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: Huaxin Cement Co., Ltd. (hereinafter referred to as ��the Company��) acquired 80% equity of Hubei Jinlong Cement Co., Ltd. (hereinafter referred to as ��Hubei Jinlong��) held by Shaanxi Jinlong Cement Co., Ltd. (hereinafter referred to as ��Shaanxi Jinlong��) with the price of 363,802,268 Yuan.

 

�� This acquisition does not involve any related transaction.

 

�� This acquisition was approved by the Twenty First Meeting of the Sixth Board of Directors of the Company convened on January 17, 2011.

 

�� After this acquisition, Hubei Jinlong shall become a controlling subsidiary of the Company.

 

I. General

 

1. On January 5, 2011 the Company signed Agreement with Shaanxi Jinlong, acquiring 80% equity of Hubei Jinlong held by Shaanxi Jinlong with the price of 363,802,268 Yuan.  After the equity transfer, the rest 20% equity of Hubei Jinlong shall be still held by Shaanxi Jinlong.

 

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

 

3. The Twenty First Meeting of the Sixth Board of Directors of the Company convened on January 17, 2011 reviewed and adopted the Proposal in Respect of Acquiring 80& Equity of Hubei Jinlong 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 Each Party

 

1. Shaanxi Jinlong Cement Co., Ltd., location: Shiniu Village, Chang��an Town, Pingli County, Shaanxi Province; legal representative: Chen Zhilian; registered capital: 39.88 million Yuan; business scope: cement manufacture and sales; major shareholder or actual controller: Chen Zhilian. 

 

III. Basic Information of the Target Company

 

(I) Target company

 

Hubei Jinlong Cement Co., Ltd., wholly controlled subsidiary of Shaanxi Jinling, was established on November 18, 2004 in Chadian Town, Yunxian County, Hubei Province with registered capital of 80 million Yuan; its legal representative is Mr. Chen Zhilian.  Main business scope: cement manufacture and sales; truck freight (only for branch business); retail of automobile spare parts and lube; exploitation and sales of limestone.  Hubei Jinlong has two new dry process clinker and cement production lines.  The first new dry process cement production line (approved capacity 2500t/d) was established and put into operation in July 2005, the second production line (approved capacity 4000t/d) was put into operation on September 16, 2009.  Their supporting 10 MW waste heat power generation project was under construction.

 

Equity of Hubei Jinlong held by Shaanxi Jinlong 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.  Such equity transfer by Shaanxi Jinlong to the Company has been approved by its all shareholders.

 

Peking Certified Public Accountants has made special audit (Qin Xin Shen Zi [2011] No. 2049) on the financial status (as of January 18, 2011) of Hubei Jinlong, its total assets was 375,836,380.64 Yuan, total liabilities was 222,914,058.65 Yuan, total owners�� equity was 152,922,321.99 Yuan; sales achieved in 2010 was 227,385,233.49 Yuan, net profit was -60,246,306.11 Yuan.

 

(II) Evaluation of the target company

 

Hubei Wanxin Assets Evaluation Co., Ltd. has made evaluation on 80% shareholder equity (as of January 18, 2011) of Hubei Jinlong Cement Co., Ltd. (E Wan Xin Ping Bao Zi (2011) No. 010).  Based on basic assets evaluation, all shareholder equity of Hubei Jinlong on the evaluation base date was 341,076.3 k Yuan; based on income evaluation, all shareholder equity of Hubei Jinlong on the evaluation base date was 450,761.3 k Yuan.

 

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

 

Article 5 in the ��Equity Transfer Agreement�� signed by and between the Company (Party A) and Shaanxi Jinlong (Party B) contained detailed items on claims and debts transaction involved in the equity acquisition:

 

5.1 Liabilities of Hubei Jinlong before and on the handover base date shall be taken by Party B, all the relevant procedures of liabilities transfer shall be completed by Hubei Jinlong before the handover base date.

 

5.2 Classification on liabilities of Hubei Jinlong before and on the handover base date (based on liabilities handover list):

 

5.2.1 During the period from down payment and the handover base date, Party B should pay off all project arrearages of Hubei Jinlong, principal and interest of loans from non-financial institutions (excluding borrowings from government institutions).  Should there are outstanding liabilities on the handover base date, the two Parties should sign a list on the outstanding liabilities (as an annex of this Agreement), the liabilities amount in the list should be consistent with the amount in the financial book.  As for such liabilities, Party A shall not confirm with the creditors.  However, such portion of liabilities payment should be confirmed by Party B with the creditors, Hubei Jinlong shall clear off the liabilities after receiving a letter from Party B and the creditors confirming the liabilities amount and the invoice of payment.  Prior to this, Party A shall suspend paying equal amount of the equity transfer price.  Such portion of liabilities should be cleared off within 6 months after the handover base date.  If the clearing off amount due within the day is less than the suspended payment of equity transfer price, the balance shall be paid by Party A to Party B; whereas, if the clearing off amount due within the day is more than the suspended payment of equity transfer price, the balance shall be paid by Party B to Party A.

 

5.2.2 Principal and interest of loans from financial institutions and government institutions shall be retained and borne by Hubei Jinlong after the handover base date.

 

5.2.3 Book liabilities in connection with daily operation (including but not limited to arrears of raw materials and fuel and spare parts; unpaid water and electricity fees, unpaid wages, unpaid employee social insurance expenses) shall be retained and borne by Hubei Jinlong after the handover base date; as for those liabilities that creditors do not agree to retain shall be paid off by Party B.

 

5.3 Liabilities amount retained in Hubei Jinlong after the handover base day according to this Agreement should be in line with the handover list on retained liabilities confirmed and signed by both Parties.  Such handover list on retained liabilities shall be attached to the Agreement as an Annex, for those liabilities that are not included in the list on retained liabilities shall be paid off by Party B.  If liabilities of Hubei Jinlong which should be paid off by Party B according to the Agreement, are actually borne by Hubei Jinglong after the handover base date for whatever reasons (above case happens caused by Party A is excluded), Party A shall have the right to deduct the actual amount which Hubei Jinlong bears from its equity transfer payment.  If the remaining equity transfer payment is insufficient or has been completely paid, Party A shall have the right to request Party B to return equal amount of the equity transfer payment.

 

5.4 Assets, related personnel risks, obligations and expenses of Hubei Jinlong before the handover base date should be borne by Party B, the abovementioned items after the handover base date shall be borne by both Party A and Party B according to their shareholding proportion.

 

5.5 Contingent liabilities occurred within two years after the handover base date shall be borne by Party B.

 

(IV) Pricing and analysis on its fairness and reasonableness

 

The transaction price for 80% equity of the target company is 363,802,268 Yuan, compared with the assessed value of 360,609.1 k Yuan, there is a premium of 3,193,168 Yuan.  Thus the premium ratio is about 8.85%.

 

The Company purchased controlling shareholding of Hubei Jinlong aims to achieve future assets incomes, which means the actual payment will be compensated by the future incomes.  For the Company, to obtain the assets, it is willing to pay (not only the present value of the individual assets) and focus on the future expected return on the overall assets.  The two production lines of Hubei Jinlong will be fully put into operation in 2011.  Due to long construction period of the second line, much capital occupation, heavy debt interest and high commissioning cost, Hubei Jinlong had losses during 2009-2010.  However, in the future, production and sales of Jinlong would gradual become stable and its future profitability will gradually increase.  

The Company believes that the overall profitability of the obtained assets could not be reflected only by assets approach, which may easily underestimate the enterprise value.  Therefore, income approach is adopted to assess enterprise value, then the whole value of Jinlong could be truly and justly reflected

 

IV. Major Content in the Agreement

 

(I) Major Articles in the Agreement

 

1. This Agreement was signed by and between the Company (Party A) and Shaanxi Jinlong Cement Co., Ltd. (Party B).

 

2. Transaction Price: the Company acquired 80% equity of Hubei Jinlong held by Shaanxi Jinlong with the price of 363,802,268 Yuan.

 

3. Payment Mode: equity transfer price by instalment. (1) Party A shall pay 200 million Yuan within 10 working days after signing this Agreement.  (2) The rest of equity transfer price (except for the 30 million Yuan reserved by Party A) shall be paid within 10 working days after the completion of the equity transaction and handover stipulated in the Agreement.  (3) Party A shall pay the remaining 30 million Yuan within 7 working days after Party A or its related parties been recorded in the list of shareholders of Hubei Jinlong and the completion of business registration alteration of shareholders, legal representatives, Directors, Supervisors, articles of association and the corporate name as well as the warrants related to the equity transfer.  (4) After the handover base date, should Party B have any liabilities, expenses which shall be borne by Party B according to the Agreement, or any compensations, taxes, contingent liabilities or damages because of reasons prior to the Agreement, Party A shall be entitled to deduct the amount from the equity transfer price yet to be paid to Party B accordingly.  If the amount is insufficient, the insufficient part shall be paid from the equity transfer price within 10 days from the date of debt confirmation.  (5) Party B shall submit a valid receipt of payment within 5 days after the receiving of each payment.  The next payment shall be paid after Party A receives the receipt of the current payment according to the Agreement.

 

4. Timing of Delivery or Transfer: The base date of the equity transfer shall be January 18th, 2011 (the business registration alteration of this equity transfer was completed on February 16th, 2011.)

 

5. Conditions, Time of Taking Effect and Validity of the Agreement: "Equity Transfer Agreement" shall become effective after signed and seal affixed by legal representative or authorized representative by Party A and Party B.

 

6. Breach of Contract

 

Should Party B fail to proceed with the transaction after Party A paying the down payment of the equity transfer, Party B shall pay a penalty of 200 million Yuan to Party A and return the equity transfer price of 200 million Yuan within 10 days; should Party A fail to proceed with the transaction, Party B shall be entitled to take the 200 million Yuan paid by Party A as penalty.

 

Should the transaction fail to be completed within 10 days after the base date because of Party A or Party B, the breaching Party shall pay 0.05% of the equity transfer amount to the non-breaching Party on every overdue day.  Should the transaction fail to be completed after 15 days, the non-breaching party shall be entitled to terminate the Agreement.

 

Should the alteration of business registration of change of shareholders, legal representatives, Directors, Supervisors and articles of association fail to be completed within 30 days after the base date and caused by Party B, it shall pay 0.05% of the equity transfer amount to Party A on every overdue day.  Should the alteration of business registration of equity transfer fail to be completed after 45 days of the base date, Party A shall be entitled to terminate the Agreement.

 

Should Party B violate the undertakings and commitments stipulated in the Agreement, and cause losses or contingent liabilities suffered by Party A or Hubei Jinlong, Party B shall bear the responsibilities accordingly.   

 

Should Party B fail to implement the Agreement and commitments within a reasonable time even after Party A remind it, Party A shall be entitled to submit a written letter to Party B.  All expenses incurred and penalties and damages shall be deducted directly from the final payment of Party after sending a written notice by Party A.  The insufficient amount shall be paid by Party B to Party A.

 

Should Party A fail to pay the down payment of equity transfer within 10 days after the signing day of the Agreement, Party B shall be entitled to request for the termination of the Agreement.  Should Party A fail to pay the second and third payment after taking over the assets of Hubei Jinlong.  Party A shall pay 0.05% of the payment yet to be paid as penalty to Party B on every overdue day.  Party B shall be entitled to terminate the Agreement after 15 days overdue. 

 

VII. Miscellaneous

 

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

 

VIII. Purpose of the Acquisition and Impact on the Company

 

Market condition of Hubei Jinlong is very good.  Especially, there will be more and more key infrastructure projects which will quickly drive the consumption increase and price elevation of cement.  In the meantime, Hubei Jinlong is the biggest cement company closest to the consumption center Shiyan City, so it is with high competitiveness.  The Company shall acquire 80% equity of Hubei Jinlong.  It shall be beneficial to the synergy with Fangxian Zuanshi, whose 70% equity has already been acquired by the Company.  In addition, these two companies totally accounts for about 60% of the capacity in Shiyan.  Consequently, the Company will lead a healthy development of Shiyan area.  

 

The 80% equity acquisition of Hubei Jinlong 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.

 

IX. Documents for Inspection

 

1. Resolution of the Twenty First Meeting of the Sixth Board of Directors of the Company.

2. Equity Transfer Agreement by and between Shanxi Jinlong Cement Co., Ltd. and the Company.

3. Audit Report of Hubei Jinlong Cement Co., Ltd., Peking Certified Public Accountants (2011) No. 2049.

4. Report on Assets Evaluation -- Huaxin Cement Co., Ltd. Planning on Acquiring 80% Equity of Hubei Jinlong Cement Co., Ltd. held by Shanxi Jinlong Cement Co., Ltd., Hubei Wanxin Assets Evaluation Company Limited (2011) No. 010.

5. Accreditation Certificate of Securities Industry of Peking Certified Public Accountants

6. Accreditation Certificate of Securities Industry of Hubei Wanxin Assets Evaluation Company Limited.

   

Huaxin Cement Co., Ltd.

April 20, 2011