SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
(Mark
one)
FORM
20-F
o
|
REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE
ACT OF 1934
|
OR
o
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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|
|
|
For
the fiscal year ended
________________.
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OR
o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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OR
x
|
SHELL
COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
|
Date
of event requiring this shell company report: October 29,
2010
|
|
for
the transition period from __________ to
___________
|
Commission
file number: 000-53465
China
Dredging Group Co., Ltd.
(Exact
name of the Registrant as specified in its charter)
British
Virgin Islands
(Jurisdiction
of incorporation or organization)
Floor
18, Tower A, Zhongshan Building,
No.
154, Hudong Road, Gulou District,
Fuzhou
City, Fujian Province, PRC
(Address
of principal executive offices)
+86 591 8727
1266
(Name,
Telephone, E-mail and/or Facsimile Number and Address of Company Contact
Person)
Securities
registered or to be registered pursuant to Section 12(b) of the
Act:
|
Title of Each Class
|
|
Name of each exchange on which
registered
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|
None
Securities
registered or to be registered pursuant to Section 12(g) of the
Act:
Ordinary
Shares, no par value per share
Securities
for which there is a reporting obligation pursuant to Section 15(d) of the
Act:
Ordinary
Shares, no par value per share
On
October 29, 2010, the registrant had 52,677,323 ordinary shares
outstanding.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
If this
report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934.
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes
o
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
o
Large
Accelerated filer
|
o
Accelerated
filer
|
x
Non-accelerated filer
|
Indicate
by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing:
x
US
GAAP
|
o
International Financial Reporting Standards as issued by the International
Accounting Standards Board
|
o
Other
|
If
“Other” has been checked in response to the previous question, indicate by check
mark which financial statement item the registrant has elected to
follow.
If
this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).
(APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE
YEARS)
Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of the securities under a
plan confirmed by a court.
TABLE
OF CONTENTS
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Page
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PART I
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Item
1.
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Identity
of Directors, Senior Management and Advisers
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7
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Item
2.
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Offer
Statistics and Expected Timetable
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8
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Item
3.
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Key
Information
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8
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A.
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Selected
Financial Data
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8
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B.
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Capitalization
and Indebtedness
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10
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C.
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Reasons
for the Offer and Use of Proceeds
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11
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D.
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Risk
Factors
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11
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Item
4.
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Information
On The Company
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18
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A.
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History
and Development of the Company
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18
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B.
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Business
Overview
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22
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C.
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Organizational
Structure
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34
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D.
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Property,
Plants and Equipment
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34
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Item
4A.
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Unresolved
Staff Comments
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35
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Item
5.
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Operating
and Financial Review and Prospects
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35
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Item
6.
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Directors,
Senior Management and Employees
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47
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A.
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Directors
and Senior Management
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47
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B.
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Compensation
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47
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C.
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Board
Practices
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48
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D.
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Employees
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49
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E.
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Share
Ownership
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50
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Item
7.
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Major
Shareholders and Related Transactions
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50
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A.
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Major
Shareholders
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50
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B.
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Related
Party Transactions
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51
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C.
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Interests
of Experts and Counsel
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52
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Item
8.
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Financial
Information
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52
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A.
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Consolidated
Statements and Other Financial Information
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52
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B.
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Significant
Changes
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52
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Item
9.
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The
Offer and Listing
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52
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Item
10.
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Additional
Information
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52
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A.
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Share
Capital
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52
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B.
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Memorandum
and Articles of Association
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53
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C.
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Material
Contracts
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57
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D.
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Exchange
Controls
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57
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E.
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Taxation
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58
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F.
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Dividends
and Paying Agents
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59
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G.
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Statement
by Experts
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59
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H.
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Documents
on Display
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59
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I.
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Subsidiary
Information
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60
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Item
11.
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Quantitative
and Qualitative Disclosure About Market Risk
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60
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Item
12.
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Description
of Securities Other Than Equity Securities
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61
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PART
III
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Item
17
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Financial
Statements
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61
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Item
18.
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Financial
Statements
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61
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Item
19
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Exhibits
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62
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Signatures
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63
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CERTAIN
INFORMATION
In this
Shell Company Report on Form 20-F (the “Report”), unless otherwise
indicated, “we,” “us,” “our,” or “Company” refers to China Dredging Group Co.,
Ltd., a company incorporated under the laws of the British Virgin Islands (the
“BVI”), and its subsidiaries subsequent to the Merger (as defined and described
below). All references to “China Dredging HK” in this Report refer to
China Dredging (HK) Co., Ltd., a wholly owned subsidiary of China Dredging Group
Co., Ltd. Unless the context indicates otherwise, all references to “Fujian
WangGang” in this Report refer to Fujian WangGang Dredging Construction Co.,
Ltd., a wholly owned subsidiary of China Dredging HK, which holds 50% of the
equity interest in Fujian Xing Gang Port Service Co., Ltd., (“Fujian Service”),
our operating business in the PRC. Fujian WangGang is also a party to
certain variable interest entity agreements (“VIE Agreements”) with Fujian
Service, Wonder Dredging LLC, a PRC entity which holds the remaining 50% equity
interest in Fujian Service and the shareholders of the Wonder Dredging LLC, that
transfer 100% of the economic benefit of Fujian Service and full voting and
management control to Fujian WangGang.
The “Merger” refers to the
merger of Chardan Acquisition Corp., a BVI company (“CAC”) with and into China
Dredging Group Co., Ltd., which was consummated on October 27,
2010.
References
to the “PRC” refers to the People’s Republic of China. All references to
“provincial-level regions” or “regions,” include provinces as well as autonomous
regions and directly controlled municipalities in China, which have an
administrative status equal to provinces, including Beijing.
All
references to “Renminbi,” “RMB” or “yuan” are to the legal currency of the
People’s Republic of the PRC and all references to “U.S. dollars,” “dollars,”
“$” are to the legal currency of the United States. This Report contains
translations of Renminbi amounts into U.S. dollars at specified rates solely for
the convenience of the reader. Unless otherwise noted, all translations from
Renminbi to U.S. dollars were made at $6.83. We make no representation that the
Renminbi or U.S. dollar amounts referred to in this Report could have been or
could be converted into U.S. dollars or Renminbi, as the case may be, at any
particular rate or at all.
FORWARD-LOOKING
STATEMENTS
This
Report contains ‘‘forward-looking statements’’ that represent our beliefs,
projections and predictions about future events. All statements other than
statements of historical fact are ‘‘forward-looking statements’’ including any
projections of earnings, revenue or other financial items, any statements of the
plans, strategies and objectives of management for future operations, any
statements concerning proposed new projects or other developments, any
statements regarding future economic conditions or performance, any statements
of management’s beliefs, goals, strategies, intentions and objectives, and any
statements of assumptions underlying any of the foregoing. Words such as “may,”
“‘will,” “‘should,” “could,” “would,” “predicts,” “potential,” “continue,”
“expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates”
and similar expressions, as well as statements in the future tense, identify
forward-looking statements.
These
statements are necessarily subjective and involve known and unknown risks,
uncertainties and other important factors that could cause our actual results,
performance or achievements, or industry results, to differ materially from any
future results, performance or achievements described in or implied by such
statements. Actual results may differ materially from expected results described
in our forward-looking statements, including with respect to correct measurement
and identification of factors affecting our business or the extent of their
likely impact, the accuracy and completeness of the publicly available
information with respect to the factors upon which our business strategy is
based on the success of our business.
Forward-looking
statements should not be read as a guarantee of future performance or results,
and will not necessarily be accurate indications of whether, or the times by
which, our performance or results may be achieved. Forward-looking statements
are based on information available at the time those statements are made and
management’s belief as of that time with respect to future events, and are
subject to risks and uncertainties that could cause actual performance or
results to differ materially from those expressed in or suggested by the
forward-looking statements. Important factors that could cause such differences
include, but are not limited to, those factors discussed under the headings
“Risk Factors,” “Operating and Financial Review and Prospects,” “Information on
our Company” and elsewhere in this Report.
ITEM
1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
A.
|
Directors and Senior
Management
|
Our
directors and executive officers are described as follows:
Name
(1)
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Age
|
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Position
in China Dredging
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Mr.
Xinrong Zhuo
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46
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Chairman
of Board and Chief Executive Officer
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Mr.
Fangjie Gu
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32
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Chief
Operating Officer and Director
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Mr.
Bin Lin
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52
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Senior
Vice President
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Mr.
Kit Chan
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63
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Director
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(1)
|
The
business address of each such person is the address of the Company, which
is Floor 18, Tower A, Zhongshan Building, No. 154, Hudong Road,
Gulou District, Fuzhou City, Fujian Province,
PRC.
|
Mr.
Xinrong Zhuo, age 46, is a citizen of Hong Kong and has served as the chairman
and CEO of China Dredging since August 2010, has served as director of Fujian
Road & Bridge Construction Co., Ltd. since December 2008, has served as the
sole director of Tian Yuan Co., Ltd., a real estate investment company since
September 2007, has served as the chairman and legal representative of Fuzhou
Dongxing Longju Real Estate Development Co., Ltd., a real estate development
company since March 2007, has served as the vice general manager of Fujian
Huashang Real Estate Development Co., Ltd. since December 2006, and has served
as the supervisor of Fuzhou Haiyiyongyu Import & Export Co., Ltd. since June
1995, which is engaged in import and export trade. From November 2005 to
December 2008, Mr. Zhuo served as the legal representative and the chairman of
Fujian Road & Bridge Construction Co., Ltd. From June 2005 to September
2007, Mr. Zhuo served as vice general manager of Tian Yuan Co. Ltd. From
February 2002 to September 2009, Mr. Zhuo served as the legal representative and
executive director of Fuzhou Baojie Haiyi Ocean Fishing Co., Ltd., which
operated aquatic products. From June 1995 to September 2006, Mr. Zhuo served as
the supervisor at Fuzhou Hong Long Ocean Fishery Co., Ltd., which is engaged in
marine fishery.
Mr.
Fangjie Gu, age 32, is the chief operating officer and director of China
Dredging since August 2010 and the general manager of Fujian Service since June
2010. Mr. Gu has served as legal representative and the chairman of Shenzhen
West Coast Fisherman's Wharf Business Co., Ltd. since August 2010, which
operates aquatic products, has served as the supervisor of Fujian Lutong Highway
Engineering Construction Co. Ltd. since October 2006, which is specified in
construction material sales, and has served as the vice general manager of
Fujian Yihai Investment Co., Ltd., a company that invests in
infrastructure-related projects since March 2005. From January 2004 to June
2007, Mr. Gu served as vice general manager in Fuzhou Honglong Ocean Fishery
Co., Ltd.. From September 2001 to August 2004, he served as the project manager
of China Overseas Engineering Group Co., Ltd., an architecture firm. Mr. Gu
earned his BA degree in English from Beijing Language and Culture University in
2001.
Mr. Bin
Lin, age 52, has served as senior vice president of China Dredging since August
26, 2010 and as vice general manager of Fujian Service since January 2008. At
Fujian Service he is responsible for leading the Company’s dredging operations
and directing the senior executive staff. From May 2003 to March 2007, he served
as vice chairman of Fujian Tianxiang Group Co., Ltd (600225), listed on the
China Shanghai Stock Exchange and from November 2003 to October 2006, he served
as a member of the board of directors of Industrial Securities Co.,
Ltd. Mr. Lin served as director of Huatong International Merchants
Group Shareholding Co., Ltd. from October 1992 to May 1998. From April 1994 to
February 1995 he served as vice general manager of Fujian Sanmu Group Co., Ltd.
(000632), listed on the China Shenzhen Stock Exchange. Mr. Lin
received his BSc degree in Pharmacy from Shanghai Medical College of Fudan
University (formerly named as Shanghai Number One School of Medicine) in
1982.
Mr. Kit
Chan, age 63, joined us as a director on August 27, 2010. From April 2010
through the present he has served as a director of Haifeng Dafu Enterprise
Company Limited, a company operates in the shipping business in Hong Kong. From
May 2009 through the present he has served as a director of Hai Yi Shipping
Ltd., a company in the shipping business in Hong Kong. From October
2007 through the present he served as a manager at Hua Shang Resources Group
Ltd. in Hong Kong, a real estate investment firm. From February 1991
through the present Mr. Chan served as a director of Ee Hing Resources Company
Ltd. in Hong Kong, a chemical import/export company. Mr. Chan received his BA
degree from Huaqiao University in 1967.
There are
no family relationships between the officers or directors of the
Company.
China
Dredging has engaged Loeb & Loeb LLP, 345 Park Ave., New York, NY 10154, to
act as its counsel with respect to the securities laws of the United States.
Maples and Calder is China Dredging’s counsel with respect to the laws of the
British Virgin Islands.
Dacheng
Law Offices is China Dredging
’
s counsel with
respect to the law of the People
’
s Republic of
China.
UHY
Vocation HK CPA Limited, an independent registered public accounting firm,
located at 3F, Malaysia Building, 50 Gloucester Road, Wanchai, Hong Kong,
People’s Republic of China, is our auditor and has audited the financial
statements of Fujian Service from January 8, 2008 (inception) through December
31, 2008 and for the year ended December 31, 2009.
ITEM
2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not
applicable.
ITEM
3. KEY INFORMATION
A.
|
Selected Financial
Data
|
The
Company was formed on April 14, 2010. We subsequently formed the
subsidiaries described in Item 4A under the heading “Our Corporate Structure”
and acquired a 100% economic interest in Fujian Service and another variable
interest entity (“VIE”), of which one of the Company’s subsidiaries is the
primary beneficiary (collectively referred to herein as the
“Group”). We deem Fujian Service to be a predecessor
company. The following selected financial data as of December 31,
2009 and 2008 and for the year ended December 31, 2009 and for the period from
January 8, 2008 (inception of Fujian Service) have been derived from the audited
consolidated financial statements of Fujian Service included in this Report
beginning on
page F-63
.
The
selected financial data as of and for the six-month period ended June 30, 2010
are for the Group and have been derived from our unaudited consolidated
financial statements as of June 30, 2010. This information is only a
summary and should be read together with the financial statements, the related
notes, the section entitled “Operating and Financial Review and Prospects” and
other financial information included in this Report.
The
consolidated financial statements of the Company and of Fujian Service are
prepared and presented in accordance with U.S. GAAP. The Fujian
Service acquisition has been accounted for as a business combination under the
purchase method of accounting in accordance with FASB Accounting Standards
Codification Topic (“ASC”) 805. Accordingly, the selected financial
data from the Statement of Operations for the six months ended June 30, 2010 are
derived from the pro forma consolidated income statement included in note 2 of
the Company’s June 30, 2010 financial statements beginning on page F-63. The
results of operations of the Group or the Company in any period may not
necessarily be indicative of the results that may be expected for any future
period. See “
Risk
Factors
” included elsewhere in this Report.
|
|
Fujian
Service
|
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|
Group
|
|
|
|
Year Ended December 31,
|
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Six
Months
|
|
|
|
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Ended
|
|
|
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2008
|
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2009
|
|
|
June
30, 2010
|
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(In
$)
|
|
(Audited)
|
|
|
(Audited)
|
|
|
(Unaudited)
|
|
Contract
Revenue
|
|
|
54,480,271
|
|
|
|
80,333,891
|
|
|
|
45,981,433
|
|
Cost
of contract revenue
|
|
|
25,424,227
|
|
|
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38,715,490
|
|
|
|
20,389,446
|
|
Gross
Profit
|
|
|
29,056,044
|
|
|
|
41,618,401
|
|
|
|
25,591,987
|
|
G&A
|
|
|
2,152,
575
|
|
|
|
2,531,132
|
|
|
|
2,367,968
|
|
Income
from operations
|
|
|
26,903,469
|
|
|
|
39,087,269
|
|
|
|
23,224,019
|
|
Other
income (expense)
|
|
|
(136,332
|
)
|
|
|
(726,020
|
)
|
|
|
(398,012
|
)
|
Income
before income taxes
|
|
|
26,767,137
|
|
|
|
38,361,249
|
|
|
|
22,826,007
|
|
Income
tax expense
|
|
|
6,696,745
|
|
|
|
9,596,651
|
|
|
|
5,784,341
|
|
Net
Income
|
|
|
20,070,392
|
|
|
|
28,764,598
|
|
|
|
17,041,666
|
|
|
|
Fujian
Service
|
|
|
|
|
|
|
December
31,
|
|
|
|
|
|
|
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
(In
$
)
|
|
Audited
|
|
|
Audited
|
|
|
Unaudited
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
9,790,137
|
|
|
|
34,406,858
|
|
|
|
61,396,466
|
|
Total
other assets
|
|
|
48,497,870
|
|
|
|
45,708,395
|
|
|
|
43,901,875
|
|
Total
assets
|
|
|
58,288,007
|
|
|
|
80,115,253
|
|
|
|
105,298,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and owners' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
22,068,848
|
|
|
|
9,282,633
|
|
|
|
11,251,233
|
|
Total
non-current liabilities
|
|
|
6,962,257
|
|
|
|
3,295,738
|
|
|
|
7,962,957
|
|
Total
liabilities
|
|
|
29,031,105
|
|
|
|
12,578,371
|
|
|
|
19,214,190
|
|
Owners'
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
owners' equity
|
|
|
29,256,902
|
|
|
|
67,536,882
|
|
|
|
86,084,151
|
|
Total
liabilities and owners' equity
|
|
|
58,288,007
|
|
|
|
80,115,253
|
|
|
|
105,298,341
|
|
B.
|
Capitalization and
Indebtedness
|
The
following table shows our capitalization as of June 30, 2010 for the Group after
giving effect to the Merger and Offering described under the headings “October
2010 Merger” and “October 2010 Private Placement,”
respectively. Additional pro forma information reflecting the effect
of these transactions can be found on pages F-1 to F-9 of this
Report.
|
|
|
|
|
|
|
|
|
|
|
|
Actual
(6/30/2010)
|
|
|
Pro
Forma Merger & Offering
|
|
|
|
(unaudited)
|
|
|
(Initial)
|
|
|
(Maximum)
|
|
Indebtedness-current
|
|
|
|
|
|
|
|
|
|
Unsecured
|
|
$
|
6,827,368
|
|
|
$
|
6,827,368
|
|
|
$
|
6,827,368
|
|
Secured
|
|
|
4,423,865
|
|
|
|
4,423,865
|
|
|
|
4,423,865
|
|
Total
current indebtedness
|
|
|
11,251,233
|
|
|
|
11,251,233
|
|
|
|
11,251,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indebtedness-
non-current
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
|
7,962,957
|
|
|
|
7,962,957
|
|
|
|
7,962,957
|
|
Preferred
Stock subject to redemption
|
|
|
-
|
|
|
|
21,855,000
|
|
|
|
75,000,000
|
|
Total
non-current indebtedness
|
|
|
7,962,957
|
|
|
|
29,817,957
|
|
|
|
82,962,957
|
|
Total
indebtedness
|
|
|
19,214,190
|
|
|
|
41,069,190
|
|
|
|
94,214,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary
Shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Additional
paid-in capital
|
|
|
80,205,592
|
|
|
|
78,173,182
|
|
|
|
74,357,107
|
|
Retained
earnings and other comprehensive income
|
|
|
990,541
|
|
|
|
990,541
|
|
|
|
990,541
|
|
Statutory
reserves
|
|
|
4,888,018
|
|
|
|
4,888,018
|
|
|
|
4,888,018
|
|
Total
equity
|
|
|
86,084,151
|
|
|
|
84,051,741
|
|
|
|
80,235,666
|
|
C.
|
Reasons for the Offer and Use of
Proceeds
|
Not
required.
RISKS
RELATING TO OUR BUSINESS AND THE INDUSTRIES IN WHICH WE OPERATE
Our
performance depends upon public spending on marine infrastructure
Our
ability to generate revenues significantly depends upon the PRC government’s
public spending on port infrastructure. Our major customers include PRC
government agencies at the national, provincial and local levels, and
state-owned enterprises. We are therefore affected by changes in public works’
budgets. The future growth of the ports infrastructure industry in the PRC
depends primarily upon the continued availability of major marine transportation
infrastructure projects. The nature, extent and timing of these projects will,
however, determined by the interplay of a variety of factors, including the PRC
government’s spending in the marine transportation infrastructure industry in
the PRC and the general conditions and prospects of the PRC economy. The PRC
government’s spending in the marine transportation infrastructure industry has
historically been, and will continue to be, vulnerable to the PRC’s economy and
is cyclical in nature. Should there be a significant reduction in public
spending on marine transportation infrastructure projects in the PRC and we fail
to open up new markets in or outside the PRC, our operations and profits could
be adversely affected.
Our
profitability is subject to inherent risks because of the fixed-price nature of
most of its contracts
Our
revenues are derived from our role as a subcontractor for general contractors of
dredging projects. Substantially all of the contracts between us and the general
contractors are fixed-price contracts or fixed unit price in nature. Under a
fixed-price contract, the customer agrees to pay a specified price for its
performance of the entire contract. Fixed-price contracts carry inherent risks,
including risks of losses from underestimating costs of materials, operational
difficulties and other changes that may occur over the contract period. As a
result, we will only realize profits on these contracts if we successfully
estimate project costs and avoid cost overruns.
One of
the most significant factors affecting the profitability of a dredging project
is the weather at the project site. Inclement or hazardous weather conditions
can result in substantial delays in dredging and additional contract expenses.
Due to these factors, it is possible that we will not be able to perform
obligations under fixed-price contracts without incurring additional expenses.
Should we significantly underestimate the costs on one or more significant
contracts, the resulting losses could have a material adverse effect on
us.
In
the past several years we have derived a significant portion of our revenues
from a small group of customers and we expect this to continue to be the case.
The loss of any one of these customers could negatively impact our business,
operating results and financial condition.
Our
customer base has been, and we expect it to remain, highly concentrated. For the
years ended December 31, 2009 and 2008, the four major customers accounted for
100% and the three major customers accounted for 93% of our total sales,
respectively, and the single largest customer accounted for 40%, and 48% of
total sales, respectively. As our customer base may change from year-to-year,
during such years that our customer base is highly concentrated, the loss of, or
reduction of our sales to, any of such major customers could have a material
adverse effect on our business, operating results and financial
condition.
Our
general contractor clients may continue to expand internal capacity and
modernize their fleets which may reduce their reliance on subcontracting and
limit our business growth.
Our
largest general contractor clients have subcontracted a substantial amount of
dredging work in the past, reflecting a large shortfall in internal
capacity. If these clients continue to invest in a modern fleet for
larger capacity and better efficiency, they may be reducing reliance on
subcontracting. Since our prospects for growth are primarily driven by increases
in subcontracting by our major clients, a reduced subcontracting demand from
those clients would adversely impact our growth prospects.
Our
operations may cause substantial harm to persons, property and the environment,
which could hurt our reputation and, to the extent they are not covered
contractually or by insurance could cause us to incur substantial
costs.
Our
operations are subject to hazards inherent in providing dredging services, such
as the risk of equipment failure, vessel collision, industrial accidents, fire
and explosion. These hazards can cause personal injuries and losses of lives,
business interruptions, property and equipment damage, pollution and
environmental damage. We may be subject to claims as a result of incidents
relating to these and other hazards.
We
normally seek to limit our exposure to these claims and liabilities through
contractual limitations of liability and insurance. These measures, however, may
not always be effective because of various reasons outside of control,
including, among other things:
|
·
|
In
some of the jurisdictions in which we operate, environmental and workers’
compensation liabilities may be assigned to us as a matter of law and may
not be limited through
contracts;
|
|
·
|
Insurance
coverage may not be sufficient because it may not be possible to obtain
adequate insurance against some risks on commercially reasonable terms, or
at all. Insurance products, in particular, have become increasingly
expensive and sometimes very difficult to obtain. In this regard,
consistent with what it’s believed to be the customary practice in the
PRC, we do not carry any business interruption insurance. While
we do have Ship Pollution Liability coverage for certain environmental
damage and third-party losses that arise from fuel or chemical leaks from
the three vessels that we own, there may be circumstances in which we
would not be fully covered or compensated for losses and liabilities
arising from interruptions to our operations, construction accidents,
defects in our work or other risks by insurance that we have maintained.
Our Ship Pollution Liability coverage is for up to RMB 5,000,000 ($
732,000) annually for Xinggangjun #66, RMB 2,500,000
($366,000) annually for Xinggangjun #3 and RMB 2,110,000 ($
309,000) annually for Xinggangjun
#6.
|
Failure
to effectively cover these risks for any of the above reasons could expose us to
substantial costs and potentially lead to material losses. Additionally, the
occurrence of any of these risks may harm our reputation, which may materially
inhibit our ability to win more projects.
Customers
pay us by way of progress payments, and delay in progress payments may affect
working capital and cash flow.
Most of
our contracts provide for progress payments from our general contractor
customers based upon the value of work completed upon reaching certain
milestones. Generally a site engineer issues a progress certificate certifying
the work progress in the preceding contract stage. The customers then effect
payments with reference to these certificates. As a result, we are often
required to commit resources to projects prior to receiving payment from
customers in amounts sufficient to cover expenditures on the projects as they
are incurred. We can make no assurance that the progress payments will be
remitted by customers to us on a timely basis or that we will be able to
efficiently manage the level of bad debt arising from such payment
practice.
Delays in
progress payments from customers would increase working capital needs. If a
customer defaults in making its payments on a project to which we have devoted
significant resources, it would also affect our liquidity and decrease the
capital resources that are otherwise available for other uses. In such cases, we
may file a claim for compensation of the loss of a payment default, but
settlement of disputes of this nature generally takes substantial time in the
PRC and financial and other resources, and the outcome is often
uncertain.
We
require substantial capital and any failure to obtain the capital needed on
acceptable terms, or at all, may adversely affect our expansion plans and growth
prospects.
The
transportation infrastructure industry in which we operate is generally capital
intensive. It requires significant capital to build, maintain and operate our
production and operation facilities, resulting in high fixed costs. It also
requires significant capital to purchase dredging equipment, develop new
services and products and develop and implement new technologies. Our capital
expenditures may increase as a result of the further upgrade of our dredging
fleet and expansion of our scope of operations.
Under
most of our contracts, we are required to finance dredging equipment, and
performance of engineering, construction and other work on projects for periods
averaging approximately one month before receiving progress payments from
customers in amounts sufficient to cover expenditures. We may therefore have
significant working capital requirements. Our working capital requirements would
materially increase if our general contractor customers impose extended payment
terms in line with their corporate averages, which approach three
months. To the extent that our working capital funding requirements
exceed our financial resources, we will be required to seek additional debt or
equity financing or to defer planned expenditures. In the past, we have financed
our working capital and capital expenditures through a combination of sources,
including cash flow from our operations and bank and other borrowings. If we are
unable to obtain financing in a timely manner and at a reasonable cost, our
expansion plans may be delayed, project progress may be constrained, and our
growth, competitive position and future profitability may be adversely
affected.
Our
backlog is subject to unexpected adjustments and cancellations and is,
therefore, an uncertain indicator of our future earnings.
Backlog
represents our estimate of the contract value of work that remains to be
completed as at a certain date. The contract value of a project represents the
amount that is expected to be received under the terms of the contract if the
contract is performed in accordance with its terms. As of June 30, 2010, we had
a backlog of approximately US$135.5 million. There is no
assurance that the revenues anticipated by the backlog will be realized or, if
realized, will result in profits. Projects may remain in backlog for an extended
period of time. In addition, project cancellations or scope adjustments may
occur from time to time, which could reduce the dollar amount of the backlog and
the revenue and profits that are ultimately earned from the contracts. As a
result, investors should not unduly rely on the backlog information presented in
this filing as an indicator of our future earnings.
Failure
to meet schedule requirements of contracts could require us to pay liquidated
damages.
Substantially
all of our contracts with general contractors are subject to specific completion
schedule requirements with liquidated damages charged to us if we do not achieve
the schedules. Liquidated damages are typically levied at an agreed rate for
each day of delay that is deemed to be our responsibility. Any failure to meet
the schedule requirements of the contracts could cause us to pay significant
liquidated damages, which would reduce or eliminate profit on the relevant
contracts and could adversely affect liquidity and cash flows and have a
material adverse effect on our business, financial condition, results of
operations and prospects.
We
are subject to extensive environmental, safety and health regulations in the
PRC, the compliance with which may be difficult or expensive.
The PRC
government has published extensive environmental, safety and health regulations
with which we need to comply. Failure to comply with these regulations may
result in penalties, fines, suspension or revocation of our licenses or permits
to conduct business, and litigation. Given the magnitude and complexity of these
regulations, compliance with them may be difficult or involve the expenditure of
significant financial and other resources to establish effective compliance and
monitoring systems. In addition, these regulations are constantly evolving.
There can be no assurance that the PRC government will not impose additional or
stricter laws or regulations, compliance with which may cause us to incur
significant costs that may not be able to be passed on to our customers.
Furthermore, some of the new overseas markets that we are seeking to enter may
have more onerous environmental, safety and health regulations than China,
compliance with which may be very costly and could hinder its endeavors to enter
these new overseas markets.
Our
operations depend heavily on the timely availability of an adequate supply of
supplies and component parts at acceptable prices and quality.
To
operate successfully, we must obtain from our suppliers sufficient quantities of
consumables, such as mud pipe and dredge pumps at acceptable prices and quality
and in a timely manner. In 2008 and 2009, the cost of raw materials and
consumables accounted for approximately 73.8% and 77.0% of the aggregate of
total cost of sales respectively. During times of short supplies, we may have to
pay significantly higher prices to obtain the consumable components required for
our operations. Most of our dredging contracts specify a fixed unit price and we
are responsible for procuring consumable supplies needed for the projects. As a
result, when prices of such consumables increase, we are unlikely to be able to
pass the price increases on to our customers. The profitable performance of our
contracts also requires components and supplies of high quality. If quality
components and supplies are not available, it could directly and adversely
affect the quality, timeliness or efficiency of our work, undermine our
reputation and increase the chances of potential disputes and liabilities; all
or any of which may negatively affect future profits and projected
growth.
We
face significant competition in the markets in which we currently operate, which
could adversely affect our financial results and business
prospects.
We face
significant competition in the PRC markets in which we operate. Our competition
comes from various sources, including the internal operations of our general
contractor customers and numerous private companies providing dredging services
as general contractors or subcontractors. Some of our competitors may
have advantages over us in terms of capacity, access to capital pricing and
management expertise. Our market position and growth prospects depend on our
ability to anticipate and respond to various competitive factors, including
pricing strategies adopted by competitors, changes in customer preferences or
work priorities, availability of capital and financing resources and the
introduction of new or improved equipment, technology and services.
We can
offer no assurance that our current or potential competitors will not offer
services or products comparable or superior to those that we offer at the same
or lower prices or adapt more quickly than we do to evolving industry trends or
changing market conditions. We may lose our customers to our
competitors if, among other things, we fail to keep our prices at competitive
levels or to sustain and upgrade our capacity and technology. Increased
competition may result in price reductions, reduced profit margins and loss of
market share.
Our
operations require permits or licenses and the loss of these permits or licenses
could significantly hinder our business and reduce our expected turnover and
profits.
We
require operating permits and licenses to conduct our business in PRC waters and
we must comply with the restrictions and conditions imposed by various levels of
government to maintain our permits and licenses. Such restrictions include
limitations on foreign ownership of vessels and the licensed entity performing
dredging works, maintenance of sufficient number of qualified personnel,
maintenance of sufficient project track record and compliance with safety
regulations and environment protection regulations. If we fail to comply with
any of the regulations required for the maintenance of our licenses, our
licenses could be temporarily suspended or even revoked, or the renewal of our
licenses upon expiration of their original terms may be delayed, which would
directly impact our ability to undertake dredging work and reduce our revenue
and profit.
We
may encounter unexpected difficulties in expanding into new
markets.
We plan
to expand the geographical coverage of overseas operations, including Vietnam,
Taiwan and other Asian countries. Expansion into overseas markets carries with
it many associated risks, including risks related to being relatively new in
such markets. Expansion may also stretch our capital, personnel and management
resources that are otherwise available for our current business. In addition,
there may be many established incumbent players in these markets, who already
enjoy a significant presence, and it may be difficult for us to win market share
from them. Some of the overseas markets that we are considering may have high
barriers of entry to foreign competitors. There can be no assurance that our
expansion plans outside of the PRC will be successful.
Our
continued success requires hiring and retaining qualified personnel, including a
Chief Financial Officer.
Our
future success is dependent upon our ability to attract and retain personnel,
including executive officers and key qualified personnel, who have the necessary
and required experience and expertise. Particularly, our success is largely
attributable to the highly qualified and experienced personnel that we have been
able to attract and retain in the past such as captains and chief engineers for
dredgers or construction-related geology analysts. Competition for qualified
personnel is intense and it has periodically experienced difficulties in
recruiting suitable personnel. We may lose these persons to those competitors
who are able to offer more competitive packages, or we may have to significantly
increase its related staff costs.
We are
dependent on the principal members of our management staff,
including Xinrong Zhuo, our Chief Executive Officer.
While we have entered into a three-year employment agreement with Mr. Zhuo,
there are circumstances under the agreement in which Mr. Zhuo may elect to
terminate his employment pursuant to the agreement. Even if Mr. Zhuo were to
terminate employment with us in breach of his agreement, we would have little or
no practical recourse against Mr. Zhuo under PRC law, so there can be no
assurance that Mr. Zhuo will continue to be employed by us for as long as
we require his services.
In
addition, we currently do not have a Chief Financial Officer. Mr. Zhuo is
currently the “acting” chief financial officer, but Mr. Zhuo has no experience
as a chief financial officer or the equivalent thereof. He has no
educational or other background or experience in accounting, public
accounting, financial and internal controls or financial procedures. As a
result the financial statements that are prepared by the company, may not be
accurate or reflect proper accounting procedures. Furthermore, the review
of the financial statements by our auditors may take longer time as a
consequence of the lack of an experienced Chief Financial Officer which could
also negatively impact the company's ability to timely file any required reports
with the SEC. We are currently engaged in a search for a new chief financial
officer, but can make no assurance that we will find a suitable chief financial
officer in a timely manner.
RISKS
RELATING TO DOING BUSINESS IN THE PRC
The
political and economic policies of the PRC government could affect our
businesses and results of operations
The
economy of the PRC differs from the economies of most developed countries in a
number of respects, including the degree of government involvement, control of
capital investment, and the overall level of development. Before its adoption of
reform and open up policies in 1978, China was primarily a planned economy. In
recent years the PRC government has been reforming the PRC economic system and
the government structure. These reforms have resulted in significant economic
growth and social progress. Economic reform measures, however, may be adjusted,
modified or applied inconsistently from industry to industry or across different
regions of the country. As a result, we may not continue to benefit from all, or
any, of these measures. In addition, it cannot be predicted whether changes in
the PRC’s political, economic and social conditions, laws, regulations and
policies will have any adverse effect on our current or future business,
financial condition and results of operations.
Currency
fluctuations and restrictions on currency exchange may adversely affect our
business, including limiting our ability to convert Chinese Renminbi into
foreign currencies and, if Chinese Renminbi were to decline in value, reducing
our revenue in U.S dollar terms.
Our
reporting currency is the U.S. dollar and our operations in the PRC use their
local currency as their functional currencies. Substantially all of our revenue
and expenses are in Chinese Renminbi. We are subject to the effects of exchange
rate fluctuations with respect to any of these currencies. For example, the
value of the Renminbi depends to a large extent on PRC government policies and
the PRC’s domestic and international economic and political developments, as
well as supply and demand in the local market. Since 1994, the official exchange
rate for the conversion of Renminbi to the U.S. dollar had generally been stable
and the Renminbi had appreciated slightly against the U.S. dollar. However, on
July 21, 2005, the PRC government changed its policy of pegging the value of
Chinese Renminbi to the U.S. dollar. Under the new policy, Chinese Renminbi may
fluctuate within a narrow and managed band against a basket of certain foreign
currencies. As a result of this policy change, Chinese Renminbi appreciated
approximately 2.5% against the U.S. dollar in 2005 and 3.3% in 2006. It is
possible that the Chinese government could adopt a more flexible currency
policy, which could result in more significant fluctuation of Chinese Renminbi
against the U.S. dollar. We can offer no assurance that Chinese Renminbi will be
stable against the U.S. dollar or any other foreign currency.
The
income statements of our operations are translated into U.S. dollars at the
average exchange rates in each applicable period. To the extent the U.S. dollar
strengthens against foreign currencies, the translation of these foreign
currency denominated transactions results in reduced revenue, operating expenses
and net income for our operations. Similarly, to the extent the U.S. dollar
weakens against foreign currencies, the translation of these foreign currency
denominated transactions results in increased revenue, operating expenses and
net income for our operations. We are also exposed to foreign exchange rate
fluctuations as we convert the financial statements of our foreign subsidiaries
into U.S. dollars in consolidation. If there is a change in foreign currency
exchange rates, the conversion of the foreign subsidiaries’ financial statements
into U.S. dollars will lead to a translation gain or loss which is recorded as a
component of other comprehensive income. In addition, we have certain assets and
liabilities that are denominated in currencies other than the relevant entity’s
functional currency. Changes in the functional currency value of these assets
and liabilities create fluctuations that will lead to a transaction gain or
loss. We have not entered into agreements or purchased instruments to hedge its
exchange rate risks, although it may do so in the future. The availability and
effectiveness of any hedging transaction may be limited and we may not be able
to successfully hedge its exchange rate risks.
Although
PRC governmental policies were introduced in 1996 to allow the convertibility of
Chinese Renminbi into foreign currency for current account items, conversion of
Chinese Renminbi into foreign exchange for capital items, such as foreign direct
investment, loans or securities, requires the approval of the State
Administration of Foreign Exchange (“SAFE”), which is under the authority of the
People’s Bank of China. These approvals, however, do not guarantee the
availability of foreign currency conversion. We cannot be sure that we will be
able to obtain all required conversion approvals for our operations or that PRC
regulatory authorities will not impose greater restrictions on the
convertibility of Chinese Renminbi in the future. Because a significant amount
of our future revenue may be in the form of Chinese Renminbi, our inability to
obtain the requisite approvals or any future restrictions on currency exchanges
could limit our ability to utilize revenue generated in Chinese Renminbi to fund
our business activities outside of the PRC, or to repay foreign currency
obligations, including our debt obligations, which would have a material adverse
effect on our financial condition and results of operations.
The
PRC legal system is evolving and has inherent uncertainties regarding
interpretation and enforcement of PRC laws and regulations that could limit the
legal protections available to you.
Fujian
Service, our operating company, is organized under the laws of the PRC. The PRC
legal system is based on written statutes. Prior court decisions may be cited
for reference but have limited weight as precedents. Since 1979, the PRC
government has been developing a comprehensive system of commercial laws and
considerable progress has been made in introducing laws and regulations dealing
with economic matters such as foreign investment, corporate organization and
governance, commerce, taxation and trade. However, because these laws and
regulations are relatively new, and because of the limited number and
non-binding nature of published cases, the interpretation and enforcement of
these laws and regulations involve uncertainties.
Substantial
amendments to the PRC Company Law and the PRC Securities Law came into effect on
January 1, 2006. As a result, the State Council and the CSRC may revise the
Special Regulations and the Mandatory Provisions and adopt new rules and
regulations, to implement and to take into consideration the amendments to the
PRC Company Law and the PRC Securities Law. There can be no assurance that the
revision of the existing rules and regulations, and the adoption of new rules
and regulations by the State Council and the CSRC will not have a material
adverse impact on the rights of our shareholders.
Our
operations and assets in the PRC are subject to significant political and
economic uncertainties.
Changes
in PRC laws and regulations, or their interpretation, or the imposition of
confiscatory taxation, restrictions on currency conversion, imports and sources
of supply, devaluations of currency or the nationalization or other
expropriation of private enterprises could have a material adverse effect on our
business, results of operations and financial condition. Under our current
leadership, the PRC government has been pursuing economic reform policies that
encourage private economic activity and greater economic decentralization. There
is no assurance, however, that the PRC government will continue to pursue these
policies, or that it will not significantly alter these policies from time to
time without notice.
Because
our principal assets are located outside of the United States and our directors
and officers reside outside of the United States, it may be difficult for our
investors to enforce their rights based on the United States Federal securities
laws against us and our officers and directors in the United States or to
enforce judgments of United States courts against us or them in the
PRC.
All of
our officers and directors reside outside of the United States. In addition, our
operating subsidiaries are located in the PRC and all of their assets are
located outside of the United States. The PRC does not have a treaty
with United States providing for the reciprocal recognition and enforcement of
judgments of courts. It may therefore be difficult for investors in the United
States to enforce their legal rights based on the civil liability provisions of
the United States Federal securities laws against us in the courts of either the
United States or the PRC and, even if civil judgments are obtained in courts of
the United States, to enforce such judgments in PRC courts. Further, it is
unclear if extradition treaties now in effect between the United States and the
PRC would permit effective enforcement against us or our officers and directors
of criminal penalties, under the United States Federal securities laws or
otherwise.
Due
to various restrictions under PRC laws on the distribution of dividends by our
PRC operating companies, we may not be able to pay dividends to our
shareholders.
The
Wholly-Foreign Owned Enterprise Law (1986), as amended and The Wholly-Foreign
Owned Enterprise Law Implementing Rules (1990), as amended and the Company Law
of the PRC (2006) contain the principal regulations governing dividend
distributions by wholly foreign owned enterprises. Under these regulations,
wholly foreign owned enterprises may pay dividends only out of their accumulated
profits, if any, determined in accordance with PRC accounting standards and
regulations. Additionally, they are required to set aside a certain amount of
their accumulated profits each year, if any, to fund certain reserve funds.
These reserves are not distributable as cash dividends except in the event of
liquidation and cannot be used for working capital purposes. The PRC government
also imposes controls on the conversion of RMB into foreign currencies and the
remittance of currencies out of the PRC. We may experience
difficulties in completing the administrative procedures necessary to obtain and
remit foreign currency for the payment of dividends from the profits of Fujian
WangGang.
Furthermore,
if our subsidiaries in the PRC incur debt on their own in the future, the
instruments governing the debt may restrict its ability to pay dividends or make
other payments. If we or our subsidiaries are unable to receive all of the
revenues from our operations through these contractual or dividend arrangements,
we may be unable to pay dividends on our ordinary shares.
RISKS
RELATED TO OUR SECURITIES
There
is no public market for our securities and one may never develop.
There has
been no public market for our ordinary shares or our Series A preferred shares.
An active trading market may not develop in the future or, if developed, may not
be sustained. The lack of an active market may impair the value of your
securities and your ability to sell your securities at the time you wish to sell
them. An inactive market may also impair our ability to raise capital by selling
securities and may impair our ability to acquire other companies, products or
technologies by using our securities as consideration.
ITEM
4. INFORMATION ON THE COMPANY
A.
|
History
and Development of the Company
|
Our
Corporate Structure
China
Dredging Group Co., Ltd. is a BVI holding company, incorporated on April 14,
2010 pursuant to the BVI Business Companies Act, 2004, as
amended. China Dredging Group’s registered office is located at
Kingston Chambers, PO Box 173, Road Town, Tortola, BVI. China
Dredging conducts its dredging operations through its PRC-based subsidiary
Fujian Service, a company organized under the laws of the PRC on January 8, 2008
under the name Fujian Xing Gang Shipping Co., Ltd., which was officially changed
in June 2009 to Fujian Xing Gang Port Service Co., Ltd. China
Dredging’s principal place of business is located in the PRC at Floor 18, Tower
A, Zhongshan Building, No. 154, Hudong Road, Gulou District, Fuzhou City, Fujian
Province. Its telephone number is +86 591 8727 1266.
China
Dredging Group Co., Ltd. was incorporated by three corporate affiliates of the
founders of Fujian Service: Venus Seed Co. Ltd. (“Venus”), whose beneficial
owner is Kit Chan, one of our directors; Saturn Glory Co. Ltd. (“Saturn”), whose
beneficial owner is Bin Lin, our Senior Vice President; and Mars Harvest Co.
Ltd. (“Mars”) whose beneficial owner is Xinrong Zhuo, our Chairman and Chief
Executive Officer.
China
Dredging’s wholly owned subsidiary, China Dredging HK, was organized under the
laws of Hong Kong on April 26, 2010 to serve as a holding company for Fujian
WangGang, a PRC company organized on June 12, 2010, and wholly-foreign-owned
enterprise under PRC law. On June 29, 2010, Fujian WangGang acquired
a 50% direct equity interest in Fujian Service. The remaining 50% equity
interest in Fujian Service is held by Wonder Dredging Construction LLC (“Wonder
Dredging”), a PRC company owned by Qing Lin and Panxing Zhuo. Pursuant to its
certificate of incorporation, Fujian Service’s corporate existence terminates on
January 7, 2028.
Our
current corporate structure is as follows:
October
2010 Merger
On
October 27, 2010, we merged with Chardan Acquisition Corp. (“CAC”), a BVI
company and a public reporting, non-trading shell company (the
“Merger”). The terms of the Merger are set forth in an agreement (the
“Merger Agreement”), that provides that China Dredging continues as the
surviving company following the Merger. The circumstances dictate
that the Merger be accounted for as a recapitalization, with the Company being
treated as the accounting parent (acquirer). Immediately prior to,
and in contemplation of, the consummation of the Merger the Company effected a
redesignation of its shares. The only adjustment necessary was
to retroactively adjust the Company’s legal capital for the share redesignation.
All references to the number of ordinary shares issued in the accompanying
financial statements and elsewhere in this Report have been restated
accordingly. At the time of the Merger, all of the issued shares of CAC were
exchanged for 500,000 ordinary shares of China Dredging, or 0.95% of China
Dredging’s issued ordinary shares, while our shareholders immediately prior to
the Merger retained 52,177,323 ordinary shares, or 99.05%. As a
result of the Merger, China Dredging became a public reporting
company. CAC, being the non-surviving company, ceased its corporate
existence, and was removed from the Register of Companies in the
BVI.
October
2010 Private Placement
Concurrently
with the closing of the Merger, we entered into a securities purchase agreement
(the “Purchase Agreement”) with certain investors, pursuant to which such
investors purchased 4,371,000 of our Series A preferred shares (the “Preferred
Shares”), at a purchase price of $5.00 per share for aggregate proceeds to us of
$ 21,855,000 (the “Offering”). Each Preferred Share is convertible
into one of our ordinary shares. Chardan Capital Markets, LLC
(“Chardan”) acted as the lead placement agent in connection with the October
2010 Private Placement. Net proceeds to the Company from the initial
closing of the Offering, after deducting offering expenses of approximately $2.0
million, were $19.8 million. We paid Chardan a cash fee of $1,529,850 or 7% of
the gross proceeds received by us, in addition to a $50,000 retainer
fee. We have until December 28, 2010 to hold additional closings for
a maximum aggregate offering of up to 10 million Preferred Shares (or
$50,000,000), and upon the mutual agreement by us and Chardan, we can
increase the maximum aggregate offering to 15 million Preferred Shares (or
$75,000,000).
The
issuance of the Preferred Shares in the Offering was exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, as amended (“Securities
Act”), Regulation D and/or Regulation S under the Securities Act. We have relied
on the status of the investors as (i) “accredited investors” as such term is
defined in Rule 501 of Regulation D, or (ii) non-US persons under Regulation S,
as the case may be, in claiming the exemption from registration of the Preferred
Shares.
Securities
Escrow and Make-Good Provision
On
October 29, 2010, our controlling shareholder, a company controlled by Mr.
Xinrong Zhuo, placed into escrow 15,000,000 of our ordinary shares (the
“Make-Good Escrow”) pursuant to a securities escrow agreement. If we miss the
earnings targets set forth below, holders of the Preferred Share will receive
additional shares from the Make-Good Escrow, up to the full number of shares
held in the Make-Good Escrow. The number of additional shares that
may be issued to investors in the October 2010 Offering if we fail to meet the
Adjusted Net Income targets set forth below is equal to: (Original Invested
Shares * (Target EPS/Actual EPS)) – Original Invested Shares. “Actual
2010 (2011) EPS” means the Adjusted Net Income for fiscal year 2010 (2011)
divided by the number of our fully diluted outstanding shares. “Target EPS”
means the performance threshold for the applicable year divided by the number of
our fully diluted outstanding shares. Adjusted Net Income means after-tax net
income based on U.S. GAAP, adjusted to exclude (i) non-cash charges associated
with the merger, this Offering and planned subsequent IPO or other financing,
(ii) expense related to the release of the Escrow Shares, and (iii) expenses
related to implementation of any of the agreements related to the Offering.
Adjusted Net Income for 2010 shall be calculated by adding the Adjusted Net
Income of Fujian XingGang Port Service Co. Ltd. for the six months ended June
30, 2010 and the Adjusted Net Income of the Company on a consolidated basis for
the six months ended December 31, 2010. The pro-rata right to receive shares
issuable pursuant to this “Make-Good” provision will be based upon initial
Preferred Shares issued to holders. Shares not distributed from the
share escrow will be returned to the shareholder that contributed
them.
The
Adjusted Net Income targets for the 2010 and 2011 fiscal years are as
follows:
Year
|
|
Adjusted Net Income target
|
|
2010
|
|
$
|
48,142,735
|
|
2011
|
|
$
|
87,043,678
|
|
Registration
Rights Agreement
Pursuant
to a registration rights agreement dated October 29, 2010, we agreed to use our
best efforts to file within 60 days of the final closing of the Offering, a
registration statement with the Securities Exchange Commission to register for
resale (i) the ordinary shares underlying the Preferred Shares issued in the
Offering, (ii) the 15,000,000 shares held in the Make-Good Escrow, (iii)
37,177,323 ordinary shares held by certain of our founding shareholders which
are not part of the Make-Good Escrow and (iv) the 500,000 shares issued to
Chardan pursuant to the Merger Agreement (collectively, the “Registrable
Securities”). If the registration statement covering the Registrable Securities
is not declared effective by the SEC within 180 days of the initial filing date
of such registration statement, subject to certain exceptions, liquidated
damages of 0.3% of the purchase price per month will accrue and will be payable
in cash on a monthly basis, provided, however, that in no event shall the amount
of liquidated damages payable at any time to any holder of Preferred Shares
exceed 10% of the amount of such holder’s initial investment in the
Offering.
Variable
Interest Entity Agreements
Under
applicable PRC law, companies in certain industries are not allowed to lawfully
operate if their foreign ownership exceeds a government specified
level. Wholly foreign-owned construction enterprises may only
undertake certain types of construction projects, according to the PRC
Regulations on Administration of Foreign-Invested Construction Enterprises, thus
Fujian Service’s business operation will be adversely affected if its
foreign-owned equity is increased to 75%. Additionally, as a marine
contractor working on restricted projects within the PRC, Fujian Service is
required to register its vessels under the flag of the PRC, and foreign
ownership of PRC-registered vessels (or their corporate parents) is limited to
50%. Wonder Dredging qualifies as a PRC entity under PRC law and its
ownership of 50% of Fujian Service allows Fujian Service to meet both the
requirements for foreign ownership under its qualifications as a marine
construction company and as an operator of dredging vessels within PRC
waters.
On June
29, 2010, Fujian WangGang entered into an equity investment agreement with
Fujian Service pursuant to which it committed to invest $23,602,460 in Fujian
Service and for which it received a 50% equity interest in Fujian
Service. Accordingly, Wonder Dredging holds 50% of the equity
interest of Fujian Service and Fujian WangGang holds the other
50%. Fujian Service, Wonder Dredging and Fujian Wang
Gang have entered into a series of exclusive variable interest
agreements (the “VIE Agreements”) with Fujian Service that allow Fujian Wang
Gang to, , among other things, fully control Fujian Service’s
business operations, policies and management, approve all matters requiring
shareholder approval, and receive 100% of the annual net income earned by Fujian
Service Below is a summary of the VIE Agreements.
Exclusive Purchase Right of the
Equity Interests.
Pursuant to an exclusive option agreement
(the “Exclusive Option Agreement”) dated June 30, 2010 by and among Wonder
Dredging, Fujian WangGang and Fujian Service, Wonder Dredging irrevocably
granted to Fujian WangGang an exclusive right to purchase up to all of the
equity interest in Fujian Service that is held by Wonder Dredging, to the extent
allowed under the current PRC law. Accordingly, if and when the
current limitations on direct ownership of Fujian Service by Fujian WangGang are
eased or cease, Fujian WangGang may exercise its option to purchase and directly
own the equity interests of Fujian Service. The purchase price for
the equity interest in Fujian Service held by Wonder Dredging shall be
equivalent to the net asset value reflected in Fujian Service’s then current
quarterly report prepared according to generally accepted accounting principles
in the U.S. The term of the Exclusive Option Agreement is 20 years,
which term continuously renews unless the option is exercised in full or the
agreement is otherwise terminated by the parties. The agreement also provides
that upon consummation of the exercise of the option, Wonder Dredging will
contribute, without additional consideration, any funds actually received by it
from Fujian WangGang for the transfer of its equity interest in Fujian Service
to Fujian WangGang, together with its right to receive a RMB350,803,477
($51,087,387) dividend declared by Fujian Service on May 27, 2010.
Contracted Management Agreement.
On June 30, 2010, Wonder Dredging, Fujian WangGang and Fujian Service
entered a management agreement (the “Management Agreement”), pursuant to which
Fujian WangGang has the exclusive right to manage, operate and control the
business operations of Fujian Service, including, but not limited to,
establishing and implementing policies for management, using all of the assets
of Fujian Service, appointing Fujian Service’s directors and senior management,
directing Fujian Service to enter into loan agreement, making administrative
decisions regarding employee wages or hiring and firing employees and other
actions customarily associated with Fujian Service’s senior
management. As consideration for its business management services,
Fujian WangGang will pay to Fujian Service an annual fee of RMB1 million
($146,413), and Fujian Service will pay to Fujian WangGang 100% of the net
profits of Fujian Service. The Management Agreement terminates upon
the earlier of (i) Fujian WangGang’s exercise in full of the option to purchase
the equity interests of Fujian Service, pursuant to the Exclusive Option
Agreement, (ii) Fujian WangGang or its designees otherwise own all of the equity
interests in Fujian Service or (iii) June 30, 2030, subject to the right of
Fujian WangGang to renew the term of the Management Agreement for additional
consecutive 20-year periods.
Equity Interest Pledge Agreement.
On June 30, 2010, Qing Lin, Panxing Zhuo, Fujian WangGang and Wonder
Dredging entered into an equity interest pledge agreement (the “Equity Interest
Pledge Agreement”). To ensure that Fujian Service and its
shareholders perform their obligations under the Exclusive Option Agreement and
the Management Agreement, Qing Lin and Panxing Zhuo, who collectively hold 100%
of the equity interests in Wonder Dredging, pledged their entire interest in
Wonder Dredging to Fujian WangGang. The Equity Interest Pledge
Agreement terminates upon the earlier of (i) the purchase of the entire equity
interest in Wonder Dredging by Fujian WangGang or (ii) June 30, 2030, subject to
the right of Fujian WangGang to renew the term of the Management Agreement for
additional consecutive 20 year periods.
Powers of
Attorney.
On June 30, 2010, (i) Qing Lin and Panxing Zhuo and
(ii) Wonder Dredging, each executed irrevocable powers of attorney (the
“Powers”) granting to Fujian WangGang or its designees the power to vote, pledge
or dispose of all equity interests in Fujian Service that each
holds. Additionally, the Powers allow Fujian WangGang or its
designees to sign and carry out the intentions of the Management Agreement, the
Equity Pledge Agreement and the Exclusive Option Agreement.
We
believe that we are one of the leading privately-owned dredging companies in the
PRC. Since inception, we have functioned exclusively as a specialist
subcontractor, performing dredging services for other companies licensed to
function as general contractors. Dredging involves the preservation
or enhancement of navigability of waterways through the removal or replenishment
of soil, sand or rock. Depending on its purposes, dredging can be largely
classified into three main areas:
|
·
|
environmental
protection.
|
Dredging
for navigation purposes can be further classified into two areas: (i) capital
dredging, i.e., the initial dredging necessary for the construction or deepening
of ports and navigation channels and (ii) maintenance dredging, i.e., dredging
which is later required of ports and navigation to ensure that the size of the
port or channel is sufficient to allow for the passage of larger size
ships.
Reclamation
dredging involves pumping or otherwise transferring sand and gravel onto the sea
shore or river bed nearby in order to raise the surface of sea shore or river
bed above the high-water level and thereby increase the availability of
land.
We engage
in capital dredging, maintenance dredging and reclamation dredging
projects. Currently, we primarily source our projects by
subcontracting projects from general contractors. Through our management skills,
efficient operation and effective cost control, we have established a
competitive edge and gained a credible reputation in our market. Moreover, by
successfully executing on many projects, we have strengthened our relationship
with our general contractors, an important factor in establishing a secure
pipeline of future business.
In March
2010, we signed non-binding “Long Term Cooperation Agreements” with CCCC
Shanghai Dredging Co., Ltd. and CCCC Guangzhou Dredging Co., Ltd, each a
subsidiary of China Communications, and in February 2010 signed a similar
agreement with Changjiang Wuhan Waterway Engineering Company, a subsidiary of
Changjiang Waterway. According to the agreements, the China Communications
subsidiaries have indicated their intention to subcontract no less than 100
million m
3
of dredging volume and no less than $146.4 million of contract value to
us in 2010. In subsequent years, available contract value
would increase by 30% annually through 2014. Terms with the
Changjiang Waterway subsidiary are similar, except that contract value will grow
by 20% annually in the four years after 2010. Collectively, these agreements
represent $3.7 billion of potential contract value in total from
2010-2014.
Operating
Process
Overview
Our
operations principally involve identifying potential projects, signing
subcontracts and carrying out the contract dredging work. We have developed a
comprehensive project management system spanning the project execution process,
including project planning, contract management, contract performance, project
control and project completion.
Our
Role and Participation Level
We participate in dredging activities
solely as a subcontractor to qualified large general contractors such as China
Communications and Changjiang Waterway, since our dredging projects are
typically one portion of a much larger-scale construction project that could
cover elements such as port construction, cofferdam, and other fields of work in
which we do not engage. The terms of the main contracts with the underlying
customers are generally reflected in the contracts we sign with the general
contractors.
These
general contractors with which we generally work have strict evaluation
procedures based on a number of parameters including their evaluation of
subcontractor performance on previous jobs. We have observed that our
general contractor customers prefer to maintain long and close relationships
with reliable subcontractors like us and to establish with them training
programs and technical cooperation arrangements that bolster consistency and
quality of work. We also perceive that the subcontracting levels of
the PRC’s largest general contractors have increased in the past few years as
the gap continues to widen between their capacity and the national backlog of
dredging projects. In some cases, we believe that subcontracting is appealing to
our customers because it allows the subcontractors to improve overall efficiency
and make the total project more manageable by outsourcing some fraction of the
work. Accordingly, we believe, based on the non-binding cooperation agreements
that we have executed with our largest general-contractor customers that those
customers intend to increase the amount of work that is subcontracted to
specialist subcontractors such as us.
Identifying
Projects
We
identify potential projects from a variety of sources, including advertisements
by governmental agencies, through the efforts of our business development
personnel and through meetings with general contractors and other industry
participants. After determining which projects are available, we make a decision
on which projects to pursue based on factors including project size, duration,
availability of personnel, current backlog, competitive advantages and
disadvantages, prior experience, geographic location and type of
contract.
Pre-Qualification
We are
generally required to complete a prequalification process with the applicable
general contractor for the project. General contractors generally require that
we meet certain qualification requirements before negotiating or accepting our
application for a project. The prequalification process may require the
submission of information concerning financial condition, past experience and
the availability of personnel and equipment. If a general contractor determines
that a prospective subcontractor does not meet its criteria it will not award
the proposed project to the subcontractor.
Project
Pricing and Negotiation
Prior to
agreeing on a subcontract, we perform a study of the proposed project, including
an evaluation of the technical and commercial conditions and requirements of the
project followed by a site visit. The information we collect is then analyzed to
arrive at the cost of items included in a detailed project budget used in the
negotiation of price terms with the general contractors. Most contracts are
awarded and carried out on a fixed-price basis (subject to certain adjustment
factors for certain unforeseen conditions) with a predetermined timetable for
project completion. These types of contracts generally commit the contractor to
provide specified resources and to complete the project for a fixed sum or at
fixed unit prices on a specified schedule. As is typical for dredging
subcontracts, our contracts to date were the result of negotiations with the
general contractor customers and are not competitively bid.
Our
contracts to date have not contained escalation clauses since they are of short
duration and raw materials with volatile prices, such as fuel, are typically
supplied by the prime contractor for use on the job at no cost to us. Correctly
estimating the costs involved in a fixed-price contract is crucial to achieving
profitability. We carefully estimate the costs of each project prior to signing
a subcontract. Our estimates are based upon both the general contractors’
estimates of material quantities to be dredged and our own experience in
estimating project costs. There are a number of factors that can influence the
final project costs as compared to the original contract price. The most
important factors include site and environmental conditions that differ from
those assumed in the original bid, the geographic location of the project, the
availability and pricing of raw materials, and inclement weather
conditions.
Payment
Terms
The
specific payment terms on our subcontracts vary from project to project,
however, they have generally provided for us to receive payments following
completion of each stage of completed work. This is customary in the
industry. Our typical short-duration subcontract provides for payment
to us of 20% to 30% at the end of the second month of work, 20-30% at the end of
the third month of work and the balance within ten days after
completion. Prior to payment, each stage of the project is certified
as completed by a site engineer and accepted by the general contractor. All of
our projects completed to date have been performed within the range of two to
nine months. We carefully monitor our costs throughout the life of a project to
protect us against or to minimize significant cost overruns.
Project
Implementation
We
appoint a project manager to be responsible for all project activities. The
project manager divides work on a project into distinct components and assigns
each component to a responsible crew based upon the nature of such work and the
crew’s qualifications and experience. Project managers typically
prepare a detailed plan for the project that includes the following
elements:
|
·
|
project
schedule (consistent with the project conditions and payment
schedule);
|
|
·
|
labor
deployment (consistent with the skill level and the estimated number of
workers for each type of work);
|
|
·
|
provision
of temporary office and public utilities, for example, water, electricity
and telephone; and
|
|
·
|
work
plans/instructions detailed for each phase of the
project.
|
The
implementation process includes devising detailed dredging plans, procuring
materials, assigning work to captains, coordinating with general contractors or
their consultants, coordinating with suppliers, and taking charge in the overall
management of the project.
Project
History
As of
June 30, 2010, the Company had successfully completed 27 projects since its
formation in January 2008. It has continued or commenced work on an additional
nine projects since July 1, 2010.
Customers
We have
established a close cooperative relationship with the largest state-owned
general contractors in the PRC that undertake dredging projects, including China
Communications and Changjiang Waterway and their subsidiaries. The top five
clients of the Company and the revenue contributed by each are shown in the
chart below
Revenue breakdown by
clients
|
2008
|
2009
|
China
Communications Guangzhou Dredging Co., Ltd (State-Owned)
|
48.28%
|
32.16%
|
Shenzhen
Guoyuan Engineering Co., Ltd
|
21.18%
|
10.96%
|
Shenzhen
Guangjun Engineering Co., Ltd
|
23.91%
|
-
|
Shenzhen
Shekou Merchants Harbor Engineering Co., Ltd
|
6.63%
|
-
|
China
Communications Shanghai Dredging Co., Ltd (State-Owned)
|
-
|
16.62%
|
Changjiang
Wuhan Waterway Engineering Company (State-Owned)
|
-
|
40.26%
|
Note:
|
·
|
Construction
Revenue is recognized under the percentage-of-completion
method
|
Through
its performance in a diverse range of dredging projects, we have developed a
favorable reputation among local governments, suppliers and contractors, as well
as a loyal customer base.
In March
2010, the Company signed “Long Term Cooperation Agreements” with CCCC Shanghai
Dredging Co., Ltd. and CCCC Guangzhou Dredging Co., Ltd, each a subsidiary of
China Communications, and in February 2010 signed the similar agreement with
Changjiang Wuhan Waterway Engineering Company (“CWB-WWEC”), a subsidiary of
Changjiang Waterway (“Changjiang Waterway”). According to these formal but
non-binding cooperation agreements that are used by the Company and its
general-contractor customers for job allocation and planning purposes, the China
Communications subsidiaries have proffered subcontracts having no less than 100
million m
3
of dredging volume and no less than $146.4 million of contract value to
the Fujian Service in 2010. In subsequent years, the value of proffered
contracts is proposed to increase by 30% annually through 2014. Terms with the
Changjiang Waterway subsidiary are similar, except that contract value is
proposed to grow by 20% annually in the four years after 2010. Collectively,
these agreements represent an aggregate of $3.7 billion of available
sub-contract value for the Company for the five years from
2010-2014.
China
Communications
China
Communications and its subsidiaries are principally engaged in the design and
construction of transportation infrastructure, dredging and heavy machinery
manufacturing businesses. Its business scope includes construction on ports,
terminals, roads, bridges, railways, tunnels, civil work design and
construction, capital dredging and reclamation dredging, container crane, heavy
marine machinery, large steel structure and road machinery manufacturing, and
international project contracting, import and export trading services. It is the
largest port construction and design company in the PRC, a leading company in
road and bridge construction and design, a leading railway construction company,
the largest dredging company in the PRC and the second largest dredging company
(in terms of dredging capacity) in the world. In 2009, revenue for its dredging
business reached approximately $3.5 billion, representing a year-over-year
increase of 29.1%. It currently has 34 wholly-owned or controlled
subsidiaries, three of which are involved in dredging operations: Guangzhou
Dredging Co., Ltd. (“GDC”), Shanghai Dredging Co., Ltd. (“SDC”) and Tianjin
Dredging Co., Ltd. (“TDC”). The first two subsidiaries are two of our
significant clients. (Source: China Communications 2009 annual
report).
GuangZhou
Dredging Co., Ltd. (“GDC”)
As a
wholly-owned subsidiary of China Communications, GDC is a major dredging
contractor in the PRC. Its core business includes maintenance dredging, capital
dredging, reclamation, marine engineering, irrigation and environment works,
cofferdam and harbor construction, soft soil improvement, aggregate reclaiming,
underwater rock blasting and dredging for power plants. Shenzhen Guangjun
Engineering Co., Ltd., another of our general contractors, is a wholly-owned
subsidiary of GDC. (Source: http://www.ccgdc.com/index.asp).
Shanghai
Dredging Co., Ltd. (“SDC”)
SDC
enjoys a good reputation in dredging and reclamation fields in the PRC and
abroad. Projects such as the COSCO Taicang International City Works in Jiangsu
province, the first, second and third phase of Yangtze Estuary Deep Water
Channel Dredging and Regulation Works in Shanghai, the reclamation and dredging
works of Yangshan Deepwater Port Project, Shanghai Qingcaosha Reservoir Project,
Caofeidian Access Road Bed and Land Reclamation Works of Industrial Base in
Tangshan, as well as many other key national and provincial projects have
contributed to the development of China’s harbor and the navigation industry.
Since 1981, SDC has carried out projects in the Middle East, South America,
Southeast Asia and Africa. (Source: http://www.cccc-sdc.com/)
Changjiang
Waterway
Changjiang
Waterway is a government-owned enterprise operates under the direct supervision
and authority of MOTRAN. They are primarily responsible for the
planning, construction, management and maintenance of Yangtze River waterway
that spans 4,159 kilometers. Changjiang Waterway operates its dredging business
through four waterway engineering sub-bureaus in Wuhan, Chongqing, Yichang, and
Nanjing. (Source: http://www.cjhdj.com.cn/) The Wuhan sub-bureau, CWB-WWEC, is
an important primary-contractor customer of Fujian Service.
Changjiang
Wuhan Waterway Engineering Company (“WCB-WWEC”)
WCB-WWEC
has undertaken many construction projects in the PRC’s major seaports including
Caofeidian industrial zone land reclamation project in Tangshan, Section E
project of Huandao road in Xiamen, Fangcheng Gang land reclamation and revetment
construction project, Section E works of Binzhou Sea Area, the Comprehensive
Regulating Project in Xiamen, Changxing Island industrial zone cofferdam and
dredging project, Wenzhou Oujiangkou Waterway regulation project, Dalian
Dayaowan North Bank dredging project and Caofeidian Coal Dock Entryway Sub grade
Project in Tangshan. WCB-WWEC also has significant presence in the dredging
market abroad. (Source: http://www.cjwhweb.com/index.html)
Vessels
We
operate the following vessels:
Trailer
Suction
Hopper Dredgers
|
|
|
Capacity
|
|
Ownership
|
|
Purchase/Lease
Date
|
|
Year
Built
|
|
|
|
|
|
|
|
|
|
|
Hengshengjun
#88
|
|
|
3500
m³/h
|
|
Leased
|
|
January
2008
|
|
1983
|
|
|
|
|
|
|
|
|
|
|
Liya
#10
|
|
|
6500
m³/h
|
|
Leased
|
|
June
2010
|
|
1990
|
|
|
|
|
|
|
|
|
|
|
Honglinjun
#9
|
|
|
7000
m³/h
|
|
Leased
|
|
June
2010
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
Non
Self-
Propelling
Cutter
Suction Dredgers
|
|
|
Capacity
|
|
Ownership
|
|
Purchase/Lease
Date
|
|
Year
Built
|
Xinggangjun
#3
|
|
|
2000
m³/h
|
|
Self-owned
|
|
May
2008
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Xinggangjun
#66
|
|
|
3500
m³/h
|
|
Self-owned
|
|
March
2008
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Xinggangjun
#6
|
|
|
2500
m³/h
|
|
Self-owned
|
|
May
2008
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Xinggangjun
#9
|
|
|
2500
m³/h
|
|
Leased
|
|
June
2008
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Xiechang
#18
|
|
|
2500
m³/h
|
|
Leased
|
|
June
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Honglinjun
#18
|
|
|
3800
m³/h
|
|
Leased
|
|
June
2010
|
|
2009
|
In May
2009 we entered into a purchase agreement with Yiyang Zhonghai Vellel LLC for a
new Non-Self Propelled Cutter Suction dredger with a capacity of 3,800 m
3
/h, at a
purchase price of RMB200 million ($29.28 million), on which we made a down
payment of RMB 15 million ($2.2 million). The contract stipulates
that payments toward the purchase price of the new dredger, after giving effect
to the down payment, shall be made according to the following schedule: 30%
within three months of delivery, 25% within 6 months of delivery, 25% within 9
months of delivery and 20% within 12 months of delivery. Delivery of
the vessel is expected in May 2012.
Trailer Suction Hopper
Dredger
Trailer
Suction Hopper Dredgers are typically self-propelled and have the general
appearance of an ocean-going vessel. The dredger has hollow hulls, or
‘‘hoppers’’, into which material is suctioned hydraulically and deposited.
Once the hoppers are filled, the dredger sails to the designated disposal
site and either bottom-dumps the material or pumps the material from the
hoppers through a pipeline to a designated location. Hopper dredgers can
operate in rough waters, and are less likely to interfere with ship
traffic than other types of dredgers. They can also move quickly from one
project to another.
|
|
Cutter Suction
Dredger
Cutter
Suction Dredgers remove material using a revolving cutter head which cuts
and churns the sediment on the ocean floor and hydraulically pumps the
material by pipe to the disposal location. These dredgers are very
powerful and can dredge some types of rock. Certain materials can be
directly pumped as far as seven miles with the aid of booster pumps.
Cutter suction dredgers work with an assortment of support equipment that
assists with the positioning and movement of the dredger, handling of the
pipelines, and the placement of the dredged material.
|
|
Component
Suppliers
We
purchase vessel components from recognized suppliers with price terms are
renegotiated on a yearly basis..Three suppliers as of the end of 2009 are listed
below, which together account for 100% of our component
procurement.
Rank
|
|
Supplier
|
|
Vessel Component List
|
|
Purchase
Amount in
2008
($ in
millions)
|
|
|
Purchase
Amount
in 2009
($ in
millions)
|
|
1
|
|
Dalian
Locomotive and Rolling Stock Co., Ltd. CNR Group
|
|
mud
tube, steel tube, floating body, anchors floating, rubber hose,
etc.
|
|
|
11.7
|
|
|
|
19.5
|
|
2
|
|
Tianjin
Puyou Mech. & Elec. Equipment MFG. Co., Ltd.
|
|
anchor,
pump, solenoid valve, governor rotating components, pressure sensors,
etc.
|
|
|
6.2
|
|
|
|
9.2
|
|
3
|
|
Taizhou
Haiguang Mechanical Manufacturing Industrial Co., Ltd
|
|
steel
plate, angle iron, one-piece compound plate, etc.
|
|
|
1.1
|
|
|
|
1.5
|
|
Purchasing
of major components such as mud pipes are budgeted and ordered after thorough
on-site investigation and a calculation of the demands of each project, and
usually are exclusively used in one project. We usually buy an extra percentage
of each component to use as replacement parts. All materials bought from these
three suppliers are delivered to the construction site of each project after the
suppliers received all the payment. After completion of each project, used and
abandoned components are sent back to the suppliers.
Dredging
Service Procedure
Dredging
Methods
Three
dredging methods are commonly used: stow the hold method, side discharge method
and reclamation method.
Trailing
Suction Hopper Dredgers use the stow and hold method, profiled described
below:
Cutter
Suction Dredgers use the reclamation method, described below:
Quality,
Safety and Environmental Protection Control
We have
established and implemented a unified quality, safety and environmental
protection control and management system that govern all projects. The
management system specifies the standards to be met in terms of quality, safety
and environmental protection control, clarifies the responsibility of various
departments and personnel, identifies procedures, materials and other factors
that are subject to the control of management, and provides for measures to be
undertaken to ensure that various standards are met. We are committed to
achieving a high standard of quality in the management and performance of our
contract work. We believe we have established a favorable reputation for quality
and technical ability.
We have a
Safety and Dispatching Department which is responsible for regulating labor,
hygiene and safety conditions, and monitoring compliance with statutory
environmental regulations relating to air, water, noise and solid waste
pollution. Department managers focus on applying safety and anti-pollution
measures, as well as regular internal safety and environmental inspections, at
all stages of the operational process to minimize the possibility of
work-related accidents and injuries, occupational illness and environmental
contamination. Our general contractor customers also monitor the safety of
workers and environmental impact of our work. It is our policy and
practice to provide safety education to employees and safety standards have been
established in connection with matters such as purchasing, installing and
operating new equipment, constructing new facilities and improving existing
facilities.
We
continuously seek to develop new technology and operational know-how to improve
safety conditions and to protect the environment. Management believes that our
safety control systems, environmental protection systems and facilities are
adequate to comply with applicable PRC national and local
regulations.
Intellectual
Property
We have
no intellectual property.
Research
& Development
We
continuously explore new and more efficient methods of performing dredging
services. However, from inception through June 30, 2010, we have not
recorded any costs that are classified as research and development
expenses.
Legal
Proceedings
Currently
there are no legal proceedings pending against us which could have a material
adverse effect on us. However, from time to time, we may become
involved in various lawsuits and legal proceedings which arise in the ordinary
course of business. Litigation is subject to inherent uncertainties,
and an adverse result in these or other matters may arise from time to time that
may harm our business.
Selected
PRC Government Regulations
Principal
regulatory authorities
The
MOTRAN, Ministry of Transport of the PRC, is responsible for the administration
and construction of ports and highways at the national level.
The
Ministry of Construction implements centralized supervision and administration
on construction works throughout the country.
The
Development and Planning Commission, either at the state or local level, is
responsible for the investment plan of transportation construction
works.
The
construction administration authorities and communication administration
authorities, either at the state or local level, are responsible for the
construction plan of transportation construction works.
The
communication administration authorities, either at the state or local level,
are responsible for the examination and approval of transportation construction
works.
Administration
of Qualifications
Responsible
Regulatory Authorities
Under the
provisions of the Port Law of the PRC (the ‘‘Port Law’’), which took effect on
January 1, 2004, and Construction Law of the PRC (the ‘‘Construction Law’’),
which took effect on March 1, 1998, and other relevant laws and regulations, an
enterprise engaged in construction, reconnaissance, design and supervision
activities for water transport and other construction engineering works may only
enter into those contracts for which it is qualified. The Ministry of
Construction and the provincial level administrative authorities responsible for
construction works oversee issues relating to the issuance and application of
contractor qualifications. The MOTRAN and the provincial-level administrative
authorities are responsible for communications to coordinate with the Ministry
of Construction and provincial-level administrative authorities are responsible
for administration and enforcement of qualification requirements for
construction performed in their respective jurisdictions.
Qualification
Categories for Construction Enterprises
Qualification
of construction enterprises can be divided into three categories: main
contractors, professional services contractors and labor services
sub-contractors. We currently function as a qualified professional
service contractor.
|
·
|
A
main contractor is permitted to contract for the overall work entailed in
a project. A main contractor can perform all works that are contracted for
itself, or subcontract non-core construction works or labor services to
qualified professional services contractors or qualified labor services
sub-contractors.
|
|
·
|
A
qualified professional service contractor may enter into a contract to
provide professional services subcontracted out by a main contractor, or
by the Ministry of Construction under relevant provisions. Under such
contracts, a professional services contractor may undertake all of the
contracted work by itself, or subcontract out the labor services to
qualified labor services
sub-contractors.
|
|
·
|
A
qualified labor services sub-contractor may enter into a contract to
provide labor services contracted out by a main contractor or a
professional services contractor.
|
Supervision
of Quality
Under the
Regulations on the Quality Management of Construction Projects issued by the
State Council which took effect on January 30, 2000, sponsoring enterprises,
reconnaissance firms, design firms, construction enterprises and project
supervisory enterprises will all be responsible for the quality of construction
projects. For complex construction projects that are governed by a main
contract, the general contractor is responsible for the quality of the whole
construction project and, where it subcontracts part of the project work, the
subcontractors will be jointly and severally responsible for the quality of the
construction work. Contracting parties should present quality guarantees and
maintenance certificates to the sponsoring enterprises when tendering the
project completion report to the sponsoring enterprises.
Administration
of Acceptance and Inspection for Completion
Pursuant
to the Measures for Acceptance and Inspection for the Completion of Port
Projects which took effect on June 1, 2005, and the Measures for Acceptance and
Inspection for the Completion (Delivery) of Highway Projects which took effect
on October 1, 2004, upon completion of a port or highway project, the project
will be put into operation only after acceptance and inspection by the relevant
communications authorities.
In
accordance with the Provisional Measures for Administration of Acceptance,
Inspection and Filing of Completion of Building Construction Projects and
Municipal Infrastructure Projects promulgated by the Ministry of Construction on
April 7, 2000, the records of inspection and acceptance for building
construction projects and municipal infrastructure projects at completion must
be filed with the administrative construction authorities by the sponsoring
enterprises.
Environment
protection rules and regulations
The
Environmental Protection Law of the PRC (the ‘‘Environmental Protection Law’’),
which took effect on December 26, 1989, and the Marine Environmental Protection
Law (the ‘‘Marine Environmental Protection Law’’) of the PRC, which took effect
on April 1, 2000, provide that the State Environmental Protection Administration
and the State Oceanic Administration oversee land and ocean environmental
protection.
Pursuant
to the Environmental Protection Law, the State Environmental Protection
Administration sets the national discharge standards for pollutants. The
government of provinces, autonomous regions and directly administered
municipalities may issue local standards that are stricter than the national
standards on the pollutants which are covered by the State standards. As to the
pollutants which are not covered by the State standards, the government of
provinces, autonomous regions and directly administered municipalities may issue
local standards. An entity discharging pollutants in a region that
has local standards must comply with the local standard for the discharge of
pollutants. Entities discharging pollutants must report and register with the
environmental protection authorities. Entities discharging pollutants in excess
of the standards must pay a charge for the excessive discharge and assume
responsibility for the remediation of the pollution.
The
Marine Environmental Protection Law prohibits the discharge of certain
pollutants into the sea under the jurisdiction of the PRC. All entities and
individuals practicing direct discharge of pollutants into the sea shall, in
accordance with the State regulations, pay pollutant discharging fees. Those who
dump waste shall, in accordance with the State regulations, pay dumping
fees.
Work
safety rules and regulations
According
to the Work Safety Law of the PRC that took effect on November 1, 2002 (the
‘‘Work Safety Law’’), the State Administration of Work Safety of the PRC is in
charge of the overall administration of work safety nationwide. The Ministry of
Construction and the MOTRAN are also responsible for the administration of work
safety of the relevant industries.
The Work
Safety Law provides that a production entity must meet the state’s legal
standard or industrial standard on work safety and provide work conditions set
out in relevant laws, administrative rules and State or industry standards. An
entity that cannot provide required work conditions may not engage in production
activities. The designers and the design firms for the safety facilities of a
construction project are liable for their designs. A production entity must
install prominent warning signs at relevant dangerous operation sites,
facilities and equipment.
According
to the Regulations on Licenses for Work Safety promulgated by the State Council
that took effect on January 13, 2004, a construction entity with no License for
Work Safety should not engage in construction activities.
According
to the Regulations on Administration of Work Safety of Construction Projects
promulgated by the State Council that took effect on February 1, 2004, an entity
responsible for the work safety of a construction project will assume the
liabilities of the work safety of the construction project. In the case of a
project covered by a main contract, the main contractor will be liable for the
general work safety of the construction site, and assume joint and several
obligations for the sub-contracted portions of the project together with the
sub-contractors. An entity in the construction industry must purchase accidental
injury insurance for the workers engaged in dangerous works on the construction
site for injuries suffered in work-related accidents, and the insurance premium
will be paid by such entity. In the case of a construction work covered by a
general contract, the insurance premium will be paid by the general contractor.
The period covered by the insurance policies should commence on the starting
date of the construction project and terminate on the date of the acceptance and
inspection upon the completion of the project.
According
to the Safety Administration Regulation on Above-water and Under-water
Construction Works and Navigation promulgated by the MOTRAN that took effect on
January 1, 2000, an entity engaged in above-water or under-water construction
work must apply to the local maritime affairs authorities for inspection of safe
navigation and construction, and may not commence any construction works until
it has obtained the permit for above-water or under-water construction work upon
inspection.
Our
operations are subject to numerous laws, regulations,
rules and
specifications of the PRC relating to various aspects of the specialized work we
perform. According to the requirements of applicable PRC laws and
regulations, companies engaged in navigation construction projects must meet
certain criteria to obtain designated levels of professional qualification.
Fujian Service obtained the Level-III qualification for navigation projects
professional contractor (the “Level-III Qualification”) on August 23, 2010..This
allows us to apply for a construction work safety certificate and we intend to
do so as soon as practicable.
Business
license
Fujian
Service’s most recent business license was issued Oct 9, 2010 by the Fujian
Province Industry and Commerce Administration, and it expires on January 7,
2028. It covers Fujian Service’s present business to undertake port dredging,
navigation channel dredging and sell construction material, machinery and
electrical equipment and parts.
Fujian
Wanggang was established on June 12, 2010 as a registered wholly foreign-owned
enterprise. Fujian WangGang’s business license was issued on June 12,
2010 by the Fujian Province Industry and Commerce Administration, and it expires
on June 6, 2060. The scope of Fujian WangGang’s business license includes port
dredging and navigation channel dredging and permits it to own up to a 50%
interest in Fujian Service without restricting the current scope of activities
of Fujian Service.
Annual
Inspection
In
accordance with relevant PRC laws, all types of enterprises incorporated under
the PRC laws are required to conduct annual inspections with the State
Administration for Industry and Commerce of PRC or its local branches. In
addition, foreign-invested enterprises are also subject to annual inspections
conducted by PRC government authorities. In order to reduce enterprises’ burden
of submitting inspection documentation to different government authorities, the
Measures on Implementing Joint
Annual Inspection
issued by the PRC Ministry of Commerce together with
other six ministries in 1998 stipulated that foreign-invested enterprises shall
participate in a joint annual inspection jointly conducted by all relevant PRC
government authorities. Fujian Service, as a foreign-invested enterprise, has
participated and passed all such annual inspections since its establishment in
January 2008.
Employment
laws
We are
subject to laws and regulations governing our relationship with our employees,
including: wage and hour requirements, working and safety conditions,
citizenship requirements, work permits and travel restrictions. These
include local labor laws and regulations, which may require substantial
resources for compliance. Fujian Service has been issued, and Fujian Wanggang is
currently in the process of application for, the statistic registration
certificate and social insurance registration certificate.
China’s National Labor Law
,
which became effective on January 1, 1995, and
China’s National Labor Contract
Law
, which became effective on January 1, 2008, permit workers in both
state and private enterprises in the PRC to bargain collectively. The
National Labor Law
and the
National Labor Contract
Law
provide for collective contracts to be developed through
collaboration between the labor union (or worker representatives in the absence
of a union) and management that specify such matters as working conditions, wage
scales, and hours of work. The laws also permit workers and employers in all
types of enterprises to sign individual contracts, which are to be drawn up in
accordance with the collective contract.
Foreign
Investment in PRC Operating Companies
The
Foreign Investment Industrial
Catalogue
jointly issued by the Ministry of Commerce, or the MOFCOM, and
the National Development and Reform Commission, or the NDRC, in 2007 classified
various industries/businesses into three different categories: (i) encouraged
for foreign investment; (ii) restricted to foreign investment; and (iii)
prohibited from foreign investment. According to The Guiding the Direction of
Foreign Investment Provisions, issued by the State Council, for any
industry/business not covered by any of these three categories, they will be
deemed industries/businesses permitted to have foreign investment. Except for
those expressly provided restrictions, encouraged and permitted
industries/businesses are usually 100% open to foreign investment and ownership
While foreign ownership of Fujian Service’s business is permitted without
limitation, having greater than 50% foreign ownership would prevent Fujian
Service’s vessels from being registered as PRC vessels, as described further
immediately below.
Regulations
Related to the Ship Nationality Registration.
The PRC
Ship Registration Regulation, effective as of January 1, 1995, provides that
ships owned by enterprises with legal person status established under the PRC
laws and whose principal places of business are located within the territory
thereof shall not be registered as being of Chinese nationality if the
proportion of registered capital contributed into such enterprise by Chinese
investors is less than 50%. According to the requirements of the Rules of PRC
Governing Vessels of Foreign Nationality, effective as of September 18, 1979 and
other applicable rules and regulations, foreign vessels should obtain applicable
permission by PRC administrative authorities for port entry, navigation and exit
in PRC inland waterways and territorial seas. Consequently, in the
event that foreign investment in Fujian Service increased to more than 50%, the
ships owned by Fujian Service could not be registered as Chinese vessels, which
would make it more difficult for the vessels to navigate PRC ports and inland
waterways, which would adversely affect the business of Fujian
Service.
Regulations
Related to Foreign–Invested Construction Enterprises
The PRC
Regulations on Administration of Foreign–Invested Construction Enterprises (the
“RAFCE”) provides that wholly foreign-owned construction enterprises may only
undertake certain types of construction projects prescribed by the RAFCE within
the scope of their qualifications. According to such stipulations Fujian
Service’s business operation will be adversely affected if its foreign-owned
equity is increased to seventy-five percent (75%), although Fujian Service is
not adversely affected by these regulations based on its current ownership
structure.
C.
|
Organizational
Structure
|
We are
registered in the BVI and have a 100% economic interest and exercises 100%
voting control over the subsidiaries listed in the table below:
Subsidiary Name
|
|
Country of
Registration
|
|
Economic and Voting Interest
|
|
|
|
|
|
China
Dredging (HK) Co. Ltd.
|
|
Hong
Kong
|
|
100%
direct
|
Fujian
WangGang Dredging Construction Co. Ltd.
|
|
P.R.C.
|
|
100%
direct
|
Fujian
Xing Gang Port Service Co. Ltd.
|
|
P.R.C.
|
|
100%
(50% direct and 50% as VIE)
|
Wonder
Dredging Engineering LLC
|
|
P.R.C.
|
|
100%
(as
VIE)
|
All
business operations are conducted in the PRC by Fujian Service. The
corporate organization structure is also presented in diagram form in Item 4A
under the heading “Our Corporate Structure” and a description of the agreements
that convey to us economic interests in and control rights over Fujian Service
and Wonder Dredging Engineering LLC are described in Item 4A under the heading
“Variable Interest Entity Agreements”
D.
|
Property,
Plant and Equipment
|
Property
Under the
current PRC law, land is owned by the state, and parcels of land in rural areas,
which is known as collective land, is owned by the rural collective economic
organization. “Land use rights” are granted to an individual or entity after
payment of a land use right fee is made to the applicable state or rural
collective economic organization. Land use rights allow the holder the right to
use the land for a specified long-term period. On January 1, 2008,
the Company entered into an office lease for approximately 1,086 square feet of
space located at Floor 18, Tower A, Zhongshan Building, No. 154, Hudong Road,
Gulou District, Fuzhou City, Fujian Province, PRC. This agreement was renewed
and extended from January 1, 2010 to December 31, 2015. Annual lease payments
were approximately $8,872 in 2009 and $8,738 in 2008.
The
Company does not own or occupy any other property in the PRC or elsewhere in the
world, other than temporary arrangements for project office or storage/staging
space that may be contracted from time to time. We believe that our
existing facilities and equipment are well maintained and in good condition, and
are sufficient to meet our needs for the foreseeable future.
ITEM
4A. UNRESOLVED STAFF COMMENTS
Not
applicable.
ITEM
5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
You
should read the following discussion and analysis of our financial condition and
results of operations in conjunction with our audited and unaudited financial
statement of Fujian Xing Gang Port Service Co., Ltd. (“Fujian Service” or “the
Company”) and the unaudited consolidated financial statement of China Dredging
Group Co., Ltd (“China Dredging”), and the related notes included elsewhere in
this report. The following discussion and analysis contains
forward-looking statements that involve risks and uncertainties. The words
“anticipated,” “believe,” “expect,” “plan,” “intend,” “seek,” “estimate,”
“project,” “could,” “may,” and similar expressions are intended to identify
forward-looking statements. These statements that include information regarding
future operations and future net cash flow reflect our management’s current
views with respect to future events and financial performance and involve risks
and uncertainties including, without limitation, general economic and business
conditions, changes in political, social, and economic conditions, compliance
with governmental regulations, access to the new customers and new markets, and
other various factors, many of which are beyond our control. Our actual results
and the timing of selected events could differ materially from those
anticipated, believed, estimated or otherwise indicated. Consequently, all of
the forward-looking statements made in this report are subject to these
cautionary statements and therefore the actual results or developments cannot be
assured.
Company
Overview
China
Dredging is a BVI holding company that conducts all of its operations through
its PRC-based indirect subsidiary Fujian Service, a privately-owned dredging
company that engages in capital dredging, maintenance dredging and reclamation
dredging businesses in the PRC. Fujian Service participates in
dredging activities as a subcontractor to large general contractors, since
dredging projects are typically presented as large scale combined projects that
cover port construction, cofferdam, and other fields of work in which the
Company does not engage. These general contractors have very strict evaluation
procedures based on a number of parameters including the general contractors’
evaluation of its previous experience with that subcontractor, as well as the
general contractors’ preference to maintain long and close relationships with
reliable subcontractors. General contractors may prefer to subcontract aspects
of dredging projects that require highly specialized knowledge and equipment,
and therefore are not typically cost-effective for the general contractor to
consolidate into its primary services. Accordingly, in light of increased demand
for dredging services related to reclamation, maintenance and environmental
protection, the Company believes that all of its general contractors intend to
increase the amount of related subcontracted work.
Fujian
Service was formed on January 8, 2008 as Fujian Xing Gang Shipping Co., Ltd.
(“Fujian Shipping”). In June 2009Fujian Shipping was renamed Fujian Xing Gang
Port Service Co., Ltd. (“Fujian Service”). On May 20, 2010 Fujian Service was
acquired by Wonder Dredging Engineering Limited Liability Company (“Wonder
Dredging”). On June 29, 2010, Fujian WangGang Dredging Construction Co., Ltd.
(“Fujian WangGang”) entered into an equity investment agreement with Fujian
Service pursuant to which it invested $23,602,460 in Fujian Service and for
which it received a 50% equity interest in Fujian Service. And
on June 30, 2010, Fujian WangGang entered into a series of variable interest
agreements (the “VIE Agreements”) with Fujian Service, Wonder Dredging and the
shareholders of Wonder Dredging to ensure Fujian WangGang’s voting and
operational control over Fujian Service and accrual of 100% economic benefit of
Fujian Service in Fujian WangGang. Fujian Service is considered a
predecessor company.
In 2008,
the Company’s first year of operations, the Company was mainly engaged in
capital and maintenance dredging. In 2009, it expanded the scope of its dredging
projects to reclamation dredging, and also expanded its activities beyond
Guangdong Province to other coastal areas of China. The Company has developed a
close cooperative relationship with China Communications and Changjiang
Waterway, as well as other state-owned dredging companies. As of June 30, 2010,
the Company had successfully completed 27 projects, including harbor dredging
and reclamation of Tangshan Caofeidian Port and the public shoreline of Dalian
Changxing Island Coastal Industrial Zone, reclamation and bank protection of the
Fangchenggang Steel Terminal, capital dredging of Zhanjiang Baoman Container
Port I, maintenance dredging of Guohua Taidian Coal Port and the Shenzhen Dachan
Port and other projects.
Factors
and Trends Affecting our Results of Operations
Two
primary factors affect the level of our revenue: availability of
sub-contract opportunities and capacity of our dredging fleet to undertake
contracts. Since inception, we have had more dredging work contracted
than we could immediately perform. As of June 30, 2010, the Company
operated a modern fleet comprised of nine dredgers. From early
2008 through May 2010, the Company operated five dredgers, including one 3,500
m³/h trailing suction hopper dredger, four cutter suction dredgers with one of
3,500 m³/h, two of 2,500 m³/h and one of 2,000 m³/h. In June 2010,
the Company leased four more dredgers, including one 7,000 m³/h, one 6,500 m³/h
trailing suction hopper dredger, one 2,500 m³/h cutter suction dredger and one
3,800 m³/h cutter suction dredger, expanding its fleet to nine dredgers, which
management believes will strengthen the Company’s position as the leading
privately-owned dredging subcontractor in the P.R.C. The Company completed 39.77
and 51.97 million m
3
dredging
volume, respectively, in 2008 and 2009, a 30.7% growth rate.
Other
factors that affect our operating results are the consistency and efficiency
with which we operate our dredging vessels (including the effect of downtime for
maintenance or repositioning dredgers to perform contracted work), the cost of
consumable and maintenance parts and components and the cost of dredging vessels
and related equipment. We strive to keep our vessels in operation
7-days per week, 24 hours per day (the theoretical maximum) but cannot attain
that level because of maintenance requirements and other
constraints. We estimate that our utilization of dredging vessels
approaches 70% of the theoretical maximum, and we believe that this represents
full utilization of our fleet. Based on this assessment, our
dredging fleet has been fully utilized since the inception of Fujian Service and
remains at full utilization. Therefore, the addition of new vessels
to the fleet will be required to grow our revenue and profitability,
notwithstanding the contract backlog we have.
The
procurement of dredging vessels requires considerable capital or the
availability of vessels for lease. We added four leased
dredgers in June 2010 and are seeking additional vessels for lease but have not
entered into any contracts for future leases as of the date
hereof. The availability of additional vessels for lease is limited
and there is considerable lead time associated purchasing a dredging vessel, so
the pace of our growth cannot be predicted with certainty. If we
lease vessels instead of purchasing them, the lease cost reflected in our
operating income is typically higher than the cost of depreciation on purchased
vessels and so the method we use to procure vessels can have a material affect
on our operating results and profitability.
Because
contracts begun in one fiscal year or reporting period, are typically completed
in a subsequent reporting period or fiscal year, the revenue recognized in a
particular year or period is not, by itself, the best indicator that the Group’s
business is expanding. Normally the size of project backlog should also be
considered. As historically reported by the Group, Project backlog represents
the amount of unrealized revenue to be earned from the dredging sub-contracts
that have been awarded. By considering the revenue realized during a fiscal year
(or other reporting period) and the project backlog in existence as of the end
of that period, the potential rate of growth in the Group’s business can be
better understood, since backlog represents contractual amounts that are
expected to be converted to realized revenue once committed contracts
are fully performed. We only recently began to track this important
metric and to formalize our contractual relationships in a manner that would
permit backlog tracking, so the availability of trend information is
limited. Nevertheless, as shown in the table below, the backlog has
been growing steadily since reporting became possible:
Backlog At
|
|
Amount ($ millions)
|
|
|
|
|
|
December
31, 2009
|
|
$
|
8.1
|
|
June
30, 2010
|
|
$
|
135.5
|
|
Segment
Information/Business Cycle
Since the
inception of Fujian Service, the Group has operated in only one line of business
(sub-contract dredging) and has operated in only one jurisdiction (the P.R.C.).
Accordingly no geographic or segment information is presented.
Based on
the contracts performed over its history and in the backlog, the Group believes
that its operations and business cycle are not seasonal or subject to major
fluctuations over time.
Results
of Operations
Six
Months Ended June 30, 2010 Compared with the Six Months Ended June 30, 2009 for
the Group
During
the first six months of 2009 the Group operated 5 dredgers on a fully utilized
basis. The following table presents the Group’s operating results for
the six months ended June 30, 2010 of the Company compared to the six months
ended June 30, 2009 for Fujian Service
|
|
Six Months Ended June 30,
|
|
|
Increase /
|
|
|
Percent
|
|
(I
n
$)
|
|
2009
(Fujian
Service)
|
|
|
2010 (Group)
|
|
|
Decrease
|
|
|
Change
|
|
Contract
revenue
|
|
$
|
40,825,253
|
|
|
|
100.00
|
%
|
|
$
|
45,981,433
|
|
|
|
100.00
|
%
|
|
$
|
5,156,180
|
|
|
|
12.63
|
%
|
Cost
of contract revenue
|
|
|
(18,830,015
|
)
|
|
|
(46.12
|
)%
|
|
|
(
20,389,446
|
)
|
|
|
(44.34
|
)%
|
|
|
1
,559,431
|
|
|
|
8.28
|
%
|
Gross
profit
|
|
|
21,995,238
|
|
|
|
53.88
|
%
|
|
|
25,591,987
|
|
|
|
55.66
|
%
|
|
|
3,596,749
|
|
|
|
16.35
|
%
|
General
and administrative expenses
|
|
|
(1,224,771
|
)
|
|
|
(3.00
|
)%
|
|
|
(
2,367,968
|
)
|
|
|
(5.15
|
)%
|
|
|
1,143,197
|
|
|
|
93.34
|
%
|
Income
from operations
|
|
|
20,770,467
|
|
|
|
50.88
|
%
|
|
|
23,224,019
|
|
|
|
50.51
|
%
|
|
|
2,453,552
|
|
|
|
11.81
|
%
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Interest
income
|
|
|
12,638
|
|
|
|
0.03
|
%
|
|
|
44,727
|
|
|
|
0.10
|
%
|
|
|
32,089
|
|
|
|
253.91
|
%
|
Interest
expenses
|
|
|
(395,337
|
)
|
|
|
(0.97
|
)%
|
|
|
(442,827
|
)
|
|
|
(0.96
|
)%
|
|
|
47,490
|
|
|
|
12.01
|
%
|
Sundry
income
|
|
|
-
|
|
|
|
-
|
|
|
|
88
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total other
income (expense)
|
|
|
(382,699
|
)
|
|
|
(0.94
|
)%
|
|
|
(398,012
|
)
|
|
|
(0.87
|
)%
|
|
|
15,313
|
|
|
|
4.00
|
%
|
Income
before income taxes
|
|
|
20,387,768
|
|
|
|
49.94
|
%
|
|
|
22,826,007
|
|
|
|
49.64
|
%
|
|
|
2,438,239
|
|
|
|
11.96
|
%
|
Income tax expense
|
|
|
(5,100,233
|
)
|
|
|
(12.49
|
)%
|
|
|
(
5,784,341
|
)
|
|
|
(12.58
|
)%
|
|
|
684,108
|
|
|
|
13.41
|
%
|
Net income
|
|
$
|
15,287,535
|
|
|
|
37.45
|
%
|
|
$
|
17,041,666
|
|
|
|
37.06
|
%
|
|
$
|
1,754,131
|
|
|
|
11.47
|
%
|
The
following schedule summarizes changes in backlog on contracts during the six
months ended June 30, 2010. Backlog represents the amount of revenue the Company
expects to realize from work to be performed on uncompleted contracts in
progress at year end and from contractual agreements on which work has not yet
begun.
Backlog balance at December 31,
2009
|
|
$
|
8,139,422
|
|
New
contracts entered during the six months ended June 30,
2010
|
|
|
173,105,868
|
|
Add:
Adjustment of contracts due to change orders during the
period
|
|
|
231,945
|
|
Adjusted
contract amount at June 30, 2010
|
|
|
181,477,235
|
|
Less:
Contract revenue earned during the six months ended June 30,
2010
|
|
|
(45,981,433
|
)
|
Backlog ba
lance at June 30, 2010
|
|
$
|
135,495,802
|
|
While the
company’s business prospects are solid and growing, the 17-fold growth in
backlog during the six months from December 31, 2010 through June 30, 2010 is
primarily attributable to the formalization of contracts that permit reporting
of firm backlog statistics. To a lesser degree it reflects the
Company’s efforts to increase the level of forward contract commitments in
anticipation of adding to four vessels to its dredging fleet in the second half
of 2010.
Revenue
Contract
revenue increased by $5,156,180, or 12.63%, to $45,981,433 for the six months
ended on June 30, 2010, compared to the same period in 2009. The primary reason
for this increase was the full utilization of five dredgers during the entire
period and the continuation into 2010 of four projects unfinished at the
end of 2009. The carryover of projects permitted the Group to operate
with less downtime than it experienced during the six months ended June 30,
2009.
Total
construction volume increased by 3,676,878 cubic meters, from 25,395,885 cubic
meters for the first six months of 2009 to 29,072,763 cubic meters in the same
period of 2010.
Gross
Profit
Gross
profit for the Group was $25,591,987 for the six months ended on June 30, 2010,
a $3,596,749 increase compared to the same period of 2009 as a result of
increased revenue. The increased construction unit price increased
the gross profit margin from 53.88% for six months ended on June 30 of 2009 to
55.66% for the same period of 2010.
General
and administrative expenses
General
and administrative expense includes business and other revenue-linked tax
expense. For the categories of service the Group provides, the
business tax can range up to approximately 3%, depending on local project
concessions. The increase in general administrative expense of
$1,143,197 from $1,224,771 for the six months ended on June 30, 2009 to $
2,367,968
for the same period of
2010 reflected an increase in revenue-linked tax of $783,786 from $1,023,964 to
$1,807,750 for the first six months of 2009 and 2010
respectively. $318,584 of the remaining increase in general and
administrative expense of $359,411 was attributable to one-time formation and
restructuring costs of the Group during the first six months of
2010. The balance, $40,827, reflected increased costs of Fujian
Service associated with its growth and development.
Operating
Income
The
$
2,453,552,
or 11.81%
increase in operating income to $
23,224,019
for the six months
ended June 30, 2010 from $20,770,467 for the six months ended June 30, 2009 was
due primarily to a rise in total revenue and gross profit. The increase in
operating income was partially offset by the increase in general and
administrative expenses.
Other
Income
Interest
income increased $32,089 from $12,638 for the six months ended on June 30, 2009
to $44,727 for the same period of 2010. This increase was primarily due to
higher average cash balance in 2010, which resulted in higher interest income
from demand deposit.
Interest
expense increased to $442,827 for the six months ended on June 30, 2010 compared
to $395,337 for the same period ended on June 30, 2009. This increase was
primarily due to the higher average bank loan balances used to finance equipment
purchases.
Income
Tax
Income
tax expense increased by $684,108, or 13.41%, for the six months ended June 30,
2010, compared to the same period of 2009, primarily due to the increase in
taxable income. The applicable income tax rate was 25%, which was effective on
January 1, 2008 in the PRC.
Net
Income
Due
primarily to the increase in contract revenue and the stable operating income
margin as a whole, net income for the six months ended June 30, 2010 increased
by $
1,754,131
, or 11.47%,
to $17,041,666, compared to $15,287,535 for the six months ended June 30,
2009.
Year
Ended December 31, 2009 Compared with Year Ended December 31, 2008 for Fujian
Service
The
following table presents the operating results for the year ended December 31,
2009 compared to the year ended December 31, 2008 for Fujian
Service.
|
|
Years Ended December 31,
|
|
|
|
|
(In $
)
|
|
2008
|
|
|
2009
|
|
|
Increase /
Decrease
|
|
|
Percent
Change
|
|
Contract
revenue
|
|
$
|
54,480,271
|
|
|
|
100.00
|
%
|
|
$
|
80,333,891
|
|
|
|
100.00
|
%
|
|
$
|
25,853,620
|
|
|
|
47.46
|
%
|
Cost
of Contract Revenue
|
|
|
(25,424,227
|
)
|
|
|
(46.47
|
)%
|
|
|
(38,715,490
|
)
|
|
|
(45.19
|
)%
|
|
|
13,291,263
|
|
|
|
52.28
|
%
|
Gross
profit
|
|
|
29,056,044
|
|
|
|
53.33
|
%
|
|
|
41,618,401
|
|
|
|
51.81
|
%
|
|
|
12,562,357
|
|
|
|
43.23
|
%
|
General
and administrative expenses
|
|
|
(2,152,575
|
)
|
|
|
(3.95
|
)%
|
|
|
(2,531,132
|
)
|
|
|
(3.15
|
)%
|
|
|
(378,557
|
)
|
|
|
17.59
|
%
|
Income
from operations
|
|
|
26,903,469
|
|
|
|
49.38
|
%
|
|
|
39,087,269
|
|
|
|
48.66
|
%
|
|
|
12,183,800
|
|
|
|
45.29
|
%
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
43,172
|
|
|
|
0.08
|
%
|
|
|
29,833
|
|
|
|
0.04
|
%
|
|
|
(13,339
|
)
|
|
|
(30.90
|
)%
|
Interest
expenses
|
|
|
(179,504
|
)
|
|
|
(0.33
|
)%
|
|
|
(755,853
|
)
|
|
|
(0.94
|
)%
|
|
|
(576,349
|
)
|
|
|
321.08
|
%
|
Total
other income (expense)
|
|
|
(136,332
|
)
|
|
|
(0.25
|
)%
|
|
|
(726,020
|
)
|
|
|
(0.90
|
)%
|
|
|
(589,688
|
)
|
|
|
432.54
|
%
|
Income
before income taxes
|
|
|
26,767,137
|
|
|
|
49.13
|
%
|
|
|
38,361,249
|
|
|
|
47.75
|
%
|
|
|
11,594,112
|
|
|
|
43.31
|
%
|
Income
tax expense
|
|
|
(6,696,745
|
)
|
|
|
(12.29
|
)%
|
|
|
(9,596,651
|
)
|
|
|
(11.95
|
)%
|
|
|
(2,899,906
|
)
|
|
|
43.30
|
%
|
Net income
|
|
$
|
20,070,392
|
|
|
|
36.84
|
%
|
|
$
|
28,764,598
|
|
|
|
35.81
|
%
|
|
$
|
8,694,206
|
|
|
|
43.32
|
%
|
Fujian
Service did not have sufficiently formal contract arrangements during 2008 to
permit an accurate calculation of a backlog at December 31,
2008. Assuming a nil starting balance, the following schedule
summarizes the growth in dredging contract backlog during the year ended
December 31, 2009.
Backlog balance as of December 31, 2008
|
|
$
|
-
|
|
Add:
new contracts during the year
|
|
|
89,946,562
|
|
Less:
Adjustment of contacts due to change orders during the
year
|
|
|
(1,473,249
|
)
|
Less:
contract revenue earned during the year
|
|
|
(80,333,891
|
)
|
Backlog balance as of December 31,
2009
|
|
$
|
8,139,422
|
|
Notwithstanding
the informality of the Company’s contracts prior to 2009, Fujian Service was
able to fully utilize its dredger fleet during the year and to start 2009 with
contracts in place.
Revenue
Fujian
Service’s contract revenue increased 47.46% to $80,333,891 million for the
year ended December 31, 2009 as compared with the period from January 8,
2008 (inception) to December 31, 2008. This was due primarily to an increase in
average fleet size in 2009 as compared with 2008. Fujian Service
started 2008 operations with one dredger and did not add its 5
th
dredger
until June 2008.
Gross
Profit
Gross
profit increased from $29,056,044 for the year ended December 31, 2008 to
$41,618,401 for the same period of 2009, primarily as a result of an increase in
total revenue. However, gross profit margin declined from 53.33% in 2008 to
51.81% in 2009 due to increase of variable cost. In particular, the costs of
consumable and maintenance components increased more sharply than other
costs, as shown below:
|
|
2008
|
|
|
2009
|
|
|
|
Amount
($)
|
|
|
Percent of
Revenue
|
|
|
Amount
($)
|
|
|
Percent of
Revenue
|
|
Direct
Labor
|
|
|
1,110,149
|
|
|
|
2.04
|
%
|
|
|
1,457,329
|
|
|
|
1.81
|
%
|
Leasing
Fees
|
|
|
1,273,713
|
|
|
|
2.34
|
%
|
|
|
1,720,275
|
|
|
|
2.15
|
%
|
Wages
|
|
|
596,694
|
|
|
|
1.09
|
%
|
|
|
861,861
|
|
|
|
1.07
|
%
|
Consumable
Components
|
|
|
18,757,168
|
|
|
|
34.43
|
%
|
|
|
29,724,508
|
|
|
|
37.00
|
%
|
Depreciation
|
|
|
3,686,503
|
|
|
|
6.77
|
%
|
|
|
4,951,517
|
|
|
|
6.16
|
%
|
Cost of Contract Revenue
|
|
|
25,424,227
|
|
|
|
46.67
|
%
|
|
|
38,715,490
|
|
|
|
48.19
|
%
|
,,
General
and administrative expenses
General
and administrative expense is comprised of operating taxes and fees, salaries
and benefits, business insurance and other daily expenses. Revenue-linked taxes
and fees include primarily business tax, city maintenance and educational fees.
Salaries and benefits include salaries and allowances, staff welfare for
education, staff social welfare insurance and health insurance. Daily operation
expenses include depreciation of office equipment, rent, travel and others.
About 85% of general and administrative expense came from operating tax
expenses. A breakdown of general and administrative expenses for 2008 and 2009
is as follows:
|
|
2008
|
|
|
2009
|
|
|
|
Amount
in $
|
|
|
% of
Total
G&A
|
|
|
% of
Total
Revenue
|
|
|
Amount
in $
|
|
|
% of
Total
G&A
|
|
|
% of
Total
Revenue
|
|
Revenue-linked
Tax Expenses
|
|
|
1,833,873
|
|
|
|
85.20
|
%
|
|
|
3.37
|
%
|
|
|
2,112,416
|
|
|
|
83.46
|
%
|
|
|
2.63
|
%
|
Salary
and Benefits
|
|
|
140,014
|
|
|
|
6.50
|
%
|
|
|
0.25
|
%
|
|
|
159,808
|
|
|
|
6.31
|
%
|
|
|
0.20
|
%
|
Operating
Insurance
|
|
|
103,056
|
|
|
|
4.79
|
%
|
|
|
0.19
|
%
|
|
|
187,575
|
|
|
|
7.41
|
%
|
|
|
0.23
|
%
|
Daily Operation Expenses
|
|
|
75,632
|
|
|
|
3.51
|
%
|
|
|
0.14
|
%
|
|
|
71,333
|
|
|
|
2.82
|
%
|
|
|
0.09
|
%
|
Total
G&A
|
|
|
2,152,575
|
|
|
|
100.00
|
%
|
|
|
3.95
|
%
|
|
|
2,531,132
|
|
|
|
100.00
|
%
|
|
|
3.15
|
%
|
General
and administrative expense as a percentage of revenue decreased from 3.95% in
2008 to 3.15% in 2009. Approximately 74% of the $378,557 year-over-year increase
in general and administrative expenses was related to increases in
revenue-linked taxes and 22% was related to increased insurance costs associated
with the larger average fleet size for the 2009 as compared with
2008.
Operating
Income
Operating
income increased from $26,903,469 in 2008 to $39,087,269, representing 45.29%
year-on-year growth, which was due primarily to an increase in total revenue and
gross profit associated with operating a larger average fleet during
2009 The increase in operating income was partially offset by the
slight increase in the cost of revenue.
Other
Income
For the
year ended December 31, 2009, interest income was $29,833, a decrease of
$13,339, compared to $43,172 for the year ended December 31, 2008. This decrease
was due to the lower average cash balance in the 2009 period, which in turn
resulted in lower interest income.
Interest
expense increased from $179,504 for the year ended December 31, 2008 to $755,853
for the year ended December 31, 2009. The increase in interest expense was
attributable to a loan of approximately $8.79 million that was funded in
October 2008 and a second loan of approximately $3.37 million that was funded in
February 2009 and that together were outstanding for much of 2009.
Income
Tax
Income
tax expense increased $2,899,906, or 43.30% for the year ended December 31,
2009, compared to the year ended December 31, 2008, primarily due to the
increase of taxable income. The Company’s provision for income tax with respect
to PRC operations is calculated at the applicable tax rates on the estimated
assessable profits for the year based on existing legislation, interpretations
and practices in respect thereof. The standard applicable tax rate is 25% which
was effective on January 1, 2008.
Net
income
Net
income for the year ended December 31, 2009 was $28,764,598, an increase of
$8,694,206, or 43.32%, compared to $20,070,392 for the same period in 2008. This
increase was attributable to the significant growth in total revenue and
operating income.
Cash
Flow
The
following table presents a comparison of the Fujian Service cash flow during the
years ended December 31, 2009 and 2008, and a comparison of the cash flow of the
Group for the six months ended June 30, 2010 with that of Fujian Service for the
six months ended June 30 2009:
|
|
Year
E
nded
December
31,
|
|
|
Six
M
onths
E
nded
June
3
0
,
|
|
|
|
Fujian
Service
2008
|
|
|
Fujian
Service
2009
|
|
|
F
ujian
Service
2009
|
|
|
Group
Pro
Forma
2010
|
|
Operating
cash flow
|
|
|
26,096,112
|
|
|
|
30,952,939
|
|
|
|
18,053,632
|
|
|
|
15,052,990
|
|
Investing
cash flow
|
|
|
(42,059,354
|
)
|
|
|
(2,196,096
|
)
|
|
|
(20,029,229
|
)
|
|
|
(17,716,478
|
)
|
F
inancing
cash flow
|
|
|
17,303,282
|
|
|
|
(6,785,017
|
)
|
|
|
3,366,411
|
|
|
|
4
,
184
,
152
|
|
Net increase i
n cash
|
|
|
1,340,040
|
|
|
|
21,971,826
|
|
|
|
1,390,814
|
|
|
|
1,520,664
|
|
Cash
at beginning of year
|
|
|
-
|
|
|
|
1,362,142
|
|
|
|
1,362,142
|
|
|
|
23,343,469
|
|
Cash at end of year
|
|
$
|
1,362,142
|
|
|
$
|
23,343,469
|
|
|
$
|
2,751,593
|
|
|
$
|
2
5
,
388
,
638
|
|
Six
Months Ended June 30, 2010 Compared with the Six Months Ended June 30, 2009 for
the Group
Cash
Flow from Operating Activities
|
|
Six
Months
Ended
June
30,
|
|
|
|
2009
|
|
|
Group
Pro
Forma
2010
|
|
Net income
|
|
$
|
15,287,535
|
|
|
$
|
17,041,666
|
|
Adjustments
to reconcile net income to net
|
|
|
|
|
|
|
|
|
Add
depreciation of property, plant and equipment
|
|
|
2,475,429
|
|
|
|
2,497,401
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Cost
and estimated earnings in excess of billings on uncompleted
contracts
|
|
|
(439,238
|
)
|
|
|
(6,582,645
|
)
|
Other
receivables
|
|
|
(329
|
)
|
|
|
(883
|
)
|
Inventories
|
|
|
(92,464
|
)
|
|
|
(756,912
|
)
|
Accounts
payable
|
|
|
-
|
|
|
|
784,746
|
|
Income
taxes payable
|
|
|
422,462
|
|
|
|
1,355,304
|
|
Accrue
d
liabilities and other payables
|
|
|
400,237
|
|
|
|
714,313
|
|
Net cash provided by operating
activities
|
|
$
|
18,053,632
|
|
|
$
|
15,052,990
|
|
The
$15,052,990 of cash provided by operating activities for the six months ended on
June 30, 2010 consisted primarily of net income of $17,041,666 plus depreciation
of $2,497,401, together with increases of income tax payable of $1,355,304 and
accrued liabilities of $714,313. This favorable cash flow was more than offset
by the use of cash to fund reductions inaccounts payable $784,746, an
increase in inventories of $756,912, and most, significantly, an increase in
cost and estimated earnings in excess of billings of $6,582,645 for projects in
progress.The Company had accumulated unbilled costs and estimated earnings from
eight uncompleted projects as of June 30, 2010, compared to only two such
projects as of June 30, 2009, which resulted in the significant increase of cost
and estimated earnings in excess of billings in excess of billings
for the first six months
of 2009 compared with the same period of 2010.
Cash
Flow from Investing Activities
Restricted
cash represents amounts on deposit with the owners of dredgers leased by the
Company. Such amounts will be returned to the Company when the corresponding
leases end. Investing activities outflow was $17,716,478 in the six
months ended June 30, 2010, consisted primarily of an increase of
$17,392,834 in restricted cash, deposited as a rental guarantee for four
newly rented dredgers intended to be put into service in the second quarter of
2010.
On May
20, 2009, the Company signed a contract to buy a dredger valued at $29.4 million
and paid $2,211,932 on June 2, 2009 as a deposit.
Cash
Flow from Financing Activities
Financing
activities provided $4,184,152 for the first six months ended June 30, 2010,
from secured bank loans. This compares with a $3,368,976 from
loans with banks in February 2009.
Year
Ended December 31, 2009 Compared with Year Ended December 31, 2008 for Fujian
Service
Cash Flow
from
Operations
|
|
Twelve
Months
Ende
d
on
December
31
|
|
|
|
2008
|
|
|
2009
|
|
Net income
|
|
$
|
20,070,392
|
|
|
$
|
28,764,598
|
|
Adjustments
to reconcile net income to net
|
|
Add
depreciation of property, plant and equipment
|
|
|
3,686,744
|
|
|
|
4,952,236
|
|
Changes
in operating assets and liabilities:
|
|
cost
and estimated earnings in excess of billings on uncompleted
contracts
|
|
|
-
|
|
|
|
(2,210,343
|
)
|
note
receivables
|
|
|
-
|
|
|
|
-
|
|
other
receivables
|
|
|
-
|
|
|
|
(311
|
)
|
inventories
|
|
|
-
|
|
|
|
(429,018
|
)
|
income
tax payable
|
|
|
2,186,909
|
|
|
|
(179,402
|
)
|
Accrued liabilities and other
payables
|
|
|
152,067
|
|
|
|
55,179
|
|
Net
cash provided by operating activities
|
|
|
26,096,112
|
|
|
|
30,952,939
|
|
The
$30,952,939 of cash provided by operating activities for the year ended 2009
consisted primarily of net income of $28,764,598 plus depreciation of
$4,952,236, plus increases in accrued liabilities of $55,179, These
contributions to cash flow were partially offset by the increases in cost and
estimated earnings in excess of billings of $2,210,343, inventories of $429,018
and income tax payable of $179,402.
The
$26,096,112 of cash provided by operating activities for the year ended 2008
consisted primarily of net income of $20,070,392 plus depreciation of
$3,686,744, increases in accrued liabilities of $152,067 and income tax
payable of $2,186,909.
The
primary drivers of the operating cash flows in the year ended 2009 compared to
the year ended 2008 were the increase in net income, depreciation and cost and
estimated earnings in excess of billings. As of December 31, 2009 and 2008, the
balance of cost and estimated earnings in excess of billings on uncompleted
contracts was $2,211,411 and zero respectively. As all the contracts of 2008
have been completed and all the money has been received at the end of the year,
there were no receivables in 2008.
The
increase in cost and estimated earnings in excess of billings was principally
due to the increased number of contracts in progress, improved collection
procedures, the nature and type of projects and the general market
environment. As those customers are China state-owned companies and there
are no credit terms, no provision or allowance for doubtful accounts was
provided as of December 31, 2009 and 2008.
There was
a $429,018 increase of the ending balance of inventory in 2009 compared to 2008.
Inventories consist of consumable parts which are used for dredging projects. As
the company was newly established in 2008 and all the projects had been
completed in 2008, no inventory was retained at year-end 2008.
There was
a $311 increase in other receivables which mainly represents social insurance
prepaid for employees by the Fujian Service. Such prepayments are
recovered by direct deduction from salaries and wages and are provided free of
interest. As the employee welfare program was only established in 2009, there
were no such receivables in 2008.
Cash
Flo
w
From
Investing
|
|
Twelve
months
Ended
on
December
31
|
|
|
|
2008
|
|
|
2009
|
|
Deposit
paid for dredgers
|
|
|
-
|
|
|
|
(2,196,096
|
)
|
Changes
in restricted cash
|
|
|
(8,291,156
|
)
|
|
|
-
|
|
Payment
of purchases of property, plant and equipment
|
|
|
(33,768,198
|
)
|
|
|
-
|
|
Investing Cash Flow
|
|
|
(42,059,354
|
)
|
|
|
(2,196,
096
|
)
|
On May
20, 2009, Fujian Service signed a contract to buy a dredger valued at $29.4
million. $2,197,096 was paid on June 2, 2009 as a deposit. The balance of the
payment on the dredger, amounting to $27,098,286, is due in the twelve months
following delivery of the dredger, which is expected before May 31,
2012.
Restricted
cash represents amounts on deposit with the owners of dredgers leased by the
Company. Such amounts will be returned to the Fujian Service when the
corresponding leases end. In 2008, the Fujian Service entered into an
office rental agreement from January 1, 2008 to December 31, 2009 and a dredger
hiring agreement from June 1, 2008 and May 31, 2011, the restricted cash
increased by $8,291,156, which represents an investing cash outflow. As there
was no additional rental agreement signed in 2009, there is no change to this
account.
In 2008,
Fujian Service bought three dredgers and some other office equipment, such as
computers and printers. The total value of the investments was $51,627,296,
$17,859,098 of which remained unpaid on December 31, 2008.
Cash Flow
From
Financing
|
|
Twelve
Months
Ended
on
December
31
|
|
(In
$)
|
|
2008
|
|
|
2009
|
|
Proceeds
from short-term loan
|
|
|
-
|
|
|
|
3,367,348
|
|
Repayment
of short-term loan
|
|
|
-
|
|
|
|
-
|
|
Proceeds
from long-term loan
|
|
|
8,651,641
|
|
|
|
-
|
|
Payment
of dredger payable
|
|
|
-
|
|
|
|
(17,838,704
|
)
|
Repayment
of long-term loan
|
|
|
-
|
|
|
|
(1,830,080
|
)
|
Capital
contributions from owners
|
|
|
8,651,641
|
|
|
|
9,516,419
|
|
Investing cash flow
|
|
|
17,303,282
|
|
|
|
(6,785,017
|
)
|
The
company borrowed $8,651,641 in October 2008 and returned $1,830,080 in July
2009. Another $3,367,348 was borrowed in February 2009.
During
2009, the Company paid the balance due for its dredger purchased in 2008
$17,859,098.
Liquidity
and Capital Resources
As of
June 30, 2010 we had cash of $25,388,638, an increase of
approximately $2,045,169 from December 31, 2009. Our current
assets totaled $61,396,466 as of June 30, 2010 while our current liabilities
totaled $11,251,233. As of June 30, 2010, our short-term loan balance
was $4,423,865.
On
October 29, 2010 we completed the Offering and received net proceeds of
19,821,075, substantially enhancing our cash balance and liquidity
position. Under the terms of the Stock Purchase Agreement for the
Offering we have the latitude to accept up to $53.1 million of additional
funding on the same terms prior to December 28, 2010 if there is interest from
investors in participating. There is no assurance that any such
additional funding under the Offering will be received by the
Company. Nevertheless, we believe that our currently available
working capital will be sufficient to maintain our operations at the current
level and for at least the next 12 months.
Critical
Accounting Policies and Estimates
General
The
Company’s financial statements have been prepared in accordance with generally
accepted accounting principles in the United States of America (the “U.S.
GAAP”).
The
preparation of the financial statements in conformity with U.S. GAAP requires
management of the Company to make a number of estimates and assumptions relating
to the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the years. Significant
items subject to such estimates and assumptions include the recoverability of
the carrying amount and the estimated useful lives of long-lived assets;
valuation allowances for receivables, realizable values for inventories.
Accordingly, actual results could differ from those estimates.
Revenue
recognition
The
Company recognizes contract revenues under the percentage-of-completion method
to determine the appropriate amount to be recognized in a given period.
Depending on the nature of contracts, the stage of completion is measured by
reference to (a) the proportion of contract costs incurred for work performed to
date to estimated total contract costs; (b) the amount of work certified by site
engineer; or (c) completion of physical proportion of the contract work. The
difference between amounts billed and recognized as revenue is reflected in the
balance sheet as either contract revenues in excess of billings or billings in
excess of contract revenues. Provisions for estimated losses on contracts in
progress are made in the period in which they are identified. In the event that
contract revenue cannot be estimated reliably, contract revenue is recognized
only to the extent of contract costs incurred that are likely to be
recoverable.
Income
taxes
The
Company accounts for income taxes under ASC 740 “Income Taxes.” Deferred income
tax assets and liabilities are determined based upon differences between the
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be effective when the differences
are expected to reverse.
Deferred
tax assets are reduced by a valuation allowance to the extent management
concludes it is more likely than not that the assets will not be realized.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the statements
of income in the period that includes the enactment date.
The
Company adopted ASC 740, “Income Taxes,” which prescribes a more-likely-than-not
threshold for financial statement recognition and measurement of a tax position
taken in the tax return. This interpretation also provides guidance on
de-recognition of income tax assets and liabilities, classification of current
and deferred income tax assets and liabilities, accounting for interest and
penalties associated with tax positions, accounting for income taxes in interim
periods and income tax disclosures.
Other
comprehensive income
The
Company adopts ASC 220 “Comprehensive Income.” This statement establishes rules
for the reporting of comprehensive income and its components. Comprehensive
income consists of net income and foreign currency translation
adjustments.
Off
Balance Sheet Transactions
As of
June 30, 2010, we had pledged one of our dredgers, Xinggangjun #6, to secure a
$7.9 million credit facility granted to a related party, Fujian Province Pingtan
County Ocean Fishery Holdings Limited. Principal and interest on the loan is due
in full by September 1, 2010. The related company is indirectly under control of
Fuzhou Honglong Ocean Fishery Co., Ltd., which is controlled by Ping Lin, the
daughter-in-law of Panxing Zhuo and sister of Qin Lin, the collective owners of
Wonder Dredging Engineering LLC, a PRC company that holds a 50% interest in
Fujian Service. The loan underlying the pledge was repaid in full on August 24,
2010 and the pledge was terminated on August 30, 2010.
The three
dredgers owned by the Group were pledged as collateral its bank
loans.
Contractual
Obligations
The
following table shows our contractual payment obligations broken down, as of
June 30, 2010:
|
|
Payments due by period
|
|
Contractual Obligations (1)
|
|
Total ($) (2)
|
|
|
< 1 year ($)
|
|
|
1-3 years ($)
|
|
|
3-5 years ($)
|
|
|
> 5 years ($)
|
|
Long-Term
Debt Obligations
|
|
|
12,386,822
|
|
|
|
4,423,865
|
|
|
|
7,962,957
|
|
|
|
|
|
|
|
Capital
(Finance) Lease Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Lease Obligations
|
|
|
53,095,734
|
|
|
|
22,589,149
|
|
|
|
22,846,040
|
|
|
|
5,612,050
|
|
|
|
2,048,495
|
|
Purchase
Obligations
|
|
|
107,062,863
|
|
|
|
26,897,100
|
|
|
|
80,165,763
|
|
|
|
|
|
|
|
|
|
Other
Long-Term Liabilities Reflected on the Company’s Balance Sheet under US
GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
172,545,419
|
|
|
|
53,910,114
|
|
|
|
110,974,760
|
|
|
|
5,612,050
|
|
|
|
2,048,495
|
|
ITEM
6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
|
Directors
and Senior Management
|
The
information set forth in Item 1.A. of this Shell Company Report on Form 20-F is
incorporated herein by reference.
Compensation
of Directors and Executive officers of China Dredging
Summary
Compensation Table for Fiscal year Ended December 31, 2009
Name and Principal Position
(1)
|
|
Salary ($)
|
|
|
Bonus ($)
|
|
|
Total ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
Directors and Officers as a Group
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
As we do
not have a compensation committee, all compensation decisions relating to our
executive officers are made by the board of directors.
Since our
formation we have not paid our employee directors for their service to the board
or reimbursed them for their out-of-pocket expenses, however, our board of
directors may, in the future, determine to pay directors fees and reimburse them
for expenses related to their activities on the board of directors.
Since our
incorporation, we have not granted any share options or share appreciation
rights or any awards under long-term incentive plans. No amounts have
been set aside or accrued by us to provide pension, retirement or similar
benefits, if any.
Compensation
of Directors and Executive Officers of CAC
Prior to
the Merger, CAC did not pay any compensation to Kerry Propper, the former
President, Chief Executive Officer, CFO and sole director, who served from
incorporation through July 29, 2010. CAC did not pay any compensation
to Congyan Xue or William Morro, CAC’s former sole director and Chief Executive
Officer, respectively. Mr. Xue served from July 29, 2010 through the
date of the Merger, and Mr. Morro served from July 30, 2010 through the date of
the Merger. Following the Merger, Mr. Morro and Mr. Xue ceased to
have a management role with any member of the Group.
Employment
Agreements
In August
2010 three of our executive officers, Mr. Zhuo, Mr. Lin and Mr. Gu, entered into
three-year employment agreements with us pursuant to which they receive
aggregate annual compensation of HK$700,000 (approximately $90,245). Pursuant to
the agreements, each executive will devote all of his working time to his
respective duties at the Company and will not become employed in any competitive
business while employed by us or for two years following the termination of his
employment with us, and the executive will not solicit the services of any of
our employees for two years after the executive terminates employment with us.
We may terminate the executive for cause at any time without notice, or without
cause upon one month prior written notice to the executive. In the event of
termination without cause, we will pay to the executive a cash severance payment
equal to three months of the executive’s then current base salary. In
the event of a material and substantial reduction in the executive’s existing
authority and responsibilities, the executive may resign upon one-month prior
written notice to us.
Term
of Service
Our
directors are appointed for a one-year term to hold office until the next annual
meeting of our shareholders or until removed from office in accordance with our
Articles of Association. Our officers are appointed by our board of directors
and hold office until removed by the board.
All
officers and directors listed above will remain in office until the next annual
meeting of our shareholders, and until their successors have been duly elected
and qualified. There are no agreements with respect to the election of
directors.
Corporate
Governance
We
currently do not have separate audit or nominating committees as we are not a
listed issuer and are not required to do so. Our full board of directors
currently serves as our audit committee. However, we do intend to
appoint independent directors to the board of directors and create an audit
committee, a compensation committee and a nominating and corporate governance
committee.
Our board
of directors intends to adopt an audit committee charter, providing for the
following responsibilities of the audit committee:
|
•
|
retaining
and terminating our independent auditors and pre-approving all auditing
and non-auditing services permitted to be performed by the independent
auditors;
|
|
•
|
discussing
the annual audited financial statements with management and the
independent auditors;
|
|
•
|
annually
reviewing and reassessing the adequacy of our audit committee
charter;
|
|
•
|
such
other matters that are specifically delegated to our audit committee by
our board of directors after the business combination from time to
time;
|
|
•
|
meeting
separately, periodically, with management, the internal auditors and the
independent auditors; and
|
|
•
|
reporting
regularly to the board of
directors.
|
Our board
of directors intends to adopt a compensation committee charter, providing for
the following responsibilities of the compensation committee:
|
•
|
reviewing
and making recommendations to the board regarding our compensation
policies and forms of compensation provided to our directors and
officers;
|
|
•
|
reviewing
and making recommendations to the board regarding bonuses for our officers
and other employees;
|
|
•
|
reviewing
and making recommendations to the board regarding share-based compensation
for our directors and officers;
|
|
•
|
administering
our share option plans in accordance with the terms thereof;
and
|
|
•
|
such
other matters that are specifically delegated to the compensation
committee by our board of directors after the business combination from
time to time.
|
Our board
of directors intends to adopt a nominating and corporate governance committee
charter, providing for the following responsibilities of the nominations
committee:
|
•
|
overseeing
the process by which individuals may be nominated to our board of
directors after the business
combination;
|
|
•
|
identifying
potential directors and making recommendations as to the size, functions
and composition of our board of directors after the business combination
and its committees;
|
|
•
|
considering
nominees proposed by our
shareholders;
|
|
•
|
establishing
and periodically assessing the criteria for the selection of potential
directors; and
|
|
•
|
making
recommendations to the board of directors on new candidates for board
membership.
|
In making
nominations, the nominating and corporate governance committee will be required
to submit candidates who have the highest personal and professional integrity,
who have demonstrated exceptional ability and judgment and who shall be most
effective, in conjunction with the other nominees to the board, in collectively
serving the long-term interests of the shareholders. In evaluating nominees, the
nominating and corporate governance committee will be required to take into
consideration the following attributes, which are desirable for a member of the
board: leadership; independence; interpersonal skills; financial acumen;
business experiences; industry knowledge; and diversity of
viewpoints.
As of
June 30, 2010, the Company utilized 296 people in its day-to-day operations, of
which 78 persons are directly employed by the Company, 175 persons are hired by
owners of the six leased vessels and 43 persons were supplied by a labor service
company.
Approximately
28 crew members are staffed on each dredger, with one captain, three vice
captains, four engineers, nine machinists, ten sailors and one cook. The
Company’s policy is to appoint employees (as opposed to outsourced staff) to
important positions in its three Company-owned dredgers, such as captain and
chief engineer. The Company believes that this enables it to build an effective
personnel training system and establish a professional team.
We
generally sign engagement contracts of five years with our employees working on
our vessels. These agreements are at competitive salaries and
generally provide for social and medical insurance. We believe that
the use of long-term employment contracts helps to maintain a stable work force.
In accordance with applicable regulations, the insurance encompasses pension
contributions and medical, unemployment, maternity and personal injury
insurance. The amount of contributions is based on the specified percentages of
a particular employee’s aggregate salary as provided for by relevant PRC
law.
The crew
for our six leased dredgers are hired by the dredger owners and the labor costs
are included in the vessel lease contracts. As of June 30, 2010, a total of 175
crew members worked on the leased dredgers. Welfare and benefit
payments for the staff are paid by the lessors. The labor supply contracts for
the leased dredgers coincide with the termination of the respective boat leases.
We pay a fixed quarterly payment to each lessor, as shown in the
table below.
Dredger
|
|
Quarterly Payment (US$)
|
|
Expiration Time
|
Hengshengjun
#88
|
|
|
131,986
|
|
January
9, 2016
|
Xinggangjun
#9
|
|
|
131,986
|
|
May
31, 2016
|
Honglinjun
#9
|
|
|
149,584
|
|
June
19, 2013
|
Honglinjun
#18
|
|
|
136,386
|
|
June
18, 2013
|
Xiechang
#18
|
|
|
140,785
|
|
June
24, 2013
|
Liya
#10
|
|
|
136,386
|
|
June
14, 2013
|
TOTAL
|
|
|
827,113
|
|
|
We also
outsource labor from one labor supply company to meet our changing requirements
for personnel. As of June 30, 2010, 43 crew members were outsourced under three
agreements (one for each of dredgers #66, #3 and #6), for which the total
monthly payments were approximately US$34,000 per month during 2010. Welfare and
benefit payments for such personnel are covered by the company supplying the
laborers.
We have
not experienced any significant labor disputes and we maintain satisfactory
relationships with our employees. We invest in continuing education and training
programs for staff with a view to constantly upgrading their skills and
knowledge. Individual employment contracts with employees to cover matters such
as wages, employee benefits, training programs, safety and sanitary conditions
in the workplace, confidentiality of Company information and grounds for
termination.
The
disclosure set forth in Item 7A of this Shell Company Report on Form 20-F is
incorporated herein by reference.
ITEM
7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
The
following table sets forth as of October 29, 2010, the number of our ordinary
shares beneficially owned by (i) each person who is known by us to be the
beneficial owner of more than five percent of the Company’s ordinary shares;
(ii) each director; (iii) each of the named executive officers in the Summary
Compensation Table; and (iv) all directors and executive officers as a group. As
of October 29, 2010, we had 52,677,323 ordinary shares issued and
outstanding.
Beneficial
ownership is determined in accordance with SEC rules and generally includes
voting or investment power with respect to securities. Unless otherwise
indicated, the shareholders listed in the table have sole voting and investment
power with respect to the ordinary shares indicated. Unless otherwise noted, the
principal address of each of the shareholders, directors and officers listed
below is c/o China Dredging Group Co., Ltd., 18th Floor, Tower A, Zhongshan
Building, No. 154, Hudong Road, Fuzhou, Fujian Province, PRC.
All share
ownership figures include securities convertible or exchangeable into our
ordinary shares within sixty (60) days of October 29, 2010 which are deemed
outstanding and beneficially owned by such person for purposes of computing his
or her percentage ownership, but not for purposes of computing the percentage
ownership of any other person.
Name and Address of Beneficial Owner
|
|
Number of Ordinary Shares
Beneficially Owned
|
|
|
Percentage of
Outstanding Ordinary
Shares
|
|
|
|
|
|
|
|
Xinrong
Zhuo (1)
|
|
46,055,880
|
|
|
87.43
|
%
|
|
|
|
|
|
|
|
Kit
Chan (2)
|
|
2,608,866
|
|
|
4.95
|
%
|
|
|
|
|
|
|
|
Fangjie
Gu
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
Bin
Lin (3)
|
|
2,608,866
|
|
|
4.95
|
%
|
|
|
|
|
|
|
|
Mars
Harvest Co. Ltd. (1)
|
|
46,055,880
|
|
|
87.43
|
%
|
|
|
|
|
|
|
|
All
Directors and Executive Officers, as a group (4 persons)
|
|
51,273,612
|
|
|
97.34
|
%
|
* Less
than one percent
(1)
Shares are held of record by Mars Harvest Co. Ltd, Building 26, Mingyang
Tianxia, No. 1 Yuquan Road, Fuzhou, Fujian Province, PRC. Mr. Zhuo is
the sole director of Mars Harvest and has the power to vote and dispose of all
of the Company’s ordinary shares that it holds.
(2)
Shares are held of record by Venus Seed Co., Ltd, Flat B, 27/F, Ko On Mansion,
Taikoo Shing, Quarry Bay, Hong Kong. Mr. Chan is the sole director of
Venus Seed and has the sole power to vote and dispose of all of the Company’s
ordinary shares that it holds.
(3)
Shares of are held of record by Saturn Glory Co., Ltd., Room 1402, Building 8, D
District, Rongqiao Jinjiang, No. 66, Jiangbin West Road, Fuzhou, Fujian
Province, PRC. Mr. Lin is the sole director of Saturn Glory and has
the sole power to vote and dispose of all of the Company’s ordinary shares that
it holds.
B.
|
Related
Party Transactions
|
On
January 1, 2008, we entered into an office lease with Ping Lin, a relative of
one of the owners, Qing Lin, which expired December 31, 2009. This agreement was
renewed and extended from January 1, 2010 to December 31, 2015. Annual lease
payments to Ping Lin were $8,872 in 2009 and $8,738 in 2008.
In May
2008 we entered into two three-year agreements with Fujian Lutong Highway
Engineering Construction Co., Ltd., a related party, to lease a dredger and
crew. In April 2010 the dredger leasing agreement was extended through May 31,
2016. In May 2010 the crew leasing agreement was extended to May 31, 2016.
Fujian Lutong Highway Engineering Construction Co., Ltd., which owned 70% of
Fujian Service from September 2009 to March 2010, is owned by Fangjie Gu, our
Chief Operating Officer and Xiuzhen Lin, the wife of Qing Lin. Lease payments on
the dredger for the years ended December 31, 2009 and 2008 were $1,024,845 and
$588,792, respectively. Payments for the crew were for the years ended December
31, 2009 and 2008 $527,063 and $302,807, respectively.
In
September 2008 and February 2010 we entered into loan agreements which aggregate
approximately $6 million. These loans are secured by one of the our
dredgers, Xinggangjun 66. One of these loans is guaranteed by Xinrong
Zhuo, our Chairman and Chief Executive Officer and the son of Zhuo Panxing (an
owner of Wonder Dredging). The other loan is guaranteed by Xinrong Zhuo and Qing
Lin (the other owner of Wonder Dredging). There are no restrictive financial
covenants associated with the long-term loans. The loans are all
non-recourse to us.
As of June 30, 2010, we had pledged one of our dredgers, Xinggangjun
#6, to secure a RMB 54 million (approximately $7.9 million) credit facility
granted to a related party, Fujian Province Pingtan County Ocean Fishery
Holdings Limited. Principal and interest on the loan is due in full by September
1, 2010. The related company is indirectly under control of Fuzhou Honglong
Ocean Fishery Co., Ltd., which is controlled by Ping Lin, the daughter-in-law of
Panxing Zhuo and sister of Qing Lin, the collective owners of Wonder Dredging
Engineering LLC, a PRC company that holds a 50% interest in Fujian Service. The
loan underlying the pledge was repaid in full on August 24, 2010 and the pledge
was terminated on August 30, 2010.
C.
|
Interests
of Experts and Counsel
|
Not
Applicable.
ITEM
8. FINANCIAL INFORMATION
A.
|
Consolidated
Statements and Other Financial
Information.
|
See Item
17.
None.
ITEM
9. THE OFFER AND LISTING
Not
applicable.
ITEM
10. ADDITIONAL INFORMATION
Status of Outstanding Ordinary
Shares.
As of October 29, 2010, we had a total of 225,000,000
ordinary shares authorized, no par value per share, of which 52,677,323
ordinary shares were issued, fully paid and outstanding.
Following
our formation April 14, 2010 (inception) we issued 100 ordinary shares to three
shareholders. On May 26, 2010 we issued an additional 49,900 ordinary
shares to the three founding shareholders and four new
shareholders. On October 25, 2010 we effected a share redesignation
pursuant to which our then-outstanding ordinary shares were changed from $1.00
par value to no par value and increased to 52,177,323 shares which were
allocated ratably among the then-existing shareholders, except to the extent
that such shareholders would have been entitled to receive fractional
shares. No fractional shares were issued. On October 29 we
issued 500,000 ordinary shares to Chardan Acquisition Corp. pursuant to the
Merger Agreement.
Description
of Preferred Shares
We are
authorized to issue 25,000,000 Class A Preferred Shares, no par value per share
(the “Preferred Shares”). The Preferred Shares have no right to vote on any
Resolution of Members. As of October 29, 2010 there were 4,371,000
Preferred Shares issued, fully paid, and outstanding. No Preferred Shares were
issued or outstanding prior to the October 2010 Private Placement.
Upon (i)
registration of the ordinary shares underlying the Preferred Shares for resale
with the U.S. Securities and Exchange Commission (the “SEC”) being declared
effective by the SEC (“Registration”) or such ordinary shares being freely
tradable in the US pursuant to any available exemption, and (ii) listing of the
ordinary shares underlying the Preferred Shares on a U.S. national securities
exchange (or on any other recognized international exchange approved by a
majority of the holders of the Preferred Shares, the Preferred Shares shall
automatically covert to ordinary shares (the “Automatic Conversion”) at a ratio
of one to one. Each Preferred Share is convertible by the holder into one
ordinary share, subject to proportional adjustment for share splits, divisions,
share dividends, recapitalizations and similar transactions, at any time prior
to an Automatic Conversion.
Each
Preferred Share has the right to a preference over the holders of ordinary
shares in the distribution of any surplus of our assets in the event of any
winding up, merger, acquisition or sale of substantially all of our assets in
which our shareholders do not own a majority of the issued shares of the
surviving entity.
If an
Automatic Conversion does not occur by the second anniversary of the closing of
the October 2010 Private Placement, holders of the Preferred Shares shall have
the right to receive a payment equal to 20% of $5.00 per Preferred Share. If
such payment is due and remains unpaid at the time of an Automatic Conversion,
the holders may choose to receive this payment in ordinary shares, in lieu of
cash, at a purchase price of $5.00 per share.
As long
as more than 2,500,000 Preferred Shares remain issued and outstanding, holders
of the Preferred Shares shall have the right to purchase, on a pro rata basis
based upon their original respective subscription amounts, in any equity
financing of the Company (a) ordinary shares or (b) equity securities
convertible, exercisable or exchangeable into ordinary shares; except that this
right shall not apply to any underwritten public offering of the
Company. Any such purchase by the holders of the Preferred Shares
shall be on the same terms and conditions and at the same price such securities
are offered to a third party in the financing.
In the
event of a change in control of the Company, or if we file for bankruptcy, or
are judged insolvent, initiate liquidation proceedings or other analogous
proceedings (a “Fundamental Change”), holders of the Preferred Shares may elect,
at their sole option, to request the redemption of some or all of their
Preferred Shares at any time prior to Automatic Conversion. Subject
to applicable law, the holders of the Preferred Shares may request the
redemption of some or all of their Preferred Shares at any time after the second
and prior to the third anniversary of the initial issuance of Preferred Shares
if Automatic Conversion has not occurred. The Preferred Shares may be
redeemed in whole or in part by the Company at its sole option in the event that
the Company undergoes a Fundamental Change, provided that the holders of the
Preferred Shares are first notified of the Fundamental Change and have not less
than seven days to convert their Preferred Shares to ordinary
shares.
B.
|
Memorandum
and Articles of Association
|
We are a
BVI company and we are governed by the laws of the BVI and by our Memorandum of
Association and Articles of Association. The objects for which the
Company is established are unrestricted and it has full power and authority to
carry out any object not prohibited by the BVI Business Companies Act, 2004, as
amended, or any other law of the BVI.
The table
below describes selected corporate actions governed by BVI law that are also
subject to specific provisions of our Memorandum & Articles of Association
and compares how such actions are affected by our Memorandum & Articles of
Association.
Action
|
|
BVI Law
|
|
Our Memorandum &
Articles of Association
|
|
|
|
|
|
Amendment
to the Memorandum and Articles of Association
|
|
Under
BVI law, the board of directors is permitted to have broad authority to
amend the memorandum of association, however, the directors shall not have
the power to amend the memorandum and articles of association (i) to
restrict the rights or powers of the members to amend the memorandum and
articles of association, (ii) to change the percentage of members required
to pass a resolution to amend the memorandum and articles of association
or (c) in circumstances where the memorandum or articles cannot be amended
by the shareholders.
|
|
Our
Memorandum of Association follows the BVI
law.
|
Notice
of the Annual Meeting
|
|
BVI
law provides that subject to the requirement in the memorandum and
articles of association to give longer notice, not less than seven days
notice of a meeting should be given.
|
|
Our
Articles of Association require notice not less than 10 days prior to a
meeting of shareholders.
|
|
|
|
|
|
Alternate
Directors
|
|
BVI
law allows a director to appoint an alternate who has the authority to
vote in place of the appointed director at a meeting of
directors.
|
|
Our
Memorandum and Articles are silent on this point. Consequently, the BVI
law position applies.
|
|
|
|
|
|
Written
Consent of Directors
|
|
In
the BVI, directors’ consents need only a majority of directors signing to
take effect, removing the need for a formal meeting.
|
|
Our
Articles of Association provides for written consents of
directors by a simple majority.
|
|
|
|
|
|
Sale
of Assets
|
|
In
the BVI, shareholder approval is required when more than 50% (by value) of
a company’s assets are being sold outside of the company’s usual course of
business.
|
|
Our
Memorandum and Articles are silent on this point. Consequently, the BVI
law position applies.
|
|
|
|
|
|
Removal
of Directors
|
|
Under
BVI law, a director may, subject to the memorandum and articles of
association of a company, be removed by a resolution of shareholders.
Where permitted by the memorandum and articles of association of the
company, a director may be removed by a resolution of
directors.
|
|
Our
Memorandum and Articles do not permit shareholders to remove a sitting
director upon a written resolution of a majority of the members, whereas
our Memorandum and Articles do permit the removal of a sitting director by
a resolution of
directors.
|
Indemnification
of Officers and Directors
The laws
of the BVI do not limit the extent to which a company's articles of association
may provide for indemnification of officers and directors, provided such person
acted honestly and in good faith and except to the extent any such provision may
be held by the British Virgin Islands courts to be contrary to public policy,
such as to provide indemnification against civil fraud or the consequences of
committing a crime. Our Memorandum and Articles do not relieve directors,
officers or agents from personal liability arising from the management of the
business of the company. We may indemnify against all expenses,
including legal fees, and against all judgments, fines and amounts paid in
settlement and reasonably incurred in connection with legal, administrative or
investigative proceedings any person who (i) is or was a party or is threatened
to be made a party to any threatened, pending or completed proceedings, whether
civil, criminal, administrative or investigative, by reason of the fact that the
person is or was a director of the Company, or (ii) is or was, at the request of
the Company, serving as a director of, or in any other capacity is or was acting
for, another company or a partnership, joint venture, trust or other enterprise,
provided, however, that such indemnification applies only to a person who has
acted honestly and in good faith and in what he believed to be the best
interests of the Company and, in the case of criminal proceedings, the person
had no reasonable cause to believe that his conduct was unlawful. We are
permitted to and intend to obtain director and officer insurance.
Defenses
Against Hostile Takeovers
The law
of the BVI does not prevent companies from adopting a wide range of corporate
measures designed to defend a company against hostile
takeovers. While the following discussion summarizes the reasons for,
and the operation and effects of, the principal provisions of our Memorandum and
Articles of Association that management has identified as potentially having an
anti-takeover effect, it is not intended to be a complete description of all
potential anti-takeover effects, and it is qualified by reference to the full
texts of our Memorandum and Articles of Association.
In
general, our Memorandum and Articles of Association minimize our susceptibility
to sudden acquisitions of control that have not been negotiated with and
approved by our board of directors. As a result, it may be difficult to remove
the incumbent members of the board of directors. While our Memorandum
and Articles of Association would not prohibit an acquisition of control of us
or a tender offer for all of our shares they might discourage any tender offer
or other attempt to gain control of us in a transaction that is not approved by
the board of directors, by making it more difficult for a person or group to
obtain control of us in a short time and then impose its will on the remaining
shareholders. However, to the extent our Memorandum and Articles of Association
successfully discourage the acquisition of control of us or tender offers for
all or part of our shares without approval of the board of directors, they may
have the effect of preventing an acquisition or tender offer which might be
viewed by shareholders to be in their best interests.
Tender
offers or other non-open market acquisitions of shares will generally be made at
prices above the prevailing market price, if any, of our shares. In addition,
acquisitions of shares by persons attempting to acquire control through market
purchases may cause the market price of the shares to reach levels that are
higher than would otherwise be the case. Anti-takeover provisions may discourage
such purchases, particularly those of less than all of our shares, and may
thereby deprive shareholders of an opportunity to sell their shares at a
temporarily higher price. These provisions may therefore decrease the likelihood
that a tender offer will be made, and, if made, will be successful. As a result,
the provisions may adversely affect those shareholders who would desire to
participate in a tender offer. These provisions may also serve to insulate
incumbent management from change and to discourage not only sudden or hostile
takeover attempts, but also any attempts to acquire control that are not
approved by the board of directors, whether or not shareholders deem such
transactions to be in their best interest.
Number of Directors and Filling
Vacancies on the Board of Directors
. British Virgin Islands
law requires that the board of directors of a company consist of one or more
directors and that the number of directors shall be set by the company’s
Articles of Association, with a minimum of one director. Our Articles of
Association provide that the number of directors shall be not less than one and
not more than seven, subject to any subsequent amendment to change the number of
directors. The power to determine the number of directors is vested in the board
of directors. The power to fill vacancies, whether occurring by reason of an
increase in the number of directors or by resignation, is vested primarily in
the shareholders. Directors may be removed by the shareholders only for cause or
without cause on a vote of the members representing a majority of the shares
entitled to vote.
Election of
Directors.
Under British Virgin Islands law, there is no
cumulative voting by shareholders for the election of the directors. The absence
of cumulative voting rights effectively means that the holders of a majority of
the shares voted at a shareholders meeting may, if they so choose, elect all
directors of the Company who are up for election, thus precluding a small group
of shareholders from controlling the election of one or more representatives to
the board of directors.
Advance Notice Requirements for
Nomination of Directors and Presentation of New Business at Meetings of
Shareholders; Action by Written Consent.
Our Articles of
Association provide for advance notice requirements for shareholder proposals
and nominations for director. Generally, to be timely, notice must be given to
the shareholders not less than 10 days prior to the date of the annual meeting.
Special meetings may be called by our directors as the directors consider
necessary or desirable or shall be convened upon the written request of the
shareholders entitled to exercise at least 30 percent of the voting rights in
respect of the matter of which the meeting is requested.
Rights
of Minority Shareholders
Under the
law of the BVI, the principal protection of minority shareholders is that
shareholders may bring an action to enforce the constituent documents of the
company, the Memorandum and Articles of Association. Shareholders are entitled
to have the affairs of a company conducted in accordance with the general law
and the Memorandum and Articles. Under our Memorandum and Articles of
Association, we are obliged to hold an annual general meeting and provide for
the election of directors. In addition, the BVI Business Companies Act provides
that a shareholder may bring an action against us if he considers that our
affairs are being, have been or are likely to be conducted in a manner which is
unfairly prejudicial to him.
There are
common law rights for the protection of shareholders that may be invoked that
are largely dependent on English company law, since the common law of the BVI
for BVI companies is limited. Under the general rule pursuant to English company
law known as the rule in
Foss
v. Harbottle
, a court will generally refuse to interfere with the
management of a company at the insistence of a minority of its shareholders who
express dissatisfaction with the conduct of the company’s affairs by the
majority or the board of directors. However, every shareholder is entitled to
have the affairs of the company conducted properly according to law and the
constituent documents of the company. As such, if those who control the company
have persistently disregarded the requirements of company law or the provisions
of the company’s memorandum or articles of association, then the courts may
grant relief. Generally, the areas in which the courts will intervene are the
following: (i) an act complained of which is outside the scope of the authorized
business or is illegal or not capable of ratification by the majority, (ii) acts
that constitute fraud on the minority where the wrongdoers control the company,
(iii) acts that infringe on the personal rights of the shareholders, such as the
right to vote, and (iv) where the company has not complied with provisions
requiring approval of a special or extraordinary majority of
shareholders.
Transfer
of
Our
Securities Upon Death of Holder
Because
we are a BVI company, the transfer of the shares of a deceased shareholder will
be subject to the relevant provisions in our Memorandum and Articles of
Association, which require the executor or administrator of a deceased
shareholder to produce, among other things, any documentation which is
reasonable evidence of the applicant being entitled to a grant of probate of the
deceased's will or grant of letters of administration of the deceased's
estate.
Director
Conflicts of Interests
Any of
our directors entering into a related party transaction with us must disclose
such interest to the board of directors. However, a director of the
Company is not required to make such a disclosure if: (i) the transaction or
proposed transaction is between the director and the Company; and (ii) the
transaction or proposed transaction is or is to be entered into in the ordinary
course of the Company's business and on usual terms and conditions;
A
director of the Company who is interested in a transaction entered into or to be
entered into by the Company may vote on a matter relating to the transaction,
attend a meeting of directors at which a matter relating to the transaction
arises and be included among the directors present at the meeting for the
purposes of a quorum and sign a document on behalf of the Company, or do any
other thing in his capacity as a director, that relates to the
transaction.
All
material contracts entered into other than during the ordinary course of our
business and for the two years preceding the date hereof are described elsewhere
in this Shell Company Report on Form 20-F or in the information incorporated by
reference herein.
Regulations
on Foreign Currency Exchange
Under BVI
law, there is no exchange control legislation and accordingly there are no
exchange control regulations imposed under BVI law, including foreign exchange
controls or restrictions, that affect the remittance of dividends, interest or
other payments to BVI nonresident holders of our shares.
Foreign
currency exchange in the PRC is governed by a series of regulations, including
the
Foreign Currency
Administrative Rules
(1996), as amended, and the
Administrative Regulations Regarding
Settlement, Sale and Payment of Foreign Exchange
(1996), as amended.
Under these regulations, the Renminbi is freely convertible for trade and
service-related foreign exchange transactions, but not for direct investment,
loans or investments in securities outside the PRC without the prior
registration with the State Administration of Foreign Exchange (the “SAFE”) and
prior approval by other relevant Chinese government authorities required by the
applicable laws and regulations. Pursuant to the
Administrative Regulations Regarding
Settlement, Sale and Payment of Foreign Exchange
(1996), Foreign Invested
Enterprises (“FIEs”) may purchase foreign exchange without the approval of the
SAFE for trade and service-related foreign exchange transactions by providing
commercial documents evidencing these transactions. FIEs may also retain foreign
exchange, subject to a cap approved by SAFE, to satisfy foreign exchange
liabilities or to pay dividends. In addition, foreign exchange transactions for
direct investment, loans and investment in securities outside the PRC are still
subject to limitations and required approvals from the SAFE.
Regulation
of FIEs’ Dividend Distributions
The
principal laws and regulations in the PRC governing distribution of dividends by
foreign invested enterprises (“FIEs”) include:
|
(i)
|
The
Sino-foreign Equity Joint Venture Law (1979), as amended, and the
Regulations for the Implementation of the Sino-foreign Equity Joint
Venture Law (1983), as amended;
|
|
(ii)
|
The
Sino-foreign Cooperative Enterprise Law (1988), as amended, and the
Detailed Rules for the Implementation of the Sino-foreign Cooperative
Enterprise Law (1995), as amended;
|
|
(iii)
|
The
Foreign Investment Enterprise Law (1986), as amended, and the Regulations
of Implementation of the Foreign Investment Enterprise Law (1990), as
amended.
|
Under
these regulations, FIEs in the PRC may pay dividends only out of their
accumulated profits, if any, determined in accordance with Chinese accounting
standards and regulations. In addition, foreign-invested enterprises in the PRC
are required to set aside at least 10% of their respective accumulated profits
e(determined in accordance with PRC accounting standards and regulations) each
year, if any, to fund certain reserve funds unless such reserve funds have
reached 50% of their respective registered capital. These reserves are not
distributable as cash dividends. The board of directors of a FIE has the
discretion to allocate a portion of its after-tax profits to staff welfare and
bonus funds, which may not be distributed to equity owners except in the event
of liquidation.
Regulation
of a Foreign Currency’s Conversion into RMB and Investment by FIEs
On August
29, 2008, the State Administration on Foreign Exchange (the “SAFE”) issued a
Notice of the General Affairs Department of the State Administration of Foreign
Exchange on the Relevant Operating Issues concerning the Improvement of the
Administration of Payment and Settlement of Foreign Currency Capital of
Foreign-Invested Enterprises or Notice 142, to further regulate the foreign
exchange of FIEs. According to the Notice 142, FIEs shall obtain a verification
report from a local accounting firm before converting its registered capital of
foreign currency into Renminbi, and the converted Renminbi shall be used for the
business within its permitted business scope. The Notice 142 explicitly
prohibits FIEs from using RMB converted from foreign capital to make equity
investments in the PRC, unless the domestic equity investment is within the
approved business scope of the FIE and has been approved by SAFE in
advance.
Fujian
WangGang has obtained a foreign exchange registration certificate.
Under BVI
law as currently in effect, a holder of ordinary shares who is not a resident of
the BVI is exempt from BVI income tax on dividends paid with respect to the
ordinary shares and all holders of ordinary shares are not liable to the BVI for
income tax on gains realized during that year on sale or disposal of such
shares. The BVI does not impose a withholding tax on dividends paid by a
company incorporated in the BVI.
There is
no tax treaty currently in effect between the US and the BVI or between the
PRC and the BVI. However, the BVI has entered into tax information
exchange treaties with the PRC and the US, respectively.
Government
Regulations Relating to Taxation
On March
16, 2007, the National Peoples’ Congress (the “NPC”), approved and promulgated
the
PRC Enterprise Income Tax
Law
(the “New EIT Law”). The New EIT Law took effect on January 1, 2008.
Under the New EIT Law, FIEs and domestic companies are subject to a uniform tax
rate of 25%. The New EIT Law provides a five-year transition period starting
from its effective date for those enterprises which were established before the
promulgation date of the New EIT Law and which were entitled to a preferential
lower tax rate under the then-effective tax laws or
regulations.
On
December 26, 2007, the State Council issued a
Notice on Implementing Transitional
Measures for Enterprise Income Tax
, or the Notice, providing that the
enterprises that have been approved to enjoy a low tax rate prior to the
promulgation of the New EIT Law will be eligible for a five-year transition
period since January 1, 2008, during which time the tax rate will be increased
step by step to the 25% unified tax rate set out in the New EIT Law. From
January 1, 2008, for the enterprises whose applicable tax rate was 15% before
the promulgation of the New EIT Law , the tax rate will be increased to 18% for
year 2008, 20% for year 2009, 22% for year 2010, 24% for year 2011, 25% for year
2012. For the enterprises whose applicable tax rate was 24%, the tax rate will
be changed to 25% from January 1, 2008.
The New
EIT Law provides that an income tax rate of 20% may be applicable to dividends
payable to non-PRC investors that are “non-resident enterprises”. Non-resident
enterprises refer to enterprises whose controlling departments are not in the
PRC but have an institution or place of business in the PRC, or which have no
institution or place of business in the PRC but have the gain derived from the
PRC. The income tax for non-resident enterprises shall be subject to withholding
at the income source, with the payor acting as the obligatory tax withholder
under the New EIT Law, and therefore such income taxes generally called
withholding tax in practice. The State Council of the PRC has reduced the
withholding tax rate from 20% to 10% through the Implementation Rules of the New
EIT Law. It is currently unclear in what circumstances a source will be
considered as located within the PRC. After the proposed share exchange
transaction, we will be a BVI holding company and substantially all of our
income is derived from dividends we receive from our subsidiaries located in the
PRC. Thus, if we are considered as a “non-resident enterprise” under the New EIT
Law and the dividends paid to us by our subsidiary in the PRC are considered
income sourced within the PRC, such dividends may be subject to a 10%
withholding tax.
Such
income tax may be exempted or reduced by the State Council of the PRC or
pursuant to a tax treaty between the PRC and the jurisdictions in which our
non-PRC shareholders reside. For example, the 10% withholding tax is reduced to
5% pursuant to the
Double Tax
Avoidance Agreement Between Hong Kong and Mainland China
if the
beneficial owner in Hong Kong owns more than 25% of the registered capital in a
company in the PRC.
The new
tax law provides only a framework of the enterprise tax provisions, leaving many
details on the definitions of numerous terms as well as the interpretation and
specific applications of various provisions unclear and unspecified. Any
increase in the combined company’s tax rate in the future could have a material
adverse effect on its financial conditions and results of
operations.
Taxation
registration certificates have been issued to both Fujian Service and Fujian
WangGang.
F.
|
Dividends
and Paying Agents
|
The
Company has never paid any dividends. Except for payment of dividends
on Preferred Shares (as described elsewhere in this Form 20-F), we do
not plan on paying dividends on our ordinary shares and plan to retain earnings,
if any, for use in the development of our business. Payment of future
dividends on ordinary shares, if any, will be at the discretion of our board of
directors after taking into account various factors, including current financial
condition, operating results and current and anticipated cash needs. The terms
of our Preferred Shares also limit our ability to pay dividends.
Not
applicable.
Documents
concerning us that are referred to in this document may be inspected at our
principal executive offices at 18th Floor, Tower A, Zhongshan Building, No. 154,
Hudong Road, Fuzhou, Fujian Province, PRC.
In
addition, we will file annual reports and other information with the Securities
and Exchange Commission. We will file annual reports on Form 20-F and
submit other information under cover of Form 6-K. As a foreign private
issuer, we are exempt from the proxy requirements of Section 14 of the
Exchange Act and our officers, directors and principal shareholders will be
exempt from the insider short-swing disclosure and profit recovery rules of
Section 16 of the Exchange Act. Annual reports and other information
we file with the Commission may be inspected at the public reference facilities
maintained by the Commission at Room 1024, 100 F. Street, N.E., Washington,
D.C. 20549, and at its regional offices located at 233 Broadway, New York, New
York 10279 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661, and copies of all or any part thereof may be obtained from such offices
upon payment of the prescribed fees. You may call the Commission at
1-800-SEC-0330 for further information on the operation of the public reference
rooms and you can request copies of the documents upon payment of a duplicating
fee, by writing to the Commission. In addition, the Commission maintains a
web site that contains reports and other information regarding registrants
(including us) that file electronically with the Commission which can be
accessed at http://www.sec.gov.
I.
|
Subsidiary
Information
|
Not
required.
ITEM
11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Foreign
Exchange Risk
Our
reporting currency is the Renminbi. Transactions in other currencies are
recorded in Renminbi at the rates of exchange prevailing when the transactions
occur. Monetary assets and liabilities denominated in other currencies are
remeasured into Renminbi at rates of exchange in effect at the balance sheet
dates. Exchange gains and losses are recorded in our statements of operations as
a component of current period earnings.
The State
Administration on Foreign Exchange, or SAFE, of the PRC, under the authority of
the People’s Bank of China, controls the conversion of Renminbi into foreign
currencies. The principal regulation governing foreign currency exchange in
China is the Foreign Currency Administration Rules (1996), as amended, or the
“Rules”. Under the Rules, once various procedural requirements are met, Renminbi
is convertible for current account transactions, including trade and
service-related foreign exchange transactions and dividend payments, but not for
capital account transactions, including direct investment, loans or investments
in securities outside the PRC, without prior approval of the SAFE of the PRC, or
its local counterparts.
Since
July 2005, the Renminbi is no longer pegged to the U.S. dollar. Although
currently the Renminbi exchange rate versus the U.S. dollar is restricted to a
rise or fall of no more than 0.3% per day and the People’s Bank of China
regularly intervenes in the foreign exchange market to prevent significant
short-term fluctuations in the exchange rate, the Renminbi may appreciate or
depreciate significantly in value against the U.S. dollar in the medium to long
term. Moreover, it is possible that in the future, the PRC authorities may lift
restrictions on fluctuations in the Renminbi exchange rate and lessen
intervention in the foreign exchange market. As of June 30, 2010, the
exchange rate of RMB to $1 was RMB6.7815. On June 19, 2010, the People’s Bank of
China announced the removal of the de facto peg. Following this announcement,
the Renminbi appreciated from 6.7968 Renminbi per U.S. dollar on June 21, 2010
to 6.7709 Renminbi per U.S. dollar on July 2, 2010.
We
conduct substantially all of our operations through our PRC operating companies,
and their financial performance and position are measured in terms of Renminbi.
Our solutions are primarily procured, sold and delivered in the PRC for
Renminbi. The majority of our net revenue is denominated in Renminbi. Any
devaluation of the Renminbi against the U.S. dollar would consequently have an
adverse effect on our financial performance and asset values when measured in
terms of U.S. dollars. On the other hand, the appreciation of the Renminbi could
make our customers’ products more expensive to purchase because many of our
customers are involved in the export of goods, which may have an adverse impact
on their sales. A decrease in sales by our customers could have an adverse
effect on our operating results. In addition, as of June 30, 2010 and December
31, 2009, we have cash denominated in U.S. dollars amounting to RMB155,257,203
($22,894,565) and RMB159,365,864 ($23,343,469). Also, from time to time we may
have U.S. dollar denominated borrowings. Accordingly, a decoupling of the
Renminbi many affect our financial performance in the future.
We
recognized a foreign currency translation adjustment of approximately
RMB8,845,286 ($1,297,172) for the six months ended June 30, 2010 approximately
RMB 4,661,309 ($682,256) for the fiscal year ended December 31, 2009. We do not
currently engage in hedging activities and as such, we may in the future
experience economic loss as a result of any foreign currency exchange rate
fluctuations.
Interest
Rate Risk
We are
exposed to interest rate risk arising from variable rate borrowings under the
terms of which our future interest expense will fluctuate in line with any
change in our borrowing rates. We do not have any derivative financial
instruments and believe our exposure to interest rate risk and other relevant
market risks is not material. Our bank borrowings amounted to approximately
$12.4 million as of June 30, 2010. Based on the variable nature of the
underlying interest rate, the bank borrowings approximated fair value at that
date. Interest-bearing instruments carry a degree of interest rate risk. Our
future interest income may also be lower than expected and is subject to
variability due to changes in market interest rates.
If there
was a hypothetical 1% change in interest rates, the net impact to earnings and
cash flows would be approximately $ 123,987 over a one year period. The
potential change in cash flows and earning is calculated based on the change in
the net interest expense over a one year period due to an immediate 1% change in
price.
Inflation
Inflation
in the PRC has not materially impacted our results of operations since
inception, although an unanticipated increase in inflation could adversely
affect our costs and margins
ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN
EQUITY SECURITIES
Not
applicable.
PART
III
ITEM
17. FINANCIAL STATEMENTS
See Item
18.
ITEM
18. FINANCIAL STATEMENTS
|
(a)
|
Financial
Statements of the Company
|
The
consolidated financial statements of the Company and related notes required by
this item are contained on pages FI-1 through FI-29.
|
(b)
|
Financial
Statements of Predecessor Company
|
We
consider Fujian Service to be a predecessor company. The audited
financial statements of Fujian Service as of December 31, 2009 and 2008 and for
the year-ended 2009 and the period from January 8, 2008 (inception) through
December 31, 2008 and the unaudited financial statements of Fujian Service as of
June 30, 2010 and for the six months then ended and notes thereto are contained
on pages F-38 through F-83.
|
(c)
|
Financial
Statements of Business Acquired
|
We merged
with Chardan Acquisition Corp. on October 27, 2010. The audited
financial statements for Chardan Acquisition Corp. as of December 31, 2009 and
2008 and for the year ended 2009 and the period from September 30, 2008
(inception) through September 30, 2008 and the unaudited financial statements as
of June 30, 2010 and for the nine months then ended and the notes thereto are
contained on pages F-84 through F-102.
|
(d)
|
Pro
Forma Financial Information
|
Unaudited
Pro forma condensed consolidated statements of the Group, after giving effect to
the Merger and Offering as of June 30, 2010 and for the six months then ended
and for the year ended December 31, 2010 are included in financial statement on
Pages F-1 through F-9.
ITEM
19. EXHIBITS
Exhibit
No.
|
|
Description
|
1.1
|
|
Amended
and Restated Memorandum of Association of China Dredging Group Co.,
Ltd.
|
1.2
|
|
Articles
of Association of China Dredging Group Co., Ltd.
|
4.1
|
|
Employment
Agreement of Xinrong Zhuo
|
4.2
|
|
Employment
Agreement of Bin Lin
|
4.3
|
|
Employment
Agreement of Fangjie Gu
|
4.4
|
|
Agreement
and Plan of Merger by and among Chardan Acquisition Corp., Shareholders of
Chardan Acquisition Corp., China Dredging Group Co., Ltd. and Shareholders
Of China Dredging Group Co., Ltd. dated October 27,
2010
|
4.5
|
|
Securities
Purchase Agreement by and among China Dredging Group Co., Ltd. and the
Purchasers Listed on Exhibit A thereto, dated October 29,
2010
|
4.6
|
|
Registration
Rights Agreement dated October 29, 2010
|
4.7
|
|
Securities
Escrow Agreement dated October 29, 2010
|
4.8
|
|
Contracted
Management Agreement by and among Fujian WangGang Dredging Construction
Co., Ltd., Wonder Dredging LLC and Fujian Xing Gang Port
Service Ltd., dated June 30, 2010.
|
4.9
|
|
Equity
Interest Pledge Agreement by and among Qing Lin, Panxing Zhuo, Fujian
WangGang Dredging Construction Co., Ltd. and Wonder Dredging LLC, dated
June 30, 2010.
|
4.10
|
|
Contract
Relating to the Exclusive Purchase Right of Equity Interest by and among
Fujian WangGang Dredging Construction Co., Ltd., Wonder Dredging LLC
and Fujian Xing Gang Port Service Ltd., dated June 30,
2010.
|
4.11
|
|
Power
of Attorney by and among Qing Lin, Panxing Zhuo and Fujian WangGang
Dredging Construction Co., Ltd., dated June 30, 2010.
|
4.12
|
|
Power
of Attorney by and between Wonder Dredging LLC and Fujian WangGang
Dredging Construction Co., Ltd., dated June 30, 2010.
|
4.13
|
|
Engineering
Boat Purchase and Sale Contract for Xinggangjun #3 by and between Yiyang
Zhonghai Boats and Ships Limited Liability Company and Fujian Xing Gang
Shipping Service Co., Ltd., January 13, 2008
|
4.14
|
|
"Hongtaihai"
Engineering Boat Purchase and Sale Contract for Xinggangjun #66 by and
between Taizhou Hongtaihai Port Engineering Co., Ltd. and Fujian Xing Gang
Shipping Service Co., Ltd., March 23, 2008.
|
4.15
|
|
Engineering
Boat Purchase and Sale Contract for Xinggangjun #6 by and between Yiyang
Zhonghai Boats and Ships Limited Liability Company and Fujian Xing Gang
Shipping Service Co., Ltd., dated January 18, 2008.
|
4.16
|
|
Engineering
Boat Purchase and Sale Contract by and between Yiyang Zhonghai Boats and
Ships Limited Liability Company and Fujian Xing Gang Shipping Service Co.,
Ltd., dated May 20, 2009.
|
4.17
|
|
Crewmen
Dispatch Contract for Xinggangjun #3 by and between Fujian Haiyi
International Shipping Service Agency Co., Ltd. and Fujian Xing Gang
Shipping Service Co., Ltd., April 21, 2008.
|
4.18
|
|
Crewmen
Dispatch Contract for Xinggangjun #66 by and between Fujian Haiyi
International Shipping Service Agency Co., Ltd. and Fujian Xing Gang
Shipping Service Co., Ltd., February 21, 2008.
|
4.19
|
|
Crewmen
Dispatch Contract for Xinggangjun #6 by and between Fujian Haiyi
International Shipping Service Agency Co., Ltd. and Fujian Xinggang
Shipping Service Co., Ltd., dated April 21, 2008.
|
4.20
|
|
Ship
Lease Contract for Hengshengjun #88 by and between Lianyungang Hengrong
Shipping Service Co., Ltd. and Fujian Xing Gang Shipping Service Co.,
Ltd., dated January 8, 2008.
|
4.21
|
|
Crewmen
Assignment Agreement for for Hengshengjun #88 by and between Lianyungang
Hengrong Shipping Service Co., Ltd. and Fujian Xing Gang Shipping Service
Co., Ltd., dated January 8, 2008.
|
4.22
|
|
Ship
Lease Supplemental Agreement for Hengshengjun #88 by and between
Lianyungang Hengrong Shipping Service Co., Ltd. and Fujian Xing Gang
Shipping Service Co., Ltd., dated April 13, 2010.
|
4.23
|
|
Crewmen
Assignment Supplemental Agreement for Hengshengjun #88 by and between
Lianyungang Hengrong Shipping Service Co., Ltd. and Fujian Xing Gang
Shipping Service Co., Ltd., dated May 21, 2010.
|
4.24
|
|
Ship
Lease Contract for Xinggangjun #9 by and between Fujian Lutong Highway
Engineering Construction Co., Ltd. and Fujian Xing Gang Shipping Service
Co., Ltd., dated May 20, 2008.
|
4.25
|
|
Crewmen
Assignment Agreement for Xinggangjun #9 by and between between Fujian
Lutong Highway Engineering Construction Co., Ltd. and Fujian Xing Gang
Shipping Service Co., Ltd., dated May 20, 2008.
|
4.26
|
|
Ship
Lease Supplemental Agreement Contract for Xinggangjun #9 by and between
Fujian Lutong Highway Engineering Construction Co., Ltd. and Fujian Xing
Gang Shipping Service Co., Ltd., dated April 11, 2010.
|
4.27
|
|
Crewmen
Assignment Supplemental Agreement for Xinggangjun #9 by and between Fujian
Lutong Highway Engineering Construction Co., Ltd. and Fujian Xing Gang
Shipping Service Co., Ltd., dated May 21, 2010.
|
4.28
|
|
Ship
Lease Contract for Liya #10 by and between Beihai Shunda Liya Shipping
Service Co., Ltd. and Fujian Xing Gang Port Service Co., Ltd., dated June
14, 2010.
|
4.29
|
|
Crewmen
Assignment Agreement for Liya #10 by and between Beihai Shunda Liya
Shipping Service Co., Ltd. and Fujian Xing Gang Port Service Co., Ltd.,
dated June 14, 2010.
|
4.30
|
|
Ship
Leasing Contract for Honglinjun #9 by and between Zhejiang Honglin Ship
Engineering Co., Ltd. and Fujian Xing Gang Port Service Co., Ltd., dated
June 19, 2010.
|
4.31
|
|
Crewmen
Assignment Agreement for Honglinjun #9 by and between Zhejiang Honglin
Ship Engineering Co., Ltd. and Fujian Xing Gang Port Service Co., Ltd.,
dated June 19, 2010.
|
4.32
|
|
Ship
Lease Contract for Honglinjun #18 by and between Zhejiang Honglin Ship
Engineering Co., Ltd. and Fujian Xing Gang Port Service Co., Ltd., dated
June 18, 2010.
|
4.33
|
|
Crewmen
Assignment Agreement for Honglinjun #18 by and between Zhejiang Honglin
Ship Engineering Co., Ltd. and Fujian Xing Gang Port Service Co., Ltd.,
dated June 18, 2010.
|
4.34
|
|
Ship
Lease Contract for Xiechang #18 by and between Zhonghai Engineering
Construction General Bureau Dalian Engineering Construction Bureau and
Fujian Xing Gang Port Service Co., Ltd., dated June 24,
2010.
|
4.35
|
|
Crewmen
Assignment Agreement for Xiechang #18 by and between Zhonghai Engineering
Construction General Bureau Dalian Engineering Construction Bureau and
Fujian Xing Gang Port Service Co., Ltd., dated June 24,
2010.
|
4.36
|
|
Office
Lease Agreement by and between LIN Ping and Fujian Xing Gang Shipping
Service Co., Ltd., dated January 1, 2008.
|
4.37
|
|
Office
Lease Agreement by and between LIN Ping and Fujian Xing Gang Port Service
Co., Ltd., dated January 1, 2010.
|
4.38
|
|
Office
Lease Supplemental Agreement by and between LIN Ping and Fujian Xing Gang
Port Service Co., Ltd., dated March 30, 2010.
|
8.1
|
|
List
of Subsidiaries
|
The
Registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this report on its behalf.
CHINA
DREDGING GROUP CO., LTD.
|
|
By:
|
/s/ Xinrong Zhuo
|
|
|
|
Name:
Xinrong Zhuo
|
|
Title:
Chief Executive Officer
|
|
Date:
November 2, 2010
|
|
EXHIBIT
INDEX
Exhibit
No.
|
|
Description
|
1.1
|
|
Amended
and Restated Memorandum of Association of China Dredging Group Co.,
Ltd.
|
1.2
|
|
Articles
of Association of China Dredging Group Co., Ltd.
|
4.1
|
|
Employment
Agreement of Xinrong Zhuo
|
4.2
|
|
Employment
Agreement of Bin Lin
|
4.3
|
|
Employment
Agreement of Fangjie Gu
|
4.4
|
|
Agreement
and Plan of Merger by and among Chardan Acquisition Corp., Shareholders of
Chardan Acquisition Corp., China Dredging Group Co., Ltd. and Shareholders
Of China Dredging Group Co., Ltd. dated October 27,
2010
|
4.5
|
|
Securities
Purchase Agreement by and among China Dredging Group Co., Ltd. and the
Purchasers Listed on Exhibit A thereto, dated October 29,
2010
|
4.6
|
|
Registration
Rights Agreement dated October 29, 2010
|
4.7
|
|
Securities
Escrow Agreement dated October 29, 2010
|
4.8
|
|
Contracted
Management Agreement by and among Fujian WangGang Dredging Construction
Co., Ltd., Wonder Dredging LLC and Fujian Xing Gang Port
Service Ltd., dated June 30, 2010.
|
4.9
|
|
Equity
Interest Pledge Agreement by and among Qing Lin, Panxing Zhuo, Fujian
WangGang Dredging Construction Co., Ltd. and Wonder Dredging LLC, dated
June 30, 2010.
|
4.10
|
|
Contract
Relating to the Exclusive Purchase Right of Equity Interest by and among
Fujian WangGang Dredging Construction Co., Ltd., Wonder Dredging LLC
and Fujian Xing Gang Port Service Ltd., dated June 30,
2010.
|
4.11
|
|
Power
of Attorney by and among Qing Lin, Panxing Zhuo and Fujian WangGang
Dredging Construction Co., Ltd., dated June 30, 2010.
|
4.12
|
|
Power
of Attorney by and between Wonder Dredging LLC and Fujian WangGang
Dredging Construction Co., Ltd., dated June 30, 2010.
|
4.13
|
|
Engineering
Boat Purchase and Sale Contract for Xinggangjun #3 by and between Yiyang
Zhonghai Boats and Ships Limited Liability Company and Fujian Xing Gang
Shipping Service Co., Ltd., January 13, 2008
|
4.14
|
|
"Hongtaihai"
Engineering Boat Purchase and Sale Contract for Xinggangjun #66 by and
between Taizhou Hongtaihai Port Engineering Co., Ltd. and Fujian Xing Gang
Shipping Service Co., Ltd., March 23, 2008.
|
4.15
|
|
Engineering
Boat Purchase and Sale Contract for Xinggangjun #6 by and between Yiyang
Zhonghai Boats and Ships Limited Liability Company and Fujian Xing Gang
Shipping Service Co., Ltd., dated January 18, 2008.
|
4.16
|
|
Engineering
Boat Purchase and Sale Contract by and between Yiyang Zhonghai Boats and
Ships Limited Liability Company and Fujian Xing Gang Shipping Service Co.,
Ltd., dated May 20, 2009.
|
4.17
|
|
Crewmen
Dispatch Contract for Xinggangjun #3 by and between Fujian Haiyi
International Shipping Service Agency Co., Ltd. and Fujian Xing Gang
Shipping Service Co., Ltd., April 21, 2008.
|
4.18
|
|
Crewmen
Dispatch Contract for Xinggangjun #66 by and between Fujian Haiyi
International Shipping Service Agency Co., Ltd. and Fujian Xing Gang
Shipping Service Co., Ltd., February 21, 2008.
|
4.19
|
|
Crewmen
Dispatch Contract for Xinggangjun #6 by and between Fujian Haiyi
International Shipping Service Agency Co., Ltd. and Fujian Xinggang
Shipping Service Co., Ltd., dated April 21, 2008.
|
4.20
|
|
Ship
Lease Contract for Hengshengjun #88 by and between Lianyungang Hengrong
Shipping Service Co., Ltd. and Fujian Xing Gang Shipping Service Co.,
Ltd., dated January 8, 2008.
|
4.21
|
|
Crewmen
Assignment Agreement for for Hengshengjun #88 by and between Lianyungang
Hengrong Shipping Service Co., Ltd. and Fujian Xing Gang Shipping Service
Co., Ltd., dated January 8, 2008.
|
4.22
|
|
Ship
Lease Supplemental Agreement for Hengshengjun #88 by and between
Lianyungang Hengrong Shipping Service Co., Ltd. and Fujian Xing Gang
Shipping Service Co., Ltd., dated April 13, 2010.
|
4.23
|
|
Crewmen
Assignment Supplemental Agreement for Hengshengjun #88 by and between
Lianyungang Hengrong Shipping Service Co., Ltd. and Fujian Xing Gang
Shipping Service Co., Ltd., dated May 21, 2010.
|
4.24
|
|
Ship
Lease Contract for Xinggangjun #9 by and between Fujian Lutong Highway
Engineering Construction Co., Ltd. and Fujian Xing Gang Shipping Service
Co., Ltd., dated May 20, 2008.
|
4.25
|
|
Crewmen
Assignment Agreement for Xinggangjun #9 by and between between Fujian
Lutong Highway Engineering Construction Co., Ltd. and Fujian Xing Gang
Shipping Service Co., Ltd., dated May 20, 2008.
|
4.26
|
|
Ship
Lease Supplemental Agreement Contract for Xinggangjun #9 by and between
Fujian Lutong Highway Engineering Construction Co., Ltd. and Fujian Xing
Gang Shipping Service Co., Ltd., dated April 11, 2010.
|
4.27
|
|
Crewmen
Assignment Supplemental Agreement for Xinggangjun #9 by and between Fujian
Lutong Highway Engineering Construction Co., Ltd. and Fujian Xing Gang
Shipping Service Co., Ltd., dated May 21, 2010.
|
4.28
|
|
Ship
Lease Contract for Liya #10 by and between Beihai Shunda Liya Shipping
Service Co., Ltd. and Fujian Xing Gang Port Service Co., Ltd., dated June
14, 2010.
|
4.29
|
|
Crewmen
Assignment Agreement for Liya #10 by and between Beihai Shunda Liya
Shipping Service Co., Ltd. and Fujian Xing Gang Port Service Co., Ltd.,
dated June 14, 2010.
|
4.30
|
|
Ship
Leasing Contract for Honglinjun #9 by and between Zhejiang Honglin Ship
Engineering Co., Ltd. and Fujian Xing Gang Port Service Co., Ltd., dated
June 19, 2010.
|
4.31
|
|
Crewmen
Assignment Agreement for Honglinjun #9 by and between Zhejiang Honglin
Ship Engineering Co., Ltd. and Fujian Xing Gang Port Service Co., Ltd.,
dated June 19, 2010.
|
4.32
|
|
Ship
Lease Contract for Honglinjun #18 by and between Zhejiang Honglin Ship
Engineering Co., Ltd. and Fujian Xing Gang Port Service Co., Ltd., dated
June 18, 2010.
|
4.33
|
|
Crewmen
Assignment Agreement for Honglinjun #18 by and between Zhejiang Honglin
Ship Engineering Co., Ltd. and Fujian Xing Gang Port Service Co., Ltd.,
dated June 18, 2010.
|
4.34
|
|
Ship
Lease Contract for Xiechang #18 by and between Zhonghai Engineering
Construction General Bureau Dalian Engineering Construction Bureau and
Fujian Xing Gang Port Service Co., Ltd., dated June 24,
2010.
|
4.35
|
|
Crewmen
Assignment Agreement for Xiechang #18 by and between Zhonghai Engineering
Construction General Bureau Dalian Engineering Construction Bureau and
Fujian Xing Gang Port Service Co., Ltd., dated June 24,
2010.
|
4.36
|
|
Office
Lease Agreement by and between LIN Ping and Fujian Xing Gang Shipping
Service Co., Ltd., dated January 1, 2008.
|
4.37
|
|
Office
Lease Agreement by and between LIN Ping and Fujian Xing Gang Port Service
Co., Ltd., dated January 1, 2010.
|
4.38
|
|
Office
Lease Supplemental Agreement by and between LIN Ping and Fujian Xing Gang
Port Service Co., Ltd., dated March 30, 2010.
|
8.1
|
|
List
of Subsidiaries
|
CHINA
DREDGING GROUP CO., LTD AND SUBSIDIARIES
Index
to Financial Statements
|
|
|
|
|
Page
|
Pro
Forma Consolidated Financial Statements of China Dredging Group Co., Ltd.
|
|
F-1
|
Introduction
to Unaudited Pro Forma Financial Statements
|
|
F-1
|
Unaudited
Pro Forma Consolidated Balance Sheet, June 30, 2010
|
|
F-4
|
Unaudited
Pro Forma Consolidated Statement of Income, for the Six Months Ended June
30. 2010
|
|
F-6
|
Unaudited
Pro Forma Consolidated Statement of Income, for the Year Ended December
31, 2009
|
|
F-8
|
|
|
Consolidated Financial Statements
of China Dredging Group Co., Ltd and Subsidiaries
(Unaudited)
|
|
F-10
|
Consolidated
Balance Sheet at June 30, 2010 (Unaudited)
|
|
F-10
|
Consolidated
Statement of Operations for the Period from April 14, 2010 (Date of
Inception) to June 30, 2010 (Unaudited)
|
|
F-11
|
Consolidated
Statement of Changes in Stockholders’ Equity for the Period from April 14,
2010 (Date of Inception) to June 30, 2010 (Unaudited)
|
|
F-12
|
Consolidated
Statement of Cash Flows for the Period from April 14, 2010 (Date of
Inception) to June 30, 2010 (Unaudited)
|
|
F-13
|
Notes
to the Consolidated Financial Statements (Unaudited)
|
|
F-14
|
|
|
|
Consolidated
Financial Statements of FuJian Xing Gang Port Service Co.,
Ltd. (Unaudited)
|
|
F-38
|
Balance
Sheets at June 30, 2010 (Unaudited) and December 31, 2009
|
|
F-38
|
Statements
of Income for the Three and Six Months Ended June 30, 2010 and 2009
(Unaudited)
|
|
F-39
|
Statement
of Changes in Owners’ Equity for the Six Months Ended June 30, 2010
(Unaudited)
|
|
F-40
|
Statements
of Cash Flows for the Six Months Ended June 30, 2010 and 2009
(Unaudited)
|
|
F-41
|
Notes
to the Financial Statements (Unaudited)
|
|
F-42
|
|
|
|
Consolidated
Financial Statements of FuJian Xing Gang Port Service Co.,
Ltd.
|
|
F-63
|
Report
of Independent Registered Public Accounting Firm
|
|
F-63
|
Balance
Sheets at December 31, 2009 and 2008
|
|
F-64
|
Statements
of Income for the Years Ended December 31, 2009 and 2008
|
|
F-65
|
Statement
of Changes in Owners’ Equity for the Years Ended December 31, 2009 and
2008
|
|
F-66
|
Statements
of Cash Flows for the Years Ended December 31, 2009 and
2008
|
|
F-67
|
Notes
to the Financial Statements
|
|
F-68
|
|
|
|
Condensed
Financial Statements of Chardan Acquisition Corp. (A Development Stage
Company) for the Nine Months Ended June 30, 2010 and for the Period from
September 26, 2008 (Inception) to June 30, 2010
(Unaudited)
|
|
F-84
|
Condensed
Balance Sheets as of June 30, 2010 (Unaudited) and as of September 30,
2009
|
|
F-84
|
Condensed
Statements of Operations for the Nine Months Ended June 30, 2010 and June
30, 2009 and for the Period from September 26, 2008 (Inception) to June
30, 2010 (Unaudited)
|
|
F-85
|
Condensed
Statements of Changes in Stockholders’ Deficiency for the Period from
September 26, 2008 (Inception) to June 30, 2010
(Unaudited)
|
|
F-86
|
Condensed
Statements of Cash Flows for the Nine Months Ended June 30, 2010 and for
the Period from September 26, 2008 (Inception) to June 30, 2010
(Unaudited)
|
|
F-87
|
Notes
to Condensed Financial Statements (Unaudited)
|
|
F-88
|
|
|
|
Consolidated
Financial Statements of Chardan Acquisition Corp. (A Development Stage
Company) for the Years Ended September 30, 2009 and 2008
|
|
F-93
|
Report
of Independent Registered Public Accounting Firm
|
|
F-93
|
Balance
Sheets as of September 30, 2009 and as of September 30,
2008
|
|
F-94
|
Statements
of Operations for the Year Ended September 30, 2009, for the Period from
September 26, 2008 (Inception) to September 30, 2008 and for the Period
from September 26, 2008 (Inception) to September 30, 2009
|
|
F-95
|
Statements
of Changes in Stockholders’ Deficiency for the Period from September 26,
2008 (Inception) to September 30, 2009
|
|
F-96
|
Statements
of Cash Flows for the Year Ended September 30, 2009, for the Period from
September 26, 2008 (Inception) to September 30, 2008 and for the Period
from September 26, 2008 (Inception) to September 30, 2009
|
|
F-97
|
Notes
to the Financial statements
|
|
F-98
|
UNAUDITED
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The
following unaudited pro forma consolidated financial statements give effect to
(i) the October 27, 2010 merger between Chardan Acquisition Corp. (“CAC”) and
China Dredging Group Co. Ltd. and or (the “Company”) (the “Merger”), (ii) the
completion of the initial closing and the maximum offering of a private
placement of the Class A Preferred shares of China Dredging Group Co. Ltd.
consummated on October 29, 2010 (the “Offering”), and (iii) assumptions and
adjustments set forth in the accompanying notes.
The
following unaudited pro forma consolidated financial statements and accompanying
notes should be read in conjunction with:
|
-
|
the
unaudited consolidated historical financial statements and related notes
of the Company at June 30, 2010 and for the period from April 14, 2010
(inception) through June 30, 2010
|
|
-
|
the
audited financial statements of CAC at and for the year ended September
30, 2009, and at September 30, 2008 and for the period from September 26,
2008 (inception), together with the unaudited financial
statements of CAC at and for the nine months ended June 30,
2010;
|
|
-
|
the
audited financial statements of Fujian Xing Gang Port Service Co. Ltd.
(“Fujian Service”) at and for the year ended December 31, 2009 and at
December 31, 2008 and for the period from January 8, 2008 (date of
inception) through December 31, 2008 and the unaudited audited financial
statements of Fujian Service at June 30, 2010 and for the six months then
ended.
|
All of
the above financial statements are included in this filing on form 20-F on pages
F-10 through F-37 (for the Company), F-38 through F-83 for Fujian Service
and F-84 through F-102 for CAC.
The
Company acquired a 50% interest in Fujian Service on June 29, 2010 and acquired
control of and consolidates Fujian Service as of June 30, 2010 in accordance
with ASC 810. The pro forma statements of operations set forth below
for the six months ended June 30, 2010 and for year-ended December 31, 2009
incorporate information from the unaudited financial statements of Fujian
Service for the six months ended June 30, 2010 and from its audited financial
statements for the year ended December 31, 2009, as well as from the unaudited
financial statements of the Company. When we include financial
statement results of Fujian Service in the unaudited pro forma combined
financial statements below we refer to the “Group”.
The
Company has adopted ASC 805 “Business Combinations”, and under ASC 805, a
company consummating a merger needs to consider a number of factors to determine
the acquirer for accounting purposes including which company’s stockholders
retain the majority voting interest in a consolidated business, control the
Board of Directors of consolidated business and whose senior management
dominates the management of the consolidated business. The
Merger resulted in our shareholders of the retaining a majority voting interest
in the consolidated business and Company management and its board of
directors continuing in the same roles in the consolidated
company. Therefore, we have determined that the Company is the
accounting acquirer. Because CAC did not have any assets with operating
substance, the Merger has been accounted for as a reorganization and
recapitalization (reverse merger), rather than as a business combination under
the purchase method of accounting.
In
conjunction with the Merger, the Company conducted the Offering of Convertible
Preferred Shares with an initial subscription amount of $21,855,000 million and
a maximum subscription amount of $75.0 million. The following
unaudited pro forma combined financial statements have been prepared using two
different levels for Offering proceeds received:
Maximum Offering
Assumption:
This
presentation assumes that the maximum of $75 million of gross proceeds are
received in the Offering; and
Initial
Offering Assumption:
This
presentation assumes that the gross proceeds actually received in the initial
closing, amounting to $21,855,000 million, represents the total gross proceeds
received in the Offering and that no further closings will occur.
The pro
forma balance sheet assumes the Merger and Offering (together the
“Transactions”) took place on June 30, 2010. The pro forma statements
of operations assume the Transactions took place on the first day of each of the
periods presented.
We are
providing this information to aid you in your analysis of the financial aspects
of the Transactions. The unaudited pro forma information is not necessarily
indicative of the financial position or results of operations that may have
actually occurred had the Transactions taken place on the dates noted, or the
future financial position or operating results of the combined
company.
The
unaudited pro forma combined financial information is not necessarily indicative
of the operation results that would have actually been achieved if the
Transactions had been consummated as of the beginning of the period indicated,
nor is it necessarily indicative of the future operating results of the combined
business.
UNAUDITED
PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS
PRO FORMA ADJUSTMENTS
The
following adjustments are used to derive the pro forma weighted average number
of shares and pro forma financial statements presented below:
|
(a)
|
to
contribute shareholders loans and advances into equity in connection with
reverse merger.
|
|
(b)
|
to
record the issuance of 500,000 shares of the Company common stock (no par
value) to CAC shareholders upon consummation of the Merger, and to
eliminate CAC’s equity in connection with the reverse
merger;
|
|
(c)
|
to
record the issuance of 15,000,000 (maximum offering) Class A Preferred
shares and the receipt of gross proceeds and to record payment of
contingent fees to the placement agent equal to 7% of the Offering
amount;
|
|
(d)
|
to
record the issuance of 4,371,000 (minimum offering) Class A Preferred
shares and the receipt of gross proceeds and to record payment of
contingent fees to the placement agent equal to 7% of the Offering
amount;
|
|
(e)
|
to
reclassify the retained earnings of CAC in connection with reverse
acquisition as the Company will be the continuing entity for accounting
purposes;
|
|
(f)
|
to
record estimated expenses related in connection with
transactions;
|
|
(g)
|
the
pro forma consolidated net income per share was calculated by dividing pro
forma combined net income by the pro forma weighted average number of
shares outstanding as
follows:
|
|
|
Six
months ended
|
|
|
Year
ended
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Assuming Maximum
Proceeds from
Offering
|
|
|
Assuming Initial
Proceeds frm
Offering
|
|
|
Assuming
Maximum
Proceeds
from
Offering
|
|
|
Assuming
Initial
Proceeds
from
Offering
|
|
|
|
($75.0 million)
|
|
|
($21.9 million)
|
|
|
($75.0 million)
|
|
|
($21.9 million)
|
|
Company
shares
|
|
|
43,829,748
|
|
|
|
43,829,748
|
|
|
|
43,829,748
|
|
|
|
43,829,748
|
|
Shares
issued in the Merger to CAC shareholders
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
500,000
|
|
Weighted
average shares outstanding - Basic: (+)
|
|
|
44,329,748
|
|
|
|
44,329,748
|
|
|
|
44,329,748
|
|
|
|
44,329,748
|
|
Incremental
Company shares issuable upon conversion of Class A Preferred Shares issued
in the Offering:
|
|
|
15,000,000
|
|
|
|
4,371,000
|
|
|
|
15,000,000
|
|
|
|
4,371,000
|
|
Weighted
average shares - Fully Diluted
|
|
|
59,329,748
|
|
|
|
48,700,748
|
|
|
|
59,329,748
|
|
|
|
48,700,748
|
|
|
(+) Company
weighted average shares outstanding are calculated giving effect from the
date shown of the Company share redesignation (to 52,177,323
ordinary shares having no par value) and the issuance to the
CAC shareholders upon closing in exchange for their CAC common
shares (500,000
ordinary shares).
|
The pro
forma financial statements should be read giving consideration to the following
facts and assumptions:
|
·
|
The
pro forma statements of income from operations for the six months ending
June 30, 2010 and for the year ending December 31, 2009 is for the Group
(as defined above in the introduction to this section under the heading
“Unaudited Pro Forma Combined Financial Statements”)), and thus they
include the results of the statements of operations of Fujian Service for
the six months ending June 30, 2010 and for the year ending December 31,
2009, respectively. Refer to the unaudited financial statements
of Fujian Service as of and for the six months ending June 30, 2010 and to
the audited financial statements of Fujian Service for the year ending
December 31, 2009 as well as to Note 2 of the unaudited financial
statements of the Company for the source of the figures contained in the
pro forma statements of income from operations for the
Company.
|
|
·
|
The
“income per share amounts – basic” in the pro forma statements of income
from operations for the year ending December 31, 2009 and for the six
months ending June30, 2010 assume that none of the Class A Preferred
shares issued or issuable by the Company in the Offering are converted to
ordinary shares.
|
|
·
|
The
“income per share amounts – diluted” in the pro forma statements of income
from operations for the year ending December 31, 2009 and for the six
months ending June30, 2010 assume that all of the Class A Preferred shares
issued or issuable by the Company in the Offering are converted to
ordinary shares.
|
China
Dredging Group Co. Ltd. and Subsidiaries
Pro
Forma Consolidated Balance Sheet (Maximum Offering
Assumption)
June
30, 2010
Unaudited
|
|
China
Dredging
Group
Co., Ltd.
and Subsidiaries
(BVI)
|
|
|
Chardan
Acquisition
Corp.
(BVI)
|
|
|
Pro
Forma
Adjustments
|
|
|
|
Pro
Forma
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
25,388,638
|
|
|
$
|
-
|
|
|
$
|
75,000,000
|
|
(c)
|
|
$
|
94,538,638
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,250,000
|
)
|
(c)
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(600,000
|
)
|
(f)
|
|
|
-
|
|
Restricted
cash
|
|
|
25,968,089
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
25,968,089
|
|
Cost
and estimated earnings in excess of billings on uncompleted
projects
|
|
|
8,845,328
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
8,845,328
|
|
Acrrued
Transaction Expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
Prepaid
Expense
|
|
|
-
|
|
|
|
1,515
|
|
|
|
-
|
|
|
|
|
1,515
|
|
Other
receivables
|
|
|
1,201
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
1,201
|
|
Inventories
|
|
|
1,193,210
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
1,193,210
|
|
Total
current assets
|
|
|
61,396,466
|
|
|
|
1,515
|
|
|
|
69,150,000
|
|
|
|
|
130,547,981
|
|
Non-current
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
dredger deposit
|
|
|
2,211,932
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
2,211,932
|
|
Property
and equipment, net
|
|
|
41,689,943
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
41,689,943
|
|
Total
non-current assets
|
|
|
43,901,875
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
43,901,875
|
|
Total
assets
|
|
$
|
105,298,341
|
|
|
$
|
1,515
|
|
|
$
|
69,150,000
|
|
|
|
$
|
174,449,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY/(DEFICIENCY)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
789,086
|
|
|
$
|
750
|
|
|
$
|
(750
|
)
|
(a)
|
|
$
|
789,086
|
|
Term
loan
|
|
|
4,423,865
|
|
|
|
33,688
|
|
|
|
(33,688
|
)
|
(a)
|
|
|
4,423,865
|
|
Income
tax payable
|
|
|
3,418,577
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
3,418,577
|
|
Accrued
liabilities and other payables
|
|
|
928,484
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
928,484
|
|
Due
to a stockholder
|
|
|
1,691,221
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
1,691,221
|
|
Total
current liabilities
|
|
|
11,251,233
|
|
|
|
34,438
|
|
|
|
(34,438
|
)
|
|
|
|
11,251,233
|
|
Non-current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term
loan, net of current portion
|
|
|
7,962,957
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
7,962,957
|
|
Convertible
preferred stock subject to redemption
|
|
|
-
|
|
|
|
-
|
|
|
|
75,000,000
|
|
|
|
|
75,000,000
|
|
Total
non-current liabilities
|
|
|
7,962,957
|
|
|
|
-
|
|
|
|
75,000,000
|
|
|
|
|
82,962,957
|
|
Total
liabilities
|
|
|
19,214,190
|
|
|
|
34,438
|
|
|
|
74,965,562
|
|
|
|
|
94,214,190
|
|
Stockholders'
equity/(deficiency):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, no par value
|
|
|
-
|
|
|
|
31,499
|
|
|
|
(31,499
|
)
|
(b)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
80,205,592
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
74,357,107
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
31,499
|
|
(b)
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(64,422
|
)
|
(e)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
34,438
|
|
(a)
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,250,000
|
)
|
(c)
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(600,000
|
)
|
(f)
|
|
|
-
|
|
Statutory
reserves
|
|
|
4,888,018
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
4,888,018
|
|
Accumulated
deficit
|
|
|
(318,442
|
)
|
|
|
(64,422
|
)
|
|
|
64,422
|
|
(e)
|
|
|
(318,442
|
)
|
Accumulated
and other comprehensive income
|
|
|
1,308,983
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
1,308,983
|
|
Total
stockholders' equity/(deficiency)
|
|
|
86,084,151
|
|
|
|
(32,923
|
)
|
|
|
(5,815,562
|
)
|
|
|
|
80,235,666
|
|
Total
liabilities and stockholders' equity/(deficiency)
|
|
$
|
105,298,341
|
|
|
$
|
1,515
|
|
|
$
|
69,150,000
|
|
|
|
$
|
174,449,856
|
|
China
Dredging Group Co. Ltd. and Subsidiaries
Pro
Forma Consolidated Balance Sheet (Initial Offering
Assumption)
June
30, 2010
Unaudited
|
|
China
Dredging
Group
Co., Ltd.
and Subsidiaries
(BVI)
|
|
|
Chardan
Acquisition
Corp.
(BVI)
|
|
|
Pro
Forma
Adjustments
|
|
|
|
Pro
Forma
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
25,388,638
|
|
|
$
|
-
|
|
|
$
|
21,855,000
|
|
(d)
|
|
$
|
45,209,713
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,479,850
|
)
|
(d)
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(554,075
|
)
|
(f)
|
|
|
-
|
|
Restricted
cash
|
|
|
25,968,089
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
25,968,089
|
|
Cost
and estimated earnings in excess of billings on uncompleted
projects
|
|
|
8,845,328
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
8,845,328
|
|
Acrrued
Transaction Expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
Prepaid
Expense
|
|
|
-
|
|
|
|
1,515
|
|
|
|
-
|
|
|
|
|
1,515
|
|
Other
receivables
|
|
|
1,201
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
1,201
|
|
Inventories
|
|
|
1,193,210
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
1,193,210
|
|
Total
current assets
|
|
|
61,396,466
|
|
|
|
1,515
|
|
|
|
19,821,075
|
|
|
|
|
81,219,056
|
|
Non-current
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
dredger deposit
|
|
|
2,211,932
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
2,211,932
|
|
Property
and equipment, net
|
|
|
41,689,943
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
41,689,943
|
|
Total
non-current assets
|
|
|
43,901,875
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
43,901,875
|
|
Total
assets
|
|
$
|
105,298,341
|
|
|
$
|
1,515
|
|
|
$
|
19,821,075
|
|
|
|
$
|
125,120,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY/(DEFICIENCY)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
789,086
|
|
|
$
|
750
|
|
|
$
|
(750
|
)
|
(a)
|
|
$
|
789,086
|
|
Term
loan
|
|
|
4,423,865
|
|
|
|
33,688
|
|
|
|
(33,688
|
)
|
(a)
|
|
|
4,423,865
|
|
Income
tax payable
|
|
|
3,418,577
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
3,418,577
|
|
Accrued
liabilities and other payables
|
|
|
928,484
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
928,484
|
|
Due
to a stockholder
|
|
|
1,691,221
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
1,691,221
|
|
Total
current liabilities
|
|
|
11,251,233
|
|
|
|
34,438
|
|
|
|
(34,438
|
)
|
|
|
|
11,251,233
|
|
Non-current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term
loan, net of current portion
|
|
|
7,962,957
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
7,962,957
|
|
Convertible
preferred stock subject to redemption
|
|
|
-
|
|
|
|
-
|
|
|
|
21,855,000
|
|
|
|
|
21,855,000
|
|
Total
non-current liabilities
|
|
|
7,962,957
|
|
|
|
-
|
|
|
|
21,855,000
|
|
|
|
|
29,817,957
|
|
Total
liabilities
|
|
|
19,214,190
|
|
|
|
34,438
|
|
|
|
21,820,562
|
|
|
|
|
41,069,190
|
|
Stockholders'
equity/(deficiency):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, no par value
|
|
|
-
|
|
|
|
31,499
|
|
|
|
(31,499
|
)
|
(b)
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
Additional
paid-in capital
|
|
|
80,205,592
|
|
|
|
-
|
|
|
|
31,499
|
|
(b)
|
|
|
78,173,182
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34,438
|
|
(a)
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(64,422
|
)
|
(e)
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,479,850
|
)
|
(d)
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(554,075
|
)
|
(f)
|
|
|
-
|
|
Statutory
reserves
|
|
|
4,888,018
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
4,888,018
|
|
Accumulated
deficit
|
|
|
(318,442
|
)
|
|
|
(64,422
|
)
|
|
|
64,422
|
|
(e)
|
|
|
(318,442
|
)
|
Accumulated
and other comprehensive income
|
|
|
1,308,983
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
1,308,983
|
|
Total
stockholders' equity/(deficiency)
|
|
|
86,084,151
|
|
|
|
(32,923
|
)
|
|
|
(1,999,487
|
)
|
|
|
|
84,051,741
|
|
Total
liabilities and stockholders' equity/(deficiency)
|
|
$
|
105,298,341
|
|
|
$
|
1,515
|
|
|
$
|
19,821,075
|
|
|
|
$
|
125,120,931
|
|
China
Dredging Group Co. Ltd. and Subsidiaries
Pro
Forma Consolidated Statement of Income (Maximum Offering
Assumption)
Six
Months Ended June 30, 2010
Unaudited
|
|
Group
|
|
|
Chardan Acquisition
Corp. (BVI)
|
|
|
Pro Forma
Adjustment
|
|
|
Pro Forma
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
revenue
|
|
$
|
45,981,433
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
45,981,433
|
|
Cost
of revenue
|
|
|
20,389,446
|
|
|
|
17,219
|
|
|
|
-
|
|
|
|
20,406,665
|
|
Gross
Profit
|
|
|
25,591,987
|
|
|
|
(17,219
|
)
|
|
|
-
|
|
|
|
25,574,768
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
2,367,968
|
|
|
|
7,903
|
|
|
|
-
|
|
|
|
2,375,871
|
|
Total
operating expenses
|
|
|
2,367,968
|
|
|
|
7,903
|
|
|
|
-
|
|
|
|
2,375,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
23,224,019
|
|
|
|
(25,122
|
)
|
|
|
-
|
|
|
|
23,198,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
44,727
|
|
|
|
-
|
|
|
|
-
|
|
|
|
44,727
|
|
Interest
expense
|
|
|
(442,827
|
)
|
|
|
(689
|
)
|
|
|
-
|
|
|
|
(442,827
|
)
|
Sundry
income
|
|
|
88
|
|
|
|
-
|
|
|
|
-
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
|
22,826,007
|
|
|
|
(25,811
|
)
|
|
|
-
|
|
|
|
22,800,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
5,784,341
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,784,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
$
|
17,041,666
|
|
|
$
|
(25,811
|
)
|
|
$
|
-
|
|
|
$
|
17,015,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share - basic
|
|
$
|
0.39
|
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
$
|
0.38
|
|
Net
income (loss) per share - diluted
|
|
$
|
0.39
|
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
$
|
0.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding during the period -
basic
|
|
|
43,829,748
|
|
|
|
500,000
|
|
|
|
|
|
|
|
44,329,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding during the period -
basic
|
|
|
59,329,748
|
|
|
|
500,000
|
|
|
|
|
|
|
|
59,829,748
|
|
China
Dredging Group Co. Ltd. (Group)
Pro
Forma Combined Statement of Income (Initial Offering Assumption)
Six
Months Ended June 30, 2010
|
|
Group
|
|
|
Chardan Acquisition
Corp. (BVI)
|
|
|
Pro Forma
Adjustment
|
|
|
Pro Forma
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
revenue
|
|
$
|
45,981,433
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
45,981,433
|
|
Cost
of revenue
|
|
|
20,389,446
|
|
|
|
17,219
|
|
|
|
-
|
|
|
|
20,406,665
|
|
Gross
Profit
|
|
|
25,591,987
|
|
|
|
(17,219
|
)
|
|
|
-
|
|
|
|
25,574,768
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
2,367,968
|
|
|
|
7,903
|
|
|
|
-
|
|
|
|
2,375,871
|
|
Total
operating expenses
|
|
|
2,367,968
|
|
|
|
7,903
|
|
|
|
-
|
|
|
|
2,375,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
23,224,019
|
|
|
|
(25,122
|
)
|
|
|
-
|
|
|
|
23,198,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
44,727
|
|
|
|
-
|
|
|
|
-
|
|
|
|
44,727
|
|
Interest
expense
|
|
|
(442,827
|
)
|
|
|
(689
|
)
|
|
|
-
|
|
|
|
(442,827
|
)
|
Sundry
income
|
|
|
88
|
|
|
|
-
|
|
|
|
-
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
|
22,826,007
|
|
|
|
(25,811
|
)
|
|
|
-
|
|
|
|
22,800,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
5,784,341
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,784,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
$
|
17,041,666
|
|
|
$
|
(25,811
|
)
|
|
$
|
-
|
|
|
$
|
17,015,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share - basic
|
|
$
|
0.39
|
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
$
|
0.38
|
|
Net
income (loss) per share - diluted
|
|
$
|
0.39
|
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding during the period -
basic
|
|
|
43,829,748
|
|
|
|
500,000
|
|
|
|
|
|
|
|
44,329,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding during the period -
basic
|
|
|
48,700,748
|
|
|
|
500,000
|
|
|
|
|
|
|
|
49,200,748
|
|
China
Dredging Group Co. Ltd. (Group)
Pro
Forma Combined Statement of Income (Maximum Offering Assumption)
Year
Ended December 31, 2009
|
|
Group
|
|
|
Chardan
Acquisition
Corp.
(BVI)
|
|
|
Pro
Forma
Adjustment
|
|
|
Pro
Forma Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
revenue
|
|
$
|
80,333,891
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
80,333,891
|
|
Cost
of revenue
|
|
|
38,715,490
|
|
|
|
9,335
|
|
|
|
-
|
|
|
|
38,724,825
|
|
Gross
Profit
|
|
|
41,618,401
|
|
|
|
(9,335
|
)
|
|
|
-
|
|
|
|
41,609,066
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
2,531,132
|
|
|
|
11,579
|
|
|
|
-
|
|
|
|
2,542,711
|
|
Total
operating expenses
|
|
|
2,531,132
|
|
|
|
11,579
|
|
|
|
-
|
|
|
|
2,542,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
39,087,269
|
|
|
|
(20,914
|
)
|
|
|
-
|
|
|
|
39,066,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
29,833
|
|
|
|
-
|
|
|
|
-
|
|
|
|
29,833
|
|
Interest
expense
|
|
|
(755,853
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(755,853
|
)
|
Sundry
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
|
38,361,249
|
|
|
|
(20,914
|
)
|
|
|
-
|
|
|
|
38,340,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
9,596,651
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,596,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
$
|
28,764,598
|
|
|
$
|
(20,914
|
)
|
|
$
|
-
|
|
|
$
|
28,743,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share - basic
|
|
$
|
0.66
|
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
$
|
0.65
|
|
Net
income (loss) per share - diluted
|
|
$
|
0.66
|
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
$
|
0.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding during the period -
basic
|
|
|
43,829,748
|
|
|
|
500,000
|
|
|
|
|
|
|
|
44,329,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding during the period -
basic
|
|
|
59,329,748
|
|
|
|
500,000
|
|
|
|
|
|
|
|
59,829,748
|
|
China
Dredging Group Co. Ltd. (Group)
Pro
Forma Combined Statement of Income (Initial Offering Assumption)
Year
Ended December 31, 2009
Unaudited
|
|
Group
|
|
|
Chardan
Acquisition
Corp.
(BVI)
|
|
|
Pro
Forma
Adjustment
|
|
|
Pro
Forma Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
revenue
|
|
$
|
80,333,891
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
80,333,891
|
|
Cost
of revenue
|
|
|
38,715,490
|
|
|
|
9,335
|
|
|
|
-
|
|
|
|
38,724,825
|
|
Gross
Profit
|
|
|
41,618,401
|
|
|
|
(9,335
|
)
|
|
|
-
|
|
|
|
41,609,066
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
2,531,132
|
|
|
|
11,579
|
|
|
|
-
|
|
|
|
2,542,711
|
|
Total
operating expenses
|
|
|
2,531,132
|
|
|
|
11,579
|
|
|
|
-
|
|
|
|
2,542,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
39,087,269
|
|
|
|
(20,914
|
)
|
|
|
-
|
|
|
|
39,066,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
29,833
|
|
|
|
-
|
|
|
|
-
|
|
|
|
29,833
|
|
Interest
expense
|
|
|
(755,853
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(755,853
|
)
|
Sundry
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
|
38,361,249
|
|
|
|
(20,914
|
)
|
|
|
-
|
|
|
|
38,340,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
9,596,651
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,596,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
$
|
28,764,598
|
|
|
$
|
(20,914
|
)
|
|
$
|
-
|
|
|
$
|
28,743,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share - basic
|
|
$
|
0.66
|
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
$
|
0.65
|
|
Net
income (loss) per share - diluted
|
|
$
|
0.66
|
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
$
|
0.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding during the period -
basic
|
|
|
43,829,748
|
|
|
|
500,000
|
|
|
|
|
|
|
|
44,329,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding during the period -
basic
|
|
|
48,700,748
|
|
|
|
500,000
|
|
|
|
|
|
|
|
49,200,748
|
|
CONSOLIDATED
BALANCE SHEET
(IN
US DOLLARS)
|
|
(Unaudited)
|
|
|
|
June 30,
|
|
|
|
2010
|
|
Assets
|
|
|
|
Current
assets
|
|
|
|
Cash
|
|
$
|
25,388,638
|
|
Restricted
cash
|
|
|
25,968,089
|
|
Cost
and estimated earnings in excess of billings on contracts in
progress
|
|
|
8,845,328
|
|
Other
receivables
|
|
|
1,201
|
|
Inventories
|
|
|
1,193,210
|
|
Total
current assets
|
|
|
61,396,466
|
|
|
|
|
|
|
Other
assets
|
|
|
|
|
Prepaid
dredger deposit
|
|
|
2,211,932
|
|
Property,
plant and equipment, net
|
|
|
41,689,943
|
|
Total
other assets
|
|
|
43,901,875
|
|
Total
assets
|
|
$
|
105,298,341
|
|
|
|
|
|
|
Liabilities
and stockholders' equity
|
|
|
|
|
Current
liabilities
|
|
|
|
|
Term
loan
|
|
$
|
4,423,865
|
|
Accounts
payable
|
|
|
789,086
|
|
Income
tax payable
|
|
|
3,418,577
|
|
Accrued
liabilities and other payables
|
|
|
928,484
|
|
Due
to a shareholder
|
|
|
1,691,221
|
|
Total
current liabilities
|
|
|
11,251,233
|
|
Non-current
liabilities
|
|
|
|
|
Term
loan, net of current portion
|
|
|
7,962,957
|
|
Total
non-current liabilities
|
|
|
7,962,957
|
|
Total
liabilities
|
|
|
19,214,190
|
|
Stockholders'
equity
|
|
|
|
|
Common
stock, 225,000,000 shares authorized with no par value;
|
|
|
|
|
52,177,323
shares issued and outstanding
|
|
|
-
|
|
Preferred
stock, no par value: 25,000,000 shares authorized with no
outstanding
|
|
|
-
|
|
Statutory
reserves
|
|
|
4,888,018
|
|
Additional
paid-in capital
|
|
|
80,205,592
|
|
Accumulated
deficit
|
|
|
(318,442
|
)
|
Accumulated
other comprehensive income
|
|
|
1,308,983
|
|
Total
stockholders' equity
|
|
|
86,084,151
|
|
Total
liabilities and stockholders' equity
|
|
$
|
105,298,341
|
|
See notes
to the consolidated financial statements.
CHINA
DREDGING GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF OPERATIONS (UNAUDITED)
(IN
US DOLLARS)
|
|
For the period from
|
|
|
|
April 14, 2010
|
|
|
|
(Date of Inception) to
|
|
|
|
June 30, 2010
|
|
|
|
|
|
Contract
revenue
|
|
$
|
-
|
|
|
|
|
|
|
Cost
of contract revenue
|
|
|
-
|
|
|
|
|
|
|
Gross
profit
|
|
|
-
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
(318,584
|
)
|
|
|
|
|
|
Loss
from operations
|
|
|
(318,584
|
)
|
|
|
|
|
|
Interest
income
|
|
|
142
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(318,442
|
)
|
|
|
|
|
|
Income
tax expense
|
|
|
-
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(318,442
|
)
|
See notes
to the consolidated financial statements.
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(IN
US DOLLARS)
|
|
Common
Stock, with no Par
Value
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Accumulated
other
|
|
|
|
|
|
|
Number
of
Shares
|
|
|
Amount
|
|
|
Statutory
reserves
|
|
|
paid-in
capital
|
|
|
Accumulated
deficit
|
|
|
Comprehensive
income
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
14, 2010 (inception)
|
|
|
104,355
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
26, 2010 (recapitalization)
|
|
|
52,072,968
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution
of dividends from Wonder
Dredging's shareholders generated by
Fujian Service through June 30, 2010
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
61,307,080
|
|
|
|
-
|
|
|
|
-
|
|
|
|
61,307,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution
of shareholders' loans and net assets into
statutory reserves
and equity upon acquisition of interest in Wonder
Dredging
|
|
|
-
|
|
|
|
-
|
|
|
|
4,888,018
|
|
|
|
18,898,512
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,786,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(318,442
|
)
|
|
|
-
|
|
|
|
(318,442
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation gain
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,308,983
|
|
|
|
1,308,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
as of June 30, 2010
|
|
|
52,177,323
|
|
|
$
|
-
|
|
|
$
|
4,888,018
|
|
|
$
|
80,205,592
|
|
|
$
|
(318,442
|
)
|
|
$
|
1,308,983
|
|
|
$
|
86,084,151
|
|
See notes
to the consolidated financial statements
CONSOLIDATED
STATEMENT OF CASH FLOWS (UNAUDITED)
|
|
For
the period from
|
|
|
|
April
14, 2010
|
|
|
|
(Date
of Inception) to
|
|
|
|
June 30, 2010
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
Net
loss
|
|
$
|
(318,442
|
)
|
Adjustments
to reconcile net loss to net cash used for operating
activities:
|
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
Other
receivables
|
|
|
(122
|
)
|
Accrued
liabilities and other payables
|
|
|
156,998
|
|
Net
cash used for operating activities
|
|
|
(161,566
|
)
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
Net
assets acquired in Wonder Dredging
|
|
|
23,602,460
|
|
Net
cash provided by investing activities
|
|
|
23,602,460
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
Amount
due to a shareholder
|
|
|
1,691,221
|
|
Net
cash provided by financing activities
|
|
|
1,691,221
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
25,132,115
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
256,523
|
|
Cash
at end of period
|
|
$
|
25,388,638
|
|
|
|
|
|
|
Supplemental
disclosures of non-cash transactions:
|
|
|
|
|
|
|
|
|
|
Contribution
of dividends into equity from Wonder Dredging's shareholders from
inception of Fujian Service through June 30, 2010
|
|
$
|
61,307,080
|
|
|
|
|
|
|
Contribution
of shareholders' loans and net assets into statutory reserves and equity
upon acquisition of a 50% interest in Wonder Dredging
|
|
$
|
23,786,530
|
|
See notes
to the consolidated financial statements.
CHINA
DREDGING GROUP CO., LTD AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
1.
|
DESCRIPTION
OF BUSINESS AND ORGANIZATION
|
On April
14, 2010, China Dredging Group Co., Ltd ("the Company") was
incorporated in the British Virgin Islands ("BVI") as a limited
liability company by the three shareholders, Mars Harvest Co., Ltd. ("Mars"),
Venus Seed Co., Ltd. ("Venus") and Saturn Glory Co., Ltd. ("Saturn")(the
"Shareholders"), by subscribing to 104,355 ordinary shares. The proportionate
ownership percentage of the Company was 90%, 5% and 5% held by Mars, Venus and
Saturn, respectively. The principal activity of the Company is to hold its
interests in its subsidiaries. The Company, together with its wholly
subsidiaries and variable interest entities ("VIEs"), of which one of the
Company's subsidiaries is the primary beneficiary, (collectively referred as the
"Group") is engaged in performing dredging services, specifically capital
dredging, maintenance dredging and reclamation dredging throughout mainland
China. The Group provides its services directly to its customers in the People's
Republic of China ("PRC").
On May
26, 2010, the Company was recapitalized by increasing its number of authorized
shares, changing its par value and by issuing 52,072,968 shares of
common stock to the three founding shareholders, Mars, Venus and Saturn, and
four new shareholders (collectively “New Shareholders”), Regent Fill Investment
Group Limited ("Regent Fill"), Poying Holdings Limited ("Poying"), Jianliang Yu
and Nan Ding. At the time of the recapitalization, the Company had not commenced
operations and had no assets.
Pursuant
to a unanimous resolution of the Company’s board of directors, the Company’s
Memorandum and Articles of Association (“M&A”) was amended as of October 25,
2010 to increase the maximum number of authorized shares from 50,000 ordinary
shares of one class with a par value of $1.00 each to a maximum 250,000,000
shares of no par value divided into two classes of shares: (i) 225,000,000
ordinary shares and 25,000,000 class A preferred shares. The Company's
recapitalization was consummated on October 25, 2010, however, retroactively
applied to reflect the recapitalized shares. Following the
recapitalization, the number and percentage of issued shares was distributed
among shareholders as follows:
Name
|
|
No. of ordinary shares
|
|
|
%
|
|
|
|
|
|
|
|
|
Venus
Seed Co., Ltd.
|
|
|
2,608,866
|
|
|
|
5.00
|
%
|
Mars
Harvest Co., Ltd.
|
|
|
46,055,880
|
|
|
|
88.27
|
%
|
Saturn
Glory Co., Ltd.
|
|
|
2,608,866
|
|
|
|
5.00
|
%
|
Regent
Fill Investment Group Limited
|
|
|
271,322
|
|
|
|
0.52
|
%
|
Poying
Holdings Limited
|
|
|
271,322
|
|
|
|
0.52
|
%
|
Jianliang
Yu
|
|
|
135,661
|
|
|
|
0.26
|
%
|
Nan
Ding
|
|
|
225,406
|
|
|
|
0.43
|
%
|
|
|
|
52,177,323
|
|
|
|
100
|
%
|
All
references in the accompanying financial statements to the number of ordinary
shares issued and loss per share have been retroactively restated to reflect the
recapitalization.
The
Company's holdings are comprised of China Dredging (HK) Co., Ltd ("China
Dredging HK"), a wholly owned subsidiary of the Company (formed on April 26,
2010), Fujian WangGang Dredging Construction Co., Ltd ("Fujian WangGang ")
(formed on June 12, 2010), a wholly foreign-owned enterprise of China Dredging
HK, and a 50% controlling interest on Fujian Xing Gang Port Service
Co., Ltd ("Fujian Service"), an operating company incorporated and operating in
PRC. Fujian WangGang acquired a 50% direct ownership interest in Fujian Service
on June 29, 2010 whereas the remaining 50% interest in Fujian Service is owned
by Wonder Dredging Engineering Limited Liability Company ("Wonder Dredging").
Wonder Dredging was formed on May 10, 2010 by the same shareholders of Fujian
Service. Through various agreements (collectively the “VIE Agreements”), Fujian
WangGang has obtained irrevocable management control over both Wonder Dredging
and Fujian Service. Through these agreements Fujian WangGang 1) receives
substantially all of the economic benefits of Fujian Service's ongoing
operations through management fees, 2) has the right to purchase the other 50%
interest in Fujian Service from Wonder Dredging for no additional consideration
and 3) has the right to receive all other assets of Wonder Dredging for no
additional consideration.
CHINA
DREDGING GROUP CO., LTD AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
1.
|
DESCRIPTION
OF BUSINESS AND ORGANIZATION
(…/Cont’d)
|
Below is
the organization chart in existence as of June 30, 2010:
Both
Wonder Dredging and Fujian Service, based on the structure discussed above, are
considered to be "variable interest entities" for purposes of consolidating
under accounting principles generally accepted in the United States of America.
In addition, Fujian WangGang has the option to acquire, for no additional
consideration, the remaining 50% of the equity of Fujian Service and 100% of the
assets of Wonder Dredging. Accordingly, Fujian WangGang is considered to be the
primary beneficiary of both. The balance sheet of Wonder Dredging and
Fujian Service are included in the Group’s consolidated balance sheet as of June
30, 2010, (the date on which the agreements were effective under which Fujian
WangGang acquired management control of the entities and the right to acquire
Fujian Service and the assets of Wonder Dredging for no additional
consideration.)
Fujian
Service, which is the operating entity, was incorporated on January 8, 2008 with
Renminbi 200,000,000 ($29,002,371 at June 30, 2010). Fujian Service was
originally owned by two individuals, Qing Lin and Panxing Zhuo , each with
holding of 91% and 9% of the total ownership, respectively. Qing Lin and Panxing
Zhuo are brother in-law and father of the shareholder of Mars.
On May
20, 2010, Qing Lin and Panxing Zhuo sold all of their ownership interests in
Fujian Service to Wonder Dredging, which they also owned fully and in the same
percentages as their ownership interests in Fujian
Service.. Subsequent to this transaction Wonder Dredging owned 100%
of Fujian Service and owed a total of $18,019,636 to Mr. Lin and Mr.
Zhuo. These former shareholders of Fujian Service agreed to
contribute the full purchase amount receivable to the capital of Wonder
Dredging.
On June
29, 2010, Fujian WangGang acquired a 50% ownership interest in Fujian Service
from Wonder Dredging by committing to invest, as a capital contribution,
$23,602,460 into Fujian Service (Renminbi 158,597,183). This reduced Wonder
Dredging's ownership interest in Fujian Service to 50%.
In
conjunction with the effectiveness of the VIE Agreements, Wonder Dredging and
its shareholders became obligated to contribute to the capital of Fujian
WangGang a dividend receivable from Fujian Service together with all retained
earnings of Fujian Service of which Wonder Dredging is the beneficiary under the
purchase agreement with Mr. Lin and Mr. Zhuo. Accordingly, as of June
30, 2010, an additional amount of $61,307,080, comprising the purchase price for
the remaining economic interest in Fujian Service in excess of Fujian WangGang’s
capital commitment (after giving effect to exchange rate changes) has been
recorded as contributed capital of the Group.
CHINA
DREDGING GROUP CO., LTD AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
1.
|
DESCRIPTION
OF BUSINESS AND ORGANIZATION
(…/Cont’d)
|
At the
close of business on June 30, 2010, various agreements became effective under
which Fujian WangGang irrevocably obtained; 1) management control over all of
the business and activities of Fujian Service and Wonder Dredging, 2) a direct
right to receive substantially all of the economic benefits of Fujian Service
through management fees, and 3) the right to acquire 100% of the assets of
Wonder Dredging.
The
acquisition of Fujian Service on June 29, 2010, has been accounted for as a
business combination under the purchase method of accounting in accordance with
FASB Accounting Standards Codification Topic ("ASC") 805 since Fujian Service,
although it can be deemed as a related party, was not under common control.
Accordingly, the assets and liabilities of Fujian Service have been recorded at
their estimated fair values on the acquisition date, June 29,
2010. The Company has not recorded any income or expenses from June
29 to June 30, 2010 since it has been determined to be immaterial. Wonder
Dredging’s balance sheet has been consolidated since it is deemed to be a VIE
under the current standard and pursuant to the agreements which became effective
on June 30, 2010.
The above
structure is necessary in order to comply with the PRC law and
regulations. According to the "Ordinance of Ship Registration of
People's Republic of China" and other relevant regulations, the maximum
shareholding by foreign capital in an entity operating in the PRC cannot exceed
50%. Also the operating entity's vessels are not entitled to be registered as
Chinese ships if foreign-owners hold more that 50% of the equity interest in the
operating entity.
The
consolidated financial statements of the Group include the accounts of the
Company, its wholly subsidiaries and the two VIEs; namely Fujian Service and
Wonder Dredging. All intercompany transactions and balances have been
eliminated. (See note 2 below.)
CHINA
DREDGING GROUP CO., LTD AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
2.
|
ACQUISITION
OF FUJIAN SERVICE
|
As
described in Note 1, the Company acquired a 50% interest in Fujian Service
through Fujian WangGang on June 29, 2010 by committing to a capital contribution
to Fujian Service in the amount of $23,602,460 (Renminbi
158,597,183). Additionally, as of June 30, 2010, by virtue of the
effectiveness of the structure and VIE Agreementsdescribed in note 1, the
Company consolidates 100% of Fujian Service in accordance with ASC
810. Pursuant to the Purchase Agreements, the shareholders of Wonder
Dredging agreed to contribute their economic interests in Wonder Dredging as
part of the transaction with Fujian WangGang. Accordingly, as of June 29, 2010,
the amount of the purchase price in excess of the capital contribution
commitment, amounting to $61,307,080 after giving effect to exchange rate
changes, has been recorded as contributed capital.
The
following table summarizes the amounts of the assets acquired and liabilities
assumed of Fujian Service as of June 29, 2010:
Cash
|
|
$
|
22,894,565
|
|
Restricted
cash
|
|
|
25,968,089
|
|
Cost
and estimated billings in excess of billings
|
|
|
8,845,328
|
|
Other
receivable
|
|
|
1,079
|
|
Inventories
|
|
|
1,193,210
|
|
Prepaid
dredger deposit
|
|
|
2,211,932
|
|
Property,
plant and equipment
|
|
|
41,689,943
|
|
TOTAL
ASSETS
|
|
|
102,804,146
|
|
|
|
|
|
|
Term
loans
|
|
|
(12,386,822
|
)
|
Accounts
payable
|
|
|
(789,086
|
)
|
Income
tax payable
|
|
|
(3,418,577
|
)
|
Accrued
liabilities and other payables
|
|
|
(771,486
|
)
|
TOTAL
LIABILITIES
|
|
|
(17,365,971
|
)
|
|
|
|
|
|
NET
ASSETS ACQUIRED
|
|
$
|
85,438,175
|
|
Less:
Cash committed by Company
|
|
|
(23,602,460
|
)
|
Less:
Contributed capital by Wonder Dredging
|
|
|
(61,307,080
|
)
|
Effect
of exchange rate changes
|
|
|
(528,635
|
)
|
|
|
$
|
-
|
|
CHINA
DREDGING GROUP CO., LTD AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
2.
|
ACQUISITION
OF FUJIAN SERVICE (…/Cont’d)
|
No income
or loss from the Fujian Service has been included in the Group's Statement of
Operations for the period from June 29, 2010 to June 30, 2010 as the amount was
determined to be immaterial.
Pro-forma statement of
operations for the six months period ended June 30, 2010 (Assuming the Company
was in existence at January 1, 2010 and the acquisition of Fujian Service was
also effective on January 1, 2010)
|
|
China
|
|
|
Hong
Kong
|
|
|
Fujian
|
|
|
Wonder
|
|
|
Fujian
|
|
|
Consolidated
|
|
|
|
Dredging
|
|
|
Dredging
|
|
|
Dredging
|
|
|
Dredging
|
|
|
Service
|
|
|
Balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
45,981,433
|
|
|
$
|
45,981,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(20,389,446
|
)
|
|
|
(20,389,446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,591,987
|
|
|
|
25,591,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expense
|
|
|
(312,384
|
)
|
|
|
(4,174
|
)
|
|
|
(528
|
)
|
|
|
(1,498
|
)
|
|
|
(2,049,384
|
)
|
|
|
(2,367,968
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
(312,384
|
)
|
|
|
(4,174
|
)
|
|
|
(528
|
)
|
|
|
(1,498
|
)
|
|
|
23,542,603
|
|
|
|
23,224,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
141
|
|
|
|
44,585
|
|
|
|
44,727
|
|
Interest
expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(442,827
|
)
|
|
|
(442,827
|
)
|
Sundry
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
88
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/income
before income taxes
|
|
|
(312,384
|
)
|
|
|
(4,173
|
)
|
|
|
(528
|
)
|
|
|
(1,357
|
)
|
|
|
23,144,449
|
|
|
|
22,826,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,784,341
|
)
|
|
|
(5,784,341
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss)/income
|
|
$
|
(312,384
|
)
|
|
$
|
(4,173
|
)
|
|
$
|
(528
|
)
|
|
$
|
(1,357
|
)
|
|
$
|
17,360,108
|
|
|
$
|
17,041,666
|
|
CHINA
DREDGING GROUP CO., LTD AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
3.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
|
(a)
|
Basis
of presentation
|
The
unaudited consolidated financial statements include the accounts of the Company,
its wholly-owned and majority-owned subsidiaries and variable interest entities
(“VIE”) in which the Company is the primary beneficiary. All significant
intercompany balances and transactions have been eliminated. The operating
results of the operating entity, Fujian Service have not been included in the
Group’s financial statements effective from June 29, 2010 since it is deemed
immaterial.
In June
2009, the Financial Accounting Standards Board (“FASB”) issued Accounting
Standards Update No. 2009-01, “Generally Accepted Accounting Principles” (ASC
Topic 105) which establishes the FASB Accounting Standards Codification (“the
Codification” or “ASC”) as the official single source of authoritative U.S.
generally accepted accounting principles (“GAAP”). All existing
accounting standards are superseded. All other accounting guidance
not included in the Codification will be considered
non-authoritative. The Codification also includes all relevant
Securities and Exchange Commission (“SEC”) guidance organized using the same
topical structure in separate sections within the
Codification. Following the Codification, the FASB will not issue new
standards in the form of Statements, FASB Staff Positions or Emerging Issues
Task Force Abstracts. Instead, it will issue Accounting Standards
Updates (“ASU”) which will serve to update the Codification, provide background
information about the guidance and provide the basis for conclusions on the
changes to the Codification.
The
Codification is not intended to change GAAP, but it will change the way GAAP is
organized and presented. The adoption of ASC 105 does not have an impact on the
Group's financial statements.
The
Company's consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in the United States of America
(the “U.S. GAAP”) which requires management of the Company to make a number of
estimates and assumptions relating to the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the years. Significant items subject to such estimates and assumptions
include the recoverability of the carrying amount and the estimated useful lives
of long-lived assets; valuation allowances for receivables, realizable values
for inventories. Accordingly, actual results could differ from those
estimates.
CHINA
DREDGING GROUP CO., LTD AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
3.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(…/Cont’d)
|
|
(c)
|
Foreign
currency translation
|
Assets
and liabilities of foreign operation are translated at the rate of exchange in
effect on the balance sheet date; income and expenses are translated at the
average rate of exchange prevailing during the period. The period-end rate for
June 30, 2010 of Renminbi to one US dollar was 6.7814; average rate for the
period from April 14, 2010 (Date of Inception) to June 30, 2010 was 6.8115. The
related translation adjustments are reflected in "Accumulated other
comprehensive income" in the stockholder's equity section of the balance sheet.
As of June 30, 2010, the accumulated foreign currency translation gain was
$1,308,983. Foreign currency gains and losses resulting from transactions are
included in earnings.
The
period-end rate for June 30, 2010 of Hong Kong dollar to one US dollar was
7.7866; average rate for the period from April 14, 2010 (Date of Inception) to
June 30, 2010 was 7.7808.
Cash
consist of cash on hand and at banks. Substantially all of the Group's cash
deposits are held with financial institutions located in the PRC where there is
currently no rule or regulation mandated on obligatory insurance of bank
accounts. Management believes these financial institutions are of high credit
quality. The Group maintains some of its bank accounts in the PRC.
|
(e)
|
Cost
and estimated earnings in excess of billings on uncompleted
contracts
|
Cost and
estimated earnings in excess of billings on uncompleted contracts represent
amounts due or billable under the terms of contracts with customers. There is no
amount related to retainage. The Group anticipates collection of all the
outstanding balances within 10 days after completion reports of the contracts
are issued. The allowance for doubtful accounts is the Group’s best estimate of
the amount of probable credit losses in the Group's existing receivable. The
Group provides an allowance for estimated uncollectible receivables when events
or conditions indicate that amounts outstanding are not
recoverable.
Outstanding
account balances are reviewed individually for collectability. Based on the
Group’s assessment of collectability, there has been no allowance for doubtful
accounts recognized for any of the period from April 14, 2010 (Date of
Inception) to June 30, 2010.
Inventories
mainly consist of consumable parts including pipe, spare parts, and supplies
used in the Group's dredging operations. Inventories are stated at the lower of
cost or market, using a weighted average cost method.
CHINA
DREDGING GROUP CO., LTD AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
3.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(…/Cont’d)
|
|
(g)
|
Property,
plant and equipment
|
Property,
plant and equipment are recorded at cost less accumulated depreciation.
Expenditures for major additions and betterments are capitalized. Depreciation
of property, plant and equipment is computed by the straight-line method over
the assets estimated useful lives ranging from five to ten years. Building
improvements, are amortized on a straight-line basis over the estimated useful
life.
Upon sale
or retirement of property, plant and equipment, the related cost and accumulated
depreciation are removed from the accounts and any gain or loss is reflected in
operations.
The
estimated useful lives of the assets are as follows:
|
Estimated lives
|
Dredgers
|
10
|
Machinery
|
5
|
Office
equipment
|
5
|
Expenditures
for repairs and maintenance, which do not extend the useful life of the assets,
are expensed as incurred.
|
(h)
|
Impairment
of long-lived assets
|
Long-lived
assets are comprised of property, plant and equipment. Pursuant to the
provisions of ASC360-10, “Property, plant and equipment”, long-lived assets to
be held and used are reviewed for possible impairment whenever events indicate
that the carrying amount of such assets may not be recoverable by comparing the
undiscounted cash flows associated with the assets to their carrying amounts. If
such a review indicates an impairment, the carrying amount would be reduced to
fair value.
If
long-lived assets are to be disposed of are separately presented in the balance
sheet and reported at the lower of the carrying amount or fair value less costs
to sell, and are no longer depreciated. The assets and liabilities of a disposed
group classified as held for sale are presented separately in the appropriate
asset and liability sections of the balance sheet.
Based on
the Group’s assessment, there were no events or changes in circumstances that
would indicate any impairment of long-lived assets as of June 30,
2010.
CHINA
DREDGING GROUP CO., LTD AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
3.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(…/Cont’d)
|
|
(i)
|
Fair
value measurements
|
In April
2009, the FASB issued ASC 820-10-65-4 (formerly FSP No. 157-4, “Determining Fair
Value When the Volume and Level of Activity for the Asset and Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly”).
This standard emphasizes that even if there has been a significant decrease in
the volume and level of activity, the objective of a fair value measurement
remains the same. Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction (that is, not a
forced liquidation or distressed sale) between market participants. This
standard provides a number of factors to consider when evaluating whether there
has been a significant decrease in the volume and level of activity for an asset
or liability in relation to normal market activity. In addition, when
transactions or quoted prices are not considered orderly, adjustments to those
prices based on the weight of available information may be needed to determine
the appropriate fair value. This standard is effective for interim and annual
reporting periods ending after June 15, 2009, and shall be applied
prospectively. Early adoption is permitted for periods ending after March 15,
2009. The adoption of this standard did not have a material effect on the
consolidated financial statements.
In August
2009, the FASB issued Accounting Standards Update “ASU” 2009-5 “Measuring
Liabilities at Fair Value”. This ASU provides amendments to ASC 820-10 “Fair
Value Measurements and Disclosures” to address concerns regarding the
determination of the fair value of liabilities. Because liabilities are often
not “traded”, due to restrictions placed on their transferability, there is
typically a very limited amount of trades (if any) from which to draw market
participant data. As such, many entities have had to determine the fair value of
a liability through the use of a hypothetical transaction. This ASU clarifies
the valuation techniques that must be used when the liability subject to the
fair value determination is not traded as an asset in an active market. The
management does not expect the adoption of this ASU to have a material effect on
the consolidated financial statements.
The Group
generates revenue primarily from dredging services .
The Group
recognizes contract revenues under the percentage-of-completion method to
determine the appropriate amount to be recognized in a given period. Depending
on the nature of each contract, the stage of completion is measured by reference
to (a) the proportion of contract costs incurred for work performed to date to
estimated total contract costs; (b) the amount of work certified by site
engineer; or (c) completion of physical proportion of the contract work. The
difference between amounts billed and recognized as revenue is reflected in the
balance sheet as either contract revenues in excess of billings or billings in
excess of contract revenues. Provisions for estimated losses on contracts
in-progress will be made in the period in which they are
identified. In the event that contract revenue cannot be estimated
reliably, contract revenue is recognized only to the extent of contract costs
incurred that are likely to be recoverable. The cost of contract revenue
includes consumable stores, dredgers' hire charges, salaries and wages and
depreciation of dredgers.
CHINA
DREDGING GROUP CO., LTD AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
3.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(…/Cont’d)
|
The Group
accounts for income taxes under ASC 740 “Income Taxes”. Deferred income tax
assets and liabilities are determined based upon differences between the
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be effective when the differences
are expected to reverse.
Deferred
tax assets are reduced by a valuation allowance to the extent management
concludes it is more likely than not that the assets will not be realized.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
the statements of income in the period that includes the enactment
date.
The Group
adopted ASC 740, “Income Taxes”, which prescribes a more-likely-than-not
threshold for financial statement recognition and measurement of a tax position
taken in the tax return. This interpretation also provides guidance on
de-recognition of income tax assets and liabilities, classification of current
and deferred income tax assets and liabilities, accounting for interest and
penalties associated with tax positions, accounting for income taxes in interim
periods and income tax disclosures.
|
(l)
|
Other
comprehensive income
|
The Group
has adopted ASC 220 “Comprehensive Income”. This statement
establishes rules for the reporting of comprehensive income and its components.
Comprehensive income consists of net income and foreign currency translation
adjustments.
Other
comprehensive income consists of the following for the period from April 14,
2010 (Date of Inception) to June 30, 2010:
Net
loss
|
|
$
|
(318,442
|
)
|
Other
comprehensive income
|
|
|
|
|
-
Foreign currency translation adjustments
|
|
|
1,308,983
|
|
Total
comprehensive income
|
|
$
|
990,541
|
|
|
(m)
|
Commitments
and contingencies
|
In the
normal course of business, the Group is subject to contingencies, including
legal proceedings and environmental claims arising out of the normal course of
businesses that relate to a wide range of matters, including among others,
contracts breach liability. The Group records accruals for such contingencies
based upon the assessment of the probability of occurrence and, where
determinable, an estimate of the liability. Management may consider many factors
in making these assessments including past history, scientific evidence and the
specifics of each matter.
As of
June 30, 2010, the Group's management has evaluated all such proceedings and
claims. In the opinion of management, the ultimate disposition of these matters
will not have a material adverse effect on the Group's financial position,
liquidity or results of operations.
CHINA
DREDGING GROUP CO., LTD AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
3.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(…/Cont’d)
|
|
(n)
|
Economic
and political risks
|
The
Group's operations are conducted in the PRC. Accordingly, the Group's business,
financial condition and results of operations may be influenced by the
political, economic and legal environment in the PRC, and by the general state
of the PRC economy.
The
Group's operations in the PRC are subject to special considerations and
significant risks not typically associated with companies in North America and
Western Europe. These include risks associated with, among others, the
political, economic and legal environment and foreign currency exchange. The
Group's results may be adversely affected by changes in the political and social
conditions in the PRC, and by changes in governmental policies with respect to
laws and regulations, anti-inflationary measures, currency conversion,
remittances aboard, and rates and methods of taxation, among other
things.
|
(o)
|
Pension
and employee benefits
|
Full time
employees of the Group participate in a government mandated multi-employer
defined contribution plan pursuant to which certain pension benefits, medical
care, unemployment insurance, employee housing fund and other welfare benefits
are provided to employees. PRC labor regulations require the Group to accrue for
these benefits based on certain percentages of the employees' salaries. Cost for
pension and employee benefits of the Group for the period from April 14, 2010
(Date of Inception) to June 30, 2010 was none.
ASC 280
“Segment reporting” establishes standards for reporting information on operating
segments in interim and annual financial statements. The Group has only one
segment, all of the Group's operations and customers are in the PRC and all
incomes are derived from the services of dredging. Accordingly, no geographic
information is presented.
|
(q)
|
Recently
issued accounting standards
|
We
describe below recent pronouncements that have had or may have a significant
effect on our consolidated financial statements. We do not discuss recent
pronouncements that are not anticipated to have an impact on or are unrelated to
our financial condition, results of operations, or disclosures.
In May
2009, the FASB issued guidance within Topic 855-10 (formerly SFAS 165,
“Subsequent Events”) relating to subsequent events. This guidance establishes
principles and requirements for subsequent events. This guidance
defines the period after the balance sheet date during which events or
transactions that may occur would be required to be disclosed in a company’s
financial statements. Public entities are required to evaluate subsequent events
through the date that financial statements are issued. This guidance also
provides guidelines in evaluating whether or not events or transactions
occurring after the balance sheet date should be recognized in the financial
statements. This guidance requires disclosure of the date through which
subsequent events have been evaluated. This Statement is effective for interim
and annual periods ending after June 15, 2009. The Group has adopted this
standard as of June 30, 2010. The adoption of this standard does not have a
material impact on the Group’s consolidated financial
statements.
CHINA
DREDGING GROUP CO., LTD AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
3.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(…/Cont’d)
|
|
(q)
|
Recently
issued accounting standards
(…/Cont’d)
|
In June
2009, the FASB issued FASB ASC 105-10-05, 10, 15, 65, 70 (“FASB ASC 105-10-05,
10, 15, 65, 70”), (formerly FASB Statement No. 168, The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles - a replacement of FASB Statement No. 162). FASB ASC 105-10-05, 10,
15, 65, 70 establishes the FASB ASC as the source of authoritative GAAP for
nongovernmental entities. The ASC does not change GAAP, instead it takes
individual pronouncements that currently comprise GAAP and reorganizes them into
Topics. Contents in each Topic are further organized by Subtopic, then Section
and finally Paragraph. The Paragraph level is the only level that contains
substantive content. Citing particular content in the ASC involves specifying
the unique numeric path to the content through the Topic, Subtopic, Section and
Paragraph structure. FASB suggests that all citations begin with “FASB ASC.”
FASB ASC 105-10-05, 10, 15, 65, 70 was effective for interim and annual periods
ending after September 15, 2009 and does not have an impact on the Group's
consolidated financial statements.
In June
2009, the FASB issued ASC 810.10, guidance to change financial reporting by
enterprises involved with variable interest entities (“VIEs”) which modifies how
a company determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. This
pronouncement clarifies that the determination of whether a company is required
to consolidate an entity is based on, among other things, an entity's purpose
and design and a company's ability to direct the activities of the entity that
most significantly impact the entity's economic performance. The guidance
requires an ongoing reassessment of whether a company is the primary beneficiary
of a variable interest entity. This guidance also requires additional
disclosures about a company's involvement in variable interest entities and any
significant changes in risk exposure due to that involvement. This guidance is
effective for fiscal years beginning after November 15, 2009. The Group does not
anticipate that the adoption of this statement will have a material impact on
its consolidated financial statement.
In August
2009, the FASB issued ASU No. 2009-05, Measuring Liabilities at Fair Value. ASU
2009-05 amended ASC 820, Fair Value Measurements. Specifically, ASU
2009-05 provides clarification that in circumstances in which a quoted price in
an active market for the identical liability is not available, a reporting
entity is required to measure fair value using one or more of the following
methods: 1) a valuation technique that uses a) the quoted price of the identical
liability when traded as an asset or b) quoted prices for similar liabilities or
similar liabilities when traded as assets and/or 2) a valuation technique that
is consistent with the principles of ASC 820 (e.g. an income approach or market
approach). ASU 2009-05 also clarifies that when estimating the fair value of a
liability, a reporting entity is not required to adjust to include inputs
relating to the existence of transfer restrictions on that liability. The Group
does not anticipate that the adoption of this statement will have a material
impact on its consolidated financial statement.
CHINA
DREDGING GROUP CO., LTD AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
3.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(…/Cont’d)
|
|
(q)
|
Recently
issued accounting standards
(…/Cont’d)
|
In
December 2009, the FASB issued Consolidations - Improvements to Financial
Reporting by Enterprises Involved with VIEs. The amendments in this Accounting
Standards Update replace the quantitative-based risks and rewards calculation
for determining which reporting entity, if any, has a controlling financial
interest in a variable interest entity with an approach focused on identifying
which reporting entity has the power to direct the activities of a variable
interest entity that most significantly impact the entity’s economic performance
and has (1) the obligation to absorb losses of the entity or (2) the right to
receive financial interest in a variable interest entity. The amendments in this
Update also require additional disclosures about a reporting entity’s
involvement in variable interest entities, which will enhance the information
provided to users of financial statements. The Group does not anticipate that
the adoption of this statement will have a material impact on its consolidated
financial statement.
Management
does not believe that any other recently issued, but not yet effective
accounting pronouncements, if adopted, would have a material effect on the
accompanying consolidated financial statements.
Cash
represents cash in bank and cash on hand. Cash as of June 30, 2010 was
$25,388,638. Renminbi is not a freely convertible currency and the
remittance of funds out of the PRC is subject to the exchange restrictions
imposed by the PRC government.
Restricted
cash represents amounts on deposit with the owners of dredgers leased by the
Company. Such amounts will be returned to the Company when the corresponding
leases end. Restricted cash as of June 30, 2010 was
$25,968,089.
CHINA
DREDGING GROUP CO., LTD AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
6.
|
COST
AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON CONTRACTS
IN-PROGRESS
|
Cost and
estimated earnings in excess of billings represent amounts of revenue earned
under contracts in progress but not billed at the balance sheet date. These
amounts become billable according to the contract terms, which usually consider
passage of time, and/or completion of the project. As of June 30, 2010, the
balance of cost and estimated earnings in excess of billings on uncompleted
contracts was $8,845,328. Cost and estimated earnings in excess of billings
include the following:
June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and estimated
|
|
|
Status of
|
|
Name of contract
|
|
Estimated
|
|
|
Total revenue
|
|
|
Amount
|
|
|
earnings in excess
|
|
|
contract
|
|
(Contract period)
|
|
contract value
|
|
|
recognized
|
|
|
received/billed
|
|
|
of billings
|
|
|
(Completion %)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.
Tangshan Caofeidian Dredging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
Reclamation I
|
|
$
|
9,236,094
|
|
|
$
|
9,268,977
|
|
|
$
|
9,268,977
|
|
|
$
|
-
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.
Tangshan Caofeidian Dredging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
Reclamation II
|
|
|
11,028,172
|
|
|
|
11,014,980
|
|
|
|
11,014,980
|
|
|
|
-
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.
Tangshan Caofeidian Dredging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
Reclamation III
|
|
|
10,019,505
|
|
|
|
4,982,377
|
|
|
|
4,002,413
|
|
|
|
979,964
|
|
|
|
50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
Tangshan Caofeidian Dredging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
Reclamation IV
|
|
|
8,830,750
|
|
|
|
3,876,915
|
|
|
|
3,530,395
|
|
|
|
346,520
|
|
|
|
44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
Tangshan Caofeidian Dredging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
Reclamation V
|
|
|
7,896,728
|
|
|
|
3,520,228
|
|
|
|
3,156,692
|
|
|
|
363,536
|
|
|
|
45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
Oujiang Port Liantian Dredging I
|
|
|
7,127,249
|
|
|
|
7,131,619
|
|
|
|
7,131,619
|
|
|
|
-
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
Oujiang Port Liantian Dredging II
|
|
|
4,197,158
|
|
|
|
4,245,908
|
|
|
|
4,245,908
|
|
|
|
-
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
Zhuhai Gaolan Port Dredging I
|
|
|
1,671,824
|
|
|
|
1,701,669
|
|
|
|
1,701,669
|
|
|
|
-
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.
Zhuhai Gaolan Port Dredging II
|
|
|
2,089,780
|
|
|
|
2,104,910
|
|
|
|
2,104,910
|
|
|
|
-
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
Zhuhai Gaolan Port Dredging III
|
|
|
2,867,031
|
|
|
|
2,524,234
|
|
|
|
1,907,965
|
|
|
|
616,269
|
|
|
|
88
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.
Zhanjiang Industrial Centre Dredging and Reclamation
|
|
|
13,588,702
|
|
|
|
13,648,547
|
|
|
|
9,955,834
|
|
|
|
3,692,713
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.
Qinzhou Port Channel Dredging
|
|
|
1,343,325
|
|
|
|
1,007,495
|
|
|
|
-
|
|
|
|
1,013,065
|
|
|
|
75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
Tianjin South Port Industrial
Zone
Dredging & Reclamation
|
|
|
6,371,937
|
|
|
|
884,991
|
|
|
|
-
|
|
|
|
889,885
|
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.
Jingtang Port Channel Dredging
|
|
|
4,730,382
|
|
|
|
656,997
|
|
|
|
-
|
|
|
|
660,631
|
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.
Panjin Vessels Industrial Base Project
|
|
|
10,628,987
|
|
|
|
281,190
|
|
|
|
-
|
|
|
|
282,745
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
101,627,624
|
|
|
$
|
66,851,037
|
|
|
$
|
58,021,362
|
|
|
$
|
8,845,328
|
|
|
|
|
|
The
Group's customers are state-owned companies of China. There is no credit term,
customers settle the balances according to percentage of completion of contracts
and the date of settlement has been specified in the contracts. The Group
believes all outstanding balances can be fully collected within 10 days after
the completion of contracts and project completed reports issued, therefore, no
provision on allowance for doubtful accounts was provided as of June 30,
2010.
No
contract revenue or cost of contract revenue has been reflected in the Group's
consolidated financial statements from the effective date of the acquisition,
June 29, 2010 through June 30, 2010 since the amount is deemed
immaterial.
CHINA
DREDGING GROUP CO., LTD AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
6.
|
COST
AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON CONTRACTS IN-PROGRESS
(…/Cont'd)
|
The
following schedule summarizes changes in backlog on contracts during the six
months ended June 30, 2010. Backlog represents the amount of revenue Fujian
Service expects to realize from work to be performed pursuant to contractual
agreements on projects in progress and on projects for which work has not yet
begun.
Backlog
balance at December 31, 2009
|
|
$
|
8,139,422
|
|
New
contracts entered during the six months ended June 30,
2010
|
|
|
173,105,868
|
|
Add:
Adjustment of contracts due to change orders during the
period
|
|
|
231,945
|
|
Adjusted
contract amount at June 30, 2010
|
|
|
181,477,235
|
|
Less:
Contract revenue earned during the six months ended June 30,
2010
|
|
|
(45,981,433
|
)
|
|
|
|
|
|
Backlog
balance at June 30, 2010
|
|
$
|
135,495,802
|
|
The Group
provides dredging services for its customers in the PRC. Inventories consist of
consumable parts which are used for dredging projects. As of June 30, 2010, the
balance of inventories was $1,193,210.
Other
receivables as of June 30, 2010 consist of the following:
Social
insurance prepaid for staff
|
|
$
|
1,079
|
|
Others
|
|
|
122
|
|
|
|
$
|
1,201
|
|
Other
receivables mainly include social insurance prepaid for staff's portion by the
Group, this amount will be directly deducted from staff's salaries and it is
interest free.
9.
|
PREPAID
DREDGER DEPOSIT
|
Prepaid
dredger deposit as of June 30, 2010 consists of the following:
Prepaid
dredger deposit
|
|
$
|
2,211,932
|
|
Prepaid
dredger represents a deposit of a new dredger before delivery. The Group paid
deposit for the acquisition of dredger which will be used for the expansion of
dredging operations.
CHINA
DREDGING GROUP CO., LTD AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
10.
|
PROPERTY,
PLANT AND EQUIPMENT
|
Property,
plant and equipment as of June 30, 2010 consist of the following:
Dredgers
|
|
$
|
52,784,632
|
|
Machinery
|
|
|
37,883
|
|
Office
equipment
|
|
|
3,808
|
|
|
|
|
52,826,323
|
|
Less:
Accumulated depreciation
|
|
|
(11,136,380
|
)
|
|
|
$
|
41,689,943
|
|
Depreciation
expense of Fujian Service for the six months ended June 30, 2010 totaled
$2,497,401 in which depreciation expense of dredgers and machinery amounting
$2,493,402 has been included in cost of revenue. No depreciation expense has
been included in the Group's Statement of Operations for the period from June
29, 2010 and June 30, 2010 as the amount was deemed immaterial. None
of the depreciation expense of Fujian Service is reflected in the Group’s
Statement of Operations for the period from June 29, 2010 through June 30,
2010.
There are
three dredgers owned by the Group. Dredgers with net book value as of June 30,
2010 was $41,653,113, are pledged as collateral for the bank term loans (see
Note 13) and for a related company, Fujian Province Pingtan County Ocean Fishery
Holdings Limited (see Note 16).
CHINA
DREDGING GROUP CO., LTD AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
11.
|
ACCRUED
EXPENSES AND OTHER PAYABLES
|
Accrued
expenses and other payables as of June 30, 2010 consist of the
following:
Accrued
interest
|
|
$
|
24,741
|
|
Accrued
salaries and wages
|
|
|
74,372
|
|
Accrued
staff benefits
|
|
|
129,853
|
|
Other
payables
|
|
|
562,053
|
|
Other
tax payables
|
|
|
137,465
|
|
|
|
$
|
928,484
|
|
Other tax
payables represent payables other than income tax which consist of individual
salary tax, stamp duty and embankment tax.
Amount
due to a shareholder at June 30, 2010 represents advances to the Company by Mr.
Kit Chan, the shareholder of Venus Seed Co., Ltd. The advances are interest
free, unsecured and payable on demand.
Fujian
Service entered into three loan agreements with two banks in the PRC to obtain
fixed-rate term loans to meet its working capital needs. Two loan agreements
were signed on September 28, 2008 and February 5, 2010 with Fujian Haixia Bank
Co., Ltd. One loan in the amount of $8,847,731 is due on September 30, 2011,
whereas the second loan in the amount of $5,898,487 is due on February 8,
2013. A third loan agreement signed by Fujian Service on
February 22, 2010 in the amount of $3,391,630 is due on February 24, 2012
with Fuzhou City Rural Credit Cooperative.
The
current portion of the term loans is shown in the table below.
Fujian
Haixia Bank Co., Ltd
|
|
$
|
4,423,865
|
|
|
|
|
|
|
Range
of monthly interest rate
|
|
|
5.974
|
‰
|
Weighted
average monthly interest rate
|
|
|
5.358
|
‰
|
The loan
agreements provide for principal payments of $1,843,277, $1,843,277 and $737,311
on July 20, 2010, January 20, 2011 and August 12, 2011
respectively.
The term
loan amounts recorded as non-current as of June 30, 2010 consist of the
following:
Term loan, net of current
portion
|
|
|
|
Fujian
Haixia Bank Co., Ltd
|
|
$
|
6,635,798
|
|
Fuzhou
City Rural Credit Cooperative
|
|
|
1,327,159
|
|
|
|
$
|
7,962,957
|
|
|
|
|
|
|
Maximum
balance outstanding during the six-months ended June 30,
2010
|
|
$
|
14,451,293
|
|
Range
of monthly interest rate
|
|
|
5.40‰
- 7.8975
|
‰
|
Weighted
average monthly interest rate
|
|
|
5.358
|
‰
|
A summary
of the scheduled amortization for the non-current portions of the outstanding
term loans during the following three fiscal years is as follows:
2011
|
|
$
|
1,474,622
|
|
2012
|
|
|
3,539,092
|
|
2013
|
|
|
2,949,243
|
|
|
|
$
|
7,962,957
|
|
Both term
loans from Fujian Haixia Bank are secured by one of the Group's dredgers,
Xinggangjun 66. One of these loans is guaranteed by Xinrong Zhuo, the Chairman
and Chief Executive Officer of the Company and the son of Zhuo Panxing (an owner
of Wonder Dredging). The other loan is guaranteed by Qing Lin and Xinrong Zhuo.
The term loan from Fuzhou City Rural Credit Cooperative is secured by
Xinggangjun 3, another of the Group’s dredgers. There are no restrictive
financial covenants associated with the term loans and they are all non-recourse
to the Company.
No
interest expense has been included in the Group's Statement of Operations for
the period from June 29, 2010 to June 30, 2010 as the amount was deemed
immaterial.
CHINA
DREDGING GROUP CO., LTD AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
14.
|
STOCKHOLDERS'
EQUITY AND RETAINED EARNINGS
|
In
connection with the purchase of the 50% interest of Fujian Service by Fujian
WangGang, the shareholders of Wonder Dredging (being the same shareholders of
Fujian Service) were entitled, pursuant to the agreement, to declare and be paid
all of the retained earnings of Fujian Service from its inception through March
31, 2010, as a dividend, which amounted to $51,087,387. In addition,
such shareholders were also entitled to receive all the profits, of Fujian
Service from April 1, 2010 to June 30, 2010, which amounted to
$10,219,693. As further outlined in the agreement and described in
Notes 1 and 2, such shareholders also committed to contribute all such dividends
back into the Company as a capital contribution along with an allocation to its
statutory reserves.
On June
29, 2010, in connection with the acquisition of Fujian Service by Wonder
Dredging, the shareholders of Fujian Service contributed into equity $18,898,512
representing shareholder's loans.
CHINA
DREDGING GROUP CO., LTD AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
14.
|
STOCKHOLDERS'
EQUITY AND RETAINED EARNINGS
(…/Cont’d)
|
|
(b)
|
Retained
earnings and statutory reserves
|
Retained
earnings and statutory reserves as of June 30, 2010 consist of the
following:
Retained
earnings
|
|
$
|
(318,442
|
)
|
|
|
|
|
|
Statutory
reserves
|
|
$
|
4,888,018
|
|
The Group
is required to transfer 10% of its net profits after income tax, as determined
in accordance with the PRC accounting rules and regulations. Appropriation to
the statutory reserve by the Group is based on profit arrived at under PRC
accounting standards for business enterprises for each year. The statutory
reserves of the Group represent the statutory reserves of Fujian Service as
required under the PRC law.
The
profit arrived at must be set off against any accumulated losses sustained by
the Group in prior years, before allocation is made to the statutory reserve.
Appropriation to the statutory reserve must be made before distribution of
dividends to stockholders. The appropriation is required until the statutory
reserve reaches 50% of the stockholders' equity. This statutory reserve is not
distributable in the form of cash dividends.
CHINA
DREDGING GROUP CO., LTD AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
The
Company is incorporated in the British Virgin Islands, the laws of which do not
require the Company to pay any income taxes or other taxes based on revenue,
business activity or assets. The Company has subsidiaries domiciled
and operating in other countries and those entities file separate tax returns in
the respective jurisdictions in which they are domiciled or
operate.
The
Company’s consolidated subsidiary China Dredging (HK) Company Limited is
domiciled in Hong Kong and would be subject to statutory profit tax in that
jurisdiction of 16.5% if it incurred revenue and profits there. Two
of the Company’s subsidiaries, Fujian Wang Gang and Fujian Service operate in
the PRC, where they are subject to a 25% statutory profit tax. Only
Fujian Service had profit during the six months ended June 30, 2010 and its tax
expense, calculated at the statutory rate, is provided below, together with a
reconciliation of actual tax expense recognized by Fujian Service. No
income tax has been included in the Group's Statement of Income for the period
from April 14, 2010 (Date of Inception) to June 30, 2010 as the amount was
deemed immaterial.
A
reconciliation of the expected Fujian Service's income tax expense to the actual
income tax expense for the six months ended June 30, 2010 was as
follows:
Fujian
Service's Income before tax
|
|
$
|
23,144,449
|
|
|
|
|
|
|
Expected
PRC income tax expense at statutory tax rate of 25%
|
|
$
|
5,786,112
|
|
Effect
on exchange rate
|
|
|
(1,771
|
)
|
Actual
income tax expense
|
|
$
|
5,784,341
|
|
The PRC
tax system is subject to substantial uncertainties and has been subject to
recently enacted changes, the interpretation and enforcement of which are also
uncertain. There can be no assurance that changes in PRC tax laws or their
interpretation or their application will not subject the Group to substantial
PRC taxes in future.
No
deferred tax liability has been provided as the amount involved is immaterial.
Fujian Service has analyzed the tax positions taken or expected to be taken in
its tax filings and has concluded it has no material liability related to
uncertain tax positions.
For the
period ended June 30, 2010, there is no unrecognized tax benefit. Management
does not anticipate any potential future adjustments in the next twelve months
which would result in a material change to its financial tax position. As of
June 30, 2010, the Group did not accrue any interest and penalties.
CHINA
DREDGING GROUP CO., LTD AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
16.
|
RELATED
PARTY TRANSACTIONS
|
|
(a)
|
Operating
lease commitments
|
The
Company's VIE, Fujian Service, entered into an office rental agreement in 2008
with Ping Lin, a relative of one of the former owners, Qing Lin, from January 1,
2008 to December 31, 2009. This agreement has been renewed and extended the
period from January 1, 2010 to December 31, 2015. Fujian Service also entered
into dredger and crew hire agreements from June 1, 2008 and May 31, 2016 with
Fujian Lutong Highway Engineering Construction Co., Ltd., (a company owned by
Xiu Zhen Lin), one of the former owners of the Fujian Service. Office and
dredger rental and crew hire charge paid for the six months ended June 30, 2010
was as follows:
|
|
Name
of related party
|
|
|
|
Office
rental
|
|
Ping
Lin
|
|
$
|
11,553
|
|
Hire
charge of dredger
|
|
Fujian
Lutong Highway Engineering
|
|
|
|
|
|
|
Construction
Co., Ltd
|
|
|
513,279
|
|
Hire
charge of crew
|
|
Fujian
Lutong Highway Engineering
|
|
|
|
|
|
|
Construction
Co., Ltd
|
|
|
263,972
|
|
|
|
|
|
$
|
788,804
|
|
Hire
charges of dredger and crew are included as part of the cost of revenue. Office
rental is included in the general and administrative expenses.
The
Company's subsidiary, Fujian Service, had the following financial guarantee for
its related party as of June 30, 2010:
Guarantees
given to the bank to secure the bank loan granted to related
party
|
|
$
|
7,850,960
|
|
Fujian
Service pledged one of its dredgers, Xinggangjun 6, to bank for the related
party, Fujian Province Pingtan County Ocean Fishery Holdings Limited which
engages in fishery, to obtain a bank loan. There was no outstanding contingent
payment obligation by Fujian Service in respect to the indebtedness of the
related party.
The
related company is indirectly under control of Fuzhou Hong Long Ocean Fishery
Co., Ltd (“Hong Long”), which Ping Lin had 92.5% of the ownership holding of
Hong Long. Ping Lin is the daughter-in-law of Panxing Zhuo, one of owners of
Wonder Dredging which held 50% ownership of Fujian Service, and sister of Qing
Lin, the principal owner of Wonder Dredging.
CHINA
DREDGING GROUP CO., LTD AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
17.
|
CERTAIN
RISKS AND CONCENTRATIONS
|
As of
June 30, 2010, substantially all of the Group’s cash included bank deposits in
accounts maintained within the PRC where there is currently no rule or
regulation in place for obligatory insurance to cover bank deposits in the event
of bank failure. However, the Group has not experienced any losses in such
accounts and believes it is not exposed to any significant risks on its cash in
bank accounts.
Customers
accounting for 10% or more of the Group's revenues as follows:
Customer
A
|
|
|
42.0
|
%
|
Customer
B
|
|
|
29.7
|
%
|
Customer
C
|
|
|
11.2
|
%
|
Customer
D
|
|
|
11.0
|
%
|
|
|
|
93.9
|
%
|
Suppliers
accounting for 10% or more of the Company's total purchases as
follows:
Supplier
A
|
|
|
31.3
|
%
|
Supplier
B
|
|
|
29.8
|
%
|
Supplier
C
|
|
|
29.6
|
%
|
|
|
|
90.7
|
%
|
CHINA
DREDGING GROUP CO., LTD AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
18.
|
OPERATING
LEASE COMMITMENTS
|
The total
future minimum lease payments under non-cancellable operating leases with
respect to dredgers, crew and office as of June 30, 2010 are payable as
follows:
|
|
Hire charge
|
|
|
Hire charge
|
|
|
Consumable
|
|
|
|
|
|
|
|
|
|
of dredgers
|
|
|
of crew
|
|
|
stores supply
|
|
|
Office rental
|
|
|
Total
|
|
For
the period ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
18,936,396
|
|
|
$
|
3,641,136
|
|
|
$
|
26,897,100
|
|
|
$
|
11,617
|
|
|
$
|
49,486,249
|
|
2012
|
|
|
8,228,389
|
|
|
|
3,326,746
|
|
|
|
26,897,100
|
|
|
|
11,617
|
|
|
|
38,463,852
|
|
2013
|
|
|
8,017,703
|
|
|
|
3,249,968
|
|
|
|
25,988,160
|
|
|
|
11,617
|
|
|
|
37,267,448
|
|
2014
|
|
|
1,732,681
|
|
|
|
1,061,727
|
|
|
|
-
|
|
|
|
11,617
|
|
|
|
2,806,025
|
|
2015
|
|
|
1,732,681
|
|
|
|
1,061,727
|
|
|
|
-
|
|
|
|
11,617
|
|
|
|
2,806,025
|
|
Thereafter
|
|
|
1,296,438
|
|
|
|
752,057
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,048,495
|
|
|
|
$
|
39,944,288
|
|
|
$
|
13,093,361
|
|
|
$
|
79,782,360
|
|
|
$
|
58,085
|
|
|
$
|
132,878,094
|
|
Rental
expenses under non-cancellable operating leases arrangements included in Fujian
Service's book for the six months ended June 30, 2010 was $2,018,641. $788,804
was of the rental expenses paid to the related parties for the six months ended
June 30, 2010 (see Note 16(a)). The commitments include both the related parties
transaction and non-related parties transaction, the total future
lease payment to the related parties and third parties as of June 30, 2010 is
summarized as follows:-
|
|
Hire charge
|
|
|
Hire charge
|
|
|
Consumable
|
|
|
|
|
|
|
|
|
|
of dredgers
|
|
|
of crew
|
|
|
stores supply
|
|
|
Office rental
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
parties transactions
|
|
$
|
6,107,391
|
|
|
$
|
3,140,945
|
|
|
$
|
-
|
|
|
$
|
58,085
|
|
|
$
|
9,306,421
|
|
Non-related
parties transactions
|
|
|
33,836,893
|
|
|
|
9,952,419
|
|
|
|
79,782,361
|
|
|
|
-
|
|
|
|
123,571,673
|
|
|
|
$
|
39,944,284
|
|
|
$
|
13,093,364
|
|
|
$
|
79,782,361
|
|
|
$
|
58,085
|
|
|
$
|
132,878,094
|
|
The Group
had the following capital commitment as of June 30, 2010:
Contracted,
but not provided for:-
|
|
|
|
Acquisition
of dredger, net of deposit paid
|
|
$
|
27,280,503
|
|
According
to the dredger purchase contract, the Group paid 7.5% $2,211,932 (Renminbi
15,000,000) (see Note 9) on June 2, 2009 as a deposit pursuant to the purchase
contract which was signed on May 20, 2009. The balance due on the dredger totals
$27,280,503 (Renminbi 185,000,000) and is payable in 4 installments during the
12 months following delivery as follows:
Payment Due Date
|
|
|
|
(end of month following delivery)
|
|
Payment Amount
|
|
|
|
|
|
3
rd
month
|
|
$
|
8,184,151
|
|
6
th
month
|
|
$
|
6,820,126
|
|
9
th
month
|
|
$
|
6,820,126
|
|
12
th
month
|
|
$
|
5,456,100
|
|
The
dredger is expected to be delivered to the Group on or before May 31,
2012.
CHINA
DREDGING GROUP CO., LTD AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
Employment
Agreements
In August
2010 three of our executive officers, entered into three-year employment
agreements with the Company pursuant to which they receive aggregate annual
compensation of HK$700,000 (approximately US$90,245). Pursuant to the
agreements, each executive will devote all of his working time to his respective
duties at the Company and will not become employed in any competitive business
while employed by the Company or for two years following the termination of his
employment with the Company, and the executive will not solicit the services of
any of our employees for two years after the executive terminates employment
with the Company. The Company may terminate the executive for cause at any time
without notice, or without cause upon one month prior written notice to the
executive. In the event of termination without cause, the Company will pay to
the executive a cash severance payment equal to three months of the executive’s
then current base salary. In the event of a material and substantial reduction
in the executive’s existing authority and responsibilities, the executive may
resign upon one-month prior written notice to the Company.
Merger
and Private Placement
On
October 27, 2010, the Company entered into a merger with Chardan Acquisition
Corp. (“CAC”), a BVI company (the “Merger”). The Company was the
surviving entity in the Merger. Pursuant to the Merger Agreement, the
shareholders of CAC received 500,000 of the Company’s ordinary
shares.
On
October 29, the Company completed the initial closing of a private placement of
4,371,000 shares of its Series A Preferred stock (no par value) for gross
proceeds of $21,855,000 million. Under the terms of the Securities Purchase
Agreement, up to a total of 15,000,000 million Class A Preferred shares
(including the shares sold upon the initial closing) may be sold by the Company
during the 60 days following the initial closing (the
“Offering”). Net proceeds to the Company from the initial closing of
the Offering, after deducting offering expenses of $2,033,925 were
$19,821,075.
FUJIAN
XING GANG PORT SERVICE CO., LTD.
BALANCE
SHEETS
(IN
US DOLLARS)
|
|
(Unaudited)
|
|
|
|
|
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2010
|
|
|
2009
|
|
Assets
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
|
|
$
|
22,894,565
|
|
|
$
|
23,343,469
|
|
Restricted
cash
|
|
|
25,968,089
|
|
|
|
8,422,440
|
|
Cost
and estimated earnings in excess of billings on uncompleted
contracts
|
|
|
8,845,328
|
|
|
|
2,211,411
|
|
Other
receivables
|
|
|
1,079
|
|
|
|
312
|
|
Due
from related companies
|
|
|
12,693,456
|
|
|
|
-
|
|
Inventories
|
|
|
1,193,210
|
|
|
|
429,226
|
|
Total
current assets
|
|
|
71,595,727
|
|
|
|
34,406,858
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
|
|
|
|
|
|
Prepaid
dredger deposit
|
|
|
2,211,932
|
|
|
|
2,197,158
|
|
Property,
plant and equipment, net
|
|
|
41,689,943
|
|
|
|
43,511,237
|
|
Total
other assets
|
|
|
43,901,875
|
|
|
|
45,708,395
|
|
Total
assets
|
|
$
|
115,497,602
|
|
|
$
|
80,115,253
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and owners' equity
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Term
loans
|
|
$
|
4,423,865
|
|
|
$
|
7,030,906
|
|
Accounts
payable
|
|
|
789,086
|
|
|
|
-
|
|
Income
tax payable
|
|
|
3,418,577
|
|
|
|
2,042,047
|
|
Accrued
liabilities and other payables
|
|
|
771,486
|
|
|
|
209,680
|
|
Dividend
payable
|
|
|
51,087,387
|
|
|
|
-
|
|
Total
current liabilities
|
|
|
60,490,401
|
|
|
|
9,282,633
|
|
|
|
|
|
|
|
|
|
|
Non-current
liabilities
|
|
|
|
|
|
|
|
|
Long-term
loans
|
|
|
7,962,957
|
|
|
|
3,295,738
|
|
Total
non-current liabilities
|
|
|
7,962,957
|
|
|
|
3,295,738
|
|
Total
liabilities
|
|
|
68,453,358
|
|
|
|
12,578,371
|
|
|
|
|
|
|
|
|
|
|
Owners'
equity
|
|
|
|
|
|
|
|
|
Registered
capital
|
|
|
29,002,371
|
|
|
|
29,002,371
|
|
Statutory
reserves
|
|
|
4,888,018
|
|
|
|
4,888,018
|
|
Additional
paid-in capital
|
|
|
12,619,725
|
|
|
|
-
|
|
Retained
earnings
|
|
|
10,219,693
|
|
|
|
43,946,972
|
|
Accumulated
other comprehensive income
|
|
|
1,297,172
|
|
|
|
682,256
|
|
Subscription
receivable
|
|
|
(10,982,735
|
)
|
|
|
(10,982,735
|
)
|
Total
owners' equity
|
|
|
47,044,244
|
|
|
|
67,536,882
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and owners' equity
|
|
$
|
115,497,602
|
|
|
$
|
80,115,253
|
|
See notes
to the financial statements.
FUJIAN
XING GANG PORT SERVICE CO., LTD.
STATEMENTS
OF INCOME (UNAUDITED)
(IN
US DOLLARS)
|
|
For
the Three Months
|
|
|
For
the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
revenue
|
|
$
|
25,955,955
|
|
|
$
|
22,723,011
|
|
|
$
|
45,981,433
|
|
|
$
|
40,825,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of contract revenue, includes depreciation of $1,249,866 and $1,500,647
for the three months ended June 30, 2010 and 2009, respectively and
$2,497,042 and $2,475,070 for the six months ended June 30, 2010 and 2009,
respectively
|
|
|
(10,882,457
|
)
|
|
|
(10,332,609
|
)
|
|
|
(20,389,446
|
)
|
|
|
(18,830,015
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
15,073,498
|
|
|
|
12,390,402
|
|
|
|
25,591,987
|
|
|
|
21,995,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
(1,237,460
|
)
|
|
|
(849,048
|
)
|
|
|
(2,049,384
|
)
|
|
|
(1,224,771
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
13,836,038
|
|
|
|
11,541,354
|
|
|
|
23,542,603
|
|
|
|
20,770,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
27,258
|
|
|
|
7,202
|
|
|
|
44,585
|
|
|
|
12,638
|
|
Interest
expenses
|
|
|
(241,275
|
)
|
|
|
(216,368
|
)
|
|
|
(442,827
|
)
|
|
|
(395,337
|
)
|
Sundry
income
|
|
|
-
|
|
|
|
-
|
|
|
|
88
|
|
|
|
-
|
|
Total
other expenses
|
|
|
(214,017
|
)
|
|
|
(209,166
|
)
|
|
|
(398,154
|
)
|
|
|
(382,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
13,622,021
|
|
|
|
11,332,188
|
|
|
|
23,144,449
|
|
|
|
20,387,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
(3,402,328
|
)
|
|
|
(2,834,991
|
)
|
|
|
(5,784,341
|
)
|
|
|
(5,100,233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
10,219,693
|
|
|
$
|
8,497,197
|
|
|
$
|
17,360,108
|
|
|
$
|
15,287,535
|
|
See notes
to the financial statements.
FUJIAN
XING GANG PORT SERVICE CO., LTD.
STATEMENT
OF CHANGES IN OWNERS' EQUITY (UNAUDITED)
FOR
THE SIX MONTHS ENDED JUNE 30, 2010
(IN
US DOLLARS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
|
|
|
|
|
|
|
Registered
|
|
|
Statutory
|
|
|
Additional
|
|
|
Subscription
|
|
|
Retained
|
|
|
comprehensive
|
|
|
|
|
|
|
Capital
|
|
|
reserves
|
|
|
paid-in
capital
|
|
|
receivable
|
|
|
earnings
|
|
|
income
|
|
|
Total
|
|
Balance
as of December 31, 2009
|
|
$
|
29,002,371
|
|
|
$
|
4,888,018
|
|
|
|
-
|
|
|
$
|
(10,982,735
|
)
|
|
$
|
43,946,972
|
|
|
$
|
682,256
|
|
|
$
|
67,536,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
contributed by Fujian
WangGang Dredging Construction Co.,
Ltd.
|
|
|
-
|
|
|
|
-
|
|
|
|
12,619,725
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,619,725
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,360,108
|
|
|
|
-
|
|
|
|
17,360,108
|
|
Dividend
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(51,087,387
|
)
|
|
|
-
|
|
|
|
(51,087,387
|
)
|
Foreign
currency translation gain
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
614,916
|
|
|
|
614,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of June 30, 2010
|
|
$
|
29,002,371
|
|
|
$
|
4,888,018
|
|
|
$
|
12,619,725
|
|
|
$
|
(10,982,735
|
)
|
|
$
|
10,219,693
|
|
|
$
|
1,297,172
|
|
|
$
|
47,044,244
|
|
See notes
to the financial statements
FUJIAN
XING GANG PORT SERVICE CO., LTD.
STATEMENTS
OF CASH FLOWS (UNAUDITED)
|
|
For
the Six Months Ended
|
|
|
|
June
30,
|
|
|
|
2010
|
|
|
2009
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$
|
17,360,108
|
|
|
$
|
15,287,535
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
of property, plant and equipment
|
|
|
2,497,401
|
|
|
|
2,475,429
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Cost
and estimated earnings in excess of billings on uncompleted
contracts
|
|
|
(6,582,645
|
)
|
|
|
(439,238
|
)
|
Other
receivables
|
|
|
(761
|
)
|
|
|
(329
|
)
|
Inventories
|
|
|
(756,912
|
)
|
|
|
(92,464
|
)
|
Accounts
payable
|
|
|
784,746
|
|
|
|
-
|
|
Income
tax payable
|
|
|
1,355,304
|
|
|
|
422,462
|
|
Due
from related companies
|
|
|
-
|
|
|
|
-
|
|
-
Accrued liabilities and other payables
|
|
|
557,315
|
|
|
|
400,237
|
|
Net
cash provided by operating activities
|
|
|
15,214,556
|
|
|
|
18,053,632
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Deposit
paid for dredgers
|
|
|
-
|
|
|
|
(20,029,229
|
)
|
Changes
in restricted cash
|
|
|
(17,392,834
|
)
|
|
|
-
|
|
Payment
of purchases of property, plant and equipment
|
|
|
(323,644
|
)
|
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(17,716,478
|
)
|
|
|
(20,029,229
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from short-term loans
|
|
|
-
|
|
|
|
3,366,411
|
|
Repayment
of short-term loans
|
|
|
(3,372,978
|
)
|
|
|
-
|
|
Proceeds
from long-term loans
|
|
|
9,239,026
|
|
|
|
-
|
|
Repayment
of long-term loans
|
|
|
(3,886,257
|
)
|
|
|
-
|
|
Advance
to related companies
|
|
|
(12,693,456
|
)
|
|
|
-
|
|
Capital
contributions from
Fujian WangGang Dredging Construction Co.,
Ltd.
|
|
|
12,619,725
|
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
1,906,060
|
|
|
|
3,366,411
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease)/increase in cash
|
|
|
(595,862
|
)
|
|
|
1,390,814
|
|
Effect
of exchange rate changes on cash
|
|
|
146,958
|
|
|
|
(1,363
|
)
|
Cash
at beginning of period
|
|
|
23,343,469
|
|
|
|
1,362,142
|
|
Cash
at end of period
|
|
$
|
22,894,565
|
|
|
$
|
2,751,593
|
|
Non-cash
investing and financing transactions:
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment with issuance of debt
|
|
$
|
-
|
|
|
$
|
11,048,959
|
|
|
|
|
|
|
|
|
|
|
Supplemental
information:
|
|
|
|
|
|
|
|
|
Cash
paid for income tax
|
|
$
|
4,429,037
|
|
|
$
|
4,677,770
|
|
Cash
paid for interest
|
|
$
|
445,781
|
|
|
$
|
390,945
|
|
See notes
to the financial statements
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
1.
|
DESCRIPTION
OF BUSINESS AND ORGANIZATION
|
Fujian
Xing Gang Port Service Co., Ltd. (the “Company”or “Xing Gang”) formerly known as
Fujian Xing Gang Shipping Co., Ltd., is a China-based company that performs
dredging services specifically, capital dredging, maintenance dredging and
reclamation dredging throughout mainland China. The Company provides
its services directly to its customers in the People's Republic of China
(PRC).
The
Company was incorporated on January 8, 2008 with total registered capital
$8,501,266 (Renminbi 60,000,000). The Company was owned by two individuals, Lin
Qing and Lin Ping. Lin Qing contributed cash of $5,950,886 (Renminbi 42,000,000)
holding 70% of the total ownership, while Lin Ping contributed cash of
$2,550,380 (Renminbi 18,000,000) holding 30% of the total
ownership.
On April
14, 2008, Lin Ping sold all of her ownership to her father-in-law, Zhuo
Panxing.
On
September 21, 2009, the Company's registered capital was increased to
$29,002,371 (Renminbi 200,000,000). $20,501,105 (Renminbi 140,000,000) was
contributed by Fujian Lutong Highway Engineering Construction Co. Ltd (“Lutong
Highway”). As a result, Lin Qing’s ownership was reduced to 21%, and Zhuo
Panxing’s ownership was reduced to 9% and Lutong Highway held the remaining 70%
as of December 31, 2009. Lutong Highway has only funded $9,518,370 (Renminbi
65,000,000) of the $20,501,105 (Renminbi 140,000,000) commitment thereby
creating a subscription receivable which is classified as a reduction of equity.
The subscription receivable of $10,982,735 (Renminbi 75,000,000) was originally
payable by Lutong Highway, however, on March 3, 2010, Lutong Highway sold all
its ownership to Lin Qing, who assumed the obligation to fulfill the unfunded
subscription amount. Following the transfer of ownership interests to Lin Qing,
his ownership percentage increased to 91% and Zhuo Panxing continued to hold 9%
of the ownership.
On May
20, 2010, Lin Qing and Zhuo Panxing sold all of their ownerships interest in the
Company to Wonder Dredging Engineering Limited Liability Company (“Wonder
Dredging”) and Wonder Dredging assumed the unfunded subscription obligation of
Lin Qing. Accordingly, as of May 20, 2010, Wonder Dredging held 100% of the
ownership of the Company. The total registered capital contributed or committed
remained unchanged at $29,002,371(Renminbi 200,000,000), of which $10,982,735
(Renminbi 75,000,000) was unfunded.
On June
29, 2010, Fujian WangGang Dredging Construction Co., Ltd. (“Fujian Dredging”)
obtained 50% ownership of the Company from Wonder Dredging by virtue of a
capital contribution of $23,602,460 (Renminbi 158,597,183) into the Company,
which amount, includes the unfunded subscription amount of $10,982,735 (Renminbi
75,000,000). Fujian Dredging is obligated to fund the total capital commitment
on or before September 21, 2011 and $12,619,725 (Renminbi 83,597,183 ) was
funded as of June 30, 2010. As of June 29, 2010, Wonder Dredging held 50% of the
ownership of the Company and Fujian Dredging held the remaining
50%.
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
|
(a)
|
Basis
of presentation
|
The
Company's financial statements have been prepared in accordance with generally
accepted accounting principles in the United States of America (the “U.S.
GAAP”).
The
preparation of the financial statements in conformity with U.S. GAAP requires
management of the Company to make a number of estimates and assumptions relating
to the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the years. Significant
items subject to such estimates and assumptions include the recoverability of
the carrying amount and the estimated useful lives of long-lived assets;
valuation allowances for receivables, realizable values for inventories.
Accordingly, actual results could differ from those estimates.
|
(c)
|
Foreign
currency translation
|
Assets
and liabilities of foreign operation are translated at the rate of exchange in
effect on the balance sheet date; income and expenses are translated at the
average rate of exchange prevailing during the period. The period-end rates for
June 30, 2010 and December 31, 2009 of Renminbi to one US dollar were 6.7814 and
6.8270 respectively; average rates for the six months ended June 30, 2010 and
2009 were 6.8189 and 6.8322 respectively. The related translation adjustments
are reflected in “Accumulated other comprehensive income” in the owners' equity
section of the balance sheet. As of June 30, 2010 and December 31, 2009, the
accumulated foreign currency translation gain was $1,297,172 and $682,256
respectively. Foreign currency gains and losses resulting from transactions are
included in earnings.
Cash
consist of cash on hand and at banks. Substantially all of the Company's cash
deposits are held with financial institutions located in the PRC where there is
currently no rule or regulation mandated on obligatory insurance of bank
accounts. Management believes these financial institutions are of high credit
quality. The Company maintains bank accounts in the
PRC.
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(…/Cont'd)
|
|
(e)
|
Cost
and estimated earnings in excess of billings on uncompleted
contracts
|
Cost and
estimated earnings in excess of billings on uncompleted contracts represent
amounts due or billable under the terms of contracts with customers. There is no
amount related to retainage. The Company anticipates collection of all the
outstanding balances within 10 days after completion reports of the contracts
are issued. The allowance for doubtful accounts is the Company’s best estimate
of the amount of probable credit losses in the Company's existing receivable.
The Company provides an allowance for estimated uncollectible receivables when
events or conditions indicate that amounts outstanding are not
recoverable.
Outstanding
account balances are reviewed individually for collectability. Based on the
Company’s assessment of collectibility, there has been no allowance for doubtful
accounts recognized for any of the six months ended June 30, 2010 and the year
ended December 31, 2009.
Inventories
mainly consist of consumable parts including pipe, spare parts, and supplies
used in the Company's dredging operations. Inventories are stated at the lower
of cost or market, using a weighted average cost method.
|
(g)
|
Property,
plant and equipment
|
Property,
plant and equipment are recorded at cost less accumulated depreciation.
Expenditures for major additions and betterments are capitalized. Depreciation
of property, plant and equipment is computed by the straight-line method over
the assets estimated useful lives ranging from five to fifty years. Building
improvements are amortized on a straight-line basis over the estimated useful
life.
Upon sale
or retirement of property, plant and equipment, the related cost and accumulated
depreciation are removed from the accounts and any gain or loss is reflected in
operations.
The
estimated useful lives of the assets are as follows:
|
|
Estimated lives
|
|
Dredgers
|
|
10
|
|
Machinery
|
|
5
|
|
Office
equipment
|
|
5
|
|
Expenditures
for repairs and maintenance, which do not extend the useful life of the assets,
are expensed as incurred.
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(…/Cont'd)
|
|
(h)
|
Impairment
of long-lived assets
|
Long-lived
assets are comprised of property, plant and equipment. Pursuant to the
provisions of ASC360-10, “Property, plant and equipment”, long-lived assets to
be held and used are reviewed for possible impairment whenever events indicate
that the carrying amount of such assets may not be recoverable by comparing the
undiscounted cash flows associated with the assets to their carrying amounts. If
such a review indicates an impairment, the carrying amount would be reduced to
fair value.
If
long-lived assets are to be disposed of are separately presented in the balance
sheet and reported at the lower of the carrying amount or fair value less costs
to sell, and are no longer depreciated. The assets and liabilities of a disposed
group classified as held for sale are presented separately in the appropriate
asset and liability sections of the balance sheet.
Based on
the Company’s assessment, there were no events or changes in circumstances that
would indicate any impairment of long-lived assets as of June 30, 2010 and
December 31, 2009.
|
(i)
|
Fair
value measurements
|
In April
2009, the FASB issued ASC 820-10-65-4 (formerly FSP No. 157-4, “Determining Fair
Value When the Volume and Level of Activity for the Asset and Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly”).
This standard emphasizes that even if there has been a significant decrease in
the volume and level of activity, the objective of a fair value measurement
remains the same. Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction (that is, not a
forced liquidation or distressed sale) between market participants. This
standard provides a number of factors to consider when evaluating whether there
has been a significant decrease in the volume and level of activity for an asset
or liability in relation to normal market activity. In addition, when
transactions or quoted prices are not considered orderly, adjustments to those
prices based on the weight of available information may be needed to determine
the appropriate fair value. This standard is effective for interim and annual
reporting periods ending after June 15, 2009, and shall be applied
prospectively. Early adoption is permitted for periods ending after March 15,
2009. The adoption of this standard did not have a material effect on the
financial statements.
In August
2009, the FASB issued Accounting Standards Update “ASU” 2009-5 “Measuring
Liabilities at Fair Value”. This ASU provides amendments to ASC 820-10 “Fair
Value Measurements and Disclosures” to address concerns regarding the
determination of the fair value of liabilities. Because liabilities are often
not “traded”, due to restrictions placed on their transferability, there is
typically a very limited amount of trades (if any) from which to draw market
participant data. As such, many entities have had to determine the fair value of
a liability through the use of a hypothetical transaction. This ASU clarifies
the valuation techniques that must be used when the liability subject to the
fair value determination is not traded as an asset in an active market. The
management does not expect the adoption of this ASU to have a material effect on
the financial statements.
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
2.
|
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(.../Cont'd)
|
The
Company recognizes contract revenues under the percentage-of-completion method
to determine the appropriate amount to be recognized in a given period.
Depending on the nature of contracts, the stage of completion is measured by
reference to (a) the proportion of contract costs incurred for work performed to
date to estimated total contract costs; (b) the amount of work certified by site
engineer; or (c) completion of physical proportion of the contract work. The
difference between amounts billed and recognized as revenue is reflected in the
balance sheet as either contract revenues in excess of billings or billings in
excess of contract revenues. Provisions for estimated losses on contracts in
progress will be made in the period in which they are identified. In
the event that contract revenue cannot be estimated reliably, contract revenue
is recognized only to the extent of contract costs incurred that are likely to
be recoverable. The cost of contract revenue includes consumable stores,
dredgers' hire charges, salaries and wages and depreciation of
dredgers.
The
Company accounts for income taxes under ASC 740 “Income Taxes”. Deferred income
tax assets and liabilities are determined based upon differences between the
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be effective when the differences
are expected to reverse.
Deferred
tax assets are reduced by a valuation allowance to the extent management
concludes it is more likely than not that the assets will not be
realized. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the statements of income in the period that
includes the enactment date.
The
Company adopted ASC 740, “Income Taxes”, which prescribes a more-likely-than-not
threshold for financial statement recognition and measurement of a tax position
taken in the tax return. This interpretation also provides guidance on
de-recognition of income tax assets and liabilities, classification of current
and deferred income tax assets and liabilities, accounting for interest and
penalties associated with tax positions, accounting for income taxes in interim
periods and income tax disclosures.
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
2.
|
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(.../Cont'd)
|
|
(l)
|
Other
comprehensive income
|
The
Company has adopted ASC 220 “Comprehensive Income”. This statement
establishes rules for the reporting of comprehensive income and its
components. Comprehensive income consists of net income and foreign
currency translation adjustments.
Other
comprehensive income consists of the following for the six months ended June 30,
2010 and 2009:
|
|
For
the Three Months
|
|
|
For
the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
10,219,693
|
|
|
$
|
8,497,197
|
|
|
$
|
17,360,108
|
|
|
$
|
15,287,535
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Foreign currency translation adjustments
|
|
|
602,366
|
|
|
|
15,366
|
|
|
|
614,916
|
|
|
|
(35,681
|
)
|
Total
comprehensive income
|
|
$
|
10,822,059
|
|
|
$
|
8,512,563
|
|
|
$
|
17,975,024
|
|
|
$
|
15,251,854
|
|
|
(m)
|
Commitments
and contingencies
|
In the
normal course of business, the Company is subject to contingencies, including
legal proceedings and environmental claims arising out of the normal course of
businesses that relate to a wide range of matters, including among others,
contracts breach liability. The Company records accruals for such contingencies
based upon the assessment of the probability of occurrence and, where
determinable, an estimate of the liability. Management may consider many factors
in making these assessments including past history, scientific evidence and the
specifics of each matter.
As of
June 30, 2010 and December 31, 2009, the Company's management has evaluated all
such proceedings and claims. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, liquidity or results of operations.
|
(n)
|
Economic
and political risks
|
The
Company's operations are conducted in the PRC. Accordingly, the
Company's business, financial condition and results of operations may be
influenced by the political, economic and legal environment in the PRC, and by
the general state of the PRC economy.
The
Company's operations in the PRC are subject to special considerations and
significant risks not typically associated with companies in North America and
Western Europe. These include risks associated with, among others, the
political, economic and legal environment and foreign currency exchange. The
Company's results may be adversely affected by changes in the political and
social conditions in the PRC, and by changes in governmental policies with
respect to laws and regulations, anti-inflationary measures, currency
conversion, remittances aboard, and rates and methods of taxation, among other
things.
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
2.
|
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(.../Cont'd)
|
|
(o)
|
Pension
and employee benefits
|
Full time
employees of the Company participate in a government mandated multi-employer
defined contribution plan pursuant to which certain pension benefits, medical
care, unemployment insurance, employee housing fund and other welfare benefits
are provided to employees. PRC labor regulations require the Company to accrue
for these benefits based on certain percentages of the employees' salaries.
Costs for pension and employee benefits for the periods ended June 30, 2010 and
2009 were $19,494 and $17,212, respectively.
ASC 280
“Segment reporting” establishes standards for reporting information on operating
segments in interim and annual financial statements. The Company has only one
segment, all of the Company's operations and customers are in the PRC and all
incomes are derived from the services of dredging. Accordingly, no geographic
information is presented.
|
(q)
|
Recently
issued accounting standards
|
We
describe below recent pronouncements that have had or may have a significant
effect on our financial statements. We do not discuss recent pronouncements that
are not anticipated to have an impact on or are unrelated to our financial
condition, results of operations, or disclosures.
In May
2009, the FASB issued guidance within Topic 855-10 (formerly SFAS 165,
“Subsequent Events”) relating to subsequent events. This guidance establishes
principles and requirements for subsequent events. This guidance
defines the period after the balance sheet date during which events or
transactions that may occur would be required to be disclosed in a company’s
financial statements. Public entities are required to evaluate subsequent events
through the date that financial statements are issued. This guidance also
provides guidelines in evaluating whether or not events or transactions
occurring after the balance sheet date should be recognized in the financial
statements. This guidance requires disclosure of the date through which
subsequent events have been evaluated. This Statement is effective for interim
and annual periods ending after June 15, 2009. The Company has adopted this
standard as of December 31, 2009. The adoption of this standard does not have a
material impact on the Company’s financial statements.
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
2.
|
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(.../Cont'd)
|
|
(q)
|
Recently
issued accounting standards
(…/Cont'd)
|
In June
2009, the FASB issued FASB ASC 105-10-05, 10, 15, 65, 70 (“FASB ASC 105-10-05,
10, 15, 65, 70”), (formerly FASB Statement No. 168, The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles - a replacement of FASB Statement No. 162). FASB ASC 105-10-05, 10,
15, 65, 70 establishes the FASB ASC as the source of authoritative GAAP for
nongovernmental entities. The ASC does not change GAAP, instead it takes
individual pronouncements that currently comprise GAAP and reorganizes them into
Topics. Contents in each Topic are further organized by Subtopic, then Section
and finally Paragraph. The Paragraph level is the only level that contains
substantive content. Citing particular content in the ASC involves specifying
the unique numeric path to the content through the Topic, Subtopic, Section and
Paragraph structure. FASB suggests that all citations begin with “FASB ASC.”
FASB ASC 105-10-05, 10, 15, 65, 70 was effective for interim and annual periods
ending after September 15, 2009 and does not have an impact on the Company's
financial statements.
In June
2009, the FASB issued ASC 810.10, guidance to change financial reporting by
enterprises involved with variable interest entities (“VIEs”) which modifies how
a company determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. This
pronouncement clarifies that the determination of whether a company is required
to consolidate an entity is based on, among other things, an entity's purpose
and design and a company's ability to direct the activities of the entity that
most significantly impact the entity's economic performance. The guidance
requires an ongoing reassessment of whether a company is the primary beneficiary
of a variable interest entity. This guidance also requires additional
disclosures about a company's involvement in variable interest entities and any
significant changes in risk exposure due to that involvement. This guidance is
effective for fiscal years beginning after November 15, 2009. The Company does
not anticipate that the adoption of this statement will have a material impact
on its financial statement.
In August
2009, the FASB issued ASU No. 2009-05, Measuring Liabilities at Fair Value. ASU
2009-05 amended ASC 820, Fair Value Measurements. Specifically, ASU
2009-05 provides clarification that in circumstances in which a quoted price in
an active market for the identical liability is not avaliable, a reporting
entity is required to measure fair value using one or more of the following
methods: 1) a valuation technique that uses a) the quoted price of the identical
liability when traded as an asset or b) quoted prices for similar liabilities or
similar liabilities when traded as assets and/or 2) a valuation technique that
is consistent with the principles of ASC 820 (e.g. an income approach or market
approach). ASU 2009-05 also clarifies that when estimating the fair value of a
liability, a reporting entity is not required to adjust to include inputs
relating to the existence of transfer restrictions on that liability. The
Company does not anticipate that the adoption of this statement will have a
material impact on its financial statement.
Management
does not believe that any other recently issued, but not yet effective
accounting pronouncements, if adopted, would have a material effect on the
accompanying financial statements.
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
Cash
represents cash in bank and cash on hand. Cash as of June 30, 2010 and December
31, 2009 was $22,894,565 and $23,343,469 respectively. Renminbi is not a freely
convertible currency and the remittance of funds out of the PRC is subject to
the exchange restrictions imposed by the PRC government.
Restricted
cash is safe deposit held by owners of leased dredgers being used by the
Company. It will be returned to the Company when the corresponding leases end.
Restricted cash as of June 30, 2010 and December 31, 2009 was $25,968,089 and
$8,422,440 respectively.
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
4.
|
COST
AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED
CONTRACTS
|
Cost and
estimated earnings in excess of billings represent amounts of revenue earned
under contracts in progress but not billed at the balance sheet date. These
amounts become billable according to the contract terms, which usually consider
passage of time, and/or completion of the project. As of June 30, 2010 and
December 31, 2009, the balance of cost and estimated earnings in excess of
billings on uncompleted contracts was $8,845,328 and $2,211,411 respectively.
Cost and estimated earnings in excess of billings include the
following:
June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
and estimated
|
|
|
|
|
Name
of contract
|
|
Estimated
|
|
|
Total
revenue
|
|
|
Amount
|
|
|
earnings
in excess
|
|
|
Status
of contract
|
|
(Contract period)
|
|
contract value
|
|
|
recognized
|
|
|
received/billed
|
|
|
of billings
|
|
|
(Completion %)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.
Tangshan Caofeidian Dredging and Reclamation I
|
|
$
|
9,236,094
|
|
|
$
|
9,268,977
|
|
|
$
|
9,268,977
|
|
|
$
|
-
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.
Tangshan Caofeidian Dredging and Reclamation II
|
|
|
11,028,172
|
|
|
|
11,014,980
|
|
|
|
11,014,980
|
|
|
|
-
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.
Tangshan Caofeidian Dredging and Reclamation III
|
|
|
10,019,505
|
|
|
|
4,982,377
|
|
|
|
4,002,413
|
|
|
|
979,964
|
|
|
|
50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
Tangshan Caofeidian Dredging and Reclamation IV
|
|
|
8,830,750
|
|
|
|
3,876,915
|
|
|
|
3,530,395
|
|
|
|
346,520
|
|
|
|
44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
Tangshan Caofeidian Dredging and Reclamation V
|
|
|
7,896,728
|
|
|
|
3,520,228
|
|
|
|
3,156,692
|
|
|
|
363,536
|
|
|
|
45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
Oujiang Port Liantian Dredging I
|
|
|
7,127,249
|
|
|
|
7,131,619
|
|
|
|
7,131,619
|
|
|
|
-
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
Oujiang Port Liantian Dredging II
|
|
|
4,197,158
|
|
|
|
4,245,908
|
|
|
|
4,245,908
|
|
|
|
-
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
Zhuhai Gaolan Port Dredging I
|
|
|
1,671,824
|
|
|
|
1,701,669
|
|
|
|
1,701,669
|
|
|
|
-
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.
Zhuhai Gaolan Port Dredging II
|
|
|
2,089,780
|
|
|
|
2,104,910
|
|
|
|
2,104,910
|
|
|
|
-
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
Zhuhai Gaolan Port Dredging III
|
|
|
2,867,031
|
|
|
|
2,524,234
|
|
|
|
1,907,965
|
|
|
|
616,269
|
|
|
|
88
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.
Zhanjiang Industrial Centre Dredging and Reclamation
|
|
|
13,588,702
|
|
|
|
13,648,547
|
|
|
|
9,955,834
|
|
|
|
3,692,713
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.
Qinzhou Port Channel Dredging
|
|
|
1,343,325
|
|
|
|
1,007,495
|
|
|
|
-
|
|
|
|
1,013,065
|
|
|
|
75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
Tianjin South Port Industrial Zone Dredging &
Reclamation
|
|
|
6,371,937
|
|
|
|
884,991
|
|
|
|
-
|
|
|
|
889,885
|
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.
Jingtang Port Channel Dredging
|
|
|
4,730,382
|
|
|
|
656,997
|
|
|
|
-
|
|
|
|
660,631
|
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.
Panjin Vessels Industrial Base Project
|
|
|
10,628,987
|
|
|
|
281,190
|
|
|
|
-
|
|
|
|
282,745
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
101,627,624
|
|
|
$
|
66,851,037
|
|
|
$
|
58,021,362
|
|
|
$
|
8,845,328
|
|
|
|
|
|
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
5.
|
COST
AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED
CONTRACTS
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
and estimated
|
|
|
|
|
Name
of contract
|
|
Estimated
|
|
|
Total
revenue
|
|
|
Amount
|
|
|
earnings
in excess
|
|
|
Status
of contract
|
|
(Contract period)
|
|
contract value
|
|
|
recognized
|
|
|
received/billed
|
|
|
of billings
|
|
|
(Completion %)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.
Tangshan Caofeidian Dredging and Reclamation I
|
|
$
|
9,220,678
|
|
|
$
|
6,028,905
|
|
|
$
|
5,532,167
|
|
|
$
|
496,738
|
|
|
|
65
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.
Tangshan Caofeidian Dredging and Reclamation II
|
|
|
11,009,765
|
|
|
|
7,325,728
|
|
|
|
6,605,511
|
|
|
|
720,217
|
|
|
|
67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.
Oujiang Port Liantian Dredging II
|
|
|
7,115,354
|
|
|
|
6,336,300
|
|
|
|
5,691,971
|
|
|
|
644,329
|
|
|
|
89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
Zhuhai Gaolan Port Dredging III
|
|
|
1,669,034
|
|
|
|
1,184,474
|
|
|
|
834,347
|
|
|
|
350,127
|
|
|
|
71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,014,831
|
|
|
$
|
20,875,407
|
|
|
$
|
18,663,996
|
|
|
$
|
2,211,411
|
|
|
|
|
|
The
Company's customers are state-owned companies of China. There is no credit term,
customers settle the balances according to percentage of completion of contracts
and the date of settlement has been specified in the contracts. The Company
believes all outstanding balances can be fully collected within 10 days after
the completion of contracts and project completed reports issued, therefore, no
provision on allowance for doubtful accounts was provided as of June
30, 2010 and December 31, 2009.
The
following schedule summarizes changes in backlog on contracts during the six
months ended June 30, 2010. Backlog represents the amount of revenue the Company
expects to realize from work to be performed on uncompleted contracts in
progress at year end and from contractual agreements on which work has not yet
begun.
Backlog
balance at December 31, 2009
|
|
$
|
8,139,422
|
|
New
contracts entered during the six months ended June 30,
2010
|
|
|
173,105,868
|
|
Add:
Adjustment of contracts due to change orders during the
period
|
|
|
231,945
|
|
Adjusted
contract amount at June 30, 2010
|
|
|
181,477,235
|
|
Less:
Contract revenue earned during the six months ended June 30,
2010
|
|
|
(45,981,433
|
)
|
Backlog
balance at June 30, 2010
|
|
$
|
135,495,802
|
|
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
The
Company provides dredging services for its customers in the PRC of China.
Inventories consist of consumable parts which are used for dredging projects. As
of June 30, 2010 and December 31, 2009, the balance of inventories was
$1,193,210 and $429,226 respectively.
Other
receivables as of June 30, 2010 and December 31, 2009 consist of the
following:
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
Social
insurance prepaid for staff
|
|
$
|
1,079
|
|
|
$
|
312
|
|
Other
receivables mainly represent social insurance prepaid for staff's portion by the
Company, this amount will be directly deducted from staff's salaries and it is
interest free.
8.
|
DUE
FROM RELATED COMPANIES
|
Due from
related companies as of June 30, 2010 and December 31, 2009 consist of the
following:
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
China
Dredging Group Co., Ltd.
|
|
$
|
73,731
|
|
|
$
|
-
|
|
Fujian
WangGang Dredging Construction Co., Ltd.
|
|
|
12,619,725
|
|
|
|
-
|
|
|
|
$
|
12,693,456
|
|
|
$
|
-
|
|
The
amount due from China Dredging Group Co., Ltd. ("China Dredging") was the legal
fee paid by the Company on behalf of China Dredging.
The
amount due from Fujian WangGang Dredging Construction Co., Ltd. (“Fujian
Dredging”) was the 50% ownership of the Company acquired from Wonder Dredging
Engineering Limited Liability Company ("Wonder Dredging") in June with a
consideration of $23,602,460 (Renminbi 158,597,183) which included the
subscription receivable $10,982,735 (Renminbi 75,000,000), the subscription
receivable is classified as a reduction of equity, therefore, the balance is
classified as due from a related company.
Fujian
Dredging is a subsidiary of China Dredging (HK) Company Limited which is wholly
owned by China Dredging.
The
amount due from related companies is unsecured, interest free and have no fixed
terms of repayment.
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
9.
|
PREPAID
DREDGER DEPOSIT
|
Prepaid
dredger deposit as of June 30, 2010 and December 31, 2009 consists of the
following:
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
Prepaid
dredger deposit
|
|
$
|
2,211,932
|
|
|
$
|
2,197,158
|
|
Prepaid
dredger represents a deposit of a new dredger before delivery. The Company paid
deposit for the acquisition of dredger which will be used for the expansion of
dredging operations.
10.
|
PROPERTY,
PLANT AND EQUIPMENT
|
Property,
plant and equipment as of June 30, 2010 and December 31, 2009 consist of the
following:
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
Dredgers
|
|
$
|
52,784,632
|
|
|
$
|
52,146,433
|
|
Machinery
|
|
|
37,883
|
|
|
|
-
|
|
Office
equipment
|
|
|
3,808
|
|
|
|
3,783
|
|
|
|
|
52,826,323
|
|
|
|
52,150,216
|
|
Less:
Accumulated depreciation
|
|
|
(11,136,380
|
)
|
|
|
(8,638,979
|
)
|
|
|
$
|
41,689,943
|
|
|
$
|
43,511,237
|
|
Total
depreciation expense for the six months ended June 30, 2010 and 2009 was
$2,497,401 and $2,475,429 respectively in which depreciation expense of dredgers
and machinery (2010: $2,493,402 and 2009: $2,475,070) has been included in cost
of revenue.
There are
three dredgers owned by the Company. Dredgers with net book value as
of June 30, 2010 and December 31, 2009 was $41,653,113 and
$43,508,412 respectively, are pledged as collateral for the bank short-term and
long-term loans (see Notes 11 and 13) and for a related company, Fujian Province
Pingtan County Ocean Fishery Holdings Limited (see Note 16).
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
Short
term loan of $3,368,976 outstanding at December 31, 2009, represents borrowings
from Fuzhou City Rural Credit Cooperative on February 23, 2009 which was fully
paid on February 22, 2010.
|
|
June
30, 2010
|
|
|
December
31, 2009
|
|
|
|
|
|
|
|
|
Fuzhou
City Rural Credit Cooperative
|
|
$
|
-
|
|
|
$
|
3,368,976
|
|
Fujian
Haixia Bank Co., Ltd (see Note 13)
|
|
|
4,423,865
|
|
|
|
3,661,930
|
|
|
|
$
|
4,423,865
|
|
|
$
|
7,030,906
|
|
|
|
|
|
|
|
|
|
|
Interest
expenses incurred during the period/year
|
|
$
|
34,890
|
|
|
$
|
209,212
|
|
Range
of monthly interest rate
|
|
|
5.974
|
%
|
|
|
5.974
|
%
|
Weighted
average monthly interest rate
|
|
|
5.358
|
%
|
|
|
5.974
|
%
|
The above
short-term loan balance at June 30, 2010 was reclassified to current (see Note
13).
Interest
expense on the short-term loan was $ 34,890 and $85,807 for the six months ended
June 30, 2010 and 2009 respectively.
12.
|
ACCRUED
EXPENSES AND OTHER PAYABLES
|
Accrued
expenses and other payables as of June 30, 2010 and December 31, 2009 consist of
the following:
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
Accrued
interest
|
|
$
|
24,741
|
|
|
$
|
27,527
|
|
Accrued
salaries and wages
|
|
|
74,372
|
|
|
|
69,405
|
|
Accrued
staff benefits
|
|
|
129,853
|
|
|
|
103,671
|
|
Other
payables
|
|
|
405,055
|
|
|
|
-
|
|
Other
tax payables
|
|
|
137,465
|
|
|
|
9,077
|
|
|
|
$
|
771,486
|
|
|
$
|
209,680
|
|
Other tax
payables represent payables other than income tax which consist of individual
salary tax, stamp duty and embankment tax.
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
The
Company has entered into three loan agreements with two banks in the PRC to
obtain fixed-rate term loans with maturities exceeding 12 months to meet its
working capital needs. Two loan agreements were signed on September 28, 2008 and
February 8, 2010 with Fujian Haixia Bank Co., Ltd, one loan agreement was signed
on February 24, 2010 with Fuzhou City Rural Credit Cooperative. The long-term
loans as of June 30, 2010 and December 31, 2009 consist of the
following:
|
|
June
30, 2010
|
|
|
December
31, 2009
|
|
|
|
|
|
|
|
|
Term
loans, net of current portion
|
|
|
|
|
|
|
Fujian
Haixia Bank Co., Ltd
|
|
$
|
6,635,798
|
|
|
$
|
3,295,738
|
|
Fuzhou
City Rural Credit Cooperative
|
|
|
1,327,159
|
|
|
|
-
|
|
|
|
$
|
7,962,957
|
|
|
$
|
3,295,738
|
|
|
|
|
|
|
|
|
|
|
Maximum
balance outstanding during the period/year
|
|
$
|
14,451,293
|
|
|
$
|
8,788,633
|
|
Interest
expenses incurred during the period/year
|
|
|
407,937
|
|
|
|
546,641
|
|
Range
of monthly interest rate
|
|
|
5.40‰
- 7.8975
|
‰
|
|
|
5.400
- 5.850
|
‰
|
Weighted
average monthly interest rate
|
|
|
5.358
|
‰
|
|
|
5.71
|
‰
|
Two
long-term loans from Fujian Haixia Bank are secured by the Company's one of
dredgers, Xinggangjun 66. One is guaranteed by Xinrong Zhuo, the Chairman and
Chief Executive Officer of the Company and the son of Zhuo Panxing (an owner of
Wonder Dredging). The other loan is guaranteed by Lin Qing and Xinrong Zhuo.
Long term loan from Fuzhou City Rural Credit Cooperative is secured by
Xingganjung 3, the dredger of the Company. There are no restrictive financial
covenants associated with the long-term loans.
Interest
expense on the long-term loans was $407,937 and $309,530 for the six months
ended June 30, 2010 and 2009 respectively.
The
scheduled principal payments through the maturity date of the Company's
long-term loan at June 30, 2010 are as follows:
|
|
Note
|
|
|
|
|
2011
|
|
11
|
|
|
$
|
4,423,865
|
|
2012
|
|
|
|
|
|
5,013,714
|
|
2013
|
|
|
|
|
|
2,949,243
|
|
|
|
|
|
|
$
|
12,386,822
|
|
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
14.
|
OWNERS'
EQUITY AND RETAINED EARNINGS
|
The
Company was incorporated on January 8, 2008 in the PRC. On September 21, 2009,
the Company's registered capital was increased to $29,002,371 (Renminbi
200,000,000). $20,501,105 (Renminbi 140,000,000) was contributed by Fujian
Lutong Highway Engineering Construction Co. Ltd (“Lutong Highway”). As a result,
Lin Qing’s ownership was reduced to 21%, and Zhuo Panxing’s ownership was
reduced to 9% and Lutong Highway held the remaining 70% as of December 31, 2009.
Lutong Highway has only funded $9,518,370 (Renminbi 65,000,000) of the
$20,501,105 (Renminbi 140,000,000) commitment thereby creating a subscription
receivable which is classified as a reduction of equity. The subscription
receivable of $10,982,735 (Renminbi 75,000,000) was originally payable by Lutong
Highway, however, on March 3, 2010, Lutong Highway sold all its ownership to Lin
Qing, who assumed the obligation to fulfill the unfunded subscription amount.
Following the transfer of ownership interests to Lin Qing, his ownership
percentage increased to 91% and Zhuo Panxing continued to hold 9% of the
ownership.
On May
20, 2010, Lin Qing and Zhuo Panxing sold all of their ownerships to Wonder
Dredging whereby Wonder Dredging assumed the unfunded subscription obligation of
Lin Qing. Accordingly, as of May 20, 2010, Wonder Dredging held 100% of the
ownership of the Company. The total registered capital contributed or committed
remained unchanged at $29,002,371(Renminbi 200,000,000), of which $10,982,735
(Renminbi 75,000,000) was unfunded.
On June
29, 2010, Fujian WangGang Dredging Construction Co., Ltd. (“Fujian Dredging”)
obtained 50% ownership of Xing Gang from Wonder Dredging by virtue of a capital
contribution of $23,602,460 (Renminbi 158,597,183) into Xing Gang, the amount
includes the unfunded subscription amount of $10,982,735 (Renminbi 75,000,000).
Fujian Dredging is obligated to fund the total capital commitment on or before
September 21, 2011 and $12,619,725 (Renminbi 83,597,183 ) was funded as of June
30, 2010. As of June 29, 2010, Wonder Dredging held 50% of the ownership of the
Company and Fujian Dredging held 50% of the ownership.
|
(b)
|
Retained
earnings and statutory reserves
|
Retained
earnings and statutory reserves as of June 30, 2010 and December 31, 2009
consist of the following:
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
Retained
earnings
|
|
$
|
10,219,693
|
|
|
$
|
43,946,972
|
|
|
|
|
|
|
|
|
|
|
Statutory
reserves
|
|
$
|
4,888,018
|
|
|
$
|
4,888,018
|
|
The
Company is required to transfer 10% of its net profits after income tax, as
determined in accordance with the PRC accounting rules and regulations.
Appropriation to the statutory reserve by the Company is based on profit arrived
at under PRC accounting standards for business enterprises for each
year.
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
14.
|
OWNERS'
EQUITY AND RETAINED EARNINGS
(…/Cont'd)
|
|
(b)
|
Retained
earnings and statutory
reserves (…/Cont'd)
|
The
profit arrived at must be set off against any accumulated losses sustained by
the Company in prior years, before allocation is made to the statutory reserve.
Appropriation to the statutory reserve must be made before distribution of
dividends to owners. The appropriation is required until the statutory reserve
reaches 50% of the owners’ equity. This statutory reserve is not distributable
in the form of cash dividends.
On May
27, 2010, the Company held a director’s resolution to declare dividend to its
owner, Wonder Dredging, with an amount of $51,087,387 (Renminbi 350,803,477),
which is the entire accumulated retained profits of the Company from inception
through March 31, 2010.
All of
the Company's income is generated in the PRC.
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
income tax expense
|
|
$
|
3,402,328
|
|
|
$
|
2,834,991
|
|
|
$
|
5,784,341
|
|
|
$
|
5,100,233
|
|
The
Company's income tax provision in respect of operations in PRC is calculated at
the applicable tax rates on the estimated assessable profits for the year based
on existing legislation, interpretations and practices in respect thereof. The
standard tax rate applicable to the Company was 25% which was effective on
January 1, 2008.
A
reconciliation of the expected income tax expense to the actual income tax
expense for the six months ended June 30, 2010 and 2009 was as
follows:
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Income
before tax
|
|
$
|
13,622,021
|
|
|
$
|
11,332,188
|
|
|
$
|
23,144,449
|
|
|
$
|
20,387,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
PRC income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at
statutory tax rate of 25%
|
|
$
|
3,405,505
|
|
|
$
|
2,833,047
|
|
|
$
|
5,786,112
|
|
|
$
|
5,096,942
|
|
Effect
on exchange rate
|
|
|
(3,177
|
)
|
|
|
1,944
|
|
|
|
(1,771
|
)
|
|
|
3,291
|
|
Actual
income tax expense
|
|
$
|
3,402,328
|
|
|
$
|
2,834,991
|
|
|
$
|
5,784,341
|
|
|
$
|
5,100,233
|
|
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
15.
|
INCOME
TAXES (…/Cont’d)
|
The PRC
tax system is subject to substantial uncertainties and has been subject to
recently enacted changes, the interpretation and enforcement of which are also
uncertain. There can be no assurance that changes in PRC tax laws or their
interpretation or their application will not subject the Company to substantial
PRC taxes in future.
No
deferred tax liability has been provided as the amount involved is immaterial.
The Company has analyzed the tax positions taken or expected to be taken in its
tax filings and has concluded it has no material liability related to uncertain
tax positions.
For the
six months ended June 30, 2010 and 2009, there is no unrecognized tax benefit.
Management does not anticipate any potential future adjustments in the next
twelve months which would result in a material change to its financial tax
position. As of June 30, 2010 and 2009, the Company did not accrue any interest
and penalties.
16.
|
RELATED
PARTY TRANSACTIONS
|
|
(a)
|
Operating
lease commitments
|
In 2008,
the Company entered into an office rental agreement with Lin Ping, a relative of
one of the former owners, Lin Qing, from January 1, 2008 to December 31, 2009.
This agreement has been renewed and extended the period from January 1, 2010 to
December 31, 2015. The Company also entered into dredger and crew hire
agreements from June 1, 2008 and May 31, 2016 with Fujian Lutong Highway
Engineering Construction Co., Ltd., (a company owned by Lin Xiu Zhen), one of
the former owners of the Company. Office rental and dredger rental paid for the
periods ended June 30, 2010 and 2009 was as follows:
|
|
|
|
For the Six Months Ended
|
|
|
|
|
|
June 30,
|
|
|
|
Name of related party
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Office
rental
|
|
Lin
Ping
|
|
$
|
11,553
|
|
|
$
|
8,870
|
|
Hire
charge of dredger
|
|
Fujian
Lutong Highway Engineering
|
|
|
|
|
|
|
|
|
|
|
Construction
Co., Ltd
|
|
|
513,279
|
|
|
|
512,280
|
|
Hire
charge of crew
|
|
Fujian
Lutong Highway Engineering
|
|
|
|
|
|
|
|
|
|
|
Construction
Co., Ltd
|
|
|
263,972
|
|
|
|
263,458
|
|
|
|
|
|
$
|
788,804
|
|
|
$
|
784,608
|
|
Hire
charges of dredger and crew are included as part of the cost of revenue. Office
rental is included in the general and administrative expenses.
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
16.
|
RELATED
PARTY TRANSACTIONS (…/Cont’d)
|
The
Company had the following financial guarantee as of June 30, 2010:
Guarantees
given to the bank to secure the bank loan granted to related
party
|
|
$
|
7,850,960
|
|
The
Company pledged one of dredgers, Xinggangjun 6, to bank for the related party,
Fujian Province Pingtan County Ocean Fishery Holdings Limited which engages in
fishery, to obtain a bank loan. There was no outstanding contingent paymant
obligation by the Company in respect to the indebtedness of the related
party.
The
related company is indirectly under control of Fujian Honglong Ocean Fishery
Huanghe Company Limited (“Honglong”), which Lin Ping had 92.5% of the ownership
holding of Honlong. Lin Ping is the daughter-in-law of Zhuo Panxing, one of
owners of Wonder Dredging which held 50% ownership of Xing Gang, and sister of
Lin Qing, the principal owner of Wonder Dredging.
Two
long-term loans from Fujian Haixia Bank are secured by one of the Company's
dredgers, Xinggangjun 66. One loan is guaranteed by Xinrong Zhuo, the Company's
Chairman and Chief Executive Officer and son of Zhuo Panxing, an owner of Wonder
Dredging. The other loan is guaranteed by Xinrong Zhuo and Lin Qing (the other
owner of Wonder Dredging). The loans are non-recourse to the
Company.
17.
|
CERTAIN
RISKS AND CONCENTRATIONS
|
As of
June 30, 2010 and 2009, substantially all of the Company’s cash included bank
deposits in accounts maintained within the PRC where there is currently no rule
or regulation in place for obligatory insurance to cover bank deposits in the
event of bank failure. However, the Company has not experienced any losses in
such accounts and believes it is not exposed to any significant risks on its
cash in bank accounts.
Customers
accounting for 10% or more of the Company's revenues as follows:
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Customer
A
|
|
|
42.0
|
%
|
|
|
-
|
|
Customer
B
|
|
|
29.7
|
%
|
|
|
24.5
|
%
|
Customer
C
|
|
|
11.2
|
%
|
|
|
18.6
|
%
|
Customer
D
|
|
|
11.0
|
%
|
|
|
56.9
|
%
|
|
|
|
93.9
|
%
|
|
|
100.0
|
%
|
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
17.
|
CERTAIN
RISKS AND CONCENTRATIONS (…/Cont'd)
|
Suppliers
accounting for 10% or more of the Company's total purchases as
follows:
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Supplier
A
|
|
|
31.3
|
%
|
|
|
64.6
|
%
|
Supplier
B
|
|
|
29.8
|
%
|
|
|
-
|
|
Supplier
C
|
|
|
29.6
|
%
|
|
|
-
|
|
Supplier
D
|
|
|
-
|
|
|
|
30.1
|
%
|
|
|
|
90.7
|
%
|
|
|
94.7
|
%
|
18.
|
OPERATING
LEASE COMMITMENTS
|
The total
future minimum lease payments under non-cancellable operating leases with
respect to dredgers, crew and office as of June 30, 2010 are payable as
follows:
|
|
Hire charge
|
|
|
Hire charge
|
|
|
Consumable
|
|
|
|
|
|
|
|
|
|
of dredgers
|
|
|
of crew
|
|
|
stores supply
|
|
|
Office rental
|
|
|
Total
|
|
For
the period ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
18,936,396
|
|
|
$
|
3,641,136
|
|
|
$
|
26,897,100
|
|
|
$
|
11,617
|
|
|
$
|
49,486,249
|
|
2012
|
|
|
8,228,389
|
|
|
|
3,326,746
|
|
|
|
26,897,100
|
|
|
|
11,617
|
|
|
|
38,463,852
|
|
2013
|
|
|
8,017,703
|
|
|
|
3,249,968
|
|
|
|
25,988,160
|
|
|
|
11,617
|
|
|
|
37,267,448
|
|
2014
|
|
|
1,732,681
|
|
|
|
1,061,727
|
|
|
|
-
|
|
|
|
11,617
|
|
|
|
2,806,025
|
|
2015
|
|
|
1,732,681
|
|
|
|
1,061,727
|
|
|
|
-
|
|
|
|
11,617
|
|
|
|
2,806,025
|
|
Thereafter
|
|
|
1,296,438
|
|
|
|
752,057
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,048,495
|
|
|
|
$
|
39,944,288
|
|
|
$
|
13,093,361
|
|
|
$
|
79,782,360
|
|
|
$
|
58,085
|
|
|
$
|
132,878,094
|
|
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS (UNAUDITED)
(IN
US DOLLARS)
18.
|
OPERATING
LEASE COMMITMENTS (…/Cont’d)
|
Rental
expenses under non-cancellable operating leases arrangements for the six months
ended June 30, 2010 and 2009, was $2,018,641 and $1,597,229, respectively.
$788,804 and $784,608 was of the rental expenses paid to the related parties for
the six months ended June 30, 2010 and 2009 respectively (see Note 16(a)). The
commitments include both the related parties transaction and non-related parties
transaction, the total future lease payment to the related parties and third
parties as of June 30, 2010 is summarized as follows:-
|
|
Hire charge
|
|
|
Hire charge
|
|
|
Consumable
|
|
|
Office
|
|
|
|
|
|
|
of dredgers
|
|
|
of crew
|
|
|
stores supply
|
|
|
rental
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
parties transactions
|
|
$
|
6,107,391
|
|
|
$
|
3,140,945
|
|
|
$
|
-
|
|
|
$
|
58,085
|
|
|
$
|
9,306,421
|
|
Non-related
parties transactions
|
|
|
33,836,893
|
|
|
|
9,952,419
|
|
|
|
79,782,361
|
|
|
|
-
|
|
|
|
123,571,673
|
|
|
|
$
|
39,944,284
|
|
|
$
|
13,093,364
|
|
|
$
|
79,782,361
|
|
|
$
|
58,085
|
|
|
$
|
132,878,094
|
|
The
Company had the following capital commitment as of June 30, 2010:
Contracted,
but not provided for:-
|
|
|
|
Acquisition
of dredger, net of deposit paid
|
|
$
|
27,280,503
|
|
According
to the dredger purchase contract, the Company paid 7.5% $2,211,932 (Renminbi
15,000,000) (see Note 9) on June 2, 2009 as a deposit pursuant to the purchase
contract which was signed on May 20, 2009. The balance due on the dredger
amounting to $27,280,503 (Renminbi 185,000,000) is due on or before May 31, 2012
which is when the dredger is expected to be delivered to the
Company.
BALANCE
SHEETS
(IN
U.S. DOLLARS)
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
Assets
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
|
|
$
|
23,343,469
|
|
|
$
|
1,362,142
|
|
Restricted
cash
|
|
|
8,422,440
|
|
|
|
8,427,995
|
|
Cost
and estimated earnings in excess of billings on uncompleted
contracts
|
|
|
2,211,411
|
|
|
|
-
|
|
Other
receivables
|
|
|
312
|
|
|
|
-
|
|
Inventories
|
|
|
429,226
|
|
|
|
-
|
|
Total
current assets
|
|
|
34,406,858
|
|
|
|
9,790,137
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
|
|
|
|
|
|
Prepaid
dredger deposit
|
|
|
2,197,158
|
|
|
|
-
|
|
Property,
plant and equipment, net
|
|
|
43,511,237
|
|
|
|
48,497,870
|
|
Total
other assets
|
|
|
45,70
8,395
|
|
|
|
48,497,870
|
|
Total
assets
|
|
$
|
80,115,253
|
|
|
$
|
58,288,007
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and owners' equity
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Term
loans
|
|
$
|
7,030,906
|
|
|
$
|
1,832,173
|
|
Dredgers
payable
|
|
|
-
|
|
|
|
17,859,098
|
|
Income
tax payable
|
|
|
2,042,047
|
|
|
|
2,223,002
|
|
Accrued
liabilities and other payables
|
|
|
209,680
|
|
|
|
154,575
|
|
Total
current liabilities
|
|
|
9,282,633
|
|
|
|
22,068,848
|
|
|
|
|
|
|
|
|
|
|
Non-current
liabilities
|
|
|
|
|
|
|
|
|
Term
loans, net of current portion
|
|
|
3,29
5
,738
|
|
|
|
6,962,257
|
|
Total
non-current liabilities
|
|
|
3,29
5
,738
|
|
|
|
6,962,257
|
|
Total
liabilities
|
|
|
12,578,371
|
|
|
|
29,031,105
|
|
|
|
|
|
|
|
|
|
|
Owners'
equity
|
|
|
|
|
|
|
|
|
Registered
capital
|
|
|
29,002,371
|
|
|
|
8,501,266
|
|
Statutory
reserves
|
|
|
4,888,018
|
|
|
|
2,009,023
|
|
Retained
earnings
|
|
|
43,946,972
|
|
|
|
18,061,369
|
|
Accumulated
other comprehensive income
|
|
|
682,256
|
|
|
|
685,244
|
|
Subscription
receivable
|
|
|
(10,982,735
|
)
|
|
|
-
|
|
Total
owners' equity
|
|
|
67,536,882
|
|
|
|
29,256,902
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and owners' equity
|
|
$
|
80,115,253
|
|
|
$
|
58,288,007
|
|
See notes
to the financial statements.
STATEMENTS
OF INCOME
(IN
U.S. DOLLARS)
|
|
For the year ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Contract
revenue
|
|
$
|
80,333,891
|
|
|
$
|
54,480,271
|
|
|
|
|
|
|
|
|
|
|
Cost
of contract revenue, includes depreciation expense of $4,951,518 and
$3,686,503 for the year ended December 31, 2009 and 2008,
respectively
|
|
|
(38,715,490
|
)
|
|
|
(25,424,227
|
)
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
41,618,401
|
|
|
|
29,056,044
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
(2,531,132
|
)
|
|
|
(2,152,575
|
)
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
39,087,269
|
|
|
|
26,903,469
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
29,833
|
|
|
|
43,172
|
|
Interest
expenses
|
|
|
(755,853
|
)
|
|
|
(179,504
|
)
|
Total
other income (expense)
|
|
|
(726,020
|
)
|
|
|
(136,332
|
)
|
Income
before income taxes
|
|
|
38,361,249
|
|
|
|
26,767,137
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
(9,596,651
|
)
|
|
|
(6,696,745
|
)
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
28,764,598
|
|
|
$
|
20,070,392
|
|
See notes
to the financial statements.
STATEMENT
OF CHANGES IN OWNERS' EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(IN
U.S. DOLLARS)
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
|
|
|
|
|
|
|
|
|
|
Registered
|
|
|
Statutory
|
|
|
Retained
|
|
|
comprehensive
|
|
|
Subscription
|
|
|
|
|
|
|
Capital
|
|
|
reserves
|
|
|
earnings
|
|
|
incom
e
|
|
|
receivable
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 8, 2008
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
contributed by owners
|
|
|
8,501,266
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,501,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
20,070,392
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,070,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appropriation
to statutory reserves
|
|
|
-
|
|
|
|
2,009,023
|
|
|
|
(2,009,023
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Foreign
currency translation gain
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
685,244
|
|
|
|
-
|
|
|
|
685,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2008
|
|
|
8,501,266
|
|
|
|
2,009,023
|
|
|
|
18,061,369
|
|
|
|
685,244
|
|
|
|
-
|
|
|
|
29,256,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
contributed by owners
|
|
|
20,501,105
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,501,105
|
|
Subscription
receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,982,735
|
)
|
|
|
(10,982,735
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
28,764,598
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28,764,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appropriation
to statutory reserves
|
|
|
-
|
|
|
|
2,878,995
|
|
|
|
(2,878,995
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,988
|
)
|
|
|
-
|
|
|
|
(2,988
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2009
|
|
$
|
29,002,371
|
|
|
$
|
4,888,018
|
|
|
$
|
43,946,972
|
|
|
$
|
682,256
|
|
|
$
|
(10,982,735
|
)
|
|
$
|
67,536,882
|
|
See notes to the financial
statements
.
STATEMENTS
OF CASH FLOWS
(IN
U.S. DOLLARS)
|
|
For the year ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$
|
28,764,598
|
|
|
$
|
20,070,392
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
of property, plant and equipment
|
|
|
4,952,236
|
|
|
|
3,686,744
|
|
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Cost
and estimated earnings in excess of billings on uncompleted
contracts
|
|
|
(2,210,343
|
)
|
|
|
-
|
|
Other
receivables
|
|
|
(311
|
)
|
|
|
-
|
|
Inventories
|
|
|
(429,018
|
)
|
|
|
-
|
|
Income
tax payable
|
|
|
(179,402
|
)
|
|
|
2,186,909
|
|
Accrued
liabilities and other payables
|
|
|
55,179
|
|
|
|
152,067
|
|
Net
cash provided by operating activities
|
|
|
30,952,939
|
|
|
|
26,096,112
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Deposit
paid for dredgers
|
|
|
(2,196,096
|
)
|
|
|
-
|
|
Changes
in restricted cash
|
|
|
-
|
|
|
|
(8,291,156
|
)
|
Payment
of purchases of property, plant and equipment
|
|
|
-
|
|
|
|
(33,768,198
|
)
|
Net
cash used in investing activities
|
|
|
(2,
196
,
096
|
)
|
|
|
(42,059,354
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from short-term loans
|
|
|
3,367,348
|
|
|
|
-
|
|
Proceeds
from long-term loan
|
|
|
-
|
|
|
|
8,651,641
|
|
Payment
of dredger payable
|
|
|
(17,838,704
|
)
|
|
|
-
|
|
Repayment
of long-term loans
|
|
|
(1,830,080
|
)
|
|
|
-
|
|
Capital
contributions from owners
|
|
|
9,516,419
|
|
|
|
8,651,641
|
|
Net
cash (used in)/provided by financing activities
|
|
|
(6
,
785
,
017
|
)
|
|
|
17,303,282
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
21,971,826
|
|
|
|
1,340,040
|
|
Effect
of exchange rate changes on cash
|
|
|
9,501
|
|
|
|
22,102
|
|
Cash
at beginning of year
|
|
|
1,362,142
|
|
|
|
-
|
|
Cash
at end of year
|
|
$
|
23,343,469
|
|
|
$
|
1,362,142
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing
and financing transactions:
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment with issuance of debt
|
|
$
|
-
|
|
|
$
|
17,569,133
|
|
|
|
|
|
|
|
|
|
|
Supplemental
information:
|
|
|
|
|
|
|
|
|
Cash
paid for income tax
|
|
$
|
9,596,651
|
|
|
$
|
6,696,745
|
|
Cash
paid for interest
|
|
$
|
755,853
|
|
|
$
|
1
79,504
|
|
See notes
to the financial statements.
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
1.
|
DESCRIPTION
OF BUSINESS AND ORGANIZATION
|
Fujian
Xing Gang Port Service Co., Ltd. (the “Company”) formerly known as Fujian Xing
Gang Shipping Co., Ltd., is a China-based company that provides subcontracting
dredging services to government owned dredging general contractors throughout
the People’s Republic of China (“(PRC”). The Company has focused its services on
reclamation and maintenance dredging projects.
The
Company was incorporated on January 8, 2008 with total registered capital
$8,501,266 (Renminbi 60,000,000). The Company was owned by two individuals, Lin
Qing and Lin Ping. Lin Qing contributed cash of $5,950,886 (Renminbi
42,000,000) holding 70% of the total ownership, while Lin Ping
contributed cash of $2,550,380 (Renminbi 18,000,000) holding 30% of
the total ownership.
On April
14, 2008, Lin Ping sold all of her ownership to her father-in-law, Zhuo
Panxing.
On
September 21, 2009, the Company’s registered capital was increased to
$29,002,371 (Renminbi 200,000,000). $20,501,105 (Renminbi 140,000,000) was
contributed by Fujian Lutong Highway Engineering Construction Co. Ltd (“Lutong
Highway”). As a result, Lin Qing’s ownership was reduced to 21%, and Zhuo
Panxing’s ownership was reduced to 9% and Lutong Highway held the remaining 70%
as of December 31, 2009. Lutong Highway has only funded $9,518,370 (Renminbi
65,000,000) of the $20,501,105 (Renminbi 140,000,000) commitment thereby
creating a subscription receivable of $10,982,735 (Renminbi 75,000,000) which is
classified as a reduction of equity. The subscription receivable of $10,982,735
(Renminbi 75,000,000) was originally payable by Lutong Highway, however, on
March 3, 2010, Lutong Highway sold all its ownership to Lin Qing, who assumed
the obligation to fulfill the unfunded subscription amount. Following the
transfer of ownership interests to Lin Qing, his ownership percentage increased
to 91% and Zhuo Panxing continued to hold 9% of the ownership.
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
|
(a)
|
Basis
of presentation
|
The
Company’s financial statements have been prepared in accordance with generally
accepted accounting principles in the United States of America (the “U.S.
GAAP”).
The
preparation of the financial statements in conformity with U.S. GAAP requires
management of the Company to make a number of estimates and assumptions relating
to the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the years. Significant
items subject to such estimates and assumptions include the recoverability
of the carrying amount and the estimated useful lives of long-lived assets;
valuation allowances for receivables, realizable values for inventories.
Accordingly, actual results could differ from those estimates.
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
2.
|
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(.../Cont’d)
|
|
(c)
|
Foreign
currency translation
|
Assets
and liabilities of foreign operation are translated at the rate of exchange in
effect on the balance sheet date; income and expenses are translated at the
average rate of exchange prevailing during the year. The year-end rates for
December 31, 2009 and 2008 of Renminbi to one US dollar were 6.8270 and 6.8225
respectively; average rates for the year-end December 31, 2009 and 2008 were
6.8303 and 6.9351, respectively. The related translation adjustments are
reflected in “Accumulated other comprehensive income” in the owners’ equity
section of the balance sheet. As of December 31, 2009 and 2008, the accumulated
foreign currency translation gain was $682,256 and $685,244 respectively.
Foreign currency gains and losses resulting from transactions are included in
earnings.
Cash
consists of cash on hand and at banks. Substantially all of the Company’s cash
deposits are held with financial institutions located in the PRC where there is
currently no rule or regulation mandated on obligatory insurance of bank
accounts. Management believes these financial institutions are of high credit
quality.
|
(e)
|
Cost
and estimated earnings in excess of billings on uncompleted
contracts
|
Cost and
estimated earnings in excess of billings on uncompleted contracts represent
amounts due or billable under the terms of contracts with customers. The timing
of when we bill our customers is generally based on advance billing terms or
contingent upon completion of certain phases of the work, as stipulated in the
contract. There is no amount related to retainage. The Company anticipates
collection of all the outstanding balances within 10 days after completion
reports of the contracts are issued. The allowance for doubtful accounts is the
Company’s best estimate of the amount of probable credit losses in the Company’s
existing receivable. The Company provides an allowance for estimated
uncollectible receivables when events or conditions indicate that amounts
outstanding are not recoverable.
Outstanding
account balances are reviewed individually for collectability. Based on the
Company’s assessment of collectibility, there has been no allowance for doubtful
accounts recognized for any of the two years ended December 31, 2009 and
2008.
Inventories
mainly consist of consumable parts including pipe, spare parts, and supplies
used in the Company’s dredging operations. Inventories are stated at the lower
of cost or market, using a weighted average cost method.
|
(g)
|
Property,
plant and equipment
|
Property,
plant and equipment are recorded at cost less accumulated depreciation.
Expenditures for major additions and betterments are capitalized. Depreciation
of property, plant and equipment is computed by the straight-line method over
the assets estimated useful lives ranging from five to fifty years. Building
improvements, are amortized on a straight-line basis over the estimated useful
life.
Upon sale
or retirement of property, plant and equipment, the related cost and accumulated
depreciation are removed from the accounts and any gain or loss is reflected in
operations.
The
estimated useful lives of the assets are as follows:
|
Estimated lives
|
Dredgers
|
10
|
Office
equipment
|
5
|
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
2.
|
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(.../Cont’d)
|
|
(h)
|
Impairment
of long-lived assets
|
Long-lived
assets are comprised of property, plant and equipment. Pursuant to the
provisions of ASC360-10, “Property, plant and equipment’’, long-lived assets to
be held and used are reviewed for possible impairment whenever events indicate
that the carrying amount of such assets may not be recoverable by comparing the
undiscounted cash flows associated with the assets to their carrying amounts. If
such a review indicates an impairment, the carrying amount would be reduced to
fair value.
If
long-lived assets are to be disposed of are separately presented in the balance
sheet and reported at the lower of the carrying amount or fair value less costs
to sell, and are no longer depreciated. The assets and liabilities of a disposed
group classified as held for sale are presented separately in the appropriate
asset and liability sections of the balance sheet.
Based on
the Company’s assessment, there were no events or changes in circumstances that
would indicate any impairment of long-lived assets as of December 31, 2009 and
2008.
|
(i)
|
Fair
value measurements
|
In April
2009, the FASB issued ASC 820-10-65-4 (formerly FSP No. 157-4, “Determining Fair
Value When the Volume and Level of Activity for the Asset and Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly”).
This standard emphasizes that even if there has been a significant decrease in
the volume and level of activity, the objective of a fair value measurement
remains the same. Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction (that is, not a
forced liquidation or distressed sale) between market participants. This
standard provides a number of factors to consider when evaluating whether there
has been a significant decrease in the volume and level of activity for an asset
or liability in relation to normal market activity. In addition, when
transactions or quoted prices are not considered orderly, adjustments to those
prices based on the weight of available information may be needed to determine
the appropriate fair value. This standard is effective for interim and annual
reporting periods ending after June 15, 2009, and shall be applied
prospectively. Early adoption is permitted for periods ending after March 15,
2009. The adoption of this standard did not have a material effect on the
financial statements.
In August
2009, the FASB issued Accounting Standards Update “ASU” 2009-5 “Measuring
Liabilities at Fair Value.” This ASU provides amendments to ASC 820-10 “Fair
Value Measurements and Disclosures” to address concerns regarding the
determination of the fair value of liabilities. Because liabilities are
often not “traded”, due to restrictions placed on their transferability,
there is typically a very limited amount of trades (if any) from which to draw
market participant data. As such, many entities have had to determine the fair
value of a liability through the use of a hypothetical transaction. This ASU
clarifies the valuation techniques that must be used when the liability subject
to the fair value determination is not traded as an asset in an active market.
The management does not expect the adoption of this ASU to have a material
effect on the financial statements.
The
Company recognizes contract revenues under the percentage-of-completion method
to determine the appropriate amount to be recognized in a given period.
Depending on the nature of contracts, the stage of completion is measured by
reference to (a) the proportion of contract costs incurred for work performed to
date to estimated total contract costs; (b) the amount of work certified by site
engineer; or (c) completion of physical proportion of the contract work. The
difference between amounts billed and recognized as revenue is reflected in the
balance sheet as either contract revenues in excess of billings or billings in
excess of contract revenues. Provisions for estimated losses on contracts in
progress will be made in the period in which they are identified. In the event
that contract revenue cannot be estimated reliably, contract revenue is
recognized only to the extent of contract costs incurred that are likely to be
recoverable. The cost of contract revenue includes consumable stores,
dredgers' hire charges, salaries and wages and depreciation of
dredgers.
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
2.
|
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(.../Cont’d)
|
The
Company accounts for income taxes under ASC 740 “Income Taxes.” Deferred income
tax assets and liabilities are determined based upon differences between the
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be effective when the differences
are expected to reverse.
Deferred
tax assets are reduced by a valuation allowance to the extent management
concludes it is more likely than not that the assets will not be
realized. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
the statements of income in the period that includes the enactment
date.
The
Company adopted ASC 740, “Income Taxes,” which prescribes a more-likely-than-not
threshold for financial statement recognition and measurement of a tax position
taken in the tax return. This interpretation also provides guidance on
de-recognition of income tax assets and liabilities, classification of current
and deferred income tax assets and liabilities, accounting for interest and
penalties associated with tax positions, accounting for income taxes in interim
periods and income tax disclosures.
|
(l)
|
Other
comprehensive income
|
The
Company has adopted ASC 220 “Comprehensive Income.” This statement establishes
rules for the reporting of comprehensive income and its
components. Comprehensive income consists of net income and foreign
currency translation adjustments.
Other
comprehensive income consists of the following for the years ended December 31,
2009 and 2008:
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
28,764,598
|
|
|
$
|
20,070,392
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
-
Foreign currency translation adjustments
|
|
|
(2,988
|
)
|
|
|
685,244
|
|
Total
comprehensive income
|
|
$
|
28,761,610
|
|
|
$
|
20,755,636
|
|
|
(m)
|
Commitments
and contingencies
|
In the
normal course of business, the Company is subject to contingencies, including
legal proceedings and environmental claims arising out of the normal course of
businesses that relate to a wide range of matters, including among others,
contracts breach liability. The Company records accruals for such
contingencies based upon the assessment of the probability of occurrence and,
where determinable, an estimate of the liability. Management may consider many
factors in making these assessments including past history, scientific evidence
and the specifics of each matter.
As of
December 31, 2009 and 2008, the Company’s management has evaluated all such
proceedings and claims. In the opinion of management, the ultimate disposition
of these matters will not have a material adverse effect on the Company’s
financial position, liquidity or results of operations.
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
2.
|
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(.../Cont’d)
|
|
(n)
|
Economic
and political risks
|
The
Company’s operations are conducted in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by the
political, economic and legal environment in the PRC, and by the general state
of the PRC economy.
The
Company’s operations in the PRC are subject to special considerations and
significant risks not typically associated with companies in North America and
Western Europe. These include risks associated with, among others, the
political, economic and legal environment and foreign currency
exchange. The Company’s results may be adversely affected by changes
in the political and social conditions in the PRC, and by changes in
governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion, remittances aboard, and rates and methods of
taxation, among other things.
|
(o)
|
Pension
and employee benefits
|
Full time
employees of the Company participate in a government mandated multi-employer
defined contribution plan pursuant to which certain pension benefits, medical
care, unemployment insurance, employee housing fund and other welfare benefits
are provided to employees. PRC labor regulations require the Company to accrue
for these benefits based on certain percentages of the employees’ salaries.
Costs for pension and employee benefits for the years ended December 31, 2009
and 2008 were $34,618 and $19,856, respectively.
ASC 280
“Segment reporting” establishes standards for reporting information on operating
segments in interim and annual financial statements. The Company has only one
segment, all of the Company’s operations and customers are in the PRC and all
income are derived from the services of dredging. Accordingly, no
geographic information is presented.
|
(q)
|
Recently
issued accounting standards
|
We
describe below recent pronouncements that have had or may have a significant
effect on our financial statements. We do not discuss recent pronouncements that
are not anticipated to have an impact on or are unrelated to our financial
condition, results of operations, or disclosures.
In May
2009, the FASB issued guidance within Topic 855-10 (formerly SFAS 165,
“Subsequent Events”) relating to subsequent events. This guidance establishes
principles and requirements for subsequent events. This guidance
defines the period after the balance sheet date during which events or
transactions that may occur would be required to be disclosed in a company’s
financial statements. Public entities are required to evaluate subsequent events
through the date that financial statements are issued. This guidance also
provides guidelines in evaluating whether or not events or transactions
occurring after the balance sheet date should be recognized in the financial
statements. This guidance requires disclosure of the date through
which subsequent events have been evaluated. This Statement is effective for
interim and annual periods ending after June 15, 2009. The Company has adopted
this standard as of December 31, 2009. The adoption of this standard does not
have a material impact on the Company’s financial statements.
In June
2009, the FASB issued FASB ASC 105-10-05, 10, 15, 65, 70 (“FASB ASC 105-10-05,
10, 15, 65, 70”), (formerly FASB Statement No. 168, The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles - a replacement of FASB Statement No. 162). FASB ASC 105-10-05, 10,
15, 65, 70 establishes the FASB ASC as the source of authoritative GAAP for
nongovernmental entities. The ASC does not change GAAP, instead it takes
individual pronouncements that currently comprise GAAP and reorganizes them into
Topics. Contents in each Topic are further organized by Subtopic, then Section
and finally Paragraph. The Paragraph level is the only level that contains
substantive content. Citing particular content in the ASC involves specifying
the unique numeric path to the content through the Topic, Subtopic, Section and
Paragraph structure. FASB suggests that all citations begin with “FASB ASC.”
FASB ASC 105-10-05, 10, 15, 65, 70 was effective for interim and annual periods
ending after September 15, 2009 and does not have an impact on the Company’s
financial statements.
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
2.
|
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(.../Cont’d)
|
|
(q)
|
Recently
issued accounting standards
(…/Cont’d)
|
In June
2009, the FASB issued ASC 810.10, guidance to change financial reporting by
enterprises involved with variable interest entities (“VIEs”) which modifies how
a company determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. This
pronouncement clarifies that the determination of whether a company is required
to consolidate an entity is based on, among other things, an entity's purpose
and design and a company’s ability to direct the activities of the entity
that most significantly impact the entity's economic performance. The guidance
requires an ongoing reassessment of whether a company is the primary beneficiary
of a variable interest entity. This guidance also requires additional
disclosures about a company’s involvement in variable interest entities and any
significant changes in risk exposure due to that involvement. This guidance is
effective for fiscal years beginning after November 15, 2009. The Company does
not anticipate that the adoption of this statement will have a material impact
on its financial statement.
In August
2009, the FASB issued ASU No. 2009-05, Measuring Liabilities at Fair Value. ASU
2009-05 amended ASC 820, Fair Value Measurements. Specifically, ASU 2009-05
provides clarification that in circumstances in which a quoted price in an
active market for the identical liability is not available, a reporting entity
is required to measure fair value using one or more of the following methods: 1)
a valuation technique that uses a) the quoted price of the identical liability
when traded as an asset or b) quoted prices for similar liabilities or similar
liabilities when traded as assets and/or 2) a valuation technique that is
consistent with the principles of ASC 820 (e.g., an income approach or market
approach). ASU 2009-05 also clarifies that when estimating the fair value of a
liability, a reporting entity is not required to adjust to include inputs
relating to the existence of transfer restrictions on that liability. The
Company does not anticipate that the adoption of this statement will have a
material impact on its financial statement.
Management
does not believe that any other recently issued, but not yet effective
accounting pronouncements, if adopted, would have a material effect on the
accompanying financial statements.
Cash
represents cash in the bank and cash on hand. Cash as of December 31, 2009 and
2008 was $23,343,469 and $1,362,142 respectively. Renminbi is not a freely
convertible currency and the remittance of funds out of the PRC is subject to
the exchange restrictions imposed by the PRC government.
Restricted
cash represents amounts on deposit with the owners of dredgers leased by the
Company. Such amounts will be returned to the Company when the corresponding
leases end. Restricted cash as of December 31, 2009 and 2008 was $8,422,440
and $8,427,995 respectively.
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
5.
|
COST
AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED
CONTRACTS
|
Cost and
estimated earnings in excess of billings represent amounts of revenue earned
under contracts in progress but not billed at the balance sheet
date. These amounts become billable according to the contract terms,
which usually consider passage of time, and/or completion of the project. As of
December 31, 2009 and 2008, the balance of cost and estimated earnings in excess
of billings on uncompleted contracts was $2,211,411 and zero respectively. Cost
and estimated earnings in excess of billings as of December 31, 2009 include the
following:
|
|
|
|
|
|
|
|
|
|
|
Cost and
estimated
|
|
|
|
|
Name of contract
|
|
Estimated
|
|
|
Total
revenue
|
|
|
Amount
|
|
|
earnings in
excess
|
|
|
Status of
contract
|
|
(Contract
period)
|
|
contract
va
lue
|
|
|
recognized
|
|
|
received/billed
|
|
|
of
billings
|
|
|
(Completion
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.
Tangshan Caofeidian Dredging and Reclamation I
|
|
$
|
9,220,678
|
|
|
$
|
6,028,905
|
|
|
$
|
5,532,167
|
|
|
$
|
496,738
|
|
|
|
65
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.
Tangshan Caofeidian Dredging and Reclamation II
|
|
|
11,009,765
|
|
|
|
7,325,728
|
|
|
|
6,605,511
|
|
|
|
720,217
|
|
|
|
67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.
Oujiang Port Liantian Dredging II
|
|
|
7,115,354
|
|
|
|
6,336,300
|
|
|
|
5,691,971
|
|
|
|
644,329
|
|
|
|
89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
Zhuhai Gaolan Port Dredging III
|
|
|
1,669,
034
|
|
|
|
1,18
4
,47
4
|
|
|
|
834,
347
|
|
|
|
350,127
|
|
|
|
71
|
%
|
|
|
$
|
29,0
14
,8
31
|
|
|
$
|
20,8
7
5,4
07
|
|
|
$
|
18,6
63
,
996
|
|
|
$
|
2,211,41
1
|
|
|
|
|
|
The
Company’s customers are China state-owned companies. There are no credit terms
and customers settle the balances according to percentage of completion of
contracts and the date of settlement has been specified in the contracts. The
Company believes all outstanding balances can be fully collected within 10 days
after the completion of contracts and project completed reports issued.
Therefore, no provision on allowance for doubtful accounts was provided as of
December 31, 2009 and 2008.
The
following schedule summarizes changes in backlog on contracts during the year
ended December 31, 2009. Backlog represents the amount of revenue the Company
expects to realize from work to be performed on uncompleted contracts in
progress at year end and from contractual agreements on which work has not yet
begun.
Backlog
balance at December 31, 2008
|
|
$
|
-
|
|
New
contracts during the year
|
|
|
89,946,562
|
|
Less:
Adjustment of contracts due to change orders during the
year
|
|
|
(
1
,
473
,
249
|
)
|
Adjusted
contract amount at December 31, 2009
|
|
|
88,473,313
|
|
Less:
Contract revenue earned during the year
|
|
|
(
80,333,891
|
)
|
Backlog
balance at December 31, 2009
|
|
$
|
8
,
139
,
422
|
|
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
The
Company provides dredging services for its customers in the PRC. Inventories
consist of consumable parts which are used for dredging projects. As of December
31, 2009 and 2008, the balance of inventories was $429,226 and zero,
respectively.
Other
receivables as of December 31, 2009 and 2008 consist of the
following:
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Social
insurance prepaid for staff
|
|
$
|
312
|
|
|
$
|
-
|
|
Other
receivables mainly represent social insurance prepaid for staff’s portion by the
Company, this amount will be directly deducted from staff's salaries and it is
interest free.
8.
|
PREPAID
DREDGER DEPOSIT
|
Prepaid
dredger deposit as of December 31, 2009 and 2008 consists of the
following:
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Prepaid
dredger deposit
|
|
$
|
2,197,158
|
|
|
$
|
-
|
|
Prepaid
dredger represents a deposit of a new dredger before delivery. The Company paid
a deposit for the acquisition of one dredger which will be used for the
expansion of dredging operations.
9.
|
PROPERTY,
PLANT AND EQUIPMENT
|
Property,
plant and equipment as of December 31, 2009 and 2008 consist of the
following:
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Dredgers
|
|
$
|
52,146,433
|
|
|
$
|
52,180,828
|
|
Office
equipment
|
|
|
3,784
|
|
|
|
3,786
|
|
|
|
|
52,150,217
|
|
|
|
52,184,614
|
|
Less:
Accumulated depreciation
|
|
|
(8,638,980
|
)
|
|
|
(3,686,744
|
)
|
|
|
$
|
43,511,237
|
|
|
$
|
48,497,870
|
|
Total
depreciation expense for the years ended December 31, 2009 and 2008 was
$4,952,236 and $3,686,744, respectively, in which depreciation expense of
dredgers (2009: $4,951,518 and 2008: $3,686,503) has been included in cost of
revenue.
There are
three dredgers owned by the Company. Dredgers with net book values as of
December 31, 2009 and 2008 of $43,508,412 and $48,494,325 respectively, that
were pledged as collateral for bank short-term and long-term loans (see Notes 10
and 13) and for loans to a related company, Fujian Province Pingtan County Ocean
Fishery Holdings Limited (see Note 16).
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
In order
to provide working capital for operations, on February 23, 2009 and September
28, 2008, the Company entered into following loan agreements
respectively:
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Short-term loan
|
|
|
|
|
|
|
Fuzhou
City Rural Credit Cooperative
|
|
$
|
3,368,976
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Long-term
loan, current
portion
|
|
|
|
|
|
|
|
|
Fujian
Haixia Bank Co., Ltd
|
|
|
3,661,930
|
|
|
|
1,832,173
|
|
|
|
$
|
7,030,906
|
|
|
$
|
1,832,173
|
|
|
|
|
|
|
|
|
|
|
Short-term loan
|
|
|
|
|
|
|
|
|
Interest
expenses incurred during the year
|
|
$
|
209,212
|
|
|
$
|
-
|
|
Range
of monthly interest rate
|
|
|
5.974‰
|
|
|
|
N/A
|
|
Weighted
average monthly interest rate
|
|
|
5.974‰
|
|
|
|
N/A
|
|
Short-term
loan $3,368,976 borrowed from Fuzhou City Rural Credit Cooperative is fixed term
loan with a period of 12 months and it was due on February 22,
2010. The short-term loan is secured by one of the Company's
dredgers with net book value of $11,951,900 at December 31, 2009. There are
no financial covenants associated with the short-term loan.
As of
December 31, 2009 and 2008, $3,661,930 and $1,832,173 of short-term loan in
Fujian Haixia Bank Co., Ltd was reclassified from the current portion of
long-term loan respectively (see Note 13).
Interest
expense on the short-term loan was $209,212 and zero for the years ended
December 31, 2009 and 2008, respectively.
11.
|
ACCRUED
EXPENSES AND OTHER PAYABLES
|
Accrued
expenses and other payables as of December 31, 2009 and 2008 consist of the
following:
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Accrued
interest
|
|
$
|
27,527
|
|
|
$
|
25,466
|
|
Accrued
salaries and wages
|
|
|
69,405
|
|
|
|
66,145
|
|
Accrued
staff benefits
|
|
|
103,671
|
|
|
|
44,909
|
|
Other
tax payables
|
|
|
9,077
|
|
|
|
18,055
|
|
|
|
$
|
209,680
|
|
|
$
|
154,575
|
|
Other tax
payables represent payables other than income tax which consist of individual
salary tax, stamp duty and embankment tax.
Dredgers
payable as at December 31, 2008 represented the amount due to dredger
manufacturers for the acquisition of three dredgers. Such liability amounting to
$17,859,098 at December 31, 2008 was fully paid in April 2009.
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
The
Company entered into a loan agreement with a bank in the PRC to obtain
fixed-rate term loans with maturities exceeding 12 months to meet its working
capital needs. The long-term loan as of December 31, 2009 and 2008 consists of
the following:
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Long-term loan, net of current
portion
|
|
|
|
|
|
|
Fujian
Haixia Bank Co., Ltd.
|
|
$
|
3,295,738
|
|
|
$
|
6,962,257
|
|
|
|
|
|
|
|
|
|
|
Long-term loan,
|
|
|
|
|
|
|
|
|
Maximum
balance outstanding during the year
|
|
$
|
8,788,633
|
|
|
$
|
8,794,430
|
|
Interest
expenses incurred during the year
|
|
|
546,641
|
|
|
|
179,504
|
|
Range
of monthly interest rate
|
|
|
5.400
- 5.850
|
‰
|
|
|
5.850 -7.6055
|
‰
|
Weighted
average monthly interest rate
|
|
|
5.717
|
‰
|
|
|
6.7276
|
‰
|
The
long-term loan which was entered into on September 28, 2008 is secured by the
Company’s one of dredgers, Xinggangjun 66, and is guaranteed by Xinrong Zhuo,
the Chairman and Chief Executive Officer of the Company and the son of Zhuo
Panxing (an owner of Wonder Dredging). There are no restrictive financial
covenants associated with the long-term loan. Such loan is payable on every six
months with principal payments amounting to $6,957,668.
Interest
expense on the long-term loan was $546,641 and $179,504 for the years ended
December 31, 2009 and 2008 respectively.
The
long-term loan was a fixed term loan. The scheduled principal payments through
the maturity date of the Company's long-term loan at December 31, 2009 are as
follows:
|
|
Note
|
|
|
|
|
2010
|
|
10
|
|
|
$
|
3,661,930
|
|
2011
|
|
|
|
|
|
3,295,738
|
|
|
|
|
|
|
$
|
6
,
957
,
668
|
|
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
14.
|
OWNERS'
EQUITY AND RETAINED EARNINGS
|
The
Company was incorporated on January 8, 2008 in the PRC with total registered
capital of $8,501,266 (Renminbi 60,000,000) contributed by Lin Qing ($5,950,886,
Renminbi 42,000,000) and Lin Ping ($2,550,380, Renminbi 18,000,000). On
September 21, 2009, the Company’s registered capital was increased to
$29,002,371 (Renminbi 200,000,000). $20,501,105 (Renminbi 140,000,000) through
an additional capital contribution by Fujian Lutong Highway Engineering
Construction Co. Ltd (“Lutong Highway”). As a result, Lin Qing’s ownership was
reduced to 21%, and Zhuo Panxing’s ownership was reduced to 9% and Lutong
Highway held the remaining 70% as of December 31, 2009. Lutong Highway has only
funded $9,518,370 (Renminbi 65,000,000) of the $20,501,105 (Renminbi
140,000,000) commitment thereby creating a subscription receivable which is
classified as a reduction of equity. The subscription receivable of $10,982,735
(Renminbi 75,000,000) was originally payable by Lutong Highway, however, on
March 3, 2010, Lutong Highway sold all its ownership to Lin Qing, who
assumed the obligation to fulfill the unfunded subscription amount. Following
the transfer of ownership interests to Lin Qing, his ownership percentage
increased to 91% and Zhuo Panxing continued to hold 9% of the
ownership.
|
(b)
|
Retained
earnings and statutory reserves
|
Retained
earnings and statutory reserves as of December 31, 2009 and 2008 consist of the
following:
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Retained
earnings
|
|
$
|
43,946,972
|
|
|
$
|
18,061,369
|
|
|
|
|
|
|
|
|
|
|
Statutory
reserves
|
|
$
|
4,888,018
|
|
|
$
|
2,009,023
|
|
The
Company is required to make appropriations of retained earnings set at certain
percentages of after-tax profits determined in accordance with the PRC
accounting rules and regulations (“PRC GAAP”). The general reserve fund requires
annual appropriations of 10% of after-tax profit as determined under PRC GAAP at
each year-end and after setting off against any accumulated losses from
prior years until such fund has reached 50% of the registered
capital.
Appropriation
to the statutory reserve must be made before distribution of dividends to
owners. This statutory reserve is not distributable in the form of cash
dividends.
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
All of
the Company’s income is generated in the PRC.
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Current
income tax expense
|
|
$
|
9,596,651
|
|
|
$
|
6,696,745
|
|
The
Company’s income tax provision in respect of operations in PRC is calculated at
the applicable tax rates on the estimated assessable profits for the year based
on existing legislation, interpretations and practices in respect thereof. The
standard tax rate applicable to the Company was 25% which was effective on
January 1, 2008.
A
reconciliation of the expected income tax expense to the actual income tax
expense for the years ended December 31, 2009 and 2008 was as
follows:
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Income
before tax
|
|
$
|
38,361,249
|
|
|
$
|
26,767,137
|
|
|
|
|
|
|
|
|
|
|
Expected
PRC income tax expense at statutory tax rate of 25%
|
|
$
|
9,590,312
|
|
|
$
|
6,691,784
|
|
Effect
on exchange rate
|
|
|
6,339
|
|
|
|
4,961
|
|
Actual
income tax expense
|
|
$
|
9,596,651
|
|
|
$
|
6,696,745
|
|
The PRC
tax system is subject to substantial uncertainties and has been subject to
recently enacted changes, the interpretation and enforcement of which are also
uncertain. There can be no assurance that changes in PRC tax laws or their
interpretation or their application will not subject the Company to substantial
PRC taxes in future.
No
deferred tax liability has been provided as the amount involved is immaterial.
The Company has analyzed the tax positions taken or expected to be taken in its
tax filings and has concluded it has no material liability related to uncertain
tax positions.
For the
years ended December 31, 2009 and 2008, there was no unrecognized tax benefit.
Management does not anticipate any potential future adjustments in the next
twelve months which would result in a material change to its financial tax
position. As of December 31, 2009 and 2008, the Company did not accrue any
interest and penalties.
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
16.
|
RELATED
PARTY TRANSACTIONS
|
|
(a)
|
Operating
lease commitments
|
In 2008,
the Company entered into an office rental agreement with Lin Ping, a relative of
one of the owners, Lin Qing, from January 1, 2008 to December 31, 2009. This
agreement has been renewed and extended the period from January 1, 2010 to
December 31, 2015. The Company also entered into a dredger and crew hire
agreement from June 1, 2008 and May 31, 2016 with Fujian Lutong Highway
Engineering Construction Co., Ltd., (a company owned by Lin Xiu Zhen), one of
the former owners of the Company. Office rental and dredger rental paid for the
years ended December 31, 2009 and 2008 was as follows:
|
|
Name of related party
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Office
rental
|
|
Lin
Ping
|
|
$
|
8,872
|
|
|
$
|
8,738
|
|
Hire
charge of dredger
|
|
Fujian
Lutong Highway Engineering
|
|
|
|
|
|
|
|
|
|
|
Construction Co., Ltd
|
|
|
1,024,845
|
|
|
|
588,792
|
|
Hire
charge of crew
|
|
Fujian
Lutong Highway Engineering
|
|
|
|
|
|
|
|
|
|
|
Construction Co., Ltd
|
|
|
527,063
|
|
|
|
302,807
|
|
|
|
|
|
$
|
1,560,780
|
|
|
$
|
900,337
|
|
Hire
charges of dredger and crew are included as part of the cost of revenue. Office
rental is included in the general and administrative expenses.
The
Company had the following financial guarantees as of December 31,
2009:
Guarantees
given to the bank to secure the bank loan granted to related
party
|
|
$
|
7,909,770
|
|
The
Company pledged one of dredgers, Xinggangjun 6, to bank for the related party,
Fujian Province Pingtan County Ocean Fishery Holdings Limited which engages in
fishery, to obtain a bank loan. There was no outstanding contingent paymant
obligation by the Company in respect to the indebtedness of the related
party.
The
related company is indirectly under control of Fujian Honglong Ocean Fishery
Huanghe Company Limited ("Honglong"), which Lin Ping had 92.5% of the ownership
holding of Honlong. Lin Ping is the daughter-in-law of Zhuo Panxing, the owner
of the Company and sister of Lin Qing, the principal owner of the
Company.
Two
long-term loans from Fujian Haixia Bank are secured by one of the Company's
dredgers, Xinggangjun 66. One loan is guaranteed by Xinrong Zhuo, the Company's
Chairman and Chief Executive Officer and son of Zhuo Panxing, an owner of Wonder
Dredging. The other loan is guaranteed by Xinrong Zhuo and Lin Qing (the other
owner of Wonder Dredging). The loans are non-recourse to the
Company.
|
17.
|
CERTAIN
RISKS AND CONCENTRATIONS
|
As of
December 31, 2009 and 2008, substantially all of the Company’s cash included
bank deposits in accounts maintained within the PRC where there is currently no
rule or regulation in place for obligatory insurance to cover bank deposits in
the event of bank failure. However, the Company has not experienced any losses
in such accounts and believes it is not exposed to any significant risks on its
cash in bank accounts.
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
17.
|
CERTAIN
RISKS AND CONCENTRATIONS (…/Cont'd)
|
Customers
accounting for 10% or more of the Company’s revenues as follows:
|
|
For the year ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Customer
A
|
|
|
40
|
%
|
|
|
0
|
%
|
Customer
B
|
|
|
32
|
%
|
|
|
48
|
%
|
Customer
C
|
|
|
17
|
%
|
|
|
0
|
%
|
Customer
D
|
|
|
11
|
%
|
|
|
21
|
%
|
Customer
E
|
|
|
0
|
%
|
|
|
24
|
%
|
|
|
|
100
|
%
|
|
|
93
|
%
|
Suppliers
accounting for 10% or more of the Company's cost of revenues as
follows:
|
|
For the year ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Supplier
A
|
|
|
65
|
%
|
|
|
62
|
%
|
Supplier
B
|
|
|
30
|
%
|
|
|
32
|
%
|
|
|
|
95
|
%
|
|
|
94
|
%
|
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
18.
|
OPERATING
LEASE COMMITMENTS
|
The total
future minimum lease payments under non-cancellable operating leases with
respect to office and dredgers as of December 31, 2009 are payable as
follows:
|
|
Hire charge
|
|
|
Hire charge
|
|
|
|
|
|
|
|
|
|
of
dredger
|
|
|
of
crew
|
|
|
Office
rental
|
|
|
Total
|
|
For
the years ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
1,721,107
|
|
|
$
|
1,458,034
|
|
|
$
|
11,539
|
|
|
$
|
3,190,680
|
|
2011
|
|
|
1,721,107
|
|
|
|
1,165,226
|
|
|
|
11,539
|
|
|
|
2,897,872
|
|
2012
|
|
|
1,721,107
|
|
|
|
1,054,636
|
|
|
|
11,539
|
|
|
|
2,787,282
|
|
2013
|
|
|
1,721,107
|
|
|
|
1,054,636
|
|
|
|
11,539
|
|
|
|
2,787,282
|
|
2014
|
|
|
1,721,107
|
|
|
|
1,054,636
|
|
|
|
11,539
|
|
|
|
2,787,282
|
|
Thereafter
|
|
|
2,148,333
|
|
|
|
1,274,352
|
|
|
|
11,539
|
|
|
|
3,434,224
|
|
|
|
$
|
10,753,868
|
|
|
$
|
7,061,520
|
|
|
$
|
69,234
|
|
|
$
|
17,884,622
|
|
Rental
expenses under non-cancellable operating leases arrangements for the years ended
December 31, 2009 and 2008, were $3,186,476 and $2,392,600, respectively.
$1,560,780 and $900,337 was of the rental expenses paid to the related parties
for the years ended December 31, 2009 and 2008 respectively (see Note 16(a)).
The commitments include both the related parties transactions and non-related
parties transaction, the total future lease payment to the related parties and
third parties is $10,032,122 and $7,852,500 respectively.
The
Company had the following capital commitment as of December 31,
2009:
Contracted,
but not provided for:-
|
|
|
|
Acquisition
of dredger, net of deposit paid
|
|
$
|
27,098,286
|
|
According
to the dredger purchase contract, the Company paid 7.5% $2,197,158 (Renminbi
15,000,000) (see Note 8) on June 2, 2009 as a deposit pursuant to the purchase
contract which dated May 20, 2009. The balance due on the dredger amounting to
$27,098,286 (Renminbi 185,000,000) is due on or before May 31, 2012 which is
when the dredger is expected to be delivered to the Company.
FUJIAN
XING GANG PORT SERVICE CO., LTD.
NOTES
TO THE FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
In order
to meet the Company’s working capital needs, the Company has entered into two
loan agreements in February 2010 with banks in the PRC to obtain fixed-rate term
loans with maturities exceeding 12 months. The Company pledged two dredgers in
connection with these loans and the loans are further guaranteed by Lin Qing, an
owner of Wonder Dredging and Xinrong Zhuo the Chairman and Chief Executive
Officer of the Company and the son of Zhuo Panxing (the other owner of Wonder
Dredging). Such loans amounted as follows:
Fujian
Haixia Bank Co., Ltd
|
|
$
|
5,859,088
|
|
Fuzhou
City Rural Credit Cooperative
|
|
|
3,368,976
|
|
|
|
$
|
9,228,064
|
|
The
Company had made loan repayment of $1.8 million and raised new loans amounted to
$9.2 million in the first quarter of 2010.
On May
27, 2010, the Company declared a dividend to its owner in the amount of
$51,087,387 (Renminbi 350,803,477), representing the entire retained profits of
the Company as of March 31, 2010.
On May
20, 2010, Lin Qing and Zhuo Panxing sold all of their ownerships interest in the
Company to Wonder Dredging Engineering Limited Liability Company (“Wonder
Dredging”) and Wonder Dredging assumed the unfunded subscription obligation of
Lin Qing. Accordingly, as of May 20, 2010, Wonder Dredging held 100% of the
ownership of the Company. The total registered capital contributed or committed
remained unchanged at $29,002,371(Renminbi 200,000,000), of which
$10,982,735 (Renminbi 75,000,000) was unfunded.
On June
29, 2010, Fujian WangGang Dredging Construction Co., Ltd. (“Fujian Dredging”)(a
wholly owned subsidiary of China Dredging Group Co., Ltd., an unrelated party),
a wholly owned subsidiary of China Dredging Group Co., Ltd. (an unrelated
entity) obtained 50% ownership of the Company from Wonder Dredging by
virtue of a capital contribution of $23,602,460 (Renminbi 158,597,183) into the
Company which includes the unfunded subscription amount of $10,982,735
(Renminbi 75,000,000). Fujian Dredging is obligated to fund the total capital
commitment on or before September 21, 2011 of which $12,619,725 (Renminbi
83,597,183 ) was funded as of June 30, 2010. As of June 29, 2010, Wonder
Dredging held 50% of the ownership of the Company and Fujian Dredging held the
remaining 50%.
Chardan
Acquisition Corp.
(A
Development Stage Company)
Condensed
Balance Sheets
|
|
June
30,
2010
|
|
|
September
30,
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Prepaid
Expense
|
|
$
|
1,515
|
|
|
$
|
-
|
|
Total Assets
|
|
$
|
1,515
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIENCY
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
750
|
|
|
$
|
8,411
|
|
Note
payable - related party
|
|
|
33,688
|
|
|
|
4,065
|
|
Total Liabilities
|
|
|
34,438
|
|
|
|
12,476
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Deficiency
|
|
|
|
|
|
|
|
|
Common
stock, no par value; 50,000 shares authorized, 50,000 and 50,000 shares
issued and outstanding, respectively
|
|
|
31,499
|
|
|
|
23,010
|
|
Deficit
accumulated during the development stage
|
|
|
(64,422
|
)
|
|
|
(35,486
|
)
|
Total
Stockholders' Deficiency
|
|
|
(32,923
|
)
|
|
|
(12,476
|
)
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Deficiency
|
|
$
|
1,515
|
|
|
$
|
-
|
|
See
accompanying notes to condensed unaudited financial statements
Chardan
Acquisition Corp.
(A
Development Stage Company)
Condensed
Statements of Operations
(Unaudited)
|
|
For
the
Nine
Months
Ended
|
|
|
For
the Period
From
September
26,
2008
(Inception) to
|
|
Operating
Expenses
|
|
2010
|
|
|
2009
|
|
|
|
|
|
Professional
fees
|
|
$
|
17,669
|
|
|
$
|
18,794
|
|
|
$
|
41,073
|
|
General
and administrative
|
|
|
10,578
|
|
|
|
9,472
|
|
|
|
22,660
|
|
Total
Operating Expenses
|
|
|
28,247
|
|
|
|
28,266
|
|
|
|
63,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from Operations
|
|
|
(28,247
|
)
|
|
|
(28,266
|
)
|
|
|
(63,733
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
|
(689
|
)
|
|
|
|
|
|
|
(689
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
BEFORE INCOME TAXES
|
|
|
(28,936
|
)
|
|
|
(28,266
|
)
|
|
|
(64,422
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for Income Taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(28,936
|
)
|
|
$
|
(28,266
|
)
|
|
$
|
(64,422
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss Per Share - Basic and Diluted
|
|
$
|
(0.58
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding during the period - Basic and
Diluted
|
|
|
50,000
|
|
|
|
1,202,500
|
|
|
|
|
|
See
accompanying notes to condensed unaudited financial statements
Chardan
Acquisition Corp.
(A
Development Stage Company)
Condensed
Statement of Stockholders' Deficiency
For the Period from September 26,
2008 (Inception) to June 30, 2010
(Unaudited)
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
accumulated
during
|
|
|
Total
|
|
|
|
Common stock
|
|
|
development
|
|
|
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
stage
|
|
|
Deficiency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 26, 2008 (Inception)
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for services to founder ($0.0027/Sh)
|
|
|
3,676
|
|
|
|
10
|
|
|
|
-
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the period September 26, 2008 (inception) to September 30,
2008
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,510
|
)
|
|
|
(1,510
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2008
|
|
|
3,676
|
|
|
|
10
|
|
|
|
(1,510
|
)
|
|
|
(1,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for cash ($0.27/Sh)
|
|
|
46,324
|
|
|
|
12,600
|
|
|
|
-
|
|
|
|
12,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-kind
contribution of services
|
|
|
-
|
|
|
|
10,400
|
|
|
|
-
|
|
|
|
10,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the period ended September 30, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
(33,976
|
)
|
|
|
(33,976
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2009
|
|
|
50,000
|
|
|
|
23,010
|
|
|
|
(35,486
|
)
|
|
|
(12,476
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-kind
contribution of services
|
|
|
-
|
|
|
|
7,800
|
|
|
|
-
|
|
|
|
7,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-kind
contribution of interest
|
|
|
-
|
|
|
|
689
|
|
|
|
-
|
|
|
|
689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the nine months ended June 30, 2010
|
|
|
-
|
|
|
|
-
|
|
|
|
(28,936
|
)
|
|
|
(28,936
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2010
|
|
|
50,000
|
|
|
$
|
31,499
|
|
|
$
|
(64,422
|
)
|
|
$
|
(32,923
|
)
|
See
accompanying notes to condensed unaudited financial statements
Chardan
Acquisition Corp.
(A
Development Stage Company)
Condensed
Statements of Cash Flows
(Unaudited)
|
|
For
the
Nine
Months
Ended
June
30,
2010
|
|
|
For
the Period
From
September
26,
2008
(Inception)
to
June
30, 2010
|
|
|
|
|
|
|
|
|
Cash
Flows Used In Operating Activities:
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(28,936
|
)
|
|
$
|
(64,422
|
)
|
Adjustments
to reconcile net loss to net cash used in operations
|
|
|
|
|
|
|
|
|
Common
stock issued for services
|
|
|
-
|
|
|
|
10
|
|
In-kind
contribution of interest
|
|
|
689
|
|
|
|
689
|
|
In-kind
contribution of services
|
|
|
7,800
|
|
|
|
18,200
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Increase
in preapid expenses
|
|
|
(1,515
|
)
|
|
|
(1,515
|
)
|
Increase
in accounts payable
|
|
|
(7,661
|
)
|
|
|
750
|
|
Net
Cash Used In Operating Activities
|
|
|
(29,623
|
)
|
|
|
(46,288
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds
from loan payable- related party
|
|
|
29,623
|
|
|
|
33,688
|
|
Proceeds
from issuance of common stock
|
|
|
-
|
|
|
|
12,600
|
|
Net
Cash Provided by Financing Activities
|
|
|
29,623
|
|
|
|
46,288
|
|
|
|
|
|
|
|
|
|
|
Net
Increase in Cash
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash
at Beginning of Period
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash
at End of Period
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow
information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash
paid for taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
See
accompanying notes to condensed unaudited financial statements
CHARDAN
ACQUISITION CORP.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
AS OF JUNE 30,
2010
(UNAUDITED)
NOTE
1
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES AND ORGANIZATION
(A) Basis of
Presentation
The
accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in The United States of
America and the rules and regulations of the Securities and Exchange Commission
for interim financial information. Accordingly, they do not include
all the information necessary for a comprehensive presentation of financial
position and results of operations.
It is
management's opinion, however that all material adjustments (consisting of
normal recurring adjustments) have been made which are necessary for a fair
financial statements presentation. The results for the interim period
are not necessarily indicative of the results to be expected for the
year.
Activities
during the development stage include developing the business plan and raising
capital.
Effective
May 25, 2010, the Company’s domicile was changed from the State of Nevada to the
Territory of the British Virgin Islands (“BVI”) through a re-registration and
continuation process (the “Redomestication”).
(B) Use of
Estimates
In
preparing financial statements in conformity with generally accepted accounting
principles, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reported period. Actual results could differ from
those estimates.
(C) Cash and Cash
Equivalents
The
Company considers all highly liquid temporary cash investments with an original
maturity of three months or less to be cash equivalents. At June 30, 2010 and
September 30, 2009, respectively, the Company had no cash
equivalents.
(D) Loss Per
Share
Basic and
diluted net loss per common share is computed based upon the weighted average
common shares outstanding as defined by FASB Accounting Standards Codification
Topic 260, “Earnings Per Share.” As of June 30, 2010 and 2009,
respectively, there were no common share equivalents
outstanding.
CHARDAN
ACQUISITION CORP.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
AS OF JUNE 30,
2010
(UNAUDITED)
(E) Income
Taxes
In the
BVI, there are no income or other business taxes applicable to
the Company. However, the facts and circumstances of the
Redomestication are such that Company management believes the Company remains
subject to the continuing tax jurisdiction of the United States and accruals of
tax reflect that assumption. The Company accounts for income taxes under FASB
Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under
ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
(F) Business
Segments
The
Company operates in one segment and therefore segment information is not
presented.
(G) Revenue
Recognition
The
Company will recognize revenue on arrangements in accordance with FASB ASC No.
605, “Revenue Recognition”. In all cases, revenue is recognized only
when the price is fixed and determinable, persuasive evidence of an arrangement
exists, the service is performed and collectability of the resulting receivable
is reasonably assured.
(H) Recent Accounting
Pronouncements
In
October 2009, the Financial Accounting Standards Board (“FASB”) issued an
Accounting Standard Update (“ASU”) No. 2009-13, which addresses the
accounting for multiple-deliverable arrangements to enable vendors to account
for products or services separately rather than as a combined unit and modifies
the manner in which the transaction consideration is allocated across the
separately identified deliverables. The ASU significantly expands the disclosure
requirements for multiple-deliverable revenue arrangements. The ASU will be
effective for the first annual reporting period beginning on or after
June 15, 2010, and may be applied retrospectively for all periods presented
or prospectively to arrangements entered into or materially modified after the
adoption date. Early adoption is permitted, provided that the guidance is
retroactively applied to the beginning of the year of adoption. The Company does
not expect the adoption of ASU No. 2009-13 to have any effect on its financial
statements upon its required adoption on January 1, 2011.
(I) Fair Value of Financial
Instruments
The
carrying amounts on the Company’s financial instruments including accounts
payable, approximate fair value due to the relatively short period to maturity
for this instrument.
CHARDAN
ACQUISITION CORP.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
AS OF JUNE 30,
2010
(UNAUDITED)
NOTE 2
NOTE PAYABLE – RELATED
PARTY
For the
year ended September 30, 2009, Chardan Capital Markets, LLC, our
controlling shareholder and related party, loaned the Company
$4,065. The Company entered into a written promissory note concerning
this obligation. The loan is noninterest bearing and payable on
demand.
For the
nine months ended June 30, 2010, Chardan Capital Markets, LLC, a related
party, loaned the Company $29,623. The Company entered
into a written promissory note concerning this obligation. The loan
is non-interest bearing and payable on demand.
As of
June 30, 2010, total loan payable – related party is $33,688 (See Note
4).
NOTE
3
STOCKHOLDERS’
DEFICIENCY
(A)
Stock Issued for
Services
On
September 26, 2008, the Company issued 3,676 shares of common stock to its
founder having a fair value of $10 ($0.0027/share) in exchange for services
provided. (See Note 3(D) and 4).
(B)
Stock
Issued for Cash
On
November 4, 2008, the Company issued 46,324 shares of common stock for cash of
$12,600 ($0.27/share) to a related party. (See Note 3(D) and
4).
(C)
In Kind Contribution of
Services
For the
year ended September 30, 2009, the shareholders of the Company contributed
services having a fair value of $10,400 (See Note 4).
For the
nine months ended June 30, 2010, the shareholders of the Company contributed
services having a fair value of $7,800 (See Note 4).
For the
nine months ended June 30, 2010 the shareholder of the Company contributed $689
of in kind contribution of interest on behalf of the Company (See Note
4).
CHARDAN
ACQUISITION CORP.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
AS OF JUNE 30,
2010
(UNAUDITED)
(D)
Amendment to Articles
of Incorporation/Redomestication
Effective
May 25, 2010, the Company effected a change in domicile from the State of Nevada
to the Territory of the British Virgin Islands. Effective the same date, the
Company's authorized capital was changed from 100,000,000 common shares $0.0001
par value to 50,000 common shares without a par value and from 10,000,000
preferred shares $0.0001 par value to no preferred shares
authorized. Common Stock is the only authorized capital of the
Company. All basic and diluted loss per share and average shares
outstanding information has been adjusted to reflect the Redomestication from
the date of inception.
NOTE 4
RELATED PARTY
TRANSACTIONS
For the
year ended September 30, 2009, Chardan Capital Markets, LLC, a related party,
loaned the Company $4,065. The Company entered into a written
promissory note concerning this obligation. The loan is noninterest
bearing and payable on demand.
For the
nine months ended June 30, 2010, Chardan Capital Markets, LLC, a related party,
loaned the Company $29,623. The Company entered into a written
promissory note concerning this obligation. The loan
is not interest-bearing and is payable on demand.
As
of June 30, 2010, the total loan payable – related party is $33,688 (See
Note 2).
For the
nine months ended June 30, 2010, a shareholder of the Company contributed $689
of in kind contribution of interest on behalf of the Company (See Note
3(C)).
For the
year ended September 30, 2009, the shareholders of the Company contributed
services having a fair value of $10,400 (See Note 3(C)).
For the
nine months ended June 30, 2010, the shareholders of the Company
contributed services having a fair value of $7,800 (See Note 3(C)).
On
November 4, 2008, the Company issued 46,324 shares of common stock for cash of
$12,600 ($0.27/share) to CCM, a related party (See Note 3 (B)).
On
September 26, 2008, the Company issued 3,676 shares of common stock to its
founder having a fair value of $10 ($0.0027/share) in exchange for services
provided (See Note 3(A)).
CHARDAN
ACQUISITION CORP.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
AS OF JUNE 30,
2010
(UNAUDITED)
NOTE
5
GOING
CONCERN
As
reflected in the accompanying condensed unaudited financial statements, the
Company is in the development stage with no operations and has a net loss of
$64,422 for the period from September 26, 2008 (inception) to June 30, 2010; and
a working capital deficiency and stockholders’ deficiency of $32,923 at June 30,
2010. This raises substantial doubt about its ability to continue as
a going concern. The ability of the Company to continue as a going
concern is dependent on the Company’s ability to raise additional capital and
implement its business plan. The financial statements do not include
any adjustments that might be necessary if the Company is unable to continue as
a going concern.
Management
believes that actions presently being taken to obtain additional funding and
implement its strategic plans provide the opportunity for the Company to
continue as a going concern.
NOTE
6
SUBSEQUENT
EVENT
On July
28, 2010, the Company’s sole Director authorized a change in the Company’s
fiscal year end to January 31 from September 30.
|
Webb
& Company, P.A.
|
Certified
Public Accountants
|
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors of:
Chardan
Acquisition Corp.
We have
audited the accompanying balance sheets of Chardan Acquisition Corp. (a
development stage company) as of September 30, 2009 and 2008, and the
related statements of operations, changes in stockholders' deficiency and cash
flows for the year ended September 30, 2009 and the period September 26, 2008
(Inception) to September 30, 2008 and the period September 26, 2008 (Inception)
to September 30, 2009. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly in all
material respects, the financial position of Chardan Acquisition Corp. (a
development stage company) as of September 30, 2009 and 2008 and the results of
its operations and its cash flows for the year ended September 30, 2009 and the
period September 26, 2008 (Inception) to September 30, 2008 and the period
September 26. 2008 (Inception) to September 30, 2009, in conformity with
accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 5 to the financial
statements, the Company has no operations and has a net loss of $35,486 from
Inception, a working capital and stockholders' deficiency of $12,476 at
September 30, 2009 and used cash in operations from $16,665 from Inception.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans concerning these matters are also described
in Note 5. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/
Webb & Company, P.A.
WEBB
& COMPANY, P.A.
Certified
Public Accountants
Boynton
Beach, Florida
January
18, 2010
Chardan
Acquisition Corp.
(A
Development Stage Company)
Balance
Sheets
|
|
September
30, 2009
|
|
|
September
30, 2008
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
8,411
|
|
|
$
|
1,500
|
|
Loan
payable - related party
|
|
|
4,065
|
|
|
|
-
|
|
Total Liabilities
|
|
|
12,476
|
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Deficiency
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.0001 par value; 10,000,000 shares authorized, none issued and
outstanding
|
|
|
-
|
|
|
|
-
|
|
Common
stock, $0.0001 par value; 100,000,000 shares authorized, 1,360,000
shares and 100,000 issued and outstanding, respectively
|
|
|
136
|
|
|
|
10
|
|
Additional
paid-in capital
|
|
|
22,874
|
|
|
|
-
|
|
Deficit
accumulated during the development stage
|
|
|
(35,486
|
)
|
|
|
(1,510
|
)
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' Deficiency
|
|
|
(12,476
|
)
|
|
|
(1,500
|
)
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Deficiency
|
|
$
|
-
|
|
|
$
|
-
|
|
See
accompanying notes to financial statements
Chardan
Acquisition Corp.
(A
Development Stage Company)
Statements
of Operations
|
|
For
the
|
|
|
For
the
Period from
September
26,
2008
|
|
|
For
the
Period from
September
26,
2008
|
|
|
|
Ended
September
30,
2009
|
|
|
(Inception)
to
September
30,
2008
|
|
|
(Inception)
to
September
30,
2009
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
Professional
fees
|
|
$
|
21,904
|
|
|
$
|
1,500
|
|
|
$
|
23,404
|
|
General
and administrative
|
|
|
12,072
|
|
|
|
10
|
|
|
|
12,082
|
|
Total
Operating Expenses
|
|
|
33,976
|
|
|
|
1,510
|
|
|
|
35,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from Operations
|
|
|
(33,976
|
)
|
|
|
(1,510
|
)
|
|
|
(35,486
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS BEFORE INCOME TAXES
|
|
|
(33,976
|
)
|
|
|
(1,510
|
)
|
|
|
(35,486
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for Income Taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(33,976
|
)
|
|
$
|
(1,510
|
)
|
|
$
|
(35,486
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss Per Share - Basic and Diluted
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding during the period - Basic and
Diluted
|
|
|
1,242,308
|
|
|
|
100,000
|
|
|
|
|
|
See
accompanying notes to financial statements
Chardan
Acquisition Corp.
(A
Development Stage Company)
Statement
of Changes in Stockholders' Deficiency
For the Period from
September 26, 2008 (Inception) to September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
Preferred stock
|
|
|
Common stock
|
|
|
Additional
|
|
|
accumulated
during
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
paid-in
|
|
|
development
|
|
|
Stockholder's
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
stage
|
|
|
Deficiency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 26, 2008 (inception)
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for services to founder ($0.0001/Sh)
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the period September 26, 2008 (inception) to September 30,
2008
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,510
|
)
|
|
|
(1,510
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2008
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
|
|
10
|
|
|
|
-
|
|
|
|
(1,510
|
)
|
|
|
(1,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for cash ($0.01/sh)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,260,000
|
|
|
|
126
|
|
|
|
12,474
|
|
|
|
-
|
|
|
|
12,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
kind contribution of services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,400
|
|
|
|
-
|
|
|
|
10,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended September 30, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(33,976
|
)
|
|
|
(33,976
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2009
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1,360,000
|
|
|
$
|
136
|
|
|
$
|
22,874
|
|
|
$
|
(35,486
|
)
|
|
$
|
(12,476
|
)
|
See
accompanying notes to financial statements
Chardan
Acquisition Corp.
(A
Development Stage Company)
Statements
of Cash Flows
|
|
|
|
|
For the
Period from
|
|
|
For the
Period from
|
|
|
|
|
|
|
September
26, 2008
|
|
|
September
26, 2008
|
|
|
|
For the
Year Ended
|
|
|
(inception
)
to
|
|
|
(inception)
to
|
|
|
|
September
30, 2009
|
|
|
September
30, 2008
|
|
|
September
30, 2009
|
|
Cash
Flows Used In Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(33,976
|
)
|
|
$
|
(1,510
|
)
|
|
$
|
(35,486
|
)
|
Adjustments
to reconcile net loss to net cash used in operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for services
|
|
|
-
|
|
|
|
10
|
|
|
|
10
|
|
In-kind
contribution of services
|
|
|
10,400
|
|
|
|
-
|
|
|
|
10,400
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in accounts payable
|
|
|
6,911
|
|
|
|
1,500
|
|
|
|
8,411
|
|
Net
Cash Used In Operating Activities
|
|
|
(16,665
|
)
|
|
|
-
|
|
|
|
(16,665
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from loan payable- related party
|
|
|
4,065
|
|
|
|
|
|
|
|
4,065
|
|
Proceeds
from issuance of common stock
|
|
|
12,600
|
|
|
|
-
|
|
|
|
12,600
|
|
Net
Cash Provided by Financing Activities
|
|
|
16,665
|
|
|
|
-
|
|
|
|
16,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Increase in Cash
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at Beginning of Period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at End of Period
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash
paid for taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
See
accompanying notes to financial statements
CHARDAN
ACQUISITION CORP.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2009 AND
2008
NOTE
1
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES AND ORGANIZATION
(A)
Organization
Chardan
Acquisition Corp. (a development stage company) (the "Company") was incorporated
under the laws of the State of Nevada on September 26, 2008.
The
Company was formed to engage in any lawful corporate undertaking, including, but
not limited to, selected mergers and acquisitions. It has been in the
developmental stage since inception and have no operations to date other than
issuing shares to our original shareholder. It will attempt to locate and
negotiate with a business entity for the combination of that target company with
us. The combination will normally take the form of a merger, stock- for-stock
exchange or stock-for-assets exchange. In most instances, the target company
will wish to structure the business combination to be within the definition of a
tax-free reorganization under Section 351 or Section 368 of the Internal Revenue
Code of 1986, as amended. No assurances can be given that it will be successful
in locating or negotiating with any target company.
Activities
during the development stage include developing the business plan and raising
capital.
(B) Use of
Estimates
In
preparing financial statements in conformity with generally accepted accounting
principles, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reported period. Actual results could differ from
those estimates.
(C) Cash and Cash
Equivalents
The
Company considers all highly liquid temporary cash investments with an original
maturity of three months or less to be cash equivalents. At September 30, 2009
and 2008, respectively, the Company had no cash equivalents.
(D) Loss Per
Share
Basic and
diluted net loss per common share is computed based upon the weighted average
common shares outstanding as defined by FASB Accounting Standards Codification
Topic 260, “Earnings Per Share.” As of September 30, 2009 and 2008,
respectively, there were no common share equivalents
outstanding.
CHARDAN
ACQUISITION CORP.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS OF SEPTEMBER 30,
2009 AND 2008
(E) Income
Taxes
The
Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC
740-10-25”). Under ASC 740-10-25, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under ASC 740-10-25, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
As of
September 30, 2009, the Company has a net operating loss carryforward of
approximately $25,076 available to offset future taxable income through 2029
which results in a deferred tax asset of $8,526. The valuation
allowance at September 30, 2009 was $8,526. The net change in the
valuation allowance for the period ended September 30, 2009 was an increase of
$8,016.
(F) Business
Segments
The
Company operates in one segment and therefore segment information is not
presented.
(G) Revenue
Recognition
The
Company will recognize revenue on arrangements in accordance with FASB ASC No.
605, “Revenue Recognition”. In all cases, revenue is recognized only
when the price is fixed and determinable, persuasive evidence of an arrangement
exists, the service is performed and collectability of the resulting receivable
is reasonably assured.
(H) Recent Accounting
Pronouncements
In
June 2009, the FASB issued ASC 105
Accounting Standards
Codification
TM
and the Hierarchy of
Generally Accepted Accounting Principles
. The FASB Accounting Standards
Codification
TM
(the
“Codification”) has become the source of authoritative accounting principles
recognized by the FASB to be applied by nongovernmental entities in the
preparation of financial statements in accordance with Generally Accepted
Accounting Principles (“GAAP”). All existing accounting standard documents are
superseded by the Codification and any accounting literature not included in the
Codification will not be authoritative. Rules and interpretive releases of the
SEC issued under the authority of federal securities laws, however, will
continue to be the source of authoritative generally accepted accounting
principles for SEC registrants. Effective September 30, 2009, all
references made to GAAP in our consolidated financial statements will include
references to the new Codification. The Codification does not change or alter
existing GAAP and, therefore, will not have an impact on our financial position,
results of operations or cash flows.
CHARDAN
ACQUISITION CORP.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2009 AND
2008
In June
2009, the FASB issued changes to the consolidation guidance applicable to a
variable interest entity (VIE). FASB ASC Topic 810, "Consolidation," amends the
guidance governing the determination of whether an enterprise is the primary
beneficiary of a VIE, and is, therefore, required to consolidate an entity, by
requiring a qualitative analysis rather than a quantitative analysis. The
qualitative analysis will include, among other things, consideration of who has
the power to direct the activities of the entity that most significantly impact
the entity's economic performance and who has the obligation to absorb losses or
the right to receive benefits of the VIE that could potentially be significant
to the VIE. This standard also requires continuous reassessments of whether an
enterprise is the primary beneficiary of a VIE. FASB ASC 810 also requires
enhanced disclosures about an enterprise's involvement with a VIE. Topic 810 is
effective as of the beginning of interim and annual reporting periods that begin
after November 15, 2009. This will not have an impact on the Company’s financial
position, results of operations or cash flows.
In June
2009, the FASB issued Financial Accounting Standards Codification No. 860 -
Transfers and Servicing. FASB ASC No. 860 improves the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor's continuing involvement, if any,
in transferred financial assets. FASB ASC No. 860 is effective as of the
beginning of each reporting entity's first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual reporting
period and for interim and annual reporting periods thereafter. The Company is
evaluating the impact the adoption of FASB ASC No. 860 will have on its
financial statements.
(I) Fair Value of Financial
Instruments
The
carrying amounts reported in the balance sheet for accounts payable and loan
payable – related party approximate fair value based on the short-term maturity
of these instruments.
CHARDAN
ACQUISITION CORP.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2009 AND
2008
NOTE 2
NOTE PAYABLE – RELATED
PARTY
For the
year ended September 30, 2009, a related party loaned the Company
$4,065. The Company entered into a written promissory note concerning
this obligation. The loan is noninterest bearing and payable on
demand. As of September 30, 2009, the loan balance is $4,065 (See
Note 4).
NOTE 3
STOCKHOLDERS’
DEFICIENCY
(A)
Stock Issued for
Services
On
September 26, 2008, the Company issued 100,000 shares of common stock to its
founder having a fair value of $10 ($0.0001/share) in exchange for services
provided (See Note 4).
(B)
Stock Issued for
Cash
On
November 4, 2008, the Company issued 1,260,000 shares of common stock for cash
of $12,600 ($0.01/share) to a related party (See Note 4).
(C)
In Kind Contribution of
Services
For the
year ended September 30, 2009, the shareholders of the Company contributed
service having a fair value of $10,400 (See Note 4).
NOTE 4
RELATED PARTY
TRANSACTIONS
For the
year ended September 30, 2009, a related party loaned the Company
$4,065. The Company entered into a written promissory note concerning
this obligation. The loan is noninterest bearing and payable on
demand. As of September 30, 2009, the loan balance is $4,065 (See
Note 2).
For the
year ended September 30, 2009 the shareholders of the Company contributed
service having a fair value of $10,400 (See Note 3(C)).
On
November 4, 2008, the Company issued 1,260,000 shares of common stock for cash
of $12,600 ($0.01/share) to a related party (See Note 3 (B)).
On
September 26, 2008, the Company issued 100,000 shares of common stock to its
founder having a fair value of $10 ($0.0001/share) in exchange for services
provided (See Note 3(A)).
CHARDAN
ACQUISITION CORP.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2009 AND
2008
NOTE
5
GOING
CONCERN
As
reflected in the accompanying financial statements, the Company is in the
development stage with no operations and has a net loss of $35,486 for the
period from September 26, 2008 (inception) to September 30, 2009; and a working
capital deficiency and stockholders’ deficiency of $12,476 at September 30, 2009
and used cash in operations of $16,665 from inception. This raises
substantial doubt about its ability to continue as a going
concern. The ability of the Company to continue as a going concern is
dependent on the Company’s ability to raise additional capital and implement its
business plan. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.
Management
believes that actions presently being taken to obtain additional funding and
implement its strategic plans provide the opportunity for the Company to
continue as a going concern.
NOTE
6
SUBSEQUENT
EVENTS
In
preparing these financial statements, the Company has evaluated events and
transactions for potential recognition or disclosure through January 13, 2010,
the date the financial statements were issued and there were no items to
disclose.
During
November 2009, a related party loaned the Company $2,115. The Company entered
into a written promissory note concerning this obligation. The loan is
noninterest bearing and payable on demand.
EMPLOYMENT
AGREEMENT
This
EMPLOYMENT AGREEMENT (the “
agreement
s”) is
entered into as of August 26, 2010 by and between China Dredging Group Co.,
Ltd., a company incorporated and existing under the laws of the BVI (the “
Company
”)and Mr
Xinrong Zhuo (Passport Number DA0088713), an individual (the “
Executive
”).The term
“Company” as used herein with respect to all obligations of the Executive
hereunder shall be deemed to include the Company and all of its direct or
indirect subsidiaries and affiliated (collectively, the “
Group
”).
RECITALS
A. The
Company desires to employ the Executive and to assure itself of the services of
the
Executive
during the term of Employment (as defined below).
B. The
Executive desires to be employed by the Company during the term of Employment
and under
the terms and conditions of this Agreement.
AGREEMENT
The
parties hereto agree as follows:
The
Executive hereby accepts a position of the Chief Executive Officer (the “
Employment
”) of the
Company.
Subject
to the terms and conditions of this Agreement, the initial term of the
Employment shall be 3 years, commencing on August 26, 2010 (the “
Effective Date
”),
until August 25, 2013, unless terminated earlier pursuant to the terms of this
Agreement.
(a) The
Executive’s annual base salary is HK$320,000 (or other equivalent currency) to
be paid on the fifth day of each month during the term of the Employment. The
Executive’s cash bonus shall be determined by the Board or the Compensation
Committee of the Board on a discretionary basis in accordance with the terms of
the Company’s Memorandum and Articles of Association.
(b) Benefits.
The Executive is eligible for participation in any standard employee benefit
plan of the Company that currently exists or may be adopted by the Company in
the future, but not limited to, any retirement plan, and travel holiday
policy.
4.
|
DUTIES
AND RESPONSIBILITIES
|
The
Executive’s duties at the Company will include all jobs assigned by the
Company’s
Chief
Executive Officer. If the Executive is the Chief Executive Officer of the
Company, the Executive’s duties will include all jobs assigned by the Board of
Directors of the Company (the “
Board
”).
The
Executive shall devote all of his/her working time, attention and skills to the
performance of his/her duties at the Company and shall faithfully and diligently
serve the Company in accordance with this Agreement and the guidelines, policies
and procedures of the Company approved from time to time by the
Board.
The
Executive shall use his/her best efforts to perform his/her duties hereunder.
During the term of Employment the Executive shall not become an employee of any
entity, which competes with the business carried on by the Company (any such
business or entity, a “
Competitor
”), other
than the Company and any subsidiary or affiliate of the Company, provided that
nothing in this clause shall preclude the Executive from holding less than 5%
shares or other securities of any Competitor that is listed on any securities
exchange or recognized securities market anywhere.
The
Executive hereby represents to the Company that: (i) the execution and delivery
of this Agreement by the Executive and the performance by the Executive of the
Executive’s duties hereunder shall not constitute a breach of, or otherwise
contravene, the terms of any other agreement to which the Executive is a party
or otherwise bound, except for agreements that are required to be entered into
by and between the Executive and any member of the Group pursuant to applicable
law of the jurisdiction where the Executive is based, if any; (ii) that the
Executive has no information, confidential information and trade secrets
relating to any other person or entity which would prevent, or be violated by,
the Executive entering into this Agreement or carrying out his/her duties
hereunder.
The
Executive will be based in Fuzhou City, China or any other location as requested
by the Company during the term of this Agreement.
7.
|
TERMINATION OF THE
AGREEMENT
|
|
(a)
|
By the Company
.
The Company may terminate the Employment for cause, at any time, without
advance notice or remuneration, if (i) the Executive is convicted or
pleads guilty to a felony, (ii) the Executive has been negligent or acted
dishonestly to the detriment of the Company, (iii) the Executive has
engaged in actions amounting to misconduct or failed to perform his/her
duties hereunder and such failure continues after the Executive is
afforded a reasonable opportunity to cure such failure,(iv)the Executive
has died, or (v)the Executive has a disability which shall mean a physical
or mental impairment which, as reasonably determined by the Board, renders
the Executive unable to perform the essential functions of his/her
employment with the company, even with reasonable accommodation that does
not impose an undue hardship on the Company, for more than 180 days in any
12-month period, unless a longer period is required by applicable law, in
which case that longer period would
apply.
|
In
addition, the Company may terminate the Employment without cause, at any time,
upon one-month prior written notice to the Executive. Upon termination without
cause, the Company shall provide the Executive with severance payment in cash in
an amount equal to three months of the Executive’s base salary at the then
current rate. Under such circumstance, the Executive agrees not to make any
further claims for compensation for loss of office, accrued remuneration, fees,
wrongful dismissal or any other claim whatsoever against the Company or its
subsidiaries or the respective officers or employees of any of
them.
|
(b)
|
B
y the
Executive
. If there is a material and substantial reduction in the
Executive’s existing authority and responsibilities, the Executive may
resign upon one-month prior written notice to the Company. In addition,
the Executive may resign prior to the expiration of the Agreement upon
three-month prior written notice to the
Company.
|
|
(c)
|
Notice of
Termination.
Any termination of the Executive’s employment under
this Agreement shall be communicated by written notice of termination from
the terminating party to the other party. The notice of termination shall
indicate the specific provision(s) of this Agreement relied upon in
effecting the termination.
|
8.
|
CONFIDENTIALITY
AND NONDISCLOSURE
|
|
(a)
|
Confidentiality and
Non-disclosure.
In the course of the Executive’s services, the
Executive may have access to the Company and/or the Company’s
customer/supplier’s and/or prospective customer/supplier’s trade secrets
and confidential information, including but not limited to those embodied
in memoranda, manuals, letters or other documents, computer disks, tapes
or other information storage devices, hardware, or other media or
vehicles, pertaining to the Company and/or the Company’s
customer/supplier’s and/or prospective customer/supplier’s business. All
such trade secrets and confidential information are considered
confidential. All materials containing any secrets and confidential
information are the property of the Company and/or the Company’s
customer/supplier and/or prospective customer/supplier, and shall be
returned to the Company and/or the Company’s customer/supplier and/or
prospective customer/supplier upon expiration or earlier termination of
this Agreement. The Executive shall not directly or indirectly disclose or
use any such trade secret or confidential information, except as required
in the performance of the Executive’s duties in connection with the
Employment, or pursuant to applicable
law.
|
|
(b)
|
Trade Secrets
.
During and after the Employment, the Executive shall hold the Trade
Secrets in strict confidence; the Executive shall not disclose these Trade
Secrets to anyone except other employees of the Company who have a need to
know the Trade Secrets in connection with the Company’s business. The
Executive shall not use the Trade Secrets other than for the benefits of
the Company.
|
“Trade
Secrets” means information deemed confidential by the Company, treated by the
Company or which the Executive knows or ought reasonably to have known to be
confidential, and trade secrets, including without limitation designs,
processes, pricing policies, methods, inventions, conceptions, technology,
technical data, financial information, corporate structure and know how,
relating to the business and affairs of the Company and its subsidiaries,
affiliates and business associates, whether embodied in memoranda, manuals,
letters or other documents, computer disks, tapes or other information storage
devices, hardware, or other media or vehicles. Trade Secrets do not include
information generally known or released to public domain through no fault of
yours.
|
(c)
|
Former Employer
Information
. The Executive agrees that he or she has not and will
not, during the term of his/her employment, (i) improperly use or disclose
any proprietary information or trade secrets of any former employer or
other person or entity with which the Executive has an agreement or duty
to keep in confidence information acquired by Executive, if any, or (ii)
bring into the premises of Company any document or confidential or
proprietary information belonging to such former employer, person or
entity unless consented to in writing by such former employer, person or
entity. The Executive will indemnify the Company and hold it harmless from
and against all claims, liabilities, damages and expenses, including
reasonable attorneys’ fees and costs of suit, arising out of or in
connection with any violation of the
foregoing.
|
|
(d)
|
Third Party
Information
. The Executive recognizes that the Company may have
received, and in the future may receive, from third parties their
confidential or proprietary information subject to a duty on the Company’s
part to maintain the confidentiality of such information and to use it
only for certain limited purposes. The Executive agrees that the Executive
owes the Company and such third parties, during the Executive’s employment
by the Company and thereafter, a duty to hold all such confidential or
proprietary information in the strictest confidence and not to disclose it
to any person or firm and to use it in a manner consistent with, and for
the limited purposes permitted by, the Company’s agreement with such third
party.
|
This
Section 8 shall survive the termination of this Agreement for any reason. In the
event the Executive breaches this Section 8, the Company shall have right to
seek, remedies permissible under applicable law.
|
(a)
|
Inventions Retained
and Licensed.
The
Executive doesn’t have any inventions, ideas, improvements, designs and
discoveries, whether or not patentable and whether or not reduced to
practice, original works of authorship and trade secrets made or conceived
by or belonging to the Executive (whether made solely by the Executive or
jointly with others) that (i) were developed by Executive prior to the
Executive’s employment by the Company (collectively, “
Prior
Inventions
” (ii) relate to the Company’ actual or proposed
business, products or research and development, and (iii) are not assigned
to the Company hereunder; the Executive hereby acknowledges that, if in
the course of his/her service for the Company, the Executive incorporates
into a Company product, process or machine a Prior Invention owned by the
Executive ,the Company is hereby granted and shall have a nonexclusive,
royalty-free, irrevocable, perpetual, worldwide right and license (which
may be freely transferred by the Company to any other person or entity) to
make, have made, modify, use, sell, sublicense and otherwise distribute,
such Prior Invention as part of or in connection with such product,
process or machine.
|
|
(b)
|
Disclosure and
Assignment of
Inventions.
The
Executive understands that the Company engages in research and development
and other activities in connection with its business and that, as an
essential part of the Employment, the Executive is expected to make new
contributions to and create inventions of value for the
Company.
|
From and
after the Effective Date, the Executive shall disclose in confidence to the
Company all inventions, improvements, designs, original works of authorship,
formulas, processes, compositions of matter, computer software programs,
databases, mask works and trade secrets (collectively, the “
Inventions
’), which
the Executive may solely or jointly conceive or develop or reduce to practice,
or cause to be conceived or developed or reduced to practice, during the period
of the Executive’s Employment at the Company. The Executive acknowledges that
copyrightable works prepared by the Executive within the scope of and during the
period of the Executive’s Employment with the Company are “works for hire” and
that the Company will be considered the author thereof. The Executive agrees
that all the Inventions shall be the sole and exclusive property of the Company
and the Executive hereby assigns all his/her right, title and interest in and to
any and all of the Inventions to the Company or its successor in interest
without further consideration.
|
(c)
|
Patent and Copyright
Registration.
The
Executive agrees to assist the Company in every proper way to obtain for
the Company and enforce patents, copyrights, mask work rights, trade
secret rights, and other legal protection for the
Inventions.
The Executive will execute any documents that the Company may reasonably
request for use in obtaining or enforcing such patents, copyrights, mask
work rights, trade secrets and other legal protections. The Executive’s
obligations under this paragraph will continue beyond the termination of
the Employment with the Company, provided that the Company will reasonably
compensate the Executive after such termination for time or expenses
actually spent by the Executive at the Company’s request on such
assistance, The Executive appoints the Secretary of the Company as the
Executive’s attorney-in-fact to execute documents on the Executive’s
behalf for this
purpose.
|
|
(d)
|
Return of Confidential
Material
. In the
event of the Executive’s termination of employment with the Company for
any reason whatsoever, Executive agrees promptly to surrender and deliver
to the Company all records, materials, equipment, drawings, documents
and data of any nature pertaining to any confidential information or to
his/her employment, and Executive will not retain or take with him or her
any tangible materials or electronically stored data, containing or
pertaining to any confidential information that Executive may produce,
acquire or obtain access to during the course of his/her
employment.
|
This
Section 9 shall survive the termination of this Agreement for any reason. In the
event the Executive breaches this Section 9, the Company shall have right to
seek remedies permissible under applicable law.
10.
|
NON-COMPETITION
AND NON-SOLICITATION
|
In
consideration of the compensation provided to the Executive by the Company
hereunder, the adequacy of which is hereby acknowledged by the parties hereto,
the Executive agrees that during the term of the Employment and for a period of
two years following the termination of the Employment for whatever
reason:
|
(a)
|
the
Executive will not assume employment with or provide services as a
director for any Competitor,
|
|
(b)
|
unless
expressly consented to by the Company, the Executive will not seek
directly or indirectly, by the offer of alternative employment or other
inducement whatsoever, to solicit the services of any employee of the
Company employed as at or after the date of such termination, or in the
year preceding such
termination.
|
The
provisions contained in Section 10 are considered reasonable by the Executive
and the Company. In the event that any such provisions should be found to be
void under applicable laws but would be valid if some part thereof was deleted
or the period or area of application reduced, such provisions shall apply with
such modification as may be necessary to make them valid and
effective.
This
Section 10 shall survive the termination of this Agreement for any reason.
In the event the Executive breaches this Section 10, the Executive acknowledges
that there will be no adequate remedy at law, and the Company shall be entitled
to injunctive relief and/or a decree for specific performance, and such other
relief as may be proper (including monetary damages if appropriate). In any
event, the Company shall have right to seek all remedies permissible under
applicable law,
Notwithstanding
anything else herein to the contrary, the Company may withhold (or cause there
to be withheld, as the case may be) from any amounts otherwise due or payable
under or pursuant to this Agreement such national, provincial, local or any
other income, employment, or other taxes as may be required to be withheld
pursuant to any applicable law or regulation.
This
Agreement is personal in its nature and neither of the parties hereto shall,
without the consent of the other, assign or transfer this Agreement or any
rights or obligations hereunder; provided, however, that (i) the Company may
assign or transfer this Agreement or any rights or obligations hereunder to any
member of the Group without such consent, and (ii) in the event of a merger,
consolidation, or transfer or sale of all or substantially all of the assets of
the Company with or to any other individual(s) or entity, this Agreement shall,
subject to the provisions hereof, be binding upon and inure to the benefit of
such successor and such successor shall discharge and perform all the promises,
covenants, duties, and obligations of the Company hereunder.
If any
provision of this Agreement or the application thereof is held invalid, the
invalidity shall not affect other provisions or applications of this Agreement
which can be given effect without the invalid provisions or applications and to
this end the provisions of this Agreement are declared to be
severable.
This
Agreement constitutes the entire agreement and understanding, between the
Executive and the Company regarding the terms of the Employment and supersedes
all prior or contemporaneous oral or written agreements concerning such subject
matter. The Executive acknowledges that he has not entered into this Agreement
in reliance upon any representation, warranty or undertaking which is not set
forth in this Agreement. Any amendment to this Agreement must be in writing and
signed by the Executive and the Company.
This
Agreement shall be governed by and construed in accordance with the PRC
laws.
This
Agreement may not be amended, modified or changed (in whole or in part), except
by a formal, definitive written agreement expressly referring to this Agreement,
which agreement is executed by both of the parties hereto.
Neither
the failure nor any delay on the part of a party to exercise any right, remedy,
power or privilege under this Agreement shall operate as a waiver thereof. Nor
shall any single or partial exercise of any right, remedy, power or privilege
preclude any other or further exercise of the same or of any right, remedy,
power or privilege, nor shall any waiver of any right, remedy, power or
privilege with respect to any occurrence be construed as a waiver of such right,
remedy, power or privilege with respect to any other occurrence. No waiver shall
be effective unless it is in writing and is signed by the party asserted to have
granted such waiver.
All
notices, requests, demands and other communications required or permitted under
this Agreement shall be in writing and shall be deemed to have been duly given
and made if (i) delivered by hand, (ii) otherwise delivered against receipt
therefore, (iii) sent by a recognized courier with next-day or second-day
delivery to the last known address of the other party; or (iv) sent by e-mail
with confirmation of receipt.
This
Agreement may be executed in counterparts, each of which shall be deemed an
original as against any party whose signature appears thereon, and all of which
together shall constitute one and the same instrument.
20.
|
NO
INTERPRETATION AGAINST DRAFTER
|
Each
party recognizes that this Agreement is a legally binding contract and
acknowledges that such party has had the opportunity to consult with legal
counsel of choice. In any construction of the terms of this Agreement, the same
shall not be construed against either party on the basis of that party being the
drafter of such terms.
[Remainder
of this page intentionally has been intentionally left blank.]
In
WITNESS WHEREOF, this Agreement has been executed as of the date first written
above.
China
Dredging Group Co., Ltd.,
|
For
and on behalf of
|
By:
|
CHINA
DREDGING GROUP CO
.,
LTD
.
|
|
|
|
|
|
Authorized Signature(s)
|
Executive
|
|
|
Signature:
|
Name:
|
EMPLOYMENT
AGREEMENT
This
EMPLOYMENT AGREEMENT (the “
agreement
”) is entered into as of
August 26, 2010 by and between China Dredging Group Co., Ltd.,a company
incorporated and existing under the laws of the BVI (the “
Company
”) and Mr
Bin Lin (Passport Number HA1210346), an individual (the “
Executive
”). The term
“Company” as used herein with respect to all obligations of the Executive
hereunder shall be deemed to include the Company and all of its direct or
indirect subsidiaries and affiliated (collectively, the “
Group
”).
RECITALS
A. The
Company desires to employ the Executive and to assure itself of the services of
the
Executive
during the term of Employment (as defined below).
B. The
Executive desires to be employed by the Company during the term of Employment
and under
the terms and conditions of this Agreement.
AGREEMENT
The
parties hereto agree as follows:
The
Executive hereby accepts a position of Senior Vice President (the “
Em
ployment
”) of the Company.
Subject
to the terms and conditions of this Agreement, the initial term of the
Employment shall be 3 years, commencing on August 26, 2010 (the
“
Effective Date
”),
until August 25, 2013, unless terminated earlier pursuant to the terms of this
Agreement.
(a) The
Executive’s annual base salary is HK$280,000 (or other equivalent currency) to
be paid on the fifth day of each month during the term of the Employment. The
Executive’s cash bonus shall be determined by the Board or the Compensation
Committee of the Board on a discretionary basis in accordance with the terms of
the Company’s Memorandum and Articles of Association.
(b)
Benefits. The Executive is eligible for participation in any standard employee
benefit plan of the Company that currently exists or may be adopted by the
Company in the future, but not limited to, any retirement plan, and travel
holiday policy.
4.
|
DUTIES
AND RESPONSIBILITIES
|
The
Executive’s duties at the Company will include all jobs assigned by the
Company’s Chief Executive Officer. If the Executive is the Chief Executive
Officer of the Company, the Executive’s duties will include all jobs assigned by
the Board of Directors of the Company (the “
Board
”).
The
Executive shall devote all of his/her working time, attention and skills to the
performance of his/her duties at the Company and shall faithfully and diligently
serve the Company in accordance with this Agreement and the guidelines, policies
and procedures of the Company approved from time to time by the
Board.
The
Executive shall use his/her best efforts to perform his/her duties hereunder.
During the term of Employment the Executive shall not become an employee of any
entity, which competes with the business carried on by the Company (any such
business or entity, a
“
Competitor
”), other
than the Company and any subsidiary or affiliate of the Company, provided that
nothing in this clause shall preclude the Executive from holding less than
5%
shares or other securities of any
Competitor that is listed on any securities exchange or recognized securities
market anywhere.
The
Executive hereby represents to the Company that: (i) the execution and delivery
of this Agreement by the Executive and the performance by the Executive of the
Executive’s duties hereunder shall not constitute a breach of, or otherwise
contravene, the terms of any other agreement to which the Executive is a party
or otherwise bound, except for agreements that are required to be entered into
by and between the Executive and any member of the Group pursuant to applicable
law of the jurisdiction where the Executive is based, if any; (ii) that the
Executive has no information, confidential information and trade secrets
relating to any other person or entity which would prevent, or be violated by,
the Executive entering into this Agreement or carrying out his/her duties
hereunder.
The
Executive will be based in Fuzhou City, China or any other location as requested
by the Company during the term of this Agreement.
7.
|
TERMINATION
OF THE AGREEMENT
|
|
(a)
|
By the Company
.
The Company may terminate the Employment for cause, at any time, without
advance notice or remuneration, if (i) the Executive is convicted or
pleads guilty to a felony, (ii) the Executive has been negligent or acted
dishonestly to the detriment of the Company, (iii) the Executive has
engaged in actions amounting to misconduct or failed to perform his/her
duties hereunder and such failure continues after the Executive is
afforded a reasonable opportunity to cure such failure,(iv)the Executive
has died, or (v)the Executive has a disability which shall mean a physical
or mental impairment which, as reasonably determined by the Board, renders
the Executive unable to perform the essential functions of his/her
employment with the company, even with reasonable accommodation that does
not impose an undue hardship on the Company, for more than 180 days in any
12-month period, unless a longer period is required by applicable law, in
which case that longer period would
apply.
|
In
addition, the Company may terminate the Employment without cause, at any time,
upon one-month prior written notice to the Executive. Upon termination without
cause, the Company shall provide the Executive with severance payment in cash in
an amount equal to three months of the Executive’s base salary at the then
current rate. Under such circumstance, the Executive agrees not to make any
further claims for compensation for loss of office, accrued remuneration, fees,
wrongful dismissal or any other claim whatsoever against the Company or its
subsidiaries or the respective officers or employees of any of
them.
|
(b)
|
By the
Executive
. If there is a material and substantial reduction in the
Executive’s existing authority and responsibilities, the Executive may
resign upon one-month prior written notice to the Company. In addition,
the Executive may resign prior to the expiration of the Agreement upon
three-month prior written notice to the
Company.
|
|
(c)
|
Notice of
Termination.
Any termination of the Executive’s employment under
this Agreement shall be communicated by written notice of termination from
the terminating party to the other party. The notice of termination shall
indicate the specific provision(s) of this Agreement relied upon in
effecting the termination.
|
8.
|
CONFIDENTIALITY
AND NONDISCLOSURE
|
|
(a)
|
Confidentiality and
Non-disclosure.
In the course of the Executive’s services, the
Executive may have access to the Company and/or the Company’s
customer/supplier’s and/or prospective customer/supplier’s trade secrets
and confidential information, including but not limited to those embodied
in memoranda, manuals, letters or other documents, computer disks, tapes
or other information storage devices, hardware, or other media or
vehicles, pertaining to the Company and/or the Company’s
customer/supplier’s and/or prospective customer/supplier’s business. All
such trade secrets and confidential information are considered
confidential. All materials containing any secrets and confidential
information are the property of the Company and/or the Company’s
customer/supplier and/or prospective customer/supplier, and shall be
returned to the Company and/or the Company’s customer/supplier and/or
prospective customer/supplier upon expiration or earlier termination of
this Agreement. The Executive shall not directly or indirectly disclose or
use any such trade secret or confidential information, except as required
in the performance of the Executive’s duties in connection with the
Employment, or pursuant to applicable
law.
|
|
(b)
|
Trade Secrets
.
During and after the Employment, the Executive shall hold the Trade
Secrets in strict confidence; the Executive shall not disclose these Trade
Secrets to anyone except other employees of the Company who have a need to
know the Trade Secrets in connection with the Company’s business. The
Executive shall not use the Trade Secrets other than for the benefits of
the Company.
|
“Trade
Secrets” means information deemed confidential by the Company, treated by the
Company or which the Executive knows or ought reasonably to have known to be
confidential, and trade secrets, including without limitation designs,
processes, pricing policies, methods, inventions, conceptions, technology,
technical data, financial information, corporate structure and know how,
relating to the business and affairs of the Company and its subsidiaries,
affiliates and business associates, whether embodied in memoranda, manuals,
letters or other documents, computer disks, tapes or other information storage
devices, hardware, or other media or vehicles. Trade Secrets do not include
information generally known or released to public domain through no fault of
yours.
|
(c)
|
Former Employer
Information
. The Executive agrees that he or she has not and will
not, during the term of his/her employment, (i) improperly use or disclose
any proprietary information or trade secrets of any former employer or
other person or entity with which the Executive has an agreement or duty
to keep in confidence information acquired by Executive, if any, or (ii)
bring into the premises of Company any document or confidential or
proprietary information belonging to such former employer, person or
entity unless consented to in writing by such former employer, person or
entity. The Executive will indemnify the Company and hold it harmless from
and against all claims, liabilities, damages and expenses, including
reasonable attorneys’ fees and costs of suit, arising out of or in
connection with any violation of the
foregoing.
|
|
(d)
|
Third Party
Information
. The Executive recognizes that the Company may have
received, and in the future may receive, from third parties their
confidential or proprietary information subject to a duty on the Company’s
part to maintain the confidentiality of such information and to use it
only for certain limited purposes. The Executive agrees that the Executive
owes the Company and such third parties, during the Executive’s employment
by the Company and thereafter, a duty to hold all such confidential or
proprietary information in the strictest confidence and not to disclose it
to any person or firm and to use it in a manner consistent with, and for
the limited purposes permitted by, the Company’s agreement with such third
party.
|
This
Section 8 shall survive the termination of this Agreement for any reason, in the
event the Executive breaches this Section 8, the Company shall have right to
seek remedies permissible under applicable law.
|
(a)
|
Inventions Retained
and Licensed
. The Executive doesn’t have any
inventions, ideas, improvements, designs and discoveries, whether or not
patentable and whether or not reduced to practice, original works of
authorship and trade secrets made or conceived by or belonging to the
Executive (whether made solely by the Executive or jointly with others)
that (i) were developed by Executive prior to the Executive’s employment
by the Company (collectively, “
Prior
Inventions
”), (ii) relate to the Company’ actual or proposed
business, products or research and development, and (iii) are not assigned
to the Company hereunder; the Executive hereby acknowledges that, if in
the course of his/her service for the Company, the Executive incorporates
into a Company product, process or machine a Prior Invention owned by the
Executive, the Company is hereby granted and shall have a nonexclusive,
royalty-free, irrevocable, perpetual, worldwide right and license (which
may be freely transferred by the Company to any other person or entity) to
make, have made, modify, use, sell, sublicense and otherwise distribute,
such Prior Invention as part of or in connection with such product,
process or machine.
|
|
(b)
|
Disclosure and
Assignment of Inventions.
The Executive understands that the
Company engages in research and development and other activities in
connection with its business and that, as an essential part of the
Employment, the Executive is expected to make new contributions to and
create inventions of value for the
Company.
|
From and
after the Effective Date, the Executive shall disclose in confidence to the
Company all inventions, improvements, designs, original works of authorship,
formulas, processes, compositions of matter, computer software programs,
databases, mask works and trade secrets (collectively, the “
Inventions
’), which
the Executive may solely or jointly conceive or develop or reduce to practice,
or cause to be conceived or developed or reduced to practice, during the period
of the Executive’s Employment at the Company. The Executive acknowledges that
copyrightable works prepared by the Executive within the scope of and during the
period of the Executive’s Employment with the Company are “works for hire” and
that the Company will be considered the author thereof. The Executive agrees
that all the Inventions shall be the sole and exclusive property of the Company
and the Executive hereby assigns all his/her right, title and interest in and to
any and all of the Inventions to the Company or its successor in interest
without further consideration.
|
(c)
|
Patent and Copyright
Registration.
The Executive agrees
to assist the Company in every proper way to obtain for the Company and
enforce patents, copyrights, mask work rights, trade secret rights, and
other legal protection for the inventions. The Executive will execute any
documents that the Company may reasonably request for use in obtaining or
enforcing such patents, copyrights, mask work rights, trade secrets and
other legal protections. The Executive’s obligations under this paragraph
will continue beyond the termination of tine Employment with the Company,
provided that the Company will reasonably compensate the Executive after
such termination for time or expenses actually spent by the Executive at
the Company’s request on such assistance, The Executive appoints the
Secretary of the Company as the Executive’s attorney-in-fact to execute
documents on the Executive’s behalf for this
purpose.
|
|
(d)
|
Return of Confidential
Material
. In the event of the Executive’s termination of employment
with the Company for any reason whatsoever, Executive agrees promptly to
surrender and deliver to the Company all records, materials, equipment,
drawings, documents and data of any nature pertaining to any confidential
information or to his/her employment, and Executive will not retain or
take with him or her any tangible materials or electronically stored data,
containing or pertaining to any confidential information that Executive
may produce, acquire or obtain access to during the course of his/her
employment.
|
This
Section 9 shall survive the termination of this Agreement for any reason. In the
event the Executive breaches this Section 9, the Company shall have right to
seek remedies permissible under applicable law.
10.
|
NON-COMPETITION
AND NON-SOLICITATION
|
In
consideration of the compensation provided to the Executive by the Company
hereunder, the adequacy of which is hereby acknowledged by the parties hereto,
the Executive agrees that during the term of the Employment and for a period of
two years following the termination of the Employment for whatever
reason:
|
(a)
|
the
Executive will not assume employment with or provide services as a
director for any Competitor,
|
|
(b)
|
unless
expressly consented to by the Company, the Executive will not seek
directly or indirectly, by the offer of alternative employment or other
inducement whatsoever, to solicit the services of any employee of the
Company employed as at or after the date of such termination, or in the
year preceding such termination.
|
The
provisions contained in Section 10 are considered reasonable by the Executive
and the Company. In the event that any such provisions should be found to be
void under applicable laws but would be valid if some part thereof was deleted
or the period or area of application reduced, such provisions shall apply with
such modification as may be necessary to make them valid and
effective.
This
Section 10 shall survive the terminate of this Agreement for any reason. In the
event the Executive breaches this Section 10, the Executive acknowledges that
there will be no adequate remedy at law, and the Company shall be entitled to
injunctive relief and/or a decree for specific performance, and such other
relief as may be proper (including monetary damages if appropriate). In any
event, the Company shall have right to seek all remedies permissible under
applicable law.
Notwithstanding
anything else herein to the contrary, the Company may withhold (or cause there
to be withheld, as the case may be) from any amounts otherwise due or payable
under or pursuant to this Agreement such national, provincial, local or any
other income, employment, or other taxes as may be required to be withheld
pursuant to any applicable law or regulation.
This
Agreement is personal in its nature and neither of the parties hereto shall,
without the consent of the other, assign or transfer this Agreement or any
rights or obligations hereunder; provided, however, that (i) the Company may
assign or transfer this Agreement or any rights or obligations hereunder to any
member of the Group without such consent, and (ii) in the event of a merger,
consolidation, or transfer or sale of all or substantially all of the assets of
the Company with or to any other individual(s) or entity, this Agreement shall,
subject to the provisions hereof, be binding upon and inure to the benefit of
such successor and such successor shall discharge and perform all the promises,
covenants, duties, and obligations of the Company hereunder.
If any
provision of this Agreement or the application thereof is held invalid, the
invalidity shall not affect other provisions or applications of this Agreement
which can be given effect without the invalid provisions or applications and to
this end the provisions of this Agreement are declared to be
severable.
This
Agreement constitutes the entire agreement and understanding, between the
Executive and the Company regarding the terms of the Employment and supersedes
all prior or contemporaneous oral or written agreements concerning such subject
matter. The Executive acknowledges that he has not entered into this Agreement
in reliance upon any representation, warranty or undertaking which is not set
forth in this Agreement. Any amendment to this Agreement must be in writing and
signed by the Executive and the Company.
This
Agreement shall be governed by and construed in accordance with the PRC
laws.
This
Agreement may not be amended, modified or changed (in whole or in part), except
by a formal, definitive written agreement expressly referring to this Agreement,
which agreement is executed by both of the parties hereto.
Neither
the failure nor any delay on the part of a party to exercise any right, remedy,
power or privilege under this Agreement shall operate as a waiver thereof. Nor
shall any single or partial exercise of any right, remedy, power or privilege
preclude any other or further exercise of the same or of any right, remedy,
power or privilege, nor shall any waiver of any right, remedy, power or
privilege with respect to any occurrence be construed as a waiver of such right,
remedy, power or privilege with respect to any other occurrence. No waiver shall
be effective unless it is in writing and is signed by the party asserted to have
granted such waiver.
All notices,
requests, demands and other communications required or permitted under this
Agreement shall be in writing and shall be deemed to have been duly given and
made if (i)delivcred by hand, (ii) otherwise delivered against receipt
therefore, (iii) sent by a recognized courier with next-day or second-day
delivery to the last known address of the other party; or(iv) sent by e-mail
with confirmation of receipt.
This
Agreement may be executed in counterparts, each of which shall be deemed an
original as against any party whose signature appears thereon, and all of which
together shall constitute one and the same instrument.
20.
|
NO
INTERPRETATION AGAINST DRAFTER
|
Each
party recognizes that this Agreement is a legally binding contract and
acknowledges that such party has had the opportunity to consult with legal
counsel of choice. In any construction of the terms of this Agreement, the same
shall not be construed against either party on the basis of that party being the
drafter of such terms.
[Remainder
of this page intentionally has been intentionally left blank.]
In
WITNESS WHEREOF, this Agreement has been executed as of the date first written
above.
China
Dredging Group Co., Ltd.,
|
For
and on behalf of
|
By:
|
CHINA
DREDGING GROUP CO., LTD.
|
|
|
|
|
|
Authorized Signature(s)
|
Executive
|
|
|
Signature:
|
Name:
|
EMPLOYMENT
AGREEMENT
This
EMPLOYMENT AGREEMENT (the “
agreement
”) is
entered into as of August 26, 2010 by and between China Dredging Group Co.,
Ltd.,a company incorporated and existing under the laws of the BVI (the “
Company
”)and Mr.
Fangjie Gu (ID Number 370602197811020736), an individual (the “
Executive
”). The term
“Company” as used herein with respect to all obligations of the Executive
hereunder shall be deemed to include the Company and all of its direct or
indirect subsidiaries and affiliated (collectively, the “
Group
”).
RECITALS
A. The
Company desires to employ the Executive and to assure itself of the services of
the Executive during the term of Employment (as defined below).
B. The
Executive desires to be employed by the Company during the term of Employment
and under the terms and conditions of this Agreement.
AGREEMENT
The
parties hereto agree as follows:
The
Executive hereby accepts a position of Chief Operating Officer (the “
Employment
”) of the
Company.
Subject
to the terms and conditions of this Agreement, the initial term of the
Employment shall be 3 years, commencing on August 26, 2010 (the “
Effective Date
”),
until August 25, 2013, unless terminated earlier pursuant to the terms of this
Agreement.
(a) The
Executive’s annual base salary is HK$100,000 (or other equivalent currency) to
be paid on the fifth day of each month during the term of the Employment. The
Executive’s cash bonus shall be determined by the Board or the Compensation
Committee of the Board on a discretionary basis in accordance with the terms of
the Company’s Memorandum and Articles of Association.
(b) Benefits.
The Executive is eligible for participation in any standard employee benefit
plan of the Company that currently exists or may be adopted by the Company in
the future, but not limited to, any retirement plan, and travel holiday
policy.
4.
|
DUTIES
AND RESPONSIBILITIES
|
The
Executive’s duties at the Company will include all jobs assigned by the
Company’s Chief Executive Officer. If the Executive is the Chief Executive
Officer of the Company, the Executive’s duties will include all jobs assigned by
the Board of Directors of the Company (the “
Board
”).
The
Executive shall devote all of his/her working time, attention and skills to the
performance of his/her duties at the Company and shall faithfully and diligently
serve the Company in accordance with this Agreement and the guidelines, policies
and procedures of the Company approved from time to time by the
Board.
The
Executive shall use his/her best efforts to perform his/her duties hereunder.
During the term of Employment the Executive shall not become an employee of any
entity, which competes with the business carried on by the Company (any such
business or entity, a “
Competitor
”), other
than the Company and any subsidiary or affiliate of the Company, provided that
nothing in this clause shall preclude the Executive from holding less than 5%
shares or other securities of any Competitor that is listed on any securities
exchange or recognized securities market anywhere.
The
Executive hereby represents to the Company that: (i) the execution and delivery
of this Agreement by the Executive and the performance by the Executive of the
Executive’s duties hereunder shall not constitute a breach of, or otherwise
contravene, the terms of any other agreement to which the Executive is a party
or otherwise bound, except for agreements that are required to be entered into
by and between the Executive and any member of the Group pursuant to applicable
law of the jurisdiction where the Executive is based, if any; (ii) that the
Executive has no information, confidential information and trade secrets
relating to any other person or entity which would prevent, or be violated by,
the Executive entering into this Agreement or carrying out his/her duties
hereunder.
The
Executive will be based in Fuzhou City, China or any other location as requested
by the Company during the term of this Agreement.
7.
|
TERMINATION
OF THE AGREEMENT
|
|
(a)
|
By the Company
.
The Company may terminate the Employment for cause, at any time, without
advance notice or remuneration, if (i) the Executive is convicted or
pleads guilty to a felony, (ii) the Executive has been negligent or acted
dishonestly to the detriment of the Company, (iii) the Executive has
engaged in actions amounting to misconduct or failed to perform his/her
duties hereunder and such failure continues after the Executive is
afforded a reasonable opportunity to cure such failure, (iv) the Executive
has died, or (v) the Executive has a disability which shall mean a
physical or mental impairment which, as reasonably determined by the
Board, renders the Executive unable to perform the essential functions of
his/her employment with the company, even with reasonable accommodation
that does not impose an undue hardship on the Company, for more than 180
days in any 12-month period, unless a longer period is required by
applicable law, in which case that longer period would
apply.
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In
addition, the Company may terminate the Employment without cause, at any time,
upon one-month prior written notice to the Executive. Upon termination without
cause, the Company shall provide the Executive with severance payment in cash in
an amount equal to three months of the Executive’s base salary at the then
current rate. Under such circumstance, the Executive agrees not to make any
further claims for compensation for loss of office, accrued remuneration, fees,
wrongful dismissal or any other claim whatsoever against the Company or its
subsidiaries or the respective officers or employees of any of
them.
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(b)
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By the
Executive
. If there is a material and substantial reduction in the
Executive’s existing authority and responsibilities, the Executive may
resign upon one-month prior written notice to the Company. In addition,
the Executive may resign prior to the expiration of the Agreement upon
three-month prior written notice to the
Company.
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(c)
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Notice of
Termination.
Any termination of the Executive’s employment under
this Agreement shall be communicated by written notice of termination from
the terminating party to the other party. The notice of termination shall
indicate the specific provision(s) of this Agreement relied upon in
effecting the termination.
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8.
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CONFIDENTIALITY
AND NONDISCLOSURE
|
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(a)
|
Confidentiality and
Non-disclosure.
In the course of the Executive’s services, the
Executive may have access to the Company and/or the Company’s
customer/supplier’s and/or prospective customer/supplier’s trade secrets
and confidential information, including but not limited to those embodied
in memoranda, manuals, letters or other documents, computer disks, tapes
or other information storage devices, hardware, or other media or
vehicles, pertaining to the Company and/or the Company’s
customer/supplier’s and/or prospective customer/supplier’s business. All
such trade secrets and confidential information are considered
confidential. All materials containing any secrets and confidential
information are the property of the Company and/or the Company’s
customer/supplier and/or prospective customer/supplier, and shall be
returned to the Company and/or the Company’s customer/supplier and/or
prospective customer/supplier upon expiration or earlier termination of
this Agreement. The Executive shall not directly or indirectly disclose or
use any such trade secret or confidential information, except as required
in the performance of the Executive’s duties in connection with the
Employment, or pursuant to applicable
law.
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(b)
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Trade Secrets
.
During and after the Employment, the Executive shall hold the Trade
Secrets in strict confidence; the Executive shall not disclose these Trade
Secrets to anyone except other employees of the Company who have a need to
know the Trade Secrets in connection with the Company’s business. The
Executive shall not use the Trade Secrets other than for the benefits of
the Company.
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“Trade
Secrets” means information deemed confidential by the Company, treated by the
Company or which the Executive knows or ought reasonably to have known to be
confidential, and trade secrets, including without limitation designs,
processes, pricing policies, methods, inventions, conceptions, technology,
technical data, financial information, corporate structure and know how,
relating to the business and affairs of the Company and its subsidiaries,
affiliates and business associates, whether embodied in memoranda, manuals,
letters or other documents, computer disks, tapes or other information storage
devices, hardware, or other media or vehicles. Trade Secrets do not include
information generally known or released to public domain through no fault of
yours.
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(c)
|
Former Employer
Information
. The Executive agrees that he or she has not and will
not, during the term of his/her employment, (i) improperly use or disclose
any proprietary information or trade secrets of any former employer or
other person or entity
with
which the Executive has an
agreement or duty to keep in confidence information acquired by Executive,
if any, or (ii) bring into the premises of Company any document or
confidential or proprietary information belonging to such former employer,
person or entity unless consented to in writing by such former employer,
person or entity. The Executive will indemnify the Company and hold it
harmless from and against all claims, liabilities, damages and expenses,
including reasonable attorneys’ fees and costs of suit, arising out of or
in connection with any violation of the
foregoing.
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(d)
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Third Party
Information
. The Executive recognizes that the Company may have
received, and in the future may receive, from third parties their
confidential or proprietary information subject to a duty on the Company’s
part to maintain the confidentiality of such information and to use it
only for certain limited purposes. The Executive agrees that the Executive
owes the Company and such third parties, during the Executive’s employment
by the Company and thereafter, a duty to hold all such confidential or
proprietary information in the strictest confidence and not to disclose it
to any person or firm and to use it in a manner consistent with, and for
the limited purposes permitted by, the Company’s agreement with such third
party.
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This
Section 8 shall survive the termination of this Agreement for any reason.
In the event the Executive breaches this Section 8, the Company shall have right
to seek remedies permissible under applicable law.
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(a)
|
Inventions Retained
and Licensed.
The Executive doesn’t
have any inventions, ideas, improvements, designs and discoveries, whether
or not patentable and whether or not reduced to practice, original works
of authorship and trade secrets made or conceived by or belonging to the
Executive (whether made solely by the Executive or jointly with others)
that (i) were developed by Executive prior to the Executive’s employment
by the Company (collectively, “
Prior
Inventions
”), (ii) relate to the Company’ actual or proposed
business, products or research and development, and (iii) are not assigned
to the Company hereunder, the Executive hereby acknowledges that, if in
the course of his/her service for the Company, the Executive incorporates
into a Company product, process or machine a Prior Invention owned by the
Executive, the Company is hereby granted and shall have a nonexclusive,
royalty-free, irrevocable, perpetual, worldwide right and license (which
may be freely transferred by the Company to any other person or entity) to
make, have made, modify, use, sell, sublicense and otherwise distribute,
such Prior Invention as part of or in connection with such product,
process or machine.
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(b)
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Disclosure and
Assignment of Inventions
. The Executive understands that the
Company engages in research and development and other activities in
connection with its business and that, as an essential part of the
Employment, the Executive is expected to make new contributions to and
create inventions of value for the
Company.
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From and
after the Effective Date, the Executive shall disclose in confidence to the
Company all inventions, improvements, designs, original works of authorship,
formulas, processes, compositions of matter, computer software programs,
databases, mask works and trade secrets (collectively, the “
Inventions
”
), which the Executive may solely or jointly
conceive or develop or reduce to practice, or cause to be conceived or developed
or reduced to practice, during the period of the Executive’s Employment at the
Company. The Executive acknowledges that copyrightable works prepared by the
Executive within the scope of and during the period of the Executive’s
Employment with the Company are “works for hire” and that the Company will be
considered the author thereof. The Executive agrees that all the Inventions
shall be the sole and exclusive property of the Company and the Executive hereby
assigns all his/her right, title and interest in and to any and all of the
Inventions to the Company or its successor in interest without further
consideration.
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(c)
|
Patent and Copyright
Registratio
n
. The
Executive agrees to assist the Company in every proper way to obtain
for the Company and enforce patents, copyrights, mask
work
rights, trade secret
rights, and other legal protection for the Inventions. The Executive will
execute any documents that the Company may reasonably request for use in
obtaining or enforcing such patents, copyrights, mask work rights, trade
secrets and other legal protections. The Executive’s obligations under
this paragraph will continue beyond the termination of the Employment with
the Company, provided that the Company will reasonably compensate the
Executive after such termination for time or expenses actually spent by
the Executive at the Company’s request on such assistance. The
Executive appoints the Secretary of the Company as the Executive’s
attorney-in-fact to execute documents on the Executive’s behalf for this
purpose.
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(d)
|
Return of Confidential
Material
. In the event of the Executive’s termination of employment
with the Company for any reason whatsoever, Executive agrees promptly to
surrender and deliver to the Company all records, materials, equipment,
drawings, documents and data of any nature pertaining to any confidential
information or to his/her employment, and Executive will not retain or
take with him or her any tangible materials or electronically stored data,
containing or pertaining to any confidential information that Executive
may produce, acquire or obtain access to during the course of his/her
employment.
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This
Section 9 shall survive the termination of this Agreement for any reason. In the
event the Executive breaches this Section 9, the Company shall have right to
seek remedies permissible under applicable law.
10.
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NON-COMPETITION
AND NON-SOLICITATION
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In
consideration of the compensation provided to the Executive by the Company
hereunder, the adequacy of which is hereby acknowledged by the parties hereto,
the Executive agrees that during the term of the Employment and for a period of
two years following the termination of the Employment for whatever
reason:
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(a)
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the
Executive will not assume employment with or provide services as a
director for any Competitor.
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(b)
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unless
expressly consented to by the Company, the Executive will not seek
directly
or
indirectly, by the offer of alternative employment or other inducement
whatsoever,
to solicit the services of any employee of the Company employed as at
or
after the date of such termination, or in the year preceding such
termination.
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The
provisions contained in Section 10 are considered reasonable by the Executive
and the Company. In the event that any such provisions should be found to be
void under applicable laws but would be valid if some part thereof was deleted
or the period or area of application reduced, such provisions shall apply with
such modification as may be necessary to make them valid and
effective.
This
Section 10 shall survive the termination of this Agreement for any reason. In
the event the Executive breaches this Section 10, the Executive acknowledges
that there will be no adequate remedy at law, and the Company shall be entitled
to injunctive relief and/or a decree for specific performance, and such other
relief as may be proper (including monetary damages if appropriate). In any
event, the Company shall have right to seek all remedies permissible under
applicable law.
Notwithstanding
anything else herein to the contrary, the Company may withhold (or cause there
to be withheld, as the case may be) from any amounts otherwise due or payable
under or pursuant to this Agreement such national, provincial, local or any
other income, employment, or other taxes as may be required to be withheld
pursuant to any applicable law or regulation.
This
Agreement is personal in its nature and neither of the parties hereto shall,
without the consent of the other, assign or transfer this Agreement or any
rights or obligations hereunder; provided, however, that (i) the Company may
assign or transfer this Agreement or any rights or obligations hereunder to any
member of the Group without such consent, and (ii) in the event of a merger,
consolidation, or transfer or sale of all or substantially all of the assets of
the Company with or to any other Individual(s) or entity, this Agreement shall,
subject to the provisions hereof, be binding upon and inure to the benefit of
such successor and such successor shall discharge and perform all the promises,
covenants, duties, and obligations of the Company hereunder.
If any
provision of this Agreement or the application thereof is held invalid, the
invalidity shall not affect other provisions or applications of this Agreement
which can be given effect without the invalid provisions or applications and to
this end the provisions of this Agreement are declared to be
severable.
This
Agreement constitutes the entire agreement and understanding, between the
Executive and the Company regarding the terms of the Employment and supersedes
all prior or contemporaneous oral or written agreements concerning such subject
matter. The Executive acknowledges that he has not entered into this Agreement
in reliance upon any representation, warranty or undertaking which is not set
forth in this Agreement. Any amendment to this Agreement must be in writing and
signed by the Executive and the Company.
This
Agreement shall be governed by and construed in accordance with the PRC
laws.
This
Agreement may not be amended, modified or changed (in whole or in part), except
by a formal, definitive written agreement expressly referring to this Agreement,
which agreement is executed by both of the parties hereto.
Neither
the failure nor any delay on the part of a party to exercise any right, remedy,
power or privilege under this Agreement shall operate as a waiver thereof. Nor
shall any single or partial exercise of any right, remedy, power or privilege
preclude any other or further exercise of the same or of any right, remedy,
power or privilege, nor shall any waiver of any right, remedy, power or
privilege with respect to any occurrence be construed as a waiver of such right,
remedy, power or privilege with respect to any other occurrence. No waiver shall
be effective unless it is in writing and is signed by the party asserted to have
granted such waiver.
All
notices, requests, demands and other communications required or permitted under
this Agreement shall be in writing and shall be deemed to have been duly given
and made if (i) delivered by hand, (ii) otherwise delivered against receipt
therefore, (iii) sent by a recognized courier with next-day or second-day
delivery to the last known address of the other party; or (iv) sent by e-mail
with confirmation of receipt.
This
Agreement may be executed in counterparts, each of which shall be deemed an
original as against any party whose signature appears thereon, and all of which
together shall constitute one and the same instrument.
20.
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NO
INTERPRETATION AGAINST DRAFTER
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Each
party recognizes that this Agreement is a legally binding contract and
acknowledges that such party has had the opportunity to consult with legal
counsel of choice. In any construction of the terms of this Agreement, the same
shall not be construed against either party on the basis of that party being the
drafter of such terms.
[Remainder
of this page intentionally has been intentionally left blank.]
In
WITNESS WHEREOF, this Agreement has been executed as of the date first written
above.
China
Dredging Group Co., Ltd.,
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For
and on behalf of
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By:
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CHINA
DREDGING GROUP CO.,
LTD.
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Authorized
Signature(s)
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Executive
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Signature:
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Name:
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AGREEMENT
AND PLAN OF MERGER
BY
AND AMONG
CHARDAN
ACQUISITION CORP.,
SHAREHOLDERS
OF CHARDAN ACQUISITION CORP.,
CHINA
DREDGING GROUP CO., LTD.
AND
SHAREHOLDERS
OF CHINA DREDGING GROUP CO., LTD.
Dated
as of October 27, 2010
AGREEMENT
AND PLAN OF MERGER
This
Agreement and Plan of Merger, dated as of October 27, 2010, is made by and among
Chardan Acquisition Corp., a British Virgin Islands corporation (“
Chardan Corp.
”), Kerry Propper
and Chardan Capital Markets, LLC (collectively, the “
Chardan Shareholders
”), China
Dredging Group Co., Ltd., a company organized under the laws of the British
Virgin Islands (the “
Company
”), and each of the
Persons listed on
Schedule
II
hereto who are shareholders of the Company (collectively,
the “
Shareholders,
” and
individually a “
Shareholder
”).
BACKGROUND
WHEREAS
, upon the terms and
subject to the conditions of this Agreement, the Company and Chardan Corp.
desire to enter into a business combination transaction pursuant to which
Chardan Corp. will merge with and into the Company (the “
Merger
”);
WHEREAS
, the Merger is
intended to qualify as a tax-free reorganization under the Internal Revenue Code
of 1986, as amended;
WHEREAS
, the Boards of
Directors and shareholders of both the Company and Chardan Corp. have determined
that the Merger is advisable and in the best interests of their respective
shareholders, upon the terms and subject to the conditions set forth
herein;
WHEREAS
, such Boards of
Directors and shareholders of both the Company and Chardan have approved the
Merger, pursuant to which each of the 50,000 issued and outstanding ordinary
shares of Chardan Corp., $0.001 par value per share (the “
Chardan Ordinary Shares
”)
shall be converted into ordinary shares of the Company, no par value per share
(the “
Company Ordinary
Shares
”) as set forth below and no cash or other consideration shall be
delivered in conversion therefor; and
WHEREAS
, following the closing
of the Merger (but concurrent with the Private Placement (as defined herein),
the shareholders of Chardan Corp. (the “
Chardan Shareholders
”) shall
own an aggregate of 500,000 Company Ordinary Shares (as defined herein),
representing 0.95% of the issued and outstanding Company Ordinary Shares of the
Surviving Corporation (as defined herein) and the Shareholders shall own an
aggregate of 52,177,323 of Company Ordinary Shares, representing approximately
99.05% of the issued and outstanding Company Ordinary Shares of the Surviving
Corporation; and
WHEREAS
, such Merger shall
close immediately prior to an offering (the “
Private Placement
”) pursuant
to a Securities Purchase Agreement (the “
Purchase Agreement
”) by and
among the Company and named Purchasers (the “
Purchasers
”) therein in
connection with a private placement of an amount up to $50,000,000 or such
higher amount as mutually agreed (the “
Offering Amount
”) of
convertible preferred shares of the Company (the “
Convertible Preferred
Shares
”), each convertible into one (1) share of the Company’s Ordinary
Shares at a conversion price of $5.00 per share, subject to certain adjustments
from time to time (the “
Conversion
Price
”).
NOW THEREFORE
in consideration
of the premises and the mutual covenants, agreements, representations and
warranties contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
SECTION
I
DEFINITIONS
Unless
the context otherwise requires, the terms defined in this Section I will have
the meanings herein specified for all purposes of this Agreement, applicable to
both the singular and plural forms of any of the terms herein
defined.
1.1
“
Accredited Investor
” has the
meaning set forth in Regulation D under the Securities Act and set forth on
Exhibit
A
.
1.2
“
Chardan Balance Sheet
”
means Chardan Corp.’s balance sheet at September 30, 2010.
1.3
“
Chardan Board
” means the Board
of Directors of Chardan Corp.
1.4
“
Chardan Ordinary Shares
” means
Chardan Corp.’s ordinary shares, par value US $0.001 per share.
1.5
“
Company Shares
” means the
Company Ordinary Shares being issued to the Chardan Shareholders pursuant to the
Merger.
1.6
“
Affiliate
” shall mean, with
respect to any Person, any other Person that (a) directly or indirectly, whether
through one or more intermediaries or otherwise, controls or is controlled by or
is under common control with such Person. For purposes of this
definition, “control” (including with correlative meanings “controlled by” and
“under common control with”) of a Person means the power, direct or indirect, to
direct or cause the direction of the management and policies of such Person,
whether through ownership of voting securities, by contract or
otherwise. For the purposes of this definition, a Person shall be
deemed to control any of his or her immediate family members.
1.7
“
Agreement
” means this
Agreement and Plan of Merger, including all Schedules and Exhibits hereto, as
this Agreement and Plan of Merger may be from time to time amended, modified or
supplemented.
1.8
“
Chardan Indemnified Person
”
has the meaning set forth in Section 11.1.
1.9
“
Closing Date
” has the meaning
set forth in Section 3.
1.10
“
Code
” means the Internal
Revenue Code of 1986, as amended.
1.11
“
Commission
” means the
Securities and Exchange Commission or any other federal agency then
administering the Securities Act and the Exchange Act.
1.12
“
Company
” means China Dredging
Group Co., Ltd., a company organized under the laws of the British Virgin
Islands and having the registration number 1580676.
1.13
“
Company Board
” means the Board
of Directors of the Company.
1.14
“
Company Indemnified Person
”
has the meaning set forth in Section 11.2.
1.15
“Company Ordinary Shares
”
means the Company’s ordinary shares, no par value per share.
1.16
“
Equity Security
” means any
stock or similar security, including, without limitation, securities containing
equity features and securities containing profit participation features, or any
security convertible into or exchangeable for, with or without consideration,
any stock or similar security, or any security carrying any warrant, right or
option to subscribe to or purchase any shares of capital stock, or any such
warrant or right.
1.17
“
ERISA
” means the Employee
Retirement Income Security Act of 1974, as amended.
1.18
“
Exchange Act
” means the
Securities Exchange Act of 1934 or any similar federal statute, and the rules
and regulations of the Commission thereunder, all as the same will then be in
effect.
1.19
“
Exhibits
” means the several
exhibits referred to and identified in this Agreement.
1.20
“
Form 20-F
” means a Shell
Report on Form 20-F under the Exchange Act.
1.21
“
GAAP
” means, with respect to
any Person, United States generally accepted accounting principles applied on a
consistent basis with such Person’s past practices.
1.22
“
Governmental Authority
” means
any federal or national, state or provincial, municipal or local government,
governmental authority, regulatory or administrative agency, governmental
commission, department, board, bureau, agency or instrumentality, political
subdivision, commission, court, tribunal, official, arbitrator or arbitral body,
in each case whether U.S. or non-U.S.
1.23
“
HK Company
” means China
Dredging (HK) Co., Ltd., a company organized under the laws of Hong
Kong.
1.24
“
Indebtedness
” means any
obligation, contingent or otherwise. Any obligation secured by a Lien
on, or payable out of the proceeds of, or production from, property of the
relevant party will be deemed to be Indebtedness.
1.25
“
Intellectual Property
” means
all industrial and intellectual property, including, without limitation, all
U.S. and non-U.S. patents, patent applications, patent rights, trademarks,
trademark applications, common law trademarks, Internet domain names, trade
names, service marks, service mark applications, common law service marks, and
the goodwill associated therewith, copyrights, in both published and unpublished
works, whether registered or unregistered, copyright applications, franchises,
licenses, know-how, trade secrets, technical data, designs, customer lists,
confidential and proprietary information, processes and formulae, all computer
software programs or applications, layouts, inventions, development tools and
all documentation and media constituting, describing or relating to the above,
including manuals, memoranda, and records, whether such intellectual property
has been created, applied for or obtained anywhere throughout the
world.
1.26
“
Laws
” means, with respect to
any Person, any U.S. or non-U.S. federal, national, state, provincial, local,
municipal, international, multinational or other law (including common law),
constitution, statute, code, ordinance, rule, regulation or treaty applicable to
such Person.
1.27
“
Lien
” means any mortgage,
pledge, security interest, encumbrance, lien or charge of any kind, including,
without limitation, any conditional sale or other title retention agreement, any
lease in the nature thereof and the filing of or agreement to give any financing
statement under the Uniform Commercial Code or similar statutes of any
jurisdiction and including any lien or charge arising by Law.
1
.28
“
Material Chardan Contract
”
means any and all agreements, contracts, arrangements, leases, commitments or
otherwise, of Chardan Corp., of the type and nature that Chardan Corp. is
required to file with the Commission.
1.29
“
MCP Agreements
” means the
following agreements (each an “
MCP Agreement
”) dated as of
June 30, 2010: (i) the Power of Attorney pursuant to which Qing Lin and Panxing
Zhuo grant to Fujian WangGang Dredging Construction Co., Ltd. shareholder powers
related to their shareholdings in Wonder Dredging Engineering LLC; (ii) the
Power of Attorney pursuant to which Wonder Dredging Engineering Ltd. grants to
Fujian WangGang Dredging Construction Co., Ltd. shareholder powers related to
its shareholding in Fujian Xing Gang Port Service Limited; (iii) the Contracted
Management Agreement between Fujian WangGang Dredging Construction Co., Ltd.,
Wonder Dredging Engineering Ltd. and Fujian Xing Gang Port Service Limited; (iv)
the Equity Interest Pledge Agreement between Qing Lin and Panxing Zhuo, Fujian
WangGang Dredging Construction Co., Ltd. and Wonder Dredging Engineering Ltd.;
(v) Contract Relating to the Exclusive Purchase Right of Equity Interest between
Wonder Dredging Engineering Ltd., Fujian WangGang Dredging Construction Co.,
Ltd. and Fujian Xing Gang Port Service Limited; and (vi) the Letter of
Commitment from Wonder Dredging Engineering Ltd. to Fujian WangGang Dredging
Construction Co., Ltd. regarding the draw of the dividend declared on May 27,
2010 by the shareholders of Fujian Xing Gang Port Service Limited.
1.30
“
Material Adverse Effect
”
means, any change, effect or circumstance which, individually or in the
aggregate, would reasonably be expected to (a) have a material adverse effect on
the business, assets, financial condition or results of operations of Chardan
Corp. or the Company, as the case may be, in each case taken as a whole or (b)
materially impair the ability of Chardan Corp. or the Company, as the case may
be, to perform their obligations under this Agreement, excluding any change,
effect or circumstance resulting from (i) the announcement, pendency or
consummation of the transactions contemplated by this Agreement, or (ii) changes
in general economic, currency exchange rate, political or regulatory conditions
in industries in which Chardan Corp. or the Company, as the case may be, operate
or (c) result in litigation, claims, disputes or property loss that would
prohibit or otherwise materially interfere with the ability of any party to this
Agreement to perform any of its obligations under this Agreement in any material
respect.
1.31
“
Operating Company
” means
Fujian Xing Gang Port Service Co., Ltd.
1.32
“
Order
” means any award,
decision, injunction, judgment, order, ruling, subpoena, or verdict entered,
issued, made, or rendered by any Governmental Authority.
1.33
“
Organizational Documents
”
means (a) the Memorandum and Articles of Association or articles or certificate
of incorporation and the by-laws or code of regulations of a corporation; (b)
the partnership agreement and any statement of partnership of a general
partnership; (c) the limited partnership agreement and the certificate of
limited partnership of a limited partnership; (d) the articles or certificate of
formation and operating agreement of a limited liability company; (e) any other
document performing a similar function to the documents specified in clauses
(a), (b), (c) and (d) adopted or filed in connection with the creation,
formation or organization of a Person; and (f) any and all amendments to any of
the foregoing.
1.34
“
Permitted Liens
” means (a)
Liens for Taxes not yet payable or in respect of which the validity thereof is
being contested in good faith by appropriate proceedings and for the payment of
which the relevant party has made adequate reserves; (b) Liens in respect of
pledges or deposits under workmen’s compensation laws or similar legislation,
carriers, warehousemen, mechanics, laborers and materialmen and similar Liens,
if the obligations secured by such Liens are not then delinquent or are being
contested in good faith by appropriate proceedings conducted and for the payment
of which the relevant party has made adequate reserves; (c) statutory Liens
incidental to the conduct of the business of the relevant party which were not
incurred in connection with the borrowing of money or the obtaining of advances
or credits and that do not in the aggregate materially detract from the value of
its property or materially impair the use thereof in the operation of its
business; (d) Liens on any property leased by the Company or any of its
subsidiaries; and (d) Liens that would not have a Material Adverse
Effect.
1.35
“
Person
” means all natural
persons, corporations, business trusts, associations, companies, partnerships,
limited liability companies, joint ventures and other entities, governments,
agencies and political subdivisions.
1.36
“
PRC
” means the People’s
Republic of China, excluding Taiwan, Hong Kong and Macau.
1.37
“
PRC Companies
” means Fujian
Wanggang Dredging Construction Co., Ltd. and Fujian Xing Gang Port Service Co.,
Ltd., both of which were organized under the laws of the PRC.
1.38
“
Private Placement
” has the
meaning set forth in the Recitals.
1.39
“
Proceeding
” means any action,
arbitration, audit, hearing, investigation, litigation, or suit (whether civil,
criminal, administrative or investigative) commenced, brought, conducted, or
heard by or before, or otherwise involving, any Governmental
Authority.
1.40
“
Purchase Agreement
” has the
meaning set forth in the Recitals.
1.41
“RMB”
means the currency of
the PRC.
1.42
“
Rule 144
” means Rule 144 under
the Securities Act, as the same may be amended from time to time, or any
successor statute.
1.43
“
Schedules
” means the several
schedules referred to and identified herein, setting forth certain disclosures,
exceptions and other information, data and documents referred to at various
places throughout this Agreement.
1.44
“
SEC Documents
” has the meaning
set forth in Section 6.24.
1.45
“
Section 4(2)
” means Section
4(2) under the Securities Act, as the same may be amended from time to time, or
any successor statute.
1.46
“
Securities Act
” means the
Securities Act of 1933, as amended, or any similar federal statute, and the
rules and regulations of the Commission thereunder, all as the same will be in
effect at the time.
1.47
“
Merger
” has the meaning set
forth in the Recitals.
1.48
“
Subsidiary
” means, with
respect to any Person, any corporation, limited liability company, joint venture
or partnership of which such Person (a) beneficially owns, either directly or
indirectly, more than 50% of (i) the total combined voting power of all classes
of voting securities of such entity, (ii) the total combined equity interests,
or (iii) the capital or profit interests, in the case of a partnership or
limited liability company; or (b) otherwise has the power to vote or to direct
the voting of sufficient securities to elect a majority of the board of
directors or similar governing body.
1.49
“
Survival Period
” has the
meaning set forth in Section 11.1.
1.50
“
Taxes
” means with respect to
any applicable jurisdiction, all national-level, state-level or local-level
taxes, charges, fees, levies, imposts, duties and other assessments, as
applicable, including, but not limited to, any income, alternative minimum or
add-on, estimated, gross income, gross receipts, sales, use, transfer,
transactions, intangibles, ad valorem, value-added, franchise, registration,
title, license, capital, paid-up capital, profits, withholding, payroll,
employment, unemployment, excise, severance, stamp, occupation, premium, real
property, recording, personal property, federal highway use, commercial rent,
environmental (including, but not limited to, taxes under Section 59A of the
Code) or windfall profit tax, custom, duty or other tax, governmental fee or
other like assessment or charge of any kind whatsoever, together with any
interest, penalties or additions to tax with respect to any of the foregoing;
and “Tax” means any of the foregoing Taxes.
1.51
“
Tax Group
” means any federal,
state, local or foreign consolidated, affiliated, combined, unitary or other
similar group of which Chardan Corp. is now or was formerly a
member.
1.52
“
Tax Return
” means any return,
declaration, report, claim for refund or credit, information return, statement
or other similar document filed with any Governmental Authority with respect to
Taxes, including any schedule or attachment thereto, and including any amendment
thereof.
1.53
“
Transaction Documents
” means,
collectively, all agreements, instruments and other documents to be executed and
delivered in connection with the transactions contemplated by this
Agreement.
1.54
“
U.S.
” means the United States
of America.
1.55
“
U.S. Dollars
” or “
US $
” means the currency of
the United States of America.
SECTION
II
THE
MERGER
2.1
The
Merger
. Upon the terms and subject to the conditions set forth
in this Agreement, in accordance with BVI Business Companies Act, 2004 (“
BVI Law
”), Chardan Corp. shall
be merged with and into the Company at the Effective Time (as defined
below). From and after the Effective Time, the separate corporate
existence of Chardan Corp. shall cease and the Company, as the surviving
corporation in the Merger, shall continue its existence under the laws of the
British Virgin Islands. The Company, as the surviving corporation
after the Merger, is hereinafter sometimes referred to as the “
Surviving
Corporation
.”
2.2
Effective
Time
. On the Closing Date (as defined below), subject to the
terms and conditions set forth in this Agreement, the parties shall cause the
Merger to be consummated by filing the Articles and Plan of Merger with the
British Virgin Islands Registrar of Corporate Affairs, in accordance with the
relevant provisions of BVI Law (the “
Articles and Plan of Merger
”),
in such forms as required by and executed in accordance with the relevant
provisions of BVI Law (the date and time of such filing, or such later date and
time as may be specified in the Articles and Plan of Merger by mutual agreement
of the Company and Chardan Corp., being the “
Effective Time
”).
2.3
Effect of the
Merger
. At the Effective Time, the effect of the Merger shall
be as provided herein and in the applicable provisions of the BVI
Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all of the all the property, rights, privileges,
agreements, powers and franchises, debts, liabilities, duties and obligations of
Chardan Corp. shall vest in the Surviving Corporation, which shall include the
assumption by the Surviving Corporation of any and all agreements, covenants,
duties and obligations of the Company set forth in this Agreement to be
performed after the Closing.
2.4
Memorandum and Articles of
Association of the Surviving Corporation
. At the Effective
Time, and without further action on the part of the parties hereto, the
Memorandum and Articles of Association of the Company in effect immediately
prior to the Effective Time, shall be the Memorandum and Articles of Association
of the Surviving Corporation, in each case, until thereafter amended as provided
by the BVI Law. Notwithstanding the foregoing, the parties hereto
agree that the Memorandum and Articles of Association of the Surviving
Corporation shall be amended at the Effective Time to conform to
Exhibit
B
.
2.5
Conversion of Capital
Shares
. At the Effective Time, by virtue of the Merger and
without any action of the part of Chardan Corp. or the Company or their
respective shareholders:
(a) Each
issued and outstanding Company Ordinary Share shall remain issued and
outstanding and shall thereafter represent one fully paid and nonassessable
ordinary share, no par value per share, of the Surviving
Corporation;
(b) Each
of the Chardan Ordinary Shares will be converted into [10] fully paid and
nonassessable Company Shares in accordance with Schedule I and the register of
members of the Surviving Corporation shall be updated to reflect the
conversion;
(c) Each
issued share of Chardan Corp. shall be cancelled and retired, and no payment
shall be made in respect thereof;
(d) As
of the Effective Time, all shares of Chardan Corp. shall no longer be
outstanding and shall automatically be cancelled and shall cease to exist, and
each Chardan Shareholder holding a certificate (each, a “
Certificate
”) representing any
such Chardan Ordinary Shares shall cease to have any rights with respect
thereto. At the Effective Time, the register of members of Chardan
Corp. shall be closed and no further registration of transfers of Chardan
Ordinary Shares shall thereafter be made.
2.6
Cancellation of Chardan
Ordinary Shares
. The Company Shares issued pursuant to Section
2.6 herein shall be delivered to each Chardan Shareholder only upon the
cancellation of the Chardan Ordinary Shares on the share register.
2.7
No Further Ownership
Rights
. The conversion of shares of Chardan Ordinary Shares in
accordance with the terms of this Section 2 shall be deemed to have been issued
in full satisfaction of all rights pertaining to such Chardan Ordinary Shares,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of Chardan Ordinary Shares which were outstanding
immediately prior to the Effective Time.
2.8
No
Liability
. Notwithstanding anything to the contrary in this
Agreement, neither the Company nor the Surviving Corporation shall be liable to
a holder of Chardan Ordinary Shares in respect of any Company Ordinary Shares
(or dividends or distributions with respect thereto) or cash payments delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law.
2.9
Tax-Free
Reorganization
. The Company and Chardan Corp. intend to adopt this
Agreement as a “plan of reorganization” and, to the extent permitted by law,
treat the Merger for U.S. federal income tax purposes as a “reorganization”
within the meaning of Section 368(a)(1)(A) of the Internal Revenue Code of 1986,
as amended. The parties acknowledge and agree, however, that each (i) has had
the opportunity to obtain independent legal and tax advice with respect to the
transaction contemplated by this Agreement, and (ii) is responsible for paying
its own Taxes, including without limitation, any adverse Tax consequences that
may result if the transaction contemplated by this Agreement is determined not
to qualify as a reorganization under Section 368 of the Code.
SECTION
III
CLOSING
DATE
3.1
Closing
Date
. Subject to the satisfaction or waiver of the conditions
set forth in Sections 8 and 9 herein, the closing of the Merger (the
“
Closing
”) shall take
place at 10:00 a.m. Eastern Time on the day all of the closing conditions set
forth in Sections 8 and 9 herein have been satisfied or waived, or at such other
time and date as the parties hereto shall agree in writing (the “
Closing Date
”), at the offices
of Loeb & Loeb LLP, 345 Park Avenue, New York, New York
10154.
SECTION
IV
REPRESENTATIONS
AND WARRANTIES OF SHAREHOLDERS AND
CHARDAN
CORP. SHAREHOLDERS
4.1
Representations and
Warranties of Shareholders
. Subject to the disclosures
contained in the relevant Schedules attached hereto, each Shareholder, severally
and not jointly, hereby represents and warrants to Chardan Corp. as
follows:
4.1.1
Authority
. Such
Shareholder has the right, power, authority and capacity to execute and deliver
this Agreement and each of the Transaction Documents to which such Shareholder
is a party, to consummate the transactions contemplated by this Agreement and
each of the Transaction Documents to which such Shareholder is a party, and to
perform such Shareholder’s obligations under this Agreement and each of the
Transaction Documents to which such Shareholder is a party, except for the
failure to perform any obligation that would not have a Material Adverse
Effect. This Agreement has been, and each of the Transaction
Documents to which such Shareholder is a party will be, duly and validly
authorized and approved, executed and delivered by such
Shareholder. Assuming this Agreement and the Transaction Documents
have been duly and validly authorized, executed and delivered by the parties
thereto other than such Shareholder, this Agreement is, and each of the
Transaction Documents to which such Shareholder is a party have been, duly
authorized, executed and delivered by such Shareholder and constitutes the
legal, valid and binding obligation of such Shareholder, enforceable against
such Shareholder in accordance with their respective terms, except as such
enforcement is limited by general equitable principles, or by bankruptcy,
insolvency and other similar Laws affecting the enforcement of creditors rights
generally.
4.1.2
No
Conflict
. Neither the execution or delivery by such
Shareholder of this Agreement or any Transaction Document to which such
Shareholder is a party, nor the consummation or performance by such Shareholder
of the transactions contemplated hereby or thereby will, directly or indirectly,
(a) contravene, conflict with, or result in a violation of any provision of the
Organizational Documents of such Shareholder (if such Shareholder is not a
natural person); (b) contravene, conflict with, constitute a default (or an
event or condition which, with notice or lapse of time or both, would constitute
a default) under, or result in the termination or acceleration of, any agreement
or instrument to which such Shareholder is a party or by which the properties or
assets of such Shareholder are bound; or (c) contravene, conflict with, or
result in a violation of, any Law or Order to which such Shareholder, or any of
the properties or assets of such Shareholder, may be subject, except, for any
such contraventions, conflicts, violations or other occurrences as would not
have a Material Adverse Effect.
4.1.3
Litigation
. There
is no pending Proceeding against such Shareholder that challenges, or may have
the effect of preventing, delaying or making illegal, or otherwise interfering
with, any of the transactions contemplated by this Agreement and, to the
knowledge of such Shareholder, no such Proceeding has been threatened, and no
event or circumstance exists that is reasonably likely to give rise to or serve
as a basis for the commencement of any such Proceeding.
4.1.4
No Brokers or
Finders
. To the knowledge of the Shareholder, except for
Chardan Capital Markets, LLC in connection with the Private Placement, no Person
has, or as a result of the transactions contemplated herein will have, any right
or valid claim against such Shareholder for any commission, fee or other
compensation as a finder or broker, or in any similar capacity.
4.2
Representations and
Warranties of Chardan Shareholders
. Each Chardan Shareholder,
severally and not jointly, hereby represents and warrants, solely with respect
to itself and not any other Shareholder, to the Company as follows:
4.2.1
Authority
. Each
Chardan Shareholder has the right, power, authority and capacity to execute and
deliver this Agreement and each of the Transaction Documents to which such
Chardan Shareholder is a party, to consummate the transactions contemplated by
this Agreement and each of the Transaction Documents to which such Chardan
Shareholder is a party, and to perform such Chardan Shareholder’s obligations
under this Agreement and each of the Transaction Documents to which such Chardan
Shareholder is a party. This Agreement has been, and each of the
Transaction Documents to which such Chardan Shareholder is a party will be, duly
and validly authorized and approved, executed and delivered by such Chardan
Shareholder. Assuming this Agreement and the Transaction Documents
have been duly and validly authorized, executed and delivered by the parties
thereto other than such Chardan Shareholder, this Agreement is, and each of the
Transaction Documents to which such Chardan Shareholder is a party have been,
duly authorized, executed and delivered by such Chardan Shareholder and
constitutes the legal, valid and binding obligation of such Chardan Shareholder,
enforceable against such Chardan Shareholder in accordance with their respective
terms, except as such enforcement is limited by general equitable principles, or
by bankruptcy, insolvency and other similar Laws affecting the enforcement of
creditors rights generally.
4.2.2
Acknowledgment
. Each
Chardan Shareholder severally understands and agrees that the Company Shares to
be issued pursuant to this Agreement and the Merger have not been registered
under the Securities Act or the securities laws of any state of the U.S. and
that the issuance of the Company Shares is being effected in reliance upon an
exemption from registration afforded either under Section 4(2) of the Securities
Act for transactions by an issuer not involving a public offering or Regulation
D for offers and sales to accredited investors.
4.2.3
Status
. By
its execution of this Agreement, each Chardan Shareholder, severally and not
jointly, represents and warrants to the Company that such Chardan Shareholder is
an Accredited Investor. Each Chardan Shareholder understands that the Company
Shares are being issued to such Chardan Shareholder in reliance upon the truth
and accuracy of the representations, warranties, agreements, acknowledgments and
understandings of such Chardan Shareholder set forth in this Agreement, in order
that the Company may determine the applicability and availability of the
exemptions from registration of the Company Shares on which the Company is
relying.
4.2.4
Additional Representations
and Warranties of Accredited Investors
. Each Chardan
Shareholder, severally and not jointly, further makes the representations and
warranties to the Company set forth on
Exhibit
C
.
4.2.5
Stock
Legends
. Each Chardan Shareholder hereby agrees with the
Company as follows:
(a)
The
certificates evidencing the Company Shares issued to the Chardan Shareholders,
and each certificate issued in transfer thereof, will bear the following
legend:
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “
SECURITIES ACT
”), OR ANY STATE
SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED EXCEPT (1) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS, IN WHICH CASE THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE
COMPANY AN OPINION OF COUNSEL, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED,
ASSIGNED OR OTHERWISE TRANSFERRED IN THE MANNER CONTEMPLATED PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS.
(b)
Other
Legends
. The certificates representing such Company Shares,
and each certificate issued in transfer thereof, will also bear any other legend
required under any applicable Law, including, without limitation, any U.S. state
corporate and state securities law, or contract.
SECTION
V
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
Subject
to the disclosures contained in the relevant Schedules attached hereto, the
Company represents and warrants to Chardan Corp. as follows:
5.1
Organization; Qualification
and Licenses
.
5.1.1
The
Company is duly incorporated and validly existing under the laws of the British
Virgin Islands, has all requisite authority and power (corporate and other),
governmental licenses, authorizations, consents and approvals to own, hold and
operate its properties and assets as now owned, held and operated by it and to
enter into this Agreement, to carry out the provisions hereof, except as would
not have a Material Adverse Effect on the transactions contemplated
hereby.
5.2
Subsidiaries
. Except
for the PRC Companies and the HK Company and as set forth on
Schedule 5.2
, the
Company does not own directly or indirectly, any equity or other ownership
interest in any corporation, partnership, joint venture or other entity or
enterprise.
5.3
Organizational
Documents
.
5.3.1
The
copies of the Memorandum and Articles of Association of the Company adopted on
April 14, 2010 and the documents which constitute all other Organizational
Documents of the Company, that have been delivered to Chardan Corp. prior to the
execution of this Agreement are true and complete and have not been amended or
repealed. The Company is not in violation or breach of any of the
provisions of its Organizational Documents. At the Effective Time,
the Company shall amend its Memorandum and Articles of Association to conform to
Exhibit
B
.
5.4
Authorization, Validity and
Enforcement of Agreements
. Except as would not have a Material
Adverse Effect on the transactions contemplated hereby, the Company has all
requisite authority and power (corporate and other) and third party
authorizations, consents and approvals to enter into this Agreement and each of
the Transaction Documents to which the Company is a party, to consummate the
transactions contemplated by this Agreement and each of the Transaction
Documents to which the Company is a party, to perform its obligations under this
Agreement and each of the Transaction Documents to which the Company is a party,
and to record the transfer of the Shares and the delivery of the new
certificates, if any, representing the Shares registered in the name of Chardan
Corp. The execution, delivery and performance by the Company of this
Agreement and each of the Transaction Documents to which the Company is a party
have been duly authorized by all necessary corporate action and do not require
from the Company Board or the Shareholders any consent or approval that has not
been validly and lawfully obtained. The execution, delivery and
performance by the Company of this Agreement and each of the Transaction
Documents to which the Company is a party requires no authorization, consent,
approval, license, exemption of or filing or registration with any Governmental
Authority or other Person, except as would not have a Material Adverse Effect on
the transactions contemplated hereby.
5.5
No Conflict or
Violation
. Neither the execution nor the delivery by the
Company of this Agreement or any Transaction Document to which the Company is a
party, nor the consummation or performance by the Company of the transactions
contemplated hereby or thereby will, directly or indirectly, (a) contravene,
conflict with, or result in a violation of any provision of the Organizational
Documents of the Company; (b) contravene, conflict with, constitute a default
(or an event or condition which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination or acceleration of, or
result in the imposition or creation of any Lien under, any agreement or
instrument to which the Company is a party or by which the properties or assets
of the Company is bound; (c) contravene, conflict with, or result in a violation
of, any Law or Order to which the Company, or any of the properties or assets
owned or used by the Company, may be subject; or (d) contravene, conflict with,
or result in a violation of, the terms or requirements of, or give any
Governmental Authority the right to revoke, withdraw, suspend, cancel, terminate
or modify, any licenses, permits, authorizations, approvals, franchises or other
rights held by the Company or that otherwise relate to the business of, or any
of the properties or assets owned or used by, the Company, except for any such
contraventions, conflicts, violations, or other occurrences as would not have a
Material Adverse Effect.
5.6
Binding
Obligations
. Assuming this Agreement and the Transaction
Documents have been duly and validly authorized, executed and delivered by the
parties hereto and thereto other than the Company, this Agreement and each of
the Transaction Documents to which the Company is a party are duly authorized,
executed and delivered by the Company and constitute the legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except as such enforcement is limited by
general equitable principles, or by bankruptcy, insolvency and other similar
laws affecting the enforcement of creditors rights generally.
5.7
Capitalization and Related
Matters
.
5.7.1
Capitalization of the
Company
. The Company is authorized to issue a maximum of the Company
consists of 250,000,000 shares, comprised of 225,000,000 authorized Ordinary
Shares and 25,000,000 authorized Class A Preferred Shares, of which 52,177,323
Ordinary Shares are issued and outstanding. At the Closing Date, the
Company will have sufficient authorized and unissued Company Ordinary Shares to
consummate the transactions contemplated hereby and by the Private
Placement. Other than as contemplated by the Purchase Agreement
related to the Private Placement and as except set forth on
Schedule 5.7.1
, there
are no outstanding or authorized options, warrants, calls, purchase agreements,
participation agreements, subscription rights, conversion rights, exchange
rights or other securities or contracts that could require the Company to issue,
sell or otherwise cause to become outstanding any of its authorized but unissued
shares of capital stock or any securities convertible into, exchangeable for or
carrying a right or option to purchase shares of capital stock or to create,
authorize, issue, sell or otherwise cause to become outstanding any new class of
capital stock. Other than as contemplated by the Purchase Agreement
related to the Private Placement, there are no outstanding shareholders’
agreements, voting trusts or arrangements, registration rights agreements,
rights of first refusal or other contracts pertaining to the capital stock of
the Company. Other than as contemplated by the Purchase Agreement
related to the Private Placement, there are no outstanding shareholders’
agreements, voting trusts or arrangements, registration rights agreements,
rights of first refusal or other contracts pertaining to the capital stock of
the Company. To the knowledge of the Company, the issuance of all of
the Ordinary Shares described in this Section 5.7.1 has been in compliance with
the laws of the British Virgin Islands. All issued and outstanding
shares of the Company’s capital stock are duly authorized, validly issued, fully
paid and nonassessable and have not been issued in violation of any preemptive
or similar rights.
5.7.2
Issuance of Company Ordinary
Shares in Merger
. The Company Ordinary Shares to be issued by the Company
in connection with the Merger, upon issuance in accordance with the terms of
this Agreement, will be duly authorized and validly issued and such Company
Ordinary Shares will be fully paid and nonassessable. Assuming the
accuracy of the representations and warranties of the Chardan Shareholders,
contained in Section 4 and
Exhibit C
hereto, the
issuance of Company Ordinary Shares to the Chardan Shareholders pursuant to this
Agreement will, when issued and paid for in accordance with the terms of this
Agreement, be, to the knowledge of the Company, issued in accordance with
exemptions from the registration and prospectus delivery requirements of the
Securities Act and the registration permit or qualification requirements of all
applicable state securities laws.
5.7.3
No Redemption
Requirements
. Except as contemplated by the Private Placement,
there are no outstanding contractual obligations (contingent or otherwise) of
the Company to retire, repurchase, redeem or otherwise acquire any outstanding
shares of capital stock of, or other ownership interests in, the Company or to
provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any other Person.
5.8
Shareholders
.
Schedule II
contains
a true and complete list of the names and addresses of the record and beneficial
holders of all of the outstanding capital stock of the Company.
5.9
Compliance with Laws and
Other Instruments
. Except as would not have a Material Adverse
Effect, the Company has not received a notice of any violation (or any
Proceeding involving an allegation of any violation) of any applicable Law or
Order by or affecting the Company and, to the knowledge of the Company, no
Proceeding involving an allegation of violation of any applicable Law or Order
is threatened or contemplated. Except as would not have a Material
Adverse Effect, the Company is not, and to the knowledge of the Company, is not
alleged to be, in violation of, or (with or without notice or lapse of time or
both) in default under, or in breach of, any term or provision of its
Organizational Documents or of any indenture, loan or credit agreement, note,
deed of trust, mortgage, security agreement or other material agreement, lease
or other instrument, commitment, obligation or arrangement to which the Company
is a party or by which any of the Company properties, assets or rights are bound
or affected. To the knowledge of the Company, no other party to any
material contract, agreement, lease, license, commitment, instrument or other
obligation to which the Company is a party is (with or without notice or lapse
of time or both) in default thereunder or in breach of any term
thereof.
5.10
Certain
Proceedings
. There is no pending Proceeding that has been
commenced against the Company and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
transactions contemplated in this Agreement, except for any Proceeding that
would not have a Material Adverse Effect. To the knowledge of the
Company and the Shareholders, no such Proceeding has been
threatened.
5.11
No Brokers or
Finders
. Except as disclosed in
Schedule 5.11
, no
Person has, or as a result of the transactions contemplated herein will have,
any right or valid claim against the Company for any commission, fee or other
compensation as a finder or broker, or in any similar capacity, and the Company
will indemnify and hold Chardan Corp. harmless against any liability or expense
arising out of, or in connection with, any such claim.
5.12
Board
Recommendation
. The Company Board has determined that this
Agreement and the transactions contemplated by this Agreement, are advisable and
in the best interests of the Company and its Shareholders.
5.13
Intellectual
Property
. Except as would not have a Material Adverse Effect,
the Company owns or possesses all patents, trademarks, domain names (whether or
not registered) and any patentable improvements or copyrightable derivative
works thereof, websites and intellectual property rights relating thereto,
service marks, trade names, copyrights, licenses and authorizations, and all
rights with respect to the foregoing, which are necessary for the conduct of
their business as now conducted without any conflict with the rights of
others.
5.14
Due
Diligence
. The Company has had the opportunity to perform all
due diligence investigations of Chardan Corp. and its business that the Company
has deemed necessary or appropriate and to ask all questions of the officers and
directors of Chardan Corp. that the Company wished to ask. The
Company has reviewed sufficient information to allow it to make the satisfactory
evaluation on the merits and risks of the transactions contemplated by this
Agreement. Notwithstanding the foregoing, nothing herein shall
derogate from or otherwise modify the representations and warranties of Chardan
Corp. set forth in this Agreement, on which the Shareholders and the Company
have relied upon.
5.15
Financial
Statements
. Attached as
Schedule 5.15
are the
Operating Company’s audited consolidated financial statements for the periods
ended December 31, 2008 and 2009, including, in each case, the notes thereto
(the “
Operating
Company Audited Financial
Statements
”) and the unaudited consolidated financial statements for the
three and six months ended June 30, 2010 (the “
Operating
Company Unaudited Financial
Statements,
” and together with the Operating Company Audited Financial
Statements, the “
Financial
Statements”
).
5.16
Absence of Undisclosed
Liabilities
. Except as set forth on
Schedule 5.16
, the
Company has no debt, obligation or liability (whether accrued, absolute,
contingent, liquidated or otherwise, whether due or to become due) arising out
of any transaction entered into at or prior to the Closing Date or any act or
omission at or prior to the Closing Date in excess of eight million dollars,
except to the extent set forth on or reserved against on the Operating Company
Audited Financial Statements and the Operating Company Unaudited Financial
Statements. Other than agreements contemplated herein and the MCP
Agreements, the Company has not incurred any liabilities or obligations under
agreements entered into, except in the usual and ordinary course of business,
since June 30, 2010, it being understood that the lease and/or purchase of
dredger vessels are in the ordinary course of the Company’s
business.
5.17
Material
Contracts
. The Company has made available to Chardan Corp. and
Chardan Shareholders, prior to the date of this Agreement, true, correct and
complete copies of material agreements, contracts, arrangements, leases,
commitments or otherwise, of any of the Company and the Company Subsidiaries, of
the type and nature that is required to be filed with the SEC (each a “
Company Material
Contract
”).
5.18
Material
Assets
. The Financial Statements reflect the material
properties and assets (real and personal) owned or leased by the Company and the
Subsidiaries.
5.19
Litigation;
Orders
. There are no Actions (whether U.S. or non-U.S.
federal, state, local or foreign) pending or, to the knowledge of the Company,
threatened against or affecting any of the Company or its properties, assets,
business or employees, except as would not have a Material Adverse Effect on the
Company and the Subsidiaries, taken as a whole. To the knowledge of
the Company and the Shareholders, there are no facts that might result in or
form the basis for any such Action.
5.20
Interested Party
Transactions
. Except as disclosed in the Financial Statements
or on
Schedule
5.20
, no officer, director or stockholder of any of the Company or any
affiliate or “associate” (as such term is defined in Rule 405 promulgated by the
SEC under the Securities Act) of any such Person, have or have had, either
directly or indirectly, (1) an interest in any Person which (a) furnishes or
sells services or products which are furnished or sold or are proposed to be
furnished or sold by the Company and the Company Subsidiaries, or (b) purchases
from or sells or furnishes to, or proposes to purchase from, sell to or furnish
the Company any goods or services; or (2) a beneficial interest in any contract
or agreement to which any of the Company is a party or by which it may be bound
or affected.
5.21
Stock Option Plans; Employee
Benefits
.
5.21.1
The
Company does not have a stock option plan providing for the grant by it of stock
options to directors, officers or employees.
5.21.2
Except
as set forth on
Schedule 5.21.2
hereto, the Company does not have any employee benefit plans or arrangements
covering its present and former employees or providing benefits to such persons
in respect of services provided to it.
5.21.3
Neither
the consummation of the transactions contemplated hereby alone, nor in
combination with another event, with respect to each director, officer, employee
and consultant of the Company, will result in (a) any payment (including,
without limitation, severance, unemployment compensation or bonus payments)
becoming due from such companies, (b) any increase in the amount of compensation
or benefits payable to any such individual or (c) any acceleration of the
vesting or timing of payment of compensation payable to any such
individual. No agreement, arrangement or other contract of any of the
Company provides benefits or payments contingent upon, triggered by, or
increased as a result of a change in the ownership or effective control of the
Company.
5.22
Environmental and Safety
Matters
. Except as set forth on
Schedule 5.22
and
except as would not have a Material Adverse Effect:
5.22.1
The
Company has at all times been and is in compliance with all applicable
Environmental Laws (as defined below).
5.22.2
There
are no Actions pending or, to the knowledge of the Company, threatened against
the Company alleging the violation of any Environmental Law (as defined below)
or Environmental Permit applicable to any of the Company or alleging that the
Company is a potentially responsible parties for any environmental damage or
site contamination.
5.22.3
Neither
this Agreement nor the consummation of the transactions contemplated by this
Agreement shall impose any obligations to notify or obtain the consent of any
Governmental Authority or third Persons under any Law or other requirement
relating to the environment, natural resources, or public or employee health and
safety (“
Environmental
Laws
”) applicable to the any of the Company and the Company
Subsidiaries.
5.23
Employees; Labor
Matters
. The Company does not have any collective bargaining arrangements
covering any of its employees.
5.24
Tax Returns and
Payments
. Except as would not have a Material Adverse Effect,
the Company has filed all Tax Returns required pursuant to applicable law to be
filed with any applicable national-, state- and local-level governmental
authority or regulatory body responsible for the imposition of any Tax (domestic
or foreign) (a “
Tax
Authority
”). All such Tax Returns are accurate, complete and
correct in all material respects, and the Company has timely paid all Taxes due,
if any. Except as would not have a Material Adverse Effect, the
Company has withheld or collected from each payment made to each of its
employees, if applicable, the amount of all Taxes (including foreign taxes)
required to be withheld or collected therefrom, and has paid the same to the
proper Tax Authority.
5.25
Disclosure
. This
Agreement, the schedules hereto and any certificate attached hereto or delivered
in accordance with the terms hereof by the Company, the HK Company and the PRC
Companies or the Shareholders in connection with the transactions contemplated
by this Agreement, when taken together, do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements contained herein and/or therein in light of the circumstances under
which they were made not misleading.
5.26
Foreign Corrupt Practices
Act
. Except as would not have a Material Adverse Effect, the
Company, or to the knowledge of the Company, any agent or other person acting on
behalf of the Company has, directly or indirectly, (i) used any funds, or will
use any proceeds from the sale of the Convertible Preferred Shares, for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed to
disclose fully any contribution made by the Company (or made by any Person
acting on their behalf of which the Company is aware) or any members of their
respective management which is in violation of any applicable law, or (iv) has
violated in any material respect any provision of the Foreign Corrupt Practices
Act of 1977, as amended, and the rules and regulations thereunder which was
applicable to the Company.
5.27
OFAC
. None of the
Company nor, to the knowledge of the Company, any director, officer, agent,
employee, affiliate or person acting on behalf of any of the Company, is
currently subject to any U.S. sanctions administered by the Office of Foreign
Assets Control of the U.S. Treasury Department (“
OFAC
”); and the Company will
not directly or indirectly use the proceeds of the sale of the Convertible
Preferred Shares, or lend, contribute or otherwise make available such proceeds
to any subsidiary of the Company, joint venture partner or other Person or
entity, towards any sales or operations in Cuba, Iran, Syria, Sudan, Myanmar or
any other country sanctioned by OFAC or for the purpose of financing the
activities of any Person currently subject to any U.S. sanctions administered by
OFAC.
5.28
Money Laundering
Laws
. To the knowledge of the Company, the operations of the Company have
been conducted at all times in compliance with the money laundering requirements
of all applicable governmental authorities and any related or similar rules,
regulations or guidelines, issued, administered or enforced by any governmental
authority (collectively, the “
Money Laundering Laws
”) and no
action, suit or proceeding by or before any court or governmental authority or
any arbitrator involving any of the Company with respect to the Money
Laundering Laws is pending or, to the best knowledge of the Company,
threatened.
SECTION
VI
REPRESENTATIONS
AND WARRANTIES OF CHARDAN CORP. AND THE
CHARDAN
SHAREHOLDERS
Subject
to the disclosures contained in the relevant Schedules attached hereto, each of
Chardan Corp. and the Chardan Shareholders hereby represent and warrant to the
Company as follows:
6.1
Organization and
Qualification
. Chardan Corp. is duly organized, validly
existing and in good standing under the laws of British Virgin Islands, has all
requisite corporate authority and power, governmental licenses, authorizations,
consents and approvals to carry on its business as presently conducted and to
own, hold and operate its properties and assets as now owned, held and operated
by it. Chardan Corp. is duly qualified, licensed or domesticated as a
foreign corporation in good standing in each jurisdiction wherein the nature of
its activities or its properties owned, held or operated makes such
qualification, licensing or domestication necessary, except where the failure to
be so duly qualified, licensed or domesticated and in good standing would not
have a Material Adverse Effect.
Schedule 6.1
sets
forth a true, correct and complete list of Chardan Corp.’s jurisdiction of
organization and each other jurisdiction in which Chardan Corp. presently
conducts its business or owns, holds and operates its properties and
assets. Chardan Corp. was duly organized as a Nevada corporation on
September 26, 2008 and all such necessary action as required by the laws of both
the state of Nevada and the British Virgin Islands has been taken to validly
continue the company into the British Virgin Islands and no further action is
required is required on the part of Chardan Corp. to perfect such
continuation.
6.2
Subsidiaries
. Chardan
Corp. does not own, directly or indirectly, any equity or other ownership
interest in any corporation, partnership, joint venture or other entity or
enterprise.
6.3
Organizational
Documents
. True, correct and complete copies of the
Organizational Documents of Chardan Corp. have been delivered to the Company
prior to the execution of this Agreement, and no action has been taken to amend
or repeal such Organizational Documents since such date of
delivery. Chardan Corp. is not in violation or breach of any of the
provisions of its Organizational Documents.
6.4
Authorization
. Chardan
Corp. has all requisite authority and power (corporate and other), governmental
licenses, authorizations, consents and approvals to enter into this Agreement
and each of the Transaction Documents to which Chardan Corp. is a party, to
consummate the transactions contemplated by this Agreement and each of the
Transaction Documents to which Chardan Corp. is a party and to perform its
obligations under this Agreement and each of the Transaction Documents to which
Chardan Corp. is a party. The execution, delivery and performance by
Chardan Corp. of this Agreement and each of the Transaction Documents to which
Chardan Corp. is a party have been duly authorized by all necessary corporate
action and do not require from the Chardan Corp. Board any consent or approval
that has not been validly and lawfully obtained. The execution,
delivery and performance by Chardan Corp. of this Agreement and each of the
Transaction Documents to which Chardan Corp. is a party requires no
authorization, consent, approval, license, exemption of or filing or
registration with any Governmental Authority or other Person other than such
other customary filings with the Commission for transactions of the type
contemplated by this Agreement and the Transaction Documents.
6.5
No
Violation
. Neither the execution nor the delivery by Chardan
Corp. of this Agreement or any Transaction Document to which Chardan Corp. is a
party, nor the consummation or performance by Chardan Corp. of the transactions
contemplated hereby or thereby will, directly or indirectly, (a) contravene,
conflict with, or result in a violation of any provision of the Organizational
Documents of Chardan Corp.; (b) contravene, conflict with, constitute a default
(or an event or condition which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination or acceleration of, or
result in the imposition or creation of any Lien under, any agreement or
instrument to which Chardan Corp. is a party or by which the properties or
assets of Chardan Corp. are bound; (c) contravene, conflict with, or result in a
violation of, any Law or Order to which Chardan Corp., or any of the properties
or assets owned or used by Chardan Corp., may be subject; or (d) contravene,
conflict with, or result in a violation of, the terms or requirements of, or
give any Governmental Authority the right to revoke, withdraw, suspend, cancel,
terminate or modify, any licenses, permits, authorizations, approvals,
franchises or other rights held by Chardan Corp. or that otherwise relate to the
business of, or any of the properties or assets owned or used by, Chardan Corp.,
except, in the case of clauses (b), (c), or (d), for any such contraventions,
conflicts, violations, or other occurrences as would not have a Material Adverse
Effect.
6.6
Binding
Obligations
. Assuming this Agreement and the Transaction
Documents have been duly and validly authorized, executed and delivered by the
parties hereto and thereto other than Chardan Corp., this Agreement and each of
the Transaction Documents to which Chardan Corp. is a party are duly authorized,
executed and delivered by Chardan Corp. and constitutes the legal, valid and
binding obligations of Chardan Corp., enforceable against Chardan Corp. in
accordance with their respective terms, except as such enforcement is limited by
general equitable principles, or by bankruptcy, insolvency and other similar
Laws affecting the enforcement of creditors rights generally.
6.7
Capitalization and Related
Matters
.
6.7.1
Capitalization
. The
authorized capital stock of Chardan Corp. consists of 50,000 Ordinary Shares,
par value $0.001 per share, of which 50,000 Ordinary Shares are issued and
outstanding as of the date hereof and no shares of Chardan Corp.’s Class A
Preferred Shares are issued and outstanding. All issued and outstanding shares
of Chardan’s Ordinary Shares immediately prior to Merger are duly authorized,
validly issued, fully paid and nonassessable, and have not been issued in
violation of any preemptive or similar rights. There are no
outstanding options, warrants, purchase agreements, participation agreements,
subscription rights, conversion rights, exchange rights or other securities or
contracts that could require Chardan Corp. to issue, sell or otherwise cause to
become outstanding any of its authorized but unissued shares of capital stock or
any securities convertible into, exchangeable for or carrying a right or option
to purchase shares of capital stock or to create, authorize, issue, sell or
otherwise cause to become outstanding any new class of capital
stock. There are no outstanding shareholders’ agreements, voting
trusts or arrangements, registration rights agreements, rights of first refusal
or other contracts pertaining to the capital stock of Chardan
Corp. The issuance of all of the shares of Chardan’s Ordinary Shares
described in this Section 6.7.1 have been in compliance with U.S. federal and
state securities laws and state corporate laws and no shareholder of Chardan
Corp. has any right to rescind or bring any other claim against Chardan Corp.
for failure to comply under the Securities Act, or state securities
laws.
6.7.2
No Redemption
Requirements
. Other than as contemplated by the Purchase
Agreement related to the Private Placement, there are no outstanding contractual
obligations (contingent or otherwise) of Chardan Corp. to retire, repurchase,
redeem or otherwise acquire any outstanding shares of capital stock of, or other
ownership interests in, Chardan Corp. or to provide funds to or make any
investment (in the form of a loan, capital contribution or otherwise) in any
other Person.
6.8
Compliance with
Laws
. The business and operations of Chardan Corp. have been
and are being conducted in accordance with all applicable Laws and
Orders. Chardan Corp. has not received notice of any violation (or
any Proceeding involving an allegation of any violation) of any applicable Law
or Order by or affecting Chardan Corp. and, to the knowledge of Chardan Corp.,
no Proceeding involving an allegation of violation of any applicable Law or
Order is threatened or contemplated. Chardan Corp. is not subject to
any obligation or restriction of any kind or character, nor is there, to the
knowledge of Chardan Corp., any event or circumstance relating to Chardan Corp.
that materially and adversely affects in any way its business, properties,
assets or prospects or that prohibits Chardan Corp. from entering into this
Agreement or would prevent or make burdensome its performance of or compliance
with all or any part of this Agreement or the consummation of the transactions
contemplated hereby.
6.9
Certain
Proceedings
. There is no pending Proceeding that has been
commenced against Chardan Corp. and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
transactions contemplated by this Agreement. To the knowledge of
Chardan Corp., no such Proceeding has been threatened.
6.10
No Brokers or
Finders
. Except as disclosed in
Schedule 6.10
, no
Person has, or as a result of the transactions contemplated herein will have,
any right or valid claim against Chardan Corp. for any commission, fee or other
compensation as a finder or broker, or in any similar capacity, and after the
Closing, Chardan Shareholders will indemnify and hold Chardan Corp. and the
Company harmless against any liability or expense arising out of, or in
connection with, any such claim.
6.11
Absence of Undisclosed
Liabilities
. Except as set forth on
Schedule 6.11
or in
the SEC Documents, as hereafter defined, Chardan Corp. has no debt, obligation
or liability (whether accrued, absolute, contingent, liquidated or otherwise,
whether due or to become due, whether or not known to Chardan Corp.) arising out
of any transaction entered into at or prior to the Closing Date or any act or
omission at or prior to the Closing Date, except to the extent set forth on or
reserved against on the Chardan Balance Sheet attached hereto as Schedule
6.11. Other than as shown on the balance sheet as of September 30,
2010 and any updates thereto included on
Schedule 6.11
or in
the SEC Documents, any and all debts, obligations or liabilities with respect to
directors and officers of Chardan Corp. and of Chardan Corp. to officers and
directors will be cancelled prior to the Closing. Chardan Corp. has
not incurred any liabilities or obligations under agreements entered into, other
than in the usual and ordinary course of business since September 30,
2010.
6.12
Changes
. Except
as set forth on
Schedule 6.12
or in
the SEC Documents, Chardan Corp. has, conducted its business in the usual and
ordinary course of business consistent with past practice and has
not:
6.12.1
entered
into any transaction other than in the usual and ordinary course of business,
except for the redomestication to the British Virgin Islands to facilitate the
consummation of the transactions contemplated by this Agreement, the Private
Placement and each of the Transaction Documents;
6.12.2
suffered
or experienced any change in, or affecting, its condition (financial or
otherwise), properties, assets, liabilities, business, operations, results of
operations or prospects other than changes, events or conditions in the usual
and ordinary course of its business, none of which would have a Material Adverse
Effect;
6.12.3
made
any loans or advances to any Person other than travel advances and reimbursement
of expenses made to employees, officers and directors in the ordinary course of
business;
6.12.4
created
or permitted to exist any Lien on any material property or asset of Chardan
Corp., other than Permitted Liens;
6.12.5
issued,
sold, disposed of or encumbered, or authorized the issuance, sale, disposition
or encumbrance of, or granted or issued any option to acquire any shares of its
capital stock or any other of its securities or any Equity Security, or altered
the term of any of its outstanding securities or made any change in its
outstanding shares of capital stock or its capitalization, whether by reason of
reclassification, recapitalization, stock split, combination, exchange or
readjustment of shares, stock dividend or otherwise;
6.12.6
declared,
set aside, made or paid any dividend or other distribution to any of its
shareholders;
6.12.7
terminated
or modified any Material Chardan Contract, except for termination upon
expiration in accordance with the terms thereof;
6.12.8
released,
waived or cancelled any claims or rights relating to or affecting Chardan Corp.
in excess of US $10,000 in the aggregate or instituted or settled any Proceeding
involving in excess of US $10,000 in the aggregate;
6.12.9
paid,
discharged or satisfied any claim, obligation or liability in excess of US
$10,000 in the aggregate, except for liabilities incurred prior to the date of
this Agreement in the ordinary course of business;
6.12.10
created,
incurred, assumed or otherwise become liable for any Indebtedness in excess of
US $10,000 in the aggregate, other than professional fees;
6.12.11
guaranteed
or endorsed in a material amount any obligation or net worth of any
Person;
6.12.12
acquired
the capital stock or other securities or any ownership interest in, or
substantially all of the assets of, any other Person;
6.12.13
changed
its method of accounting or the accounting principles or practices utilized in
the preparation of its financial statements, other than as required by GAAP;
or
6.12.14
entered
into any agreement, or otherwise obligated itself, to do any of the
foregoing.
6.13
Material Chardan
Contracts
. Chardan Corp. has provided to the Company, prior to
the date of this Agreement, true, correct and complete copies of each written
Material Chardan Contract, including each amendment, supplement and modification
thereto.
6.13.1
No
Defaults
. Each Material Chardan Contract is a valid and
binding agreement of Chardan Corp. that is party thereto, and is in full force
and effect. Chardan Corp. is not in breach or default of any Material
Chardan Contract to which it is a party and, to the knowledge of Chardan Corp.,
no other party to any Material Chardan Contract is in breach or default
thereof. No event has occurred or circumstance exists that (with or
without notice or lapse of time) would (a) contravene, conflict with or result
in a violation or breach of, or become a default or event of default under, any
provision of any Material Chardan Contract or (b) permit Chardan Corp. or any
other Person the right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate or modify any
Material Chardan Contract. Chardan Corp. has not received notice of
the pending or threatened cancellation, revocation or termination of any
Material Chardan Contract to which it is a party. There are no
renegotiations of, or attempts to renegotiate, or outstanding rights to
renegotiate any material terms of any Material Chardan Contract.
6.14
Employees
.
6.14.1
Except
as set forth on
Schedule 6.14.1
,
Chardan Corp. has no employees, independent contractors or other Persons
providing services to them. Except as would not have a Material
Adverse Effect, Chardan Corp. is in full compliance with all Laws regarding
employment, wages, hours, benefits, equal opportunity, collective bargaining,
the payment of Social Security and other taxes, and occupational safety and
health. Chardan Corp. is not liable for the payment of any
compensation, damages, taxes, fines, penalties or other amounts, however
designated, for failure to comply with any of the foregoing Laws.
6.14.2
No
director, officer or employee of Chardan Corp. is a party to, or is otherwise
bound by, any contract (including any confidentiality, non-competition or
proprietary rights agreement) with any other Person that in any way adversely
affects or will materially affect (a) the performance of his or her duties as a
director, officer or employee of Chardan Corp. or (b) the ability of Chardan
Corp. to conduct its business. Except as set forth on
Schedule 6.14.2
, each
employee of Chardan Corp. is employed on an at-will basis and Chardan Corp. does
not have any contract with any of its employees which would interfere with its
ability to discharge its employees.
6.15
Tax Returns and
Audits
.
6.15.1
Tax
Returns
. Chardan Corp. has filed all material Tax Returns
required to be filed (if any) by or on behalf of Chardan Corp. as of the Closing
Date and has paid all material Taxes of Chardan Corp. required to have been paid
on or prior to the Closing Date (whether or not reflected on any Tax
Return). All such Tax Returns are accurate, complete and correct in
all material respects. Chardan Corp. has duly withheld and paid all Taxes
required to have been withheld and paid by Chardan Corp. on or prior to the
Closing Date. No Governmental Authority in any jurisdiction has made a claim,
assertion or threat to Chardan Corp. that Chardan Corp. is or may be subject to
taxation by such jurisdiction; there are no Liens with respect to Taxes on
Chardan Corp.’s property or assets other than Permitted Liens; and there are no
Tax rulings, requests for rulings, or closing agreements relating to Chardan
Corp. for any period (or portion of a period) that would affect any period after
the date hereof. Notwithstanding the foregoing, Chardan Corp.
represents that as of the Closing Date, it will be treated as a domestic
corporation for U.S. federal income tax purposes, and it expects to be required
to file a final U.S. federal income Tax Return (and applicable state and local
Tax Returns)covering the period from January 1, 2010 through and including the
Closing Date (the “
Final Tax
Returns
”).
6.15.2
No Adjustments,
Changes
. Neither Chardan Corp. nor any other Person on behalf
of Chardan Corp. (a) has executed or entered into a closing agreement pursuant
to Section 7121 of the Code or any predecessor provision thereof or any similar
provision of state, local or foreign law; or (b) has agreed to or is required to
make any adjustments pursuant to Section 481(a) of the Code or any similar
provision of state, local or foreign law.
6.15.3
No
Disputes
. There is no pending audit, examination,
investigation, dispute, proceeding or claim with respect to any Taxes of Chardan
Corp., nor is any such claim or dispute pending or
contemplated. Chardan Corp. has delivered to the Company true,
correct and complete copies of all Tax Returns and examination reports and
statements of deficiencies assessed or asserted against or agreed to by Chardan
Corp., if any, since its inception and any and all correspondence with respect
to the foregoing.
6.15.4
Not a U.S. Real Property
Holding Corporation
. Chardan Corp. is not and has not been a
United States real property holding corporation within the meaning of Section
897(c)(2) of the Code at any time during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code.
6.15.5
No Tax Allocation,
Sharing
. Chardan Corp. is not and has not been a party to any
Tax allocation or sharing agreement and is not liable for the Taxes of any other
Person, including as a member of a Tax Group, by contract or
otherwise.
6.15.6
No Other
Arrangements
. Chardan Corp. is not a party to any agreement,
contract or arrangement for services that would result, individually or in the
aggregate, in the payment of any amount that would not be deductible by reason
of Section 162(m), 280G or 404 of the Code. Chardan Corp. is not a
“consenting corporation” within the meaning of Section 341(f) of the
Code. Chardan Corp. does not have any “tax-exempt bond financed
property” or “tax-exempt use property” within the meaning of Section 168(g) or
(h), respectively of the Code. Chardan Corp. does not have any
outstanding closing agreement, ruling request, request for consent to change a
method of accounting, subpoena or request for information to or from a
Governmental Authority in connection with any Tax matter. During the
last two years, Chardan Corp. has not engaged in any exchange with a related
party (within the meaning of Section 1031(f) of the Code) under which gain
realized was not recognized by reason of Section 1031 of the
Code. Chardan Corp. is not a party to any reportable transaction
within the meaning of Treasury Regulation Section 1.6011-4.
6.16
Material
Assets
. The financial statements of Chardan Corp. set forth in
the SEC Documents reflect the material properties and assets (real and personal)
owned or leased by Chardan Corp.
6.17
Litigation;
Orders
. There is no Proceeding (whether federal, state, local
or foreign) pending or, to the knowledge of Chardan Corp., threatened against or
affecting Chardan Corp. or any of Chardan Corp.’s properties, assets, business
or employees. To the knowledge of Chardan Corp., there is no fact
that might result in or form the basis for any such
Proceeding. Chardan Corp. is not subject to any Orders.
6.18
Licenses
. Chardan
Corp. possesses from the appropriate Governmental Authority all licenses,
permits, authorizations, approvals, franchises and rights that are necessary for
Chardan Corp. to engage in its business as currently conducted and to permit
Chardan Corp. to own and use its properties and assets in the manner in which it
currently owns and uses such properties and assets (collectively, “
Chardan
Permits
”). Chardan Corp. has not received notice from any
Governmental Authority or other Person that there is lacking any license,
permit, authorization, approval, franchise or right necessary for Chardan Corp.
to engage in its business as currently conducted and to permit Chardan Corp. to
own and use its properties and assets in the manner in which it currently owns
and uses such properties and assets. Chardan Permits are valid and in
full force and effect. No event has occurred or circumstance exists
that may (with or without notice or lapse of time): (a) constitute or
result, directly or indirectly, in a violation of or a failure to comply with
any Chardan Permit; or (b) result, directly or indirectly, in the revocation,
withdrawal, suspension, cancellation or termination of, or any modification to,
any Chardan Permit. Chardan Corp. has not received notice from any
Governmental Authority or any other Person regarding: (a) any actual,
alleged, possible or potential contravention of any Chardan Permit; or (b) any
actual, proposed, possible or potential revocation, withdrawal, suspension,
cancellation, termination of, or modification to, any Chardan
Permit. All applications required to have been filed for the renewal
of such Chardan Permits have been duly filed on a timely basis with the
appropriate Persons, and all other filings required to have been made with
respect to such Chardan Permits have been duly made on a timely basis with the
appropriate Persons. All Chardan Permits are renewable by their terms
or in the ordinary course of business without the need to comply with any
special qualification procedures or to pay any amounts other than routine fees
or similar charges, all of which have, to the extent due, been duly
paid.
6.19
Interested Party
Transactions
. Except as set forth on Schedule 6.19 or the SEC
Documents, no officer, director or shareholder of Chardan Corp. or any Affiliate
or “associate” (as such term is defined in Rule 405 of the Commission under the
Securities Act) of any such Person, has or has had, either directly or
indirectly, (1) an interest in any Person which (a) furnishes or sells services
or products which are furnished or sold or are proposed to be furnished or sold
by Chardan Corp., or (b) purchases from or sells or furnishes to, or proposes to
purchase from, sell to or furnish Chardan Corp. any goods or services; or (2) a
beneficial interest in any contract or agreement to which Chardan Corp. is a
party or by which it may be bound or affected.
6.20
Governmental
Inquiries
. Chardan Corp. has provided to the Company a copy of
each material written inspection report, questionnaire, inquiry, demand or
request for information received by Chardan Corp. from any Governmental
Authority, and Chardan Corp.’s response thereto, and each material written
statement, report or other document filed by Chardan Corp. with any Governmental
Authority.
6.21
Bank Accounts and Safe
Deposit Boxes
. Except as set forth on
Schedule 6.21
,
Chardan Corp. does not have any bank or other deposit or financial account, nor
does Chardan Corp. have any lock boxes or safety deposit boxes.
6.22
Intellectual
Property
. Chardan Corp. does not own, use or license any
Intellectual Property in its business as presently conducted.
6.23
Title to
Properties
. Chardan Corp. owns (with good and marketable title
in the case of real property) or holds under valid leases the rights to use all
real property, plants, machinery, equipment and other personal property
necessary for the conduct of its business as presently conducted, free and clear
of all Liens, except Permitted Liens.
6
.24
SEC Documents; Financial
Statements
. Except as set forth on Schedule 6.24, Chardan
Corp. has filed all reports required to be filed by it under the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the three (3) years
preceding the date hereof (or such shorter period as Chardan Corp. was required
by law to file such material) (the foregoing materials being collectively
referred to herein as the “
SEC
Documents
”). As of their respective dates, the SEC Documents
and any registration statements filed under the Securities Act (the “
Registration Statements
”)
complied in all material respects with the requirements of the Exchange Act and
the Securities Act, as applicable, and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Documents or Registration
Statements, when filed, or corrected by a subsequent filing, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading. All Material Chardan Contracts to which Chardan Corp. is
a party or to which the property or assets of Chardan Corp. are subject have
been appropriately filed as exhibits to the SEC Documents and the Registration
Statements as and to the extent required under the Exchange Act and the
Securities Act, as applicable. The financial statements of Chardan
Corp. included in the Registration Statement and the SEC Documents comply in all
material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of
filing, were prepared in accordance with GAAP applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto,
or, in the case of unaudited statements as permitted by Form 10-Q of the
Commission), and fairly present in all material respects (subject in the case of
unaudited statements, to normal, recurring audit adjustments) the financial
position of Chardan Corp. as at the dates thereof and the results of its
operations and cash flows for the periods then ended. The disclosure set forth
in the SEC Documents and Registration Statements regarding Chardan Corp.’s
business is current and complete and accurately reflects operations of Chardan
Corp. as it exists as of the date hereof.
6.25
Stock Option Plans; Employee
Benefits
.
6.25.1
Chardan
Corp. has no stock option plans providing for the grant by Chardan Corp. of
stock options to directors, officers or employees.
6.25.2
Chardan
Corp. has no employee benefit plans or arrangements covering their present and
former employees or providing benefits to such persons in respect of services
provided Chardan Corp.
6.25.3
Neither
the consummation of the transactions contemplated hereby alone, nor in
combination with another event, with respect to each director, officer, employee
and consultant of Chardan Corp., will result in (a) any payment (including,
without limitation, severance, unemployment compensation or bonus payments)
becoming due from Chardan Corp., (b) any increase in the amount of compensation
or benefits payable to any such individual or (c) any acceleration of the
vesting or timing of payment of compensation payable to any such
individual. No agreement, arrangement or other contract of Chardan
Corp. provides benefits or payments contingent upon, triggered by, or increased
as a result of a change in the ownership or effective control of Chardan
Corp.
6.26
Money Laundering
Laws
. The operations of Chardan Corp. is and has been
conducted at all times in compliance with applicable financial recordkeeping and
reporting requirements of the Currency and Foreign Transactions Reporting Act of
1970, as amended, the money laundering statutes of all U.S. and non-U.S.
jurisdictions, the rules and regulations thereunder and any related or similar
rules, regulations or guidelines, issued, administered or enforced by any
Governmental Authority (collectively, the “
Money Laundering Laws
”) and no
Proceeding involving Chardan Corp. with respect to the Money Laundering Laws is
pending or, to the knowledge of Chardan Corp., threatened.
6.27
Board
Recommendation
. Chardan Corp.’s Board, by unanimous written
consent, has determined that this Agreement and the transactions contemplated by
this Agreement are advisable and in the best interests of Chardan Corp.’s
shareholders and has duly authorized this Agreement and the transactions
contemplated by this Agreement.
6.
28
No Material Adverse
Effect
. Since September 30, 2010, Chardan Corp. has not
suffered a Material Adverse Effect.
6.29
Foreign Corrupt Practices
Act
. Neither Chardan Corp., nor to the knowledge of Chardan
Corp., any agent or other person acting on behalf of Chardan Corp., has,
directly or indirectly, (i) used any funds, or will use any proceeds from the
sale of the Convertible Preferred Shares, for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by Chardan Corp. (or made by any Person acting on their behalf
of which Chardan Corp. is aware) or any members of management which is in
violation of any applicable law, or (iv) has violated in any material respect
any provision of the Foreign Corrupt Practices Act of 1977, as amended, and the
rules and regulations thereunder which was applicable to Chardan
Corp.
6.30
Due
Diligence
. Chardan Corp. has had the opportunity to perform
all due diligence investigations of the Company, its Subsidiaries and its
business that Chardan Corp. has deemed necessary or appropriate and to ask all
questions of the officers and directors of the Company that Chardan Corp. wished
to ask. Chardan Corp. has reviewed sufficient information to allow it
to make the satisfactory evaluation on the merits and risks of the transactions
contemplated by this Agreement.
SECTION
VII
COVENANTS
AND AGREEMENTS OF THE PARTIES
7.1
SEC
Documents
. From and after the Closing Date, in the event the
Commission notifies the Company of its intent to review any SEC Document filed
prior to the Closing Date or the Company receives any oral or written comments
from the Commission with respect to any SEC Document filed prior to the Closing
Date or any disclosure regarding the Company’s business or operations, as in
existence through the date hereof in any SEC Document or registration statement
filed after the Closing Date, the Company shall promptly notify Chardan
Shareholders and Chardan Shareholders shall fully cooperate with the Company in
connection with such review and response.
7.2
Other
Actions
.
7.2.1
Prior
to Closing, the Company shall have prepared and delivered to Chardan Corp. the
Shell Company Report on Form 20-F announcing the Closing, which shall include
all information required by such form, any other information required in
connection with Chardan Corp. ceasing to be a shell company as a result of the
Merger, the U.S. GAAP Financial Statements and the Pro Forma Financial
Statements (as defined below) (“
Transaction Form 20-F
”) in a
format acceptable for EDGAR filing. Prior to Closing, the Company
shall prepare the press release announcing the consummation of the Merger
hereunder (“
Press
Release
”). The Company shall file the Transaction Form 20-F
with the SEC within the legally required time period and shall concurrently
distribute the Press Release.
7.2.2
Prior
to the Closing, the Company shall have delivered to Chardan Corp. pro forma
consolidated financial statements for the Company, and pro forma consolidated
financial statements for the Company and Chardan Corp. giving effect to the
Merger, for such periods as required by the SEC to be included in a Form 20-F or
any other report or form required to be filed with the SEC at or after Closing
with respect to the Merger, all prepared in all material respects with the
published rules and regulations of the SEC and in accordance with U.S. GAAP
applied on a consistent basis throughout the periods involved (the
“
Pro Forma Financial
Statements
”). The Pro Forma Financial Statements shall have
been reviewed by the Company’s independent accountants and shall be in a format
acceptable for inclusion in the Transaction Form 20-F.
7.3
Post-Closing SEC Reports and
Inquiries.
Chardan Corp. has engaged the firm of Anslow &
Jaclin to coordinate the filing of its Transition Report under the Exchange Act
(the “
Transition
Report
”) for the period October 1, 2009 to January 31, 2010 (“
Transition Period
”) in
connection with Chardan Corp.’s change in fiscal year end to January 31 and in
connection with the filing of its quarterly report on Form 10-Q for the quarter
ended June 30, 2010 (“
Chardan
10-Q
”) and has engaged the firm of Webb & Company, P.A., to audit the
Transition Period in connection with the preparation of the Transition Report
and to review the Chardan 10-Q. Upon the request of the Company,
after the Closing Date, the Chardan Shareholders shall provide such information
that is requested by the Company, including information, filings, reports,
financial statements or other circumstances of Chardan Corp. occurring, reported
or filed prior to the Closing, as may be necessary or required by the Company
for the preparation of the post-Closing Date reports that the Company is
required to file with the Commission to remain in compliance and current with
its reporting requirements under the Exchange Act, including the Transition
Report if the Transition Report has not been filed prior to the Closing Date, or
filings required to address and resolve matters as may relate to the period
prior to the Closing and any Commission comments relating thereto or any
Commission inquiry thereof.
7.4
Transfers
. Except
for the shares listed in Schedule I and as contemplated by the Transaction
Documents, none of Chardan Shareholders or the Shareholders will sell, transfer,
assign, hypothecate, lien, or otherwise dispose or encumber the shares owned by
them.
SECTION
VIII
CONDITIONS
TO OBLIGATION OF EACH PARTY TO EFFECT THE MERGER
8.1
The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following
conditions:
8.1.1
No Injunctions or
Restraints; Illegality
. No temporary restraining order,
preliminary or permanent injunction or other order (whether temporary,
preliminary or permanent) issued by any court of competent jurisdiction or other
legal restraint or prohibition shall be in effect which prevents the
consummation of the Merger on the terms, and conferring upon the Company all of
the rights and benefits, as contemplated herein, nor shall any proceeding
brought by any governmental authority seeking any of the foregoing be pending,
and there shall not be any action taken, or any law or order enacted, entered,
enforced or deemed applicable to the Merger, which makes the consummation of the
Merger on the terms, and conferring upon the Company all of the rights and
benefits, as contemplated herein illegal.
8.1.2
Readiness of the Transaction
Form 20-F
. A draft of the Transaction Form 20-F will have been
circulated to each party and in a format acceptable for EDGAR filing with the
SEC prior to the Closing.
SECTION
IX
CONDITIONS
PRECEDENT OF CHARDAN CORP.
The
obligations of Chardan Corp. to consummate and effect the Merger shall be
subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
Chardan Corp., in whole or in part:
9.1
Accuracy of Representations
and Warranties
. The representations and warranties of the
Company and the Shareholders set forth in this Agreement or in any Schedule or
certificate delivered pursuant hereto that are not qualified as to materiality
shall be true and correct in all material respects as of the date of this
Agreement and on and as of the Closing Date, except to the extent a
representation or warranty is expressly limited by its terms to another date and
without giving effect to any supplemental Schedule. The
representations and warranties of the Company and the Shareholders set forth in
this Agreement or in any Schedule or certificate delivered pursuant hereto that
are qualified as to materiality shall be true and correct in all respects as of
the date of this Agreement and on and as of the Closing Date, except to the
extent a representation or warranty is expressly limited by its terms to another
date and without giving effect to any supplemental Schedule.
9.2
No Force Majeure
Event
. There shall not have been any delay, error, failure or
interruption in the conduct of the business of the Company, or any loss, injury,
delay, damage, distress, or other casualty, due to force majeure including but
not limited to (a) acts of God; (b) fire or explosion; (c) war, acts of
terrorism or other civil unrest; or (d) national emergency.
9.3
Consents
. All
material consents, waivers, approvals, authorizations or orders required to be
obtained, and all filings required to be made, by the Company and/or the
Shareholders for the authorization, execution and delivery of this Agreement and
the consummation by them of the transactions contemplated by this Agreement,
shall have been obtained and made by the Company or the Shareholders, as the
case may be, except where the failure to receive such consents, waivers,
approvals, authorizations or orders or to make such filings would not have a
Material Adverse Effect on the Company.
9.4
Certificate of
Officer
. The Company will have delivered to Chardan Corp. a
certificate executed by an officer of the Company, certifying the satisfaction
of the conditions specified in Sections 9.1 relating to the
Company.
9.5
Certificate of
Shareholders
. Each Shareholder will have delivered to Chardan
Corp. a certificate executed by such Shareholder, if a natural person, or an
authorized officer of the Shareholder, if an entity, certifying the satisfaction
of the conditions specified in Section 9.1 relating to such
Shareholder.
9.6
Private
Placement
. The definitive documentation with respect to the
Private Placement and the financing contemplated thereby shall have been
finalized for execution by the parties thereto immediately following
consummation of the Merger.
9.7
Documents
. The
Company and the Shareholders must deliver to Chardan Corp. at the
Closing:
9.7.1
a
Secretary’s Certificate, dated the Closing Date certifying attached copies of
(A) the Organizational Documents of the Company, (B) the resolutions of the
Company Board approving this Agreement and the transactions contemplated hereby;
and (C) the incumbency of each authorized officer of the Company signing this
Agreement and any other agreement or instrument contemplated hereby to which the
Company is a party;
9.7.2
a
Certificate of Good Standing of the Company that is dated within five (5)
business days of the Closing;
9.7.3
each
of the Transaction Documents to which the Company and/or the Shareholders is a
party, duly executed; and
9.7.4
the
following legal opinions: (i) the opinion of Maples &
Calder, BVI counsel to the Company, in substantially the form of
Exhibit D-1
attached
hereto; (ii) the opinion of DaCheng, PRC counsel to the Company, in
substantially the form of
Exhibit D-2
attached
hereto; and (iii) the opinion of Loeb & Loeb LLP, US counsel to the Company,
in substantially the form of
Exhibit
D-3.
9.8
No
Proceedings
. There must not have been commenced or threatened
against Chardan Corp., the Company or any Shareholder any Proceeding (which
Proceeding remains unresolved as of the Closing Date) (a) involving any
challenge to, or seeking damages or other relief in connection with, any of the
transactions contemplated by this Agreement, or (b) that may have the effect of
preventing, delaying, making illegal, or otherwise interfering with any of the
transactions contemplated by this Agreement.
9.9
No Claim Regarding Stock
Ownership or Consideration
. There must not have been made or
threatened by any Person, any claim asserting that such Person (a) is the holder
of, or has the right to acquire or to obtain beneficial ownership of the Company
Shares or any other stock, voting, equity, or ownership interest in, the
Company, or (b) is entitled to all or any portion of the Chardan Ordinary
Shares.
SECTION
X
CONDITIONS
PRECEDENT OF THE COMPANY
AND
THE SHAREHOLDERS
The
obligations of the Company to consummate and effect the Merger shall be subject
to the satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by the Company,
in whole or in part:
10.1
Accuracy of Representations
and Warranties
. The representations and warranties of Chardan
Corp. and Chardan Shareholders set forth in this Agreement or in any Schedule or
certificate delivered pursuant hereto that are not qualified as to materiality
shall be true and correct in all material respects as of the date of this
Agreement and on and as of the Closing Date, except to the extent a
representation or warranty is expressly limited by its terms to another date and
without giving effect to any supplemental Schedule. The
representations and warranties of Chardan Corp. and Chardan Shareholders set
forth in this Agreement or in any Schedule or certificate delivered pursuant
hereto that are qualified as to materiality shall be true and correct in all
respects as of the date of this Agreement and on and as of the Closing Date,
except to the extent a representation or warranty is expressly limited by its
terms to another date and without giving effect to any supplemental
Schedule.
10.2
No Force Majeure
Event
. There shall not have been any delay, error, failure or
interruption in the conduct of the business of Chardan Corp., or any loss,
injury, delay, damage, distress, or other casualty, due to force majeure
including but not limited to (a) acts of God; (b) fire or explosion; (c) war,
acts of terrorism or other civil unrest; or (d) national emergency.
10.3
Consents
.
10.3.1
All
material consents, waivers, approvals, authorizations or orders required to be
obtained, and all filings required to be made, by Chardan Corp. for the
authorization, execution and delivery of this Agreement and the consummation by
it of the transactions contemplated by this Agreement, shall have been obtained
and made by Chardan Corp., except where the failure to receive such consents,
waivers, approvals, authorizations or orders or to make such filings would not
have a Material Adverse Effect on the Company or Chardan Corp.
10.4
Certificate of
Officer
. Chardan Corp. will have delivered to the Company a
certificate, dated the Closing Date, executed by an officer of Chardan Corp.,
certifying the satisfaction of the conditions specified in Sections 10.1
relating to Chardan Corp.
10.5
Certificate of Chardan
Shareholders
. Chardan Shareholders will have delivered to the
Company a certificate, dated the Closing Date, executed by such Chardan
Shareholders, certifying the satisfaction of the conditions specified in Section
10.1 relating to Chardan Shareholders and a duly executed IRS Form W-9 or W-8,
as applicable..
10.6
Documents
. Chardan
Corp. must have caused the following documents to be delivered to the Company
and/or the Shareholders:
10.6.1
a
Secretary’s Certificate, dated the Closing Date certifying attached copies of
(A) the Organizational Documents of Chardan Corp., (B) the resolutions of
Chardan Corp.’s Board approving this Agreement and the transactions contemplated
hereby; and (C) the incumbency of each authorized officer of Chardan Corp.
signing this Agreement and any other agreement or instrument contemplated hereby
to which Chardan Corp. is a party;
10.6.2
a
Certificate of Good Standing of Chardan Corp. that is dated within five (5)
business days of the Closing;
10.6.3
each
of the Transaction Documents to which Chardan Corp. is a party, duly
executed;
10.6.4
the
following legal opinions: (i) the opinion of Forbes Hare, BVI counsel
to Chardan Corp., substantially in the form of
Exhibit E-1
and (ii)
the opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, PC, US counsel to
Chardan Corp., substantially in the form attached as
Exhibit
E-2
;
10.6.5
such
other documents as the Company may reasonably request for the purpose of (i)
evidencing the accuracy of any representation or warranty of Chardan Corp.
pursuant to Section 10.1, (ii) evidencing the performance by Chardan Corp. of,
or the compliance by Chardan Corp. with, any covenant or obligation required to
be performed or complied with by Chardan Corp., (iii) evidencing the
satisfaction of any condition referred to in this Section 10, or (iv) otherwise
facilitating the consummation of any of the transactions contemplated by this
Agreement.
10.7
No
Proceedings
. Since the date of this Agreement, there must not
have been commenced or threatened against Chardan Corp., the Company or any
Shareholder, or against any Affiliate thereof, any Proceeding (which Proceeding
remains unresolved as of the date of this Agreement) (a) involving any challenge
to, or seeking damages or other relief in connection with, any of the
transactions contemplated hereby, or (b) that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with any of the transactions
contemplated hereby.
10.8
No Claim Regarding Stock
Ownership or Consideration
. There must not have been made or
threatened by any Person, other than persons listed on Schedule I hereto any
claim asserting that such Person (a) is the holder of, or has the right to
acquire or to obtain beneficial ownership of Company Ordinary Shares or any
other stock, voting, equity, or ownership interest in, the Company, or (b) is
entitled to all or any portion of Chardan Ordinary Shares.
10.9
Expenses
. Chardan
Corp. will have paid in full all of its expenses and fees incurred in connection
with the transactions related to this Agreement, including but not limited to
attorneys’ fees, auditors fees, government fees and any other cost or expense
incurred prior to the Closing Date or related to the post-closing SEC reports
and inquiries referenced in Section 7.3 hereof (collectively, the “
Chardan Corp.
Expenses
”).
SECTION
XI
INDEMNIFICATION;
REMEDIES
11.1
Survival
. All
representations, warranties, covenants, and obligations made by Chardan Corp. or
Chardan Shareholders in this Agreement, and in any certificate or other
agreements delivered by Chardan Corp. or the Chardan Shareholders pursuant to
this Agreement shall survive for such period of time as the representations,
warranties and covenants made by the Company to the Purchasers in the Purchase
Agreement shall survive, except that any representations, warranties covenants
and obligations with respect to Taxes shall expire sixty (60) days after the
expiration of the applicable statute of limitations period (the “
Survival
Period
”). The right to indemnification, payment of damages or
other remedy based on such representations, warranties, covenants, and
obligations will not be affected by any investigation conducted with respect to,
or any knowledge acquired (or capable of being acquired) at any time, whether
before or after the execution and delivery of this Agreement, with respect to
the accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant, or obligation. The waiver of any condition based
on the accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the right to
indemnification, payment of damages, or other remedy based on such
representations, warranties, covenants, and obligations.
11.2
Indemnification in favor of
the Company and the Shareholders
. From and after the Closing
Date until the expiration of the Survival Period, Chardan Shareholders will
severally indemnify and hold harmless the Company and the Shareholders, and
their respective officers, directors, agents, attorneys and employees, and each
person, if any, who controls or may “control” (within the meaning of the
Securities Act) any of the forgoing persons or entities (hereinafter referred to
individually as a “
Company
Indemnified Person
”) from and against any and all Damages arising out of
any (i) any breach of representation or warranty made by Chardan Corp. or
Chardan Shareholders in this Agreement, and in any certificate delivered by
Chardan Corp. or Chardan Shareholders pursuant to this Agreement, (ii) any
breach by Chardan Corp. or Chardan Shareholders of any covenant, obligation or
other agreement made by Chardan Corp. or Chardan Shareholders in this Agreement,
(iii) any third-party claim based on any acts or omissions by Chardan Corp. or
Chardan Shareholders from the date hereof through and including the Closing Date
and (iv) any breach of the obligations of disclosing true, correct and entire
information pursuant to the term of this Agreement. Notwithstanding
anything to the contrary contained herein, Chardan Shareholders’ total
indemnification obligations under this Section 11.2 shall be limited to and
shall not under any circumstances exceed the lesser of (A) $2,500,000 or (B) the
amount actually realized, net of taxes, by Chardan Shareholders from the sale of
the Company Shares.
11.3
Tax
Indemnification
. Notwithstanding anything to the contrary
contained herein, the Chardan Shareholders shall be responsible at their sole
cost and expense for the preparation and timely filing of the Final Tax Returns,
and for timely paying any Tax shown as due on the Final Tax Returns; provided
that the Company and its accountants shall be given a reasonable opportunity to
review and comment on such Tax Returns prior to the filing thereof and shall be
given copies of such Tax Returns promptly after the filing thereof, and the
Company and the Chardan Shareholders shall cooperate with each other in the
preparation of such Tax Returns and in any Tax proceedings relating
thereto. The Chardan Shareholders shall also indemnify and hold
harmless each Company Indemnified Person from and against any and all Damages
arising from any Taxes of Chardan Corp. attributable to any taxable period (or
portion thereof) ended or ending on or prior to the Closing Date. In
the event that the Company receives a notice of any Tax examinations, claims,
adjustments or other proceedings that affect any of the Tax liabilities of
Chardan Corp. for any such tax periods, the Company shall provide a copy of such
notice to the Chardan Shareholders within five business days of the receipt of
such notice, and the Chardan Shareholders shall be entitled at their sole cost
and expense to handle, control and compromise or settle all such proceedings for
Taxes for which it is required to indemnify a Company Indemnified Person
pursuant to this Section 11.3; provided that the Chardan Shareholders shall be
responsible for paying, and shall indemnify and hold harmless each Company
Indemnified Person for, any and all Taxes or other Damages arising out of or
resulting from any such Tax proceedings.
SECTION
XII
GENERAL
PROVISIONS
12.1
Expenses
. Except
as otherwise expressly provided in this Agreement, each party to this Agreement
will bear its respective expenses incurred in connection with the preparation,
execution, and performance of this Agreement and the transactions contemplated
by this Agreement, including all fees and expenses of agents, representatives,
counsel, and accountants. In the event of termination of this Agreement, the
obligation of each party to pay its own expenses will be subject to any rights
of such party arising from a breach of this Agreement by another
party. For purposes of clarification, Chardan Corp. acknowledges that
the Company will not assume the payment of any of the Chardan Corp. Expenses,
which payment shall be the sole obligation of Chardan Corp. prior to the Merger
and the Chardan Shareholders, after the Merger as set forth in Section 10.9
hereof.
12.2
Confidentiality
.
12.2.1
Subject
to Section 12.2.2 below, Chardan Corp., Chardan Shareholders, the Shareholders
and the Company will maintain in confidence, and will cause their respective
directors, officers, employees, agents, and advisors to maintain in confidence,
any written, oral, or other information obtained in confidence from another
party in connection with this Agreement or the transactions contemplated by this
Agreement, unless (a) such information is already known to such party or to
others not bound by a duty of confidentiality or such information becomes
publicly available through no fault of such party, (b) the use of such
information is necessary or appropriate in making any required filing with the
Commission, or obtaining any consent or approval required for the consummation
of the transactions contemplated by this Agreement, or (c) the furnishing or use
of such information is required by or necessary or appropriate in connection
with legal proceedings.
12.2.2
In
the event that any party is required to disclose any information of another
party pursuant to clause (b) or (c) of Section 12.2.1, the party requested or
required to make the disclosure (the “
disclosing party
”) shall
provide the party that provided such information (the “
providing party
”) with prompt
notice of any such requirement so that the providing party may seek a protective
order or other appropriate remedy and/or waive compliance with the provisions of
this Section 12.2. If, in the absence of a protective order or other
remedy or the receipt of a waiver by the providing party, the disclosing party
is nonetheless, in the opinion of counsel, legally compelled to disclose the
information of the providing party, the disclosing party may, without liability
hereunder, disclose only that portion of the providing party’s information which
such counsel advises is legally required to be disclosed, provided that the
disclosing party exercises its reasonable efforts to preserve the
confidentiality of the providing party’s information, including, without
limitation, by cooperating with the providing party to obtain an appropriate
protective order or other relief assurance that confidential treatment will be
accorded the providing party’s information.
12.3
Notices
. All
notices, demands, consents, requests, instructions and other communications to
be given or delivered or permitted under or by reason of the provisions of this
Agreement or in connection with the transactions contemplated hereby shall be in
writing and shall be deemed to be delivered and received by the intended
recipient as follows: (i) if personally delivered, on the business day of such
delivery (as evidenced by the receipt of the personal delivery service), (ii) if
mailed certified or registered mail return receipt requested, upon the business
day of delivery (as evidenced by a receipt signed by the receiving party), (iii)
if delivered by overnight courier (with all charges having been prepaid), on the
business day of such delivery (as evidenced by the receipt of the overnight
courier service of recognized standing), or (iv) if delivered by facsimile
transmission, on the business day of such delivery if sent by 6:00 p.m. in the
time zone of the recipient, or if sent after that time, on the next succeeding
business day (as evidenced by the printed confirmation of delivery generated by
the sending party’s telecopier machine). If any notice, demand,
consent, request, instruction or other communication cannot be delivered because
of a changed address of which no notice was given (in accordance with this
Section 12.4), or the refusal to accept same, the notice, demand, consent,
request, instruction or other communication shall be deemed received on the
second business day the notice is sent (as evidenced by a sworn affidavit of the
sender). All such notices, demands, consents, requests, instructions
and other communications will be sent to the following addresses or facsimile
numbers as applicable.
If
to Chardan Corp.:
|
with
a copy, which shall not constitute notice,
to:
|
Chardan
Acquisition Corp.
|
|
c/o
Codan Trust Company
Romasco
Place
|
Mintz,
Levin, Cohn, Ferris, Glovsky and
Popeo,
PC
|
Wickhams
Cay 1
|
666
Third Avenue
|
P.O.
3140
|
New
York, New York 10017
|
Road
Town
|
Attention: Kenneth
R. Koch, Esq.
|
Tortola,
British Virgin Islands VG1110
|
Telephone
No.: (212) 935-3000
|
|
Facsimile
No.: (212) 983-3115
|
If
to the Company:
|
with
a copy, which shall not constitute notice,
to:
|
CHINA
DREDGING GROUP CO.,
LTD.
|
|
Floor
18, Tower A, Zhongshan
|
|
No.
154, Hudong Road, Gulou District,
|
New
York, NY 10154
Attention: Mitchell
S. Nussbaum, Esq.
|
Fuzhou
City, Fujian Province, PRC
|
Telephone
No.: (212) 407-4159
|
|
Facsimile
No.: (212) 407-4990
|
12.4
Arbitration
. Any
dispute or controversy under this Agreement shall be settled exclusively by
arbitration in the City of New York, County of New York in accordance with the
rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitration award in any court
having jurisdiction.
12.5
Further
Assurances
. The parties agree (a) to furnish upon request to
each other such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
12.6
Waiver
. The
rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by any party in
exercising any right, power, or privilege under this Agreement or the documents
referred to in this Agreement will operate as a waiver of such right, power, or
privilege, and no single or partial exercise of any such right, power, or
privilege will preclude any other or further exercise of such right, power, or
privilege or the exercise of any other right, power, or privilege. To
the maximum extent permitted by applicable law, (a) no claim or right arising
out of this Agreement or the documents referred to in this Agreement can be
discharged by one party, in whole or in part, by a waiver or renunciation of the
claim or right unless in writing signed by the other party; (b) no waiver that
may be given by a party will be applicable except in the specific instance for
which it is given; and (c) no notice to or demand on one party will be deemed to
be a waiver of any obligation of such party or of the right of the party giving
such notice or demand to take further action without notice or demand as
provided in this Agreement or the documents referred to in this
Agreement.
12.7
Entire Agreement and
Modification
. This Agreement supersedes all prior agreements
between the parties with respect to its subject matter and constitutes (along
with the documents referred to in this Agreement) a complete and exclusive
statement of the terms of the agreement between the parties with respect to its
subject matter. This Agreement may not be amended except by a written
agreement executed by the party against whom the enforcement of such amendment
is sought.
12.8
Assignments, Successors, and
No Third-Party Rights
. No party may assign any of its rights
under this Agreement without the prior consent of the other
parties. Subject to the preceding sentence, this Agreement will apply
to, be binding in all respects upon, and inure to the benefit of and be
enforceable by the respective successors and permitted assigns of the
parties. Except as set forth in Section 11.3 hereof, nothing
expressed or referred to in this Agreement will be construed to give any Person
other than the parties to this Agreement any legal or equitable right, remedy,
or claim under or with respect to this Agreement or any provision of this
Agreement. This Agreement and all of its provisions and conditions
are for the sole and exclusive benefit of the parties to this Agreement and
their successors and assigns.
12.9
Severability
. If
any provision of this Agreement is held invalid or unenforceable by any court of
competent jurisdiction, the other provisions of this Agreement will remain in
full force and effect. Any provision of this Agreement held invalid
or unenforceable only in part or degree will remain in full force and effect to
the extent not held invalid or unenforceable.
12.10
Section Headings,
Construction
. The headings of Sections in this Agreement are
provided for convenience only and will not affect its construction or
interpretation. All references to “Section” or “Sections” refer to
the corresponding Section or Sections of this Agreement. All words
used in this Agreement will be construed to be of such gender or number as the
circumstances require. Unless otherwise expressly provided, the word
“including” does not limit the preceding words or terms.
12.11
Governing
Law
. This Agreement will be governed by the laws of the State
of New York without regard to conflicts of laws principles.
12.12
Counterparts
. This
Agreement may be executed in one or more counterparts, each of which will be
deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement. In
the event that any signature is delivered by facsimile transmission or by e-mail
delivery of a “.pdf” format data file, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile or “.pdf”
signature page were an original thereof.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
COUNTERPART
SIGNATURE PAGE
IN
WITNESS WHEREOF, the parties have executed and delivered this Agreement and Plan
of Merger as of the date first written above.
Chardan
Acquisition Corp.
|
|
Chardan
Shareholders:
|
|
|
|
|
|
Kerry
Propper
|
Signed:
|
|
|
|
Printed
name: Congyan Xue
|
Signed:
|
|
Title: CEO
|
|
|
Chardan
Capital Markets, LLC
|
|
|
|
Signed:
|
|
|
Printed
name: Kerry Propper
|
|
Title: President
|
CHINA
DREDGING GROUP CO., LTD.
|
|
|
|
|
Signed:
|
|
|
Printed name:
|
|
|
Title:
|
|
|
Company
Shareholders:
VENUS
SEED CO., LTD.
|
|
MARS
HARVEST CO., LTD.
|
|
|
|
Signed:
|
|
|
Signed:
|
|
Printed name:
|
|
|
Printed name:
|
|
Title:
|
|
|
Title:
|
|
|
|
|
|
|
SATURN
GLORY CO., LTD.
|
|
REGENT
FILL INVESTMENT GROUP
LIMITED
|
Signed:
|
|
|
Signed:
|
|
Printed name:
|
|
|
Printed name:
|
|
Title:
|
|
|
Title:
|
|
|
|
|
|
|
DING
NAN
|
|
YU
JIANLIANG
|
|
|
|
|
|
Signed:
|
|
|
Signed:
|
|
|
|
|
|
|
POYING
HOLDINGS LIMITED
|
|
|
|
|
|
|
|
|
Signed:
|
|
|
|
|
Printed
name:
|
|
|
|
|
Title:
|
|
|
|
|
SECURITIES
PURCHASE AGREEMENT
Dated
as of October 29, 2010
among
CHINA
DREDGING GROUP CO., LTD.
and
THE
PURCHASERS LISTED ON EXHIBIT A
TABLE OF
CONTENTS
ARTICLE
I PURCHASE AND SALE OF THE PREFERRED SHARES
|
|
1
|
|
|
|
Section
1.1
|
Purchase
and Sale of Preferred Shares
|
|
1
|
|
|
|
|
Section
1.2
|
Conversion
Shares
|
|
2
|
|
|
|
|
Section
1.3
|
Purchase
Price and Closing
|
|
2
|
|
|
|
|
Section
1.4
|
Securities
Escrow; Additional Issuance of Shares
|
|
2
|
|
|
|
|
ARTICLE
II REPRESENTATIONS AND WARRANTIES
|
|
5
|
|
|
|
Section
2.1
|
Representations
and Warranties of the Company and its Subsidiaries
|
|
5
|
|
|
|
|
Section
2.2
|
Representations
and Warranties of the Purchasers
|
|
15
|
|
|
|
|
ARTICLE
III COVENANTS
|
|
18
|
|
|
|
Section
3.1
|
Securities
Compliance
|
|
18
|
|
|
|
|
Section
3.2
|
Rule
144
|
|
18
|
|
|
|
|
Section
3.3
|
Compliance
with Laws
|
|
18
|
|
|
|
|
Section
3.4
|
Keeping
of Records and Books of Account
|
|
18
|
|
|
|
|
Section
3.5
|
Reporting
Requirements
|
|
19
|
|
|
|
|
Section
3.6
|
Other
Agreements
|
|
19
|
|
|
|
|
Section
3.7
|
Approval
of Purchaser Representative
|
|
19
|
|
|
|
|
Section
3.8
|
Disclosure
of Transaction
|
|
19
|
|
|
|
|
Section
3.9
|
Pledge
of Securities
|
|
19
|
|
|
|
|
Section
3.10
|
Right
to Participate in Future Financing
|
|
19
|
|
|
|
|
Section
3.11
|
Board
Committees
|
|
19
|
|
|
|
|
Section
3.12
|
Preferred
Shares Protective Rights
|
|
20
|
|
|
|
|
Section
3.13
|
Deposit
of Net Proceeds
|
|
20
|
|
|
|
|
Section
3.14
|
Transfer
Agent
|
|
21
|
ARTICLE
IV CONDITIONS
|
|
21
|
|
|
|
Section
4.1
|
Conditions
Precedent to the Obligation of the Company to Sell the Preferred
Shares
|
|
21
|
|
|
|
|
Section
4.2
|
Conditions
Precedent to the Obligation of the Purchasers to Purchase the Preferred
Shares
|
|
21
|
|
|
|
|
ARTICLE
V SHARE CERTIFICATE LEGEND
|
|
23
|
|
|
|
Section
5.1
|
Legend
|
|
23
|
|
|
|
|
ARTICLE
VI INDEMNIFICATION
|
|
25
|
|
|
|
Section
6.1
|
General
Indemnity
|
|
25
|
|
|
|
|
Section
6.2
|
Indemnification
Procedure
|
|
26
|
|
|
|
|
Section
6.3
|
Survival
|
|
26
|
|
|
|
|
ARTICLE
VII MISCELLANEOUS
|
|
27
|
|
|
|
Section
7.1
|
Fees
and Expenses
|
|
27
|
|
|
|
|
Section
7.2
|
Specific
Enforcement, Consent to Jurisdiction
|
|
27
|
|
|
|
|
Section
7.3
|
Entire
Agreement; Amendment
|
|
27
|
|
|
|
|
Section
7.4
|
Appointment
of Purchaser Representative
|
|
28
|
|
|
|
|
Section
7.5
|
Notices
|
|
28
|
|
|
|
|
Section
7.6
|
Waivers
|
|
29
|
|
|
|
|
Section
7.7
|
Headings
|
|
29
|
|
|
|
|
Section
7.8
|
Successors
and Assigns
|
|
29
|
|
|
|
|
Section
7.9
|
No
Third Party Beneficiaries
|
|
30
|
|
|
|
|
Section
7.10
|
Governing
Law
|
|
30
|
|
|
|
|
Section
7.11
|
Counterparts
|
|
30
|
|
|
|
|
Section
7.12
|
Publicity
|
|
30
|
Section
7.13
|
Severability
|
|
30
|
|
|
|
|
Section
7.14
|
Further
Assurances
|
|
30
|
|
|
|
|
Section
7.15
|
Currency
|
|
31
|
|
|
|
|
Section
7.16
|
Termination
|
|
31
|
|
|
|
|
Section
7.17
|
Certificates
|
|
31
|
EXHIBIT
LIST
Exhibit
A
|
List
of Purchasers
|
|
|
|
|
Exhibit
B
|
Definition
of Accredited Investor
|
|
|
|
|
Exhibit
B-1
|
Accredited
Investor Representations
|
|
|
|
|
Exhibit
B-2
|
Non-US
Persons Representations
|
|
|
|
|
Exhibit
C
|
Amended
and Restated Memorandum and Articles of Association
|
|
|
|
|
Exhibit
D
|
Form
of Registration Rights Agreement
|
|
|
|
|
Exhibit
E
|
Form
of Securities Escrow Agreement
|
|
|
|
|
Exhibit
F
|
Form
of Opinion of Maples & Calder, BVI Counsel
|
|
|
|
|
Exhibit
G
|
Form
of Opinion of Da Cheng, PRC Counsel
|
|
|
|
|
Exhibit
7.4
|
Form
of Letter of Acceptance by the Purchaser Representative
|
|
SECURITIES
PURCHASE AGREEMENT
This
SECURITIES PURCHASE AGREEMENT (this “
Agreement
”) is dated
as of October 29, 2010 by and among China Dredging Group Co., Ltd., a British
Virgin Islands (“BVI”) business company (the “
Company
”), and each
of the Purchasers whose names are set forth on
Exhibit A
hereto
(individually, a “
Purchaser
” and
collectively, the “
Purchasers
”).
RECITALS
WHEREAS,
the Company and the Purchasers are executing and delivering this Agreement in
accordance with and in reliance upon the exemption from securities registration
afforded by Section 4(2) of the Securities Act and/or Rule 506 of Regulation D
(“
Regulation
D
”) as promulgated by the United States Securities and Exchange
Commission (the “
Commission
”) under
the Securities Act of 1933, as amended (the “
Securities Act
”), or
Regulation S (“
Regulation S
”) as
promulgated under the Securities Act and in connection therewith are making the
appropriate representations set forth on
Exhibit B
hereto as
hereinafter described;
WHEREAS,
the Company is offering Class A Convertible Preferred Shares (the “
Preferred Shares
”),
each initially convertible into one (1) ordinary share (the “Ordinary Shares”),
subject to adjustment (the “
Financing
Transaction
”);
WHEREAS,
in connection with the Financing Transaction, the Company and the Purchasers are
entering into certain other agreements, documents, instruments and certificates
necessary to carry out the purposes hereof dated as of the date hereof,
including but not limited to a registration rights agreement and a securities
escrow agreement; and
WHEREAS,
immediately prior to the consummation of the Financing Transaction, the Company
will merge with Chardan Acquisition Corp. (“
Chardan Corp.
”)
pursuant to an Agreement and Plan of Merger, dated the date hereof, by and among
Chardan Corp., the Company, the shareholders of Chardan Corp. and the
shareholders of the Company (the “
Merger Agreement
”),
with the Company being the surviving entity of the Merger (the “
Merger
”).
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the Company and the Purchasers hereby agree as
follows:
ARTICLE
I
Purchase
and Sale of the Preferred Shares
Section
1.1
Purchase and Sale of
Preferred Shares
. Upon the following terms and conditions, the
Company is offering to each Purchaser the number of Preferred Shares set forth
opposite such Purchaser’s name as set forth on
Exhibit A
attached
hereto each initially convertible into one (1) Ordinary Share (subject to
adjustment). The designation, rights, preferences and other terms and provisions
of the Preferred Shares are set forth in the Company’s Amended Memorandum and
Articles of Association, substantially in the form attached hereto as
Exhibit C
(the “
Memorandum and Articles of
Association
”).
Section
1.2
Conversion
Shares
. The Company has authorized and has reserved and
covenants to continue to reserve, free of preemptive rights and other similar
contractual rights of shareholders, a number of authorized but unissued Ordinary
Shares equal to one hundred percent (100%) of the number of Ordinary Shares as
shall from time to time be sufficient to effect conversion of all of the
Preferred Shares then issued. Any Ordinary Shares issuable upon conversion of
the Preferred Shares (and such shares when issued) are herein referred to as the
“
Conversion
Shares.
” The Preferred Shares and the Conversion Shares are sometimes
collectively referred to as the “
Shares.
”
Section
1.3
Purchase Price and
Closing.
Subject to the terms and conditions hereof, the
Company agrees to issue and sell to the Purchasers and, in consideration of and
in express reliance upon the representations, warranties, covenants, terms and
conditions of this Agreement, the Purchasers, severally but not jointly, agree
to purchase the Preferred Shares at a purchase price of USD $5.00 per Preferred
Share (the “
Purchase
Price
”) for an aggregate purchase price of no less than $5,000,000
(“
Minimum Offering
”) and no more than $50,000,000 (the “
Maximum Offering
”),
provided, however that if the Company and Chardan Capital Markets LLC (the
“
Placement
Agent
”) mutually agree, the Company shall have the right to increase the
Maximum Offering Amount to $75,000,000. Provided that at least the
Minimum Offering shall have been subscribed for, funds representing the sale
thereof shall have been deposited in the Funds Escrow Account (as hereinafter
defined) and shall have cleared, and all conditions to closing (the “
Closing
”) have been
satisfied or waived, the closing of the purchase and sale of the Minimum
Offering shall take place at the offices of Loeb & Loeb, LLP, 345 Park
Avenue, New York, NY 10154 no later than October 29, 2010, which date may be
extended for an additional 60 days by mutual agreement of the Company and the
Placement Agent if funds representing the Minimum Offering have not been
received by such date (the “
Closing
Date
”). Subject to the terms and conditions of this Agreement,
at the Closing the Company shall deliver or cause to be delivered to each
Purchaser a (i) if the Preferred Shares will be issued in certificated form, a
certificate for the number of Preferred Shares set forth opposite the name of
such Purchaser on
Exhibit A
hereto, and
(ii) any other documents required to be delivered pursuant to Article IV
hereof. At the time of the Closing, each Purchaser shall have
delivered its Purchase Price by wire transfer to the escrow account (“
Funds Escrow
Account
”) pursuant to the escrow agreement between the Company and
Collateral Agents LLC (“
Funds Escrow Agent
”)
acting as the escrow agent (“
Funds Escrow
Agreement
”) for the Closing. Any funds deposited into the
Funds Escrow Account within sixty (60) days after the Closing Date (“
Post Closing Period
”)
shall be distributed to the Company after the deduction of the fee of seven
(7.0) percent payable to Placement Agent in accordance with the terms of the
Funds Escrow Agreement. No funds may be deposited into the Funds Escrow Account
after the Post Closing Period. The Company may, in its sole
discretion, terminate the Offering if funds representing the Minimum Offering
have not been received by December 29, 2010 and in such event the Company will
instruct the Funds Escrow Agent to return the funds deposited in the
Funds Escrow Account to the respective Purchasers.
Section
1.4
Securities Escrow;
Additional Issuance of Shares.
(a)
On the Closing Date, the Company shall enter into a Securities Escrow Agreement
by and among the Company and Mars Harvest Co., Ltd. (the “
Principal
Shareholder
”), the Purchaser Representative for the Purchasers (as
defined in Section 3.7 hereof) and the escrow agent named therein (the “
Securities Escrow
Agent
”), dated as of the Closing Date, substantially in the form of
Exhibit E
attached
hereto (the “
Securities Escrow
Agreement
”) and the Escrow Shares (as defined in the Securities Escrow
Agreement) shall be deposited into the escrow account (the “
Securities Escrow
”)
by the Principal Shareholder pursuant to the terms of the Securities Escrow
Agreement.
(b)
The distribution of the Escrow Shares to the Purchasers shall be triggered by
the Company’s failure to meet either or both of the performance thresholds (the
“
Performance
Thresholds
”) set forth below for the fiscal years ended December 31, 2010
(“
Fiscal Year
2010
”) and December 31, 2011 (“
Fiscal Year
2011
”). If the Company does not meet the Performance Threshold
for the applicable year, the escrow agent shall release and deliver an aggregate
number of Escrow Shares to the Purchasers as set forth below, distributed to
such Purchasers on a pro rata basis and rounded down to the nearest whole number
of shares (no fractional shares will be issued):
(c)
If the (i) 2010 Adjusted Net Income (as defined below) is less than
US$48,142,735 for Fiscal Year 2010,or (ii) the 2011 Adjusted Net Income (as
defined below) is less than $US87,043,678 (“2011 Performance Threshold”) for
Fiscal Year 2011, then the escrow agent shall release to each Purchaser such
number of Escrow Shares calculated as follows:
Additional
Shares= (Original Invested Shares X [Target EPS/Actual EPS]) - Original Invested
Shares
(d)
Definitions: For the purposes of this Section,
“
Actual 2010 EPS
”
shall mean the 2010 Adjusted Net Income for fiscal year 2010 divided by the
number of fully diluted outstanding shares of the Company.
“
Actual 2011 EPS
”
shall mean the 2011 Adjusted Net Income for fiscal year 2011 divided by the
number of fully diluted outstanding shares of the Company.
“2010 Adjusted Net Income”
shall mean the Net Income (as hereinafter defined) for 2010 adjusted to
exclude, for the
purposes of determining
whether
a
Performance Threshold
has been
met
(
even
though GAAP may require contrary treatment
):
(i) any non-cash
charges incurred as a result of the Financing Transaction, including without
limitation, as a result of the issuance and/or conversion of the Preferred
Shares, or as a result of the issuance of warrants to any placement agent and
its designees in connection with another financing transaction, (ii)
expense recorded related to the release of the Escrow Shares to the Purchasers
and/or the Principal Shareholder, as applicable, pursuant to the terms of the
Securities Escrow Agreement, (iii) (iv) expenses related to the
transactions contemplated by this Agreement, the Merger Agreement, the
Registration Rights Agreement and any of the other documents executed in
connection therewith, including but not limited to the Merger, the
sale of the Preferred Shares, the registration and listing of the Shares and the
establishment of the escrow accounts.”
“2011 Adjusted Net Income”
shall mean the Net Income reported by the Company in its 2011 Audited
Financial Statements (as hereinafter defined) adjusted to exclude, for
the
purposes
of determining whether
a
Performance Threshold
has been
met
(
even
though GAAP may require contrary treatment
):
(i) any non-cash
charges incurred as a result of the Financing Transaction, including without
limitation, as a result of the issuance and/or conversion of the Preferred
Shares, or as a result of the issuance of warrants to any placement agent and
its designees in connection with another financing transaction, (ii)
expense recorded related to the release of the Escrow Shares to the Purchasers
and/or the Principal Shareholder, as applicable, pursuant to the terms of the
Securities Escrow Agreement, (iii) (iv) expenses related to the
transactions contemplated by this Agreement, the Merger Agreement, the
Registration Rights Agreement and any of the other documents executed in
connection therewith, including but not limited to the Merger, the
sale of the Preferred Shares, the registration and listing of the Shares and the
establishment of the escrow accounts.”
“
Audited Financial
Statements
” shall mean the consolidated financial statements of the
Company prepared in accordance with US GAAP consistently applied, as certified
by the Company’s independent registered public accounting firm.
“
Certified Financial
Statements
” shall mean the unaudited financial statements of the PRC
Operating Company (as hereinafter defined) for the period from January 1, 2010
through June 30, 2010, attached hereto as Schedule 1.4(d).
“Net Income
” shall
mean (i) for 2010, the sum of (x) the after-tax Net Income reported by the PRC
Operating Company in the Certified Financial Statements, plus (y) the after-tax
Net Income reported by the Company for the six month period from July 1, 2010
through December 31, 2010 (the “Consolidation Period”), which is derived for the
Consolidation Period from the Company’s 2010 Audited Financial Statements, and
(ii) for 2011, the after-tax Net Income reported by the Company in its 2011
Audited Financial Statements for 2011.
“
Original Invested
Shares
” shall mean the number of Ordinary Shares into which all Preferred
Shares purchased by the Purchaser set forth on Exhibit A hereto are convertible
(before giving effect to the accrual of dividends, if any).
“
Target EPS
” shall
mean the Performance Threshold for the applicable year divided by the number of
fully diluted outstanding shares of the Company.
(e)
(i)
Evidence of 2010
Adjusted Net Income
. The Company shall arrange for its auditor to deliver
(x) (i) a certified copy of the 2010 Audited Financial Statements, and (ii) the
Certified Financial Statements to the Securities Escrow Agent and the Purchaser
Representative as soon as practicable after completion. In connection
therewith, the Company shall prepare and deliver a calculation of the 2010
Adjusted Net Income for the fiscal year 2010, which shall also separately
include a calculation of the 2010 Adjusted Net Income of the Company for the
Consolidation Period that has been reviewed by the auditor, and if applicable, a
calculation of the pro rata Escrow Shares to be distributed to the Purchasers,
as promptly as practicable after its receipt of the 2010 Audited Financial
Statements. .
(ii)
Evidence of 2011 Adjusted
Net Income.
The Company shall arrange for its auditor to
deliver the 2011 Audited Financial Statements to the to the Securities Escrow
Agent and the Purchaser Representative as soon as practicable after
completion. The Company shall prepare and deliver a calculation of
the 2011 Adjusted Net Income, and if applicable, a calculation of the pro rata
Escrow Shares to be distributed to the Purchasers, as promptly as practicable
after its receipt of the 2011 Audited Financial Statements, as the case may
be.
(iii) The Securities Escrow Agreement
shall provide that in the event a Performance Threshold is not met for an
applicable year, the Company shall instruct the Securities Escrow Agent to send
to the Company’s transfer agent a share certificate(s) representing the number
of Escrow Shares required hereunder to be distributed to the Purchasers from the
Securities Escrow following receipt of the certified Audited Financial
Statements for the applicable year. If the Company does not achieve the 2010
Performance Threshold or the 2011 Performance Threshold, the Company agrees to
use its best efforts to cause the transfer agent to promptly transfer the
required number of Escrow Shares to the Purchasers pursuant to the formula set
forth above, including sending to the transfer agent an instruction letter to
transfer the Escrow Shares to the Purchasers listed on
Exhibit A
attached
hereto setting forth the number of Escrow Shares each Purchaser is to receive,
together with together with an opinion of Company counsel if required by the
transfer agent.
ARTICLE
II
Representations
and Warranties
Section
2.1
Representations and
Warranties of the Company and its Subsidiaries
. The Company
hereby represents and warrants to the Purchasers on behalf of itself and its
Subsidiaries (as hereinafter defined) as of the date hereof (except
as may be set forth on the Schedules attached hereto), as follows:
(a)
Organization, Good
Standing and Power
. Each of the Company and its Subsidiaries is a
corporation or other entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization (as applicable) and has the requisite corporate
power to own, lease and operate its properties and assets and to conduct its
business as it is now being conducted. Except as set forth on
Schedule 2.1(a)
, each
of the Company and its Subsidiaries is duly qualified to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary except for
any jurisdiction(s) (alone or in the aggregate) in which the failure to be so
qualified will not have a Material Adverse Effect .
(b)
Corporate Power; Authority
and Enforcement
. The Company has the requisite corporate power and
authority to enter into and perform its obligations under this Agreement, the
Registration Rights Agreement in the form attached hereto as
Exhibit D
(the “
Registration Rights
Agreement
”), the Securities Escrow Agreement, the Memorandum and Articles
of Association, (collectively, the “
Transaction
Documents
”) and to issue and sell the Preferred Shares in accordance with
the terms hereof. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action, and no further consent or authorization of the
Company or its Board of Directors or shareholders is required. Each
of the Transaction Documents constitutes, or shall constitute when executed and
delivered, a valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditor’s rights and remedies or by
other equitable principles of general application.
(c)
Shares
. The
authorized shares of the Company and the shares thereof currently issued as of
the date hereof prior to the effectiveness of this Agreement and following the
Merger is set forth on
Schedule 2.1(c)
hereto. All of the issued and outstanding Ordinary Shares of the
Company have been duly and validly authorized. Except as contemplated by the
Transaction Documents or as set forth on
Schedule 2.1(c)
hereto:
(i) no
Ordinary Shares are entitled to preemptive, conversion or other rights and there
are no outstanding options, warrants, scrip, rights to subscribe to, call or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of the Company;
(ii) there
are no contracts, commitments, understandings, or arrangements by which the
Company is or may become bound to issue additional shares of the Company or
options, securities or rights convertible into shares of the
Company;
(iii) the
Company is not a party to any agreement granting registration or anti-dilution
rights to any person with respect to any of its equity or debt securities;
and
(iv) the
Company is not a party to, and it has no knowledge of, any agreement restricting
the voting or transfer of any shares of the Company.
To the
knowledge of the Company, the offer and sale of all authorized shares,
convertible securities, rights, warrants, or options of the Company issued prior
to the Closing complied with all applicable BVI, U.S. Federal and state
securities laws. The Company has furnished or made available to the
Purchasers true and correct copies of the Company’s Memorandum and Articles of
Association, as amended and in effect on the date hereof. Except as
restricted under applicable federal, state, local or foreign laws and
regulations, the Memorandum and Articles of Association or the Transaction
Documents, or as set forth on
Schedule 2.1(c)
, no
written or oral contract, instrument, agreement, commitment, obligation, plan or
arrangement of the Company shall limit the payment of dividends on the Company’s
Preferred Shares or its Ordinary Shares.
(d)
Issuance of Shares
.
The Preferred Shares, when paid for or issued in accordance with the terms
hereof, will be validly issued and outstanding, fully paid and nonassessable and
entitled to the rights and preferences set forth in the Memorandum and Articles
of Association and, immediately after the Closing, the Purchasers will be the
record owners of all of such securities and have good and valid title to all of
such securities, free and clear of all encumbrances. When the Conversion Shares
and any Ordinary Shares which may be issued to the Purchasers as set forth in
the Memorandum and Articles of Association are issued in accordance with the
terms of the Memorandum and Articles of Association, such Conversion Shares and
additional Ordinary Shares, if applicable, will be duly authorized by all
necessary corporate action and validly issued and outstanding, fully paid and
nonassessable, and the holders will be entitled to all rights accorded to a
holder of Ordinary Shares and will be the record owners of all of such
securities and have good and valid title to all of such securities, free and
clear of all encumbrances.
(e)
Subsidiaries
.
All Subsidiaries of the Company are listed on
Schedule 2.1(e)
hereto, which also sets forth for each Subsidiary (i) the jurisdiction of its
incorporation or organization, (ii) the actual and contingent percentage of
ownership of each Subsidiary and (iii)the organization of the structure and
capitalization of each Subsidiary. Except as set forth on
Schedule 2.1(e)
and
as contemplated in the MCP Agreements (as defined below), there are no issued
and outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any Subsidiary for the purchase
or acquisition of any shares of any Subsidiary or any other securities
convertible into, exchangeable for or evidencing the rights to subscribe for any
shares. Except as contemplated by the Transaction Documents, neither the Company
nor any Subsidiary is subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of any Subsidiary or any
convertible securities, rights, warrants or options of the type described in the
preceding sentence for any Subsidiary. Other than as contemplated in the MCP
Agreements, neither the Company nor any Subsidiary is a party to, nor has any
knowledge of, any agreement restricting the voting or transfer of any shares of
any Subsidiary. For the purposes of this Agreement, “
Subsidiary
” shall
mean any corporation or other entity of which at least 50% of the securities or
other ownership interests are at the time owned directly or indirectly by the
Company and/or any of its other Subsidiaries or for which the Company or its
Subsidiaries have a majority of the voting power (absolutely or contingently)
and directly or indirectly, as a result of the operation of any contracts or
agreements) for the election of directors or other persons performing similar
functions. Except as set forth on
Schedule 2.1(e)
, all
of the issued and outstanding shares of each Subsidiary has been duly authorized
and validly issued, and are fully paid and nonassessable. As used
herein, the “MCP Agreements” refer to the six agreements, each dated as of June
30, 2010, pursuant to which Fujian WangGang Dredging Construction Co., Ltd., a
wholly foreign owned enterprise, manages the operations of Fujian Xing Gang Port
Service Co., Ltd. (the “PRC Operating Company”) and is entitled to receive 100%
of the net profits of the PRC Operating Company in consideration
thereof.
(f)
Commission Documents,
Financial Statements
. Except as set forth on
Schedule 2.1(f)
,
prior to the Merger, Chardan Corp. filed all reports, schedules, forms,
statements and other documents required to be filed by it with the Commission
pursuant to the reporting requirements of the Securities Exchange Act of 1934,
as amended (the “
Exchange Act
”),
including material filed pursuant to Section 13(a) or 15(d) of the Exchange Act
(all of the foregoing including filings incorporated by reference therein being
referred to herein as the “
Commission
Documents
”). The Company has not provided to the Purchasers
any material non-public information or other information which, according to
applicable law, rule or regulation, was required to have been disclosed publicly
by the Company but which has not been so disclosed, other than (i) with respect
to the transactions contemplated by this Agreement, or (ii) pursuant to a
non-disclosure or confidentiality agreement signed by the
Purchasers. The audited financial statements for the years ended
December 31, 2008 and December 31, 2009 and the Certified Financial Statements
(collectively, the “PRC
Operating Company Financial
Statements
”) of the PRC Operating Company delivered to the Purchasers
have been prepared in accordance with United States generally accepted
accounting principles (“
GAAP
”) applied on a
consistent basis during the periods involved (except (i) in the case of
unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements) or (ii) as set forth on
Schedule 2.1(f)
), and
fairly present in all material respects the consolidated financial position of
the PRC Operating Company as of the dates thereof and the results of operations
and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
(g)
No Material Adverse
Effect
. Since June 30, 2010 neither the Company, nor the Subsidiaries,
has experienced or suffered any Material Adverse Effect. For the purposes of
this Agreement, “
Material Adverse
Effect
” means any material adverse effect on the business, operations,
properties, or financial condition of the Company or its Subsidiaries,
individually, or in the aggregate and/or any condition, circumstance, or
situation that would prohibit or otherwise materially interfere with the ability
of the Company to perform any of its obligations under this Agreement in any
material respect.
(h)
No Undisclosed
Liabilities
. Other than as disclosed on
Schedule 2.1(h
) or
set forth in the Commission Documents to the knowledge of the Company, neither
the Company, nor the Subsidiaries has any liabilities, obligations, claims or
losses (whether liquidated or unliquidated, secured or unsecured, absolute,
accrued, contingent or otherwise) other than those incurred in the ordinary
course of their respective businesses or in connection with the Merger or this
Agreement since June 30, 2010 and which, individually or in the aggregate, do
not or would not have a Material Adverse Effect on Chardan Corp., the Company,
or any of the Subsidiaries. As used throughout this Agreement, “ordinary course”
shall include the leasing and/or purchase of dredging vessels.
(i)
No Undisclosed Events
or Circumstances
. To the Company’s knowledge, no event or circumstance
has occurred or exists with respect to the Company or the
Subsidiaries or their respective businesses, properties, operations or financial
condition, which would require public disclosure under the U.S. federal
securities laws, rules or regulations.
(j)
Indebtedness
.
The PRC Operating Company Financial Statements set forth all outstanding secured
and unsecured Indebtedness of the PRC Operating Company or for which
the PRC Operating Company has commitments as of the date of the PRC Operating
Company Financial Statements or any subsequent period that would have required
disclosure in the PRC Operating Company Financial Statements. For the purposes
of this Agreement, “
Indebtedness
” shall
mean (a) any liabilities for borrowed money or amounts owed in excess of
$4,000,000 (other than trade accounts payable incurred in the ordinary course of
business and obligations incurred in connection with the Merger or this
Agreement), (b) all guaranties, endorsements and other contingent obligations in
respect of Indebtedness of others, whether or not the same should be reflected
in the Company’s consolidated balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business; and (c) the present
value of any lease payments in excess of $4,000,000 due under leases
required to be capitalized in accordance with GAAP. Neither the
Company nor any Subsidiary is in default in any material respect in connection
with any Indebtedness, except as would not have a Material Adverse Effect. As of
the date hereof, neither the Company, nor any Subsidiary other than the PRC
Operating Company nor Chardan Corp. (prior to the Merger) has incurred any
Indebtedness (as defined above) other than as set forth on
Schedule
2.1(j)
.
(k)
Title to
Assets
. The PRC Operating Company has good and marketable title to (i)
all properties and assets purportedly owned or used by it and (ii) all
properties and assets necessary for the conduct of its business as currently
conducted, free and clear of any Lien (defined in Section 2.1(o) below), except
as disclosed in the PRC Operating Company Financial Statements and except for
Permitted Liens (defined below). All leases are valid and subsisting and in full
force and effect. As used herein, Permitted Liens shall mean
(a) Liens for taxes not yet payable or in respect of which the validity thereof
is being contested in good faith by appropriate proceedings and for the payment
of which the relevant party has made adequate reserves; (b) Liens in respect of
pledges or deposits under workmen’s compensation laws or similar legislation,
carriers, warehousemen, mechanics, laborers and materialmen and similar Liens,
if the obligations secured by such Liens are not then delinquent or are being
contested in good faith by appropriate proceedings conducted and for the payment
of which the relevant party has made adequate reserves; (c) statutory Liens
incidental to the conduct of the business of the relevant party which were not
incurred in connection with the borrowing of money or the
obtaining of advances or
credits and that do not in the aggregate
materially detract from
the value of its property or materially impair the use thereof in the operation
of its business; (d) Liens on any property leased by the Company or any of its
subsidiaries; and (d) Liens that would not have a Material Adverse
Effect.
(l)
Actions
Pending
. There is no action, suit, claim, investigation, arbitration,
alternate dispute resolution proceeding or any other proceeding pending or, to
the knowledge of the Company, threatened against or involving the Company or any
Subsidiary (i) which questions the validity of this Agreement or any of the
other Transaction Documents or the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto or (ii) involving
any of their respective properties or assets which individually or in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect. There are no outstanding orders, judgments, injunctions,
awards or decrees of any court, arbitrator or governmental or regulatory body
against the Company or the Subsidiaries or to the knowledge of the Company, any
of their respective executive officers or directors in their capacities as
such.
(m)
Compliance with
Law
. Except as set forth on
Schedule 2.1(m)
, and
in accordance with generally accepted current interpretations of PRC law and
regulations, the Company and the Subsidiaries have all material franchises,
permits, licenses, consents and other governmental or regulatory authorizations
and approvals necessary for the conduct of their respective business as now
being conducted by them unless the failure to possess such franchises, permits,
licenses, consents and other governmental or regulatory authorizations and
approvals, individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect.
(n)
No
Violation.
The business of the Company and the Subsidiaries,
to the knowledge of the Company, is not being conducted in violation of the
generally accepted current interpretations of any applicable national level,
state or local governmental laws, or rules, regulations and ordinances of any
governmental entity. Neither the Company nor any Subsidiary is required under
national level, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under the Transaction Documents, or issue and sell the Preferred
Shares and the Conversion Shares in accordance with the terms hereof or thereof
(other than (x) any consent, authorization or order that has been obtained as of
the date hereof, (y) any filing or registration that has been made as of the
date hereof or (z) any filings which may be required to be made by the Company
with the Commission or United States state securities administrators or other
governments or government agencies subsequent to the Closing).
(o)
No Conflicts
.
The execution, delivery and performance of the Transaction Documents by the
Company and the consummation by the Company of the transactions contemplated
herein and therein do not and will not (i) violate any provision of the
Company’s Memorandum and Articles of Association, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Company is a party or by which it or its properties or assets are
bound, (iii) create or impose a lien, mortgage, security interest, pledge,
charge or encumbrance (collectively, “
Lien
”) of any nature
on any property of the Company under any agreement or any commitment to which
the Company is a party or by which the Company is bound or by which any of its
respective properties or assets are bound, or (iv) result in a violation of any
national level, state or local statute, rule, regulation, order, judgment or
decree (including United States Federal and state securities laws and
regulations) applicable to the Company or any of its Subsidiaries or by which
any property or asset of the Company or any of its Subsidiaries are bound or
affected,
provided
,
however
, that,
excluded from the foregoing in all cases are such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse
Effect.
(p)
Taxes
. Each of
the Company and the Subsidiaries, to the extent its applicable, has accurately
prepared and filed all national level, state and other tax returns required by
law to be filed by it, has paid or made provisions for the payment of all taxes
shown to be due and all additional assessments, and adequate provisions have
been and are reflected in the consolidated financial statements of the Company
for all current taxes and other charges to which the Company and the
Subsidiaries, if any, are subject and which are not currently due and payable,
except for any such filings or provisions which would not have a Material
Adverse Effect. None of the United States federal income tax returns of the
Company have been audited by the Internal Revenue Service. Except as set forth
on
Schedule
2.1(p)
, the Company has no knowledge of any additional assessments,
adjustments or contingent tax liability (whether federal, state or foreign) of
any nature whatsoever, whether pending or threatened against the Company or any
Subsidiary for any period prior to the date hereof, nor of any basis for any
such assessment, adjustment or contingency.
(q)
Certain Fees
.
Except for the fees to be paid to the Placement Agent in connection
with the transactions contemplated by the Agreement, no brokers fees, finders
fees or financial advisory fees or commissions will be payable by the Company
with respect to the transactions contemplated by this Agreement and the other
Transaction Documents.
(r)
Disclosure
.
Neither this Agreement nor the Schedules hereto furnished to the Purchasers by
the Company or its the Subsidiaries in connection with the transactions
contemplated by this Agreement contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements made
herein or therein, taken as a whole and in the light of the circumstances under
which they were made herein or therein, not false or
misleading.
(s)
Intellectual
Property
. Each of the Company and the Subsidiaries, owns or has the
lawful right to use all patents, trademarks, domain names (whether or not
registered) and any patentable improvements or copyrightable derivative works
thereof, websites and intellectual property rights relating thereto, service
marks, trade names, copyrights, licenses and authorizations, if any, and all
rights with respect to the foregoing, if any, which are necessary for the
conduct of their respective business as now conducted without any conflict with
the rights of others, except where the failure to so own or possess would not
have a Material Adverse Effect.
(t)
Books and Records;
Internal Accounting Controls
. The books and records of the Company and
the Subsidiaries accurately reflect in all material respects the information
relating to the business of the Company and the Subsidiaries, the ownership of
their assets, and the nature of all transactions giving rise to the obligations
or accounts receivable of the Company and the Subsidiaries. Except as
disclosed on
Schedule
2.1(t),
the Company and the Subsidiaries maintain a system of internal
accounting controls sufficient, in the judgment of the Company, to provide
reasonable assurance that (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP to be able to have such statements audited and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management’s general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate actions are taken with respect to any
differences.
(u)
Transactions with
Affiliates
. Except for the MCP Agreements, or as set forth in the
Financial Statements, the Commission Documents, the PRC Operating Company
Financial Statements or any employment arrangements, there are no loans, leases,
agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions between (a) the Company or any Subsidiary on
the one hand, and (b) on the other hand, any officer, employee, consultant or
director of the Company, or any Subsidiaries, or any person owning any shares of
the Company or any Subsidiary or any member of the immediate family of such
officer, employee, consultant, director or shareholder or any corporation or
other entity controlled by such officer, employee, consultant, director or
shareholder, or a member of the immediate family of such officer, employee,
consultant, director or shareholder.
(v)
Securities Act of
1933
. Assuming the accuracy of the representations of the Purchasers set
forth in Section 2.2 (d)-(j) hereof, the Company has complied and will comply
with all applicable United States federal and state or foreign securities laws
in connection with the offer, issuance and sale of the Preferred Shares
hereunder. Neither the Company nor, to the knowledge of the Company, anyone
acting on its behalf, directly or indirectly, has or will sell, offer to sell or
solicit offers to buy any of the Preferred Shares or similar securities to, or
solicit offers with respect thereto from, or enter into any preliminary
conversations or negotiations relating thereto with, any person, or has taken or
will take any action so as to bring the issuance and sale of any of the
Preferred Shares in violation of the registration provisions of the Securities
Act and applicable state securities laws, and neither the Company nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the Preferred Shares.
(w)
Governmental
Approvals
. Except for the filing of any notice prior or subsequent to the
Closing Date that may be required under applicable United States state and/or
Federal securities laws (which if required, shall be filed on a timely basis),
including the filing of a Form D and a registration statement or statements
pursuant to the Registration Rights Agreement, no authorization, consent,
approval, license, exemption of, filing or registration with any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, is or will be necessary for, or in connection with, the
execution or delivery of the Preferred Shares or for the performance by the
Company of its obligations under the Transaction Documents.
(x)
Employees
.
Neither the Company nor any Subsidiary has any collective bargaining
arrangements covering any of its employees.
Schedule 2.1(x)
sets
forth a list of the employment contracts, agreements regarding proprietary
information, non-competition agreements, non-solicitation agreements,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or any Subsidiary.
(y)
Absence of Certain
Developments
. Except as contemplated by this Agreement, the Transaction
Documents, the MCP Agreements or disclosed on
Schedule 2.1(y)
,
since June 30, 2010 through the date hereof neither the Company nor any of the
Subsidiaries have:
(i) issued
any shares, bonds or other debt or equity securities or any rights, options or
warrants with respect thereto;
(ii) borrowed
any amount or incurred or become subject to any liabilities (absolute or
contingent) except current liabilities incurred in the ordinary course of
business;
(iii) discharged
or satisfied any lien or encumbrance or paid any obligation or liability
(absolute or contingent), in excess of $1,000,000, other than current
liabilities paid in the ordinary course of business;
(iv) declared
or made any payment or distribution of cash or other property to shareholders
with respect to its shares, or purchased or redeemed, or made any agreements so
to purchase or redeem, any of its shares;
(v) sold,
assigned or transferred any other tangible assets, or canceled any debts or
claims, except in the ordinary course of business;
(vi) sold,
assigned or transferred any patent rights, trademarks, trade names, copyrights,
trade secrets or other intangible assets or intellectual property rights, or
disclosed any proprietary confidential information to any person except to
customers in the ordinary course of business or to the Purchasers or their
representatives;
(vii) suffered
any substantial losses or waived any rights of material value, whether or not in
the ordinary course of business, or suffered the loss of any material amount of
prospective business;
(viii) made
any changes in employee compensation except in the ordinary course of business
and consistent with past practices;
(ix) made
any single capital expenditures or commitments therefor in excess of $1,000,000
dollars;
(x) entered
into any other material transaction other than in the ordinary course of
business,;
(xi) made
charitable contributions or pledges in excess of $1,000,000;
(xii) suffered
any material damage, destruction or casualty loss, whether or not covered by
insurance; or
(xiii) experienced
any material problems with labor or management in connection with the terms and
conditions of their employment or labor services contracts.
(z)
Public Utility Holding
Company Act; Investment Company Act and U.S. Real Property Holding Corporation
Status
. The Company is not a “holding company” or a “public utility
company” as such terms are defined in the Public Utility Holding Company Act of
1935, as amended. The Company is not, and as a result of and immediately upon
the Closing will not be, an “investment company” or a company “controlled” by an
“investment company,” within the meaning of the Investment Company Act of 1940,
as amended. The Company is not and has never been a U.S. real
property holding corporation within the meaning of Section 897 of the Internal
Revenue Code of 1986, as amended.
(aa)
ERISA
. No liability
to the Pension Benefit Guaranty Corporation has been incurred with respect to
any Plan (as defined below) by the Company or any of its Subsidiaries which is
or would be materially adverse to the Company and its Subsidiaries. The
execution and delivery of this Agreement and the other Transaction Documents and
the issuance and sale of the Preferred Shares will not involve any transaction
which is subject to the prohibitions of Section 406 of ERISA or in connection
with which a tax could be imposed pursuant to Section 4975 of the Internal
Revenue Code of 1986, as amended, provided, that, if any of the Purchasers, or
any person or entity that owns a beneficial interest in any of the Purchasers,
is an “employee pension benefit plan” (within the meaning of Section 3(2) of
ERISA) with respect to which the Company is a “party in interest” (within the
meaning of Section 3(14) of ERISA), the requirements of Sections 407(d)(5) and
408(e) of ERISA, if applicable, are met. As used in this Section 2.1(bb), the
term “
Plan
”
shall mean an “employee pension benefit plan” (as defined in Section 3 of ERISA)
which is or has been established or maintained, or to which contributions are or
have been made, by the Company or any Subsidiary or by any trade or business,
whether or not incorporated, which, together with the Company or any Subsidiary,
is under common control, as described in Section 414(b) or (c) of the
Code.
(bb)
No Integrated
Offering
. Neither the Company nor to the knowledge of the Company any of
its affiliates, or any person acting on its behalf, has directly or indirectly
made any offers or sales of any security or solicited any offers to buy any
security under circumstances that would cause the offering of the Preferred
Shares pursuant to this Agreement to be integrated with prior offerings by the
Company for purposes of the Securities Act which would prevent the Company from
selling the Preferred Shares pursuant to Rule 506 under the Securities Act, nor
will the Company or any of its affiliates take any action or steps that would
cause the offering of the Preferred Shares to be integrated with other offerings
by the Company within the last six months for purposes of the Securities Act
which would require the registration of any such securities under the Securities
Act. The Company does not have any registration statement pending before the
Commission or currently under the Commission’s review.
(cc)
Sarbanes-Oxley Act.
The Company is in compliance with the applicable provisions of the
Sarbanes-Oxley Act of 2002 (the “
Sarbanes-Oxley Act
”),
and the rules and regulations promulgated thereunder, that are effective and for
which compliance by the Company is required as of the date hereof.
(dd)
No Additional
Agreements
. Neither the Company nor any
Subsidiary has any agreement or understanding with any Purchaser with
respect to the transactions contemplated by the Transaction Documents other than
as specified in the Transaction Documents.
(ee)
Foreign Corrupt Practices
Act
. Neither the Company nor the Subsidiaries, nor to the
knowledge of the Company or the Subsidiaries, any agent or other person acting
on behalf of the Company or the Subsidiaries, has, directly or indirectly, (i)
used any funds, or will use any proceeds from the sale of the Preferred Shares,
for unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to any
foreign or domestic political parties or campaigns from corporate funds, (iii)
failed to disclose fully any contribution made by the Company, or any Subsidiary
of the Company (or made by any Person acting on their behalf of which the
Company is aware) or any members of their respective management which is in
violation of any applicable law, or (iv) has violated in any material respect
any provision of the Foreign Corrupt Practices Act of 1977, as amended, and the
rules and regulations thereunder which was applicable to the Company or any of
its Subsidiaries.
(ff)
PFIC
. None
of the Company or any of its Subsidiaries is or intends to become a “passive
foreign investment company” within the meaning of Section 1297 of the U.S.
Internal Revenue Code of 1986, as amended.
(gg)
OFAC
. None of the
Company or any of its Subsidiaries nor, to the knowledge of the Company, any
director, officer, agent, employee, affiliate or person acting on behalf of any
of the Company or any of its Subsidiaries, is currently subject to any U.S.
sanctions administered by the Office of Foreign Assets Control of the U.S.
Treasury Department (“
OFAC
”); and the
Company will not directly or indirectly use the proceeds of the sale of the
Preferred Shares, or lend, contribute or otherwise make available such proceeds
to any Subsidiary of the Company, joint venture partner or other Person or
entity, towards any sales or operations in Cuba, Iran, Syria, Sudan, Myanmar or
any other country sanctioned by OFAC or for the purpose of financing the
activities of any Person currently subject to any U.S. sanctions administered by
OFAC.
(hh)
Money Laundering
Laws
. The operations of each of the Company and the Subsidiaries have
been conducted at all times in compliance with the money laundering requirements
of all applicable governmental authorities and any related or similar rules,
regulations or guidelines, issued, administered or enforced by any governmental
authority (collectively, the “
Money Laundering
Laws
”) and no action, suit or proceeding by or before any court or
governmental authority or any arbitrator involving any of the Company or the
Subsidiaries with respect to the Money Laundering Laws is pending or, to the
knowledge of the Company or any Subsidiary, threatened.
(ii)
Representations and
Warranties Made in Merger Agreement
. The Purchasers shall
receive the benefit of the representations and warranties made by (i) the
Company and the Company Shareholders, and made by (ii) Chardan Corp. and
its shareholders in the Merger Agreement as if the representations and
warranties were made directly to the Purchasers as of the date hereof in this
Agreement.
Section
2.2
Representations and
Warranties of the Purchasers
. Each Purchaser hereby makes the
following representations and warranties to the Company as of the date hereof,
with respect solely to itself and not with respect to any other
Purchaser:
(a)
Organization and Good
Standing of the Purchasers
. If the Purchaser is an entity,
such Purchaser is a corporation, partnership or limited liability company duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization.
(b)
Authorization and
Power
. Each Purchaser has the requisite power and authority to
enter into and perform this Agreement and each of the other Transaction
Documents to which such Purchaser is a party and to purchase the Preferred
Shares being sold to it hereunder. The execution, delivery and performance of
this Agreement and each of the other Transaction Documents to which such
Purchaser is a party by such Purchaser and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate, partnership or limited liability company action, and no
further consent or authorization of such Purchaser or its Board of Directors,
shareholders, partners, members, or managers, as the case may be, is required.
This Agreement and each of the other Transaction Documents to which such
Purchaser is a party has been duly authorized, executed and delivered by such
Purchaser and constitutes, or shall constitute when executed and delivered, a
valid and binding obligation of such Purchaser enforceable against such
Purchaser in accordance with the terms hereof.
(c)
No
Conflicts
. The execution, delivery and performance of this
Agreement and each of the other Transaction Documents to which such Purchaser is
a party and the consummation by such Purchaser of the transactions contemplated
hereby and thereby or relating hereto do not and will not (i) result in a
violation of such Purchaser’s charter documents, bylaws, operating agreement,
partnership agreement or other organizational documents or (ii) conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any agreement, indenture or
instrument or obligation to which such Purchaser is a party or by which its
properties or assets are bound, or result in a violation of any law, rule, or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to such Purchaser or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have a
material adverse effect on such Purchaser). Such Purchaser is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or any other
Transaction Document to which such Purchaser is a party or to purchase the
Preferred Shares in accordance with the terms hereof, provided, that for
purposes of the representation made in this sentence, such Purchaser is assuming
and relying upon the accuracy of the relevant representations and agreements of
the Company herein.
(d)
Status of
Purchasers
. Each Purchaser is an “accredited investor” as
defined in Regulation D, or a “non-US person” as defined in Regulation S. Such
Purchaser is not required to be registered as a broker-dealer under Section 15
of the Exchange Act and such Purchaser is not a broker-dealer, nor an affiliate
of a broker-dealer.
(e)
Acquisition for
Investment
. Each Purchaser is acquiring the underlying
Preferred Shares solely for its own account for the purpose of investment and
not with a view to or for sale in connection with a distribution. The Purchaser
does not have a present intention to sell the Preferred Shares, nor a present
arrangement (whether or not legally binding) or intention to effect any
distribution of the Preferred Shares to or through any person or entity;
provided
,
however
, that by
making the representations herein and subject to Section 2.2(j) below, such
Purchaser does not agree to hold the Preferred Shares for any minimum or other
specific term and reserves the right to dispose of the Preferred Shares at any
time in accordance with Federal and state securities laws applicable to such
disposition. Each Purchaser acknowledges that it is able to bear the financial
risks associated with an investment in the Preferred Shares and that it has been
given full access to such records of the Company and the Subsidiaries and to the
officers of the Company and the Subsidiaries and received such information as it
has deemed necessary or appropriate to conduct its due diligence investigation
and has sufficient knowledge and experience in investing in companies similar to
the Company in terms of the Company’s stage of development so as to be able to
evaluate the risks and merits of its investment in the Company. Each Purchaser
further acknowledges that such Purchaser understands the risks of investing in
companies domiciled and/or which operate primarily in the PRC and in the BVI and
Hong Kong, the domiciles of the Company and certain Subsidiaries and that the
purchase of the Preferred Shares involves substantial risks. Each Purchaser
acknowledges that it has requested and received the Private Placement Memorandum
relating to the purchase of Preferred Shares and has (i) read and understands
the risks that are disclosed therein, and (ii) acknowledges that such risks are
not all of the risks entailed in the purchase of the Preferred
Shares.
(f)
Additional
Representations and Warranties of Accredited Investors
. Each
Purchaser indicating that such Purchaser is an Accredited Investor on its
signature page to this Agreement, severally and not jointly, further makes the
representations and warranties to the Company set forth on
Exhibit
B-1
.
(g)
Additional
Representations and Warranties of Non-U.S. Persons
. Each
Purchaser indicating that it is not a U.S. person on its signature page to this
Agreement, severally and not jointly, further makes the representations and
warranties to the Company set forth on
Exhibit
B-2
.
(h)
Opportunities for
Additional Information
. Each Purchaser acknowledges that such Purchaser
has had the opportunity to ask questions of and receive answers from, or obtain
additional information from, the executive officers of the Company concerning
the financial and other affairs of the Company.
(i)
No General
Solicitation
. Each Purchaser acknowledges that the Preferred
Shares were not offered to such Purchaser by means of any form of general or
public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio, or (ii) any seminar or meeting to
which such Purchaser was invited by any of the foregoing means of
communications.
(j)
Rule
144
. Such Purchaser understands that the Shares must be held
indefinitely unless such Shares are registered under the Securities Act or an
exemption from registration is available. Such Purchaser acknowledges that such
Purchaser is familiar with Rule 144, of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act (“
Rule 144
”), and that
such person has been advised that Rule 144 permits resales only under certain
circumstances. Such Purchaser understands that to the extent that Rule 144 is
not available, such Purchaser will be unable to sell any Shares without either
registration under the Securities Act or the existence of another exemption from
such registration requirement.
(k)
General
. Such
Purchaser understands that the Preferred Shares are being offered and sold in
reliance on a transactional exemption from the registration requirements of
Federal and state securities laws and the Company is relying upon the truth and
accuracy of the representations, warranties, agreements, acknowledgments and
understandings of such Purchaser set forth herein in order to determine the
applicability of such exemptions and the suitability of such Purchaser to
acquire the Preferred Shares.
(l)
Independent
Investment
. Except as may be disclosed in any filings with the
Commission by the Purchasers under Section 13 and/or Section 16 of the Exchange
Act, no Purchaser has agreed to act with any other Purchaser for the purpose of
acquiring, holding, voting or disposing of the Shares purchased hereunder for
purposes of Section 13(d) under the Exchange Act, and each Purchaser is acting
independently with respect to its investment in the Shares.
(m)
Brokers
. Other
than the payments to the Placement Agent, no Purchaser has any knowledge of any
brokerage or finder’s fees or commissions that are or will be payable by the
Company to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other person or entity with respect to the
transactions contemplated by this Agreement.
(n)
Confidential
Information
. Each Purchaser agrees that such Purchaser and its
employees, agents and representatives will keep confidential and will not
disclose, divulge or use (other than for purposes of monitoring its investment
in the Company) any confidential information which such Purchaser has or may
obtain from the Company pursuant to the purchase of Preferred Shares, including
without limitation financial statements, reports and other materials submitted
by the Company to such Purchaser pursuant to this Agreement, unless such
information is known to the public through no fault of such Purchaser or his or
its employees or representatives; provided, however, that a Purchaser may
disclose such information (i) to its attorneys, accountants and other
professionals in connection with their representation of such Purchaser in
connection with such Purchaser’s investment in the Company, (ii) to any
prospective permitted transferee of the Shares, so long as the prospective
transferee agrees to be bound by the provisions of this Section or (iii) to any
general partner or affiliate of such Purchaser.
ARTICLE
III
Covenants
The
Company covenants with each of the Purchasers as follows, which covenants are
for the benefit of the Purchasers and their permitted assignees (as defined
herein).
Section
3.1
Securities
Compliance
. The Company shall notify the Commission in
accordance with its rules and regulations, of the transactions contemplated by
any of the Transaction Documents, including filing a Form D with respect to the
Preferred Shares and the Conversion Shares as required under Regulation D and
applicable “blue sky” laws, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Preferred Shares and
Conversion Shares to the Purchasers or subsequent holders.
Section
3.2
Rule
144
. Subject to the terms of the Transaction Documents,
the Company further covenants that it will take such further action as the
Purchasers may reasonably request, all to the extent required from time to time
to enable the Purchasers to sell the Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, as amended.
Section
3.3
Compliance with
Laws
. The Company shall comply, and cause each Subsidiary to
comply with all applicable laws, rules, regulations and orders, except where the
failure to do so would not have a Material Adverse Effect.
Section
3.4
Keeping of Records and Books
of Account
. The Company shall keep and cause each Subsidiary
to keep adequate records and books of account, in which complete entries will be
made and can be conformed with U.S. GAAP consistently applied, reflecting all
financial transactions of the Company and the Subsidiaries and in which, for
each fiscal year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other financial accruals in connection with
its business shall be recorded.
Section
3.5
Reporting
Requirements
. The Company shall timely file all reports
required to be filed with the Commission pursuant to the Exchange Act, and the
Company shall not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would permit such termination. In addition, the Company covenants to
release financial and capitalization information on a quarterly basis on Form
6-K similar to the information reported on Form 10-Q for a U.S
filer.
Section
3.6
Other
Agreements
. The Company shall not enter into any agreement the
terms of which would restrict or impair the ability of the Company to perform
its obligations under any Transaction Document.
Section
3.7
Approval of Purchaser
Representative
. The parties hereto agree that the initial
purchaser representative shall be Guibao Liu, on behalf of CNH Partners, LLC
(the “Purchaser Representative”). In the event that Guibao Liu resigns from
serving as the Purchaser Representative or is no longer able to serve, the
Purchaser who initially purchased the largest percentage of the Preferred Shares
may appoint a new Purchaser Representative.
Section
3.8
Disclosure of
Transaction
. The Company shall issue a press release
describing the material terms of the transactions contemplated hereby (the
“
Press
Release
”) as soon as practicable after the Closing. The Company shall
also file with the Commission in accordance with the rules of the Exchange Act,
a Form 20-F describing the material terms of the transactions contemplated
hereby (and attaching as exhibits thereto this Agreement, the Registration
Rights Agreement, the Memorandum and Articles of Association, the Escrow
Agreements, and the Press Release) in accordance with the filing requirements of
the Exchange Act.
Section
3.9
Pledge of
Securities
. The Company acknowledges and agrees that the
Shares may be mortgaged, charged or pledged by a Purchaser in connection with a
bona
fide
margin agreement
or other loan or financing arrangement that is secured by Ordinary Shares. The
pledge of Ordinary Shares shall not be deemed to be a transfer, sale or
assignment of the Ordinary Shares hereunder, and no Purchaser effecting a charge
or pledge of Ordinary Shares shall be required to provide the Company with any
notice thereof or otherwise make any delivery to the Company pursuant to this
Agreement or any other Transaction Document;
provided
, that a
Purchaser and its charge or pledgee shall be required to comply with the
provisions of Article V hereof in order to effect a sale, transfer or assignment
of Ordinary Shares to such charge or pledgee. At a Purchaser’s expense, the
Company hereby agrees to execute and deliver such documentation as a charge or
pledgee of the Ordinary Shares may reasonably request in connection with a
pledge or charge of the Ordinary Shares to such charge or pledgee by a
Purchaser, in accordance with applicable laws relating to the transfer of the
securities.
Section
3.10
Right to Participate in
Future Financing
. The Purchasers shall have the right to
participate and purchase in any equity financing of the Company as set forth in
the Company’s Memorandum and Articles of Association.
Section
3.11
Board
Committees
. The Company shall form audit, compensation and
nominating and corporate governance committees in accordance with the applicable
requirements to list on a national securities exchange as soon as practicable
after the Closing.
Section
3.12
Preferred Shares Protective
Rights
. So long as 2,500,000 Preferred Shares remain issued,
the Company shall not take any of the following actions other than as may be
contemplated by the transactions described herein without the approval of the
Purchaser Representative:
(i) Replace
the independent auditor and make material changes in the accounting policies and
statutory accounts of the Company or the Subsidiaries;
(ii) Enter
into any loan or investment or credit support (other than normal trade credit)
agreement or arrangement or give any guarantee or indemnity, in excess of
$8,000,000 in a single transaction;
(iii) Enter
into any acquisition, disposal of less than or the equivalent of 50% of the
value of the assets of the Company, merger, joint venture, association,
partnership agreement or arrangement or other business combination with any
party (other than in the normal course of business) where those activities or
relationships would represent 10% or more of the consolidated turnover of the
Company;
(iv) Change
the maximum number of authorized shares or change the rights attached to any
class of ordinary or preferred shares, or capitalize any debenture;
(v) Issue
any new shares or options (including warrants, options or other rights to
acquire shares) which issuance would exceed 5% of the issued shares of the
Company on a fully diluted basis as of the Closing;
(vi) Enter
into any transactions not made on a bona fide arm’s length basis in the ordinary
course of business;
(vii) Enter
into any business arrangement with any of the directors or other substantial
shareholders of the Company and any related party transactions other than
ordinary course, commercial transactions;
(viii) Make
any capital expenditures or asset purchases or enter into leases that are thirty
per cent greater than that contemplated in the Company’s business plan or annual
budget;
(ix) Declare
any dividends; and
(x) Propose
any resolution to dissolve, wind up or liquidate the Company.
Section
3.13
Deposit of Net
Proceeds
. The Company agrees to maintain no less than three
percent of the net proceeds received from this Financing Transaction in a bank
account in Hong Kong or other suitable jurisdiction for the payment of expenses
related to the transactions contemplated hereby and any penalty obligations
payable to the Purchasers.
Section
3.14
Transfer
Agent
. The Company has selected a transfer agent for its
securities who will be appointed as transfer agent promptly after the
consummation of the transactions contemplated by this Agreement.
ARTICLE
IV
CONDITIONS
Section
4.1
Conditions Precedent to the
Obligation of the Company to Sell the Preferred Shares
. The
obligation hereunder of the Company to issue and sell the Preferred Shares to
the Purchasers is subject to the satisfaction or waiver, at or before the
Closing, of each of the conditions set forth below. These conditions are for the
Company’s sole benefit and may be waived by the Company at any time in its sole
discretion.
(a)
Accuracy of Each
Purchaser’s Representations and Warranties
. The
representations and warranties of each Purchaser in this Agreement and each of
the other Transaction Documents to which such Purchaser is a party shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time, except for representations and
warranties that are expressly made as of a particular date, which shall be true
and correct in all material respects as of such date.
(b)
Performance by the
Purchasers
. Each Purchaser shall have performed, satisfied and complied
in all respects with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by such Purchaser at or
prior to the Closing.
(c)
No Injunction
.
No statute, rule, regulation, executive order, decree, ruling or injunction
shall have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this
Agreement.
(d)
Delivery of Purchase
Price
. Funds representing at least the Minimum Offering for the Preferred
Shares shall have been deposited in the Funds Escrow Account and have been
cleared for immediate withdrawal.
(e)
Delivery of
Transaction Documents
. The Transaction Documents to which the Purchasers
are parties shall have been duly completed, executed and delivered by the
Purchasers to the Company.
Section
4.2
Conditions Precedent to the
Obligation of the Purchasers to Purchase the Preferred
Shares
. The obligation hereunder of each Purchaser to acquire
and pay for the Preferred Shares is subject to the satisfaction or waiver, at or
before the Closing, of each of the conditions set forth below. These conditions
are for each Purchaser’s sole benefit and may be waived by such Purchaser at any
time in its sole discretion.
(a)
Accuracy of the
Company’s Representations and Warranties
. Each of the representations and
warranties of the Company in this Agreement and the other Transaction Documents
shall be true and correct in all respects as of the date when made and as of the
Closing Date as though made at that time, except for representations and
warranties that are expressly made as of a particular date, which shall be true
and correct in all respects as of such date.
(b)
Performance by the
Company
. The Company shall have performed, satisfied and complied in all
respects with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or prior
to the Closing.
(c)
No Injunction
.
No statute, rule, regulation, executive order, decree, ruling or injunction
shall have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this
Agreement.
(d)
No Proceedings or
Litigation
. No action, suit or proceeding before any arbitrator or any
governmental authority shall have been commenced, and no investigation by any
governmental authority shall have been threatened, against the Company or any,
or any of the officers, directors or affiliates of the Company or any Subsidiary
seeking to restrain, prevent or change the transactions contemplated by this
Agreement, or seeking damages in connection with such transactions, except for
any such action which would not have a Material Adverse Effect.
(e)
Memorandum and
Articles of Association
. Prior to the Closing, the Memorandum and
Articles of Association, shall conform with those set forth in
Exhibit
C
.
(f)
Opinion of Counsel,
Etc
. On the Closing Date, the Purchasers shall have received an opinion
of (i) BVI legal counsel to the Company, dated the date of the Closing, in
substantially the form of
Exhibit F
hereto, and
(ii) DaCheng, PRC counsel to the Company, dated the date of the
Closing with respect to the restructuring of the Subsidiaries in substantially
the form of
Exhibit
G
.
(g)
Registration Rights
Agreement
. On the Closing Date, the Company shall have executed and
delivered the Registration Rights Agreement to each Purchaser substantially the
form of
Exhibit
D
hereto.
(h)
Issuance of Preferred
Shares
. The Company, at its option, shall cause its registered agent to
either (i) deliver to the Purchasers the share certificates for the Preferred
Shares being acquired by such Purchaser at the Closing to such address set forth
next to each Purchasers name on
Exhibit A
with
respect to the Closing or (ii) to record the number of Preferred Shares acquired
by the Purchaser in the register of members of the Company.
(i)
Resolutions
. The
Board of Directors of the Company shall have adopted resolutions consistent with
Section 2.1(b) hereof in a form reasonably acceptable to such
Purchaser.
(j)
Reservation of
Shares
. As of the Closing Date, the Company shall, in accordance with BVI
law, have reserved out of its authorized and unissued Ordinary Shares, solely
for the purpose of effecting the conversion of the Preferred Shares, a number of
Ordinary Shares equal to one hundred percent (100%) of the aggregate number of
Conversion Shares issuable upon conversion of the Preferred
Shares..
(k)
Secretary’s
Certificate
. The Company shall have delivered to such Purchaser a
secretary’s (or other officer’s) certificate, dated as of the Closing Date, as
to (i) the resolutions adopted by the Board of Directors of the Company
consistent with Section 2.1(b), (ii) the Articles, each as in effect at the
Closing, and (iii) the authority and incumbency of the officers of the Company
executing the Transaction Documents.
(l)
Officer’s
Certificate
. The Company shall have delivered to the Purchasers a
certificate of an executive officer of the Company, dated as of the Closing
Date, confirming the accuracy of the Company’s representations, warranties and
covenants as of the Closing Date and confirming the compliance by the Company
with the conditions precedent set forth in this Section 4.2 as of the Closing
Date.
(m)
Funds Escrow
Agreement
. On the Closing Date, funds representing the Minimum Offering
shall have been deposited in the Funds Escrow Account and shall have cleared for
immediate withdrawal.
(n)
Securities Escrow
Agreement
. On the Closing Date, the Securities Escrow Agreement shall
have been executed by the parties thereto and the Escrow Shares shall
have been deposited into the escrow account pursuant to the terms of the
Securities Escrow Agreement.
(o)
Material Adverse
Effect
. No Material Adverse Effect shall have occurred at or before the
Closing Date.
ARTICLE
V
Share
Certificate Legend
Section
5.1
Legend
. In
the event that the Preferred Shares are issued in certificated form, each share
certificate representing the Preferred Shares and if appropriate, securities
issued upon conversion thereof, shall be stamped or otherwise
imprinted with a legend substantially in the following form (in addition to any
legend required by applicable state securities or “blue sky” laws):
“THESE
SECURITIES REPRESENTED BY THIS CERTIFICATE (THE “SECURITIES”) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS OR THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL
THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.”
Each
share certificate representing the Preferred Shares, if issued, and
if appropriate, securities issued upon conversion thereof, if such securities
are being offered to Purchasers in reliance upon Regulation S, shall be stamped
or otherwise imprinted with a legend substantially in the following form (in
addition to any legend required by applicable state securities or “blue sky”
laws):
“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE
SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED EXCEPT (1) IN
ACCORDANCE WITH THE PROVISIONS OF REGULATION S PROMULGATED UNDER THE SECURITIES
ACT, AND BASED ON AN OPINION OF COUNSEL, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO THE COMPANY, THAT THE PROVISIONS OF REGULATION S HAVE
BEEN SATISFIED, (2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR (3) PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, IN WHICH CASE THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE COMPANY AN OPINION OF COUNSEL, WHICH COUNSEL AND
OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED IN THE MANNER
CONTEMPLATED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS. HEDGING TRANSACTIONS INVOLVING THE SECURITIES REPRESENTED BY
THIS CERTIFICATE MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES
ACT.”
The
Company agrees to reissue certificates representing any of the Conversion
Shares, if certificated, without the legend set forth above if at such time,
prior to making any transfer of any such securities, such holder thereof shall
give written notice to the Company describing the manner and terms of such sale
and removal as the Company may reasonably request. Such proposed
transfer and removal will not be effected until: (a) either (i) the Company has
received an opinion of counsel reasonably satisfactory to the Company, to the
effect that the registration of the Conversion Shares under the Securities Act
is not required in connection with such proposed transfer, (ii) a registration
statement under the Securities Act covering such proposed disposition has been
filed by the Company with the Commission and has become effective under the
Securities Act, (iii) the Company has received other evidence reasonably
satisfactory to the Company that such registration and qualification under the
Securities Act and state securities laws are not required, or (iv) the holder
provides the Company with reasonable assurances that such security can be sold
pursuant to Rule 144(i) under the Securities Act; and (b) either (i)
the Company has received an opinion of counsel reasonably satisfactory to the
Company, to the effect that registration or qualification under the securities
or “blue sky” laws of any state is not required in connection with such proposed
disposition, or (ii) compliance with applicable state securities or “blue sky”
laws has been effected or a valid exemption exists with respect thereto. The
Company will respond to any such notice from a holder within five (5) business
days. In the case of any proposed transfer under this Section 5.1, the Company
will use reasonable efforts to comply with any such applicable state securities
or “blue sky” laws, but shall in no event be required, (x) to qualify to do
business in any state where it is not then qualified, (y) to take any action
that would subject it to tax or to the general service of process in any state
where it is not then subject, or (z) to comply with state securities or “blue
sky” laws of any state for which registration by coordination is unavailable to
the Company. The restrictions on transfer contained in this Section 5.1 shall be
in addition to, and not by way of limitation of, any other restrictions on
transfer contained in any other section of this Agreement. Whenever a
certificate representing the Conversion Shares is required to be issued to a
Purchaser without a legend, in lieu of delivering physical certificates
representing the Conversion Shares (provided that a registration statement under
the Securities Act providing for the resale of the Conversion Shares is then in
effect), the Company may cause its transfer agent to electronically transmit the
Conversion Shares to a Purchaser by crediting the account of such Purchaser or
such Purchaser’s prime broker with the DTC through its DWAC system (to the
extent not inconsistent with any provisions of this Agreement).
ARTICLE
VI
Indemnification
Section
6.1
General
Indemnity
. The Company agrees to indemnify and hold harmless
the Purchasers (and their respective directors, officers, managers, partners,
members, shareholders, affiliates, agents, successors and assigns) from the
Closing Date until the expiration of the Survival Period (as defined below),
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys’ fees, charges
and disbursements) incurred by the Purchasers as a result of any inaccuracy in
or breach of the representations, warranties or covenants made by the Company
herein. Each Purchaser severally but not jointly agrees to indemnify and hold
harmless the Company (and its directors, officers, affiliates, agents,
successors and assigns), during the Survival Period, from and against
any and all losses, liabilities, deficiencies, costs, damages and expenses
(including, without limitation, reasonable attorneys’ fees, charges and
disbursements) incurred by the Company as a result of any inaccuracy in or
breach of the representations, warranties or covenants made by such Purchaser
herein. The maximum aggregate liability of each Purchaser pursuant to its
indemnification obligations under this Article VI shall not exceed the portion
of the Purchase Price paid by such Purchaser hereunder. In no event shall any
“Indemnified Party” (as defined below) be entitled to recover consequential or
punitive damages resulting from a breach or violation of this
Agreement.
Section
6.2
Indemnification
Procedure
. Any party entitled to indemnification under this
Article VI (an “
Indemnified Party
”)
will give written notice to the indemnifying party of any matters giving rise to
a claim for indemnification;
provided
, that the
failure of any party entitled to indemnification hereunder to give notice as
provided herein shall not relieve the indemnifying party of its obligations
under this Article VI except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. In case any action,
proceeding or claim is brought against an Indemnified Party in respect of which
indemnification is sought hereunder, the indemnifying party shall be entitled to
participate in and, unless in the reasonable judgment of the Indemnified Party a
conflict of interest between it and the indemnifying party may exist with
respect of such action, proceeding or claim, to assume the defense thereof with
counsel reasonably satisfactory to the Indemnified Party. In the event that the
indemnifying party advises an Indemnified Party that it will contest such a
claim for indemnification hereunder, or fails, within thirty (30) days of
receipt of any indemnification notice to notify, in writing, such person of its
election to defend, settle or compromise, at its sole cost and expense, any
action, proceeding or claim (or discontinues its defense at any time after it
commences such defense), then the Indemnified Party may, at its option, defend,
settle or otherwise compromise or pay such action or claim. In any event, unless
and until the indemnifying party elects in writing to assume and does so assume
the defense of any such claim, proceeding or action, the Indemnified Party’s
costs and expenses arising out of the defense, settlement or compromise of any
such action, claim or proceeding shall be losses subject to indemnification
hereunder. The Indemnified Party shall cooperate fully with the indemnifying
party in connection with any negotiation or defense of any such action or claim
by the indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the Indemnified Party which relates to such
action or claim. The indemnifying party shall keep the Indemnified Party fully
apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. If the indemnifying party elects to defend
any such action or claim, then the Indemnified Party shall be entitled to
participate in such defense with counsel of its choice at its sole cost and
expense. The indemnifying party shall not be liable for any settlement of any
action, claim or proceeding effected without its prior written consent,
provided
,
however
, that the
indemnifying party shall be liable for any settlement if the indemnifying party
is advised of the settlement but fails to respond to the settlement within
thirty (30) days of receipt of such notification. Notwithstanding anything in
this Article VI to the contrary, the indemnifying party shall not, without the
Indemnified Party’s prior written consent, settle or compromise any claim or
consent to entry of any judgment in respect thereof which imposes any future
obligation on the Indemnified Party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
Indemnified Party of a release from all liability in respect of such claim. The
indemnification required by this Article VI shall be made by periodic payments
of the amount thereof during the course of investigation or defense, as and when
bills are received or expense, loss, damage or liability is incurred, so long as
the Indemnified Party irrevocably agrees to refund such moneys if it is
ultimately determined by a court of competent jurisdiction that such party was
not entitled to indemnification. The indemnity agreements contained herein shall
be in addition to (a) any cause of action or similar rights of the Indemnified
Party against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
Section
6.3
Survival
. All
representations, warranties, covenants, and obligations in this Agreement shall
expire upon the earlier of (i) the listing of the Company’s Ordinary Shares on a
national securities exchange, or (ii) twenty-four (24) months following the date
this Agreement is executed (the “Survival Period”).
ARTICLE
VII
Miscellaneous
Section
7.1
Fees and
Expenses
. Except as otherwise set forth in this Agreement and
the other Transaction Documents, each party shall pay the fees and expenses of
its advisors, counsel, accountants and other experts, if any, and all other
expenses, incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement.
Section
7.2
Specific Enforcement,
Consent to Jurisdiction
.
(a)
The Company and the Purchasers acknowledge and agree that irreparable damage
would occur in the event that any of the provisions of this Agreement or the
other Transaction Documents were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent or cure breaches of
the provisions of this Agreement or the other Transaction Documents and to
enforce specifically the terms and provisions hereof or thereof, this being in
addition to any other remedy to which any of them may be entitled by law or
equity.
(b)
Each of the Company and the Purchasers (i) hereby irrevocably submits to the
jurisdiction of the United States District Court sitting in the Southern
District of New York and the courts of the State of New York located in New York
county for the purposes of any suit, action or proceeding arising out of or
relating to this Agreement or any of the other Transaction Documents or the
transactions contemplated hereby or thereby and (ii) hereby waives, and agrees
not to assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. Each of the Company and the Purchasers
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing in this Section
7.2 shall affect or limit any right to serve process in any other manner
permitted by law. Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. The
Company hereby appoints Loeb & Loeb LLP, with offices at 345 Park Avenue,
New York, NY 10154 as its agent for service of process in New
York. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law.
Section
7.3
Entire Agreement;
Amendment
. This Agreement and the other Transaction Documents
contains the entire understanding and agreement of the parties with respect to
the matters covered hereby and, except as specifically set forth herein or in
the Transaction Documents, neither the Company nor any of the Purchasers makes
any representations, warranty, covenant or undertaking with respect to such
matters and they supersede all prior understandings and agreements with respect
to said subject matter, all of which are merged herein. No provision of this
Agreement nor any of the Transaction Documents may be waived or amended other
than by a written instrument signed by the Company and the Purchaser
Representative, on behalf of the holders of the Preferred Shares, and after, if
required, approval of the holders of a majority of the Preferred Shares then
outstanding. No such amendment shall be effective to the extent that it applies
to less than all of the holders of the Preferred Shares then outstanding. No
consideration shall be offered or paid to any person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration is also offered to all of the parties to the
Transaction Documents or holders of Preferred Shares, as the case may
be.
Section
7.4
Appointment of Purchaser
Representative
. Each Purchaser hereby irrevocably appoints
Guibao Liu, on behalf of CNH
Partners, LLC
, to serve as the initial Purchaser Representative to
receive notices from the Company or any other person in connection with any of
the Transaction Documents and to act on his/her behalf in any manner whatsoever
as contemplated by the Transaction Documents. Attached hereto as
Exhibit 7.4 is a letter of acceptance of
Guibao Liu, on behalf of CNH
Partners, LLC
, evidencing his/her acceptance of the appointment as
Purchaser Representative and agrees to act as the Purchaser Representative in
connection and in accordance with the Transaction Documents.
Section
7.5
Notices
. All
notices, demands, consents, requests, instructions and other communications to
be given or delivered or permitted under or by reason of the provisions of this
Agreement or in connection with the transactions contemplated hereby shall be in
writing and shall be deemed to be delivered and received by the intended
recipient as follows: (i) if personally delivered, on the business day of such
delivery (as evidenced by the receipt of the personal delivery service), (ii) if
mailed certified or registered mail return receipt requested, upon date of
delivery as evidenced by the receipt, (iii) if delivered by overnight courier
(with all charges having been prepaid), on the business day of such delivery (as
evidenced by the receipt of the overnight courier service of recognized
standing), or (iv) if delivered by facsimile transmission, on the business day
of such delivery if sent by 6:00 p.m. in the time zone of the recipient, or if
sent after that time, on the next succeeding business day (as evidenced by the
printed confirmation of delivery generated by the sending party’s telecopier
machine). If any notice, demand, consent, request, instruction or other
communication cannot be delivered because of a changed address of which no
notice was given (in accordance with this Section 4), or the refusal to accept
same, the notice, demand, consent, request, instruction or other communication
shall be deemed received on the second business day the notice is sent (as
evidenced by a sworn affidavit of the sender). All such notices, demands,
consents, requests, instructions and other communications will be sent to the
following addresses or facsimile numbers as applicable:
If to the
Company:
China
Dredging Group Ltd.
Floor 18,
Tower A
Zhongshan
Building, No. 154
Hudong
Road, Gulou District, Fuzhou City, Fujian Province, PRC
Attention:
Mr. Zhuo Xinrong
Tel.
No.:
Fax
No.:
with
copies (which shall not constitute notice) to:
Loeb
& Loeb LLP
345 Park
Avenue
New York,
NY 10154
Attention:
Mitchell S. Nussbaum, Esq.
Tel. No.:
(212) 407-4000
Fax No.:
(212) 407-4990
If to any
Purchaser: At the address of the Purchaser Representative set forth
on
Exhibit A
to
this Agreement, as the case may be,
with
copies (which shall not constitute notice) to:
GNH
Partners, LLC, Two Greenwich Plaza, Greenwich, CT 06830
Attention: Guibao
Liu,
Tel: (203)
742-3600
Fax:
Any party
hereto may from time to time change its address for notices by giving at least
ten (10) days written notice of such changed address to the other party
hereto.
Section
7.6
Waivers
. No
waiver by any party of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any other provisions, condition or requirement hereof, nor
shall any delay or omission of any party to exercise any right hereunder in any
manner impair the exercise of any such right accruing to it
thereafter.
Section
7.7
Headings
. The
section headings contained in this Agreement (including, without limitation,
section headings and headings in the exhibits and schedules) are inserted for
reference purposes only and shall not affect in any way the meaning,
construction or interpretation of this Agreement. Any reference to the
masculine, feminine, or neuter gender shall be a reference to such other gender
as is appropriate. References to the singular shall include the plural and vice
versa.
Section
7.8
Successors and
Assigns
. This Agreement may not be assigned by a party hereto
without the prior written consent of the Company or the Purchasers, as
applicable,
provided
,
however
, that,
subject to federal and state securities laws and as otherwise provided in the
Transaction Documents, a Purchaser may assign its rights and delegate its duties
hereunder in whole or in part (i) to a third party acquiring all or
substantially all of its Shares in a private transaction or (ii) to an
affiliate, in each case, without the prior written consent of the Company or the
other Purchasers, after notice duly given by such Purchaser to the
Company. Notwithstanding the foregoing, (i) no assignment shall
affect the obligations of a Purchaser hereunder, (ii) an assignee shall not be
entitled to receive any Escrow Shares and (iii) an assignee must agree in
writing to be bound, with respect to the transferred securities, by the
provisions hereof that apply to the Purchasers. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement. If any Purchaser transfers
Preferred Shares purchased hereunder, any such penalty shares or liquidated
damages, as the case may be, pursuant to this Agreement shall similarly transfer
to such transferee with no further action required by the purchaser or the
Company.
Section
7.9
No Third Party
Beneficiaries
. This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
person.
Section
7.10
Governing
Law
. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without giving
effect to any of the conflicts of law principles which would result in the
application of the substantive law of another jurisdiction. This Agreement shall
not be interpreted or construed with any presumption against the party causing
this Agreement to be drafted.
Section
7.11
Counterparts
. This
Agreement may be executed in any number of counterparts, each of which when so
executed shall be deemed to be an original and, all of which taken together
shall constitute one and the same Agreement and shall become effective when
counterparts have been signed by each party and delivered to the other parties
hereto, it being understood that all parties need not sign the same counterpart.
In the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
Section
7.12
Publicity
. The
Company agrees that it will not disclose, and will not include in any public
announcement, the name of the Purchasers without the consent of the Purchasers
unless and until such disclosure is required by law or applicable regulation,
and then only to the extent of such requirement.
Section
7.13
Severability
. The
provisions of this Agreement and the Transaction Documents are severable and, in
the event that any court of competent jurisdiction shall determine that any one
or more of the provisions or part of the provisions contained in this Agreement
or the Transaction Documents shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement or the Transaction Documents and such provision shall be reformed
and construed as if such invalid or illegal or unenforceable provision, or part
of such provision, had never been contained herein, so that such provisions
would be valid, legal and enforceable to the maximum extent
possible.
Section
7.14
Further
Assurances
. From and after the date of this Agreement, upon
the request of any Purchaser or the Company, each of the Company and the
Purchasers shall execute and deliver such instrument, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement, the Preferred
Shares, the Conversion Shares, the Memorandum and Articles of Association, the
Registration Rights Agreement and the other Transaction
Documents.
Section
7.15
Currency
. Unless
otherwise indicated, all dollar amounts referred to in this Agreement are in
United States Dollars. All amounts owing under this Agreement or any
Transaction Document shall be paid in US dollars. All amounts
denominated in other currencies shall be converted in the US dollar equivalent
amount in accordance with the Exchange Rate on the date of
calculation. “Exchange Rate” means, in relation to any amount of
currency to be converted into US dollars pursuant to this Agreement, the US
dollar exchange rate as published in The Wall Street Journal on the relevant
date of calculation
Section
7.16
Termination
. This
Agreement may be terminated prior to Closing:
(a)
by mutual written agreement of the Purchasers and the Company, a copy of which
shall be provided to Collateral Agents LLC pursuant to the terms of the Funds
Escrow Agreement; and
(b)
by the Company or a Purchaser (as to itself but no other Purchaser) upon written
notice to the other, with a copy to Collateral Agents LLC, if the Closing shall
not have taken place by 5:00 p.m. Eastern time on October 29, 2010,
unless extended for a period of no more than sixty (60) calendar days by the
Company, in which case the Closing shall not have taken place by 5:00 p.m.
Eastern time on December 29, 2010; provided, that the right to terminate this
Agreement under this Section 7.17(b) shall not be available to any person whose
failure to comply with its obligations under this Agreement has been the cause
of or resulted in the failure of the Closing to occur on or before such
time.
(c)
In the event of a termination pursuant to Section 7.16(a) or 7.16(b), each
Purchaser shall have the right to a return of up to its entire Purchase Price
deposited with the Escrow Agent pursuant to this Agreement, without interest or
deduction. The Company covenants and agrees to cooperate with such
Purchaser in obtaining the return of its Purchase Price, and shall not
communicate any instructions to the contrary to the Collateral Agents
LLC.
(d)
In the event of a termination pursuant to this Section, the Company shall
promptly notify all non-terminating Purchasers. Upon a termination in accordance
with this Section 7.16, the Company and the terminating Purchaser(s) shall not
have any further obligation or liability (including as arising from such
termination) to the other and no Purchaser will have any liability to any other
Purchaser under the Transaction Documents as a result therefrom.
Section
7.17
Certificates
. The
Purchaser acknowledges and agrees that the Preferred Shares and any Shares
issuable to the Purchaser will be transferred to the Purchaser in uncertificated
form unless Purchaser specifically requests a certificate, at the option of the
Company.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officer as of the date first above
written.
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CHINA
DREDGING GROUP LTD.
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By:
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Name:
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Zhuo
Xinrong
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Title:
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Chief
Executive
Officer
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COUNTERPART
SIGNATURE PAGE
(FOR
ISSUANCES TO AN ENTITY PURSUANT TO SECTION 4(2))
By its
execution and delivery of this signature page, the undersigned Purchaser hereby
joins in and agrees to be bound by the terms and conditions of the Securities
Purchase Agreement between China Dredging Group Co., Ltd. and the Purchasers (as
defined therein), as to the number of Preferred Shares set forth below, and
authorizes this signature page to be attached to the Purchase Agreement or
counterparts thereof and for its name, address and number of Preferred Shares
purchased to be added to
Exhibit A
of the
Securities Purchase Agreement.
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(Entity
Name)
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By:
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Name:
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Title:
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Circle
the category under which you are an “accredited investor” pursuant to
Exhibit
B
:
1 2 3 4 5 6 7 8
Investment
Amount:
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PRINT
EXACT NAME IN WHICH YOU WANT
THE
SECURITIES TO BE REGISTERED
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Attn:
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Address:
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Phone
No.
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Address:
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Tax
ID Number:
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COUNTERPART
SIGNATURE PAGE
(FOR
ISSUANCES TO AN ENTITY PURSUANT TO REGULATION S)
By its
execution and delivery of this signature page, the undersigned Purchaser hereby
joins in and agrees to be bound by the terms and conditions of the Securities
Purchase Agreement, between China Dredging Group Ltd. and the Purchasers (as
defined therein), as to the number of Preferred Shares set forth below, and
authorizes this signature page to be attached to the Purchase Agreement or
counterparts thereof and for its name, address and number of Preferred Shares
purchased to be added to
Exhibit A
of the
Securities Purchase Agreement.
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OFFSHORE
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INSTRUCTIONS
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EXACT NAME IN WHICH YOU WANT
THE
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REGISTRATION RIGHTS
AGREEMENT
This
Registration Rights Agreement (this "
Agreement
") is made
and entered into as of October 29, 2010, by and among China Dredging Group Co.,
Ltd. (the “
Company
”), the
purchasers listed on
Schedule I
hereto
(the "
Purchasers
") and the
shareholders listed on
Schedule II
hereto.
This
Agreement is being entered into pursuant to the Securities Purchase Agreement
dated as of the date hereof among the Company and the Purchasers (the "
Purchase
Agreement
").
The
Company and the Purchasers hereby agree as follows:
1.
Definitions
.
Capitalized
terms used and not otherwise defined herein shall have the meanings given such
terms in the Purchase Agreement. As used in this Agreement, the
following terms shall have the following meanings:
"
Advice
" shall have
meaning set forth in Section 3(m).
"
Affiliate
" means,
with respect to any Person, any other Person that directly or indirectly
controls or is controlled by or under common control with such
Person. For the purposes of this definition, "
control
," when used
with respect to any Person, means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "
affiliated
," "
controlling
" and
"
controlled
"
have meanings correlative to the foregoing.
"
Board
" shall have
meaning set forth in Section 3(n).
"
Business Day
" means
any day except Saturday, Sunday and any day which shall be a legal holiday or a
day on which banking institutions in the State of New York generally are
authorized or required by law or other government actions to close.
“
Chardan Shares
” means
the 500,000 Ordinary Shares issued to the shareholders of Chardan Acquisition
Corp., pursuant to the terms of the Merger Agreement.
"
Commission
" means the
Securities and Exchange Commission.
"
Effectiveness Date
"
means with respect to the Registration Statement under Section 2(a), the one
hundred eightieth (180
th
) day
following the Filing Date;
provided
,
however,
that
, if the
Effectiveness Date falls on a Saturday, Sunday or any other day which shall be a
legal holiday or a day on which the Commission is authorized or required by law
or other government actions to close, the Effectiveness Date shall be the
following Business Day.
"
Effectiveness Period
"
shall have the meaning set forth in Section 2(a).
“
Escrow Shares
” means
15,000,000 of the Founders’ Shares beneficially owned by Mars Harvest Co., Ltd.,
a BVI company controlled by Mr. Zhuo Xinrong.
"
Event
" shall have the
meaning set forth in Section 7(c).
"
Event Date
" shall
have the meaning set forth in Section 7(c).
"
Exchange Act
" means
the Securities Exchange Act of 1934, as amended.
"
Filing Date
" means
with respect to a Registration Statement under Section 2(a), the date that is
the sixtieth (60
th
) day
following the Termination Date;
provided
,
however
that if the
Filing Date falls on a Saturday, Sunday or any other day which shall be a legal
holiday or a day on which the Commission is authorized or required by law or
other government actions to close, the Filing Date shall be the following
Business Day.
“
Founders’ Shares
”
means 37,177,323 of the Ordinary Shares of the Company owned, prior to the
consummation of the Merger Agreement, in the aggregate by Mars Harvest Co.,
Ltd., Venus Seed Co., Ltd., Saturn Glory Co., Ltd., Regent Fill Investment Group
Limited, Poying Holdings Limited; Yu Jianliang and Ding Nan.
"
Holder
" or "
Holders
" means the
holder or holders, as the case may be, from time to time of Registrable
Securities.
"
Indemnified Party
"
shall have the meaning set forth in Section 5(c).
"
Indemnifying Party
"
shall have the meaning set forth in Section 5(c).
"
Losses
" shall have
the meaning set forth in Section
5(a).
“
Merger Agreement
”
means that certain Agreement and Plan of Merger, dated as of even date herewith,
by and among Chardan Acquisition Corp., the shareholders of Chardan Acquisition
Corp., the Company and the shareholders of the Company.
"
Ordinary Shares
"
means the Company's Ordinary Shares, no par value per share.
"
Person
" means an
individual or a corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or political subdivision thereof) or other entity of
any kind.
"
Preferred Shares
"
means shares of the Company’s Class A Convertible Preferred Shares issued to the
Purchasers pursuant to the Purchase Agreement.
"
Proceeding
" means an
action, claim, suit, investigation or proceeding (including, without limitation,
an investigation or partial proceeding, such as a deposition), whether commenced
or threatened.
“
Purchaser
Representative
” shall have the meaning as set forth in the Purchase
Agreement.
"
Prospectus
" means the
prospectus included in the Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective registration statement in reliance upon
Rule 430A promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, with respect to the terms of the offering of any
portion of the Registrable Securities covered by the Registration Statement, and
all other amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference in such
Prospectus.
"
Registrable
Securities
” means (i) the Ordinary Shares issuable upon the
conversion of the Preferred Shares (the “
Conversion Shares
”),
(ii) the Escrow Shares, (iii) the Founder Shares, (iv) the Chardan Shares and
(v) any securities issued or issuable upon any shares split, dividend or other
distribution, recapitalization or similar event with respect to the
foregoing.
"
Registration
Statement
" means the registration statements and any additional
registration statements contemplated by Section 2, including (in each case) the
Prospectus, amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated by reference in such registration
statement.
"
Rule 144
" means Rule
144 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.
"
Rule 415
" means Rule
415 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.
"
Rule 424
" means Rule
424 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.
“
SEC Guidance
” means
(i) any publicly-available written or oral guidance, comments, requirements or
requests of the Commission staff and (ii) the Securities Act.
"
Securities Act
" means
the Securities Act of 1933, as amended.
“
Securities Escrow
Agreement
” means that agreement dated as of even date herewith, by and
among the Company, the Purchasers, Chardan Capital Markets, LLC, Mars Harvest
Co. Ltd. and Loeb & Loeb, LLP.
"
Termination Date
"
means the date after which funds will no longer be accepted for the purchase of
the Preferred Shares sold pursuant to the terms of the Purchase
Agreement.
2.
Registration of Registrable
Securities.
(a)
Piggyback
Registration
. On or prior to the Filing Date, the Company
shall use its best efforts to prepare and file with the Commission a
Registration Statement (the “Public Offering Registration Statement”) providing
for (i) the sale of Ordinary Shares of the Company by means of a firm commitment
underwritten offering (the “
Underwritten Shares
”)
and (ii) the resale of all of the Registrable Securities to be made on a
continuous basis pursuant to Rule 415. The Public Offering
Registration Statement shall be on Form F-1 (except if the Company is not then
eligible to use such form, in which case such registration shall be on another
appropriate form in accordance herewith and the Securities Act and the rules
promulgated thereunder). The Company shall (i) not permit any
securities other than the Underwritten Shares and the Registrable Securities to
be included in the Public Offering Registration Statement (ii) use its best
efforts to cause the Public Offering Registration Statement to be declared
effective under the Securities Act as promptly as possible after the filing
thereof, but in any event prior to the Effectiveness Date, and to keep the
Public Offering Registration Statement continuously effective under the
Securities Act until such date as is the earlier of (x) the date when all
Registrable Securities covered by the Public Offering Registration Statement
have been sold or (y) the date on which the Registrable Securities may be sold
without any restriction pursuant to Rule 144 as determined by the counsel to the
Company pursuant to a written opinion letter, addressed to the Company's
transfer agent to such effect (the "
Effectiveness
Period
"). If at any time and for any reason, an additional
Registration Statement is required to be filed because at such time the actual
number of Registrable Securities exceeds the number of Registrable Securities
remaining under the Public Offering Registration Statement, the Company shall
use its best efforts to file such additional Registration Statement within
twenty (20) Business Days and shall use its best efforts to cause such
additional Registration Statement to be declared effective by the Commission as
soon as possible.
(b)
Resale Registration
.
In the event that the Company does not file the Public Offering Registration
Statement as set forth in Section 2(a) on or prior to the Filing Date, the
Company shall prepare and file with the Commission a "resale" Registration
Statement providing for the resale of all Registrable Securities by means of an
offering to be made on a continuous basis pursuant to Rule 415 (the “
Resale Registration
Statement
”). The Resale Registration Statement shall be on
Form F-1 (except if the Company is not then eligible to register for resale the
Registrable Securities on Form F-1, in which case such registration shall be on
another appropriate form in accordance herewith and the Securities Act and the
rules promulgated thereunder). The Company shall use its
best efforts to cause the Resale Registration Statement to be declared effective
under the Securities Act as promptly as possible after the filing thereof, but
in any event prior to the Effectiveness Date, and to keep the Resale
Registration Statement continuously effective under the Securities Act during
the Effectiveness Period. If at any time and for any reason, an
additional Registration Statement is required to be filed because at such time
the actual number of Registrable Securities exceeds the number of Registrable
Securities remaining under the Resale Registration Statement, the Company shall
use its best efforts to file such additional Registration Statement within
twenty (20) Business Days and shall use its best efforts to cause such
additional Registration Statement to be declared effective by the Commission as
soon as possible.
(c)
415 Limitation
.
Notwithstanding any other provision of this Agreement, if based upon any SEC
Guidance the Commission limits the number of Registrable Securities permitted to
be registered on a particular Registration Statement (and notwithstanding that
the Company used diligent efforts to advocate with the Commission for the
registration of all or a greater number of Registrable Securities than permitted
under such SEC Guidance), in the event the Commission does not permit the
Company to register all of the Registrable Securities in the Registration
Statement because of the Commission’s application of Rule 415, the number of
Registrable Securities owned by the Holders to be registered on such
Registration Statement will be reduced on a pro rata basis, but only after the
Founders’ Shares and the Chardan Shares to be registered on such Registration
Statement have been reduced on a pro rata basis, which reduction shall be
mutually agreed, and, if any additional reduction is necessary, the Escrow
Shares to be registered on such Registration Statement have been reduced. The
Company shall use its best efforts to file subsequent Registration Statements to
register the Registrable Securities that were not registered in the initial
Registration Statement filed by the Company covering the Registrable Securities
as promptly as possible but in no event later than on the “Additional
Registration Filing Date” (as hereinafter defined) and in a manner permitted by
the Commission. For purposes of this Section 2(c) only, “
Additional Registration Filing Date
”
means with respect to each subsequent Registration Statement filed pursuant
hereto, the later of (i) sixty (60) days following the sale of substantially all
of the Registrable Securities included in the initial Registration Statement or
any subsequent Registration Statement and (ii) six (6) months following the
effective date of the initial Registration Statement or any subsequent
Registration Statement, as applicable, or such earlier date as permitted by the
Commission. For purposes of this Section 2(b), “
Effectiveness Date
” means with respect
to each subsequent Registration Statement filed pursuant to this Section 2(c)
the ninetieth (90
th
) day
following the Additional Registration Filing Date of such Registration Statement
(or in the event such Registration Statement receives a “full review” by the
Commission, the one hundred twentieth (120
th
) day
following such filing date);
provided
that
, if the
Effectiveness Date falls on a Saturday, Sunday or any other day which shall be a
legal holiday or a day on which the Commission is authorized or required by law
or other government actions to close, the Effectiveness Date shall be the
following Business Day.
(d)
Underwriter Cutback
.
Notwithstanding anything to the contrary contained herein, if the managing
underwriter(s) or underwriter(s) in an underwritten offering advises the Company
and the Holders of the Registrable Securities in writing that the dollar amount
or number of shares of Registrable Securities, taken together with all other
Ordinary Shares or other securities which the Company desires to sell in the
offering, exceeds the maximum dollar amount or maximum number of shares that can
be sold in such offering without adversely affecting the proposed offering
price, the timing, the distribution method, or the probability of success of
such offering (such maximum dollar amount or maximum number of shares, as
applicable, the “Maximum Number of Shares”), then the securities that the
Company shall include in such registration shall include: (i) first, the
Holder’s portion of the Registrable Securities (pro rata in accordance with the
number of shares that each such Holder has requested be included in such
registration, regardless of the number of shares held by each such Holder (such
proportion is referred to herein as "Pro Rata")) that can be sold without
exceeding the Maximum Number of Shares; (ii) second, to the extent that the
Maximum Number of Shares has not been reached under the foregoing clause (i),
the Escrow Shares that can be sold without exceeding the Maximum Number of
Shares, and (iii) third, to the extent that the Maximum Number of Shares has not
been reached under the foregoing clauses (i) and (ii), the Founders’ Shares and
the Chardan Shares, on a pro rata basis.
3.
Registration
Procedures for the Registrable
Securities
. In connection with the Company's
registration obligations hereunder to the Holders of the Registrable Securities,
the Company shall:
(a) Disclose
the plan of distribution for the Registrable Securities in accordance with the
plan of distribution as set forth on
Exhibit A
hereto and
in accordance with applicable law.
(b) Not
less than five (5) Business Days prior to the filing of the Registration
Statement or any related Prospectus or any amendment or supplement thereto, the
Company shall (i) furnish to the Holders copies of all such documents proposed
to be filed, which documents will be subject to the review of such Holders, and
(ii) cause its officers and directors, counsel and independent certified public
accountants to respond to such inquiries as shall be necessary to conduct a
reasonable review of such documents. The Company shall not file the
Registration Statement or any such Prospectus or any amendments or supplements
thereto to which the Holders shall reasonably object in writing within three (3)
Business Days of their receipt thereof.
(c) (i)
Prepare and file with the Commission such amendments, including post-effective
amendments, to the Registration Statement as may be necessary to keep the
Registration Statement continuously effective as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the Commission
such additional Registration Statements as necessary in order to register for
resale under the Securities Act all of the Registrable Securities; (ii) cause
the related Prospectus to be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed pursuant to Rule 424
(or any similar provisions then in force) promulgated under the Securities Act;
(iii) respond as promptly as possible, but in no event later than ten (10)
Business Days, to any comments received from the Commission with respect to the
Registration Statement or any amendment thereto and as promptly as possible
provide the Holders true and complete copies of all correspondence from and to
the Commission relating to the Registration Statement; (iv) file the final
prospectus pursuant to Rule 424 of the Securities Act no later than two (2)
Business Days following the date the Registration Statement is declared
effective by the Commission; and (v) comply in all material respects with the
provisions of the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by the Registration Statement
during the Effectiveness Period in accordance with the intended methods of
disposition by the Holders thereof set forth in the Registration Statement as so
amended or in such Prospectus as so supplemented.
(d) If
the Registrable Securities owned by a Holder is included in the Registration
Statement pursuant to the terms hereof, notify the Holders of Registrable
Securities as promptly as possible (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to the Registration Statement is filed;
(B) when the Commission notifies the Company whether there will be a "review" of
such Registration Statement and whenever the Commission comments in writing on
such Registration Statement and (C) with respect to the Registration Statement
or any post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information with respect to the Holders; (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement covering any or all of the Registrable Securities or the initiation or
threatening of any Proceedings for that purpose; (iv) if at any time any of the
representations and warranties of the Company contained in any agreement
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (vi) of the occurrence of any event that makes
any statement made in the Registration Statement covering any or all of the
Registrable Securities or the related Prospectus thereto or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to such Registration Statement,
Prospectus or other documents so that, in the case of such Registration
Statement or the Prospectus, as the case may be, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein (in the case of the
Prospectus, in the light of the circumstances under which they were made) not
misleading.
(e) Use
its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal
of, as promptly as possible, (i) any order suspending the effectiveness of the
Registration Statement covering any or all of the Registrable Securities or (ii)
any suspension of the qualification (or exemption from qualification) of any of
the Registrable
Securities for sale in
any jurisdiction.
(f) If
requested by the Purchaser Representative, (i) promptly incorporate in a
Prospectus supplement or post-effective amendment to the Registration Statement
covering any or all of the Registrable Securities such information as the
Company reasonably agrees should be included therein and (ii) make all required
filings of such Prospectus supplement or such post-effective amendment as soon
as practicable after the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective
amendment.
(g) Unless
such document cannot be obtained on the Commission’s EDGAR (Electronic Data
Gathering, Analysis, and Retrieval) system, if requested by any Holder, furnish
to such Holder, without charge, at least one conformed copy of each Registration
Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by
reference, and all exhibits to the extent requested by such Person (including
those previously furnished or incorporated by reference) promptly after the
filing of such documents with the Commission.
(h) Promptly
deliver to each Holder, without charge, as many copies of the Prospectus
covering any or all of the Registrable Securities or Prospectuses (including
each form of prospectus) and each amendment or supplement thereto as such
Persons may reasonably request; and subject to the provisions of Section 3(n),
the Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders in connection with the
offering and sale of the Registrable Securities covered by such Prospectus and
any amendment or supplement thereto.
(i)
Prior to any public offering of Registrable Securities, use its best efforts to
register or qualify or cooperate with the selling Holders in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Holder requests in writing, to keep each such registration or qualification
(or exemption therefrom) effective during the Effectiveness Period and to do any
and all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by a Registration
Statement;
provided
,
however
, that the
Company shall not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action that would
subject it to general service of process in any such jurisdiction where it is
not then so subject or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.
(j) Cooperate
with the Holders to facilitate the timely preparation and delivery of
certificates representing Registrable Securities, if in certificated form, to be
sold pursuant to a Registration Statement, which certificates, to the extent
permitted by the Purchase Agreement and applicable federal and state securities
laws, shall be free of all restrictive legends, and to enable such Registrable
Securities to be in registered in such denominations and registered in such
names as any Holder may request in connection with any sale of Registrable
Securities.
(k) Upon
the occurrence of any event contemplated by Section 3(d)(vi), promptly as
possible, prepare a supplement or amendment, including a post-effective
amendment, to the Registration Statement covering any or all of the Registrable
Securities or a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference, and file any
other required document so that, as thereafter delivered, neither such
Registration Statement nor such Prospectus will contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein (in the case of the Prospectus, in the
light of the circumstances under which they were made) not
misleading.
(l)
Use its best efforts to cause all Underwritten Shares and
Registrable Securities relating to the Registration Statement, to continued to
be quoted or listed on a securities exchange, quotation system or market, if
any, on which similar securities issued by the Company are then listed or traded
as and when required pursuant to the Purchase Agreement.
(m) The
Company (i) may require each selling Holder to furnish to the Company
information regarding such Holder and the distribution of such Registrable
Securities as is required by law to be disclosed in the Registration Statement,
Prospectus, or any amendment or supplement thereto, and to complete and execute
a selling shareholder questionnaire reflecting such information and (ii) may
exclude from such registration the Registrable Securities of any such Holder who
fails to furnish such information or questionnaire within five days
after receiving such request.
If the
Registration Statement refers to any Holder by name or otherwise as the holder
of any securities of the Company, then such Holder shall have the right to
require (if such reference to such Holder by name or otherwise is not required
by the Securities Act or any similar federal statute then in force) the deletion
of the reference to such Holder in any amendment or supplement to the
Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required.
Each
Holder covenants and agrees that it will not sell any Registrable Securities
under the Registration Statement until the Company has electronically filed the
Prospectus as then amended or supplemented, as contemplated by Section 3(b) and
notice from the Company that the Registration Statement and any post-effective
amendments thereto have become effective as contemplated by Section
3(d).
Each
Holder agrees by its acquisition of such Registrable Securities that, upon
receipt of a notice from the Company of the occurrence of any event of the kind
described in Section 3(d)(ii), 3(d)(iii), 3(d)(iv), 3(d)(v), 3(d)(vi) or 3(n),
such Holder will forthwith discontinue disposition of such Registrable
Securities under the Registration Statement until such Holder's receipt of the
copies of the supplemented Prospectus and/or amended Registration Statement
contemplated by Section 3(h), or until it is advised in writing (the "
Advice
") by the
Company that the use of the applicable Prospectus may be resumed, and, in either
case, has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
(n) If
(i) there is material non-public information regarding the Company which the
Company's Board of Directors (the "
Board
") determines
not to be in the Company's best interests to disclose and which the Company is
not otherwise required to disclose, (ii) there is a significant business
opportunity (including, but not limited to, the acquisition or disposition of
assets (other than in the ordinary course of business) or any merger,
consolidation, tender offer or other similar transaction) available to the
Company which the Board determines not to be in the Company's best interest to
disclose, or (iii) the Company is required to file a post-effective amendment to
the Registration Statement to incorporate the Company’s Exchange Act reports and
audited financial statements on Form 20-F, then the Company may (x) postpone or
suspend filing of a Registration Statement for a period not to exceed forty-five
(45) consecutive days or (y) postpone or suspend effectiveness of a registration
statement for a period not to exceed forty-five (45) consecutive days;
provided
that the
Company may not postpone or suspend effectiveness of a Registration Statement
under this Section 3(n) for more than ninety (90) days in the aggregate during
any three hundred sixty (360) day period;
provided
,
however
, that no such
postponement or suspension shall be permitted for consecutive twenty (20) day
periods arising out of the same set of facts, circumstances or
transactions.
4.
Registration
Expenses
.
All fees
and expenses incident to the performance of or compliance with this Agreement by
the Company, except as and to the extent specified in this Section 4, shall be
borne by the Company whether or not the Registration Statement is filed or
becomes effective and whether or not any Registrable Securities are sold
pursuant to the Registration Statement. The fees and expenses
referred to in the foregoing sentence shall include, without limitation, (i) all
registration and filing fees (including, without limitation, fees and expenses
(A) with respect to filings required to be made with any securities
exchange or market on which Registrable Securities are required hereunder to be
listed, if any (B) with respect to filing fees required to be paid to the
Financial Industry Regulatory Authority, Inc. (including, without limitation,
pursuant to FINRA Rule 5110) and (C) in compliance with state securities or Blue
Sky laws in such jurisdictions as the Purchaser Representative may designate)),
(ii) printing expenses (including, without limitation, printing prospectuses if
the printing of prospectuses is requested by the Purchaser Representative),
(iii) messenger, telephone and delivery expenses, (iv) Securities Act liability
insurance, if the Company so desires such insurance, and (v) fees and expenses
of all other Persons retained by the Company in connection with the consummation
of the transactions contemplated by this Agreement, including, without
limitation, the Company's independent public accountants (including the expenses
of any comfort letters or costs associated with the delivery by independent
public accountants of a comfort letter or comfort letters). In
addition, the Company shall be responsible for all of its internal expenses
incurred in connection with the consummation of the transactions contemplated by
this Agreement (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit, the fees and expenses incurred in connection with the listing
of the Registrable Securities on any securities exchange if required
hereunder. The Company shall not be responsible for any discounts,
commissions, transfer taxes or other similar fees incurred by the Holders in
connection with the sale of the Registrable Securities.
5.
Indemnification
.
(a)
Indemnification by the
Company
. The Company shall, notwithstanding any termination of
this Agreement, indemnify and hold harmless each Holder, the officers,
directors, managers, partners, members, shareholders, agents, brokers,
investment advisors and employees of each of them, each Person who controls any
such Holder (within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act) and the officers, directors, agents and employees of
each such controlling Person, to the fullest extent permitted by applicable law,
from and against any and all losses, claims, damages, liabilities, costs
(including, without limitation, costs of preparation and attorneys' fees) and
expenses (collectively, "
Losses
"), as
incurred, arising out of or relating to any violation of securities laws or
untrue statement of a material fact contained in the Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or relating to any omission
of a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in the light of the circumstances under which they were
made) not misleading, except to the extent, but only to the extent, that such
untrue statements or omissions are based solely upon information regarding such
Holder or such other Indemnified Party furnished in writing to the Company by
such Holder for use therein. The Company shall notify the Holders
promptly of the institution, threat or assertion of any Proceeding of which the
Company is aware in connection with the transactions contemplated by this
Agreement.
(b)
Indemnification by
Holders
. Each Holder shall, severally and not jointly,
indemnify and hold harmless the Company, its directors, officers, agents and
employees, each Person who controls the Company (within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act), and the directors,
officers, agents and employees of such controlling Persons, to the fullest
extent permitted by applicable law, from and against all Losses, as incurred,
arising solely out of or based solely upon any untrue statement of a material
fact contained in the Registration Statement, any Prospectus, or any form of
prospectus, or in any amendment or supplement thereto, or arising solely out of
or based solely upon any omission of a material fact required to be stated
therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in the light of the
circumstances under which they were made) not misleading, to the extent, but
only to the extent, that such untrue statement or omission is contained in any
information so furnished in writing by such Holder or other Indemnifying Party
to the Company specifically for inclusion in the Registration Statement or such
Prospectus. Notwithstanding anything to the contrary contained
herein, each Holder shall be liable under this Section 5(b) only for the lesser
of (a) the actual damages incurred or (b) that amount as does not exceed the
gross proceeds to such Holder as a result of the sale of his/her/its Registrable
Securities pursuant to such Registration Statement.
(c)
Conduct of Indemnification
Proceedings
. If any Proceeding shall be brought or asserted
against any Person entitled to indemnity hereunder (an "
Indemnified Party
"),
such Indemnified Party promptly shall promptly notify the Person from whom
indemnity is sought (the "
Indemnifying Party”
)
in writing, and the Indemnifying Party shall be entitled to assume the defense
thereof, including the employment of counsel reasonably satisfactory to the
Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof; provided that the failure of any Indemnified
Party to give such notice shall not relieve the Indemnifying Party of its
obligations or liabilities pursuant to this Agreement, except (and only) to the
extent that it shall be finally determined by a court of competent jurisdiction
(which determination is not subject to appeal or further review) that such
failure shall have proximately and materially adversely prejudiced the
Indemnifying Party.
An
Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless: (1) the Indemnifying Party has agreed in writing to pay such fees and
expenses; or (2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding; or (3) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified Party
and the Indemnifying Party, and such parties shall have been advised by counsel
that a conflict of interest is likely to exist if the same counsel were to
represent such Indemnified Party and the Indemnifying Party (in which case, if
such Indemnified Party notifies the Indemnifying Party in writing that it elects
to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
such counsel shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld or delayed. No Indemnifying Party shall, without the prior
written consent of the Indemnified Party, effect any settlement of any pending
or threatened Proceeding in respect of which any Indemnified Party is a party
and indemnity has been sought hereunder, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding.
All indemnifiable fees and expenses of
the Indemnified Party (including reasonable fees and expenses incurred in
connection with investigating or preparing to defend such Proceeding in a manner
not inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten (10) Business Days of written notice thereof to the
Indemnifying Party (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder;
provided, that the
Indemnified Party shall reimburse all such fees and expenses to the extent it is
finally judicially determined that such Indemnified Party is not entitled to
indemnification hereunder).
(d)
Contribution
. If a
claim for indemnification under Section 5(a) or 5(b) is due but unavailable to
an Indemnified Party because of a failure or refusal of a governmental authority
to enforce such indemnification in accordance with its terms (by reason of
public policy or otherwise), then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses, in such proportion
as is appropriate to reflect the relative benefits received by the Indemnifying
Party on the one hand and the Indemnified Party on the other from the offering
of the Preferred Shares. If, but only if, the allocation provided by
the foregoing sentence is not permitted by applicable law, the allocation of
contribution shall be made in such proportion as is appropriate to reflect not
only the relative benefits referred to in the foregoing sentence but also the
relative fault, as applicable, of the Indemnifying Party and Indemnified Party
in connection with the actions, statements or omissions that resulted in such
Losses as well as any other relevant equitable considerations. The
relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue statement of a material fact or omission of a material
fact, has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the
parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action, statement or omission. The amount paid or payable by a
party as a result of any Losses shall be deemed to include, subject to the
limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms. In no event shall any
selling Holder be required to contribute an amount under this Section 5(d) in
excess of the gross proceeds received by such Holder upon sale of such Holder’s
Registrable Securities pursuant to the Registration Statement giving rise to
such contribution obligation.
The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
The
indemnity and contribution agreements contained in this Section are in addition
to any liability that the Indemnifying Parties may have to the Indemnified
Parties pursuant to applicable law.
6.
Rule
144
.
As long
as any Holder owns Preferred Shares or Registrable Securities, the Company
covenants to timely file (or obtain extensions in respect thereof and file
within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange
Act. As long as any Holder owns Preferred Shares or Registrable
Securities, if the Company is not required to file reports pursuant to Section
13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the Holders
and make publicly available in accordance with Rule 144(c) promulgated under the
Securities Act annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be included
in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as
any other information required thereby, in the time period that such filings
would have been required to have been made under the Exchange
Act. The Company further covenants that it will take such further
action as any Holder may reasonably request, all to the extent reasonably
required from time to time to enable such Person to sell Conversion Shares
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 promulgated under the Securities Act, including
providing any legal opinions relating to such sale pursuant to Rule
144. Upon the request of any Holder, the Company shall deliver to
such Holder a written certification of a duly authorized officer as to whether
it has complied with such requirements.
7.
Miscellaneous
.
(a)
Remedies
. In
the event of a breach by the Company or by a Holder of any of their obligations
under this Agreement, such Holder or the Company, as the case may be, in
addition to being entitled to exercise all rights granted by law and under this
Agreement, including recovery of damages, will be entitled to specific
performance of its rights under this
Agreement. Each
of the Company and each Holder agrees that monetary damages would not
provide
adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b)
No Inconsistent
Agreements
. The Company has not entered into, and shall not
enter into on or after the date of this Agreement, any agreement with respect to
its securities that is inconsistent with the rights granted to the Holders in
this Agreement or otherwise conflicts with the provisions
hereof. Except for this Agreement, the Company has not previously
entered into any agreement that is currently in effect granting any registration
rights with respect to any of its securities to any Person. Without
limiting the generality of the foregoing, without the written consent of the
Purchaser Representative, the Company shall not grant to any Person the right to
request the Company to register any securities of the Company under the
Securities Act unless the rights so granted are subject in all respects to the
prior rights in full of the Holders set forth herein, and are not otherwise in
conflict with the provisions of this Agreement.
(c)
Failure to Have the
Registration Statement Declared Effective for Conversion Shares and Other
Events
. The Company agrees that the Holders of the Conversion
Shares will suffer damages if the Registration Statement is not declared
effective by the Commission on or prior to the Effectiveness Date and maintained
in the manner contemplated herein during the Effectiveness Period or if certain
other events occur. The Company and the Holders of the Conversion
Shares further agree that it would not be feasible to ascertain the extent of
such damages with precision. Accordingly, (A) if the Registration Statement is
not declared effective by the Commission on or prior to the Effectiveness Date,
or (B) the Registration Statement is filed with and declared effective by the
Commission but thereafter ceases to be effective as to all Registrable
Securities at any time prior to the expiration of the Effectiveness Period,
without being succeeded immediately by a subsequent Registration Statement filed
with and declared effective by the Commission, or (C) the Company has breached
Section 3(n) of this Agreement (any such failure or breach of the foregoing
being referred to as an "
Event
," and for
purposes of clause (A) the date on which such Event occurs, or for purposes of
clause (B) after more than fifteen (15) Business Days, being referred to as
“
Event Date
”),
the Company shall pay an amount in cash as liquidated damages to each Holder of
the Conversion Shares equal to 0.3%of the amount of such Holder’s initial
investment in the Preferred Shares for each calendar month or portion thereof
thereafter from the Event Date until the applicable Event is cured;
provided
,
however
, that in no
event shall the amount of liquidated damages payable at any time and from time
to time to any Holder of the Conversion Shares pursuant to this Section 7(c)
exceed an aggregate of ten percent (10%) of the amount of such Holder’s initial
investment in the Preferred Shares; and
provided
,
further
, that in the
event the Commission does not permit all of the Registrable Securities to be
included in the Registration Statement because of its application of Rule 415,
liquidated damages payable pursuant to this Section shall only be payable by the
Company based on the portion of the Holder’s initial investment in the Preferred
Shares that corresponds to the number of such Holder’s Registrable Securities
permitted to be registered by the Commission in such Registration Statement
pursuant to Rule 415. For further clarification, the parties
understand that no liquidated damages shall be payable pursuant to this Section
with respect to any Registrable Securities that the Company is not permitted to
include on such Registration Statement due to the Commission’s application of
Rule 415. Notwithstanding anything to the contrary in this paragraph (c), if (a)
any of the Events described above shall have occurred, (b) on or prior to the
applicable Event Date, the Company shall have exercised its rights under Section
3(n) hereof and (c) the postponement or suspension permitted pursuant to such
Section 3(n) shall remain effective as of such applicable Event Date, then the
applicable Event Date shall be deemed instead to occur on the second Business
Day following the termination of such postponement or
suspension. Liquidated damages payable by the Company pursuant to
this Section 7(c) shall be paid on a monthly basis in accordance with this
Section.
(d)
Lock-Up
. In
the event the Company undertakes a bona fide public offering of its Ordinary
Shares, the Purchasers shall agree at the request of the lead underwriter to
execute a lock-up agreement which shall provide that the Purchasers will not
sell, transfer or dispose of their Ordinary Shares until one hundred and eighty
(180) days after the consummation of such public offering; provided, however,
that any such lock-up with respect to the Purchasers shall be on no less
favorable terms than any lock-up executed by any officer, director or 5%
shareholder in connection with such public offering.
(e)
Amendments and
Waivers
. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the same shall be in writing and signed by the Company and the Purchaser
Representaitve and upon such signature shall be binding upon all
Holders.
(f)
Notices
. Any
notice, demand, request, waiver or other communication required or permitted to
be given hereunder shall be in writing and shall be effective (a) upon hand
delivery, telecopy or facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be:
If
to the Company:
|
China
Dredging Group Co., Ltd.
|
|
Floor
18, Tower A
|
|
Zhongshan
Building, No. 154
|
|
Hudong
Road, Gulou District, Fuzhou City, Fujian Province, PRC
|
|
Attention:
Mr. Zhuo Xinrong
|
|
Tel.
No.:
|
|
Fax
No.:
|
|
|
with
copies to
|
Loeb
& Loeb
|
(which
shall not
|
345
Park Avenue
|
constitute
notice):
|
New
York, NY10154
|
|
Attn:
Mitchell S. Nussbaum
|
|
Tel:
212.407.4159
|
|
Fax:
212.407-4990
|
If
to any Purchaser:
|
At
the address of such Purchaser set forth on
Schedule
I
to this Agreement
|
|
|
with
copies to
|
|
(which
shall not
|
|
constitute
notice):
|
Attention:
|
|
Tel:
|
|
Fax:
|
|
|
If
to the Founders:
|
|
|
|
If to
Chardan
|
|
Any party
hereto may from time to time change its address for notices by giving at least
ten (10) days written notice of such changed address to the other party
hereto.
(g)
Successors and
Assigns
. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted assigns and shall
inure to the benefit of each Holder and its successors and
assigns. The Company may not assign this Agreement or any of its
rights or obligations hereunder without the prior written consent of each
Holder. Each Purchaser may assign its rights hereunder in the manner
and to the Persons as permitted under the Purchase Agreement.
(h)
Assignment of Registration
Rights
. The rights of each Holder, including the right to have
the Company register for resale Registrable Securities in accordance with the
terms of this Agreement, shall be automatically assignable by each Holder to any
Person who acquires all or a portion
of the Preferred Shares
or the Registrable Securities if: (i) the Holder agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment, (ii)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which such registration rights
are being transferred or assigned, (iii) following such transfer or assignment
the further disposition of such securities by the transferee or assignees is
restricted under the Securities Act and applicable state securities laws unless
such securities are registered in a Registration Statement under this Agreement
(in which case the Company shall be obligated to amend such Registration
Statement to reflect such transfer or assignment) or are otherwise exempt from
registration, (iv) at or before the time the Company receives the written notice
contemplated by clause (ii) of this Section, the transferee or assignee agrees
in writing with the Company to be bound by all of the provisions of this
Agreement, and (v) such transfer shall have been made in accordance with the
applicable requirements of the Purchase Agreement. The rights to
assignment shall apply to the Holders (and to subsequent) successors and
assigns.
(i)
Counterparts
. This
Agreement may be executed in any number of counterparts, each of which when so
executed shall be deemed to be an original and, all of which taken together
shall constitute one and the same Agreement and shall become effective when
counterparts have been signed by each party and delivered to the other parties
hereto, it being understood that all parties need not sign the same
counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid binding obligation
of the party executing (or on whose behalf such signature is executed) the same
with the same force and effect as if such facsimile signature were the original
thereof.
(j)
Governing Law;
Jurisdiction
. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to any of the conflicts of law principles which would result in
the application of the substantive law of another jurisdiction. This
Agreement shall not be interpreted or construed with any presumption against the
party causing this Agreement to be drafted. The Company and the
Holders agree that venue for any dispute arising under this Agreement will lie
exclusively in the state or federal courts located in New York County, New York,
and the parties irrevocably waive any right to raise
forum non conveniens
or any
other argument that New York is not the proper venue. The Company and
the Holders irrevocably consent to personal jurisdiction in the state and
federal courts of the state of New York. The Company and the Holders
consent to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing in this
Section 7(j) shall affect or limit any right to serve process in any other
manner permitted by law. The Company and the Holders hereby agree
that the prevailing party in any suit, action or proceeding arising out of or
relating to this Agreement or the Purchase Agreement, shall be entitled to
reimbursement for reasonable legal fees from the non-prevailing
party. The parties hereby waive all rights to a trial by
jury.
(k)
Cumulative
Remedies
. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law.
(l)
Severability
. If any
term, provision, covenant or restriction of this Agreement is held to be
invalid, illegal, void or unenforceable in any respect, the remainder of the
terms, provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or invalidated,
and the parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is
hereby stipulated and declared
to be the intention of
the parties that they would have executed the remaining terms, provisions,
covenants and restrictions without including any of such that may be hereafter
declared invalid, illegal, void or unenforceable.
(m)
Headings
. The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
IN
WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.
CHINA
DREDGING GROUP CO., LTD.
|
|
|
|
By:
|
|
|
Name:
|
Zhuo
Xinrong
|
|
Title:
|
Chief
Executive Officer
|
|
|
|
SHAREHOLDERS
|
|
|
|
CHARDAN
CAPITAL MARKETS LLC
|
|
|
|
By:
|
|
|
Name:
|
|
|
Title:
|
|
|
|
KERRY
PROPPER
|
|
|
|
MARS
HARVEST CO., LTD.
|
|
|
|
By:
|
|
|
Name:
|
|
|
Title:
|
|
|
|
|
VENUS
SEED CO., LTD.
|
|
|
|
By:
|
|
|
Name:
|
|
|
Title:
|
|
|
|
|
SATURN
GLORY CO., LTD.
|
|
|
|
By:
|
|
|
Name:
|
|
|
Title:
|
|
REGENT
FILL INVESTMENT GROUP LIMITED
|
|
|
|
By:
|
|
|
Name:
|
|
|
Title:
|
|
|
|
|
POYING
HOLDINGS LIMITED
|
|
|
|
By:
|
|
|
Name:
|
|
|
Title:
|
|
|
|
|
|
YU
JIANLIANG
|
|
|
|
|
DING
NAN
|
PURCHASERS:
[Signature
Page to Registration Rights Agreement]
SECURITIES ESCROW
AGREEMENT
This
SECURITIES ESCROW AGREEMENT (this “
Agreement
”), dated as
of October 29, 2010, is entered into by and among China Dredging Group Co.,
Ltd., a British Virgin Islands company (the “
Company
”), each of
the Purchasers whose names are set forth on
Exhibit A
hereto
(individually, a “
Purchaser
” and
collectively, the “
Purchasers
”), Chardan
Capital Markets, LLC (the “
Purchaser
Representative
”), Mars Harvest Co. Ltd., a British Virgin Islands company
(the “
Principal
Shareholder
”), and Loeb & Loeb LLP (the “
Escrow
Agent
”). Capitalized terms used but not defined herein shall
have the meanings set forth in the Purchase Agreement (as defined
below).
WITNESSETH:
WHEREAS,
the Company intends to consummate a private placement transaction with certain
accredited investors, non U.S. persons and/or qualified institutional buyers
(the “
Purchasers
”), whereby
the Company will issue shares of the Company’s class A convertible preferred
shares, no par value per share (the “
Preferred Shares
”),
initially convertible into one (1) share of the Company’s ordinary shares, no
par value per share (the “
Common Shares
”),
subject to adjustment (the “
Financing
Transaction
”);
WHEREAS,
concurrently with the consummation of the Financing Transaction, the Company
intends to consummate a merger with Chardan Acquisition Corp. with the Company
being the surviving entity of the merger (the “
Merger
”);
WHEREAS,
in connection with the Financing Transaction, the Company entered into a
securities purchase agreement, dated as of the date hereof (the “
Purchase Agreement
”),
by and among the Company and the Purchasers, and certain other agreements,
documents, instruments and certificates necessary to carry out the purposes
thereof (collectively, the “
Transaction
Documents
”);
WHEREAS,
as an inducement to the Purchasers to enter into the Purchase Agreement, the
Principal Shareholder has agreed to place share certificates (“
Certificates
”)
representing 15,000,000 of the Company’s ordinary shares (the “
Escrow Shares
”) into
escrow for the benefit of the Purchasers in the event the Company fails to
achieve certain financial performance targets for each of the 12-month periods
ending December 31, 2010 and December 31, 2011;
WHEREAS,
the Purchasers to the Purchase Agreement have appointed a Purchaser
Representative pursuant to the terms thereof to act on their behalf in
connection with this Agreement; and
WHEREAS,
the Company and the Purchaser Representative have requested that the Escrow
Agent hold the Escrow Shares on the terms and conditions set forth in this
Agreement and the Escrow Agent has agreed to act as escrow agent pursuant to the
terms and conditions of this Agreement.
NOW,
THEREFORE, in consideration of the covenants and mutual promises contained
herein and other good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE
I
TERMS
OF THE ESCROW
1.1.
Appointment of Escrow
Agent
. The parties hereby agree to appoint Loeb & Loeb,
LLP, as escrow agent (the “
Escrow Agent
”), to
act in accordance with the terms and conditions set forth in this Agreement, and
Escrow Agent hereby accepts such appointment and agrees to act in accordance
with such terms and conditions.
1.2
Establishment of Escrow
Account
. Upon the execution of this Agreement, the Principal
Shareholder shall deliver to the Escrow Agent one or more Certificates
representing the Escrow Shares, along with a share transfer form executed in
blank or in other form and substance acceptable for transfer. The
Escrow Agent shall hold the Escrow Shares in an escrow account (the “Escrow
Account”) and distribute the same as contemplated by this
Agreement.
1.3
Distribution of the Escrow
Shares
. Within five (5) business days of the receipt in the
applicable year of the certified copy from the Company’s auditor of the 2010
Audited Financial Statements and the 2011 Audited Financial Statements, and a
calculation from the Company of the pro rata and aggregate number of the Escrow
Shares to be distributed to the Purchasers Escrow Agent shall send to the
Company’s transfer agent one or more Certificates covering such aggregate number
of the Escrow Shares required to be distributed to the Purchasers pursuant to
the terms of the Purchase Agreement.
1.4
Termination of
Escrow
. Within five (5) business days following the earliest
of (i) the distribution of all of the Escrow Shares to the Purchasers, (ii) the
receipt by the Escrow Agent from the Company of a certification that the
Adjusted Net Income equals or exceeds $87,171,308 or (iii) the event
that Escrow Shares were distributed to the Purchasers, the receipt from the
transfer agent of any share certificate reflecting the remaining Escrow Shares
after such distribution to the Purchasers , the Escrow Agent will
transfer all undistributed Escrow Shares back to the Principal Shareholder and
close the Escrow Account established in section 1.2 above.
ARTICLE
II
REPRESENTATIONS
OF THE PRINCIPAL SHAREHOLDER
2.1
Representations and
Warranties
. The Principal Shareholder hereby represents and
warrants to the Purchasers and the Purchaser Representative as
follows:
(i) The
Principal Shareholder is the record and beneficial owner of the Escrow Shares
placed into the Escrow Account and owns the Escrow Shares, free and clear of all
pledges, liens, claims and encumbrances, except encumbrances created by this
Agreement. There are no restrictions on the ability of the Principal
Shareholder to transfer the Escrow Shares, or applicable foreign, federal and
state securities laws.
(ii) The
performance of this Agreement and compliance with the provisions hereof will not
violate any provision of any law applicable to the Principal Shareholder and
will not conflict with or result in any material breach of any of the terms,
conditions or provisions of, or constitute a default under the terms of the
certificate of incorporation or by-laws of the Principal Shareholder, or any
indenture, mortgage, deed of trust or other agreement or instrument binding upon
the Principal Shareholder or affecting the Escrow Shares or result in the
creation or imposition of any lien, charge or encumbrance upon, any of the
properties or assets of the Principal Shareholder, the creation of which would
have a material adverse effect on the business and operations of the Principal
Shareholder. No notice to, filing with, or authorization,
registration, consent or approval of any governmental authority or other person
is necessary for the execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby by the Principal
Shareholder, other than those already obtained. Upon the transfer of the Escrow
Shares to the Purchasers pursuant to this Agreement, the Purchasers
will be the record and beneficial owners of all of such shares and have good and
valid title to all of such shares, free and clear of all
encumbrances.
ARTICLE
III
ESCROW
AGENT
3.1. The
Escrow Agent’s duties hereunder may be altered, amended, modified or revoked
only by a writing signed by the Company, the Principal Shareholder, the
Purchaser Representative and the Escrow Agent.
3.2. The
Escrow Agent shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by the Escrow Agent
to be genuine and to have been signed or presented by the proper party or
parties. The Escrow Agent shall not be personally liable for any act the Escrow
Agent may do or omit to do hereunder as the Escrow Agent while acting in good
faith and in the absence of gross negligence, fraud or willful misconduct, and
any act done or omitted by the Escrow Agent pursuant to the advice of the Escrow
Agent’s attorneys-at-law shall be conclusive evidence of such good faith, in the
absence of gross negligence, fraud or willful misconduct.
3.3. The
Escrow Agent is hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law and is hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case the Escrow Agent obeys or complies with any such order, judgment or decree,
the Escrow Agent shall not be liable to any of the parties hereto or to any
other person, firm or corporation by reason of such decree being subsequently
reversed, modified, annulled, set aside, vacated or found to have been entered
without jurisdiction.
3.4. The
Escrow Agent shall not be liable in any respect on account of the identity,
authorization or rights of the parties executing or delivering or purporting to
execute or deliver any documents or papers deposited or called for thereunder in
the absence of gross negligence, fraud or willful misconduct.
3.5. The
Escrow Agent shall be entitled to employ such legal counsel and other experts as
the Escrow Agent may deem necessary to properly advise the Escrow Agent in
connection with the Escrow Agent’s duties hereunder, may rely upon the advice of
such counsel, and may pay such counsel reasonable compensation therefor which
shall be paid by the Escrow Agent. The Escrow Agent has acted as
legal counsel for the Company. The Company and the Purchasers consent to the
Escrow Agent in such capacity as legal counsel for the Company and waive any
claim that such representation represents a conflict of interest on the part of
the Escrow Agent. The Company and the Purchasers understand that the Escrow
Agent is relying explicitly on the foregoing provision in entering into this
Escrow Agreement.
3.6. The
Escrow Agent’s responsibilities as escrow agent hereunder shall terminate if the
Escrow Agent shall resign by giving written notice to the Company and the
Purchasers. In the event of any such resignation, the Purchasers and the Company
shall appoint a successor Escrow Agent and the Escrow Agent shall deliver to
such successor Escrow Agent any escrow funds and other documents held by the
Escrow Agent.
3.7. If
the Escrow Agent reasonably requires other or further instruments connection
with this Escrow Agreement or obligations in respect hereto, the necessary
parties hereto shall use its best efforts to join in furnishing such
instruments.
3.8. It
is understood and agreed that should any dispute arise with respect to the
delivery and/or ownership or right of possession of the documents or the Escrow
Shares held by the Escrow Agent hereunder, the Escrow Agent is authorized and
directed in the Escrow Agent’s sole discretion (1) to retain in the Escrow
Agent’s possession without liability to anyone all or any part of said documents
or the Escrow Shares until such disputes shall have been settled either by
mutual written agreement of the parties concerned or by a final order, decree or
judgment or a court of competent jurisdiction after the time for appeal has
expired and no appeal has been perfected, but the Escrow Agent shall be under no
duty whatsoever to institute or defend any such proceedings or (2) to deliver
the Escrow Shares and any other property and documents held by the Escrow Agent
hereunder to a state or Federal court having competent subject matter
jurisdiction and located in the City of New York, Borough of Manhattan, in
accordance with the applicable procedure therefore.
3.9. Each
of the Company and the Principal Shareholder hereby agrees to indemnify and hold
harmless the Escrow Agent and its partners, employees, agents and
representatives from any and all claims, liabilities, costs or expenses in any
way arising from or relating to the duties or performance of the Escrow Agent
hereunder or the transactions contemplated hereby other than any such claim,
liability, cost or expense to the extent the same shall have been determined by
final, unappealable judgment of a court of competent jurisdiction to have
resulted from the gross negligence, fraud or willful misconduct of the Escrow
Agent.
ARTICLE
IV
MISCELLANEOUS
4.1.
Waiver
No
waiver of, or any breach of any covenant or provision herein contained shall be
deemed a waiver of any preceding or succeeding breach thereof, or of any other
covenant or provision herein contained. No extension of time for performance of
any obligation or act shall be deemed an extension of the time for performance
of any other obligation or act.
4.2.
Notices
. All
notices, demands, consents, requests, instructions and other communications to
be given or delivered or permitted under or by reason of the provisions of this
Agreement or in connection with the transactions contemplated hereby shall be in
writing and shall be deemed to be delivered and received by the intended
recipient as follows: (i) if personally delivered, on the business day of such
delivery (as evidenced by the receipt of the personal delivery service), (ii) if
mailed certified or registered mail return receipt requested, two (2) business
days after being mailed, (iii) if delivered by overnight courier (with all
charges having been prepaid), on the business day of such delivery (as evidenced
by the receipt of the overnight courier service of recognized standing), or (iv)
if delivered by facsimile transmission, on the business day of such delivery if
sent by 6:00 p.m. in the time zone of the recipient, or if sent after that time,
on the next succeeding business day (as evidenced by the printed confirmation of
delivery generated by the sending party’s telecopier machine). If any notice,
demand, consent, request, instruction or other communication cannot be delivered
because of a changed address of which no notice was given (in accordance with
this Section 4.2), or the refusal to accept same, the notice, demand, consent,
request, instruction or other communication shall be deemed received on the
second business day the notice is sent (as evidenced by a sworn affidavit of the
sender). All such notices, demands, consents, requests, instructions and other
communications will be sent to the following addresses or facsimile numbers as
applicable.
If to
Escrow
Agent: Loeb
& Loeb LLP
345 Park
Avenue
New York,
NY 10154
Attention:
Mitchell S. Nussbaum
Tel
No.:212-407-4000
Fax No.:
212-407-4990
If to the
Company or the Principal Shareholder:
China
Dredging Group Co., Ltd.
Floor 18,
Tower A, Zhongshan Building,
No. 154,
Hudong Road, Gulou District,
Fuzhou
City, Fujian Province, PRC
Attention::
Zhuo Xinrong
Tel.
No.:
Fax
No.:
With a
copy to (which shall not constitute notice):
Loeb
& Loeb LLP
345 Park
Avenue
New York,
NY 10154
Attention:
Mitchell S. Nussbaum, Esq.
Tel. No.:
(212) 407-4000
Fax No.:
(212) 407-4990
If to the
Purchaser Representative:
GNH
Partners, LLC, Two Greenwich Plaza, Greenwich, CT 06830
Attention: Guibao
Liu
Tel: (203)
742-3600
Fax:
With a
copy to (which shall not constitute notice):
or to
such other address and to the attention of such other person as any of the above
may have furnished to the other parties in writing and delivered in accordance
with the provisions set forth above.
4.3.
Successors and
Assigns
. This Escrow Agreement shall be binding upon and shall
inure to the benefit of the permitted successors and permitted assigns of the
parties hereto.
4.4.
Entire Agreement;
Amendment
. This Agreement contains the entire understanding and agreement
of the parties relating to the subject matter hereof and supersedes all prior
and/or contemporaneous understandings and agreements of any kind and nature
(whether written or oral) among the parties with respect to such subject matter.
This Escrow Agreement may not be modified, changed, supplemented, amended or
terminated, nor may any obligations hereunder be waived, except by written
instrument signed by the parties to be charged or by its agent duly authorized
in writing or as otherwise expressly permitted
herein. Notwithstanding anything to the contrary in this Agreement,
none of the provisions of Article I hereof or this Section 4.4 may be modified,
changed, supplemented, amended or terminated, nor may any such provision be
waived, without the prior written consent of the holders of a majority in
interest of the Preferred Shares purchased in the Financing Transaction as of
the date of such modification, change, supplement, amendment, termination or
waiver.
4.5.
Headings
. The section
headings contained in this Agreement are inserted for reference purposes only
and shall not affect in any way the meaning, construction or interpretation of
this Agreement. Any reference to the masculine, feminine, or neuter gender shall
be a reference to such other gender as is appropriate. References to the
singular shall include the plural and vice versa.
4.6.
Governing
Law
. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without giving
effect to any of the conflicts of law principles which would result in the
application of the substantive law of another jurisdiction. This Agreement shall
not be interpreted or construed with any presumption against the party causing
this Agreement to be drafted.
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of this ___
day of October 2010.
CHINA
DREDGING GROUP CO., LTD.
By:
|
|
Name:
Zhuo Xinrong
|
Title:
Chief Executive Officer
|
PURCHASER
REPRESENTATIVE:
By:
|
|
Name:
|
Title:
Authorized Signatory
|
ESCROW
AGENT:
Loeb
& Loeb LLP
By:
|
|
Name:
Mitchell S. Nussbaum
|
Title:
Partner
|
PRINCIPAL
SHAREHOLDER:
MARS
HARVEST CO. LTD.
By:
|
|
Name:
Zhuo Xinrong
|
Title:
Sole Director
|
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of this ___
day of October 2010.
PURCHASERS:
(Signature
Page for Purchasers that are Entities)
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of this ___
day of October 2010.
(Signature
Page for Purchasers who are Individuals)
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
Exhibit
4.8
Fujian
WangGang Dredging Construction Co., Ltd.
Wonder
Dredging LLC.
Fujian
Xing Gang Port Service Co., Ltd.
CONTRACTED
MANAGEMENT AGREEMENT
(Unoffical Translation)
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
Contracted
Management Agreement made the 30th day of June, 2010 (the “Agreement”),
among:
Fujian WangGang Dredging Construction
Co., Ltd.
The WOFE “the “WOFE”), Whose legal representative is
LIN Qing, at 16th Floor, Zhongshan Plaza, 154 Hudong Road, Fuzhou City,
Fujian.
Wonder Dredging LLC.
(“Wonder
Dredging”), whose legal representative is LIN Qing, at 1705 of 17th Floor,
Zhongshan Plaza A, 154 Hudong Road, Fuzhou City, Fujian.
Fujian Xing Gang Port Service Co.,
Ltd.
(“Fujian Xing Gang” ), whose legal representative is LIN Qing, at
17th Floor, Zhongshan Plaza A, 154 Hudong Road, Fuzhou City,
Fujian.
As used
in this Agreement, The WOFE, Wonder Dredging and Fujian Xing Gang are
collectively referred to herein as the “Parties to the Contract”.
Whereas
A
.
The WOFE is a
foreign-invested limited liability company duly incorporated and existing under
the laws of the People’s Republic of China (the
“
PRC
”
), with expertise
in the management of operating companies;
B. Wonder
Dredging is a limited liability company duly incorporated and existing under the
laws of the PRC,
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
C. Fujian
Xing Gang is a limited liability company duly incorporated and existing under
the laws of the PRC, specializing in dredging port
and waterways.
D. Each
of The WOFE and Wonder Dredging holds a fifty percent (50%) equity interest in
Fujian Xing Gang
NOW
THEREFORE the Parties agree as follows:
1.
|
Contracted Management;
Effective Date
|
|
1.1
|
Pursuant
to the terms and conditions of the Agreement, the Parties agree to engage
the WOFE to manage the operations of Fujian Xing Gang. During
the term of contracted management, the WOFE and/or the senior officers
employed by the WOFE (the
“
Officers
”
) shall take
full charge of the business operations of Fujian Xing
Gang.
|
|
1.2
|
The
Parties agree and confirm that from the date of this Agreement set forth
in the first paragraph of this Agreement (“Effective Date”), the WOFE
and/or the Officers shall take full charge of the business operation of
Fujian Xing Gang, running and managing the business of Fujian
Xing Gang in accordance with the laws, administrative rules and
regulations and the covenants applicable to this
Agreement.
|
|
1.3
|
This
Agreement is an exclusive contracted management agreement. During the
period from Effective Date to the date that this Agreement is terminated,
Fujian Xing Gang agree not to contract its business to any
other party for management, and each of Wonder Dredging
and Fujian Xing Gang hereby agree not to interfere with the
business operations conducted by the
WOFE.
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
2.
|
Term
of the Contracted Management (the
“Term”)
|
|
2.1
|
This
Agreement shall be terminate upon the earlier
of:
|
|
(1)
|
such
time that the the WOFE or another person designated by the WOFE (the
“Designated Person” ) exercises the exclusive right to purchase the equity
interest in Fujian Xing Gang in accordance with the terms of the Contract
Relating to the Exclusive Purchase Right of the Equity Interest Agreement
(the “Purchase Agreement”) signed by the Parties dated as of June 30,
2010, and
|
|
(2)
|
The
WOFE and/or the Designated Person individually/jointly own all of the
equity interests in Fujian Xing Gang;
or
|
|
(3)
|
20
years from the Effective Date, subject to the right of the WOFE, at its
sole option, to renewthe term of this Agreement for successive
20 year periods prior to the expiration of each 20 year period upon prior
written notice to Wonder Dredging and Fujian Xing
Gang.
|
3.
|
Calculation
and Payment of the Fees for the Contracted Management (the
“Fees”);
|
|
3.1
|
The
parties agree that the WOFE shall, in consideration of the exclusive right
to manage the business operations of Fujian Xing Gang, pay an annual fee
of RMB 1 million in to Fujian Xing Gang. Such payment shall be
madewithin the first month of every applicable year. The WOFE
may disburse such payment from the account of Fujian Xing
Gang. Party C's Executive Director or Board to make resolution
to determine the contracted management fees for the current year within
the first month of the year.
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
|
3.2
|
During
the term of the contracted management, the WOFE is entitled to 100% of the
net profits (the gross profits minus the costs and expenses, including the
tax payable all as determined in accordance with US generally accepted
accounting principles) reported by Fujian Xing Gang (the “Net
Profits”). Fujian Xing Gang shall adopt a resolution by the Executive
Director or the Board of Directors within the first month of every
contracted management year to confirm the plan for the fees disbursal of
that year.
|
|
3.3
|
The
Parties to this Agreement shall pay all their tax liabilities pursuant to
all the existing and effective taxation laws and administrative rules and
regulations in PRC.
|
|
4.1
|
Within five
working days from the Effective Date, Wonder Dredging and Fujian Xing Gang
shall deliver the documents set forth in 4.2 to the WOFE in order that the
WOFE can perform the contracted management services to Fujian Xing
Gang pursuant to the terms of this
Agreement.
|
|
4.2
|
At
the request of the WOFE, Wonder Dredging and Fujian Xing Gang shall
deliver copies of the following documents to the
WOFE:
|
|
(1)
|
all
the ownership certificates in the name of Fujian Xing Gang or any
affiliated party which relate to the business operations of Fujjian Xing
Gang, including but not limited to the Ownership Registry Certificates of
the ships and Certificates of Nationality of the ships,
and
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
|
(2)
|
all
the business permits and licenses and other related documents held by
Fujian Xing Gang, and
|
|
(3)
|
all
the financial seals and accounting books and records of Fujian Xing Gang,
and
|
|
(4)
|
the
technical data related to the business operations of Fujian Xing Gang,
and
|
|
(5)
|
the
management data related to the business operations of Fujian Xing Gang,
and
|
|
(6)
|
All
the related documents which are necessary in order for the WOFE to
effectively manage the business of Fujian Xing Gang commencing on the
Effective Date.
|
5.
|
The
WOFE’s Rights and Obligations
|
|
5.1
|
The
WOFE’s rights. During the Term of this Agreement the WOFE shall have the
right to:
|
|
5.1(1)
|
manage
and control the business and assets of Fujian Xing Gang in its sole
discretion. The right of management includes, but not limited to, the
rights of (1) establishing and implementing the policies and guidelines of
the management, and (2) directing the use of all of the assets of Fujian
Xing Gang, including but not limited to, the real property, intangible
property and working capital.
|
|
5.1(2)
|
designate
the directors to Fujian Xing Gang and replace the directors of Fujian Xing
Gang and all its affiliates at any time in its sole
discretion.
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
|
5.1(3)
|
appoint
the managing officers to Fujian Xing Gang, including the general manager,
deputy general manager and or other senior officers and the financial
controller.
|
|
5.1(4)
|
to
delineate the organizational structure of the Fujian Xing Gang and employ
any technical personnel required for the business of Fujian
Xing Gang.
|
|
5.1(5)
|
establish
Fujian Xing Gang’s employer-employee arrangements including but not
limited to, rewards and punishment, dismissal, wages, all in accordance
with the relevant laws and administrative rules and regulations, with
approval by the board of directors of Fujian Xing Gang and all its
subsidiaries.
|
|
5.1(6)
|
take
a loan directly or cause Fujian Xing Gang or its affiliates to borrow
funds, with prior notice to Wonder Dredging, , provided that
the loan shall be used for the operation and management of Fujian Xing
Gang.
|
|
5.1(7)
|
receive
100% of the Net Profits of Fujian Xing
Gang.
|
|
5.1(8)
|
exercise
all other customary powers and duties associated with the management
authority and responsibilities contemplated
hereby.
|
|
5.2
|
The
WOFE’s Obligations
|
|
5.2(1)
|
The
WOFE shall operate the business of Fujian Xing Gang as contractor
according to this
Agreement.
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
|
5.2(2)
|
The
WOFE will operate and manage the business and assets of Fujian Xing Gang
in accordance and compliance with applicable laws and
regulations.
|
|
5.2(3)
|
The
WOFE shall repair, maintain, renovate and purchase new assets to ensure
that Fujian Xing Gang’s business is operated and managed in good status.
The cost for such repair, maintenance, renovation and purchase will be
borne by Fujian Xing Gang.
|
.
6.
|
Wonder Dredging and Fujian Xing
Gang’s Obligations
|
|
6.1(1)
|
Wonder
Dredging and Fujian Xing Gang shall assist the WOFE in carrying out the
contracted management in accordance with the terms of this
Agreement. Wonder Dredging agrees to execute a Power of
Attorney granting the WOFE certain rights, including full voting power
over its equity interest in Fujian Xing
Gang.
|
|
6.1(2)
|
Without
the WOFE’s written consent, Wonder Dredging and Fujian Xing Gang
shall not directly or indirectly dispose of the assets of
Fujian Xing Gang by mortgage, pledge, assignment or any other
methods.
|
|
6.1(3)
|
Wonder
Dredging and Fujian Xing Gang shall not interfere with the WOFE’s control
and management of the operations of Fujian Xing
Gang..
|
|
6.
2(4)
|
Each
of Wonder Dredging and Fujian Xing Gang agrees that Wonder Dredging will
continue to maintain the legal ownership of the equity interest in Fujian
Xing Gang until such equity interest has been purchased by the WOFE or the
Designated Person in accordance with the terms of the Purchase
Agreement.
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
7.
|
Representation,
Warranties and Promises
|
|
7.1
|
Representation,
Warranties and Promises by The WOFE hereby represents and warrants
that
|
|
7.1(1)
|
It
has the right and ability to sign and perform this Agreement. The
Agreement is binding on the WOFE in accordance with its
terms.
|
|
7.1(2)
|
It
has taken such appropriate and necessary action to authorize the
appropriate persons to sign and execute and perform the obligations under
this Agreement and obtained any necessary approvals and
authorizations.
|
|
7.1(3)
|
Its
execution and performance of this Agreement does not violate any laws or
administrative rules and regulations, or any agreements or any covenants
with a third party.
|
|
7.1(4)
|
All
the materials provided by it and its legal representatives and all other
authorized persons are authentic and
accurate.
|
|
7.2
|
Representation, Warranties and
Promises by Wonder Dredging and Fujian Xing Gang. Each of
Wonder Dredging and Fujian Xing Gang represent and warrants
that
|
|
7.2(1)
|
They
are limited liability companies duly incorporated and validly existing
under the laws of PRC. They have the rights and abilities to sign and
execute and perform this Agreement. This Agreement is binding on them in
accordance with its
terms.
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
|
7.2(2)
|
They
have authorized the appropriate persons to sign and execute and perform
the obligations under this Agreement and obtained any necessary approvals
and authorizations.
|
|
7.2(3)
|
Their
execution and performance of this Agreement does not violate any laws or
administrative rules and regulations, which is binding upon it, nor does
such execution and performance violate any agreement to which it is a
party, or any covenant with any third
party.
|
|
7.2(4)
|
All
the materials provided by them and their legal representatives and all
other authorized persons are authentic and
accurate..
|
|
7.2(5)
|
Wonder
Dredging has full authority to enter into this Agreement to engage the
services of the WOFE for the management of the business operations of
Fujian Xing Gang.
|
|
7.2(6)
|
Prior
to (including) the Effective Date, the assets of Fujian Xing Gang are in
good working condition.
|
8.
|
Modification and
Assignment
|
|
8.1
|
Any
modifications to this Agreement must be in writing signed by the Parties
after negotiation.
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
|
8.2
|
Wonder
Dredging and Fujian Xing Gang irrevocably agree and promise that the WOFE
is entitled, in its sole discretion, to assign or partly assign all the
rights and obligations under this Agreement to any other party designated
by the WOFE, without the consent, of any other Party and agrees to notify
the other Parties of such assignment,
.
|
|
8.3
|
Each
of Wonder Dredging and Fujian Xing Gang irrevocably agrees and
promises that the WOFE is entitled to, in its sole discretion, dissolve
this Agreement by notifying them without their
consent.
|
9.
|
Liabilities
for Breach of the Agreement and the Termination of the
Agreement
|
|
9.1
|
Unless
otherwise stipulated under this Agreement, in case of any loss sustained
by one Party hereto due to any breach of this Agreement by the other
Party(s), the breaching Party shall bear legal liabilities according to
the law and be liable for all losses sustained by the non-defaulting
party(s) due to such breach.
|
|
9.2
|
The
Parties agree that the liabilities for breach of the Agreement are
compensatory and shall not exceed the losses sustained by the
non-defaulting party(s)
|
|
9.3
|
This
Agreement may be terminated in the occurrence of any of the following
events:
|
|
(1)
|
this
Agreement is terminated in accordance with its terms;
or
|
|
(2)
|
pursuant
to Section 8.3 hereof.
|
|
9.4
|
According
to Section 8.3, the WOFE has the right to terminate this Agreement by
delivering written notice to Wonder Dredging and Fujian Xing Gang. In such
event, this Agreement will terminate without penalty upon the delivery of
the written notice to Wonder Dredging and Fujian Xing
Gang.
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
|
9.5
|
Excepted
as set forth in Section 8.3 in this Agreement, no Party shall dissolve
this Agreement in its sole discretion, nor shall any party interfere with
the normal execution and performance of this Agreement by the other
party(s).
|
|
10.1
|
No
party shall be liable if it is delayed or prevented from performing its
obligations under this Agreement by Force Majeure. Force Majeure means
acts of nature, fire, earthquake, war and political turmoil, and any other
event that is beyond the party’s reasonable control and cannot be
prevented with reasonable
care.
|
|
10.2
|
When
the event of Force Majeure arises, the affected party shall inform the
other Parties within 15 business days. The affected party which does not
perform the obligations under this Agreement shall be responsible for any
damage caused by failure of informing other parties. After the event of
Force Majeure is removed, the affected party shall resume performance of
this Agreement with its best
efforts.
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11.
|
Governing
Laws and Settlement of the
Disputes
|
|
11.1
|
The
execution, validity, performance, interpretation and settlement of
disputes shall be governed by PRC
laws.
|
|
11.2
|
If
any disputes arise out of performance of this Agreement, the Parties shall
first settle such disputes through friendly negotiations. Should such
disputes fail to be settled through negotiation within 20 days after the
disputes arises, each Party may submit such disputes to the court with
jurisdiction.
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
|
12.1
|
The
parties to the Agreement agree that all the business materials relating to
the performance of the Agreement are confidential and shall not be
disclosed to a third party unless the disclosure of materials is required
by the laws or administration rules and regulations of PRC or by
supervising authority. Notwithstanding the foregoing, the
Parties acknowledge that this Agreement can be filed with the Securities
and Exchange Commission in the United
States.
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|
12.2
|
Notices
or other communications required to be given by any party pursuant to this
Agreement shall be written. Any party should inform the other parties if
his address, contact number or fax number have been changed. If a Party
fails to inform the other Parties of its contact information, the notice
will deemed to be duly served when it is delivered to the prior address or
fax number known by other
Parties.
|
|
12.3
|
Should
all or any part of any provision hereof be held void by the court with
jurisdiction or the relevant authority, then such part of the provision
shall be deemed to have been deleted; provided that, such deletion shall
in no way affect the legal force of any other part of the provisions or
any other provision hereof.
|
|
1
2.4
|
The
amendments (if any) duly executed by the Parties shall be part of this
Agreement and shall have the same legal effect as this
Agreement.
|
|
12.5
|
This
Agreement is made in six (6) originals in Chinese, of which each Party
shall hold two. Each original has the same
validity.
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
[Blank
below]
[Page for
signatures]
Fujian
WangGang Dredging Construction
Co.,
Ltd. /seal/
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|
|
|
By
|
|
Name:
/s/ LIN Bin
|
|
Title:
|
|
|
|
Wonder
Dredging LLC.
/seal/
|
|
|
|
By
|
|
Name:
/s/ LIN Qing
|
|
Title:
|
|
|
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
Fujian
Xing Gang Port Service Co., Ltd.
/seal/
|
|
|
|
By
|
|
Name:
/s/ LIN Qing
|
|
Title:
|
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
Exhibit
4.9
Qing
Lin
Panxing
Zhuo
Fujian
WangGang Dredging Construction Co., Ltd.
Fuzhou
Wonder Dredging LLC
Equity
Interest Pledge Agreement
(Unoffical
Translation)
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
Equity
Interest Pledge Agreement (the “Agreement”), made the 30th day of June, 2010,
among:
The
Pledgor:
Qing Lin
(the “Pledgor A”)
whose Identity Number is
350128196810101911.
Panxing Zhuo
(the “Pledgor
B”)
whose Identity
Number is
350128194202211915.
The
Pledgee:
Fujian WangGang Dredging Construction
Co., Ltd.
( the “Pledgee” )
Address:
16th Floor, Zhongshan Plaza, 154 Hudong Road, Fuzhou City, Fujian
Legal
Representative: LIN Qing
And
Fuzhou Wonder Dredging LLC
(“
Party C
”)
whose
legal representative is LIN Qing, at Suite 1705 of 16th Floor, Zhongshan Plaza,
154 Hudong Road, Fuzhou City, Fujian.
As used
in this Contract, Pledgor A, Pledgor B, the Pledgee and Party C is “the
Pledgor”, “Pledgee”,“the Party” respectively, and “Parties to the Agreement” in
all. The Pledgor A and the Pledgor B are the “Pledgors” in all.
Whereas:
1.
|
Party
C is a limited company legally registered and validly existing under the
laws of People’s Republic of China (PRC) with registered capital
RMB 6,000,000.00, to which the Pledgor A contributes RMB 5,460,000.00
and holds ninety-one percent (91%) of equity interest in Party C and the
Pledgor B contributes RMB 540,000.00 and holds nine (9%) percent of equity
interest in Party C.
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
2.
|
“June
30, 2010, the Pledgee, Party C and Fujian Xing Gang Port Service Co., Ltd.
(the “Fujian Xing Gang”) entered into the Contracted Management Agreement.
(The “Management Agreement”) which stipulates that Fujian Xing Gang is
contracted to the Pledgee for management and the Pledgee shall take full
charge of their operation and
management.
|
|
|
3.
|
June
30, 2010, the Pledgee and Party C entered into the Contract Relating to
the Exclusive Purchase Right of Equity Interest (“Purchase Agreement )
which stipulates that according to the Purchase Agreement the Pledgee or
one or more persons designated by the Pledgee (the “Designated Person”)
have the exclusive right to purchase the equity interest in Fujian Xing
Gang, provided that the transfer of the equity interest will not adversely
affect Fujian Xing Gang’s
business.
|
4.
|
In
May 27, 2010, Fujian Xing Gang’s Board of Shareholders made the Resolution
relating to the dividend distribution of RMB 350,803,477 (the “Amount”)
and Party C issued an Guaranty (the “Guaranty”) confirming that Party C
will not draw dividend from the
Amount.
|
5.
|
In
order to secure the performance of Party C and Fujian Xing Gang’s
obligations in Management Agreement, Purchase Agreement (“Two
Agreements”) and to secure the performance of Party C’s Guaranty, the
Pledgors agree to pledge one hundred percent (100%) of their equity
interest held in Party C (the “Pledged Equity Interest”) to the Pledgee
.
|
NOW
THEREFORE, the Parties to the Agreement hereby agree as follows:
1.
The Pledgors
1.1 The
Pledgors to this Agreement means Pledgor A and Pledgor B. The Pledgors take
joint and several liability for the obligations under this Agreement and benefit
jointly from the rights under this Agreement.
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
2.
The Pledged Equity Interest
2.1 The
Pledged Equity Interest is the rights of holders of equity interest in Party C,
Pledgor A and Pledgor B, producing from the RMB 6,000,000.00 of capital
contributions.
3.
The Debts to be Secured
3.1 The
debts under the Management Agreement which entered into by the
Pledgee, Party C and Fujian Xing Gang on June 30, 2010, including the fees
for contracted management which shall be paid by Fujian Xing Gang to the Pledgee
(the “Fees”), the losses sustained by the Pledgee if the payment of the Fees is
delayed and the expense of exercising the right of pledge by the Pledgee under
this Agreement.
3.2 The
debts under the Purchase Agreement entered into by the Pledgee and Party C on
June 30, 2010, including the whole or part of equity interest in Fujian Xing
Gang which the Pledgee has the right to purchase, the loss endured by the
Pledgee for delayed performance by the other parties of Purchase
Agreement and the expense of exercising the right of pledge by the
Pledgee under this Agreement.
3.3 The
debts under the Guaranty, dated June 13, 2010, including the promise issued by
Party C, the loss endured by the Pledgee if the promise is violated by Party C
and the expense of exercising the right of pledge by the Pledgee under this
Agreement.
4.
Effective Date and the Term of Pledge
4.1 This
Agreement comes into effect upon signing by the Parties and being lodged in
Fuzhou Administration Department for Industries and Commerce and terminates
upon the earlier of (i) the purchase of the entire equity interest by
Pledgee pursuant to the terms of the Purchase Agreement or (ii)
20 years after the date hereof. . The 20 year initial
term of this Agreement shall be continuously extended for consecutive additional
20 year periods in the event that the entire equity interest is not purchased by
Pledgee or Designated Person pursunat to the Purchase Agreement prior to the
expiration of the term.
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
4.2 In
the event that it is failure to lodge the pledge of equity interest in Fuzhou
Administrative Department of Industries and Commerce (the “Department”), the
Pledgee shall still have the priority to receive the payment by the proceeds of
disposal of pledged equity interest.
4.3
Within thirty working days upon the execution of this agreement, the
Pledgors should complete the lodge, ie cause the pledge to be registered in the
Department and the certificate of registration of the Pledged Equity Interest
(the “Certificate”) to be issued. The Pledgor should deliver the Certificate to
the Pledgee in three days after it has been issued.
5.
Exercise the Right of Pledge
5.1
During the term of the pledge, in the event that Party C and Fujian Xing Gang
have not fulfilled the obligations under the Two Agreements, according to the
terms of this Agreement, the Pledgee has the right to dispose the Pledged Equity
Interest; The Pledgee shall notify the Pledgors about their violation of the
Agreement when exercising the right of pledge.
5.2
According to Clause 5.1 the Pledgee may exercise the right of the pledge in any
time when or after the notice about the violation of the Agreement has been
delivered.
5.3 The
Pledgee is entitled to dispose the Pledged Equity Interest, pursuant to the
legal procedure, by auction, sale, or evaluation in terms of money and have the
priority in receiving the payment from the proceeds of auction and
sale.
5.4 The
Pledgors should provide necessary assistance to, and should not interfere with,
the Pledgee in disposing the Pledged Equity Interest according to the Agreement
and shall assist the Pledgee to realize the right of pledge.
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
6.
The Promises From the Pledgors and the Party C
6.1
In order to secure the performance of the Agreement by Party C, the Pledgors, as
the holders of equity interest in Party C, promise to the Pledgee:
6.1(1)
Unless agreed by the Pledgors and the Pledgee, during the Term of Pledge, the
Pledgors should not assign the whole or part of the equity interest held by him
in Party C, nor shall they create pledge, security in any other methods or set
any other real rights granted by security on the Pledged Equity
Interest.
6.1(2)
Without prior written consent by the Pledgee, not to change the Constitution of
Party C in any methods.
6.1(3)
Without prior written consent by the Pledgee, the Pledgors guarantee that they
shall not raise any litigations or arbitrations or agree to settle the disputes
through negotiations in the litigations or arbitrations in which they are
involved.
6.1(4)
Without prior written consent by the Pledgee, the Pledgors should not increase
or decrease the registered capital of the Party C, nor should they change the
proportion of the equity interest or change the form of the capital
contributions in Party C.
6.1(5)
Following kind finance and business standard and tradition, to maintain the
existence of the Party C, prudently and effectively operate business
affairs;
6.1(6)
Without prior written consent from the Pledgee, from the signing date of this
Contract, the pleadgors shall not at any time lead the Board of Directors to
approve to sale, transfer, mortgage or, in any other forms, dispose Party C’s
assets, legal benefit from the business conduct and credit; or to approve to set
any other security interest on it, with the exception of the normal business
conduct;
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
6.1(7)
Without prior written consent by the Pledgee, before all the equity interest
held by Party C in Fujian Xing Gang ( “Party C’s Equity Interest” ) has been
transferred to the Pledgee or the Designated Persons, the Pledgors should not
dispose, in any forms, the equity interest held by the Pledgors in Party C (
“Pledgors’ Equity Interest”) and Party C’s equity interest, including without
limitation, transfer, pledge the equity interest or set up any right of claim on
them. The Pledgors guarantee that no Resolutions of Party’s Board of
Shareholders or Board of Directors will be made if such Resolutions adversely
affect the Pledgee to exercise the rights under Pledgors’ Equity Interest and
Party C’s Equity Interest, including without limitation, transfer, pledge the
equity interest or set up any right of claim on them.
6.1(8)
Without prior written consent by the Pledgee, the representatives of Party C’s
Board of Directors shall not make the resolution of
dividend distribution.
6.1(9)
Without prior written consent by the Pledgee, the Pledgors shall not conduct any
actions to lead Party C to take part in the merger and acquisition with any
enterprise, or lead Party C to be liquidated, terminated, or
dissolved.
6.1(10)
Without prior written consent by the Pledgee, the Pledgors shall not make Board
of Shareholders’ Resolution to approve Party C to have any debt, or
to create, success any debts or to secure any debt, except the debts in normal
business conducts.
6.1(11)
The Pledgors agree to appoint the persons nominated by the Pledgee to act
as all the directors of Party C and urge the Board of Directors of Party C to
appoint the persons nominated by the Pledgee to act as the General Manager,
Chief Finance Officer and other supervisors of Party C, who will perform their
responsibilities pursuant to the Companies Law of PRC and the Constitution of
Party C. But the nominees should be qualified persons under the stipulations
about Directors, Generals Managers, Chief Financial Officer and other senior
officers to the laws of PRC.
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
6.1(12)
The Pledgors agree to irrevocably bestow voting right and other rights of
holders of equity interest to the Pledgee or the Designated Person.
6.1(13)The
Pledgors agree that all the funds transferred by Fujian Xing Gang or Party C to
the account of the Pledgors shall be returned to the Pledgee. All the
profit of Fujian Xinggang Party C belongs to the
Pledgee.
6.1(14)When
the Pledgee exercise the Right of Pledge to this Agreement, the Pledgors shall
waive the preemptive right of the Pledged Equity Interest.
6.2
Party C Promise
6.2(1)
Without prior written consent from the Pledgee, Party C shall not distribute
dividend to the equity interest holders, or sell, transfer, gift, mortgage or
dispose of its assets in any other ways.
6.2(2)
Without prior written consent from the Pledgee, Party C should not terminate the
Two Agreements, not should he enter into any contract which will adversely
affect the performance of Two Agreements by it with any
person.
6.2(3)
Without prior written consent from the Pledgee, Party C should not borrow from
the other person or take secure for the debts of the other person, nor should it
take any security liability for the event outside the normal business conduct of
Party C.
6.2(4)Without
prior written consent from the Pledgee, Party C shall not take part in the
merger and acquisition with other enterprises.
6.2(5)Without
prior written consent from the Pledgees, Party C shall not transfer its
assets to the account of any other enterprises or person.
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
6.2(6)Without
prior written consent from the Pledgee, Party C shall not assist the holders of
equity interest to assign the equity interest held by them.
6.2(7)Without
prior written consent from the Pledgee, Party C shall not waive any credit or
any benefit.
6.2(8)
Party C should execute any decision made by the Pledgee, the holder of equity
interest in Party C, when the Pledgee exercise the right of pledge.
7.1
|
Any
loss sustained by one Party due to any misleading or false representation,
(whatever fraudulent or not), which leads to non-performance or partial
non-performance, such breaching Party shall bear legal liabilities
according to the laws and be liable for all losses sustained by the
non-defaulting party(s) due to such
breach.
|
8.
Particular Stipulations
8.3
|
This
Agreement shall be binding on the successors of
Pledgors.
|
9.
Governing laws and settlement of the disputes
9.1
|
The
execution, validity, performance, interpretation and settlement of
disputes shall be governed by PRC
laws.
|
9.2
|
If
any disputes arise out of performance of this Agreement, the Parties shall
firstly settle such disputes through friendly negotiations. Should such
disputes fail to be settled through negotiation within 20 days after the
disputes arise, each party may submit such disputes to the court with
jurisdiction.
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
10.
Miscellaneous Provisions
10.1
|
The
parties to this Agreement agree that all the business materials relating
to the performance of the Two Agreements are confidential and should not
be disclosed to the third party unless the disclosure of materials is
required by the PRC laws or administration rules and regulations or by
supervising authority.
|
10.2
|
Notices
or other communications required to be delivered by any party pursuant to
this Agreement shall be written. Any party should inform the other parties
if its address, contact number or fax number has been changed. If such
obligation is failure to be performed, the notice shall deemed to be duly
served when it is delivered to the new physical address or sent to the new
fax number known by other
parties.
|
10.3
|
The
amendments (if any) duly executed by the Parties shall be part of this
Agreement and shall have the same legal effect as this
Agreement.
|
10.4
|
This
Agreement is made in eight (8) originals in Chinese, of which each Party
shall hold two. Each original has the same
validity.
|
Pledgors
|
|
Qing
Lin
|
|
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|
|
By
|
/s/Qing Lin
|
|
|
|
|
Panxing
Zhuo
|
|
|
|
|
By
|
/s/ Panxing Zhuo
|
|
|
|
|
Fujian
WangGang Dredging
|
|
Construction
Co., Ltd. /seal/
|
|
|
|
|
By
|
/s/ Lin Bin
|
|
Name:
|
|
Title:
|
|
|
|
|
Fuzhou
Wonder Dredging
|
|
Co.,
Ltd. /seal/
|
|
|
|
|
By
|
/s/Qing Lin
|
|
Name:
|
|
Title:
|
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
Fujian
WangGang Dredging Construction Co., Ltd.
Wonder
Dredging LLC.
Fujian
Xing Gang Port Service Limited
TO
THE EXCLUSIVE PURCHASE RIGHT OF THE
EQUITY
INTEREST
(Unofficial Translation)
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
Contract
Relating to the Exclusive Purchase Right of the Equity Interest ( the
“Agreement”), made the 30th day of June, 2010, in Fuzhou City
,
Fujian
Province
,
among:
Wonder Dredging LLC.
(“Wonder
Dredging”
)
, the
transferor, whose legal representative is LIN Qing at Suite 1705 of 17th floor,
Zhongshan Plaza A, 154 Hudong Road, Fuzhou City, Fujian.
Fujian WangGang Dredging Construction
Co., Ltd.
(the “WOFE”), the transferee, whose legal representative is LIN
Qing at 16th floor, Zhongshan Plaza, 154 Hudong Road, Fuzhou City, Fujian,
and
Fujian Xing Gang Port Service
Limited
(the “Fujian Xing Gang”), who confirms the transfer, whose legal
representative is LIN Qing at 17th floor, Zhongshan Plaza A, 154 Hudong Road,
Fuzhou City, Fujian.
As used
in this Agreement, the WOFE, Wonder Dredging, and Fujian Xing Gang are
collectively referred to herein as the “Parties to the Contract”.
WHEREAS,
1.
|
Fujian
Xing Gang is a limited liability company that is invested by a
foreign-owned enterprise, duly registered and is validly existing under
the laws of the People’s Republic of China (the “PRC”), specializing in
dredging port and waterways. Its registered capital is RMB
200,000,000. On June 20, 2010, based on Fujian Xing Gang’s
audited net asset value (“NAV”) as of March 31, 2010, as adjusted for
the dividend payment distributed to Wonder Dredging on May 27, 2010,
Fujian Xing Gang has a pricing basis of RMB158,597,183, the WOFE invested
the equivalent amount RMB158,587,183 in Fujian Xing Gang for
its equity interest in Fujian Xing Gang. After the investment by the
WOFE, each of Wonder Dredging and WOFE holds a fifty percent
(50%) equity interest in Fujian Xing
Gang.
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
2.
|
In June 30, 2010 the Parties
to this Agreement entered into the Contracted Management
Agreement (“Management Agreement”) which stipulates that Fujian Xing Gang
is contracted to the WOFE for management and the WOFE and/or
the seniors officers employed by the WOFE have agreed to take
full charge of the Fujian Xing Gang’s business operations and management
during the period of the contracted
management.
|
NOW
THEREFORE, the Parties to the Contract hereby agree as follows:
1.1
|
Wonder
Dredging hereby irrevocably grants to the WOFE an exclusive right
(“Purchase Right”) to purchase part or all of the equity interest held by
Wonder Dredging in Fujian Xing Gang (“Equity
Interest”). Accordingly, the WOFE or one or more persons
designated by WOFE (the “Designated Person”) are entitled to purchase all
or any part of the Equity Interest from Wonder Dredging at any time,
provided that the business and operations of Fujian Xing Gang will not be
adversely affected by PRC law if the WOFE holds more than a 50% equity
interest in Fujian Xing Gang.
|
1.2
|
Wonder Dr
edging promises
that
other than the WOFE
and the Designated Persons, no
other party has a right to purchase an equity interest in Fujian Xing
Gang.
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
2.
Transfer
of Purchased Equity Interest
2.1
|
The
Parties to this Agreement agree that the WOFE shall deliver a written
notice to purchase the Equity Interest (the “Notice of Purchase Equity
Interest”) at any time to Wonder Dredging, provided that the transfer of
the Equity Interest will not materially and adversely affect Fujian Xing
Gang’s normal business operations. Once the Notice of Purchase Equity
Interest has been delivered, Wonder Dredging agrees to take all
requisite action to transfer the valid ownership (the “Transfer
Performance”) of the Equity Interest in Fujian Xing Gang to the WOFE
and/or the Designated Person in any applicable PRC administration of
industry and commerce. Subject to the laws of PRC, Wonder Dredging
promises to complete Transfer Performance within ninety (90) days from the
date of receiving the Notice of Purchase of Equity Interest. During
the Transfer Performance period, the Parties hereto and the Designated
Person shall execute all other requisite documents and actions under the
laws of PRC, including without limitation, entering into the contracts
relating to the transfer of Equity Interest (“Equity Interest Transfer
Contract”), holding a shareholders’ meeting and adopting shareholders’
resolutions, amending Fujian Xing Gang’s Constitution, and providing all
necessary materials and information, to cause the WOFE and/or
the Designated Person to be the registered owner of the Equity Interest
being transferred.
|
2.2
|
Every
time upon the WOFE’s execution of the Purchase Right, Wonder
Dredging shall:
|
|
2.2(1)
|
urge
Fujian Xing Gang to convene the shareholders’ meeting, and during the
meeting, adopt the resolution to transfer the Equity Interest
from Wonder Dredging to the WOFE and/or the Designated
Person;
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
|
2.2(2)
|
upon
the stipulations of the Contract and the Notice of Purchase of Equity
Interest from the WOFE, enter into Equity Interest Transfer Contract
with the WOFE and/or the Designated
Person;
|
|
2.2(3)
|
with
the WOFE and/or the Designated Person and Fujian Xing Gang, sign or enter
into all other requisite contracts or documents, acquire all requisite
approvals and consents of the government, unconditionally perform all
requisite action to transfer the valid ownership of the Equity Interest to
the the WOFE and/or the Designated Person and to cause the WOFE and/or the
Designated Person to be the registered owner of the Equity Interest being
transferred;
|
|
2.2(4)
|
take
such action as required herein in a timely fashion and if an extension of
the scheduled time is needed, Wonder Dredging agrees to notify the WOFE
without delay.
|
2.3
|
When
the Equity Interest has been transferred, all the rights and obligations
thereunder shall be
transferred.
|
2.4
|
Wonder
Dredging shall take such action as may be necessary to cause Fujian Xing
Gang to issue the certificate evidencing the capital contribution within
thirty (30) days to the WOFE and/or the Designated Person after the
Transfer Performance is completed.
|
2.5
|
The
WOFE has the right to have Fujian Xing Gang’s accounts and records audited
by the auditor.
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
3. The
Price of Purchase and the Payment
3.1
Except as may be provided by the laws at that time, the price of the purchased
Equity Interest (“Price of Payment”) shall be equivalent to the NAV reflected in
the latest quarterly report under US GAAP prior to the purchase.
3.2 The
WOFE and/or the Designated Person shall pay the full Price of Payment by cash or
by any other form of payment in accordance with PRC laws to Wonder Dredging
pursuant to the Equity Interest Transfer Contract.
4
. Representations and Warranties
4.1
|
Representations
and Warranties from Wonder Dredging to the
WOFE:
|
|
4.1(1)
|
Wonder
Dredging is a limited company duly registered and validly existing under
the laws of PRC. It has the right and ability to sign and execute and
perform this Agreement and any instruments relating to this
Agreement. This Agreement and the related instruments are binding upon
Wonder Dredging in accordance with their
terms;
|
|
4.1
(2)
|
Wonder
Dredging has taken such appropriate and necessary action to authorize the
appropriate persons to sign and execute and perform the obligations under
this Agreement and has obtained any necessary approvals and
authorizations;
|
|
4.1(3)
|
Wonder
Dredging has obtained all required consents relating to the execution of
this Agreement and the Transfer Performance from such parties as may be
necessary, including but not limited to, the creditors of Wonder Dredging
and Fujian Xing Gang and any required banks. The execution and
performance of the obligations of Wonder Dredging hereunder do not (i)
violate any relevant laws or administrative rules and regulations of PRC;
or (ii) breach any contracts entered into by Wonder Dredging with any
third party.
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
|
4.1(4)
|
The
Equity Interest has been legally obtained and is beneficially owned by
Wonder Dredging without any security interest at the present time or in
the future. For this Section to this Agreement, “Security Interest” shall
mean any mortgage, pledge or any other lien on the Equity
Interest for the benefit of a third
party.
|
4.2
|
The
WOFE hereby makes the following representations and warrants to Wonder
Dredging:
|
|
4.2(1)
|
The
WOFE is a limited company duly registered and validly existing under the
laws of PRC. It has the right and ability to sign and execute and
perform this Agreement and any instruments relating to this
Agreement. This Agreement and related instruments are binding on the WOFE
in accordance with their
terms.
|
|
4.2(2)
|
The
WOFE has taken such appropriate and necessary action to authorize the
appropriate persons to sign and execute and perform the obligations under
this Agreement and has obtained any necessary approvals and
authorizations.
|
4.3
|
Wonder
Dredging and the WOFE make mutual representations and warranties that all
the representations and warranties between them are authentic and
accurate.
|
5.
Wonder Dredging and Fujian Xing Gang make the following representations and
warrants to the WOFE:
5.1
|
Without
prior consent by the WOFE, Wonder Dredging shall not, before the Equity
Interest has been transferred to the WOFE and/or the Designated Person,
transfer, mortgage, or dispose of the Equity Interest or any interest
therein, under any circumstance or take any action which would create any
type of lien on it. Wonder Dredging promises not to permit the
board of shareholders or the board of directors of Fujian Xing Gang to
adopt any resolutions to transfer, mortgage, pledge the Equity Interest or
create a lien on the Equity
Interest.
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
5.2
|
Without
prior written consent of the WOFE, Wonder Dredging and Fujian Xing Gang
promise not to cause Fujian Xing Gang’s business scope to be changed or
cause Fujian Xing Gang to be liquidated, terminated or
dissolved.
|
5.3
|
Without
the prior written consent of the WOFE, Wonder Dredging and Fujian Xing
Gang promise not to change the Constitution of Fujian Xing Gang in any
manner whatsoever.
|
5.4
|
Without
the prior written consent of the WOFE, Wonder Dredging and Fujian Xing
Gang promise not to increase or decrease Fujian Xing Gang
’
s registered
capital or change the proportion of equity interest in Fujian Xing Gang or
change the form of capital
contributions.
|
5.5
|
Following
proper finance and business standards and traditions, Wonder Dredging and
Fujian Xing Gang promise to maintain the existence of the Fujian Xing
Gang, prudently and effectively operate the business of Fujian Xing Gang
under the management of the WOFE in accordance with the terms of the
Management Agreement;
|
5.6
|
Without
prior written consent of the WOFE, from the signing date of
this Contract, Wonder Dredging and Fujian Xing Gang promise not, at any
time, to adopt any resolutions in shareholders
’
meeting to
approve to sell, transfer, mortgage or dispose the Equity Interest in any
manner whatsoever, or approve the grant of any other lien on it, unless
otherwise directed or authorized by the WOFE in accordance with the terms
of the Management
Agreement;
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
5.7
|
In
addition to the rights granted to the WOFE under the Power of Attorney, if
requested by WOFE, Wonder Dredging agrees to appoint the persons nominated
by the WOFE to act as all the directors of Fujian Xing Gang and cause the
board of directors of Fujian Xing Gang to appoint the persons nominated by
the WOFE to act as the general manager, chief finance controller and other
supervisors of Fujian Xing Gang, who will perform all their
responsibilities pursuant to Companies Law of PRC and the Constitution of
Fujian Xing Gang.
|
5.8
|
Fujian
Xing Gang agrees that Wonder Dredging, upon the stipulations in this
Contract, shall transfer the Equity Interest to the WOFE or the Designated
Person.
|
5.9
|
Wonder
Dredging irrevocably agrees to delegate the voting and any other power as
the holder of Equity Interest in Fujian Xing Gang to the WOFE or the
Designated Person, and in furtherance thereof will execute such documents
as may be necessary to effectuate the foregoing including but not limited
to the execution of a power of
attorney.
|
5.10
|
Wonder
Dredging agrees not to allow Fujian Xing Gang to commence any litigation
or arbitration without the WOFE
’
s prior
written consent and not to settle any disputes through negotiations in any
litigation or arbitration without the WOFE
’
s prior
written consent.
|
5.11
|
Wonder
Dredging agrees to contribute to Fujian Xing Gang the full amount of
the Price of Payment received by it pursuant to the terms of this
Agreement. Wonder Dredging agrees that it will pay all taxes, costs
and expenses related to the
thereto.
|
5.12
|
Wonder
Dredging agrees that, as of the date of entering into this
Agreement, all funds received by Wonder Dredging from Fujian Xing Gang
shall be distributed to the WOFE. Any and all the dividends
declared by Fujian Xing Gang belong to the
WOFE.
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
5.13
|
Without
prior written consent by the WOFE, Fujian Xing Gang shall not sell,
assign, gift, mortgage or dispose of its assets in any manner whatsoever
to Wonder Dredging.
|
5.14
|
Without
prior written consent by WOFE, Fujian Xing Gang shall not (i) terminate
the Management Agreement, or this Agreement (“Two Agreements”), or
(ii) enter into any other agreement which will
adversely affect the performance of the Two
Agreements.
|
5.15
|
Without
prior written consent from the WOFE, Fujian Xing Gang shall not borrow
from any other party or secure the debt for the benefit of a third
party.
|
5.16
|
Without
prior written consent from the WOFE, Fujian Xing Gang shall not take part
in a merger or acquisition transaction with any enterprise or
person.
|
5.17
|
Without
prior written consent from the WOFE, Fujian Xing Gang shall not transfer
its assets to the account of any other enterprise or
person.
|
5.18
|
Without
prior written consent from the WOFE, Fujian Xing Gang shall not take any
actions to assist in the transfer of the equity interest held by Wonder
Dredging.
|
5.19
|
Without
prior written consent from the WOFE, Fujian Xing Gang shall not waive the
rights to any credit or any
profit.
|
6.1
|
No
party shall be liable if it is delayed or prevented from performing its
obligation under this Agreement by Force Majeure. Force Majeure means acts
of nature, fire, earthquake, war and political turmoil, and any other
event that is beyond the party’s reasonable control and cannot be
prevented with reasonable
care.
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
6.2
|
When
an event of Force Majeure arises, the affected party shall inform the
other parties within 15 business days. The affected party who does not
perform the obligations under this Agreement shall be responsible for any
damage caused by failure of informing other parties. After an event of
Force Majeure is removed, the affected party shall resume performance of
this Agreement with its best
efforts.
|
7.1
|
This
Agreement shall be effective when it is entered into, with an initial
term of 20 years unless it is terminated earlier pursuant to the terms
herein. During the term of this Agreement the WOFE can, at any time,
purchase from Wonder Dredging the Equity Interest, and this Agreement
shall terminate when the Transfer Performance of all the Equity Interest
is completed. The initial term of this Agreement shall be continuously
extended for consecutive additional 20 year periods in the event that
the entire Equity Interest is not purchased by the WOFE or the Designated
Person prior to the expiration of the
term.
|
8.
Particular Stipulations
8.1
|
Without
the prior written consent of WOFE, Wonder Dredging shall not assign its
rights and obligations hereunder to any
person.
|
8.2
|
The
WOFE has the right to assign its rights and obligations to this
Agreement.
|
8.3
|
This
Agreement shall bind and benefit the successors of Wonder
Dredging
|
9.
Governing laws and settlement of the disputes
9.1
|
The
execution, validity, performance, interpretation and settlement of
disputes shall be governed by PRC
laws.
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
9.2
|
If
any disputes arise out of performance of this Agreement, the Parties shall
first settle such disputes through friendly negotiations. Should such
dispute fail to be settled through negotiation within 20 days after the
disputes arises, each Party may submit such dispute to the court with
jurisdiction.
|
10.
Miscellaneous Provisions
10.1
|
The
Parties to this Agreement agree that all the business materials related to
this Agreement and the Management Agreement are confidential and should
not be disclosed to a third party unless the disclosure of materials is
required by the PRC laws or administration rules and regulations or by
supervising authority. Notwithstanding the foregoing, the
Parties acknowledge that this Agreement can be filed with the Securities
and Exchange Commission in the United
States.
|
10.2
|
Notices
or other communications required to be delivered by any party pursuant to
this Agreement shall be written. Any party should inform the other parties
if its address, contact number or fax number has been changed. If a Party
fails to inform the other Parties of its contact information, the notice
shall deemed to be duly served when it is delivered to the prior address
or fax number known by other
Parties.
|
10.3
|
Should
all or any part of any provision hereof be held void by the court with
jurisdiction or the relevant authority, then such part of the provision
shall be deemed to have been deleted; provided that, such deletion shall
in no way affect the legal force of any other part of the provision or any
other provision hereof.
|
10.4
|
The
amendments (if any) duly executed by the Parties shall be part of this
Agreement and shall have the same legal effect as this
Agreement.
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
10.5
|
This
Agreement is made in six (6) originals, in Chinese, of which each Party
shall hold two. Each original has the same
validity.
|
[Blank
below]
[Page for
signatures]
Wonder
Dredging Engineering LLC.
/seal/
|
By
|
/s/
Qing Lin
|
|
Name:
Qing Lin
|
Title:
|
|
Fujian
Wangang Dredging Construction
Co.,
Ltd. /seal/
|
By
|
/s/
Bing Lin
|
|
Name:
Bing Lin
|
Title:
|
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
Fujian
Xing Gang Port Service Limited
/seal/
|
By
|
/s/
Qing Lin
|
|
Name:
Qing Lin
|
Title:
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
Only
Chinese proxies will be accepted.
Exhibit
4.11
Power
of Attorney
QING LIN
, with
IDENTITY CARD NUMBER
of
3501281196810101911,
Holder of
ninety-one percent (91%) equity interest in Fuzhou Wonder Dredging Engineering
Limited (Fuzhou Wonder),
PANXING ZHUO
, with
IDENTITY CARD NUMBER
of
3501281194202211915,
Holder of
nine (9%) percent equity interest in Fuzhou Wonder,
irrevocably
grants full powers of attorney to FUJIAN WONDER DREDGING ENGINEERING
CONSTRUCTION LIMTED (
“
Fujian Wonder
”
), and
the persons designated by Fujian Wonder (the “Designated Persons”), with the
sole and exclusive power of attorney, to exercise the power as follows,
including without limitation:
1. Qing
Lin and Panxing Zhuo’s full voting power and other power as the holder of equity
interest in Fuzhou Wonder, pursuant to the bylaws of Fuzhou Wonder and the laws
of People’s Republic of China, including without limitation the rights of
selling, transferring, pledging or disposing all or part of the equity interest
held by them;
2. Rights
of designating, appointing and nominating the legal representative (the Chairman
of the Board of Directors ), directors, supervisors, general manager and other
senior officers of Fuzhou Wonder;
3. All
the actions taken by the Designated Persons under this Power of
Attorney are deemed to have been taken by Qing Lin and
Panxing Zhuo and will be confirmed by them; All the
documents signed by the Designated Persons under this Power of Attorney are
deemed to be the documents signed by Qing Lin and Panxing Zhuo and will
be confirmed by them;
4.The
Designated Persons have the power of assignment. They have the power
to assign the commitment in above three paragraphs to other person or
enterprise, at their sole discretion, without consent from Qing Lin and Panxing
Zhuo and without notification to them;
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
Only
Chinese proxies will be accepted.
5. The
term of this Power of Attorney commences on the date of signing. During the
period in which Qing Lin and Panxing Zhuo are the holders of equity interest in
Fuzhou Wonder this Power of Attorney is irrevocable and will validly
exist.
6. During
the term of this Power of Attorney Qing Lin and Panxing Zhuo waives the power
delegated to the Fujian Wangang and the Designated Persons and will not exercise
them.
Signed at
June 30, 2010
on
__________________
(Signature
of Qing Lin) /s/ Qing Lin
|
|
(Signature
of Panxing Zhuo) /s/ Panxing
Zhuo
|
With the
witness:
(signature
)
|
|
(Print)
|
|
Date
|
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
Only
Chinese proxies will be accepted.
Exhibit
4.12
Power
of Attorney
FUZHOU WONDER DREDGING
ENGINEERING LIMITED
(“Fuzhou Wonder”), with its address at Suite 1705 of
17th Floor, Zhongshan Plaza A, 154 Hudong Road, Fuzhou City, Fujian and its Lin
Qing as its legal representative,
Holder of
fifty percent (50%) equity interest in Fujian Xing Gang Port Service Limited(
“Fujian Xing Gang”),
irrevocably
grants full powers of attorney to
FUJIAN WANGANG DREDGING ENGINEERING
LIMTED
(“Fujian Wangang”), with its address at 16th Floor, Zhongshan
Plaza, 154 Hudong Road, Fuzhou City, Fujian and the persons designated by Fujian
Wangang (the “Designated Persons”), with the sole and exclusive power of
attorney, to exercise the power as follows, including without
limitation:
1. Fuzhou
Wonder’s full voting power and other power as the holder of equity interest in
Fujian Xing Gang, pursuant to the bylaws of Fujian Xing Gang and the laws of
People of Republic of China, including without limitation the rights of selling,
transferring, pledging or disposing all or part of the equity interest held by
Fuzhou Wonder;
2. Rights
of designating, appointing and nominating the legal representative (the
“
Chairman of the
Board of Directors
”
), directors,
supervisors, general manager and other senior officers of Fujian Xing
Gang;
3. The
Designated Persons have the power to sign the Contracted Management Agreement,
the Contract Relating to the Exclusive Purchase Right of the Equity Interest and
the Equity Interest Pledge Agreement and perform their obligations in these
agreements. Exercising the power in this paragraph will not impose restriction
to this Power of Attorney;
4. All
the actions taken by the Designated Persons under this Power of
Attorney are deemed to be have been taken by Fuzhou Wonder’s and will
be confirmed by it; All the documents signed by the Designated
Persons under this Power of Attorney are deemed to be the documents signed by
Fuzhou Wonder and will be confirmed by it;
This
document has been translated for information purposes only; the Chinese text is
the only valid document.
Only
Chinese proxies will be accepted.
5. The
Designated Persons have the power of assignment. They have the power to assign
the commitment in above four paragraphs to other persons or enterprises, at
their sole discretion, without consent from Fuzhou Wonder and without delivering
notification to Fuzhou Wonder;
6. The
term of this Power of Attorney commences on the date of signing. During the
period in which Fuzhou Wonder is the holder of equity interest in Fujian Xing
Gang this Power of Attorney is irrevocable and will validly exist.
7. During
the term of this Power of Attorney Fuzhou Wonder waives the power delegated to
the Fujian Wangang and the Designated Persons and will not exercise
it.
Signed on
June 30,
2010
(Seal of Fuzhou Wonder ) /seal/ Fuzhou Wonder Dredging Engineering Limited
|
|
(Signature of Fuzhou Wonder’s legal
representative): /s/ Lin Qing
|
|
With
the witness:
|
|
(signature )
|
|
(Print)
|
|
Date
|
Engineering
Boat Purchase and Sale Contract
(Unofficial
Translation)
Party
A:
|
Yiyang
Zhonghai Boats and Ships Limited Liability Company
|
Address:
|
128
Zhixi Road, Yiyang City, Hunan Province
|
Legal
Representative:
|
HE
Junqiang
|
Party
B:
|
Fujian
Xing Gang Shipping Service Co., Ltd.
|
Address:
|
Zhongshan
Plaza, Building A, 17
th
Fl.
|
|
154
Hudong Road, Fuzhou
|
Legal
Representative:
|
LIN
Qing
|
In the
spirit of equality and mutual benefits, Party A and Party B have, after friendly
consultation, reached consensus on the matter regarding the purchase and the
sale of an engineering boat. Party A agrees to sell one bucket dredging
boat with capacity of 2000m
3
/hour to
Party B and the two parties have reached the agreement as follows.
I.
Specifications of the Boat, Quantity and Reference
1. Specification
of the boat:
bucket
dredging boat with capacity of 2000m
3
/hour
2. Quantity: One
3. Party
A warrants that the boat is to be newly built and Party A’s own equipment,
technology and labor will be used in completing the building of the
boat.
4. Party
B bears the obligation of confidentiality regarding the technology-related
information revealed by Party A.
II.
Contract Price and Payment Method
1. Contract
price
1.1 The
contract price for the boat is calculated, settled and paid in
Renminbi.
1.2 The
contract price for the boat is
RMB
¥68,361,600.00
.
1.3 The
aforesaid contract price includes fees and expenses for design and construction,
boat inspection review chart, boat acceptance fee, technology assessment fee and
all other fees associated with the application for various certificates, boat
inspection and boat classification.
1.4 The
above price is the unconditional and final closed price.
2. Payment
Method
2.1 Within
2 months after the delivery of the boat to Party B, Party B shall make a payment
to Party A in the amount of
¥24,567,500.00
.
2.2 Within
3 months after the delivery of the boat to Party B, Party B shall make a payment
to Party A in the amount of
¥19,226,600.00
.
2.3 Before
December 31, 2008, Party B shall make a payment to Party A for the remaining
amount of
¥24,567,500.00
.
III.
Boat Delivery
1. Date
and Place of Boat Delivery
1.1 The
date of the boat delivery shall be no later than May 31, 2008, with a 30-day
postponement allowed.
1.2 Place:
Zhuhai Port, Guangdong Province, PRC.
2. Boat
Acceptance
2.1 Party
A must notify Party B in writing the actual date of boat delivery 15 days in
advance and confirm with Party B 5 days in advance.
2.2 At
the time of delivery, Party A promises that:
A). All the defects of the boat found
during the test sail and test operation (actual engineering operation) have been
eliminated, items of winding up the project have been completed and all
equipment can be operated normally;
B). All spare items, spare parts, tools
and required certificates, diagrams, technical documents have been assembled and
put in place. See Attachment 1 of this contract, “2500m
3
/hour
Capacity Suction Dredging Boat Project Item List” for all spare items, spare
parts and tools;
C). The technical specification of the
boat meet the criteria specified in this contract and those in the
"Comprehensive Boat Manual." See Attachment 2 of this contract for
details of the Comprehensive Boat Manual.
2.3 After
the boat has passed the quality inspection by a boat inspector and after Party B
receives notice from Party A about the delivery of the boat, Party B must accept
the delivery on time. At the acceptance of the delivery, the
representatives authorized by Party A and Party B will sign “Boat Delivery and
Acceptance Letter”. The date of signing the letter is the official
date of the delivery of the boat.
2.4 Party
A must ensure that the fuel stored on the boat at the time of delivery is above
80% of its maximum storage capacity.
3. Ownership
and Transfer of Risk
Before the delivery of the boat, Party
A has its ownership and is responsible for the associated risk and
interests. After Party A and Party B sign “Boat Delivery and
Acceptance Letter”, the ownership is transferred to Party B along with all the
associated risk and interests.
4. Removing
the Boat
Party B must remove the boat from the
port of delivery within 15 days after the signing of “Boat Delivery and
Acceptance Letter”; otherwise, Party B must pay to Party A the port fee for the
boat.
5. Party
B can dispatch its authorized representative(s) to be on board the boat one
month prior to the boat delivery until the date of the boat delivery so that the
representative(s) can examine and become familiar with the equipment on the
boat. Party B shall be responsible for the expenses of the
accompanying boat and its crew.
.6 If
Party A is unable to delivery the boat within the time period stipulated herein,
Party A shall pay to Party B a default penalty based on the amount of payments
already made by Party B at the daily rate of 0.05% and compensate Party B for
all the resulting loss.
IV.
Force Majeure
1. If,
during the fulfillment period (i.e., boat delivery period) stipulated herein,
the process of building the boat is delayed by irresistible, objective events
such as earthquake, tsunami, typhoon, hurricane, severe storm, flood and plaque
or by the suppliers of material and equipment similarly impacted by such events,
such delay must be considered to be allowed postponement.
2. Party
A must notify Party B in writing within 15 days of the occurrence of such Force
Majeure events and provide valid documents of evidence issued by the competent
local government agencies. After the events of Force Majeure are
cleared, Party A must notify Party B immediately.
V.
Quality Guarantee
1. Responsibility
for Defects and Its Scope
The 12-month period starting from the
date of the signing of “Boat Delivery and Acceptance Letter” is the warranty
period for the boat; during this warranty period, Party A is responsible to
provide free repairs and replacements for the defects, break-downs and damages
resulting from the boat construction, technical process and material or due to
equipment quality issues.
Party A is responsible to provide
repairs, at Party B’s cost, for the damages, break-downs and defects caused by
improper operation or improper maintenance by Party B and for the vulnerable
parts damaged due to normal wear and tear.
2. Notification
of Defects
During the warranty period, Party B
must promptly notify Party A, by fax or in other written form, of any found
defect within the scope of warranty and provide explanation of the nature and
degree of the damage and the defect. The last valid period of such
notification is 7 days after the expiration of the warranty period for the boat
(based on the post mark if the notification is sent by mail)
3. Treatment
of Defects
3.1 In
principle, the warranty repairs on the boat must be performed at the shipyard
arranged by Party A.
3.2 If
the boat experiences quality issues that are within the scope of warranty at a
port away from Party A’s location or during the course of sail so that the boat
is not able to return to Party A for repairs, Party B must notify Party A
promptly and Party A must dispatch someone within 7 days upon receiving the
notification to the boat to confirm and resolve the issues. If Party
A is unable to dispatch someone, Party A must notify Party B by telegram within
5 days after receiving Party B’s telegram notification, and Party B may have the
boat repaired or its parts replaced at a nearby shipyard or repair
facility. If the repairs or the parts replaced are indeed within the
scope of warranty provided by Party A, Party B must provide inspection documents
issued by relevant ship inspection agencies and the invoices from the facility
that has performed repairs, and Party A must be responsible for all the expenses
and fees. The replaced parts belong to Party A and Party B must bring
them to Party A on the boat.
3.3 After
the expiration of the warranty period, warranty repairs requested by Party B
must be arranged by Party A according to the rules. If Party B
requests warranty repairs to be performed below the load line, the boat must be
examined and inspected after it enters the shipyard; if any defect or damage
below the load line is actually found, and such defect or damage is caused by
the quality issues arising from the construction of the boat by Party A, then
Party A is responsible for all the shipyard fees and repair expenses; otherwise,
Party B is responsible for all the shipyard fees if no such defect or damage is
found below the load line.
VI.
Disputes and Arbitration
Any disputes and conflicts between
Party A and Party B arising from the course of performance of this contract
should be settled in a timely manner through consultation; if such consultation
fails, the two parties must have the disputes submitted to China Maritime
Affairs Arbitration Commission for arbitration pursuant to the Commission's
arbitration rules. The Commission's determination is final and
binding to both parties.
VII.
Execution and Effectuation of this Contract
1. This
contract becomes effective immediately after it is signed by the legal
representatives, or by their authorized agents, of both parties and imprinted
with the company seals.
2. The
attachments hereto are the component parts hereof and have the same legal effect
as this contract.
3. This
contract, upon its execution, shall not be modified or dissolved due to the
change of legal representatives or their authorized agents; if either Party A or
Party B undergoes merger or spin-off, the party after undergoing such change
shall assume all or assume respective obligations of this contract and be
entitled to the corresponding rights.
4. This
contract proper is in duplicates, with one to each party; Party A and Party B
each will have two copies of this contract; the copies of and the attachments to
this contract have the same effect.
Party
A:
|
Yiyang
Zhonghai Boats and Ships Limited Liability Company
(seal)
|
Signature
of Legal
Representative: HE
Junqiang (signature)
Party
B:
|
Fujian
Xing Gang Shipping Service Co., Ltd.
(seal)
|
Signature
of Legal
Representative: LIN
Qing (signature)
Attachment
1: “2500m
3
/hour
Capacity Suction Dredging Boat Project Item List”
Attachment
2: "Comprehensive Boat Manual"
"Hongtaihai"
Engineering Boat Purchase and Sale Contract
(Unofficial
Translation)
Seller
:
|
Taizhou
Hongtaihai Port Engineering Co., Ltd. (Party
A)
|
Address:
|
Suite
1205, Building A, Yiding Plaza, Shujiang District, Taizhou
City
|
Legal
Representative: LI Guoyou
Buyer:
|
Fujian
Xing Gang Shipping Service Co., Ltd. (Party
B)
|
Address:
|
Zhongshan
Plaza, Building A, 17
th
Fl.
|
154
Hudong Road, Fuzhou
Legal
Representative: LIN Qing
In the
spirit of equality and mutual benefits, Party A and Party B have, after a series
of friendly consultations, reached consensus in Taizhou City, Zhejiang Province
on the matter regarding the purchase and the sale of the engineering boat
"Hongtaihai" (
with
capacity of 3500m
3
/hour, cutter suction
style
) pursuant to the PRC Contract Law and the provisions of other
applicable laws and statutes. Party A agrees to sell to Party B the
aforesaid boat
of
which it has the ownership and which is not under any pledge or mortgage
,
and the two parties have reached the agreement as follows.
I.
Name, Type and Specifications of the Boat
1. The
Name of the Boat: "Hongtaihai"
(
cutter suction type
dredging boat with capacity of 3500m
3
/hour, the building of which
completed in March, 2008; herein after the "Boat"
)
2. Model
Number and Specification of the Boat: See boat inspection
certificate for actual specification of the Boat.
II.
Sales Price, Delivery Time and Place of the Boat
1. The
total sales price of the Boat is RMB ¥190,696,800.00, which includes the cost
of the Boat's equipped pipes and ownership transfer
fees.
2. The
Boat is to be delivered at the dock of
Shenzhen
Port
.
3. The
time of delivery shall be no later than the end of March, 2008. If,
due to factors of irresistible force, Party A requests the postponement of the
delivery, Party A must notify Party B in writing and obtain Party B's written
consent.
4. At
the time of delivering the Boat, the Boat's equipped pipes shall be based on the
list specified in Section IV.9 below.
III.
Payment Method and Schedule
1. Within
7 days after Party A delivers the Boat to Party B, Party B must make the first
installment payment for the Boat in the amount of
¥30,000,000.00
.
2. Within
two months after Party A delivers the Boat to Party B, Party B must make the
second installment payment for the Boat in the amount of
¥27,816,800.00
.
3. Within
6 months after Party A delivers the Boat to Party B, Party B must make the third
installment payment for the Boat in the amount of
¥50,000,000.00
.
4. By
December 31, 2008, Party B must make the fourth installment payment for the Boat
in the amount of
¥46,800,000.00
.
5. By
March 31, 2009, Party B must make the payment for the remaining balance
of
¥36,080,000.00
.
IV.
Rights and Obligations of Party A and Party B
1. Party
B may dispatch its representatives to the Boat one month before its delivery and
acceptance and its representatives can be on board until the date of delivery,
so as to familiarize themselves with the equipment on board. Party B
shall be responsible for all the expenses arising from dispatching its
representatives on board.
2. At
the time of the delivery, Party B has the right to conduct comprehensive
inspection on the condition of the Boat. At the time of the delivery,
Party A must transfer completely and without compensation all the spare items,
spare parts and materials currently on board to Party B. On the day
of delivering the Boat, Party A must provide to Party B the list of the spare
items, spare parts and materials included in the delivery of the Boat as one of
the documents of evidence of the delivery and acceptance.
3. The
Boat delivered by Party A must meet the technical indices specified by Domestic
CCS Certificate and Introduction of the Boat provided by Party A (see attachment
hereto). Party A guarantees that all the equipment on board has been
tuned and passed test and is in good condition at the time of delivery and that
it will transfer record of relevant specifications and indices to Party
B.
4. Party
A must complete the Boat's ownership change registration and have the Boat
registered under Party B's name within 3 months after the date of delivering the
Boat.
5. Party
A must provide formal receipt to Party B within 10 days after receiving all the
payments for the full price (¥190,696,800.00) of the Boat from Party
B.
6. Party
B must make payments for the Boat purchasing price on time and in the amount
specified herein.
7.
Party B must dispatch its representatives to board the Boat at the
time of delivery agreed upon by both parties to take the delivery and sign the
delivery documents.
8. Delivery
of the Boat certificates and documents
At the time of delivery, Party A must
provide the following documents without compensation:
1). Valid
Tilt Testing Report;
2). Certificates
and relevant reports issued by China Ship Inspection (CCS)
3). Technical
documents that come with the equipment purchased from outside sources and the
related quality certificates and manuals.
4). All
the diagrams and other technical records for the Boat;
9. The
Boat is equipped with the following tubes
1). Name:
Rubber floating tubes produced by Jiangsu Danyang Yonghong Ship Rubber Products
Co., Ltd.
2). Types
and Specifications:
750x1200, 46
pieces
750x1200, 150
pieces
600x11.8
meters, 78
pieces
650x11.8
meters,
78 pieces
The fixed items of the above
specifications
3). Quality
criteria: Same as criteria of 13201181 DY102-1999 and JIBF 3995-1991 listed in
Rubber Tubes Quality Warranty of November 8, 2005 with one-year
warranty.
10. Responsibility
for and scope of defects
The whole Boat has a warranty period of
one year starting from the date of delivery of the Boat. Warranty
service during the warranty period will be performed in accordance with the
technical agreements between Party A and its equipment and parts
suppliers. Party A is responsible to provide free repairs and
replacements to resolve all quality issues caused by Party A or by its
suppliers; Party B is responsible for all quality issues caused by Party B but
Party A will provide assistance with their resolution. Party A must
dispatch personnel work on site within 10 days after receiving Party B's
notice.
11. Party
A must ensure that the amount of fuel stored on board the Boat is above 80% of
the Boat's maximum fuel storage capacity.
V.
Provisions on fees
Before the delivery of the Boat, Party
A is responsible for all the fees and expenses in connection with the Boat;
after the delivery of the Boat, Party B is responsible for all the fees and
expenses in connection with the Boat. Party A is responsible for the
Boat's ownership change registration procedures and for the fees associated with
the said procedures.
VI.
Liability for breach
1. If
Party A violates the provision of II.3 herein and fails to deliver the Boat on
time, or violates any of the provisions of IV.3, IV.5, IV.8 and IV.9, Party B
has the right to demand that Party A pay a breach penalty of RMB 30,000,000.00
even and compensate Party B for all the resulting loss.
2. If
Party A reneges on selling the Boat or sells the Boat to a third party or fails,
3 months after the delivery of the Boat, to complete the Boat's ownership change
registration procedures or attach any mortgage or pledge on the Boat, Party B
has the right to unilaterally terminate the contract and demand that Party A
return to Party B all the payments already made unconditionally and, at the same
time, pay to Party B a breach penalty of RMB 30,000,000.00.
3. If
Party B fails to make payments on time or in the amount specified in Article III
herein, Party A has the right to confiscate the amount of payments already
received.
4. If
Party B fails to be present on the location of delivery at the time of
delivering the Boat agreed upon by both parties to handle the delivery
procedures, the Boat shall be considered to have been inspected and accepted by
Party B.
5. If
Party B reneges on the purchasing of the Boat and refuses to pay for the
purchasing price, Party A shall have the right to unilaterally terminate the
contract and confiscate the amount of payments already received.
VII.
Resolution of Disputes
All disputes arising from this contract
must be settled through consultation between the two parties; if such
consultation fails, the disputes must be submitted to legal proceedings at the
court of maritime affairs at the location where the contract is
signed.
VIII.
Other matters not
covered herein must be provided in supplemental agreements between the two
parties through consultation, and all supplemental agreements shall have the
same legal effect as this contract.
IX.
"The Introduction of the
Boat" is the attachment hereto and has the same legal effect as this
contract.
X.
This contract is in
quintuplets, in two to Party A and Party B each and one to ship and vessel
Registration authority.
XI.
This contract will become
effective on the day it is signed and imprinted with seals by both
parties.
Party
A: Taizhou Hongtaihai Port Engineering
Co., Ltd. (seal)
Legal
Representative: LI Guoyou (signature)
Party
B: Fujian Xing Gang Shipping
Service Co., Ltd. (seal)
Legal
Representative: LIN Qing (signature)
Date: March
23, 2008
Engineering
Boat Purchase and Sale Contract
(Unofficial
Translation)
Party
A:
|
Yiyang
Zhonghai Boats and Ships Limited Liability Company
|
Address:
|
128
Zhixi Road, Yiyang City, Hunan Province
|
Legal
Representative:
|
HE
Junqiang
|
Party
B:
|
Fujian
Xing Gang Shipping Service Co., Ltd.
|
Address:
|
Zhongshan
Plaza, Building A, 17
th
Fl.
|
|
154
Hudong Road, Fuzhou
|
Legal
Representative:
|
LIN
Qing
|
In the
spirit of equality and mutual benefits, Party A and Party B have, after friendly
consultation, reached consensus on the matter regarding the purchase and the
sale of an engineering boat. Party A agrees to sell one suction dredging
boat with capacity of 2500m
3
/hour to
Party B and the two parties have reached the agreement as follows.
I.
Specifications of the Boat, Quantity and Reference
1.
Specification of the boat:
suction dredging boat with
capacity of 2500m
3
/hour
2.
Quantity:
One
3.
Party A warrants that the boat is to
be newly built and Party A’s own equipment, technology and labor will be used in
completing the building of the boat.
4. Party
B bears the obligation of confidentiality regarding the technology-related
information revealed by Party A.
II.
Contract Price and Payment Method
1. Contract
price
1.1 The
contract price for the boat is calculated, settled and paid in
Renminbi.
1.2 The
contract price for the boat is
RMB
¥96,945,300.00
.
1.3 The
aforesaid contract price includes fees and expenses for design and construction,
boat inspection review chart, boat acceptance fee, technology assessment fee and
all other fees associated with the application for various certificates, boat
inspection and boat classification.
1.4 The
above price is the unconditional and final closed price.
2. Payment
Method
2.1 Within
2 months after the delivery of the boat to Party B, Party B shall make a payment
to Party A in the amount of
¥23,795,000.00
.
2.2 Within
3 months after the delivery of the boat to Party B, Party B shall make a payment
to Party A in the amount of
¥28,445,300.00
.
2.3 Before
December 31, 2008, Party B shall make a payment to Party A in the amount of
¥34,250,000.00
.
2.4 Before
March 31, 2009, Party B shall make a payment to Party A in the amount of
¥10,275,000.00
.
3.
Past Due Penalty
If Party B fails to make payments
according to the schedule as stipulated herein, Party B must pay the penalty
interest for the period from the date when payment is due to the date when
payment is actually made in addition to payment for the past-due
amount. The penalty interest is assessed on the outstanding amount or
past-due amount at the rate of liquid capital loan rate of the People’s Bank of
China for the same period.
Party A must not change the boat
delivery date because of this.
III.
Boat Delivery
1. Date
and Place of Boat Delivery
1.1 The
date of the boat delivery shall be no later than May 31, 2008, with a 30-day
postponement allowed.
1.2 Place:
Zhuhai Port, Guangdong Province, PRC.
2. Boat
Acceptance
2.1 Party
A must notify Party B in writing the actual date of boat delivery 15 days in
advance and confirm with Party B 5 days in advance.
2.2 At
the time of delivery, Party A promises that:
A). All the defects of the boat
found during the test sail and test operation (actual engineering operation)
have been eliminated, items of winding up the project have been completed and
all equipment can be operated normally;
B). All spare items, spare parts,
tools and required certificates, diagrams, technical documents have been
assembled and put in place. See Attachment 1 of this contract,
“2500m
3
/hour
Capacity Suction Dredging Boat Project Item List” for all spare items, spare
parts and tools;
C). The technical specification
of the boat meet the criteria specified in this contract and those in the
"Comprehensive Boat Manual." See Attachment 2 of this contract for
details of the Comprehensive Boat Manual.
2.3 After
the boat has passed the quality inspection by a boat inspector and after Party B
receives notice from Party A about the delivery of the boat, Party B must accept
the delivery on time. At the acceptance of the delivery, the
representatives authorized by Party A and Party B will sign “Boat Delivery and
Acceptance Letter”. The date of signing the letter is the official
date of the delivery of the boat.
2.4 Party
A must ensure that the fuel stored on the boat at the time of delivery is above
80% of its maximum storage capacity.
3.
Ownership and Transfer of Risk
Before the delivery of the boat, Party
A has its ownership and is responsible for the associated risk and
interests. After Party A and Party B sign “Boat Delivery and
Acceptance Letter”, the ownership is transferred to Party B along with all the
associated risk and interests.
4. Removing
the Boat
Party B must remove the boat from the port of delivery within 15 days after the
signing of “Boat Delivery and Acceptance Letter”; otherwise, Party B must pay to
Party A the port fee for the boat.
5.
Party B can dispatch its authorized representative(s) to be on board
the boat one month prior to the boat delivery until the date of the boat
delivery so that the representative(s) can examine and become familiar with the
equipment on the boat. Party B shall be responsible for the expenses
of the accompanying boat and its crew.
.6
If Party A is unable to delivery the boat within the time period
stipulated herein, Party A shall pay to Party B a default penalty based on the
amount of payments already made by Party B at the daily rate of 0.05% and
compensate Party B for all the resulting loss.
IV.
Force Majeure
1. If,
during the fulfillment period (i.e., boat delivery period) stipulated herein,
the process of building the boat is delayed by irresistible, objective events
such as earthquake, tsunami, typhoon, hurricane, severe storm, flood and plaque
or by the suppliers of material and equipment similarly impacted by such events,
such delay must be considered to be allowed postponement.
2. Party
A must notify Party B in writing within 15 days of the occurrence of such Force
Majeure events and provide valid documents of evidence issued by the competent
local government agencies. After the events of Force Majeure are
cleared, Party A must notify Party B immediately.
V.
Quality Guarantee
1. Responsibility
for Defects and Its Scope
The 12-month period starting from the
date of the signing of “Boat Delivery and Acceptance Letter” is the warranty
period for the boat; during this warranty period, Party A is responsible to
provide free repairs and replacements for the defects, break-downs and damages
resulting from the boat construction, technical process and material or due to
equipment quality issues.
Party A is responsible to provide
repairs, at Party B’s cost, for the damages, break-downs and defects caused by
improper operation or improper maintenance by Party B and for the vulnerable
parts damaged due to normal wear and tear.
2. Notification
of Defects
During the warranty period, Party B
must promptly notify Party A, by fax or in other written form, of any found
defect within the scope of warranty and provide explanation of the nature and
degree of the damage and the defect. The last valid period of such
notification is 7 days after the expiration of the warranty period for the boat
(based on the post mark if the notification is sent by mail)
3. Treatment
of Defects
3.1 In
principle, the warranty repairs on the boat must be performed at the shipyard
arranged by Party A.
3.2 If
the boat experiences quality issues that are within the scope of warranty at a
port away from Party A’s location or during the course of sail so that the boat
is not able to return to Party A for repairs, Party B must notify Party A
promptly and Party A must dispatch someone within 7 days upon receiving the
notification to the boat to confirm and resolve the issues. If Party
A is unable to dispatch someone, Party A must notify Party B by telegram within
5 days after receiving Party B’s telegram notification, and Party B may have the
boat repaired or its parts replaced at a nearby shipyard or repair
facility. If the repairs or the parts replaced are indeed within the
scope of warranty provided by Party A, Party B must provide inspection documents
issued by relevant ship inspection agencies and the invoices from the facility
that has performed repairs, and Party A must be responsible for all the expenses
and fees. The replaced parts belong to Party A and Party B must bring
them to Party A on the boat.
3.3 After
the expiration of the warranty period, warranty repairs requested by Party B
must be arranged by Party A according to the rules. If Party B
requests warranty repairs to be performed below the load line, the boat must be
examined and inspected after it enters the shipyard; if any defect or damage
below the load line is actually found, and such defect or damage is caused by
the quality issues arising from the construction of the boat by Party A, then
Party A is responsible for all the shipyard fees and repair expenses; otherwise,
Party B is responsible for all the shipyard fees if no such defect or damage is
found below the load line.
VI.
Disputes and Arbitration
Any disputes and conflicts between
Party A and Party B arising from the course of performance of this contract
should be settled in a timely manner through consultation; if such consultation
fails, the two parties must have the disputes submitted to China Maritime
Affairs Arbitration Commission for arbitration pursuant to the Commission's
arbitration rules. The Commission's determination is final and
binding to both parties.
VII.
Execution and Effectuation of this Contract
1. This
contract becomes effective immediately after it is signed by the legal
representatives, or by their authorized agents, of both parties and imprinted
with the company seals.
2. The
attachments hereto are the component parts hereof and have the same legal effect
as this contract.
3. This
contract, upon its execution, shall not be modified or dissolved due to the
change of legal representatives or their authorized agents; if either Party A or
Party B undergoes merger or spin-off, the party after undergoing such change
shall assume all or assume respective obligations of this contract and be
entitled to the corresponding rights.
4. This
contract proper is in duplicates, with one to each party; Party A and Party B
each will have two copies of this contract; the copies of and the attachments to
this contract have the same effect.
Party
A: Yiyang
Zhonghai Boats and Ships Limited Liability Company (seal)
Signature
of Legal Representative: HE Junqiang
(signature)
Date: January
18, 2008
Party
B: Fujian
Xing Gang Shipping Service Co., Ltd. (seal)
Signature
of Legal Representative: LIN Qing
(signature)
Date: January
18, 2008
Engineering
Boat Purchase and Sale Contract
(Unofficial
Translation)
Party
A:
|
Yiyang
Zhonghai Boats and Ships Limited Liability Company
|
Address:
|
128
Zhixi Road, Yiyang City, Hunan Province
|
Legal
Representative:
|
HE
Junqiang
|
|
|
Party
B:
|
Fujian
Xing Gang Shipping Service Co., Ltd.
|
Address:
|
Zhongshan
Plaza, Building A, 17
th
Fl.
|
|
154
Hudong Road, Fuzhou
|
Legal
Representative:
|
LIN
Qing
|
In the
spirit of equality and mutual benefits, Party A and Party B have, after friendly
consultation, reached consensus on the matter regarding the purchase and the
sale of an engineering boat. Party A agrees to sell one suction
dredging boat with capacity of 3800m
3
/hour to
Party B within 3 years and the two parties have reached the agreement as
follows.
I.
Specifications of the Boat, Quantity and Reference
1. Specification
of the boat:
suction
dredging boat with capacity of 3800m
3
/hour
2. Quantity: One
3. Party
A warrants that the boat is to be one newly built by using the most advance
equipment in the market, technology and labor in the completion of the building
of the boat.
4. Party
B bears the obligation of confidentiality regarding the technology-related
information revealed by Party A.
II.
Contract Price and Payment Method
1. Contract
price
1.1 The
contract price for the boat is calculated, settled and paid in
Renminbi.
1.2 The
contract price for the boat is
RMB
¥200,000,000.00
.
1.3 The
aforesaid contract price includes fees and expenses for design and construction,
boat inspection review chart, boat acceptance fee, technology assessment fee and
all other fees associated with the application for various certificates, boat
inspection and boat classification.
1.4 The
above price is the unconditional and final closed price.
2. Payment
Method
2.1 Within
2 months after the execution of this contract, Party B shall make a prepayment
to Party A in the amount of
¥15,000,000.00
.
2.2 Within
3 months after the delivery of the boat to Party B, Party B shall make a payment
to Party A in the amount equal to 30% of the final closed price after deducting
the prepayment of
¥15,000,000.00.
2.3 Within
6 months after the delivery of the boat to Party B, Party B shall make a payment
to Party A in the amount equal to 25% of the final closed price after deducting
the prepayment of
¥15,000,000.00
.
2.4 Within
9 months after the delivery of the boat to Party B, Party B shall make a payment
to Party A in the amount equal to 25% of the final closed price after deducting
the prepayment of
¥15,000,000.00
.
2.5 Within
12 months after the delivery of the boat to Party B, Party B shall make a
payment to Party A in the amount equal to 20% of the final closed price after
deducting the prepayment of
¥15,000,000.00
.
3. Past
Due Penalty
If Party B fails to make payments
according to the schedule as stipulated herein, Party B must pay the penalty
interest for the period from the date when payment is due to the date when
payment is actually made in addition to payment for the past-due
amount. The penalty interest is assessed on the outstanding amount or
past-due amount at the rate of liquid capital loan rate of the People’s Bank of
China for the same period.
Party A must not change the boat
delivery date because of this.
III.
Boat Delivery
1. Date
and Place of Boat Delivery
1.1 The
date of the boat delivery shall be no later than May 31, 2012.
1.2 Place:
To be specified by Party B.
2. Boat
Acceptance
2.1 Party
A must notify Party B in writing the actual date of boat delivery 15 days in
advance and confirm with Party B 5 days in advance.
2.2 At
the time of delivery, Party A promises that:
A). All the defects of the boat found
during the test sail and test operation (actual engineering operation) have been
eliminated, items of winding up the project have been completed and all
equipment can be operated normally;
B). All spare items, spare parts, tools
and required certificates, diagrams, technical documents have been assembled and
put in place. See Attachment 1 of this
contract, “3800m
3
/hour
Capacity Suction Dredging Boat Body Type and Major Technical Specifications” for
all spare items, spare parts and tools and technical features;
2.3 After
the boat has passed the quality inspection by a boat inspector and after Party B
receives notice from Party A about the delivery of the boat, Party B must accept
the delivery on time. At the acceptance of the delivery, the
representatives authorized by Party A and Party B will sign “Boat Delivery and
Acceptance Letter”. The date of signing the letter is the official
date of the delivery of the boat.
2.4 Party
A must ensure that the fuel stored on the boat at the time of delivery is above
80% of its maximum storage capacity.
3. Ownership
and Transfer of Risk
Before the delivery of the boat, Party
A has its ownership and is responsible for the associated risk and
interests. After Party A and Party B sign “Boat Delivery and
Acceptance Letter”, the ownership is transferred to Party B along with all the
associated risk and interests.
4. Removing
the Boat
Party B must remove the boat from the
port of delivery within 15 days after the signing of “Boat Delivery and
Acceptance Letter”; otherwise, Party B must pay to Party A the port fee for the
boat.
5. Party
B can dispatch its authorized representative(s) to be on board the boat one
month prior to the boat delivery until the date of the boat delivery so that the
representative(s) can examine and become familiar with the equipment on the
boat. Party B shall be responsible for the expenses of the
accompanying boat and its crew.
.6 If
Party A is unable to delivery the boat within the time period stipulated herein,
Party A shall pay to Party B a default penalty based on the amount of payments
already made by Party B at the daily rate of 0.05% and compensate Party B for
all the resulting loss.
IV.
Force Majeure
1. If,
during the fulfillment period (i.e., boat delivery period) stipulated herein,
the process of building the boat is delayed by irresistible, objective events
such as earthquake, tsunami, typhoon, hurricane, severe storm, flood and plaque
or by the suppliers of material and equipment similarly impacted by such events,
such delay must be considered to be allowed postponement.
2. Party
A must notify Party B in writing within 15 days of the occurrence of such Force
Majeure events and provide valid documents of evidence issued by the competent
local government agencies. After the events of Force Majeure are
cleared, Party A must notify Party B immediately.
V.
Quality Guarantee
1. Responsibility
for Defects and Its Scope
The 12-month period starting from the
date of the signing of “Boat Delivery and Acceptance Letter” is the warranty
period for the boat; during this warranty period, Party A is responsible to
provide free repairs and replacements for the defects, break-downs and damages
resulting from the boat construction, technical process and material or due to
equipment quality issues.
Party A is responsible to provide
repairs, at Party B’s cost, for the damages, break-downs and defects caused by
improper operation or improper maintenance by Party B and for the vulnerable
parts damaged due to normal wear and tear.
2. Notification
of Defects
During the warranty period, Party B
must promptly notify Party A, by fax or in other written form, of any found
defect within the scope of warranty and provide explanation of the nature and
degree of the damage and the defect. The last valid period of such
notification is 7 days after the expiration of the warranty period for the boat
(based on the post mark if the notification is sent by mail)
3. Treatment
of Defects
3.1 In
principle, the warranty repairs on the boat must be performed at the shipyard
arranged by Party A.
3.2 If
the boat experiences quality issues that are within the scope of warranty at a
port away from Party A’s location or during the course of sail so that the boat
is not able to return to Party A for repairs, Party B must notify Party A
promptly and Party A must dispatch someone within 7 days upon receiving the
notification to the boat to confirm and resolve the issues. If Party
A is unable to dispatch someone, Party A must notify Party B by telegram within
5 days after receiving Party B’s telegram notification, and Party B may have the
boat repaired or its parts replaced at a nearby shipyard or repair
facility. If the repairs or the parts replaced are indeed within the
scope of warranty provided by Party A, Party B must provide inspection documents
issued by relevant ship inspection agencies and the invoices from the facility
that has performed repairs, and Party A must be responsible for all the expenses
and fees. The replaced parts belong to Party A and Party B must bring
them to Party A on the boat.
3.3 After
the expiration of the warranty period, warranty repairs requested by Party B
must be arranged by Party A according to the rules. If Party B
requests warranty repairs to be performed below the load line, the boat must be
examined and inspected after it enters the shipyard; if any defect or damage
below the load line is actually found, and such defect or damage is caused by
the quality issues arising from the construction of the boat by Party A, then
Party A is responsible for all the shipyard fees and repair expenses; otherwise,
Party B is responsible for all the shipyard fees if no such defect or damage is
found below the load line.
VI.
Disputes and Arbitration
Any disputes and conflicts between
Party A and Party B arising from the course of performance of this contract
should be settled in a timely manner through consultation; if such consultation
fails, the two parties must have the disputes submitted to China Maritime
Affairs Arbitration Commission for arbitration pursuant to the Commission's
arbitration rules. The Commission's determination is final and
binding to both parties.
VII.
Execution and Effectuation of this Contract
1. This
contract becomes effective immediately after it is signed by the legal
representatives, or by their authorized agents, of both parties and imprinted
with the company seals.
2. The
attachments hereto are the component parts hereof and have the same legal effect
as this contract.
3. This
contract, upon its execution, shall not be modified or dissolved due to the
change of legal representatives or their authorized agents; if either Party A or
Party B undergoes merger or spin-off, the party after undergoing such change
shall assume all or assume respective obligations of this contract and be
entitled to the corresponding rights.
4. This
contract proper is in duplicates, with one to each party; Party A and Party B
each will have two copies of this contract; the copies of and the attachments to
this contract have the same effect.
Party
A: Yiyang Zhonghai
Boats and Ships Limited Liability Company (seal)
Signature
of Legal Representative: HE Junqiang
(signature)
Date:
May 20, 2009
Party
B: Fujian Xing
Gang Shipping Service Co., Ltd. (seal)
Signature
of Legal Representative: LIN Qing
(signature)
Date: May
20, 2009
Crewmen
Dispatch Contract
(“Xing
Gang Dredging 3”)
(Unofficial
Translation)
Party
A:
Fujian Haiyi International Shipping Service Agency Co., Ltd.
Party
B:
Fujian Xing Gang Shipping Service Co., Ltd.
Party A and Party B, after friendly
consultation based on the principles of equality and mutual benefit, have
reached the agreement regarding the matter of Party A dispatching crewmen to
work at relevant posts on Party B’s dredging engineering boat “Xing Gang
Dredging 3” and set forth the following provisions to be adhered to by
both:
Article
I
Generals
1.
The term “dispatched crewmen” used herein means those crewmen who are
dispatched by Party A, pursuant to the provisions herein, to work at relevant
posts on Party B’s dredging engineering boat “Xing Gang Dredging 3”; see
attachment for the list of dispatched crewmen.
2.
The two parties agree that the monthly crewmen dispatch fee is RMB
Seven-Nine Thousand Five Hundred Yuan (¥79,500.00
).
Party
B must pay the crewmen dispatch fee to Party A at the end of each
quarter. If a period is less than a month, the fee for the period is
calculated on the basis of one month.
The said labor dispatch fee includes
all the fees and expenses such as the dispatched crewmen’s salaries, all
benefits and insurances (including but not limited to pensions insurance,
unemployment insurance, medical insurance, family planning insurance, injury
insurance, housing fund and commercial insurance) and bonuses.
This contract becomes effective on
April 21, 2008 and terminates on April 20, 2011.
Article
II Party A’s Rights
and Obligations
4.
|
Party
A has the following obligations:
|
4.1
Recommend the crewmen candidates in accordance with the provisions of
this contract.
Educate the dispatched crewmen on the
compliance with the State laws, statutes and regulations; educate the dispatched
crewmen on the compliance with Party B’s rules and policies, on maintaining
confidentiality of commercial secrets and on safeguarding Party B’s legitimate
rights and interests.
4.2 Ensure
that the dispatched crewmen have the qualifications and skills required of their
respective posts and possess valid and complete employment qualification
documents, including but not limited to crewmen service books, maritime crewmen
professional training certificates and maritime crewmen service competency
certificates.
4.3 Party
B must notify Party A in writing, three business days in advance, of the
boarding time and boarding location for the crewmen dispatched by Party
A. Party A must ensure that all the dispatched crewmen will report
for duty at the time and location specified by Party B.
If there is any factor on Party B’s
part that causes a waiting period of more than half a month before the
dispatched crewmen can be aboard, Party B must still pay the same amount
salaries to Party A; if the waiting period exceeds a month, Party A has the
right to terminate this contract.
4.4 After
the dispatched crewmen have passed assessment and been assigned by Party B,
Party A shall not issue command at will to and replace them. Party A
must ensure that Party B has the absolute leadership authority over the
dispatched crewmen. During the term of the contract, the dispatched
crewmen must follow the operation arrangement from Party B’s safety and shipping
service scheduling department.
4.5 Party
A will pay salaries and bonuses to the dispatched crewmen, withhold and pay on
their behalf personal income taxes and make payment for them of all the State
mandated insurances, including but not limited to pensions insurance,
unemployment insurance, medical insurance, family planning insurance, injury
insurance, housing fund and commercial insurance.
5.
|
Party
A has the following rights:
|
5.1 Party
A has the right to receive the crewmen dispatch fee pursuant to the provisions
herein;
5.2 Upon
the occurrence of any of the following during the term of this contract, Party A
can request to dissolve the crewmen dispatch relationship with Party B without
any liabilities; but such request must be sent to Party B in writing 30 days in
advance:
(1) Party
B violates the State laws and statues and the relevant provisions
herein;
(2) Party
B’s actions violate the dispatched crewmen’s legitimate rights and
interests;
(3) Party
B refuses to pay the crewmen dispatch fee or Party B’s payment of such fee is a
month past due.
Article
III Party B’s Rights
and Obligations
6.
|
Party
B has the following rights:
|
6.1 Party
B has the right to conduct assessment on the crewmen dispatched by Party
A.
If the
dispatched crewmen do not have the qualifications or skills required of their
respective posts, Party B has the right to demand Party A to replace them and
Party A shall not refuse such demand. Party A must bear corresponding
responsibility if the dispatched crewmen’s lack of qualifications or skills
causes any loss to Party B.
6.2 Party
B has the right to require the dispatched crewmen to comply with all the rules
and policies formulated in accordance with the relevant State laws and policies
and follow Party B’s production and operation arrangements.
6.3 If
the dispatched crewmen engage in any of the following during the term of the
contract, Party B has the right, upon Party A’s acknowledgement, to send them
back to Party A without any liability for breach:
(1) Violation
of Party B’s work disciplines or rules and regulations, and after criticism and
education, failure to make any correction or rectification;
(2) Negligence
of duties, resulting in serious loss or damage to Party B’s
interests;
(3) Violation
of law and statutes or being the subject of criminal legal
proceedings;
(4) Inability
to perform original work duties after treatment period for illness or
work-related injury and inability, or refusal, to perform other work assigned by
Party A;
If the
dispatched crewmen seriously violate Party B’s legitimate rules and regulations
(this provision should be made known to the dispatched crewmen and Party A) and
there is solid evidence of such violation, Party B may submit report in writing
to Party A and, upon Party A’s acknowledgement, terminate the said crewmen’s
dispatch. In the meantime, Party A must dispatch replacement
crewmen.
6.4 Party
B has the right to submit written opinion on, and negotiate with regard to, the
behavior that violates the relevant provisions of this
contract. Party A must respond to Party B in writing within 10
business days upon receiving the written opinion from Party B.
7.
|
Party
B has the following obligations:
|
7.1 Manage
the dispatched crewmen in such areas as their posts’ duties and responsibilities
and labor discipline and provide them with relevant training;
7.2 Provide
to the dispatched crewmen working environment and labor conditions that are in
compliance with the provisions of the State’s “Labor Law”;
7.3 Pay
the crewmen dispatch fee in accordance with the provisions of this
contract;
If Party B fails to pay the crewmen
dispatch fee on time pursuant to the provisions of this contract, Party B must
pay a breach penalty at the daily rate of 0.1% of the total of the unpaid or
past due crewmen dispatch fee; but the cumulative total of such breach penalty
shall not exceed 5% of the total crewmen dispatch fee for the corresponding
period.
7.4 Ensure
that the dispatched crewmen have all the rights and interests provided by the
State’s “Labor Law” during the term of service and assume the obligations and
responsibilities provided by the State’s “Labor Law”;
7.5 Shall
not suspend or terminate those dispatched crewmen while they are in pregnancy,
labor or nursing periods and in the required treatment period for illness or
injury; pay to Party A the corresponding expenses for those dispatched crewmen
who suffer work-related injury or contract occupational disease and, upon
verification, have lost, or partially lost, their ability to work and who suffer
work-related death in accordance with the relevant provisions of the “Labor
Law”;
7.6 Supervise
in the processing of relevant legal work documents for the dispatch crewmen
required for the term of service and educate them on the adherence of
disciplines and compliance of law;
7.7 Notify
Party A fifteen business days in advance in the event of relocation of work
location due to business need; notify Party A two business days in advance in
the event of any change of contact telephone number, fax number or bank account
number;
7.8 Follow
strictly the specification of the assignment posts stipulated in the contract;
consult with Party A on any need to change the posts for the dispatched crewmen
and bear all consequences resulting from changing the posts of the dispatched
crewmen without prior consultation with Party A.
7.9 Party
A and Party B must be responsible for handling the cases of work-related
injuries and accidental death suffered by the dispatched crewmen in accordance
with the relevant State regulations, with Party B bearing the corresponding
expenses.
Article
IV Dispute and
Arbitration
8.
Any dispute arising from performance of, or in connection with, this
contract must be settled through consultation; if such consultation fails,
either party may submit the dispute to the legal proceedings at the people’s
court in Fuzhou City.
Article
V
Others
9.
Other matters not covered herein must be settled by Party A and Party B
through consultation or be provided in supplemental agreement formulated in
accordance with relevant provisions of the State law, statutes and
regulations.
10. If
any content herein conflicts with the State law or policies, or is inconsistent
due to the changes of the law and policies, the provisions of the law or such
policies shall prevail.
11. All
attachments hereto are the component parts hereto and have the same legal
effect.
12. The
contract becomes effective on the date it is signed and imprinted with the seals
by both parties.
13. This
contract is in duplicates, with one to each party, and both have the same legal
effect.
Signature
(Seal) of Party A’s representative:
|
|
/s/ HUANG Jian
|
|
/seal/
(seal visible but not legible)
|
|
Date:
April 21, 2008
|
|
Signature
(Seal) of Party B’s representative:
|
|
/s/ LIN Qing
|
|
/seal/
(seal visible but not legible)
|
|
Date:
April 21, 2008
|
|
Attachment:
List of Dispatched Crewmen
Post
|
|
Number
|
Cook
|
|
1
|
Seaman
|
|
9
|
Mechanic
|
|
5
|
Total
|
|
15
|
Crewmen
Dispatch Contract
(“Xing
Gang Dredging 66”)
(Unofficial
Translation)
Party
A:
|
Fujian
Haiyi International Shipping Service Agency Co.,
Ltd.
|
Party
B:
|
Fujian
Xing Gang Shipping Service Co.,
Ltd.
|
Party A and Party B, after friendly
consultation based on the principles of equality and mutual benefit, have
reached the agreement regarding the matter of Party A dispatching crewmen to
work at relevant posts on Party B’s dredging engineering boat “Xing Gang
Dredging 66” and set forth the following provisions to be adhered to by
both:
Article
I Generals
1. The
term “dispatched crewmen” used herein means those crewmen who are dispatched by
Party A, pursuant to the provisions herein, to work at relevant posts on Party
B’s dredging engineering boat “Xing Gang Dredging 66”; see attachment for the
list of dispatched crewmen.
2. The
two parties agree that the monthly crewmen dispatch fee is RMB Eighty-One
Thousand Five Hundred Yuan (¥81,500.00
).
Party
B must pay the crewmen dispatch fee to Party A at the end of each
quarter. If a period is less than a month, the fee for the period is
calculated on the basis of one month.
The said labor dispatch fee includes
all the fees and expenses such as the dispatched crewmen’s salaries, all
benefits and insurances (including but not limited to pensions insurance,
unemployment insurance, medical insurance, family planning insurance, injury
insurance, housing fund and commercial insurance) and bonuses.
3. Term
of the contract
This contract becomes effective on
March 1, 2008 and terminates on February 28, 2011.
Article
II Party A’s Rights and
Obligations
4. Party
A has the following obligations:
4.1 Recommend
the crewmen candidates in accordance with the provisions of this
contract.
Educate the dispatched crewmen on the
compliance with the State laws, statutes and regulations; educate the dispatched
crewmen on the compliance with Party B’s rules and policies, on maintaining
confidentiality of commercial secrets and on safeguarding Party B’s legitimate
rights and interests.
4.2 Ensure
that the dispatched crewmen have the qualifications and skills required of their
respective posts and possess valid and complete employment qualification
documents, including but not limited to crewmen service books, maritime crewmen
professional training certificates and maritime crewmen service competency
certificates.
4.3 Party
B must notify Party A in writing, three business days in advance, of the
boarding time and boarding location for the crewmen dispatched by Party
A. Party A must ensure that all the dispatched crewmen will report
for duty at the time and location specified by Party B.
If there is any factor on Party B’s
part that causes a waiting period of more than half a month before the
dispatched crewmen can be aboard, Party B must still pay the same amount
salaries to Party A; if the waiting period exceeds a month, Party A has the
right to terminate this contract.
4.4 After
the dispatched crewmen have passed assessment and been assigned by Party B,
Party A shall not issue command at will to and replace them. Party A
must ensure that Party B has the absolute leadership authority over the
dispatched crewmen. During the term of the contract, the dispatched
crewmen must follow the operation arrangement from Party B’s safety and shipping
service scheduling department.
4.5 Party
A will pay salaries and bonuses to the dispatched crewmen, withhold and pay on
their behalf personal income taxes and make payment for them of all the State
mandated insurances, including but not limited to pensions insurance,
unemployment insurance, medical insurance, family planning insurance, injury
insurance, housing fund and commercial insurance.
5. Party
A has the following rights:
5.1 Party
A has the right to receive the crewmen dispatch fee pursuant to the provisions
herein;
5.2 Upon
the occurrence of any of the following during the term of this contract, Party A
can request to dissolve the crewmen dispatch relationship with Party B without
any liabilities; but such request must be sent to Party B in writing 30 days in
advance:
(1) Party
B violates the State laws and statues and the relevant provisions
herein;
(2) Party
B’s actions violate the dispatched crewmen’s legitimate rights and
interests;
(3) Party
B refuses to pay the crewmen dispatch fee or Party B’s payment of such fee is a
month past due.
Article
III Party B’s Rights and
Obligations
6. Party
B has the following rights:
6.1 Party
B has the right to conduct assessment on the crewmen dispatched by Party
A.
If the
dispatched crewmen do not have the qualifications or skills required of their
respective posts, Party B has the right to demand Party A to replace them and
Party A shall not refuse such demand. Party A must bear corresponding
responsibility if the dispatched crewmen’s lack of qualifications or skills
causes any loss to Party B.
6.2 Party
B has the right to require the dispatched crewmen to comply with all the rules
and policies formulated in accordance with the relevant State laws and policies
and follow Party B’s production and operation arrangements.
6.3 If
the dispatched crewmen engage in any of the following during the term of the
contract, Party B has the right, upon Party A’s acknowledgement, to send them
back to Party A without any liability for breach:
(1) Violation
of Party B’s work disciplines or rules and regulations, and after criticism and
education, failure to make any correction or rectification;
(2) Negligence
of duties, resulting in serious loss or damage to Party B’s
interests;
(3) Violation
of law and statutes or being the subject of criminal legal
proceedings;
(4) Inability
to perform original work duties after treatment period for illness or
work-related injury and inability, or refusal, to perform other work assigned by
Party A;
If the
dispatched crewmen seriously violate Party B’s legitimate rules and regulations
(this provision should be made known to the dispatched crewmen and Party A) and
there is solid evidence of such violation, Party B may submit report in writing
to Party A and, upon Party A’s acknowledgement, terminate the said crewmen’s
dispatch. In the meantime, Party A must dispatch replacement
crewmen.
6.4 Party
B has the right to submit written opinion on, and negotiate with regard to, the
behavior that violates the relevant provisions of this
contract. Party A must respond to Party B in writing within 10
business days upon receiving the written opinion from Party B.
7. Party
B has the following obligations:
7.1 Manage
the dispatched crewmen in such areas as their posts’ duties and responsibilities
and labor discipline and provide them with relevant training;
7.2 Provide
to the dispatched crewmen working environment and labor conditions that are in
compliance with the provisions of the State’s “Labor Law”;
7.3 Pay
the crewmen dispatch fee in accordance with the provisions of this
contract;
If Party B fails to pay the crewmen
dispatch fee on time pursuant to the provisions of this contract, Party B must
pay a breach penalty at the daily rate of 0.1% of the total of the unpaid or
past due crewmen dispatch fee; but the cumulative total of such breach penalty
shall not exceed 5% of the total crewmen dispatch fee for the corresponding
period.
7.4 Ensure
that the dispatched crewmen have all the rights and interests provided by the
State’s “Labor Law” during the term of service and assume the obligations and
responsibilities provided by the State’s “Labor Law”;
7.5 Shall
not suspend or terminate those dispatched crewmen while they are in pregnancy,
labor or nursing periods and in the required treatment period for illness or
injury; pay to Party A the corresponding expenses for those dispatched crewmen
who suffer work-related injury or contract occupational disease and, upon
verification, have lost, or partially lost, their ability to work and who suffer
work-related death in accordance with the relevant provisions of the “Labor
Law”;
7.6 Supervise
in the processing of relevant legal work documents for the dispatch crewmen
required for the term of service and educate them on the adherence of
disciplines and compliance of law;
7.7 Notify
Party A fifteen business days in advance in the event of relocation of work
location due to business need; notify Party A two business days in advance in
the event of any change of contact telephone number, fax number or bank account
number;
7.8 Follow
strictly the specification of the assignment posts stipulated in the contract;
consult with Party A on any need to change the posts for the dispatched crewmen
and bear all consequences resulting from changing the posts of the dispatched
crewmen without prior consultation with Party A.
7.9 Party
A and Party B must be responsible for handling the cases of work-related
injuries and accidental death suffered by the dispatched crewmen in accordance
with the relevant State regulations, with Party B bearing the corresponding
expenses.
Article
IV Dispute and
Arbitration
8. Any
dispute arising from performance of, or in connection with, this contract must
be settled through consultation; if such consultation fails, either party may
submit the dispute to the legal proceedings at the people’s court in Fuzhou
City.
Article
V Others
9. Other
matters not covered herein must be settled by Party A and Party B through
consultation or be provided in supplemental agreement formulated in accordance
with relevant provisions of the State law, statutes and
regulations.
10. If
any content herein conflicts with the State law or policies, or is inconsistent
due to the changes of the law and policies, the provisions of the law or such
policies shall prevail.
11. All
attachments hereto are the component parts hereto and have the same legal
effect.
12. The
contract becomes effective on the date it is signed and imprinted with the seals
by both parties.
13. This
contract is in duplicates, with one to each party, and both have the same legal
effect.
Signature
(Seal) of Party A’s representative:
/s/ HUANG
Jian
/seal/
(seal visible but not legible)
Date: February
21, 2008
Signature
(Seal) of Party B’s representative:
/s/ LIN
Qing
/seal/
(seal visible but not legible)
Date: February
21, 2008
Attachment:
List of Dispatched Crewmen
Post
|
|
Number
|
Cook
|
|
1
|
Seaman
|
|
7
|
Mechanic
|
|
7
|
Total
|
|
15
|
Crewmen
Dispatch Contract
(“Xinggang
Dredging 6”)
(Unofficial
Translation)
PartyA:
|
Fujian
Haiyi International Shipping Service Agency Co.,
Ltd.
|
PartyB:
|
Fujian
Xinggang Shipping Service Co., Ltd.
|
Party A and Party B, after friendly
consultation based on the principles of equality and mutual benefit, have
reached the agreement regarding the matter of Party A dispatching crewmen to
work at relevant posts on Party B’s dredging engineering boat “Xinggang Dredging
6” and set forth the following provisions to be adhered to by both:
Article
I Generals
1. The
term “dispatched crewmen” used herein means those crewmen who are dispatched by
Party A, pursuant to the provisions herein, to work at relevant posts on Party
B’s dredging engineering boat “Xinggang Dredging 6”; see attachment for the list
of dispatched crewmen.
2. The
two parties agree that the monthly crewmen dispatch fee is RMB Sixty-Eight
Thousand Five Hundred Yuan (¥68,500.00
).
Party
B must pay the crewmen dispatch fee to Party A at the end of each
quarter. If a period is less than a month, the fee for the period is
calculated on the basis of one month.
The said labor dispatch fee includes
all the fees and expenses such as the dispatched crewmen’s salaries, all
benefits and insurances (including but not limited to pensions insurance,
unemployment insurance, medical insurance, family planning insurance, injury
insurance, housing fund and commercial insurance) and bonuses.
3.
Term of the contract
This
contract becomes effective on April 21, 2008 and terminates on April 20,
2011.
Article
II Party A’s
Rights and Obligations
4.
Party A has the following obligations:
4.1 Recommend
the crewmen candidates in accordance with the provisions of this
contract.
Educate the dispatched crewmen on the
compliance with the State laws, statutes and regulations; educate the dispatched
crewmen on the compliance with Party B’s rules and policies, on maintaining
confidentiality of commercial secrets and on safeguarding Party B’s legitimate
rights and interests.
4.2 Ensure
that the dispatched crewmen have the qualifications and skills required of their
respective posts and possess valid and complete employment qualification
documents, including but not limited to crewmen service books, maritime crewmen
professional training certificates and maritime crewmen service competency
certificates.
4.3 Party
B must notify Party A in writing, three business days in advance, of the
boarding time and boarding location for the crewmen dispatched by Party
A. Party A must ensure that all the dispatched crewmen will report
for duty at the time and location specified by Party B.
If there is any factor on Party B’s
part that causes a waiting period of more than half a month before the
dispatched crewmen can be aboard, Party B must still pay the same amount
salaries to Party A; if the waiting period exceeds a month, Party A has the
right to terminate this contract.
4.4 After
the dispatched crewmen have passed assessment and been assigned by Party B,
Party A shall not issue command at will to and replace them. Party A
must ensure that Party B has the absolute leadership authority over the
dispatched crewmen. During the term of the contract, the dispatched
crewmen must follow the operation arrangement from Party B’s safety and shipping
service scheduling department.
4.5 Party
A will pay salaries and bonuses to the dispatched crewmen, withhold and pay on
their behalf personal income taxes and make payment for them of all the State
mandated insurances, including but not limited to pensions insurance,
unemployment insurance, medical insurance, family planning insurance, injury
insurance, housing fund and commercial insurance.
5.
Party A has the following rights:
5.1 Party
A has the right to receive the crewmen dispatch fee pursuant to the provisions
herein;
5.2 Upon
the occurrence of any of the following during the term of this contract, Party A
can request to dissolve the crewmen dispatch relationship with Party B without
any liabilities; but such request must be sent to Party B in writing 30 days in
advance:
(1) Party
B violates the State laws and statues and the relevant provisions
herein;
(2) Party
B’s actions violate the dispatched crewmen’s legitimate rights and
interests;
(3) Party
B refuses to pay the crewmen dispatch fee or Party B’s payment of such fee is a
month past due.
Article
III Party B’s
Rights and Obligations
6.
Party B has the following rights:
6.1 Party
B has the right to conduct assessment on the crewmen dispatched by Party
A.
If the
dispatched crewmen do not have the qualifications or skills required of their
respective posts, Party B has the right to demand Party A to replace them and
Party A shall not refuse such demand. Party A must bear corresponding
responsibility if the dispatched crewmen’s lack of qualifications or skills
causes any loss to Party B.
6.2 Party
B has the right to require the dispatched crewmen to comply with all the rules
and policies formulated in accordance with the relevant State laws and policies
and follow Party B’s production and operation arrangements.
6.3 If
the dispatched crewmen engage in any of the following during the term of the
contract, Party B has the right, upon Party A’s acknowledgement, to send them
back to Party A without any liability for breach:
(1) Violation
of Party B’s work disciplines or rules and regulations, and after criticism and
education, failure to make any correction or rectification;
(2) Negligence
of duties, resulting in serious loss or damage to Party B’s
interests;
(3) Violation
of law and statutes or being the subject of criminal legal
proceedings;
(4) Inability
to perform original work duties after treatment period for illness or
work-related injury and inability, or refusal, to perform other work assigned by
Party A;
If the
dispatched crewmen seriously violate Party B’s legitimate rules and regulations
(this provision should be made known to the dispatched crewmen and Party A) and
there is solid evidence of such violation, Party B may submit report in writing
to Party A and, upon Party A’s acknowledgement, terminate the said crewmen’s
dispatch. In the meantime, Party A must dispatch replacement
crewmen.
6.4 Party
B has the right to submit written opinion on, and negotiate with regard to, the
behavior that violates the relevant provisions of this
contract. Party A must respond to Party B in writing within 10
business days upon receiving the written opinion from Party B.
7.
Party B has the following obligations:
7.1 Manage
the dispatched crewmen in such areas as their posts’ duties and responsibilities
and labor discipline and provide them with relevant training;
7.2 Provide
to the dispatched crewmen working environment and labor conditions that are in
compliance with the provisions of the State’s “Labor Law”;
7.3 Pay
the crewmen dispatch fee in accordance with the provisions of this
contract;
If Party B fails to pay the crewmen
dispatch fee on time pursuant to the provisions of this contract, Party B must
pay a breach penalty at the daily rate of 0.1% of the total of the unpaid or
past due crewmen dispatch fee; but the cumulative total of such breach penalty
shall not exceed 5% of the total crewmen dispatch fee for the corresponding
period.
7.4 Ensure
that the dispatched crewmen have all the rights and interests provided by the
State’s “Labor Law” during the term of service and assume the obligations and
responsibilities provided by the State’s “Labor Law”;
7.5 Shall
not suspend or terminate those dispatched crewmen while they are in pregnancy,
labor or nursing periods and in the required treatment period for illness or
injury; pay to Party A the corresponding expenses for those dispatched crewmen
who suffer work-related injury or contract occupational disease and, upon
verification, have lost, or partially lost, their ability to work and who suffer
work-related death in accordance with the relevant provisions of the “Labor
Law”;
7.6 Supervise
in the processing of relevant legal work documents for the dispatch crewmen
required for the term of service and educate them on the adherence of
disciplines and compliance of law;
7.7 Notify
Party A fifteen business days in advance in the event of relocation of work
location due to business need; notify Party A two business days in advance in
the event of any change of contact telephone number, fax number or bank account
number;
7.8 Follow
strictly the specification of the assignment posts stipulated in the contract;
consult with Party A on any need to change the posts for the dispatched crewmen
and bear all consequences resulting from changing the posts of the dispatched
crewmen without prior consultation with Party A.
7.9 Party
A and Party B must be responsible for handling the cases of work-related
injuries and accidental death suffered by the dispatched crewmen in accordance
with the relevant State regulations, with Party B bearing the corresponding
expenses.
Article
IV Dispute and
Arbitration
8. Any
dispute arising from performance of, or in connection with, this contract must
be settled through consultation; if such consultation fails, either party may
submit the dispute to the legal proceedings at the people’s court in Fuzhou
City.
Article
V Others
9. Other
matters not covered herein must be settled by Party A and Party B through
consultation or be provided in supplemental agreement formulated in accordance
with relevant provisions of the State law, statutes and
regulations.
10. If
any content herein conflicts with the State law or policies, or is inconsistent
due to the changes of the law and policies, the provisions of the law or such
policies shall prevail.
11. All
attachments hereto are the component parts hereto and have the same legal
effect.
12. The
contract becomes effective on the date it is signed and imprinted with the seals
by both parties.
13. This
contract is in duplicates, with one to each party, and both have the same legal
effect.
/s/ HUANG
Jian
/seal/
(seal visible but not legible)
Date: April
21, 2008
Signature
(Seal) of Party B’s representative:
/s/ LIN
Qing
/seal/
(seal visible but not legible)
Date: April
21, 2008
Attachment:
List of Dispatched Crewmen
Post
|
|
Number
|
Cook
|
|
1
|
Seaman
|
|
7
|
Mechanic
|
|
5
|
Total
|
|
13
|
Ship
Lease Contract
(“Hengsheng
Dredging 88”)
(Unofficial
Transaltion)
Party
A:
|
Lianyungang
Hengrong Shipping Service Co., Ltd.
|
Address:
|
No.
6 Street, Development Zone, Lianyun District,
Lianyungang
|
Fujian
Office:
|
803
International Plaza, 89 Middle Fuxin
Road
|
Jin’an
District, Fuzhou
Legal
Representative: CHEN Xiaobin
Party
B:
|
Fujian
Xing Gang Shipping Service Co.,
Ltd.
|
Address:
|
17
th
Floor, Building A, Zhongshan Plaza, 154 Hudong Road,
Fuzhou
|
Legal
Representative: LIN Qing
Party A
and Party B, after friendly consultation, have formulated this leasing contract
to be adhered to by both parties.
I. Based
on Party B’s need, Party A agrees to lease the dredging boat it owns, “Hengsheng
Dredging 88” (the “Boat”), to Party B for its use.
II. Term
of the lease
1. The
term of the lease is three years (from January 10, 2008 to January 9,
2011).
2. Within
seven days upon the expiration of the 3-year term of the lease, Party A shall
transfer the Boat unconditionally to Party B and complete all the relevant
change procedures including but not limited to the ship ownership change
registration, with Party A responsible for all the expenses in connection with
such procedures.
III. Payment
of the lease fee
1. The
lease fee is calculated in RMB, and the annual lease fee is Four Million Seven
Hundred Fifty Thousand Yuan even (¥4,750,000.00).
2. The
lease fee is to be paid quarterly. At the end of each quarter, Party
B will pay the lease fee to Party A in the form of bank transfer into the bank
account designated by Party A.
3. In
the month of delivering the Boat, Party B must pay to Party A a ship security
deposit of Twenty-Three Million Yuan (¥23,000,000.00). The said
security deposit will be returned to Party B within seven days upon the
expiration of the 3-year term of the lease.
4. After
the expiration of the 3-year term of the lease and within seven days upon the
completion of all the change registration procedures by Party A in accordance
with the Provision II.2 herein, Party B shall pay to Party A a ship transfer
consideration of Ninety-Seven Million and Five Hundred Thousand Yuan even
(¥97,500,000.00). Party B can use the security deposit specified in
the above provision to directly offset a portion of the ship transfer
consideration and pay the remaining balance of the consideration in
full.
IV. Rights
and obligations of each of the two parties
(A) Party
A’s rights and obligations
1. Party
A has the right to receive the lease fee according to the schedule provided
herein.
2. Party
A confirms the ownership of the Boat and has processed the relevant certificates
required by the State law and statutes.
3. Party
A may, upon obtaining consent from Party B, dispatch a representative to the
Boat to supervise the ship operation at its own expense. If Party A’s
representative believes that any of Party B’s actions violates this contract or
can damage the body of the Boat, Party A must issue a written report and settle
the matter between the two parties amicably through consultation.
4. Party
A warrants that, on the day of delivering the Boat and during the term of the
lease, the technical specifications of the Boat are in conformity with those
specified in all the ownership certificates; if there are discrepancies, the
lease fee shall be reduced and such reduction should be an amount sufficient to
compensate the lessee for any resulting loss.
5. Party
A warrants that, on the day of delivering the Boat and during the term of the
lease, the Boat is tight, solid, strong and in good working condition, and is
suitable for the operation of the project; the body of the Boat and the machines
and equipment on board are in full working condition.
6. On
the day of delivering the boat, Party A must also provide all the certificates
required for its operation, including but not limited to “People’s Republic of
China Ship and Vessel Ownership Registration Certificate”, “People’s Republic of
China Ship and Vessel Nationality Certificate”, “Maritime Ship and Vessel
Inspection Certification Record”, “Maritime Cargo Vessel Seaworthiness
Certificate”, “Maritime Ship and Vessel Tonnage Certificate”, “Maritime Ship and
Vessel Oil Pollution Prevention Certificate” and “Maritime Ship and Vessel Load
Line Certificate”.
7. During
the term of the lease, Party A must process on time, completely and fully all
the procedures regarding ship inspections and insurances at its own cost; Party
B must provide active cooperation and must not knowingly set up any
obstacles.
8. Before
delivering the Boat, Party A must engage a professional shipyard to perform
comprehensive inspection and repairs on the Boat and ensure that the Boat has a
life of use no less than ten years.
9. During
the term of the lease, Party A must assign crewmen for the Boat who are
competent and have professional qualifications for their respective posts in
accordance with the provisions of "Crewmen Assignment
Agreement". (See Attachment 1 hereto, "Crewmen Assignment Agreement",
for details.
10. If,
due to business need, Party A needs to relocate its office to a new address or
to change its bank account, Party A must notify Party B in writing fifteen
business days in advance; if there is need to change the contact telephone
number, Party A must notify Party B in writing two business days in
advance.
11. If
Party B's payment of the lease fee is fifteen days or more past due, Party A may
resort to litigation at the court and may unilaterally dissolve this
contract.
12. Party
A's dissolution of this contact during the term of the lease or failure to
transfer the Boat to Party B upon the expiration of the lease shall constitute
the breach of contract; Party B shall have the right to demand the continuation
of the performance of this contract; Party A must at such time pay a breach
penalty of RMB 10,000,000.00 to Party B and Party B can demand Party A to
compensate Party B for any resulting loss.
(B) Party
B’s rights and obligations
1. Starting
from the day of the execution of this contract, Party B has the right to
dispatch its representatives at its own expenses to inspect the Boat and
familiarize themselves with the operation of the Boat.
2. Party
B has the right to sublease the Boat; however Party B shall still have full
responsibility toward Party A to perform this contract.
3. Party
B must pay the lease fee on time in accordance with the provisions
herein.
4. The
use of the Boat leased by Party B from Party A is limited to port dredging
operations and similar projects. If Party B needs to add equipment on
board the Boat, Party B must obtain consent from Party A before any
implementation.
5. During
the term of the lease, Party B shall still pay the lease fee when the Boat is
unable to be operated normally due to climate factors (such as Typhoon, rain or
fog).
6. Any
damages and losses suffered by both parties due to the occurrence of any humanly
irresistible disaster or to government edicts and military action, whether or
not the Boat is in navigation or in mooring, must be handled in accordance with
the provisions of maritime laws and statutes.
7. Party
B shall not dispatch the Boat to, or let it enter, any frozen waters, nor shall
Party B let the Boat enter an area where, at the time of the Boat's arrival, the
light tower, light boat, navigation mark or buoy will be, or are likely to be,
removed soon or an dangerous area with ice hazard, such that the Boat will not
be able to arrive at the location of operation smoothly or to exit the location
after its operation.
8. Before
obtaining consent from Party A in writing, Party B shall not dispatch the Boat
to dock at a Taiwan port or let it navigate out of the border of the People's
Republic of China for any reason or any purpose.
9. Party
B is strictly forbidden to use the Boat to transport any hazardous
material. Party B shall not use the Boat to engage in any illegal
activities, including but not limited to smuggling, pilfering, stealing and
illegal immigration.
10. If,
at the end of the quarter, Party B fails to pay the lease fee or pay the lease
fee in full for the corresponding period, Party B then shall,
starting from the following month, pay a breach penalty calculated at the daily
rate of 0.1% of the total of the unpaid portion of the lease fee; but the
cumulative total of such breach penalty shall not exceed 5% of the lease fee for
the corresponding period.
V. Delivery
of the Boat
1. Time
of delivery: before January 22, 2008.
2. Port
of delivery: at the coal dock of Guangdong Guohua Taishan Power
Plant.
3. At
the time of delivery, the cabins of the Boat must be emptied and cleaned and be
suitable for loading and receiving cargo.
4. Delivery
notice: Party A must confirm with Party B the actual time of delivery seven days
before the date of delivery.
At the time of delivering the Boat, the
ship inspection engineer appointed by Party A must inspect the cargo cabin and
confirm the amount of fuel stored on board at the port of
delivery. Party A shall be responsible for the inspection engineer's
inspection fee. Before the amount of fuel stored on board is
measured, the draft of the front and back of the Boat must be adjusted for
balance or the draft differential between the stern and bow of the Boat must not
exceed 6 feet.
5. Supporting
parts that come with the Boat: at the time of delivery, Party A must equip the
Boat with all the corresponding supporting parts. 6. [sic] At the
time of delivery, Party A must ensure that the amount of fuel stored on board
must be above 80% of the Boat's maximum fuel storage capacity.
6. As
Party A will transfer the Boat to Party B upon the expiration of the term of the
lease, the date of expiration of the term of the lease shall be the date of
transfer of the Boat by Party A to Party B; and Party A and Party B shall at
such time process the delivery and acceptance procedures. And the
handling of the crewmen assigned by Party A shall also be decided at such time
through consultation between the two parties.
VI. All
attachments hereto are the component parts of this contract and shall have the
same legal effect as this contract.
VII. The
original of this contract is in triplets, with one to Party A, Party B and the
ship administration office each; it has six copies, with two to Party A, Party B
and the ship administration office each; this contract will take effect after it
is signed and imprinted with seals by both Party A and Party B.
VII. All
matters not covered herein shall be settled in supplemental agreements through
consultation between the two parties, and all such supplemental agreements shall
have the same legal effect as this contract.
Signature
(Seal) of Party A’s representative:
/s/ CHEN
Xiaobin
/seal/
(seal visible but not legible)
Date: January
8, 2008
Signature
(Seal) of Party B’s representative:
/s/ LIN
Qing
/seal/
(seal visible but not legible)
Date: January
8, 2008
Crewmen
Assignment Agreement
(“Hengsheng
Dredging 88”)
(Unofficial
Translation)
Party
A:
|
Lianyungang
Hengrong Shipping Service Co., Ltd.
|
Address:
|
No.
6 Street, Development Zone, Lianyun District,
Lianyungang
|
Fujian
Office:
|
803
International Plaza, 89 Middle Fuxin
Road
|
Jin’an
District, Fuzhou
Legal
Representative: CHEN Xiaobin
Party
B:
|
Fujian
Xing Gang Shipping Service Co.,
Ltd.
|
Address:
|
17
th
Floor, Building A, Zhongshan Plaza, 154 Hudong Road,
Fuzhou
|
Legal
Representative: LIN Qing
Party A and Party B, after friendly
consultation based on the principles of equality and mutual benefit and on the
basis of the “Ship Leasing Contract” executed by the two parties, have reached
the agreement regarding the matter of Party A assigning crewmen during the term
of Party B’s lease of dredging engineering boat “Hengsheng Dredging 88” from
Party A as follows:
Article
I
Generals
1.
The term “assigned crewmen” used herein means those crewmen
who are assigned by Party A, pursuant to the provisions of the “Ship Leasing
Contract” executed by the two parties and the provisions of herein, to work at
relevant posts on “Hengsheng Dredging 88”; see the attached list for crewmen
assignment details.
2.
In addition to paying to Party A the ship leasing fee in accordance
with the provisions of the “Ship Leasing Contract” executed by the two parties,
Party B must also pay to Party A the crewmen assignment fee; the said crewmen
assignment fee is RMB Three Hundred Thousand Yuan (¥300,000.00) per month
.
Party B must pay
the crewmen assignment fee to Party A for the corresponding period at the time
of paying the ship leasing fee. If a period is less than a month, the
fee for the period is calculated on the basis of one month.
The said crewmen assignment fee
includes salaries that Party A should pay to the crewmen working “Hengsheng
Dredging 88” and all benefits and insurances (including but not limited to
pensions insurance, unemployment insurance, medical insurance, family planning
insurance, injury insurance, housing fund and commercial
insurance).
The effective period of this agreement
corresponds to and is the same as the term of the lease specified in the “Ship
Leasing Contract” executed by the two parties.
Article
II
Party A’s Rights and
Obligations
4.
|
Party
A has the following obligations:
|
4.1 Assign
crewmen for the ship pursuant to the provisions herein; educate the crewmen on
the compliance with the State laws, statutes and regulations; educate the
assigned crewmen on the compliance with Party B’s rules and policies, on
maintaining confidentiality of commercial secrets and on safeguarding Party B’s
legitimate rights and interests.
4.2 Ensure
that the assigned crewmen have the qualifications and skills required of their
respective posts and possess valid and complete employment qualification
documents, including but not limited to crewmen service books, maritime crewmen
professional training certificates and maritime crewmen service competency
certificates.
4.3 Party
B must notify Party A in writing, three business days in advance, of the
boarding time and boarding location for the crewmen assigned by Party
A. Party A must ensure that all the assigned crewmen will report for
duty at the time and location specified by Party B. If there is any
factor on Party B’s part that causes a waiting period of more than half a month
before the assigned crewmen can be aboard, Party B must still pay the same
amount of crewmen assignment fee to Party A pursuant to the provisions
herein.
4.4 After
the assigned crewmen have passed assessment and been placed on duty by Party B,
Party A shall not replace them at will. Party A must ensure that
Party B has the absolute leadership authority over the assigned
crewmen. During the term of the agreement, the assigned crewmen must
follow the operation arrangement from Party B’s safety and shipping service
scheduling department.
4.5 Party
A will pay salaries and bonuses to the assigned crewmen and withhold and pay on
their behalf personal income taxes and make payment for them of all the State
mandated insurances, including but not limited to pensions insurance,
unemployment insurance, medical insurance, family planning insurance, injury
insurance, housing fund and commercial insurance.
4.6 If
Party B requests Party A to replace certain assigned crewmen pursuant to the
provisions herein, Party A must replace them promptly so as not to affect Party
B’s normal operation.
4.7 In
the event of the occurrence of any accident causing injury to the assigned
crewmen, Party A must, after receiving notification from Party B, handle such
accident properly in accordance with the provisions of relevant insurance and be
responsible for submitting report and insurance claims.
4.8 If
there a change in the Party A’s bank account number, Party A must notify Party B
in writing two business days in advance.
5.
|
Party
A has the following rights:
|
5.1 Party
A has the right to receive the crewmen assignment fee pursuant to the provisions
herein;
5.2 Upon
the occurrence of any of the following during the term of this agreement, Party
A can request to dissolve this agreement without any liabilities; but such
request must be sent to Party B in writing 30 days in advance:
(1) Party
B violates the State laws and statues and the relevant provisions
herein;
(2) Party
B’s actions violate the assigned crewmen’s legitimate rights and
interests;
(3) Party
B refuses to pay the crewmen assignment fee or Party B’s payment of such fee is
a month past due.
Article
III
Party B’s Rights and
Obligations
6.
|
Party
B has the following rights:
|
6.1 Party
B has the right to conduct assessment on the crewmen assigned by Party
A. If the assigned crewmen do not have the qualifications or skills
required of their respective posts, Party B has the right to demand Party A to
replace them and Party A shall not refuse such demand. Party A must
bear corresponding responsibility if the assigned crewmen’s lack of
qualifications or skills causes any loss to Party B.
6.2 Party
B has the right to require the assigned crewmen to comply with all the rules and
policies formulated in accordance with the relevant State laws and policies and
follow Party B’s production and operation arrangements.
6.3 If
the assigned crewmen engage in any of the following during the term of the ship
lease, Party B has the right, upon Party A’s acknowledgement, to demand Party A
to recall them without any liability for breach:
(1) Violation
of Party B’s work disciplines or rules and regulations, and after criticism and
education, failure to make any correction or rectification;
(2) Negligence
of duties, resulting in serious loss or damage to Party B’s
interests;
(3) Violation
of law and statutes or being the subject of criminal legal
proceedings;
(4) Inability
to perform original work duties after treatment period for illness or
work-related injury and inability, or refusal, to perform other work assigned by
Party A;
6.4 Party
B has the right to submit written opinion on, and negotiate with regard to, the
behavior that violates the relevant provisions of this
agreement. Party A must respond to Party B in writing within ten
business days upon receiving the written opinion from Party B.
7.
|
Party
B has the following obligations:
|
7.1 Manage
the assigned crewmen in such areas as their posts’ duties and responsibilities
and labor discipline and provide them with relevant training;
7.2 Provide
to the assigned crewmen working environment, labor conditions and labor
protection that are in compliance with the provisions of the State’s “Labor
Law”;
7.3 Pay
the crewmen assignment fee in accordance with the provisions of this
agreement. If Party B fails to pay the crewmen assignment fee on time
pursuant to the provisions of this agreement, Party B must pay a breach penalty
at the daily rate of 0.1% of the total of the unpaid or past due crewmen
assignment fee; but the cumulative total of such breach penalty shall not exceed
5% of the total crewmen assignment fee for the corresponding
period.
7.4 Pay
to Party A the corresponding expenses for those assigned crewmen who suffer
work-related injury or contract occupational disease and, upon verification,
have lost, or partially lost, their ability to work and who suffer work-related
death;
7.5 Supervise
in the processing of relevant legal work documents for the dispatch crewmen
required for the term of service and educate them on the adherence of
disciplines and compliance of law;
7.6 Notify
Party A fifteen business days in advance in the event of relocation of work
location due to business need; notify Party A two business days in advance in
the event of any change of contact telephone number and fax number;
7.7 arrange
work posts for the assigned crewmen in accordance with the provisions herein,
consult with Party A if there is need for any change and bear all consequences
resulting from changing the posts of the assigned crewmen without prior
consultation with Party A.
Article
IV
Dispute and
Arbitration
8.
Any dispute arising from performance of, or in connection with, this
agreement must be settled through consultation; if such consultation fails,
either party may submit the dispute to the jurisdiction of the people’s court at
Party B’s location.
Article
V
Others
9.
Other matters not covered herein must be settled by Party A and Party B
through consultation or be provided in supplemental agreement formulated in
accordance with relevant provisions of the State law, statutes and
regulations.
10.
If any content herein conflicts with the State law or policies, or
is inconsistent due to the changes of the law and policies, the provisions of
the law or such policies shall prevail.
11.
All attachments hereto are the component parts hereto and have the
same legal effect.
12.
This agreement shall become effective at the same time when the “Ship
Leasing Contract” executed by the two parties takes effect.
13.
This agreement is in duplicates, with one to each party, and
both have the same legal effect.
Signature
(Seal) of Party A’s representative:
|
/s/
CHEN Xiaobin
|
/seal/
(seal visible but not legible)
|
Date: January
8, 2008
|
|
Signature
(Seal) of Party B’s representative:
|
/s/
LIN Qing
|
/seal/
(seal visible but not legible)
|
Date: January
8, 2008
|
Attachment:
List of Assigned Crewmen
Post
|
|
Number
|
Captain
|
|
1
|
First
Mate
|
|
1
|
Chief
Engineer
|
|
1
|
Second
Mate
|
|
1
|
Second
Engineer
|
|
1
|
Third
Engineer
|
|
1
|
Fourth
Engineer
|
|
1
|
Third
Mate
|
|
1
|
Seamen
Chief
|
|
1
|
Long
Mechanic
|
|
1
|
Mechanic
|
|
8
|
Seaman
|
|
9
|
Cook
|
|
1
|
Total
|
|
28
|
Ship
Lease Supplemental Agreement
(Unofficial
Translation)
Party A (Lessor):
Lianyungang
Hengrong Shipping Service Co., Ltd.
Address
: Road 6 Development
District, Lianyun District, Lianyungang City
Address
of Fuzhou branch
: 803 Time
International Square, 89 Fuxinzhonglu Road, Jinan District, Fuzhou
City
Legal Representative
: CHEN
Xiaobin
Party B (Lessee):
Fujian Xing
Gang Port Service Co., Ltd.
Address
: Floor 17, Tower A,
Zhongshan Building, 154 Hudong Road, Fuzhou City.
Legal Representative:
LIN
Qing
Through
friendly consultation, Party A and Party B agree upon the following supplements
to the Ship Lease Agreement executed on January 8
th
,
2008:
I.
|
Upon
the expiration of the original
agreement:
|
|
1.
|
Party
A need not conduct ship certificate change
procedures;
|
|
2.
|
Party
A does not refund the ship security deposit in the amount of twenty three
million yuan. (¥ 23,000,000.00);
|
|
3.
|
Party
B does not purchase the ship “Hengshengjun
88”;
|
|
4.
|
Party
B need not make the ship transfer payment in the amount of seventy million
yuan even (¥ 70,000,000,00);
|
|
5.
|
Party
A and Party B do not conduct ship transfer
procedures.
|
II.
|
After
the original agreement expires, Party B renews the lease until January
9
th
,
2016.
|
III.
|
When
term expires in 2016, Party B has the priority to renew the lease under
the same conditions. If Party B decides not to renew the lease,
within 7 business days after the expiration of the
term:
|
|
1.
|
Party
A and Party B conduct ship transfer
procedures;
|
|
2.
|
Party
A refunds the ship security deposit in the amount of twenty three million
yuan even (¥ 23,000,000.00);
|
IV.
|
Other
items in the original agreement do not
change.
|
V.
|
This
supplementary agreement has the same legal validity as the original
agreement.
|
Party A
: Lianyungang Hengrong
Shipping Service Co., Ltd. (Seal)
Legal Representative
: CHEN
Xiaobin /s/
Party B
: Fujian Xing Gang Port
Service Co., Ltd. (Seal)
Legal Representative
: LIN Qing
/s/
Date of execution
: April
13
th
,
2010
Crewmen
Assignment Supplemental Agreement
(Unofficial
Translation)
Party A (Lessor):
Lianyungang
Hengrong Shipping Service Co., Ltd.
Address
: Road 6 Development
District, Lianyun District, Lianyungang City
Address
of Fuzhou branch
: 803 Time
International Square, 89 Fuxinzhonglu Road, Jinan District, Fuzhou
City
Legal Representative
: CHEN
Xiaobin
Party B (Lessee):
Fujian Xing
Gang Shipping Service Co., Ltd.
Address
: Floor 17, Tower A,
Zhongshan Building, 154 Hudong Road, Fuzhou City.
Legal Representative:
LIN
Qing
Whereas
the two parties entered into
Supplemental Ship Lease
Agreement
on April 13
th
, 2010,
through friendly consultation, Party A and Party B agree upon the following
supplements to the
Crew
Allocation Agreement
executed on January 8
th
,
2008:
1.
|
As
the lease term of Hengshengjun 88 is renewed until January 9
th
,
2016, the term of the crew allocation designated in the original agreement
is renewed accordingly until January 9
th
,
2010 upon the expiration of the original
agreement;
|
2.
|
Refer
to the attached
Crew
Allocation List
for the structure and number of the crew members
provided by Party A;
|
3.
|
The
crew allocation fees designated in the original agreement stay unchanged
at RMB three hundred thousand yuan even (¥300,000.00 yuan) per
month. The payment is made by
season;
|
4.
|
The
crew allocation fees include salaries, benefits, social insurances
(including but not limited to endowment insurance, unemployment insurance,
medical care insurance, maternity insurance, employment injuries
insurance, housing fund, and commercial insurance) and bonus that Party A
is obliged to pay to the crew members of Hengshengjun 88. Party
A is responsible for the social insurance and benefits of the
crew;
|
5.
|
After
the term expires in 2016, under the same conditions, Party B has the
priority to hire the crew given that Party B continue to lease ships from
Party A;
|
6.
|
Party
A ensures that all crew members possess the professional skills and
required licenses corresponding to their
work.
|
7.
|
Other
items in the original agreement do not
change.
|
8.
|
This
supplemental agreement has the same legal validity as the original
agreement.
|
Party A
: Lianyungang Hengrong
Shipping Service Co., Ltd. (Seal)
Legal Representative
: CHEN
Xiaobin /s/
Party B
: Fujian Xing Gang Port
Service Co., Ltd. (Seal)
Legal Representative
: LIN Qing
/s/
Date of execution
: May 21
st
,
2010
Ship
Lease Contract
(“Xing
Gang Dredging 9”)
(Unofficial
Translation)
Party
A: Fujian Lutong
Highway Engineering Construction Co., Ltd.
Address: 17
th
Floor,
Yinhe Garden Hotel, 243 Wusi Road, Fuzhou
Legal
Representative: ZHUO Panxing
Party
B: Fujian
Xing Gang Shipping Service Co., Ltd.
Address: 17
th
Floor,
Building A, Zhongshan Plaza, 154 Hudong Road, Fuzhou
Legal
Representative: LIN Qing
Party A
and Party B, after friendly consultation, have formulated this leasing contract
to be adhered to by both parties.
I.
Based on Party B’s need, Party A agrees to lease the dredging boat it owns,
“Xing Gang Dredging 9” (the “Boat”), to Party B for its use.
II. Term
of the lease
1. The
term of the lease is three years (from June 1, 2008 to May 31,
2011).
2. Within
seven days upon the expiration of the 3-year term of the lease, Party A shall
transfer the Boat unconditionally to Party B and complete all the relevant
change procedures including but not limited to the ship ownership change
registration, with Party A responsible for all the expenses in connection with
such procedures.
III.
Payment of the lease fee
1. The
lease fee is calculated in RMB, and the annual lease fee is Seven Million Yuan
even (¥7,000,000.00).
2. The
lease fee is to be paid quarterly. At the end of each quarter, Party
B will pay the lease fee to Party A in the form of bank transfer into the bank
account designated by Party A.
3. In
the month of delivering the Boat, Party B must pay to Party A a ship security
deposit of Thirty-Four Million and Five Hundred Thousand Yuan
(¥34,500,000.00). The said security deposit will be returned to Party
B within seven days upon the expiration of the 3-year term of the
lease.
4. After
the expiration of the 3-year term of the lease and within seven days upon the
completion of all the change registration procedures by Party A in accordance
with the Provision II.2 herein, Party B shall pay to Party A a ship transfer
consideration of Ninety-Seven Million and Five Hundred Thousand Yuan even
(¥97,500,000.00). Party B can use the security deposit specified in
the above provision to directly offset a portion of the ship transfer
consideration and pay the remaining balance of the consideration in
full.
IV. Rights
and obligations of each of the two parties
(A) Party
A’s rights and obligations
1. Party
A has the right to receive the lease fee according to the schedule provided
herein.
2. Party
A confirms the ownership of the Boat and has processed the relevant certificates
required by the State law and statutes.
3. Party
A may, upon obtaining consent from Party B, dispatch a representative to the
Boat to supervise the ship operation at its own expense. If Party A’s
representative believes that any of Party B’s actions violates this contract or
can damage the body of the Boat, Party A must issue a written report and settle
the matter between the two parties amicably through consultation.
4. Party
A warrants that, on the day of delivering the Boat and during the term of the
lease, the technical specifications of the Boat are in conformity with those
specified in all the ownership certificates; if there are discrepancies, the
lease fee shall be reduced and such reduction should be an amount sufficient to
compensate the lessee for any resulting loss.
5. Party
A warrants that, on the day of delivering the Boat and during the term of the
lease, the Boat is tight, solid, strong and in good working condition, and is
suitable for the operation of the project; the body of the Boat and the machines
and equipment on board are in full working condition.
6. On
the day of delivering the boat, Party A must also provide all the certificates
required for its operation, including but not limited to “People’s Republic of
China Ship and Vessel Ownership Registration Certificate”, “People’s Republic of
China Ship and Vessel Nationality Certificate”, “Maritime Ship and Vessel
Inspection Certification Record”, “Maritime Cargo Vessel Seaworthiness
Certificate”, “Maritime Ship and Vessel Tonnage Certificate”, “Maritime Ship and
Vessel Oil Pollution Prevention Certificate” and “Maritime Ship and Vessel Load
Line Certificate”.
7. During
the term of the lease, Party A must process on time, completely and fully all
the procedures regarding ship inspections and insurances at its own cost; Party
B must provide active cooperation and must not knowingly set up any
obstacles.
8. Before
delivering the Boat, Party A must engage a professional shipyard to perform
comprehensive inspection and repairs on the Boat and ensure that the Boat has a
life of use no less than ten years.
9. During
the term of the lease, Party A must assign crewmen for the Boat who are
competent and have professional qualifications for their respective posts in
accordance with the provisions of "Crewmen Assignment
Agreement". (See Attachment 1 hereto, "Crewmen Assignment Agreement",
for details.
10. If,
due to business need, Party A needs to relocate its office to a new address or
to change its bank account, Party A must notify Party B in writing fifteen
business days in advance; if there is need to change the contact telephone
number, Party A must notify Party B in writing two business days in
advance.
11. If
Party B's payment of the lease fee is fifteen days or more past due, Party A may
resort to litigation at the court and may unilaterally dissolve this
contract.
12. Party
A's dissolution of this contact during the term of the lease or failure to
transfer the Boat to Party B upon the expiration of the lease shall constitute
the breach of contract; Party B shall have the right to demand the continuation
of the performance of this contract; Party A must at such time pay a breach
penalty of RMB 10,000,000.00 to Party B and Party B can demand Party A to
compensate Party B for any resulting loss.
(B) Party
B’s rights and obligations
1. Starting
from the day of the execution of this contract, Party B has the right to
dispatch its representatives at its own expenses to inspect the Boat and
familiarize themselves with the operation of the Boat.
2. Party
B has the right to sublease the Boat; however Party B shall still have full
responsibility toward Party A to perform this contract.
3. Party
B must pay the lease fee on time in accordance with the provisions
herein.
4. The
use of the Boat leased by Party B from Party A is limited to port dredging
operations and similar projects. If Party B needs to add equipment on
board the Boat, Party B must obtain consent from Party A before any
implementation.
5. During
the term of the lease, Party B shall still pay the lease fee when the Boat is
unable to be operated normally due to climate factors (such as Typhoon, rain or
fog).
6. Any
damages and losses suffered by both parties due to the occurrence of any humanly
irresistible disaster or to government edicts and military action, whether or
not the Boat is in navigation or in mooring, must be handled in accordance with
the provisions of maritime laws and statutes.
7. Party
B shall not dispatch the Boat to, or let it enter, any frozen waters, nor shall
Party B let the Boat enter an area where, at the time of the Boat's arrival, the
light tower, light boat, navigation mark or buoy will be, or are likely to be,
removed soon or an dangerous area with ice hazard, such that the Boat will not
be able to arrive at the location of operation smoothly or to exit the location
after its operation.
8. Before
obtaining consent from Party A in writing, Party B shall not dispatch the Boat
to dock at a Taiwan port or let it navigate out of the border of the People's
Republic of China for any reason or any purpose.
9. Party
B is strictly forbidden to use the Boat to transport any hazardous
material. Party B shall not use the Boat to engage in any illegal
activities, including but not limited to smuggling, pilfering, stealing and
illegal immigration.
10. If,
at the end of the quarter, Party B fails to pay the lease fee or pay the lease
fee in full for the corresponding period, Party B then shall, starting from the
following month, pay a breach penalty calculated at the daily rate of 0.1% of
the total of the unpaid portion of the lease fee; but the cumulative total of
such breach penalty shall not exceed 5% of the lease fee for the corresponding
period.
V. Delivery
of the Boat
1. Time
of delivery: before June 8, 2008.
2. Port
of delivery: at the coal dock of Guangdong Guohua Taishan Power
Plant.
3. At
the time of delivery, the cabins of the Boat must be emptied and cleaned and be
suitable for loading and receiving cargo.
4. Delivery
notice: Party A must confirm with Party B the actual time of delivery seven days
before the date of delivery.
At
the time of delivering the Boat, the ship inspection engineer appointed by Party
A must inspect the cargo cabin and confirm the amount of fuel stored on board at
the port of delivery. Party A shall be responsible for the inspection
engineer's inspection fee. Before the amount of fuel stored on board
is measured, the draft of the front and back of the Boat must be adjusted for
balance or the draft differential between the stern and bow of the Boat must not
exceed 6 feet.
5. Supporting
parts that come with the Boat: at the time of delivery, Party A must equip the
Boat with all the corresponding supporting parts. 6. [sic] At the
time of delivery, Party A must ensure that the amount of fuel stored on board
must be above 80% of the Boat's maximum fuel storage capacity.
6. As
Party A will transfer the Boat to Party B upon the expiration of the term of the
lease, the date of expiration of the term of the lease shall be the date of
transfer of the Boat by Party A to Party B; and Party A and Party B shall at
such time process the delivery and acceptance procedures. And the
handling of the crewmen assigned by Party A shall also be decided at such time
through consultation between the two parties.
VI. All
attachments hereto are the component parts of this contract and shall have the
same legal effect as this contract.
VII. The
original of this contract is in triplets, with one to Party A, Party B and the
ship administration office each; it has six copies, with two to Party A, Party B
and the ship administration office each; this contract will take effect after it
is signed and imprinted with seals by both Party A and Party B.
VII. All
matters not covered herein shall be settled in supplemental agreements through
consultation between the two parties, and all such supplemental agreements shall
have the same legal effect as this contract.
Signature
(Seal) of Party A’s representative:
/s/ ZHUO
Panxing
/seal/
Fujian Lutong Highway Engineering Construction Co., Ltd.
Date: May
20, 2008
Signature
(Seal) of Party B’s representative:
/s/ LIN
Qing
/seal/
Fujian Xing Gang Shipping Service Co., Ltd.
Date: May
20, 2008
Crewmen
Assignment Agreement
(“Xing
Gang Dredging 9”)
(Unofficial
Translation)
Party
A:
|
Fujian
Lutong Highway Engineering Construction Co.,
Ltd.
|
Address:
|
17
th
Floor, Yinhe Garden Hotel, 243 Wusi Road,
Fuzhou
|
Legal
Representative: ZHUO Panxing
Party
B:
|
Fujian
Xing Gang Shipping Service Co.,
Ltd.
|
Address:
|
17
th
Floor, Building A, Zhongshan Plaza, 154 Hudong Road,
Fuzhou
|
Legal
Representative: LIN Qing
Party A and Party B, after friendly
consultation based on the principles of equality and mutual benefit and on the
basis of the “Ship Leasing Contract” executed by the two parties, have reached
the agreement regarding the matter of Party A assigning crewmen during the term
of Party B’s lease of dredging engineering boat “Xing Gang Dredging 9” from
Party A as follows:
Article
I Generals
1. The
term “assigned crewmen” used herein means those crewmen who are assigned by
Party A, pursuant to the provisions of the “Ship Leasing Contract” executed by
the two parties and the provisions of herein, to work at relevant posts on “Xing
Gang Dredging 9”; see the attached list for crewmen assignment
details.
2. In
addition to paying to Party A the ship leasing fee in accordance with the
provisions of the “Ship Leasing Contract” executed by the two parties, Party B
must also pay to Party A the crewmen assignment fee; the said crewmen assignment
fee is RMB Three Hundred Thousand Yuan (¥300,000.00) per month
.
Party B must pay
the crewmen assignment fee to Party A for the corresponding period at the time
of paying the ship leasing fee. If a period is less than a month, the
fee for the period is calculated on the basis of one month.
The said crewmen assignment fee
includes salaries that Party A should pay to the crewmen working “Xing Gang
Dredging 9” and all benefits and insurances (including but not limited to
pensions insurance, unemployment insurance, medical insurance, family planning
insurance, injury insurance, housing fund and commercial
insurance).
3. Term
of the agreement
The effective period of this agreement
corresponds to and is the same as the term of the lease specified in the “Ship
Leasing Contract” executed by the two parties.
Article
II Party A’s Rights and
Obligations
4. Party
A has the following obligations:
4.1 Assign
crewmen for the ship pursuant to the provisions herein; educate the crewmen on
the compliance with the State laws, statutes and regulations; educate the
assigned crewmen on the compliance with Party B’s rules and policies, on
maintaining confidentiality of commercial secrets and on safeguarding Party B’s
legitimate rights and interests.
4.2 Ensure
that the assigned crewmen have the qualifications and skills required of their
respective posts and possess valid and complete employment qualification
documents, including but not limited to crewmen service books, maritime crewmen
professional training certificates and maritime crewmen service competency
certificates.
4.3 Party
B must notify Party A in writing, three business days in advance, of the
boarding time and boarding location for the crewmen assigned by Party
A. Party A must ensure that all the assigned crewmen will report for
duty at the time and location specified by Party B. If there is any
factor on Party B’s part that causes a waiting period of more than half a month
before the assigned crewmen can be aboard, Party B must still pay the same
amount of crewmen assignment fee to Party A pursuant to the provisions
herein.
4.4 After
the assigned crewmen have passed assessment and been placed on duty by Party B,
Party A shall not replace them at will. Party A must ensure that
Party B has the absolute leadership authority over the assigned
crewmen. During the term of the agreement, the assigned crewmen must
follow the operation arrangement from Party B’s safety and shipping service
scheduling department.
4.5 Party
A will pay salaries and bonuses to the assigned crewmen and withhold and pay on
their behalf personal income taxes and make payment for them of all the State
mandated insurances, including but not limited to pensions insurance,
unemployment insurance, medical insurance, family planning insurance, injury
insurance, housing fund and commercial insurance.
4.6 If
Party B requests Party A to replace certain assigned crewmen pursuant to the
provisions herein, Party A must replace them promptly so as not to affect Party
B’s normal operation.
4.7 In
the event of the occurrence of any accident causing injury to the assigned
crewmen, Party A must, after receiving notification from Party B, handle such
accident properly in accordance with the provisions of relevant insurance and be
responsible for submitting report and insurance claims.
4.8 If
there a change in the Party A’s bank account number, Party A must notify Party B
in writing two business days in advance.
5. Party
A has the following rights:
5.1 Party
A has the right to receive the crewmen assignment fee pursuant to the provisions
herein;
5.2 Upon
the occurrence of any of the following during the term of this agreement, Party
A can request to dissolve this agreement without any liabilities; but such
request must be sent to Party B in writing 30 days in advance:
(1) Party
B violates the State laws and statues and the relevant provisions
herein;
(2) Party
B’s actions violate the assigned crewmen’s legitimate rights and
interests;
(3) Party
B refuses to pay the crewmen assignment fee or Party B’s payment of such fee is
a month past due.
Article
III Party B’s Rights and
Obligations
6. Party
B has the following rights:
6.1 Party
B has the right to conduct assessment on the crewmen assigned by Party
A. If the assigned crewmen do not have the qualifications or skills
required of their respective posts, Party B has the right to demand Party A to
replace them and Party A shall not refuse such demand. Party A must
bear corresponding responsibility if the assigned crewmen’s lack of
qualifications or skills causes any loss to Party B.
6.2 Party
B has the right to require the assigned crewmen to comply with all the rules and
policies formulated in accordance with the relevant State laws and policies and
follow Party B’s production and operation arrangements.
6.3 If
the assigned crewmen engage in any of the following during the term of the ship
lease, Party B has the right, upon Party A’s acknowledgement, to demand Party A
to recall them without any liability for breach:
(1) Violation
of Party B’s work disciplines or rules and regulations, and after criticism and
education, failure to make any correction or rectification;
(2) Negligence
of duties, resulting in serious loss or damage to Party B’s
interests;
(3) Violation
of law and statutes or being the subject of criminal legal
proceedings;
(4) Inability
to perform original work duties after treatment period for illness or
work-related injury and inability, or refusal, to perform other work assigned by
Party A;
6.4 Party
B has the right to submit written opinion on, and negotiate with regard to, the
behavior that violates the relevant provisions of this
agreement. Party A must respond to Party B in writing within ten
business days upon receiving the written opinion from Party B.
7. Party
B has the following obligations:
7.1 Manage
the assigned crewmen in such areas as their posts’ duties and responsibilities
and labor discipline and provide them with relevant training;
7.2 Provide
to the assigned crewmen working environment, labor conditions and labor
protection that are in compliance with the provisions of the State’s “Labor
Law”;
7.3 Pay
the crewmen assignment fee in accordance with the provisions of this
agreement. If Party B fails to pay the crewmen assignment fee on time
pursuant to the provisions of this agreement, Party B must pay a breach penalty
at the daily rate of 0.1% of the total of the unpaid or past due crewmen
assignment fee; but the cumulative total of such breach penalty shall not exceed
5% of the total crewmen assignment fee for the corresponding
period.
7.4 Pay
to Party A the corresponding expenses for those assigned crewmen who suffer
work-related injury or contract occupational disease and, upon verification,
have lost, or partially lost, their ability to work and who suffer work-related
death;
7.5 Supervise
in the processing of relevant legal work documents for the dispatch crewmen
required for the term of service and educate them on the adherence of
disciplines and compliance of law;
7.6 Notify
Party A fifteen business days in advance in the event of relocation of work
location due to business need; notify Party A two business days in advance in
the event of any change of contact telephone number and fax number;
7.7 arrange
work posts for the assigned crewmen in accordance with the provisions herein,
consult with Party A if there is need for any change and bear all consequences
resulting from changing the posts of the assigned crewmen without prior
consultation with Party A.
Article
IV Dispute and
Arbitration
8. Any
dispute arising from performance of, or in connection with, this agreement must
be settled through consultation; if such consultation fails, either party may
submit the dispute to the jurisdiction of the people’s court at Party B’s
location.
Article
V Others
9. Other
matters not covered herein must be settled by Party A and Party B through
consultation or be provided in supplemental agreement formulated in accordance
with relevant provisions of the State law, statutes and
regulations.
10. If
any content herein conflicts with the State law or policies, or is inconsistent
due to the changes of the law and policies, the provisions of the law or such
policies shall prevail.
11. All
attachments hereto are the component parts hereto and have the same legal
effect.
12. This
agreement shall become effective at the same time when the “Ship Leasing
Contract” executed by the two parties takes effect.
13. This
agreement is in duplicates, with one to each party, and both have the same legal
effect.
Signature
(Seal) of Party A’s representative:
/s/ ZHUO
Panxing
/seal/
Fujian Lutong Highway Engineering Construction Co., Ltd.
Date: May
20, 2008
Signature
(Seal) of Party B’s representative:
/s/ LIN
Qing
/seal/
Fujian Xing Gang Shipping Service Co., Ltd.
Date: May
20, 2008
Attachment:
List of Assigned Crewmen
Post
|
|
Number
|
Captain
|
|
1
|
First
Mate
|
|
1
|
Chief
Engineer
|
|
1
|
Second
Mate
|
|
1
|
Second
Engineer
|
|
1
|
Third
Engineer
|
|
1
|
Fourth
Engineer
|
|
1
|
Third
Mate
|
|
1
|
Seamen
Chief
|
|
1
|
Long
Mechanic
|
|
1
|
Mechanic
|
|
7
|
Seaman
|
|
8
|
Cook
|
|
1
|
Total
|
|
26
|
Ship
Lease Supplemental Agreement
(Unofficial
Translation)
Party A (Lessor):
Fujian
Lutong Highway Engineering Construction Co., Ltd.
Address
: Room 1705 &1706,
Floor 17, Yinhe Garden Hotel, 243 Wusi Road, Fuzhou City
Legal Representative
: LIN
Xiuzhen
Party B (Lessee):
Fujian Xing
Gang Port Service Co., Ltd.
Address
: Floor 17, Tower A,
Zhongshan Building, 154 Hudong Road, Fuzhou City.
Legal Representative:
LIN
Qing
Through
friendly consultation, Party A and Party B agree upon the following supplements
to the Ship Lease Agreement executed on May 20
th
,
2008:
|
I.
|
Upon
the expiration of the original
agreement:
|
|
1.
|
Party
A need not conduct ship certificate change
procedures;
|
|
2.
|
Party
A does not refund the ship security deposit in the amount of Thirty four
million five hundred thousand yuan even. (¥
34,500,000.00);
|
|
3.
|
Party
B does not purchase the ship “Xing Gangjun
9”;
|
|
4.
|
Party
B need not make the ship transfer payment in the amount of ninety seven
million five hundred thousand yuan even (¥
97,500,000,00);
|
|
5.
|
Party
A and Party B do not conduct ship transfer
procedures.
|
|
II.
|
After
the original agreement expires, Party B renews the lease until May 31
st
,
2016.
|
|
III.
|
When
term expires in 2016, Party B has the priority to renew the lease under
the same conditions. If Party B decides not to renew the lease,
within 7 business days after the expiration of the
term:
|
|
1.
|
Party
A and Party B conduct ship transfer
procedures;
|
|
2.
|
Party
A refunds the ship security deposit in the amount of thirty four million
five hundred thousand yuan even (¥
34,500,000.00);
|
|
IV.
|
Other
items in the original agreement do not
change.
|
|
V.
|
This
supplemental agreement has the same legal validity as the original
agreement.
|
Party A
: Fujian Lutong Highway
Engineering Construction Co., Ltd. (Seal)
Legal Representative
: LIN
Xiuzhen /s/
Party B
: Fujian Xing Gang Port
Service Co., Ltd. (Seal)
Legal Representative
: LIN Qing
/s/
Date of execution
: April
11
th
,
2010
Crewmen
Assignment Supplemental Agreement
(Unofficial
Translation)
Party A (Lesser):
Fujian
Lutong Highway Engineering Construction Co., Ltd.
Address
: Room1705 &1706,
Floor 17, Yinhe Garden Hotel, 243 Wusi Road, Fuzhou City
Legal Representative
: LIN
Xiuzhen
Party B (Lessee):
Fujian Xing
Gang Port Service Co., Ltd.
Address
: Floor 17, Tower A,
Zhongshan Building, 154 Hudong Road, Fuzhou City.
Legal Representative:
LIN
Qing
Whereas
the two parties entered into
Supplemental Ship Lease
Agreement
on April 11
th
, 2010,
through friendly consultation, Party A and Party B agree upon the following
supplements to the
Crew
Allocation Agreement
executed on May 20
th
,
2008:
1.
|
As
the lease term of Xing Gangjun 9 is renewed until May 31
st
,
2016, the term of the crew allocation designated in the original agreement
is renewed accordingly until May 31
st
,
2010 upon the expiration of the original
agreement;
|
2.
|
Refer
to the attached
Crew
Allocation List
for the structure and number of the crew members
provided by Party A;
|
3.
|
The
crew allocation fees designated in the original agreement stay unchanged
at RMB three hundred thousand yuan even (¥300,000.00 yuan) per
month. The payment is made by
season;
|
4.
|
The
crew allocation fees include salaries, benefits, social insurances
(including but not limited to endowment insurance, unemployment insurance,
medical care insurance, maternity insurance, employment injuries
insurance, housing fund, and commercial insurance) and bonus that Party A
is obliged to pay to the crew members of Xing Gangjun 9. Party
A is responsible for the social insurance and benefits of the
crew;
|
5.
|
After
the term expires in 2016, under the same conditions, Party B has the
priority to hire the crew given that Party B continue to lease ships from
Party A;
|
6.
|
Party
A ensures that all crew members possess the professional skills and
required licenses corresponding to their
work.
|
7.
|
Other
items in the original agreement do not
change.
|
8.
|
This
supplemental agreement has the same legal validity as the original
agreement.
|
Party A
: Fujian Lutong Highway
Engineering Construction Co., Ltd. (Seal)
Legal Representative
: LIN
Xiuzhen /s/
Party B
: Fujian Xing Gang Port
Co., Ltd. (Seal)
Legal Representative
: LIN Qing
/s/
Date of execution
: May 21
st
,
2010
Ship
Lease Contract
(“Liya
10”)
(Unofficial
Translation)
Party
A:
|
Beihai
Shunda Liya Shipping Service Co.,
Ltd.
|
Address:
|
No.
704, Unit 2 of Building 7, Jiatai Wenhua
Garden
|
|
29
Wanxi Road, North of Beihai City
|
|
Legal
Representative: YU Jingwen
|
Party
B:
|
Fujian
Xing Gang Port Service Co., Ltd.
|
Address:
|
17
th
Floor, Building A, Zhongshan Plaza, 154 Hudong Road,
Fuzhou
|
|
Legal
Representative: LIN Qing
|
Pursuant
to the relevant provisions of the “People’s Republic of China Contract Law” and
other applicable laws and statutes, Party A and Party B, after friendly
consultation, have formulated this leasing contract terms to be adhered to by
both parties.
I. Leasing
of a Boat
Based on
Party B’s need, Party A agrees to lease “Liya 10” (the “Leased Boat”), a
self-propelling, trailing suction type of dredging boat with a cabin capacity of
6500m
3
which it
owns, to Party B for its use. During the term of the lease, Party A
will assign crewmen for the Leased Boat; see the attachment hereto, “Crewmen
Assignment Agreement”, for details.
II. Term
of the Lease
The term of the lease is three years,
starting from June 14, 2010 to June 14, 2013. Upon the expiration of
the term of the lease, Party B shall have the right of first refusal to renew
the lease under the same conditions.
III. Leasing
Fee
1. Lease
security deposit: Party B must may to Party A a lease security deposit of RMB
17,500,000.00 Yuan within 10 days after the date of delivery of the Leased Boat
to Party B. Within 10 days upon the expiration of the term of the
lease, Party A shall return the lease security deposit in one sum to Party
B.
2. The
Leased Boat lease fee: the Leased Boat lease fee is RMB 11,850,000.00
Yuan per year, the calculation of which starts from the day when the Leased Boat
is delivered to Party B at the port of delivery. Party A shall be
responsible for the one-way dispatch fee for navigating the Leased Boat from its
original port of anchor to the port of delivery.
3.
Crewmen assignment fee: RMB 3,720,000.00 Yuan per year.
4. Spare parts fee: for the sake of
management convenience, during the term of the lease, Party A shall purchase all
the required spare parts based on the operation need of "Liya 10" and provide
maintenance and parts replacement repairs based on the condition of the Leased
Boat to ensure that the Leased Boat remain in normal working
condition. Party B will pay to Party A the spare parts fee in one
lump sum of RMB 33,200,000.00 Yuan per year for Party A to use, with no refund
for surplus fee nor supplement for deficit; Party A shall have the said fixed
amount of spare parts fee at its disposal, whether or not the actual cost of
spare parts for the corresponding year exceeds the said fixed
amount. Party A shall be responsible for the transportation and
moving of the spare parts and for the removal and recycling of the discarded
spare parts and bear all the related expenses.
5. Payment method: the total of the
fees for items under III.1, III.2 and III.3 is RMB 48,770,000.00 Yuan per year;
Party B must pay the lease fee and the spare parts fee for the previous month
within the first 10 days of each month, i.e., Party B must pay RMB 4,064,166.67
Yuan per month to Party A; the payment method is bank transfer.
IV. Delivery
of the Leased Boat
1. Time of delivery: June 14,
2010.
2. Place of delivery: Guangxi, actual
location of which to be specified by Party B.
3. At the time of delivery, the Leased
Boat must be in the normal working condition and be ready to put into project
operation.
4. At the time of delivery, Party A and
Party B will jointly confirm the fuel stored on board the Leased Boat at the
place of delivery. Before the amount of fuel stored on board is
measured, the draft of the front and back of the Leased Boat must be adjusted
for balance or the draft differential between the stern and bow of the Leased
Boat must not exceed 6 feet. At the time of delivery, Party A must
ensure that the amount of fuel stored on board must be above 80% of the Leased
Boat's maximum fuel storage capacity.
5. Since Party B is to pay Party A the
lump sum spare parts fee and Party A shall be responsible for the Leased Boat’s
maintenance and repair service and for replacement of spare parts on the Leased
Boat during the term of the lease, there is no need for the two parties to
perform the joint inspection at the time of delivering, and at the time of
returning, the Leased Boat.
6. Upon the expiration of the term of
the lease, Party B must notify Party A of the location and time of returning the
boat 7 days before the expiration of the term of the lease, and Party A must
process the return and acceptance procedures based on Party B’s notification and
regain control of the Leased Boat and the crewmen assigned to work on
board.
V. Rights
and obligations of each of the two parties
(A) Party
A’s rights and obligations
1. During
the term of the lease Party A has the right to receive the lease fee according
to the provisions herein. If Party B’s payment of the lease fee is
more than one month past due, Party A has the right to resort to legal action at
a court and to unilaterally dissolve the contract.
2. During the term of the lease, Party
A is responsible for the prompt provision and replacement of the spare parts on
the Leased Boat so as to ensure the Leased Boat’s normal operation.
3. Party
A confirms the ownership of the Leased Boat and has processed the relevant
certificates required by the State law and statutes.
4. During
the term of the lease, Party A may, upon obtaining consent from Party B,
dispatch a representative to the Leased Boat to supervise the ship operation at
its own expense. If Party A’s representative believes that any of
Party B’s actions violates this contract or can damage the main structure of the
Leased Boat, Party A must issue a written report and settle the matter between
the two parties amicably through friendly consultation.
5. Party
A warrants that, on the day of delivering the Leased Boat and during the term of
the lease, the technical specifications of the Leased Boat are in conformity
with those specified in all the ownership certificates; if there are
discrepancies, the lease fee shall be reduced and such reduction should be an
amount sufficient to compensate the lessee for any resulting loss.
6. Party
A warrants that, on the day of delivering the Leased Boat and during the term of
the lease, the Leased Boat is tight, solid, strong and in good working
condition, and is suitable for the operation of the project; the body of the
Leased Boat and the machines and equipment on board are in full working
condition.
7. On the
day of delivering the boat, Party A must also provide all the certificates
required for its operation, including but not limited to “People’s Republic of
China Ship and Vessel Ownership Registration Certificate”, “People’s Republic of
China Ship and Vessel Nationality Certificate”, “Maritime Ship and Vessel
Inspection Certification Record”, “Maritime Cargo Vessel Seaworthiness
Certificate”, “Maritime Ship and Vessel Tonnage Certificate”, “Maritime Ship and
Vessel Oil Pollution Prevention Certificate” and “Maritime Ship and Vessel Load
Line Certificate”.
8. During
the term of the lease, Party A must process on time, completely and fully all
the procedures regarding ship inspections and insurances at its own cost; Party
B must provide active cooperation and must not knowingly set up any
obstacles.
9. Before
delivering the Leased Boat, Party A must engage a professional shipyard to
perform comprehensive inspection and repairs on the Leased Boat and ensure that
the Leased Boat has a life of use no less than ten years.
10.
During the term of the lease, Party A must assign crewmen for the Leased Boat
who are competent and have professional qualifications for their respective
posts in accordance with the provisions of "Crewmen Assignment
Agreement". (See Attachment 1 hereto, "Crewmen Assignment Agreement",
for details.
11. If,
due to business need, Party A needs to relocate its office to a new address or
to change its bank account, Party A must notify Party B in writing fifteen
business days in advance; if there is need to change the contact telephone
number, Party A must notify Party B in writing two business days in
advance.
12. Party
A's unilateral dissolution of this contact during the term of the lease or
leasing the Leased Boat to a third party without prior consent from Party B
shall constitute the breach of contract; Party B shall have the right to demand
the continuation of the performance of this contract; Party A must at such time
pay a breach penalty of RMB 15,000,000.00 to Party B and compensate Party B for
any resulting loss.
(B) Party
B’s rights and obligations
1.
Starting from the day of the execution of this contract, Party B has the right
to dispatch its representatives at its own expenses to inspect the Leased Boat
and familiarize themselves with the operation of the Leased
Boat. Party A’s Leased Boat and the crewmen on board must follow the
management of Party B’s representatives and conduct project operation according
to the directions issued by Party B’s representatives.
2. During
the term of the lease, Party B has the right to sublease the Leased Boat;
however Party B shall still have full responsibility toward Party A to perform
this contract.
3. During
the term of the lease, Party B must pay the lease fee on time in accordance with
the provisions herein.
4. The
use of the Leased Boat leased by Party B from Party A is limited to port
dredging operations and similar projects. If Party B needs engage the
Leased Boat for any other purposes, Party B must obtain consent from Party A
before any implementation.
5. During
the term of the lease, Party B shall still pay the lease fee when the Leased
Boat is unable to be operated normally due to climate factors (such as Typhoon,
rain or fog).
6. Any
damages and losses suffered by both parties due to the occurrence of any humanly
irresistible disaster or to government edicts and military action, whether or
not the Leased Boat is in navigation or in mooring, must be handled in
accordance with the provisions of maritime laws and statutes.
7. During
the term of the lease, Party B shall not dispatch the Leased Boat to, or let it
enter, any frozen waters, nor shall Party B let the Leased Boat enter an area
where, at the time of the Leased Boat's arrival, the light tower, light boat,
navigation mark or buoy will be, or are likely to be, removed soon or an
dangerous area with ice hazard, such that the Leased Boat will not be able to
arrive at the location of operation smoothly or to exit the location after its
operation.
8. During
the term of the lease, before obtaining consent from Party A in writing, Party B
shall not dispatch the Leased Boat to dock at a Taiwan port or let it navigate
out of the border of the People's Republic of China for any reason or any
purpose.
9. During
the term of the lease, Party B is strictly forbidden to use the Leased Boat to
transport any hazardous material. Party B shall not use the Leased
Boat to engage in any illegal activities, including but not limited to
smuggling, pilfering, stealing and illegal immigration.
10. If
Party B fails to pay the lease fee or pay the lease fee in full for the
corresponding quarter, and the delay of such payment is more than 10 business
days, Party B then shall, starting from the following month, pay a breach
penalty calculated at the daily rate of 0.05% of the total of the unpaid portion
of the lease fee; but the cumulative total of such breach penalty shall not
exceed 3% of the lease fee for the corresponding period.
VI. Resolution
of Dispute
All disputes arising from the
performance of, or in connection with, this contract must be settled through
consultation between the two parties; if such consultation fails, the dispute
can be submitted to the jurisdiction of the people’s court at Party B’s
location.
VII. Others
1. All
attachments hereto are the component parts of this contract and shall have the
same legal effect as this contract.
2. The
original of this contract is in duplicates, with one each to Party A and Party
B; this contract will take effect after it is signed and imprinted with seals by
both Party A and Party B.
3. All
matters not covered herein shall be settled in supplemental agreements through
consultation between the two parties, and all such supplemental agreements shall
have the same legal effect as this contract.
Party
A:
|
/seal/
Beihai Shunda Liya Shipping Service Co.,
Ltd.
|
Legal
Representative:
|
/s/
FENG Zhumao
|
Party
B:
|
/seal/
Fujian Xing Gang Port Service Co.,
Ltd.
|
Legal
Representative:
|
/s/
LIN Qing
|
Date: June
14, 2010
Crewmen
Assignment Agreement
(“Liya
10”)
(Unofficial
Translation)
Party
A:
|
Beihai
Shunda Liya Shipping Service Co., Ltd.
|
Address:
|
No.
704, Unit 2 of Building 7, Jiatai Wenhua Garden
|
|
29
Wanxi Road, North of Beihai City
|
Legal
Representative: YU Jingwen
|
Party
B:
|
Fujian
Xing Gang Port Service Co., Ltd.
|
Address:
|
17
th
Floor, Building A, Zhongshan Plaza, 154 Hudong Road,
Fuzhou
|
Legal
Representative: LIN Qing
|
Party A and Party B, after friendly
consultation based on the principles of equality and mutual benefit and on the
basis of the “Ship Leasing Contract” executed by the two parties, have reached
the agreement regarding the matter of Party A assigning crewmen during the term
of Party B’s lease of dredging engineering boat “Liya 10” from Party A as
follows:
Article
I Generals
1. The
term “assigned crewmen” used herein means those crewmen who are assigned by
Party A, pursuant to the provisions of the “Ship Leasing Contract” executed by
the two parties and the provisions of herein, to work at relevant posts on “Liya
10”; see the attached list for crewmen assignment details.
2. Party
B must pay to Party A the crewmen assignment fee in accordance with the
provisions of the “Ship Leasing Contract” executed by the two parties. The said
crewmen assignment fee includes salaries that Party A should pay to the crewmen
working “Liya 10” and all benefits and insurances (including but not limited to
pensions insurance, unemployment insurance, medical insurance, family planning
insurance, injury insurance, housing fund and commercial
insurance).
3. Term
of the agreement: The effective period of this agreement corresponds to and is
the same as the term of the lease specified in the “Ship Leasing Contract”
executed by the two parties.
Article
II Party A’s Rights
and Obligations
1. Party
A has the right to receive the crewmen assignment fee in accordance with the
provisions of the “Ship Leasing Contract” executed by the two
parties.
2. Party
A must assign crewmen for the ship pursuant to the provisions herein; educate
the crewmen on the compliance with the State laws, statutes and regulations;
educate the assigned crewmen on the compliance with Party B’s rules and
policies, on maintaining confidentiality of commercial secrets and on
safeguarding Party B’s legitimate rights and interests.
3. Party
A must ensure that the assigned crewmen have the qualifications and skills
required of their respective posts and possess valid and complete employment
qualification documents, including but not limited to crewmen service books,
maritime crewmen professional training certificates and maritime crewmen service
competency certificates.
4. Party
B must notify Party A in writing, three business days in advance, of the
boarding time and boarding location for the crewmen assigned by Party
A. Party A must ensure that all the assigned crewmen will report for
duty at the time and location specified by Party B. If there is any
factor on Party B’s part that causes a waiting period of more than half a month
before the assigned crewmen can be aboard, Party B must still pay the same
amount of crewmen assignment fee to Party A pursuant to the provisions
herein.
5. After
the assigned crewmen have passed assessment and been placed on duty by Party B,
Party A shall not replace them at will. Party A must ensure that
Party B has the absolute leadership authority over the assigned
crewmen. During the term of the agreement, the assigned crewmen must
follow the operation arrangement from Party B’s safety and shipping service
scheduling department.
6. Party
A will pay salaries and bonuses to the assigned crewmen and withhold and pay on
their behalf personal income taxes and make payment for them of all the State
mandated insurances, including but not limited to pensions insurance,
unemployment insurance, medical insurance, family planning insurance, injury
insurance, housing fund and commercial insurance. Party A shall not
make such payments late.
7. If
Party B requests Party A to replace certain assigned crewmen pursuant to the
provisions herein, Party A must replace them promptly so as not to affect Party
B’s normal operation.
8. In
the event of the occurrence of any accident causing injury to the assigned
crewmen, Party A must, after receiving notification from Party B, handle such
accident properly in accordance with the provisions of relevant insurance and be
responsible for submitting report and insurance claims.
9. If
there a change in the Party A’s bank account number, Party A must notify Party B
in writing two business days in advance.
Article
III Party B’s Rights
and Obligations
1. Party
B has the right to conduct assessment on the crewmen assigned by Party
A. If the assigned crewmen do not have the qualifications or skills
required of their respective posts, Party B has the right to demand Party A to
replace them and Party A shall not refuse such demand. Party A must
bear corresponding responsibility if the assigned crewmen’s lack of
qualifications or skills causes any loss to Party B.
2. Party
B has the right to require the assigned crewmen to comply with all the rules and
policies formulated in accordance with the relevant State laws and policies and
follow Party B’s production and operation arrangements.
3. If
the assigned crewmen engage in any of the following during the term of the ship
lease, Party B has the right, upon Party A’s acknowledgement, to demand Party A
to recall them without any liability for breach:
(1) Violation
of Party B’s work disciplines or rules and regulations, and after criticism and
education, failure to make any correction or rectification;
(2) Negligence
of duties, resulting in serious loss or damage to Party B’s
interests;
(3) Violation
of law and statutes or being the subject of criminal legal
proceedings;
(4) Inability
to perform original work duties after treatment period for illness or
work-related injury and inability, or refusal, to perform other work assigned by
Party A;
4. Party
B has the right to submit written opinion on, and negotiate with regard to,
Party A's behavior that violates the relevant provisions of this
agreement. Party A must respond to Party B in writing within ten
business days upon receiving the written opinion from Party B.
5. Party
B must manage the assigned crewmen in such areas as their posts’ duties and
responsibilities and labor discipline and provide them with relevant
training;
6. Party
B must provide to the assigned crewmen working environment, labor conditions and
labor protection that are in compliance with the provisions of the State’s
“Labor Law”;
7. Party
B must pay the crewmen assignment fee in accordance with the provisions of the
“Ship Leasing Contract”.
8. Party
B must pay to Party A the corresponding expenses for those assigned crewmen who
suffer work-related injury or contract occupational disease and, upon
verification, have lost, or partially lost, their ability to work and who suffer
work-related death in accordance with the law;
9. Party
B must supervise in the processing of relevant legal work documents for the
dispatch crewmen required for the term of service and educate them on the
adherence of disciplines and compliance of law;
10. Party
B must notify Party A fifteen business days in advance in the event of
relocation of work location due to business need; notify Party A two business
days in advance in the event of any change of contact telephone number and fax
number;
11. Party
B must arrange work posts for the assigned crewmen in accordance with the
provisions herein, consult with Party A if there is need for any change and bear
all consequences resulting from changing the posts of the assigned crewmen
without prior consultation with Party A.
Article
IV Dispute and
Arbitration
Any dispute arising from performance
of, or in connection with, this agreement must be settled through consultation;
if such consultation fails, either party may submit the dispute to the
jurisdiction of the people’s court at Party B’s location.
Article
V Others
1. Other
matters not covered herein must be settled by Party A and Party B through
consultation or be provided in supplemental agreement formulated in accordance
with relevant provisions of the State law, statutes and
regulations.
2. If
any content herein conflicts with the State law or policies, or is inconsistent
due to the changes of the law and policies, the provisions of the law or such
policies shall prevail.
3. All
attachments hereto are the component parts hereto and have the same legal
effect.
4. This
agreement is an attachment to the “Ship Leasing Contract” executed by the two
parties and shall become effective at the same time when the “Ship Leasing
Contract” takes effect.
5. This
agreement is in duplicates, with one to each party, and both have the same legal
effect.
Party
A:
|
/seal/
Beihai Shunda Liya Shipping Service Co., Ltd.
|
Legal
Representative:
|
/s/
FENG Zhumao
|
|
|
Party
B:
|
/seal/
Fujian Xing Gang Port Service Co., Ltd.
|
Legal
Representative:
|
/s/
LIN Qing
|
|
|
Date:
June
14, 2010
|
Attachment:
List of Assigned Crewmen
Post
|
|
Number
|
Captain
|
|
1
|
First
Mate
|
|
1
|
Chief
Engineer
|
|
1
|
Second
Mate
|
|
1
|
Second
Engineer
|
|
1
|
Third
Engineer
|
|
1
|
Fourth
Engineer
|
|
1
|
Third
Mate
|
|
1
|
Seamen
Chief
|
|
1
|
Long
Mechanic
|
|
1
|
Mechanic
|
|
8
|
Seaman
|
|
9
|
Cook
|
|
1
|
Total
|
|
28
|
Ship
Leasing Contract
(“Honglin
Dredging 9”)
(Unofficial
Translation)
Party
A: Zhejiang
Honglin Ship Engineering Co., Ltd.
Address: 2nd
Floor, 89 Dongda Avenue, Dinghai District, Zhoushan, Zhejiang
Legal
Representative: ZHENG Yaping
Party
B: Fujian
Xing Gang Port Service Co., Ltd.
Address:
17
th
Floor, Building A, Zhongshan Plaza, 154 Hudong Road, Fuzhou
Legal
Representative: LIN Qing
Pursuant
to the relevant provisions of the “People’s Republic of China Contract Law” and
other applicable laws and statutes, Party A and Party B, after friendly
consultation, have formulated this leasing contract terms to be adhered to by
both parties.
I. Leasing
of a Boat
Based on
Party B’s need, Party A agrees to lease “Honglin Dredging 9” (the “Leased
Boat”), a self-propelling, trailing suction type of dredging boat with a cabin
capacity of 7000m
3
which it
owns, to Party B for its use. During the term of the lease, Party A
will assign crewmen for the Leased Boat; see the attachment hereto, “Crewmen
Assignment Agreement”, for details.
II. Term
of the Lease
The term of the lease is three years,
starting from June 19, 2010 to June 19, 2013. Upon the expiration of
the term of the lease, Party B shall have the right of first refusal to renew
the lease under the same conditions.
III. Leasing
Fee
1. Lease
security deposit: Party B must may to Party A a lease security deposit of RMB
31,500,000.00 Yuan within 10 days after the date of delivery of the Leased Boat
to Party B. Within 10 days upon the expiration of the term of the
lease, Party A shall return the lease security deposit in one sum to Party
B.
2. The
Leased Boat lease fee: the Leased Boat lease fee is RMB 17,500,000.00
Yuan per year, the calculation of which starts from the day when the Leased Boat
is delivered to Party B at the port of delivery. Party A shall be
responsible for the one-way dispatch fee for navigating the Leased Boat from its
original port of anchor to the port of delivery.
3.
Crewmen assignment fee: RMB 4,080,000.00 Yuan per year.
4. Spare parts fee: for the sake of
management convenience, during the term of the lease, Party A shall purchase all
the required spare parts based on the operation need of the Leased Boat and
provide maintenance and parts replacement repairs based on the condition of the
Leased Boat to ensure that the Leased Boat remain in normal working
condition. Party B will pay to Party A the spare parts fee in one
lump sum of RMB 34,200,000.00 Yuan per year for Party A to use, with no refund
for surplus fee nor supplement for deficit; Party A shall have the said fixed
amount of spare parts fee at its disposal, whether or not the actual cost of
spare parts for the corresponding year exceeds the said fixed
amount. Party A shall be responsible for the transportation and
moving of the spare parts and for the removal and recycling of the discarded
spare parts and bear all the related expenses.
5. Payment method: the total of the
fees for items under III.1, III.2 and III.3 is RMB 55,780,000.00 Yuan per year,
and this total amount is to be paid by Party B quarterly, that is, 13,945,000.00
Yuan per quarter. Party B must transfer the lease fee for the
previous quarter into the bank account designated by Party A within the first 10
days of January, April, July and October of each year.
IV. Delivery
of the Leased Boat
1. Time of delivery: June 19,
2010.
2. Place of delivery: Jingtang Port,
actual location of which to be specified by Party B.
3. At the time of delivery, the Leased
Boat must be in the normal working condition and be ready to put into project
operation.
4. At the time of delivery, Party A and
Party B will jointly confirm the fuel stored on board the Leased Boat at the
place of delivery. Before the amount of fuel stored on board is
measured, the draft of the front and back of the Leased Boat must be adjusted
for balance or the draft differential between the stern and bow of the Leased
Boat must not exceed 6 feet. At the time of delivery, Party A must
ensure that the amount of fuel stored on board must be above 80% of the Leased
Boat's maximum fuel storage capacity.
5. Since Party B is to pay Party A the
lump sum spare parts fee and Party A shall be responsible for the Leased Boat’s
maintenance and repair service and for replacement of spare parts on the Leased
Boat during the term of the lease, there is no need for the two parties to
perform the joint inspection at the time of delivering, and at the time of
returning, the Leased Boat.
6. Upon the expiration of the term of
the lease, Party B must notify Party A of the location and time of returning the
boat 7 days before the expiration of the term of the lease, and Party A must
process the return and acceptance procedures based on Party B’s notification and
regain control of the Leased Boat and the crewmen assigned to work on
board.
V. Rights
and obligations of each of the two parties
(A) Party
A’s rights and obligations
1. During
the term of the lease Party A has the right to receive the lease fee according
to the provisions herein. If Party B’s payment of the lease fee is
more than one month past due, Party A has the right to resort to legal action at
a court and to unilaterally dissolve the contract.
2. During the term of the lease, Party
A is responsible for the prompt provision and replacement of the spare parts on
the Leased Boat so as to ensure the Leased Boat’s normal
operation.
3. Party
A confirms the ownership of the Leased Boat and has processed the relevant
certificates required by the State law and statutes.
4. During
the term of the lease, Party A may, upon obtaining consent from Party B,
dispatch a representative to the Leased Boat to supervise the ship operation at
its own expense. If Party A’s representative believes that any of
Party B’s actions violates this contract or can damage the main structure of the
Leased Boat, Party A must issue a written report and settle the matter between
the two parties amicably through friendly consultation.
5. Party
A warrants that, on the day of delivering the Leased Boat and during the term of
the lease, the technical specifications of the Leased Boat are in conformity
with those specified in all the ownership certificates; if there are
discrepancies, the lease fee shall be reduced and such reduction should be an
amount sufficient to compensate the lessee for any resulting loss.
6. Party
A warrants that, on the day of delivering the Leased Boat and during the term of
the lease, the Leased Boat is tight, solid, strong and in good working
condition, and is suitable for the operation of the project; the body of the
Leased Boat and the machines and equipment on board are in full working
condition.
7. On the
day of delivering the boat, Party A must also provide all the certificates
required for its operation, including but not limited to “People’s Republic of
China Ship and Vessel Ownership Registration Certificate”, “People’s Republic of
China Ship and Vessel Nationality Certificate”, “Maritime Ship and Vessel
Inspection Certification Record”, “Maritime Cargo Vessel Seaworthiness
Certificate”, “Maritime Ship and Vessel Tonnage Certificate”, “Maritime Ship and
Vessel Oil Pollution Prevention Certificate” and “Maritime Ship and Vessel Load
Line Certificate”.
8. During
the term of the lease, Party A must process on time, completely and fully all
the procedures regarding ship inspections and insurances at its own cost; Party
B must provide active cooperation and must not knowingly set up any
obstacles.
9. Before
delivering the Leased Boat, Party A must engage a professional shipyard to
perform comprehensive inspection and repairs on the Leased Boat and ensure that
the Leased Boat has a life of use no less than ten years.
10.
During the term of the lease, Party A must assign crewmen for the Leased Boat
who are competent and have professional qualifications for their respective
posts in accordance with the provisions of "Crewmen Assignment
Agreement". (See Attachment 1 hereto, "Crewmen Assignment Agreement",
for details.
11. If,
due to business need, Party A needs to relocate its office to a new address or
to change its bank account, Party A must notify Party B in writing fifteen
business days in advance; if there is need to change the contact telephone
number, Party A must notify Party B in writing two business days in
advance.
12. Party
A's unilateral dissolution of this contact during the term of the lease or
leasing the Leased Boat to a third party without prior consent from Party B
shall constitute the breach of contract; Party B shall have the right to demand
the continuation of the performance of this contract; Party A must at such time
pay a breach penalty of RMB 15,000,000.00 to Party B and compensate Party B for
any resulting loss.
(B) Party
B’s rights and obligations
1.
Starting from the day of the execution of this contract, Party B has the right
to dispatch its representatives at its own expenses to inspect the Leased Boat
and familiarize themselves with the operation of the Leased
Boat. Party A’s Leased Boat and the crewmen on board must follow the
management of Party B’s representatives and conduct project operation according
to the directions issued by Party B’s representatives.
2. During
the term of the lease, Party B has the right to sublease the Leased Boat;
however Party B shall still have full responsibility toward Party A to perform
this contract.
3. During
the term of the lease, Party B must pay the lease fee on time in accordance with
the provisions herein.
4. The
use of the Leased Boat leased by Party B from Party A is limited to port
dredging operations and similar projects. If Party B needs engage the
Leased Boat for any other purposes, Party B must obtain consent from Party A
before any implementation.
5. During
the term of the lease, Party B shall still pay the lease fee when the Leased
Boat is unable to be operated normally due to climate factors (such as Typhoon,
rain or fog).
6. Any
damages and losses suffered by both parties due to the occurrence of any humanly
irresistible disaster or to government edicts and military action, whether or
not the Leased Boat is in navigation or in mooring, must be handled in
accordance with the provisions of maritime laws and statutes.
7. During
the term of the lease, Party B shall not dispatch the Leased Boat to, or let it
enter, any frozen waters, nor shall Party B let the Leased Boat enter an area
where, at the time of the Leased Boat's arrival, the light tower, light boat,
navigation mark or buoy will be, or are likely to be, removed soon or an
dangerous area with ice hazard, such that the Leased Boat will not be able to
arrive at the location of operation smoothly or to exit the location after its
operation.
8. During
the term of the lease, before obtaining consent from Party A in writing, Party B
shall not dispatch the Leased Boat to dock at a Taiwan port or let it navigate
out of the border of the People's Republic of China for any reason or any
purpose.
9. During
the term of the lease, Party B is strictly forbidden to use the Leased Boat to
transport any hazardous material. Party B shall not use the Leased
Boat to engage in any illegal activities, including but not limited to
smuggling, pilfering, stealing and illegal immigration.
10. If
Party B fails to pay the lease fee or pay the lease fee in full for the
corresponding quarter, and the delay of such payment is more than 10 business
days, Party B then shall, starting from the following month, pay a breach
penalty calculated at the daily rate of 0.05% of the total of the unpaid portion
of the lease fee; but the cumulative total of such breach penalty shall not
exceed 3% of the lease fee for the corresponding period.
VI. Resolution
of Dispute
All disputes arising from the
performance of, or in connection with, this contract must be settled through
consultation between the two parties; if such consultation fails, the dispute
can be submitted to the jurisdiction of the people’s court at Party B’s
location.
VII. Others
1. All
attachments hereto are the component parts of this contract and shall have the
same legal effect as this contract.
2. The
original of this contract is in duplicates, with one each to Party A and Party
B; this contract will take effect after it is signed and imprinted with seals by
both Party A and Party B.
3. All
matters not covered herein shall be settled in supplemental agreements through
consultation between the two parties, and all such supplemental agreements shall
have the same legal effect as this contract.
Party
A: /seal/
Zhejiang Honglin Ship Engineering Co., Ltd.
Legal
Representative: /s/ ZHENG Yaping
Party
B: /seal/
Fujian Xing Gang Port Service Co., Ltd.
Legal
Representative: /s/ LIN Qing
Date: June
19, 2010
Crewmen
Assignment Agreement
(“Honglin
Dredging 9”)
(Unofficial
Translation)
Party
A:
|
Zhejiang
Honglin Ship Engineering Co., Ltd.
|
Address:
|
2nd
Floor, 89 Dongda Avenue, Dinghai District, Zhoushan,
Zhejiang
|
Legal
Representative: ZHENG Yaping
Party
B:
|
Fujian
Xing Gang Port Service Co., Ltd.
|
Address:
|
17
th
Floor, Building A, Zhongshan Plaza, 154 Hudong Road,
Fuzhou
|
Legal
Representative: LIN Qing
Party A and Party B, after friendly
consultation based on the principles of equality and mutual benefit and on the
basis of the “Ship Leasing Contract” executed by the two parties, have reached
the agreement regarding the matter of Party A assigning crewmen during the term
of Party B’s lease of dredging engineering boat “Honglin Dredging 9” from Party
A as follows:
Article
I Generals
1. The
term “assigned crewmen” used herein means those crewmen who are assigned by
Party A, pursuant to the provisions of the “Ship Leasing Contract” executed by
the two parties and the provisions of herein, to work at relevant posts on
“Honglin Dredging 9”; see the attached list for crewmen assignment
details.
2. Party
B must pay to Party A the crewmen assignment fee in accordance with the
provisions of the “Ship Leasing Contract” executed by the two parties. The said
crewmen assignment fee includes salaries that Party A should pay to the crewmen
working “Honglin Dredging 9” and all benefits and insurances (including but not
limited to pensions insurance, unemployment insurance, medical insurance, family
planning insurance, injury insurance, housing fund and commercial
insurance).
3. Term
of the agreement: The effective period of this agreement corresponds to and is
the same as the term of the lease specified in the “Ship Leasing Contract”
executed by the two parties.
Article
II Party
A’s Rights and Obligations
1. Party
A has the right to receive the crewmen assignment fee in accordance with the
provisions of the “Ship Leasing Contract” executed by the two
parties.
2. Party
A must assign crewmen for the ship pursuant to the provisions herein; educate
the crewmen on the compliance with the State laws, statutes and regulations;
educate the assigned crewmen on the compliance with Party B’s rules and
policies, on maintaining confidentiality of commercial secrets and on
safeguarding Party B’s legitimate rights and interests.
3. Party
A must ensure that the assigned crewmen have the qualifications and skills
required of their respective posts and possess valid and complete employment
qualification documents, including but not limited to crewmen service books,
maritime crewmen professional training certificates and maritime crewmen service
competency certificates.
4. Party
B must notify Party A in writing, three business days in advance, of the
boarding time and boarding location for the crewmen assigned by Party
A. Party A must ensure that all the assigned crewmen will report for
duty at the time and location specified by Party B. If there is any
factor on Party B’s part that causes a waiting period of more than half a month
before the assigned crewmen can be aboard, Party B must still pay the same
amount of crewmen assignment fee to Party A pursuant to the provisions
herein.
5. After
the assigned crewmen have passed assessment and been placed on duty by Party B,
Party A shall not replace them at will. Party A must ensure that
Party B has the absolute leadership authority over the assigned
crewmen. During the term of the agreement, the assigned crewmen must
follow the operation arrangement from Party B’s safety and shipping service
scheduling department.
6. Party
A will pay salaries and bonuses to the assigned crewmen and withhold and pay on
their behalf personal income taxes and make payment for them of all the State
mandated insurances, including but not limited to pensions insurance,
unemployment insurance, medical insurance, family planning insurance, injury
insurance, housing fund and commercial insurance. Party A shall not
make such payments late.
7. If
Party B requests Party A to replace certain assigned crewmen pursuant to the
provisions herein, Party A must replace them promptly so as not to affect Party
B’s normal operation.
8. In
the event of the occurrence of any accident causing injury to the assigned
crewmen, Party A must, after receiving notification from Party B, handle such
accident properly in accordance with the provisions of relevant insurance and be
responsible for submitting report and insurance claims.
9. If
there a change in the Party A’s bank account number, Party A must notify Party B
in writing two business days in advance.
Article
III Party
B’s Rights and Obligations
1. Party
B has the right to conduct assessment on the crewmen assigned by Party
A. If the assigned crewmen do not have the qualifications or skills
required of their respective posts, Party B has the right to demand Party A to
replace them and Party A shall not refuse such demand. Party A must
bear corresponding responsibility if the assigned crewmen’s lack of
qualifications or skills causes any loss to Party B.
2. Party
B has the right to require the assigned crewmen to comply with all the rules and
policies formulated in accordance with the relevant State laws and policies and
follow Party B’s production and operation arrangements.
3. If
the assigned crewmen engage in any of the following during the term of the ship
lease, Party B has the right, upon Party A’s acknowledgement, to demand Party A
to recall them without any liability for breach:
(1) Violation
of Party B’s work disciplines or rules and regulations, and after criticism and
education, failure to make any correction or rectification;
(2) Negligence
of duties, resulting in serious loss or damage to Party B’s
interests;
(3) Violation
of law and statutes or being the subject of criminal legal
proceedings;
(4) Inability
to perform original work duties after treatment period for illness or
work-related injury and inability, or refusal, to perform other work assigned by
Party A;
4. Party
B has the right to submit written opinion on, and negotiate with regard to,
Party A's behavior that violates the relevant provisions of this
agreement. Party A must respond to Party B in writing within ten
business days upon receiving the written opinion from Party B.
5. Party
B must manage the assigned crewmen in such areas as their posts’ duties and
responsibilities and labor discipline and provide them with relevant
training;
6. Party
B must provide to the assigned crewmen working environment, labor conditions and
labor protection that are in compliance with the provisions of the State’s
“Labor Law”;
7. Party
B must pay the crewmen assignment fee in accordance with the provisions of the
“Ship Leasing Contract”.
8. Party
B must pay to Party A the corresponding expenses for those assigned crewmen who
suffer work-related injury or contract occupational disease and, upon
verification, have lost, or partially lost, their ability to work and who suffer
work-related death in accordance with the law;
9. Party
B must supervise in the processing of relevant legal work documents for the
dispatch crewmen required for the term of service and educate them on the
adherence of disciplines and compliance of law;
10. Party
B must notify Party A fifteen business days in advance in the event of
relocation of work location due to business need; notify Party A two business
days in advance in the event of any change of contact telephone number and fax
number;
11. Party
B must arrange work posts for the assigned crewmen in accordance with the
provisions herein, consult with Party A if there is need for any change and bear
all consequences resulting from changing the posts of the assigned crewmen
without prior consultation with Party A.
Article
IV Dispute
and Arbitration
Any dispute arising from performance
of, or in connection with, this agreement must be settled through consultation;
if such consultation fails, either party may submit the dispute to the
jurisdiction of the people’s court at Party B’s location.
Article
V Others
1. Other
matters not covered herein must be settled by Party A and Party B through
consultation or be provided in supplemental agreement formulated in accordance
with relevant provisions of the State law, statutes and
regulations.
2. If
any content herein conflicts with the State law or policies, or is inconsistent
due to the changes of the law and policies, the provisions of the law or such
policies shall prevail.
3. All
attachments hereto are the component parts hereto and have the same legal
effect.
4. This
agreement is an attachment to the “Ship Leasing Contract” executed by the two
parties and shall become effective at the same time when the “Ship Leasing
Contract” takes effect.
5. This
agreement is in duplicates, with one to each party, and both have the same legal
effect.
Party
A: /seal/
Zhejiang Honglin Ship Engineering Co., Ltd.
Legal
Representative: /s/ ZHENG Yaping
Party
B: /seal/
Fujian Xing Gang Port Service Co., Ltd.
Legal
Representative: /s/ LIN Qing
Date: June
19, 2010
Attachment:
List of Assigned Crewmen
Post
|
|
Number
|
Captain
|
|
1
|
First
Mate
|
|
1
|
Chief
Engineer
|
|
1
|
Second
Mate
|
|
1
|
Second
Engineer
|
|
1
|
Third
Engineer
|
|
1
|
Fourth
Engineer
|
|
1
|
Third
Mate
|
|
1
|
Seamen
Chief
|
|
1
|
Long
Mechanic
|
|
1
|
Mechanic
|
|
12
|
Seaman
|
|
12
|
Cook
|
|
1
|
Total
|
|
35
|
Ship
Lease Contract
(“Honglin
Dredging 18”)
(Unofficial
Translation)
Party
A:
|
Zhejiang
Honglin Ship Engineering Co., Ltd.
|
Address:
|
2nd
Floor, 89 Dongda Avenue, Dinghai District, Zhoushan,
Zhejiang
|
Legal
Representative: ZHENG Yaping
Party
B:
|
Fujian
Xing Gang Port Service Co., Ltd.
|
Address:
|
17
th
Floor, Building A, Zhongshan Plaza, 154 Hudong Road,
Fuzhou
|
Legal
Representative: LIN Qing
Pursuant
to the relevant provisions of the “People’s Republic of China Contract Law” and
other applicable laws and statutes, Party A and Party B, after friendly
consultation, have formulated this leasing contract terms to be adhered to by
both parties.
I.
Leasing of a Boat
Based on
Party B’s need, Party A agrees to lease “Honglin Dredging 18” (the “Leased
Boat”), a non-self-propelling, cutter suction type of dredging boat with a cabin
capacity of 3800m
3
which it
owns, to Party B for its use. During the term of the lease, Party A
will assign crewmen for the Leased Boat; see the attachment hereto, “Crewmen
Assignment Agreement”, for details.
II.
Term of the Lease
The term of the lease is three years,
starting from June 18, 2010 to June 18, 2013. Upon the expiration of
the term of the lease, Party B shall have the right of first refusal to renew
the lease under the same conditions.
III.
Leasing Fee
1. Lease
security deposit: Party B must may to Party A a lease security deposit of RMB
45,000,000.00 Yuan within 10 days after the date of delivery of the Leased Boat
to Party B. Within 10 days upon the expiration of the term of the
lease, Party A shall return the lease security deposit in one sum to Party
B.
2. The
Leased Boat lease fee: the Leased Boat lease fee is RMB 24,500,000.00
Yuan per year, the calculation of which starts from the day when the Leased Boat
is delivered to Party B at the port of delivery. Party A shall be
responsible for the one-way dispatch fee for navigating the Leased Boat from its
original port of anchor to the port of delivery.
3.
Crewmen assignment fee: RMB 3,720,000.00 Yuan per year.
4. Spare parts fee: for the sake of
management convenience, during the term of the lease, Party A shall purchase all
the required spare parts based on the operation need of the Leased Boat and
provide maintenance and parts replacement repairs based on the condition of the
Leased Boat to ensure that the Leased Boat remain in normal working
condition. Party B will pay to Party A the spare parts fee in one
lump sum of RMB 73,200,000.00 Yuan per year for Party A to use, with no refund
for surplus fee nor supplement for deficit; Party A shall have the said fixed
amount of spare parts fee at its disposal, whether or not the actual cost of
spare parts for the corresponding year exceeds the said fixed
amount. Party A shall be responsible for the transportation and
moving of the spare parts and for the removal and recycling of the discarded
spare parts and bear all the related expenses.
5. Payment method: the total of the
fees for items under III.1, III.2 and III.3 is RMB 101,420,000.00 Yuan per year,
and this total amount is to be paid by Party B quarterly, that is, 25,355,000.00
Yuan per quarter. Party B must transfer the lease fee for the
previous quarter into the bank account designated by Party A within the first 10
days of January, April, July and October of each year.
IV. Delivery
of the Leased Boat
1. Time of delivery: June 18,
2010.
2. Place of delivery: Tianjin, actual
location of which to be specified by Party B.
3. At the time of delivery, the Leased
Boat must be in the normal working condition and be ready to put into project
operation.
4. At the time of delivery, Party A and
Party B will jointly confirm the fuel stored on board the Leased Boat at the
place of delivery. Before the amount of fuel stored on board is
measured, the draft of the front and back of the Leased Boat must be adjusted
for balance or the draft differential between the stern and bow of the Leased
Boat must not exceed 6 feet. At the time of delivery, Party A must
ensure that the amount of fuel stored on board must be above 80% of the Leased
Boat's maximum fuel storage capacity.
5. Since Party B is to pay Party A the
lump sum spare parts fee and Party A shall be responsible for the Leased Boat’s
maintenance and repair service and for replacement of spare parts on the Leased
Boat during the term of the lease, there is no need for the two parties to
perform the joint inspection at the time of delivering, and at the time of
returning, the Leased Boat.
6. Upon the expiration of the term of
the lease, Party B must notify Party A of the location and time of returning the
boat 7 days before the expiration of the term of the lease, and Party A must
process the return and acceptance procedures based on Party B’s notification and
regain control of the Leased Boat and the crewmen assigned to work on
board.
V. Rights
and obligations of each of the two parties
(A) Party
A’s rights and obligations
1. During
the term of the lease Party A has the right to receive the lease fee according
to the provisions herein. If Party B’s payment of the lease fee is
more than one month past due, Party A has the right to resort to legal action at
a court and to unilaterally dissolve the contract.
2. During the term of the lease, Party
A is responsible for the prompt provision and replacement of the spare parts on
the Leased Boat so as to ensure the Leased Boat’s normal operation.
3. Party
A confirms the ownership of the Leased Boat and has processed the relevant
certificates required by the State law and statutes.
4. During
the term of the lease, Party A may, upon obtaining consent from Party B,
dispatch a representative to the Leased Boat to supervise the ship operation at
its own expense. If Party A’s representative believes that any of
Party B’s actions violates this contract or can damage the main structure of the
Leased Boat, Party A must issue a written report and settle the matter between
the two parties amicably through friendly consultation.
5. Party
A warrants that, on the day of delivering the Leased Boat and during the term of
the lease, the technical specifications of the Leased Boat are in conformity
with those specified in all the ownership certificates; if there are
discrepancies, the lease fee shall be reduced and such reduction should be an
amount sufficient to compensate the lessee for any resulting loss.
6. Party
A warrants that, on the day of delivering the Leased Boat and during the term of
the lease, the Leased Boat is tight, solid, strong and in good working
condition, and is suitable for the operation of the project; the body of the
Leased Boat and the machines and equipment on board are in full working
condition.
7. On the
day of delivering the boat, Party A must also provide all the certificates
required for its operation, including but not limited to “People’s Republic of
China Ship and Vessel Ownership Registration Certificate”, “People’s Republic of
China Ship and Vessel Nationality Certificate”, “Maritime Ship and Vessel
Inspection Certification Record”, “Maritime Cargo Vessel Seaworthiness
Certificate”, “Maritime Ship and Vessel Tonnage Certificate”, “Maritime Ship and
Vessel Oil Pollution Prevention Certificate” and “Maritime Ship and Vessel Load
Line Certificate”.
8. During
the term of the lease, Party A must process on time, completely and fully all
the procedures regarding ship inspections and insurances at its own cost; Party
B must provide active cooperation and must not knowingly set up any
obstacles.
9. Before
delivering the Leased Boat, Party A must engage a professional shipyard to
perform comprehensive inspection and repairs on the Leased Boat and ensure that
the Leased Boat has a life of use no less than ten years.
10.
During the term of the lease, Party A must assign crewmen for the Leased Boat
who are competent and have professional qualifications for their respective
posts in accordance with the provisions of "Crewmen Assignment
Agreement". (See Attachment 1 hereto, "Crewmen Assignment Agreement",
for details.
11. If,
due to business need, Party A needs to relocate its office to a new address or
to change its bank account, Party A must notify Party B in writing fifteen
business days in advance; if there is need to change the contact telephone
number, Party A must notify Party B in writing two business days in
advance.
12. Party
A's unilateral dissolution of this contact during the term of the lease or
leasing the Leased Boat to a third party without prior consent from Party B
shall constitute the breach of contract; Party B shall have the right to demand
the continuation of the performance of this contract; Party A must at such time
pay a breach penalty of RMB 15,000,000.00 to Party B and compensate Party B for
any resulting loss.
(B) Party
B’s rights and obligations
1.
Starting from the day of the execution of this contract, Party B has the right
to dispatch its representatives at its own expenses to inspect the Leased Boat
and familiarize themselves with the operation of the Leased
Boat. Party A’s Leased Boat and the crewmen on board must follow the
management of Party B’s representatives and conduct project operation according
to the directions issued by Party B’s representatives.
2. During
the term of the lease, Party B has the right to sublease the Leased Boat;
however Party B shall still have full responsibility toward Party A to perform
this contract.
3. During
the term of the lease, Party B must pay the lease fee on time in accordance with
the provisions herein.
4. The
use of the Leased Boat leased by Party B from Party A is limited to port
dredging operations and similar projects. If Party B needs engage the
Leased Boat for any other purposes, Party B must obtain consent from Party A
before any implementation.
5. During
the term of the lease, Party B shall still pay the lease fee when the Leased
Boat is unable to be operated normally due to climate factors (such as Typhoon,
rain or fog).
6. Any
damages and losses suffered by both parties due to the occurrence of any humanly
irresistible disaster or to government edicts and military action, whether or
not the Leased Boat is in navigation or in mooring, must be handled in
accordance with the provisions of maritime laws and statutes.
7. During
the term of the lease, Party B shall not dispatch the Leased Boat to, or let it
enter, any frozen waters, nor shall Party B let the Leased Boat enter an area
where, at the time of the Leased Boat's arrival, the light tower, light boat,
navigation mark or buoy will be, or are likely to be, removed soon or an
dangerous area with ice hazard, such that the Leased Boat will not be able to
arrive at the location of operation smoothly or to exit the location after its
operation.
8. During
the term of the lease, before obtaining consent from Party A in writing, Party B
shall not dispatch the Leased Boat to dock at a Taiwan port or let it navigate
out of the border of the People's Republic of China for any reason or any
purpose.
9. During
the term of the lease, Party B is strictly forbidden to use the Leased Boat to
transport any hazardous material. Party B shall not use the Leased
Boat to engage in any illegal activities, including but not limited to
smuggling, pilfering, stealing and illegal immigration.
10. If
Party B fails to pay the lease fee or pay the lease fee in full for the
corresponding quarter, and the delay of such payment is more than 10 business
days, Party B then shall, starting from the following month, pay a breach
penalty calculated at the daily rate of 0.05% of the total of the unpaid portion
of the lease fee; but the cumulative total of such breach penalty shall not
exceed 3% of the lease fee for the corresponding period.
VI. Resolution
of Dispute
All disputes arising from the
performance of, or in connection with, this contract must be settled through
consultation between the two parties; if such consultation fails, the dispute
can be submitted to the jurisdiction of the people’s court at Party B’s
location.
VII. Others
1. All
attachments hereto are the component parts of this contract and shall have the
same legal effect as this contract.
2. The
original of this contract is in duplicates, with one each to Party A and Party
B; this contract will take effect after it is signed and imprinted with seals by
both Party A and Party B.
3. All
matters not covered herein shall be settled in supplemental agreements through
consultation between the two parties, and all such supplemental agreements shall
have the same legal effect as this contract.
Party
A:
|
/seal/
Zhejiang Honglin Ship Engineering Co.,
Ltd.
|
Legal
Representative: /s/ ZHENG Yaping
Party
B:
|
/seal/
Fujian Xing Gang Port Service Co.,
Ltd.
|
Legal
Representative: /s/ LIN Qing
Date:
June 18, 2010
Crewmen
Assignment Agreement
(“Honglin
Dredging 18”)
(Unofficial
Translation)
Party
A:
|
Zhejiang
Honglin Ship Engineering Co., Ltd.
|
Address:
|
2nd
Floor, 89 Dongda Avenue, Dinghai District, Zhoushan,
Zhejiang
|
Legal
Representative: ZHENG Yaping
|
|
Party
B:
|
Fujian
Xing Gang Port Service Co., Ltd.
|
Address:
|
17
th
Floor, Building A, Zhongshan Plaza, 154 Hudong Road,
Fuzhou
|
Legal
Representative: LIN
Qing
|
Party A and Party B, after friendly
consultation based on the principles of equality and mutual benefit and on the
basis of the “Ship Leasing Contract” executed by the two parties, have reached
the agreement regarding the matter of Party A assigning crewmen during the term
of Party B’s lease of dredging engineering boat “Honglin Dredging 18” from Party
A as follows:
Article
I Generals
1. The
term “assigned crewmen” used herein means those crewmen who are assigned by
Party A, pursuant to the provisions of the “Ship Leasing Contract” executed by
the two parties and the provisions of herein, to work at relevant posts on
“Honglin Dredging 18”; see the attached list for crewmen assignment
details.
2. Party
B must pay to Party A the crewmen assignment fee in accordance with the
provisions of the “Ship Leasing Contract” executed by the two parties. The said
crewmen assignment fee includes salaries that Party A should pay to the crewmen
working “Honglin Dredging 18” and all benefits and insurances (including but not
limited to pensions insurance, unemployment insurance, medical insurance, family
planning insurance, injury insurance, housing fund and commercial
insurance).
3. Term
of the agreement: The effective period of this agreement corresponds to and is
the same as the term of the lease specified in the “Ship Leasing Contract”
executed by the two parties.
Article
II Party A’s Rights
and Obligations
1. Party
A has the right to receive the crewmen assignment fee in accordance with the
provisions of the “Ship Leasing Contract” executed by the two
parties.
2. Party
A must assign crewmen for the ship pursuant to the provisions herein; educate
the crewmen on the compliance with the State laws, statutes and regulations;
educate the assigned crewmen on the compliance with Party B’s rules and
policies, on maintaining confidentiality of commercial secrets and on
safeguarding Party B’s legitimate rights and interests.
3. Party
A must ensure that the assigned crewmen have the qualifications and skills
required of their respective posts and possess valid and complete employment
qualification documents, including but not limited to crewmen service books,
maritime crewmen professional training certificates and maritime crewmen service
competency certificates.
4. Party
B must notify Party A in writing, three business days in advance, of the
boarding time and boarding location for the crewmen assigned by Party
A. Party A must ensure that all the assigned crewmen will report for
duty at the time and location specified by Party B. If there is any
factor on Party B’s part that causes a waiting period of more than half a month
before the assigned crewmen can be aboard, Party B must still pay the same
amount of crewmen assignment fee to Party A pursuant to the provisions
herein.
5. After
the assigned crewmen have passed assessment and been placed on duty by Party B,
Party A shall not replace them at will. Party A must ensure that
Party B has the absolute leadership authority over the assigned
crewmen. During the term of the agreement, the assigned crewmen must
follow the operation arrangement from Party B’s safety and shipping service
scheduling department.
6. Party
A will pay salaries and bonuses to the assigned crewmen and withhold and pay on
their behalf personal income taxes and make payment for them of all the State
mandated insurances, including but not limited to pensions insurance,
unemployment insurance, medical insurance, family planning insurance, injury
insurance, housing fund and commercial insurance. Party A shall not
make such payments late.
7. If
Party B requests Party A to replace certain assigned crewmen pursuant to the
provisions herein, Party A must replace them promptly so as not to affect Party
B’s normal operation.
8. In
the event of the occurrence of any accident causing injury to the assigned
crewmen, Party A must, after receiving notification from Party B, handle such
accident properly in accordance with the provisions of relevant insurance and be
responsible for submitting report and insurance claims.
9. If
there a change in the Party A’s bank account number, Party A must notify Party B
in writing two business days in advance.
Article
III Party B’s Rights
and Obligations
1. Party
B has the right to conduct assessment on the crewmen assigned by Party
A. If the assigned crewmen do not have the qualifications or skills
required of their respective posts, Party B has the right to demand Party A to
replace them and Party A shall not refuse such demand. Party A must
bear corresponding responsibility if the assigned crewmen’s lack of
qualifications or skills causes any loss to Party B.
2. Party
B has the right to require the assigned crewmen to comply with all the rules and
policies formulated in accordance with the relevant State laws and policies and
follow Party B’s production and operation arrangements.
3. If
the assigned crewmen engage in any of the following during the term of the ship
lease, Party B has the right, upon Party A’s acknowledgement, to demand Party A
to recall them without any liability for breach:
(1) Violation
of Party B’s work disciplines or rules and regulations, and after criticism and
education, failure to make any correction or rectification;
(2) Negligence
of duties, resulting in serious loss or damage to Party B’s
interests;
(3) Violation
of law and statutes or being the subject of criminal legal
proceedings;
(4) Inability
to perform original work duties after treatment period for illness or
work-related injury and inability, or refusal, to perform other work assigned by
Party A;
4. Party
B has the right to submit written opinion on, and negotiate with regard to,
Party A's behavior that violates the relevant provisions of this
agreement. Party A must respond to Party B in writing within ten
business days upon receiving the written opinion from Party B.
5. Party
B must manage the assigned crewmen in such areas as their posts’ duties and
responsibilities and labor discipline and provide them with relevant
training;
6. Party
B must provide to the assigned crewmen working environment, labor conditions and
labor protection that are in compliance with the provisions of the State’s
“Labor Law”;
7. Party
B must pay the crewmen assignment fee in accordance with the provisions of the
“Ship Leasing Contract”.
8. Party
B must pay to Party A the corresponding expenses for those assigned crewmen who
suffer work-related injury or contract occupational disease and, upon
verification, have lost, or partially lost, their ability to work and who suffer
work-related death in accordance with the law;
9. Party
B must supervise in the processing of relevant legal work documents for the
dispatch crewmen required for the term of service and educate them on the
adherence of disciplines and compliance of law;
10. Party
B must notify Party A fifteen business days in advance in the event of
relocation of work location due to business need; notify Party A two business
days in advance in the event of any change of contact telephone number and fax
number;
11. Party
B must arrange work posts for the assigned crewmen in accordance with the
provisions herein, consult with Party A if there is need for any change and bear
all consequences resulting from changing the posts of the assigned crewmen
without prior consultation with Party A.
Article
IV Dispute and
Arbitration
Any dispute arising from performance
of, or in connection with, this agreement must be settled through consultation;
if such consultation fails, either party may submit the dispute to the
jurisdiction of the people’s court at Party B’s location.
Article
V Others
1. Other
matters not covered herein must be settled by Party A and Party B through
consultation or be provided in supplemental agreement formulated in accordance
with relevant provisions of the State law, statutes and
regulations.
2. If
any content herein conflicts with the State law or policies, or is inconsistent
due to the changes of the law and policies, the provisions of the law or such
policies shall prevail.
3. All
attachments hereto are the component parts hereto and have the same legal
effect.
4. This
agreement is an attachment to the “Ship Leasing Contract” executed by the two
parties and shall become effective at the same time when the “Ship Leasing
Contract” takes effect.
5. This
agreement is in duplicates, with one to each party, and both have the same legal
effect.
Party
A:
|
/seal/
Zhejiang Honglin Ship Engineering Co., Ltd.
|
Legal
Representative:
|
/s/
ZHENG Yaping
|
|
|
Party
B:
|
/seal/
Fujian Xing Gang Port Service Co., Ltd.
|
Legal
Representative:
|
/s/
LIN Qing
|
|
|
Date: June
18, 2010
|
Attachment:
List of Assigned Crewmen
Post
|
|
Number
|
Captain
|
|
1
|
First
Mate
|
|
1
|
Chief
Engineer
|
|
1
|
Second
Mate
|
|
1
|
Second
Engineer
|
|
1
|
Third
Engineer
|
|
1
|
Fourth
Engineer
|
|
1
|
Third
Mate
|
|
1
|
Seamen
Chief
|
|
1
|
Long
Mechanic
|
|
1
|
Mechanic
|
|
8
|
Seaman
|
|
9
|
Cook
|
|
1
|
Total
|
|
28
|
Ship
Lease Contract
(“Xiechang
18”)
(Unofficial
Translation)
Party
A:
|
Zhonghai
Engineering Construction General
Bureau
|
Dalian Engineering Construction
Bureau
Address:
|
No.
60-5 Dayang Avenue, Zhongshan District,
Dalian
|
Legal
Representative: CHENG Shaowen
Party
B:
|
Fujian
Xing Gang Port Service Co., Ltd.
|
Address:
|
17
th
Floor, Building A, Zhongshan Plaza, 154 Hudong Road,
Fuzhou
|
Legal
Representative: LIN Qing
Pursuant
to the relevant provisions of the “People’s Republic of China Contract Law” and
other applicable laws and statutes, Party A and Party B, after friendly
consultation, have formulated this leasing contract terms to be adhered to by
both parties.
Based on
Party B’s need, Party A agrees to lease “Xiechang 18” (the “Leased Boat”), a
non-self-propelling, cutter suction type of dredging boat with a cabin capacity
of 2500m
3
which it
owns, to Party B for its use. During the term of the lease, Party A
will assign crewmen for the Leased Boat; see the attachment hereto, “Crewmen
Assignment Agreement”, for details.
The term of the lease is three years,
starting from June 24, 2010 to June 24, 2013. Upon the expiration of
the term of the lease, Party B shall have the right of first refusal to renew
the lease under the same conditions.
1. Lease
security deposit: Party B must may to Party A a lease security deposit of RMB
24,600,000.00 Yuan within 10 days after the date of delivery of the Leased Boat
to Party B. Within 10 days upon the expiration of the term of the
lease, Party A shall return the lease security deposit in one sum to Party
B.
2. The
Leased Boat lease fee: the Leased Boat lease fee is RMB 14,700,000.00
Yuan per year, the calculation of which starts from the day when the Leased Boat
is delivered to Party B at the port of delivery. Party B must pay to
Party A the lease fee of 3,675,000.00 Yuan for the current quarter at the end of
each quarter by bank transfer. Party A shall be responsible for the
one-way dispatch fee for navigating the Leased Boat from its original port of
anchor to the port of delivery.
3.
Crewmen assignment fee: RMB 3,840,000.00 Yuan per year. It is payable
quarterly, and Party B must pay to Party A the crewmen assignment fee of
960,000.00 Yuan for the current quarter at the end of each quarter by bank
transfer.
4. Spare
parts fee:
(1) For the sake of management
convenience, during the term of the lease, Party A shall purchase all the
required spare parts based on the operation need of "Xiechang 18" and provide
maintenance and parts replacement repairs based on the condition of the Leased
Boat to ensure that the Leased Boat remain in normal working
condition.
(2) Party B will pay to Party A the
spare parts fee in one lump sum of RMB 41,800,000.00 Yuan per year for Party A
to use, with no refund for surplus fee nor supplement for deficit; Party A shall
have the said fixed amount of spare parts fee at its disposal, whether or not
the actual cost of spare parts for the corresponding year exceeds the said fixed
amount.
(3) The spare parts fee is to be paid
monthly; Party B must pay to Party A RMB 3,483,333.33 Yuan per
month.
(4) Party A shall be responsible for
the transportation and moving of the spare parts and for the removal and
recycling of the discarded spare parts and bear all the related
expenses.
IV.
|
Delivery
of the Leased Boat
|
1. Time of delivery: June 24,
2010.
2. Place of delivery: Liaoning, actual
location of which to be specified by Party B.
3. At the time of delivery, the Leased
Boat must be in the normal working condition and be ready to put into project
operation.
4. At the time of delivery, Party A and
Party B will jointly confirm the fuel stored on board the Leased Boat at the
place of delivery. Before the amount of fuel stored on board is
measured, the draft of the front and back of the Leased Boat must be adjusted
for balance or the draft differential between the stern and bow of the Leased
Boat must not exceed 6 feet. At the time of delivery, Party A must
ensure that the amount of fuel stored on board must be above 80% of the Leased
Boat's maximum fuel storage capacity.
5. Since Party B is to pay Party A the
lump sum spare parts fee and Party A shall be responsible for the Leased Boat’s
maintenance and repair service and for replacement of spare parts on the Leased
Boat during the term of the lease, there is no need for the two parties to
perform the joint inspection at the time of delivering, and at the time of
returning, the Leased Boat.
6. Upon the expiration of the term of
the lease, Party B must notify Party A of the location and time of returning the
boat 7 days before the expiration of the term of the lease, and Party A must
process the return and acceptance procedures based on Party B’s notification and
regain control of the Leased Boat and the crewmen assigned to work on
board.
V.
|
Rights
and obligations of each of the two
parties
|
(A) Party
A’s rights and obligations
1. During
the term of the lease Party A has the right to receive the lease fee according
to the provisions herein. If Party B’s payment of the lease fee is
more than one month past due, Party A has the right to resort to legal action at
a court and to unilaterally dissolve the contract.
2. During the term of the lease, Party
A is responsible for the prompt provision and replacement of the spare parts on
the Leased Boat so as to ensure the Leased Boat’s normal operation.
3. Party
A confirms the ownership of the Leased Boat and has processed the relevant
certificates required by the State law and statutes.
4. During
the term of the lease, Party A may, upon obtaining consent from Party B,
dispatch a representative to the Leased Boat to supervise the ship operation at
its own expense. If Party A’s representative believes that any of
Party B’s actions violates this contract or can damage the main structure of the
Leased Boat, Party A must issue a written report and settle the matter between
the two parties amicably through friendly consultation.
5. Party
A warrants that, on the day of delivering the Leased Boat and during the term of
the lease, the technical specifications of the Leased Boat are in conformity
with those specified in all the ownership certificates; if there are
discrepancies, the lease fee shall be reduced and such reduction should be an
amount sufficient to compensate the lessee for any resulting loss.
6. Party
A warrants that, on the day of delivering the Leased Boat and during the term of
the lease, the Leased Boat is tight, solid, strong and in good working
condition, and is suitable for the operation of the project; the body of the
Leased Boat and the machines and equipment on board are in full working
condition.
7. On the
day of delivering the boat, Party A must also provide all the certificates
required for its operation, including but not limited to “People’s Republic of
China Ship and Vessel Ownership Registration Certificate”, “People’s Republic of
China Ship and Vessel Nationality Certificate”, “Maritime Ship and Vessel
Inspection Certification Record”, “Maritime Cargo Vessel Seaworthiness
Certificate”, “Maritime Ship and Vessel Tonnage Certificate”, “Maritime Ship and
Vessel Oil Pollution Prevention Certificate” and “Maritime Ship and Vessel Load
Line Certificate”.
8. During
the term of the lease, Party A must process on time, completely and fully all
the procedures regarding ship inspections and insurances at its own cost; Party
B must provide active cooperation and must not knowingly set up any
obstacles.
9. Before
delivering the Leased Boat, Party A must engage a professional shipyard to
perform comprehensive inspection and repairs on the Leased Boat and ensure that
the Leased Boat has a life of use no less than ten years.
10.
During the term of the lease, Party A must assign crewmen for the Leased Boat
who are competent and have professional qualifications for their respective
posts in accordance with the provisions of "Crewmen Assignment
Agreement". (See Attachment 1 hereto, "Crewmen Assignment Agreement",
for details.
11. If,
due to business need, Party A needs to relocate its office to a new address or
to change its bank account, Party A must notify Party B in writing fifteen
business days in advance; if there is need to change the contact telephone
number, Party A must notify Party B in writing two business days in
advance.
12. Party
A's unilateral dissolution of this contact during the term of the lease or
leasing the Leased Boat to a third party without prior consent from Party B
shall constitute the breach of contract; Party B shall have the right to demand
the continuation of the performance of this contract; Party A must at such time
pay a breach penalty of RMB 15,000,000.00 to Party B and compensate Party B for
any resulting loss.
(B) Party
B’s rights and obligations
1.
Starting from the day of the execution of this contract, Party B has the right
to dispatch its representatives at its own expenses to inspect the Leased Boat
and familiarize themselves with the operation of the Leased
Boat. Party A’s Leased Boat and the crewmen on board must follow the
management of Party B’s representatives and conduct project operation according
to the directions issued by Party B’s representatives.
2. During
the term of the lease, Party B has the right to sublease the Leased Boat;
however Party B shall still have full responsibility toward Party A to perform
this contract.
3. During
the term of the lease, Party B must pay the lease fee on time in accordance with
the provisions herein.
4. The
use of the Leased Boat leased by Party B from Party A is limited to port
dredging operations and similar projects. If Party B needs engage the
Leased Boat for any other purposes, Party B must obtain consent from Party A
before any implementation.
5. During
the term of the lease, Party B shall still pay the lease fee when the Leased
Boat is unable to be operated normally due to climate factors (such as Typhoon,
rain or fog).
6. Any
damages and losses suffered by both parties due to the occurrence of any humanly
irresistible disaster or to government edicts and military action, whether or
not the Leased Boat is in navigation or in mooring, must be handled in
accordance with the provisions of maritime laws and statutes.
7. During
the term of the lease, Party B shall not dispatch the Leased Boat to, or let it
enter, any frozen waters, nor shall Party B let the Leased Boat enter an area
where, at the time of the Leased Boat's arrival, the light tower, light boat,
navigation mark or buoy will be, or are likely to be, removed soon or an
dangerous area with ice hazard, such that the Leased Boat will not be able to
arrive at the location of operation smoothly or to exit the location after its
operation.
8. During
the term of the lease, before obtaining consent from Party A in writing, Party B
shall not dispatch the Leased Boat to dock at a Taiwan port or let it navigate
out of the border of the People's Republic of China for any reason or any
purpose.
9. During
the term of the lease, Party B is strictly forbidden to use the Leased Boat to
transport any hazardous material. Party B shall not use the Leased
Boat to engage in any illegal activities, including but not limited to
smuggling, pilfering, stealing and illegal immigration.
10. If
Party B fails to pay the lease fee or pay the lease fee in full for the
corresponding quarter, and the delay of such payment is more than 10 business
days, Party B then shall, starting from the following month, pay a breach
penalty calculated at the daily rate of 0.05% of the total of the unpaid portion
of the lease fee; but the cumulative total of such breach penalty shall not
exceed 3% of the lease fee for the corresponding period.
VI.
|
Resolution
of Dispute
|
All disputes arising from the
performance of, or in connection with, this contract must be settled through
consultation between the two parties; if such consultation fails, the dispute
can be submitted to the jurisdiction of the people’s court at Party B’s
location.
1. All
attachments hereto are the component parts of this contract and shall have the
same legal effect as this contract.
2. The
original of this contract is in duplicates, with one each to Party A and Party
B; this contract will take effect after it is signed and imprinted with seals by
both Party A and Party B.
3. All
matters not covered herein shall be settled in supplemental agreements through
consultation between the two parties, and all such supplemental agreements shall
have the same legal effect as this contract.
Party
A:
|
/seal/
Zhonghai Engineering Construction General Bureau
|
|
Dalian
Engineering Constructioin Bureau
|
Legal
Representative:
|
/s/
QIU Shandao
|
|
|
Party
B:
|
/seal/
Fujian Xing Gang Port Service Co., Ltd.
|
Legal
Representative:
|
/s/
LIN Qing
|
Date: June
24, 2010
Crewmen
Assignment Agreement
(“Xiechang
18”)
(Unofficial
Translation)
Party
A:
|
Zhonghai
Engineering Construction General
Bureau
|
Dalian
Engineering Constructioin Bureau
Address:
|
No.
60-5 Dayang Avenue, Zhongshan District,
Dalian
|
Legal
Representative: CHENG Shaowen
Party
B:
|
Fujian
Xing Gang Port Service Co., Ltd.
|
Address:
|
17
th
Floor, Building A, Zhongshan Plaza, 154 Hudong Road,
Fuzhou
|
Legal
Representative: LIN Qing
Party A and Party B, after friendly
consultation based on the principles of equality and mutual benefit and on the
basis of the “Ship Leasing Contract” executed by the two parties, have reached
the agreement regarding the matter of Party A assigning crewmen during the term
of Party B’s lease of dredging engineering boat “Xiechang 18” from Party A as
follows:
Article
I Generals
1. The
term “assigned crewmen” used herein means those crewmen who are assigned by
Party A, pursuant to the provisions of the “Ship Leasing Contract” executed by
the two parties and the provisions of herein, to work at relevant posts on
“Xiechang 18”; see the attached list for crewmen assignment
details.
2. Party
B must pay to Party A the crewmen assignment fee in accordance with the
provisions of the “Ship Leasing Contract” executed by the two parties. The said
crewmen assignment fee includes salaries that Party A should pay to the crewmen
working “Xiechang 18” and all benefits and insurances (including but not limited
to pensions insurance, unemployment insurance, medical insurance, family
planning insurance, injury insurance, housing fund and commercial
insurance).
3. Term
of the agreement: The effective period of this agreement corresponds to and is
the same as the term of the lease specified in the “Ship Leasing Contract”
executed by the two parties.
Article
II Party A’s Rights and
Obligations
1. Party
A has the right to receive the crewmen assignment fee in accordance with the
provisions of the “Ship Leasing Contract” executed by the two
parties.
2. Assign
crewmen for the ship pursuant to the provisions herein; educate the crewmen on
the compliance with the State laws, statutes and regulations; educate the
assigned crewmen on the compliance with Party B’s rules and policies, on
maintaining confidentiality of commercial secrets and on safeguarding Party B’s
legitimate rights and interests.
3. Ensure
that the assigned crewmen have the qualifications and skills required of their
respective posts and possess valid and complete employment qualification
documents, including but not limited to crewmen service books, maritime crewmen
professional training certificates and maritime crewmen service competency
certificates.
4. Party
B must notify Party A in writing, three business days in advance, of the
boarding time and boarding location for the crewmen assigned by Party
A. Party A must ensure that all the assigned crewmen will report for
duty at the time and location specified by Party B. If there is any
factor on Party B’s part that causes a waiting period of more than half a month
before the assigned crewmen can be aboard, Party B must still pay the same
amount of crewmen assignment fee to Party A pursuant to the provisions
herein.
5. After
the assigned crewmen have passed assessment and been placed on duty by Party B,
Party A shall not replace them at will. Party A must ensure that
Party B has the absolute leadership authority over the assigned
crewmen. During the term of the agreement, the assigned crewmen must
follow the operation arrangement from Party B’s safety and shipping service
scheduling department.
6. Party
A will pay salaries and bonuses to the assigned crewmen and withhold and pay on
their behalf personal income taxes and make payment for them of all the State
mandated insurances, including but not limited to pensions insurance,
unemployment insurance, medical insurance, family planning insurance, injury
insurance, housing fund and commercial insurance. Party A shall not
make such payments late.
7. If
Party B requests Party A to replace certain assigned crewmen pursuant to the
provisions herein, Party A must replace them promptly so as not to affect Party
B’s normal operation.
8. In
the event of the occurrence of any accident causing injury to the assigned
crewmen, Party A must, after receiving notification from Party B, handle such
accident properly in accordance with the provisions of relevant insurance and be
responsible for submitting report and insurance claims.
9. If
there a change in the Party A’s bank account number, Party A must notify Party B
in writing two business days in advance.
Article
III Party B’s Rights and
Obligations
1. Party
B has the right to conduct assessment on the crewmen assigned by Party
A. If the assigned crewmen do not have the qualifications or skills
required of their respective posts, Party B has the right to demand Party A to
replace them and Party A shall not refuse such demand. Party A must
bear corresponding responsibility if the assigned crewmen’s lack of
qualifications or skills causes any loss to Party B.
2. Party
B has the right to require the assigned crewmen to comply with all the rules and
policies formulated in accordance with the relevant State laws and policies and
follow Party B’s production and operation arrangements.
3. If
the assigned crewmen engage in any of the following during the term of the ship
lease, Party B has the right, upon Party A’s acknowledgement, to demand Party A
to recall them without any liability for breach:
(1) Violation
of Party B’s work disciplines or rules and regulations, and after criticism and
education, failure to make any correction or rectification;
(2) Negligence
of duties, resulting in serious loss or damage to Party B’s
interests;
(3) Violation
of law and statutes or being the subject of criminal legal
proceedings;
(4) Inability
to perform original work duties after treatment period for illness or
work-related injury and inability, or refusal, to perform other work assigned by
Party A;
4. Party
B has the right to submit written opinion on, and negotiate with regard to,
Party A's behavior that violates the relevant provisions of this
agreement. Party A must respond to Party B in writing within ten
business days upon receiving the written opinion from Party B.
5. Party
B must manage the assigned crewmen in such areas as their posts’ duties and
responsibilities and labor discipline and provide them with relevant
training;
6. Party
B must provide to the assigned crewmen working environment, labor conditions and
labor protection that are in compliance with the provisions of the State’s
“Labor Law”;
7. Party
B must pay the crewmen assignment fee in accordance with the provisions of the
“Ship Leasing Contract”.
8. Party
B must pay to Party A the corresponding expenses for those assigned crewmen who
suffer work-related injury or contract occupational disease and, upon
verification, have lost, or partially lost, their ability to work and who suffer
work-related death in accordance with the law;
9. Party
B must supervise in the processing of relevant legal work documents for the
dispatch crewmen required for the term of service and educate them on the
adherence of disciplines and compliance of law;
10. Party
B must notify Party A fifteen business days in advance in the event of
relocation of work location due to business need; notify Party A two business
days in advance in the event of any change of contact telephone number and fax
number;
11. Party
B must arrange work posts for the assigned crewmen in accordance with the
provisions herein, consult with Party A if there is need for any change and bear
all consequences resulting from changing the posts of the assigned crewmen
without prior consultation with Party A.
Article
IV Dispute and
Arbitration
Any dispute arising from performance
of, or in connection with, this agreement must be settled through consultation;
if such consultation fails, either party may submit the dispute to the
jurisdiction of the people’s court at Party B’s location.
Article
V Others
1. Other
matters not covered herein must be settled by Party A and Party B through
consultation or be provided in supplemental agreement formulated in accordance
with relevant provisions of the State law, statutes and
regulations.
2. If
any content herein conflicts with the State law or policies, or is inconsistent
due to the changes of the law and policies, the provisions of the law or such
policies shall prevail.
3. All
attachments hereto are the component parts hereto and have the same legal
effect.
4. This
agreement is an attachment to the “Ship Leasing Contract” executed by the two
parties and shall become effective at the same time when the “Ship Leasing
Contract” takes effect.
5. This
agreement is in duplicates, with one to each party, and both have the same legal
effect.
Party
A:
|
/seal/
Zhonghai Engineering Construction General
Bureau
|
Dalian
Engineering Construction Bureau
Legal
Representative:
|
/s/
QIU Shandao
|
Party
B:
|
/seal/
Fujian Xing Gang Port Service Co.,
Ltd.
|
Legal
Representative: /s/ LIN Qing
Date: June
24, 2010
Attachment:
List of Assigned Crewmen
Post
|
|
Number
|
Captain
|
|
1
|
First
Mate
|
|
1
|
Chief
Engineer
|
|
1
|
Second
Mate
|
|
1
|
Second
Engineer
|
|
1
|
Third
Engineer
|
|
1
|
Fourth
Engineer
|
|
1
|
Third
Mate
|
|
1
|
Seamen
Chief
|
|
1
|
Long
Mechanic
|
|
1
|
Mechanic
|
|
10
|
Seaman
|
|
9
|
Cook
|
|
1
|
Total
|
|
30
|
Office
Lease Agreement
(Unofficial
Translation)
Lessor: LIN
Ping
Lessee: Fujian
Xing Gang Shipping Service Co., Ltd.
Pursuant
to the Contract Law of the People’s Republic of China as well as the related
laws and regulations, and intended to define the rights and obligations of both
Lessor and Lessee, this agreement is hereby reached through friendly
consultations and must be complied by both parties.
Article
1
The
Lessee agrees to lease an office space for commercial use from the Lessor, who
ensures the legal ownership of the space – with the construction area of 101
square meters (hereafter designated as “Premises”), and located on the 18
th
floor
of Building A, Zhongshan Plaza, 154 Hudong Road, Gulou District, Fuzhou City,
Fujian Province. The Lessee may use the interior appurtenances and
equipment in the Premises free of charge.
Article
2
Term of Lease: beginning on January 1,
2008 and ending on December 31, 2009.
Article
3
Upon the
Lessor’s consent, the Lessee may sublet the Premises to a third party. When
subletting is permitted by the Lessor, all terms of this lease shall remain in
full force and the Lessee shall remain liable for the performance of all of the
terms of this lease.
Article
4
The Lessor shall have the right to
terminate the lease when one of the followingoccurs:
|
1.
|
In
the event the Lessee assigns, transfers, or subleases the Premises without
the prior consent of the Lessor;
|
|
2.
|
In
the event the Lessee uses and occupies the Premises for the purpose of
unlawful activities or business that may do harm to the Lessor’s or
societal/public interests.
|
|
3.
|
In
the event the Lessee fails to pay the monthly rent for more than fifteen
(15) days from the due date as required in this
lease.
|
Article
5
Upon the
expiration of the term of the lease, under like conditions, the Lessee shall
have the first right of refusal to renew the lease. In the event the Lessee does
not desire to renew the lease upon its expiration, the Lessee shall surrender
the Premises to the Lessor on the termination date of this lease. Should
the Lessee fail to do so, the Lessee bears all the resulting costs, expenses and
fees that affect the Lessor.
Article
6
Both
parties agree that the currency of rent payments is Renminbi (RMB), and that the
rent shall be RMB fifty (¥50) per square meter per month, or RMB five thousand
and fifty (¥5050) per month. The full payment of the rent for each succeeding
year must be transferred in one lump sum to a bank account designated by the
Lessor before the end of January of each year during the term
hereof.
Article
7
During
the term of the lease, in the event damages to the Premises are caused by the
Lessee, the Lessee shall assume full responsibility for all the damages and
repairs at its sole cost and expense.
As for
structural or otherwise problems of the Premises itself not occasioned by the
Lessee, the Lessor shall, at its expense, make all repairs and replacements
necessary to the Premises.
In the
event there are repairs needed to be made to the Premises, the Lessee may
require the Lessor to complete all repairs within a reasonable period of time.
Should the Lessor fail to do so, the Lessee may do so at its option, the
cost and expense thereof from the Lessor.
Article
8
During
the term of the lease, the Lessor is responsible for the expenses and fees of
the Lessee’s use of water, electricity, property management, telephones and
internet cable connections on the Premises.
Article
9
The
Lessor shall deliver possession of the Premises to the Lessee before the
commencement of the lease term. Should the Lessor fail to do so, a delay
of longer than fifteen (15) days in the handover shall be subject to a penalty
of RMB two thousand (¥2000) payable to the Lessee. In the event the Lessee
fails to pay the rent for a period longer than fifteen (15) days from the due
date required under Article 6 herein, the Lessor shall have the right to
terminate the lease in addition to the right to assess a penalty of RMB two
thousand (¥2000) from the Lessee.
Article
10
During
the term of the lease, neither party shall be liable for any damage or
destruction of the Premises or for any loss of the Lessee caused by Force
Majeure.
Article
11
During
the term of the lease, where any dispute arises in connection with this
agreement, both p
arties
shall attempt in the first instance to resolve it through friendly
consultations. If the dispute cannot be resolved in this manner, both parties
agree that the People’s Court at the Lessor’s location shall be the ruling
authority to judge for the dispute.
Article
12
Upon the
expiration of this lease, if the Lessor does not desire to continue the lease,
the Lessee shall surrender the Premises, with any fixtures, appurtenances or
equipment provided by the Lessor in good working order and condition, to the
Lessor.
Article
13
Any
matters not defined herein shall be settled by supplementary agreements which
are to be reached through negotiations between both parties, in accordance with
the provisions of the Contract Law of the People’s Republic of
China. Both supplementary agreements and this agreement have the same
legal effects.
Article
14
The
addendums of this lease, as the integral parts of the agreement, have the same
legal effects.
Article
15
This
lease becomes effective after both parties affix their respective signature or
seal hereto. This agreement is executed in two originals, and each
party shall retain one original copy.
Lessor:
LIN Ping (signature)
Legal
Representative:
Date:
January 1, 2008
Lessee:
Fujian Xing Gang Shipping Service Co., Ltd. (seal)
Legal
Representative: LIN Qing (signature)
Date:
January 1, 2008
Office
Lease Agreement
(Unofficial
Translation)
Lessor: LIN
Ping
Lessee: Fujian
Xing Gang Port Service Co., Ltd.
Pursuant
to the Contract Law of the People’s Republic of China as well as the related
laws and regulations, and intended to define the rights and obligations of both
Lessor and Lessee, this agreement is hereby reached through friendly
consultations and must be complied by both parties.
Article
1
The
Lessee agrees to lease an office space for commercial use from the Lessor, who
ensures the legal ownership of the space – with the construction area of 101
square meters (hereafter designated as “Premises”), and located on the 18
th
floor
of Building A, Zhongshan Plaza, 154 Hudong Road, Gulou District, Fuzhou City,
Fujian Province. The Lessee may use the interior appurtenances and
equipment in the Premises free of charge.
Article
2
Term of Lease: beginning on January 1,
2010 and ending on December 31, 2011.
Article
3
Upon the
Lessor’s consent, the Lessee may sublet the Premises to a third party. When
subleasing is permitted by the Lessor, all terms of this lease shall remain in
full force and the Lessee shall remain liable for the performance of all of the
terms hereof.
Article
4
The Lessor shall have the right to
terminate the lease when one of the followingoccurs:
|
1.
|
In
the event the Lessee assigns, transfers, or subleases the Premises without
the prior consent of the Lessor;
|
|
2.
|
In
the event the Lessee uses and occupies the Premises for the purpose of
unlawful activities or business that cause harm to the Lessor or
societal/public interests.
|
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3.
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In
the event the Lessee fails to pay the monthly rent for more than fifteen
(15) days from the due date as required in this
lease.
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Article
5
Upon the
expiration of the term of the lease, under like conditions, the Lessee shall
have the first right of refusal to renew the lease. In the event the Lessee does
not desire to renew the lease upon the expiration, the Lessee shall surrender
the Premises to the Lessor on the termination date of this lease. Should
the Lessee fail to do so, the Lessee bears all the resulting costs, expenses and
fees that affect the Lessor.
Article
6
Both
parties agree that the currency of rent payments is Renminbi (RMB), and that the
rent shall be RMB fifty (¥50) per square meter per month, or RMB five thousand
and fifty (¥5050) per month. The full payment of the rent for each succeeding
year must be transferred in one lump sum to a bank account designated by the
Lessor before the end of January of each year during the term
hereof.
Article
7
During
the term of the lease, in the event damages to the Premises are caused by the
Lessee, the Lessee shall assume full responsibility for all the damages and
repairs at its sole cost and expense.
As for
structural or otherwise problems of the Premises itself not occasioned by the
Lessee, the Lessor shall, at its expense, make all repairs and replacements
necessary to the Premises.
In the
event there are repairs needed to be made to the Premises, the Lessee may
require the Lessor to complete all repairs within a reasonable period of time.
Should the Lessor fail to do so, the Lessee may do so at its option, the
cost and expense thereof from the Lessor.
Article
8
During
the term of the lease, the Lessor is responsible for the expenses and fees of
the Lessee’s use of water, electricity, property management, telephones and
internet cable connections on the Premises.
Article
9
The
Lessor shall deliver possession of the Premises to the Lessee before the
commencement of the lease term. Should the Lessor fail to do so, a delay
of longer than fifteen (15) days in the handover shall be subject to a penalty
of RMB two thousand (¥2000) payable to the Lessee. In the event the Lessee
fails to pay the rent for a period longer than fifteen (15) days from the due
date required under Article 6 herein, the Lessor shall have the right to
terminate the lease in addition to the right to assess a penalty of RMB two
thousand (¥2000) from the Lessee.
Article
10
During
the term of the lease, neither party shall be liable for any damage or
destruction of the Premises or for any loss of the Lessee caused by Force
Majeure.
Article
11
During
the term of the lease, where any dispute arises in connection with this
agreement, both p
arties
shall attempt in the first instance to resolve it through friendly
consultations. If the dispute cannot be resolved in this manner, both parties
agree that the People’s Court at the Lessor’s location shall be the ruling
authority to judge for the dispute.
Article
12
Upon the
expiration of this lease, if the Lessor does not desire to continue the lease,
the Lessee shall surrender the Premises, with any fixtures, appurtenances or
equipment provided by the Lessor in good working order and condition, to the
Lessor.
Article
13
Any
matters not defined herein shall be settled by supplementary agreements which
are to be reached through negotiations between both parties, in accordance with
the provisions of the Contract Law of the People’s Republic of
China. Both supplementary agreements and this agreement have the same
legal effects.
Article
14
The
addendums of this lease, as the integral parts of the agreement, have the same
legal effects.
Article
15
This
lease becomes effective after both parties affix their respective signature or
seal hereto. This agreement is executed in two originals, and each
party shall retain one original copy.
Lessor:
LIN Ping (signature)
Legal
Representative:
Date:
January 1, 2010
Lessee:
Fujian Xing Gang Port Service Co., Ltd. (seal)
Legal
Representative: LIN Qing (signature)
Date:
January 1, 2010
Office
Lease Supplemental Agreement
(Unofficial
Translation)
Party
B:
|
Fujian
Xing Gang Port Service Co., Ltd.
|
Through
friendly consultations, both parties hereby agree to set forth the following
covenants supplementary to the original Office Lease Agreement signed on January
1, 2010:
|
1.
|
Term
of Lease: adjusted to be beginning on January 1, 2010 and ending on
December 31, 2015.
|
|
2.
|
Monthly
Rent: adjusted to be RMB sixty-five (¥65) per square
meter.
|
Since
Party B already paid RMB sixty thousand and six hundred (¥60,600) to Party A in
January of 2010, Party B must pay the balance difference between the two rents,
a sum of RMB eighteen thousand one hundred and eighty (¥18,180), to Party A no
later than April 30, 2010.
|
3.
|
Other
terms and conditions in the original agreement remain the
same.
|
|
4.
|
This
supplementary agreement has the same validity as the original
agreement.
|
Party A:
LIN Ping (signature and seal)
Legal
Representative:
Signing
Date: March 30, 2010
Party B:
Fujian Xing Gang Port Service Co., Ltd. (seal)
Legal
Representative: LIN Qing (signature)
Exhibit
8.1
List of
Subsidiaries
Name
|
|
Jurisdiction & Equity Ownership
|
China
Dredging Group (HK) Co. Ltd.
|
|
Hong
Kong – 100%
|
Fujian
WangGang Dredging Construction Co., Ltd.
|
|
PRC
– 100%
|
Fujian
Xing Gang Port Service Co. Ltd.
|
|
PRC
–
50%
|