OPERATING AND SERVICES AGREEMENT (English Translation)
EXHIBIT
10.4
(English
Translation)
Agreement
No.: _____
This
Operating and Services Agreement (hereinafter the “Agreement”) is entered into
by the following parties as of January 5, 2006:
Shanxi
Bestlink Management Consulting Co., Ltd.
(hereinafter the “Servicing Party”);
Address:
8/F, Beicang Building, Jianshe North Road No76, Taiyuan, Shanxi Province,
PRC
Pinglu
County Changhong Ferroalloy Co., Ltd.
(hereinafter the “Owner”);
Address:
6
residents group, Shangling Village,
MaoJin
Economic Development Zone, PingLu County, ShanXi province, PRC
Beicang
Hou (hereinafter
“Party C”);
Personal
Identification No.: 140103630213215
Yaoting
Ren (hereinafter
“Party D”);
Personal
Identification No.: 142732641117001
Zengguan
Li (hereinafter
“Party E”, and collectively with Party C and Party D the
“Shareholders”)
Personal
Identification No.: ▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇
Whereas,
the Owner has free and clear title to all of the assets (hereinafter the
“Assets”) as set forth on Attachment
1;
Whereas,
the Servicing Party and its management possess the management “know-how”,
marketing channels and networking resources relevant to the Owner’s business
operations, and are willing to provide to Owner management consulting services,
loans for operating capitals and other services; and
Whereas,
Owner desires to retain the services of Servicing Party in accordance with
the
terms and conditions set forth herein.
Now,
therefore, in consideration of the foregoing and of the promises and of the
mutual covenants contained herein, the parties agree as
follows:
1. Definition.
1.1. Definitive
Definitions.
In this
Agreement the following terms shall have the following meanings, whether used
in
the singular or plural as appropriate.
“Interest”
means
the interest from the Servicing Party’s
“Receivable”
means
all receivables generated by Servicing Party’s management of the
Assets;
“Receivable
Account”
means
the designated account to be set up within China by Servicing Party or its
designee into which Servicing Party is to deposit all Receivable.
“Receivable
Expenses”
means
all expenses reasonably incurred by Servicing Party in connection with its
management services other duties on behalf of Owner, including legal and other
fees and costs.
“Deposit
Account”
means
the account to be set up by Owner into which Servicing Party will wire
Receivable money into at Owner’s direction.
“Event
of Breach”
means
the events described in Section 8 of this Agreement.
“Governmental
Regulation”
means
the law, regulation, order, opinion, rule, decision and direction of any and
all
relevant governmental oversight agencies and/or committees.
“Significant
Asset”
means
any asset or class of assets which value is at least ten percent (10%) of
Owner’s total assets as of the date of this Agreement.
“Service
Fee”
means
the fee to be paid to Servicing Party in accordance with Section 6.1 of this
Agreement.
“Successor
Servicing Party”
means
the party to assume from Servicing Party the services to be provided as set
forth in the Agreement, to be mutually agreed upon by Owner and Servicing
Party.
1.2. Accounting
Terms.
Except
otherwise set forth herein, all accounting terms used in the Agreement shall
be
interpreted in accordance with China’s general accepted accounting principles,
and all accounting decisions and financial reports to be provided hereunder
shall be in accordance with China’s general accounting principles.
2. Appointment
of Servicing Party
2.1. Appointment.
Pursuant to the terms of this Agreement, Owner hereby appoints Servicing Party,
on an exclusive basis, to provide management services, including without
limitations the services set forth on Attachment
3,
with
respect to the Assets, and grants Servicing Party all of Owner’s rights
thereunder. Unless permitted under this Agreement, Owner
may
not
terminate the above-described appointment of Servicing Party. Except as
otherwise required by law or for obligations entered into prior to this
Agreement, Owner and Shareholders agree that Owner may not engage in any
transactions during the term of this Agreement that may affect the Assets or
Owner’s rights, obligations and business operations (including existing pledges
and other liabilities) without the express consent of Servicing
Party.
2.2. Independent
Contractor.
In
providing the services as set forth in the Agreement, Servicing Party is an
independent contractor, and shall provide the services and take actions on
behalf of Owner as such. Nothing in this Agreement shall be construed to mean
that Servicing Party and Owner are partners or joint-venturers, or that
Servicing Party is an agent of Owner. Servicing Party may retain the services
of
sub-contractors, which services shall be deemed those to be provided by
Servicing Party.
2.3. Acceptable
Standard of Service.
Servicing Party shall exercise diligence and care and, in accordance with the
terms of this Agreement, provide all services as permitted under Chinese law
and
in strict compliance with generally accepted commercial practice and standard
of
China.
2.4. Further
Cooperation.
2.4.1 Owner
agrees to pledge all of its Assets and accounts receivable to Servicing Party
as
guaranty of Owner’s obligations under the Agreement. Owner and Shareholders
shall take all actions required for the pledge, including without limitations
executing all related documents and registrations.
2.4.2 Except
for the quarterly report as set forth in Section 5.1 of the Agreement, Servicing
Party shall timely report to Owner as to the management of the Assets, which
Servicing Party has agreed to be in the aggregate amount of Two Million Renminbi
(2,000,000 RMB). Upon receipt of a report, Owner has 7 working days to provide
Servicing Party with comments and suggestions, which Servicing Party agrees
to
take into consideration and to implement when it is commercially reasonable
to
do so, in rendering its services in the future.
2.4.3 Upon
reasonable request from Owner, including its management, employees and
authorized representative (such as its accountants and lawyers), Servicing
Party
shall furnish the requested information. Servicing Party agrees (i) to cooperate
with Owner in order to facilitate the services relating to the Assets, and
(ii)
to immediately provide Owner with the relevant documents necessary to effectuate
the services to be provided by Servicing party, and take all such further
actions as deemed necessary.
2.4.4 To
facilitate the ability of Servicing Party to provide the services set forth
in
this Agreement, Owner hereby grants Servicing Party its power of attorney,
attached hereto as Attachment
2.
2.5. Meeting
and Communication.
Servicing Party and Owner shall meet regularly to review Servicing Party’s
services. Servicing Party shall designate a primary contact person to whom
Owner
may direct all inquiries concerning Servicing Party’s services.
2.5.1 Servicing
Party will respond in a commercially reasonable manner to any Owner’s inquiry
regarding Servicing Party’s services. Servicing Party will implement in a
commercially reasonable manner any Owner’s suggestions regarding Servicing
Party’s services.
2.5.2 Servicing
Party will communicate with Owner regarding any issues relating to the Assets
that may affect the ability to maintain Owner’s business
operations.
3. Records
3.1. Maintaining
Records.
Servicing Party shall maintain all records relating to the Assets, including
all
communications with between Servicing Party and third-parties regarding the
Assets.
3.2. Original
Documents.
Servicing Party shall be entrusted with and maintain all original Owner’s
documents, including without limitations documents containing original
signatures and company seals. Servicing Party shall not release original
documents to any individual or entity other than Owner.
3.3. Examination
of Records.
Upon
3-month notice, Owner or its representative may (i) examine any and all records
and documents described in this Section 3, and (ii) discuss with the management
and employees of Servicing Party regarding the records and documents, provided
that any such examination does not affect Owner’s other rights under this
Agreement and is undertaken in a manner that minimizes any interference with
Servicing Party’s normal operations. Owner shall assume all expenses incurred in
connection with the examination described herein.
4. Servicing
Party’s Obligations
4.1. Receivable
Account.
After
the execution of this Agreement, Servicing Party shall immediately set up the
Receivable Account either in its name or in Owner’s name. The money to be
deposited in the Receivable Account shall be without deduction of the Service
Fee. Owner is entitled to any interests earned or credits extended arising
from
the Receivable Account.
4.2. Servicing
Party as Owner’s Administrator.
Owner
hereby appoints Servicing Party as its administrator, to collect and deposit
the
Receivable into the Receivable Account. Owner is the sole beneficiary of the
Receivable, the Assets and related rights. Servicing Party shall not commingle
the Receivable with its own funds. Until a Receivable is deposited into the
Receivable Account, Servicing Party shall hold any such Receivable in trust
for
the benefit of Owner.
4.3. Late
Payment and Breach.
If any
third party breaches its obligations, Servicing Party shall take all
commercially reasonable actions to seek damages from such third
party.
4.4. Certain
Rights of Owner.
In the
event of any one of the following: (i) a court order to assist a third-party
involuntary bankruptcy, (ii) a court order to appoint an administrator, trustee
or someone serving similar functions with respect to the assets of a
third-party, or (iii) a court
order
to
cease the business operation of a third party (these three events are
collectively referred to as “Third-Party Bankruptcy Event”), Servicing Party
shall immediately establish and maintain Owner’s rights with respect to any such
third-party.
5. Financial
Reports
5.1. Quarterly
Report.
Beginning on March 31, 2006, Servicing Party shall provide Owner with quarterly
reports within thirty (30) days from the last day of each quarter, to enable
Owner to review and assess (i) Servicing Party’s services, (ii) the Assets, and
(iii) any third-party breach. The quarterly report shall conform to the format
to be agreed to by Owner and Servicing Party, and shall describe Servicing
Party’s services and efforts in collecting the Receivable during the relevant
time period.
5.2. Indemnification
Notice.
Beginning on March 31, 2006, Servicing Party shall, on a quarterly basis, notify
Owner in writing within thirty (30) days from the last day of each quarter
the
following:
5.2.1
any
litigation, investigation or proceedings relating to the Assets;
5.2.2
any
notices from a governmental agency to (A) suspend or revoke any licenses,
permits, registration or membership of Servicing Party necessary for its
operation or the services to be provided under this Agreement or (B) suspend
or
cease any of the services or operations of Servicing Party, which suspension
cessation will detrimentally affect Servicing Party’s ability to carry out its
obligations under this Agreement.
5.3. Transfer
of Records.
Within
thirty (30) days from the termination of this Agreement, at the request of
Owner, Servicing Party shall transfer all records and documents to Owner, except
for such records and documents already in Owner’s possession. Owner shall bear
all expenses relating to said transfer.
5.4. Report
of Independent Auditor.
During
the term of this Agreement, Owner has the right each year to request that
Servicing Party retain an independent auditor in China to audit the relevant
books and records. The auditor shall provide owner with a copy of its audit
report, which shall disclose all of the findings of the auditor. Owner shall
bear all expenses relating to the independent auditor.
6. Service
Fee
6.1. Service
Fee.
In
consideration of its services, Servicing Party shall be entitled to the
following fees: ninety-five percent (95%) of the total amount deposited into
the
Receivable Account (as determined by the quarterly report from Servicing Party),
minus Owner’s operating costs and related expenses.
6.2. Payment
by Owner.
6.2.1 At
any
time that the balance of the Receivable Account exceeds 10,000,000 RMB
(excluding Service Fee and Receivable Expenses), Servicing Party shall deduct
Service Fee and Receivable Expenses, and deposit the remaining sum in the
Deposit Account.
6.2.2 At
any
time it incurs a Receivable Expense, Servicing Party may reimburse said
Receivable Expense from the Receivable Account.
6.2.3 Provided
that there is no breach of Section 8.2 of this Agreement, and after Servicing
Party has verified with Owner the Receivable Expense and the amount of money
deposited into the Deposit Account, the remaining sum shall be deemed to be
the
Service Fee earned by Servicing Party.
7. Covenants
by Servicing Party
7.1. Standing,
Status and Authority.
During
the term of this Agreement, Servicing Party shall maintain its good standing
and
its ability to carry out its obligations under this Agreement. Servicing Party
has the authority to enter into this Agreement and provide all the services
set
forth herein and is not in breach or in conflict with its organizational
documents or the relevant laws.
7.2. Servicing
Party’s Performance of Its Services. Except
as
otherwise provided herein, Servicing Party shall not, in providing its services,
cause detriment to (i) the obligations of any third-party, (ii) any records
and
files, (ii) the rights of Owner under this Agreement, or (iv) the exercise
of
Owner’s rights relating to the Assets.
7.3. Termination
Right.
Servicing Party may terminate this Agreement at any time in accordance with
the
terms of the Agreement.
8. Breach
8.1. Breach
by Servicing Party.
Servicing Party shall have 30 days after notice from Owner to correct any breach
of its obligations under the Agreement. If Servicing Party fails to correct
the
breach, Owner shall commence legal action against Servicing Party.
8.2. Breach
by Owner.
The
failure by Owner of its obligations under this Agreement shall constitute a
breach (unless Owner can demonstrate that such failure is the result of events
beyond its control). Owner shall have 30 days after notice from Servicing Party
to correct any breach of its obligations under the Agreement.
8.3. Remedies.
8.3.1
The
rights, privileges, powers, and remedies available to Owner hereto are
cumulative and not exclusive of any other rights, privileges, powers, or
remedies otherwise available to Owner. Additionally, Owner has the right to
terminate its pledge, if any, to guaranty its performance of this Agreement.
8.3.2
The
rights, privileges, powers, and remedies available to Servicing Party hereto
are
cumulative and not exclusive of any other rights, privileges, powers, or
remedies otherwise available to Servicing Party. Additionally, Servicing Party
has the right to terminate its pledge, if any, to guaranty its performance
of
this Agreement.
9. Indemnification
9.1. Indemnification
by Servicing Party.
Servicing Party shall indemnify and hold Owner harmless from and against any
and
all damages, losses, liabilities, expenses, settlement funds, attorney fees
and
all related costs incurred by Owner (collectively hereinafter “Owner Damages”)
arising from (i) Servicing Party’s breach of its obligations, or (ii) Servicing
Party’s breach of its covenants and warranties, except that Servicing Party
shall not be liable for any Owner Damages caused by (a) any third-party, (b)
Owner, and (c) actions taken by Servicing Party at the direction of Owner.
Except for the Owner Damages, Servicing Party shall not assume liability for
other damages, liquidated damages or damages to Owner’s goodwill.
9.2. Indemnification
by Owner.
Owner
shall indemnify and hold Servicing Party harmless from and against any and
all
damages, losses, liabilities, expenses, settlement funds, attorney fees and
all
related costs incurred by Servicing Party (collectively hereinafter “Servicing
Party Damages”) arising from (i) Owner’s breach of its obligations, or (ii)
Owner’s breach of its covenants and warranties, except that Owner shall not be
liable for any Servicing Party Damages caused by (a) Servicing Party, and (c)
actions taken by Owner at the direction of Servicing Party. Except for the
Servicing Party Damages, Owner shall not assume liability for other damages,
liquidated damages or damages to Servicing Party’s goodwill.
10. Term
10.1. Term
of this Agreement.
In
accordance with Section 11.1 of this Agreement, this Agreement shall commence
on
January 5, 2006, and shall terminate at the earlier of:
10.1.1
Twenty (20) years from the execution of this Agreement (hereinafter the
“Term”);
10.1.2
The mutual agreement of the parties to terminate the Agreement;
10.1.3
The termination of this Agreement by Servicing Party.
10.2. Effect
of Termination.
Either
before the end of the Term, or within three months after the termination by
mutual agreement of the parties or by Servicing Party:
10.2.1 Servicing
Party shall transfer all of its services to the Successor Servicing Party,
including without limitation, direct all third-parties to transfer all
Receivable to the account or location designated by Owner. However, in the
event
that at the end of the term there is no Successor Servicing Party or Owner
and
Servicing Party have not agreed to extend the Term, then all remaining Assets
shall be auctioned off in a commercially reasonable manner with consent from
Owner;
10.2.2 The
termination of the Agreement shall not affect any rights that Owner has during
the course of the Term; and
10.2.3
After
the termination of the Agreement, Owner shall have no further obligations with
respect to the Service Fee, and Servicing Party with respect to the services
relating to the Assets.
11. General
Provisions
11.1. Ownership.
All
receipts, all records and files as described in Section 3 of this Agreement,
and
all related documents are the sole and exclusive property of Owner.
11.2. Applicable
Law and Jurisdiction.
This
Agreement shall be governed by and interpreted in accordance with the laws
of
the PRC. Any dispute arising out of this Agreement shall be submitted to
arbitration in Beijing under the auspices of China International Economic and
Trade Arbitration Commission. During the period when a dispute is being
resolved, the parties shall in all other respects continue their implementation
of this Agreement.
11.3. Notice.
Except
as otherwise provided, all notices pursuant to this Agreement shall be written
in Chinese and English and delivered personally, or sent by registered mail
of
by facsimile transmission to the address of the parties set forth below (or
to
the address or facsimile number provided by a party in writing 5 days before
the
notice). The date when the notice is deemed duly served shall be determined
as
follows: (a) a notice delivered personally is deemed duly served upon the
delivery, (b) a notice sent by facsimile transmission is deemed duly served
upon
the completion of the transmission, except that if the notice is transmitted
on
a non-work day, the notice is deemed duly served upon the first work-day
thereafter.
Shanxi
Bestlink Management Consulting Co., Ltd.
Business
Address: ▇/▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ No76, Taiyuan, Shanxi
Province, PRC
Attn:
Beicang Hou
Fax:
▇▇▇▇-▇▇▇▇▇▇▇
Pinglu
County Changhong Ferroalloy Co., Ltd.
Business
Address:
6
residents group, Shangling Village,
MaoJin
Economic Development Zone,PingLu County, ShanXi province, PRC
Attn:
Yanting Ren
Fax:
▇▇▇▇-▇▇▇▇▇▇▇
Beicang
Hou
Business
Address: 12/F, Beicang Building, Jianshe North Road No76, Taiyuan, Shanxi
Province, PRC
Attn:
Beicang Hou
Fax:
▇▇▇▇-▇▇▇▇▇▇▇
Yaoting
Ren
Business
Address:
6
residents group, Shangling Village,
MaoJin
Economic Development Zone, PingLu County, ShanXi province, PRC
Attn:
Yaoting Ren
Fax:
▇▇▇▇-▇▇▇▇▇▇▇
Zengguan
Li
Business
Address: 6
residents group, Shangling Village,
MaoJin
Economic Development Zone, PingLu County, ShanXi province, PRC
Attn:
Zengguan Li
Fax:
▇▇▇▇-▇▇▇▇▇▇▇
11.4. Headings.
Headings in this Agreement are for convenience only and shall not be used to
interpret or construe the provisions of this Agreement.
11.5. Severability.
If any
provision of this Agreement shall be held to be prohibited by or invalid under
any applicable law, such provision shall be ineffective only to the extent
of
such prohibition or invalidity, without invalidating the remaining provisions
of
this Agreement.
11.6. Assign.
This
Agreement shall be binding upon the parties’ successors and assigns.
11.7. Surrender
of Rights.
The
untimeliness or delay by any party in the execution or implementation of this
Agreement shall not be deemed as surrender by that party of its rights under
the
Agreement. A party may only surrender its rights under the Agreement in writing.
11.8. Further
Actions.
The
parties shall take all such further actions as necessary to implement and
effectuate this Agreement.
11.9. Expenses.
Except
as otherwise provided, each party is to bear its own expenses incurred relating
to the negotiation and preparation of this Agreement.
11.10. Counterparts. This
Agreement may be executed in any number of counterparts, each of which shall
be
deemed an original and all of which taken together shall constitute one and
the
same instrument.
11.11. Language.
The
language of this Agreement shall be in Chinese and English.
[Remainder
of the Page Intentionally Blank]
[Signature
Page]
In
witness whereof,
the
parties have signed this Agreement as of the date and year first written
above.
Owner:
Pinglu
County Changhong Ferroalloy Co., Ltd.
/s/
Beicang Hou
Legal
Representative
/s/
Beicang Hou
Beicang
Hou,
Shareholder
/s/
Yaoting Ren
Yaoting
Ren,
Shareholder
/s/
Zengguan Li
Zengguan
Li,
Shareholder
Servicing
Party:
Shanxi
Bestlink Management Consulting Co., Ltd.
/s/
Beicang Hou
Authorized
Representative
Attachment
1
Assets
|
1.
|
All
the rights to use of Owner with respect to assets and inventories
however
owned by Owner (“Assets”), including without limitations cash, equipments
and machinery, land use rights, factories and
construction-in-progress.
|
|
2.
|
All
contracts, permits, authorizations of Owner (with any amendments,
additions, restatements are collectively referred to as “Business
Agreements”) and rights thereto.
|
|
3.
|
All
agreements, files, records, communications (including without limitation
all programs, storage tapes, software and related intellectual property
rights are collectively referred to as
“Records”).
|
|
4.
|
All
benefits and liabilities relating to Items 1 and 2
above.
|
Attachment
2
Power
of
Attorney
Pinglu
County Changhong Ferroalloy Co., Ltd. (“Pinglu
Ferroalloy”) hereby grants Shanxi
Bestlink Management Consulting Co., Ltd. (“Bestlink”)
on an exclusive basis to manage all of the assets (“Assets”) of Pinglu
Ferroalloy and to represent Pinglu Ferroalloy in contract negotiation and all
other business matters, using all methods permissible under PRC law (including
without limitations legal proceeding, debt collection, debt consolidation,
debt
negotiation and settlement.
To
avoid
any conflict, Bestlink is hereby granted the right, without the prior consent
of
Pinglu Ferroalloy, to: (1) appoint attorneys, accountants and other consultants,
(2) negotiate, (3) forgive or settle debts, and (4) take all other actions
that
Bestlink believes is necessary and/or appropriate to manage the Assets and
perform related services, including without limitation to communicate with
any
oversight governmental agencies.
Pinglu
Ferroalloy has the authority to grant Bestlink all the rights
herein.
This
Power of Attorney is effective as of January 5, 2006 and shall expire on
December 31, 2025.
Pinglu
County Changhong Ferroalloy Co., Ltd.
/s/
Beicang Hou
Authorized
Representative
Dated:
1/5/2006
Attachment
3
Description
of Management Services
| 1. |
General
Management:
|
To
advise
and assist with business operation and to provide consulting service, especially
with respect to organization of production lines and quality
control.
| 2. |
Human
Resource:
|
|
(i)
|
To
advise and assist with Pinglu Ferroalloy’s human resource, including
hiring and retention of management and administrative personnel and
workers;
|
|
(ii)
|
To
train and develop management and administrative personnel and
workers;
|
|
(iii)
|
To
assist Pinglu Ferroalloy with management of
payroll;
|
|
(iv)
|
To
advise and assist Pinglu Ferroalloy with changes in management and
employee personnel.
|
| 3. |
Sales
Distribution Management:
|
To
assist
Pinglu Ferroalloy with managing and developing sales distribution
channels
| 4. |
Other
Services:
|
To
be
determined as mutually agreed by the parties.