Strategic Development Alliance - Sunwing Energy Ltd. and CITIC Energy Inc.
SUNWING ENERGY LTD.
C/O CODAN SERVICES LIMITED
CLARENDON HOUSE
2 CHURCH STREET, P.O. BOX 1022
HAMILTON HM1 1, BERMUDA
September 26, 2002
CITIC ENERGY INC.
c/o Room 2118 Hutchinson House
10 Harcourt Road
Hong Kong
Dear Sirs:
RE: STRATEGIC DEVELOPMENT ALLIANCE
This letter is intended to reflect our recent discussions and, when executed and
delivered by each of us (execution and delivery by Sunwing Energy Ltd. deemed
made upon sending out this letter), will constitute a binding agreement ( the
"Agreement") between Sunwing Energy Ltd. ("Sunwing") and CITIC ENERGY INC., a
company incorporated under the laws of British Virgin Islands ("CITIC") in
respect of the matter more particularly described below.
The background to our Agreement is as follows:
(A) CITIC is a wholly-owned subsidiary of CITIC International Holdings
Limited, which in turn is a wholly-owned subsidiary of China
International Trust & Investment Corporation, a trust and investment
company that reports directly to the State Council of the People's
Republic of China ("PRC");
(B) the PRC government has expressed support for the Kyoto Protocol and for
the overall objective of reducing air pollution in Chinese cities as a
matter of priority;
(C) the PRC government is a net importer of oil and it is a matter of
strategic national importance to protect and enhance the supply of oil
diversify sources of energy.
(D) Sunwing is a wholly-owned subsidiary of Sunwing Holding Corporation
which in turn is a wholly-owned subsidiary of Ivanhoe Energy Inc., a
Canadian public company that has international investments and contacts
in the oil and gas industry;
(E) PRC and Canada have traditionally enjoyed strong business ties and
excellent trade relations;
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(F) Sunwing has the ability to assist CITIC in fulfilling its strategic
objectives of the identifying and acquiring interests in key
international oil and gas development projects and introducing proven,
advanced oil and gas development and production technology to the
domestic oil and gas industry in the PRC;
(G) CITIC has the ability to assist SUNWING in fulfilling its strategic
objectives of increasing its profile in Asian capital markets, gaining
access to significant financing opportunities and financing
opportunities and obtaining a listing on the Hong Kong Stock Exchange;
and
(H) in view of their respective objectives and abilities, a strategic
alliance between Sunwing and CITIC offers significant potential
benefits to both parties and their respective parent companies.
Based on the foregoing, we confirm the terms of our Agreement as follows:
1. SUNWING OBJECTIVES
The parties acknowledge that Sunwing's key corporate development
objectives ( the "Sunwing Objectives") are as follows:
(a) to raise Sunwing's profile and to enhance Sunwing's
credibility among Asian institutional investors and in Asian
capital markets generally; and
(b) to list Sunwing's ordinary shares on the Hong Kong Stock
Exchange.
2. CITIC OBJECTIVES
The parties acknowledge that CITIC's key strategic objectives (the
"CITIC Objectives") are as follows:
(a) to acquire interests in one or more international oil and gas
development projects; and
(b) to introduce "gas-to-liquids" technology and other advanced
technology oil and gas innovations to the domestic oil and gas
industry in the PRC.
3. RECIPROCAL SERVICES
Sunwing hereby engages CITIC, and CITIC agrees, to provide advice,
assistance, expertise and other services (collectively, the "CITIC
Services") to Sunwing in connection with Sunwing's pursuit of the
Sunwing Objectives. CITIC hereby engages Sunwing, and Sunwing agrees,
to provide advice, assistance expertise and other services (the
"Sunwing Services") to CITIC in connection with CITIC's pursuit of the
CITIC Objectives. The specific nature and scope of the CITIC Services
and the Sunwing
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Services will be as agreed from time to time between Sunwing and CITIC
and will be tailored to expedite the timely achievement of the Sunwing
Objectives and the CITIC Objectives, respectively.
4. YUDONG PRODUCTION SHARING CONTRACT
As part of the CITIC Services, CITIC shall use its best efforts,
industrial expertise and PRC government contacts to support Sunwing's
efforts to sign and obtain all necessary PRC governmental approvals
for, a production sharing contract (the "Yudong PSC") with China
National Petroleum Corporation and/or PetroChina Company Limited
relating to the Yudong Block located in Eastern Chongqing Municipality,
PRC. As soon as practical after the Agreement comes into effect, CITIC
and Sunwing shall establish a new company ("Newco") under the laws of
the British Virgin Islands that the parties will use as the corporate
vehicle for signing and performing the Yudong PSC. The parties shall
procure Newco to issue and allot a total of 100 ordinary shares at par
value of US$1.00 each, which shall be owned by CITIC as to 30 shares
("CITIC's Newco Shares") and by Sunwing as to 70 shares.
5. PUT AND CALL OPTIONS FOR THE CITIC'S NEWCO SHARES
The parties hereby irrevocably grant each other the following shares
exchange options with respect to CITIC's Newco Shares:
(a) CITIC shall have an option (the "CITIC Put Option") to
transfer to Sunwing, and Sunwing shall accept, unencumbered
legal and beneficial title to all of CITIC's Newco Shares in
exchange for Sunwing shares, which Sunwing shall issue and
allot, that will represent 20% of the total number of shares
in the capital of Sunwing issued immediately after completion
of the share exchange (and if Sunwing shall have more than one
class of shares issued prior to the completion of the share
exchange, CITIC shall receive upon exercise of the option by
it, for each such class, such number of Sunwing shares that
will represent 20% of the total number of shares in that class
issued immediately after the completion of the share
exchange), calculate on a fully-diluted basis, including all
outstanding options and/or warrants (vested or otherwise).
CITIC may exercise the CITIC Put Option at any time within 180
days after the effective date of the Yudong PSC by delivering
written notice to Sunwing (the "CITIC Put Notice")
(b) Sunwing shall have an option (the "Sunwing Call Option") to
require CITIC to transfer to Sunwing, unencumbered legal and
beneficial title to all of CITIC's Newco Shares in exchange
for Sunwing shares, which Sunwing shall issue and allot, that
will represent 20% of the total number of shares in the
capital of Sunwing issued immediately after completion of the
share exchange (and if Sunwing shall have more than one class
of shares issued prior to the completion of the share
exchange, CITIC shall receive upon exercise of the option by
Sunwing, for each such class, such number of Sunwing shares
that will represent 20% of the total number of shares in that
class issued immediately after the completion of the share
exchange), calculated
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on a fully-diluted basis, including all outstanding options
and/or warrants (vested or otherwise). Sunwing may exercise
the Sunwing Call Option at any time within 180 days after the
effective date of the Yudong PSC by delivering written notice
to CITIC (the "Sunwing Call Notice")
(c) The closing of the share exchange shall take place at the
office of Sunwing or its legal counsel within 30 days after
the date of the CITIC Put Notice or the Sunwing Call Notice,
as the case may be. At such closing: (i) CITIC shall deliver
to Sunwing duly endorsed share certificates and/or a stock
transfer power of attorney representing all of CITIC's Newco
Shares, together with directors resolutions, written
confirmations regarding CITIC's unencumbered ownership of all
of CITIC's Newco Shares, and such other relevant documents
that Sunwing or its legal counsel may reasonably request; and
(ii) Sunwing shares (in one or more classes, as the case may
be) duly registered in CITIC's name as fully paid and
non-assessable shares, together with directors resolutions,
written confirmations regarding the total number of issued
Sunwing shares, and such other relevant documents that CITIC
or its legal counsel may reasonably request.
6. SUNWING BOARD REPRESENTATIVES
(a) Upon this Agreement taking effect, CITIC will be entitled to
nominate one (1) individual mutually acceptable to both
parties for appointment to Sunwing's board of directors
(b) If and when a closing of the CITIC Put Option or the Sunwing
Call Option occurs, CITIC will be entitled to nominate one (1)
additional individual mutually acceptable to both parties for
the appointment to Sunwing's board of directors.
7. GENERAL REPRESENTATIONS AND WARRANTIES
(I) Each party hereby represents and warrants to each other party
as follows:
(a) it is duly incorporated and invalidly subsisting and in good
standing under the laws of its jurisdiction of incorporation
and is duly registered and license to carry on business in the
jurisdiction in which it carries on business and owns
property;
(b) it has the necessary corporate capacity and authority to
execute and deliver this Agreement and to observe and perform
its covenants and obligations hereunder and has taken all
necessary corporate action in respect thereof;
(c) this Agreement constitutes a legal, valid and binding contract
of the representing party enforceable against it in accordance
with its terms; and
(d) neither the execution and delivery of this Agreement, nor the
fulfillment of the terms
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hereof, will conflict with or result in a breach of any of the
terms, conditions or provisions of the constitutional
documents, resolutions of shareholders or directors, material
license or permits, or any material instrument to which the
representing party is a party or by which it is bound.
(II) Sunwing hereby agrees that the undertaking set out in this
sub-clause shall take effect upon CITIC acquiring Sunwing
shares under Clause 5 above (whether pursuant to the exercise
of the CITIC Put Option or the Sunwing Call Option). Sunwing
hereby undertakes that if it makes any offer or invitation to
any party (including to Sunwing's other shareholder(s)) to
subscribe for or acquire any of its share(s) (whether by way
of rights or otherwise), it shall make (and shall procure its
shareholders, directors and other persons having the right to
do so to consent to Sunwing to so make) a like offer or
invitation at the same time to CITIC on a pro rata basis at
the same price and on the same terms and conditions as its
offer or invitation to other potential investors.
8. COMPLIANCE WITH LAWS
The parties acknowledge, covenant and agree that all CITIC Services and
all Sunwing Services will be carried out in strict compliance will all
laws to which each of the parties hereto and their respective corporate
affiliates is subject. Without limiting the generality of the
foregoing, the parties acknowledge, covenant and agree that under no
circumstances will the CITIC Services or the Sunwing Services involve
or include any activities contrary to the Corruption of Foreign Public
Officials Act (Canada) or the United States Foreign Corrupt Practices
Act.
9. APPROVALS
(a) Sunwing's obligations under this Agreement and the
effectiveness of this Agreement are subject to the approval of
the board of directors of Sunwing's ultimate parent company,
Ivanhoe Energy Inc., which approvals shall be obtained by
Sunwing within 15 days upon the execution and delivery of this
Agreement by CITIC. If such approval is not forthcoming, this
Agreement shall cease to have any legal effect.
(b) CITIC may, without assigning and reason and without any
liability for any compensation to Sunwing, terminate this
Agreement within 15 days after its execution of this Agreement
and upon such termination, this Agreement shall cease to have
any legal effect.
10. EXPENSES
The parties hereby agree that they will pay their own (and their
representatives') respective fees and expenses incurred in connection
with the negotiation, preparation, execution of this Agreement and the
performance of their respective obligations hereunder.
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11. PUBLIC ANNOUNCEMENTS
Except as may be required under applicable law or stock exchange
requirements, no press releases or other public disclosure relating to
the transaction contemplated hereby shall Be issued, nor shall the
terms of this Agreement be disclosed to third parties, other than to
the representatives and advisors or either party, without the mutual
consent of both parties hereto (which consent shall not be unreasonably
withheld or delayed). All necessary press releases and other public
disclosure in required for shall be submitted by the disclosing party
prior to the dissemination thereof.
12. GENERAL
This Agreement is subject to the following additional terms and
conditions:
(a) except as otherwise expressly provided herein, neither party
may assign any right, title or interest in this Agreement
without the written consent of the other party, and any
purported assignment without such consent will be void;
(b) this Agreement constitutes the entire agreement between
Sunwing and CITIC and supersedes every previous agreement,
communications, expectation, negotiation, representation,
warranty or understanding whether oral or written, express or
implied, statutory or otherwise, between the parties with
respect to the subject matter of this Agreement;
(c) each party will execute and deliver such further agreements
and documents and do such further acts and things as any party
reasonably requests to evidence, carry out or give full effect
to the intent of this Agreement;
(d) this Agreement is and will be deemed to have been made in
British Columbia, Canada for all purposes and will be governed
exclusively by and constructed and enforced in accordance with
the laws prevailing in British Columbia and rights and
remedies of the parties will be determined in accordance wit
those laws. Each of the parties hereby attorns to the
non-exclusive jurisdiction of the courts of British Columbia;
(e) this Agreement will ensure to the benefit of and binding upon
the respective legal representatives and successors of the
parties;
(f) this Agreement may be executed in any number of counterparts
with the same effect as if all parties to this Agreement had
signed the same document and all counterparts will construed
together and constitute one and the same documents;
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(g) words importing the masculine gender include the feminine or
neuter, words in the singular include the plural, words
importing a corporate entity include individuals, and vice
versa;
(h) a reference to "approval", "authorization" or "consent" means
written approval, authorization or consent;
(i) the headings in the Agreement are for the convenience only and
are not intended as a guide to interpretation of this
Agreement or any portion thereof; and
(j) all notices hereunder will be in writing and addressed to the
party for whom it is intended at the following address:
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Sunwing: Sunwing Energy Ltd.,
c/o Codan Services Limited
Clarendon House
2 Church Street, P.O. Box 1022
Hamilton HM11, Bermuda
Fax: 441-292-4720
with copy to:
Sunwing Energy Ltd.
Suite 654-999 Canada Place
Vancouver, BC V6C 3E1
Fax: 1-604-682-2060
CITIC: CITIC ENERGY INC.
c/o Room 2118 Hutchinson House
10 Harcourt Road
Hong Kong
Fax: 852-2861-1901
* * * * *
If the foregoing terms are acceptable to you, kindly sign and return a copy of
this letter by courier or facsimile transaction.
Yours truly,
SUNWING ENERGY LTD.
Per: "Patrick Chua"
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Name: Patrick Chua
Title: Co-Chairman
Agreed this 26th day of September, 2002
CITIC ENERGY INC.
Per: "Wang Jun"
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Name: Wang Jun
Title: Director
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