GAAP audited net income of
no
less than $11 million USD (the “Financing”).
NOW,
THEREFORE, for and in consideration of the covenants set forth herein and the
mutual benefits to be gained by the parties hereto, and other good and valuable
consideration, the receipt and adequacy of which are now and forever
acknowledged and confessed, the parties hereto hereby agree and intend to be
legally bound as follows:
1. Retention.
As of
the date hereof, the Company hereby retains and HFG hereby agrees to be retained
as the Company’s exclusive
financial advisor during the term of this Agreement. The Company agrees that
in
the event that the Company reports audited net income of less than $11 million
USD for the trailing 12 month period ending June 30, 2006 (the “2006 NI”) HFG
shall have the right to either terminate this Agreement or renegotiate the
terms
hereof. The Company also acknowledges that HFG shall have the right to engage
third parties to assist it in its efforts to satisfy its obligations hereunder.
HFG will exercise a good faith effort to help the Company secure the completion
of the Financing and Going Public Transaction within 135 days from the date
of
this Agreement. In its capacity as a financial advisor to the Company, HFG
will:
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A.
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Restructuring
and Going Public
Transaction.
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(i) consult
on the implementation of a restructuring plan (the “Restructuring”) resulting in
an organizational structure that will allow the Company to complete the Going
Public Transaction; The plan for implementing the Restructuring is set forth
in
Schedule “A —Changshu
Huaye Steel Strip Going-public Transaction and Capital Raising Proposal”
attached hereto ;
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(ii) assist
the Company in evaluating the manner of effecting a going public transaction
(a
“Going Public Transaction”) with a public shell corporation (“Pubco”), domiciled
in the United States of America and quoted on the “OTC BB”, which is free from
any debt (If the Pubco is not free from debt, HFG will be responsible for it
and
be obligated to solve this issue), resulting in the Company’s current
shareholders and those investors participating in the Financing owning, in
the
aggregate, 95.5% of Pubco’s issued and outstanding common stock after completion
of the Going Public Transaction.
(iii) coordinate
all third parties engaged to facilitate completion of the transactions
contemplated herein and ensure that such third parties timely perform the tasks
for which they are engaged;
(iv) ensure
the stability of HFG team members, with the Company having the right to approve
any changes to the list of team members set forth on Schedule “B” hereto
;and
(v) exercise
a good faith effort to ensure the Restructuring and the Going Public Transaction
are completed in accordance with the time line attached hereto as Schedule
“C”.
HFG agrees that any adjustment to the time line will be explained to the Company
in writing, with such adjustments also being subject to the Company’s approval.
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B.
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Post
Transaction Period
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Upon
consummation of the Financing and the Going Public Transaction, HFG agrees
to:
(i) coordinate
and supervise a training program for the purpose of facilitating new
management’s operation of Pubco. It is HFG’s obligation to introduce third party
consultants to the Company when needed (all costs and expenses charged by the
third party consultants have to be approved by the Company in advance and are
the responsibility of the Company or Pubco once such third parties are
engaged);
(ii) work
with
legal counsel to facilitate the changing of Pubco’s name, and help obtain a new
CUSIP number and stock symbol for Pubco;
(iii) oversee
third party development of Pubco’s investor relations efforts, which effort
shall include (a) establishing a program for communicating with brokerage
professionals, investment bankers and market makers; and (b) creating a complete
investor relations strategy to be implemented in English and Chinese. Except
as
otherwise provided for herein, the Company agrees that all costs and expenses
charged by investor relations and press relations firms introduced by HFG and
engaged by Pubco or the Company will be the sole responsibility of Pubco or
the
Company; (The detailed arrangement will be based upon the mutually acceptable
terms reached by all related parties in a further discussion)
(iv) coordinate
with the Company’s legal counsel in the preparation and assembly of application
materials for the listing of Pubco’s common stock on a national exchange or
quotation medium that may include, but shall not necessarily be limited to,
the
American Stock Exchange or the NASDAQ Stock Market;
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(v) act
as
Pubco’s exclusive representative for the purpose of coordinating future capital
raising transactions for a period of 24 months following the expiration of
the
Authorization Period (as hereinafter defined), with all parties agreeing to
work
together to reach mutually acceptable terms for any future financings.
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C.
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Financing.
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HFG
will
assist the Company in managing the Financing
according to the preceding provisions. The Financing will be structured as
an
all or nothing offering up to $25million USD (the “Minimum Offering”) and as a
best efforts offering up to $35million USD. The Schedule A will show the
detailed information with related to shares percentage hold by the investor
and
Shell’s original shareholders after closing. It is anticipated and HFG will
exercise a good faith effort to ensure that the Financing will be undertaken
at
a valuation of the Company of 12 X (target P/E) June 30, 2006 trailing 12 month
U.S. GAAP audited net income. The
Company agrees that if the valuation of the Company is at least 11X June 30,
2006 trailing 12 month U.S. GAAP audited net income the Company will be
obligated to consummate both the Financing and the Going Public
Transaction.
If the
Company’s June 30, 2006 trailing 12 month U.S. GAAP audited net income is less
than $11 million or the financing valuation is less than 11X
June 30, 2006 trailing 12 month U.S. GAAP audited net income,
the
terms of the Financing and Going Public Transaction may be renegotiated by
the
Company and HFG.
2. Financing
Consideration.
Subject
to provisions of this Agreement, any entity or individual who facilitates the
Financing, and is eligible under applicable law, will be paid a cash amount
equal to six percent (6%) of the gross proceeds delivered upon consummation
of
the Financing. If the Financing is accomplished from multiple financing
channels, then the consideration to be paid to said parties shall be allocated
according to the proportion of the gross offering proceeds for which they are
responsible. All Financing consideration shall be paid at the time of closing
from the proceeds to be held in escrow pending delivery of the securities
purchased by the investors in the Financing.
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3. Financing
Conditions and Contingencies.
The
Company acknowledges that the closing of the Financing addressed in this
Agreement will be contingent upon the Company’s commitment to ensure that
immediately after the closing of the Financing and the Going Public Transaction
Pubco shall file a registration statement with the U.S. Securities and Exchange
Commission (“SEC”) for the purpose of registering for resale (i) either the
shares purchased by participants in the Financing or any security for which
the
purchased shares are exchanged and (ii) shares of Pubco’s common stock held by
HFG or any affiliated person or entity. It is understood that offering proceeds
will not be released from escrow until the registration statement is filed
with
the SEC. Furthermore, the Company’s shareholders will agree that in the event
the Company fails to report net income in its US GAAP audited financial
statements for the 12 month period ending June 30, 2007 that is at least 65%
greater than the 2006 NI (the “ Projected 2007 NI”), its current shareholders
will deliver to the investors in the Financing and to the previous shell company
shareholders shares of Pubco that they will receive as a result of their
participation in the Going Public Transaction in accordance with the following
provisions:
The
Company’s shareholders shall place into escrow the identical number of shares of
Pubco common stock held by the investors in the Financing and HFG immediately
upon the closing of the Going Public Transaction (the “Make Good Shares”). In
the event the Company fails to report the Projected 2007 NI for the 12 month
period ending June 30, 2007, the escrow agent will transfer collectively to
the
investors in the Financing and to HFG that number of Make Good Shares based
from
the following formula:
((Projected
2007 NI-Actual Reported Net Income for the 12 Month Period Ended June 30, 2007)/
Projected 2007 NI) X Make Good Shares
The
Company will ensure that the Make Good Shares will be delivered within ten
business days of the date the audit for fiscal 2007 is completed and will be
registered under Section 5 of the Securities Act of 1933 for purposes of resale,
which registration statement shall be filed with the SEC within 30 days of
the
delivery of the Make Good Shares. The registration statement shall remain
effective and the prospectus constituting a part thereof available for delivery
in connection with the resale of the Make Good Shares for a period of 12 months
commencing on the delivery date of the Make Good Shares.
HFG
acknowledges that total percentage of the issued and outstanding shares of
Pubco’s common stock held by the original stockholders of The Company shall not
represent less than 51% of all the issued and outstanding shares of Pubco’s
common stock following the issuance of the Make Good Shares.
4. Exclusivity.
HFG
shall have the exclusive right for a period of six months (the “Exclusivity
Period”) from the date of this Agreement to assist the Company in its efforts to
affect the Financing. However, the right of exclusivity granted hereunder shall
terminate in the event HFG advises the Company that it either unwilling or
unable to facilitate the Financing. In addition, the Company agrees that in
the
event that this Agreement is terminated for any reason, other than upon the
completion of a Financing, it shall not enter into discussions or negotiations
with or close a financing, regardless of terms, with any party introduced by
HFG
as a possible investor or placement agent for the Financing, each of which
shall
be listed on Schedule “D” to this Agreement at the time of introduction and
shall be confirmed in written by the company, for a period of one years
following the date of termination of this Agreement.
5. Authorization.
Subject
to the terms and conditions of this Agreement, the Company hereby appoints
HFG
to act on a best efforts basis as its exclusive consultant during the
Authorization Period (as hereinafter defined). HFG hereby accepts such appoint,
with it being expressly acknowledged that HFG is acting in the capacity of
independent contractor and not as agent of either the Company, affiliates of
the
Company resulting from the Restructuring, or Pubco.
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In
addition, except in the event of an act constituting either willful misconduct
or gross negligence on the part of HFG, the Company agrees that it will not
hold
HFG responsible in the event that either the Restructuring, the Financing or
the
Going Public Transaction is not consummated, nor shall it hold HFG liable for
any damages suffered by the Company as a result of the Company’s inability to
consummate either the Restructuring, the Financing or the Going Public
Transaction. However, in the event HFG commits an act constituting either
willful misconduct or gross negligence which makes it impossible to complete
either the Financing or the Going Public Transaction, even though the Company
achieved the established performance thresholds set forth herein, HFG shall
indemnify the Company against all costs expensed in accordance with this
Agreement, including legal, accounting and other fees and expenses, arising
from
the Company’s efforts to complete the Financing and the Going Public
Transaction, unless any other agreement in writing reached by HFG and the
Company. HFG shall provide advices with respect of the financing and going
public to the Company at the same time HFG fulfills the terms of this agreement.
HFG shall have the right to recommend the legal and accounting professionals
for
the transactions contemplated herein.
6. Authorization
Period.
Except
as otherwise provided for herein, HFG’s engagement hereunder shall become
effective on the date hereof (the “Effective Date”) and will automatically
terminate (the “Termination Date”) on the first to occur of the following: (a)
either party exercises their right of termination as provided for in this FAA,
(b) either party’s breach of its covenants herein or (c) 12 months from the
Effective Date. This Agreement may be extended beyond the Termination Date
if
both parties mutually agree in writing. Except as to certain obligations of
the
Company under Section 4.
hereof,
this Agreement shall also terminate immediately upon the mutual decision of
the
parties not to move forward with the Restructuring, the Financing or the Going
Public Transaction.
7. Fees
and Expenses.
The
Company agrees that it will spend up to an aggregate of $1.5 million USD (the
“Capped Expense Amount”) for the purpose of satisfying expenses (the “Capped
Expenses”) related to the Restructuring, the Financing and the Going Public
Transaction. The Capped Expense Amount includes all expenses related to: (a)
legal fees of US securities and PRC legal counsel, and legal fees incurred
by
investment bankers who act as placement agents for the Financings, (b) audit
fees and expenses, (c) US GAAP conversion and drafting of MD&A(“Management
Discussion & Analysis”) section for registration statement and current
report to be filed with the SEC, (d) engagement of Heritage Management as
Pubco’s US spokesperson for a period of 12 months from the date of engagement,
(e) travel and road show costs related to the Financing, (f) appropriate due
diligence reviews, (g) $450,000 payable to HFG for the consulting services
to be
provided herein, and (h) any other costs and expenses incurred inn connection
with the completion of the transactions contemplated herein. HFG shall have
the
right to introduce all third party service providers to be used to render the
services referenced in this paragraph to the Company and engage them upon the
Company’s approval.
The
Capped Expenses will be paid by HFG. HFG shall be reimbursed in accordance
with
the following payment schedule, the company shall not pay any service fees
to
the third parties:
(a) $
50,000
USD to HFG within 10
days
following the date of this Agreement;
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(b) $
50,000
USD within 10
days
following the day when HFG completes its legal and accounting due diligence,
and
HFG presents the feasibility of the Financing and the Going Public Transaction
to the Company in writing;
(c) $
50,000
USD within 10
days
following the completion of the Restructuring, i.e., the Company receives the
Foreign Investment Company Operation License; and
(d) $1,350,000
USD immediately upon the completion of the Financing and the Going Public
Transaction, with said amount to be paid from the proceeds of the Financing
to
be held in escrow, of which $200,000 shall be used to engage a US spokesperson
for a period of 12 months.
HFG
agrees to reimburse the Company for all expenses incurred by the Company in
connection with completion of the Financing and the Going Public Transaction
in
excess of the Capped Expense Amount.
After
the
Company makes first payment under subparagraph (a) above, HFG will begin its
due
diligence review and timely provide a detailed list of questions and issues
it
wishes the Company to address (the “Diligence Questionnaire”). The Company shall
timely provide responses to the Diligence Questionnaire, which responses shall
be accurate and complete. After Diligence Questionnaire is completed and follow
up matters addressed, HFG will deliver to the Company a written feasibility
report regarding the Financing and the Going Public Transaction. If HFG
determines in its report that the Company is not qualified to complete the
Financing, HFG shall have the right to terminate this Agreement and retain
the
initial payment. If it is determined that the Company is qualified to move
forward with the Financing and the Going Public Transaction, then both parties
will move forward with this Agreement.
If
the
Company makes a misrepresentation or omission in the Diligence Questionnaire
which leads to the failure of the Financing, the Company will reimburse all
the
Capped Expenses paid by HFG . Otherwise, if HFG neglects to ask an important
question during the due diligence process that leads to the failure of the
Financing, the Company will not reimburse HFG for expenses paid on the Company’s
behalf.
However, if the Company elects not to move forward with the Financing once
it is
determined that the minimum valuation referenced herein is obtainable then
HFG
shall be entitled to have all Capped Expenses paid on the Company’s behalf as of
the date the Company elects not to move forward reimbursed by the Company.
The
Company and Pubco shall be solely responsible for all costs and expenses related
to operating as a public reporting and trading company in the US capital markets
following the closing of the Going Public Transaction.
8. Due
Diligence and Auditabilty.
HFG
shall have the right to perform a due diligence investigation of the Company,
to
be completed within 30 days of the date of this Agreement, that demonstrates
to
HFG’s sole satisfaction that the Company is a suitable candidate for the Going
Public Transaction, which due diligence investigation shall include consultation
with the Company’s independent audit firm regarding the auditablity of the
Company in accordance with US GAAP. HFG shall have the right to terminate this
Agreement in the event it determines that there exists a material and
non-curable due diligence matter. The Company shall also have the right to
perform a due diligence investigation of Pubco.
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9. Indemnification.
The
parties hereto shall indemnify each other to the extent provided for in this
paragraph. Except as a result of an act of gross negligence or willful
misconduct on the part of a party hereto, no party shall be liable to another
party, or its officers, directors, employees, shareholders or affiliates, for
any damages sustained as a result of an act or omission taken or made under
this
Agreement. In those cases where gross negligence or willful misconduct of a
party is alleged and proven, the non-damaged party agrees to defend, indemnify
and hold the damaged party harmless from and against any and all reasonable
costs, expenses and liabilities suffered or sustained as a result of the act
of
gross negligence or willful misconduct
10. Governing
Law.
This
Agreement shall be governed by the laws of the Peoples Republic of China and
any
dispute arising hereunder shall be submitted for binding arbitration to the
China Foreign Trade Commission Arbitration Committee in Shanghai. The
arbitration result is the final judgment and has restrictions to all parties.
The arbitration fees should be the responsibility of the failure
party.
11. HFG
Covenants.
HFG
covenants and agrees that
(i)
it
will not sell more than 50% of its holdings in Pubco during the 12 month period
following the closing of the Going Public Transaction. HFG further agrees that
for a 12 month period following the closing of the Going Public Transaction
it
will not sell more than 10% of its holdings in Pubco in a single transaction
and
it will not sell more than 20% of its holdings in Pubco in a given month; and
(ii)
that
it is providing a turn key service related to assisting the Company in its
efforts to effect the Restructuring, the Financing and the Going Public
Transaction, and as such, it will exercise a good faith effort and work with
great diligence to ensure that all phases of the transactions contemplated
herein are properly and timely managed and that their outcomes are satisfactory
to the Company.
It
is
understood that this Agreement will be prepared and executed in both the English
and Chinese languages, with both versions having legal efficacy. If a dispute
arises as to the interpretation of a particular provision of this Agreement
because of differences between the Chinese and English languages, the dispute
shall be resolved in accordance with the Chinese version.
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IN
WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year
first above written.
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HFG:
HFG
International, Limited
Address:
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇
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▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇
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| By: | /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ | |
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Its:
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▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇,
President
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By:
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/s/ ▇▇▇▇ ▇. ▇▇▇▇▇ | |
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▇▇▇▇
▇. ▇▇▇▇▇,
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| Its: |
Managing
Director
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The
Company:
Changshu
Huaye Steel Strip Co., Ltd
Addressæ:
▇▇.▇,
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇
Industrial
Park, Changshu, Jiangsu, P.R.C.
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| By: | /s/ Guoxiang Ni | |
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Guoxiang
Ni
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| Its: |
Chief
Executive Officer
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Jiangsu
Cold-Rolled Technology Co., Ltd
Addressæ:No.8,
Huayue Road, Dongbang
Industrial
Park, Changshu, Jiangsu, P.R.C.
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| By: | /s/ Guoxiang Ni | |
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Guoxiang
Ni
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| Its: |
Chief
Executive Officer
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Schedule
A: Changshu Huaye Steel Strip Going-public Transaction and Capital Raising
Proposal
Schedule
B: HFG Core Team Members
Schedule
C: Timeline
Schedule
D: Potential Investors
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