Stock Codes: 600801, 900933  Stock Abbreviations: Huaxin Cement, Huaxin B Share  Ref: Lin 2010-023

 

 

The Board of Directors of the Company and its members guarantee that there is no false or misleading statement or material omission in this announcement and shall be severally and jointly liable for the truthfulness, accuracy and completeness of its contents.

Important Notice:

 

● Brief of the Acquisition: The Company acquired 100% equity (of which 42.5% was held by Mr. Lv Youfu and 57.5% was held by Hubei Jinglan Cement Group Co., Ltd.) of Hubei Jinglan Group Sanyuan Cement Co., Ltd. (hereinafter referred to as “Sanyuan Company”) with the price of 23,795,805.98 Yuan.

 

● This acquisition does not involve any related transaction.

 

● This acquisition has been approved by the Nineteenth Meeting of the Sixth Board of Directors of the Company convened on November 10-11, 2010.

● After this acquisition, Sanyuan Company shall become a wholly owned subsidiary of the Company.

 

I. General

 

1. On November 13, 2010, the Company signed Agreement with Mr. Lv Youfu and Hubei Jinglan Cement Group Co., Ltd., acquiring 100% equity (of which 42.5% was held by Mr. Lv Youfu and 57.5% was held by Hubei Jinglan Cement Group Co., Ltd.) of Sanyuan Company with the price of 23,795,805.98 Yuan.

 

2. This equity acquisition does not involve any related transaction.

 

3. The Nineteenth Meeting of the Sixth Board of Directors of the Company convened on November 10-11, 2010 has reviewed and adopted the Proposal in Respect of Acquiring Equity of Hubei Sanyuan Cement Co., Ltd..  Voting Result: Affirmative: 9; Negative: 0; Abstention: 0.

 

4. This acquisition is within the decision-making limit of the Board; hence it is not necessary to be submitted to the Shareholders’ General Meeting for approval.

 

II. Introduction of the Two Parties

 

1. Mr. Lv Youfu, ID number: 320106196501232113, habitation: Room 501, Entrance 3, No. 82-118, Yan’an Road, Yunshan Street, Lanxi City, Zhejiang Province.  Mr. Lv is the legal representative and General Manager of Sanyuan Company

 

2. Hubei Jinglan Cement Group Co., Ltd., location: Yongxing County, Jingshan Town, Hubei Province; legal representative: Mr. Zhao Weiguang; registered capital: 391.94 million Yuan; business scope: cement manufacture and sales; major shareholder or actual controller: Zhejiang Jinglan Investment Co., Ltd.

 

The Board of the Company has made necessary due diligence research on the basic status and contract implementation ability of the above two parties.

 

III. Basic Information of the Target company

 

(I) Target company

 

Hubei Jinglan Group Sanyuan Cement Co., Ltd. locates in Baishiping Village, Changyang Longzhouping County, Yichang City, Hubei Province.  It obtained Business License of Enterprise Legal Person from Yichang Administration for Industry and Commerce on October 22, 2003, legal representative: Lv Youfu; business scope: cement manufacturing and sales, production and sales of plastic cement packing bags, mining and sales of limestone for cement use; registered capital: 80 million Yuan; shareholder and equity structure: Hubei Jinglan Group Cement Co., Ltd. invested 46 million Yuan, holding 57.5% equity, Mr. Lv Youfu invested 34 million Yuan, holding 42.5% equity.

 

Equity of Sanyuan Company held by Mr. Lv Youfu and Hubei Jinglan Group Cement Co., Ltd. did not get involved in any mortgage, pledge or any other cases that may restrict the transfer, nor get involved in litigation, arbitration or seizure, freezing and other judicial measures; there was no other cases that may hinder the transfer of ownership.  Mr. Lv Youfu and Hubei Jinglan Group Cement Co., Ltd. both agreed to give up the right of first refusal from each other.

 

Hubei Daxin Certified Public Accountants has made special audit (Da Xin E Shen Zi [2010] No. 0210) on the financial situation (as of September 30, 2010) of Sanyuan Company, its total assets was 493,852,885.20 Yuan, total liabilities was 459,582,986.80 Yuan, total owners’ equity was 34,269,898.40 Yuan; sales achieved in Jan-Sep 2010 was 138,342,275.41 Yuan, net profit was -45,479,506.88 Yuan.

 

(II) Claims and Debts Transfer Involved in the Equity Acquisition

 

After auditing and identifying, all the claims and debts of Sanyuan Company that were legitimately and reasonably incurred during its production and operation process and also met the requirements contained in the Agreement shall be taken over by the Company in principle.  The rest claims and debts that the Company does not agree to take over shall be repaid or settled by the original shareholders of Sanyuan Company after signing a protocol on stripping claims and debts by and among the two parties, the related creditors and debtors.

 

Stripped liabilities of Sanyuan Company totalled 16,331,774.62 Yuan (of which, Lv Youfu 3,094,174.62 Yuan, Jiang Guogen 13,237,600.00 Yuan).  The original shareholders of Sanyuan Company have provided the “Letter of Consent on Debt Transfer” (has been signed/stamped by the creditors), which has already been reviewed and ratified by the Company.

 

The original shareholders of Sanyuan Company shall be responsible for the debt, contingent liabilities and guarantees which are outside the scope of the audit report on the taking over day.

 

(III) Pricing

 

Book value of the net assets (as of September 30, 2010) in the audit report is 34,269,898.40 Yuan, the equity transfer price is 23,795,805.98 Yuan (30% discount).  There are two reasons for the discount: 1) Sanyuan Company phase I 1500t/d clinker production does not have any competitiveness on cost and market for its small size and high cost under the background of serious overcapacity in Yichang market; 2) Sanyuan Company has weak profitability due to its losses (not considering the collaboration with other production lines of the Company in this area).

IV.  Major Content in the Agreement

 

(I) Major Articles in the Agreement

 

1. Signing Party:

Party A: the Company

Party B: Mr. Lv Youfu and Hubei Jinglan Cement Group Co., Ltd.

 

2. Transaction Price: 23,795,805.98 Yuan

 

3. Payment Mode: Party A shall pay 90% of the equity transfer price - 21,416,225.38 Yuan within 7 working days after this Agreement enter into force; the remaining 10% of the equity transfer price - 2,379,580.60 Yuan shall be paid by Party A within 7 working days after one year after completion of the transaction to Party B.

 

4. Timing of Delivery or Transfer: Registration procedure of equity transfer shall be completed within 3 working days after Party A pay 90% of the equity transfer fee.

 

5. Conditions, Time of Taking Effect and Validity of the Agreement: "Equity Transfer Agreement" shall become effective from the date signed by both parties.朗读显示对应的拉丁字符的拼音

 

6. Breach of contract

 

On the basis of the auditing results on the taking over day, any losses suffered by Party A or Sanyuan Company due to Party B’s insufficient and untrue information disclosure shall be borne by Party B.

 

If the target assets get involved in any mortgage, pledge, rights defects and other problems that may lead losses suffered by Sanyuan Company or Party A, Party B should bear the same compensation to Party A for the actual losses suffered by Sanyuan Company.

 

If Party B does not fulfil its commitments or obligations, and, after being urged on by Party A, still fails to perform within a reasonable time, Party A may, after written notice to Party B, handle the relevant matters itself; all costs incurred, penalty and compensation which should be borne by Party B, shall be directly deducted by Party A from the payable balance for the equity transfer after written notice to Party

 

7. Incidental and Additional Articles or Salvos to the Agreement

Original shareholders of Sanyuan Company undertook terminate the business contracts (more than one year) signed by and between the original Sanyuan Company and third parties before the completion of this transaction.

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II) Contractual Arrangements for Protecting the Interests of the Company in the Agreement
Should Party B delay the change of business registration for equity transfer or delay taking over matters stipulated in this Agreement more than 45 days, Party A shall have the right to terminate this Agreement.  Party B shall bear the corresponding liability for breach of contract in accordance with this Agreement, liability of breach of contract shall cover the actual losses suffered by Party A and the expected losses and benefits as well as the resulting reasonable attorneys fees and other litigation expenses.

 

V. Miscellaneous

In this transaction, the Company agreed that in principle to accept all full time employees currently registered in Sanyuan (except original senior management and staff who left voluntarily); the funding for this acquisition is self-raised by the Company.

 

VI. Purpose of the Acquisition and Impact on the Company

 

The acquisition of 100% equity of Sanyuan Company is one of steps to consolidate Hubei market.  Now the Company has two cement plants namely Huaxin Yichang and Huaxin Zigui in Yichang region, so the acquisition will be beneficial to enhance Huaxin’s market position in the region.  Meanwhile, the overall performance in the region could also be boosted by increasing market concentration and avoiding over-competition through the consolidation. 

 

The 100% equity acquisition of Sanyuan will bring in changes in the scope of consolidated financial reports and structures of assets and liability of the Company, which will pose a certain extent of impact on financial indicators of the Company.

Sanyuan Company held no external guarantee and entrust financing as of the date of the Agreement signed.

 

VII. Documents for Inspection

 

1. Resolution of the Nineteenth Meeting of the Sixth Board of Directors of the Company.

2. Equity Transfer Agreement by and between Huaxin Cement Co., Ltd. and Lv Youfu, Hubei Jinglan Cement Group Co., Ltd., Supplementary Agreement to Equity Transfer Agreement.

3. Audit Report of Hubei Jinglan Group Sanyuan Cement Co., Ltd., Hubei Daxin Auditing (2010) No. 0210.

4. Accreditation Certificate of Securities Industry of Hubei Daxin Certified Public Accountants Company Limited.

   

Huaxin Cement Co., Ltd.

November 30, 2010