EXHIBIT 10.1

TRUST AGREEMENT

THIS AGREEMENT is made effective as of the 31st day of December, 2007.

 

BETWEEN:

The registered shareholders of INNER MONGOLIA TEHONG COAL AND POWER GROUP CO.,
LTD, specifically described in Schedule A attached hereto,

 

AND:

The registered shareholders of INNER MONGOLIA HEAT POWER CO., LTD, specifically
described in Schedule B attached hereto.

(collectively, the “ Shareholders”)

AND: PACIFIC PROJECTS INC., a Nevada company with its registered address at 245
East Liberty Street, Suite 200, Reno, Nevada 89501.
(“PPI ”)

 

WHEREAS:

A.                     

  

The Shareholders are the recorded owners of 100% of the registered Paid Up
Capital of Inner Mongolia Tehong Coal and Power Group Co. Ltd (herein referred
to as “ Coal Group”), and Inner Mongolia Heat Power Co., Ltd (herein referred to
as “ Heat Power” ), as stated in Schedule A and Schedule B, respectively, of
this Agreement;   B.      PPI, a Nevada incorporated company, is a wholly owned
subsidiary of China Energy Corporation (herein referred to as “CEC”), a company
incorporated under the laws of the state of Nevada and a publicly traded company
listed on the OTC Bulletin Board under the trading symbol “CHGY”;   C.      On
Nov. 30, 2004, CEC, Coal Group, Heat Power, and the Shareholders, entered into a
Share Exchange Agreement, wherein Coal Group and Heat Power became subsidiaries
of CEC whereby,  

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        inter alia, CEC issued common shares of CEC to the Shareholders, in
exchange for which the Shareholders agreed to retain and represent their
registered ownership in trust for CEC;   D.                       PPI is seeking
to convert Coal Group, and Heat Power from domestic PRC companies to Foreign
Invested Enterprises (herein referred to as “FIE”) wholly owned by CEC by
purchasing (either in cash or through shares listed on a ‘reputable stock market
or exchange’) Coal Group and Heat Power’s FIE Business Licenses at the deemed
Conversion Price as approved by the Government Authorities;   E.      To give
effect to the original intent of the parties set out in the Share Exchange
Agreement of Nov. 30, 2004, and the requirements stipulated in Section D above,
the Shareholders:     (1)      shall re-assert their intentions to hold and
represent their registered Paid Up Capital in Coal Group, and Heat Power, in
trust for PPI;         (2)      shall not increase the registered Paid Up
Capital in Coal Group and Heat Power Co without the express approval of PPI.   
    NOW THEREFORE in consideration of other good and valuable consideration and
the sum of Ten ($10.00) Dollars now paid by PPI to the Shareholders (the receipt
and sufficiency of which is hereby acknowledged), it is hereby agreed by and
between the parties as follows:  

1.                        INTERPRETATION   1.1       For all purposes of this
Agreement, the following interpretation shall be in effect:     (a)     
“Agreement” and “this Agreement” means the agreement between the Shareholders
and PPI hereby constituted;     (b)      “Approval” means such required approval
by the Government Authorities granting Coal Group, and Heat Power their
Conversions from domestic PRC companies to FIE companies;     (c)      “Agreed
Period” means the 8 year term commencing the date of this Agreement;  

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                             (d)      “Coal Group” means Inner Mongolia Tehong
Coal and Power Group Co., Ltd.;   (e)      “Heat Power” means Inner Mongolia
Heat Power Co., Ltd.   (f)      “Conversion” shall mean the conversion of Coal
Group and Heat Power from domestic PRC companies to FIE companies as approved by
Government Authorities whereby both companies are granted FIE business licenses;
  (g)      “Conversion Price” means the amount specified by Government
Authorities as noted below, which is deemed an appropriate consideration for the
conversion of Coal Group and Heat Power to FIE’s pursuant to Paragraph 5 of this
Agreement;   (h)      “Contesting Party” means collectively, PPI and the
Shareholders;   (i)      “Exclusive Right” means the irrevocable right to
purchase, during the Agreed Period, and extension thereof, the FIE Business
License of Coal Group, wherein Coal Group is Converted to a 100% FIE, and Heat
Power wherein Heat Power is Converted to a 49% FIE, at the Conversion Price;  
(j)      “Extension Right” means the Agreed Period in addition to another 5
years;   (k)      “External Auditor” means an auditor with a valid Certified
Public Accountant designation appointed in the USA.   (l)      “Foreign Invested
Enterprise” or “FIE” means a company incorporated under the laws of the PRC
where in all or portion of the company are owned by foreign investors and such
entity being approved and granted a FIE business license by the Government
Authorities in the appropriate proportion in which the Conversion Price is paid
in accordance to the Paid Up Capital of the PRC domestic company;   (m)     
“Government Authorities” means all such authorities or departments of the
government of the People’s Republic of China including but not limited the
Ministry of Finance and the State Council Securities Supervision and Regulatory
Body; having jurisdiction whose approval of the Conversion is required in  

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                              conjunction any amendments and any other
applicable laws or regulations;   (n)      “Holding Period” means the period of
1 month (equivalent to 30 calendar days) from the receipt of the Notice of
Exercise wherein the FIE business license shall be in the possession of PPI;  
(o)      “Notice of Exercise” means a notice in writing addressed to and
received by the Shareholders at the address first recited (or at any other
address specified by the Shareholders in writing to PPI), which notice shall
specify the total funds in held in escrow pursuant to Paragraph 5.2 to equal to
or in excess of the Conversion Price pursuant to Paragraph 5.1 wherein PPI is
deemed to have exercised its Exclusive Right in full;   (p)      “Maximum
Conversion Price” means as per guidelines provided by Government Authorities as
follows:  

Registered paid up capital 
     Total Investment     Less that $ 2.1 million 
     Cannot exceed 1.43 times the amount of registered paid up capital  $ 2.1 to
$ 5 million
        Cannot exceed 2 times the amount of registered paid up capital  $ 5
million to $ 12 million  
    Cannot exceed 2.5 times the amount of registered paid up capital  More than
$ 12 million  
    Cannot exceed 3 times the amount of registered paid up capital 

And therefore shall mean 3 times the Paid Up Capital of Coal Group of 300
million RMB (100 million RMB * 3), and 2.5 times the 49% Paid Up Capital of Heat
Power of 61,250,000 RMB (50 million RMB *49%*2.5);

 

                           (q)      “Paid Up Capital” or “PUC” means the
following:     100% registered Paid Up Capital of Coal Group of 100 million RMB,
effective Dec. 31,2007, and        100% registered Paid Up Capital of Heat Power
of 50 million RMB, effective Dec. 31, 2007;       (r)      “People’s Republic of
China” means the “PRC” as abbreviated;  

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                                    (s)      “Trust Funds” means funds from PPI
held in escrow by PPI’s appointed counsel, for the purpose of facilitating the
exercise of PPI’s Exclusive Right.   1.2      In this Agreement, any reference
to currency is to the currency of the United States of America unless otherwise
indicated. For the purposes of this Agreement, the exchange rate between the
currency of the United States of America and the currency of the PRC shall be
the exchange rate as of the date of the Notice of Exercise.   2.      EXCLUSIVE
RIGHT   2.1      The Shareholders hereby grants to PPI the Exclusive Right on
the terms set out in this Agreement to purchase at the Conversion Price the FIE
Business License of Coal Group, wherein Coal Group will be converted to a 100%
FIE and wherein Heat Power will be converted to a 49% FIE, in the Agreed Period
and the extensions thereof as approved and validly registered with the
Government Authorities;   2.2      The Exclusive Right is not transferable by
the Shareholders during the Agreed Period unless mutually agreed by parties
hereto;   3.      EXTENSION RIGHT   3.1      PPI shall have the right to extend
the Agreed Period up to a further 5 years from the expiration of the Agreed
Period, upon the same terms and conditions set out herein, as mutually agreed
between the parties.   4.      EXERCISE OF THE EXCLUSIVE RIGHT   4.1     
Subject to paragraph 6.1, during the Agreed Period and the extension thereof,
PPI may exercise its Exclusive Right by delivering to each of the Shareholders
through PPI’s appointed legal counsel, the Notice of Exercise which states that
Trust Funds are equivalent to or in excess of the Conversion Price.   4.2     
Upon delivery of the Notice of Exercise and the transfer of Trust Funds under
conditions met pursuant to Paragraph 5.3, PPI will be deemed to have exercised
the Exclusive Right in full.   4.3      PPI will have deemed to have exercised
its Exclusive Right if in the event CEC shares of common stock become listed for
trading on a “National Securities Exchange”, including but not limited to any of
 

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                                 the following stock exchanges: the National
Association of Securities Dealers Automated Quotation System; the New York Stock
Exchange; or the American Stock Exchange, and such value of the Conversion Price
and authority to settle the Conversion Price paid shall be determined by the;  
 (a)   value equivalent to the market cap of CEC at the time of the listing of
its common shares on the above noted exchanges is equivalent to the Conversion
Price;      (b) approval by Government authorities that such form of payment of
the Conversion Price shall grant the conversion of Coal Group and Heat Power to
FIE’s and thus the FIE business licenses.   4.4      Upon PPI exercising the
Exclusive Right in full, the Shareholders shall deliver to PPI the physical FIE
business license within 1 month of the receipt of the Notice of Exercise (“the
Holding Period”). PPI has no obligation to transfer the Trust Funds if the
Shareholders fail to deliver the physical FIE business license to PPI within the
Holding Period. The Notice of Exercise shall be deemed null and void unless both
parties hereto agree to extend the Holding Period. The Shareholders shall be
transferred the Trust Funds only if conditions are met pursuant to Paragraph
5.3.   4.5      The amount stated in the Notice of Exercise and used for the
purchase of the FIE business license shall remain the property and in the name
of PPI indefinitely. The Shareholders shall adhere to the requirement pursuant
to paragraph 9.2 wherein the Conversion Price paid as stated in the Notice of
Exercise shall be registered in the name of PPI with Government Authorities as
an additional paid in capital contribution.   5.      CONVERSION PRICE AND
METHOD OF PAYMENT   5.1      Payment of the Conversion Price shall be the lesser
of the following:     (a)      Maximum Conversion Price;     (b)      Amount
assessed by Government Authorities as noted in an independent asset valuation
report prepared by approved PRC asset valuators. In the event that the valuation
made by the PRC asset valuators is not acceptable to the Shareholders or PPI
(the “Contesting Party”), then the Contesting Party shall select another  

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                                 PRC asset valuator. The cost of the
determination of the Conversion Price pursuant to this paragraph 5 will be borne
equally by the Contesting Party. The Shareholders shall appoint a PRC asset
valuator within 30 calendar days of the date of this Agreement and the delivery
of the asset valuation report shall be delivered to PPI no later than 60
calendar days from the date of this Agreement.   5.2      Funds received by PPI
to exercise the Exclusive Right at the Conversion Price shall be held in escrow
by counsel appointed by PPI for the duration of the Agreed Period and any
extension thereof unless a Notice of Exercise is received by Shareholders and
Shareholder have met the requirements pursuant to Paragraph 5.3 wherein the
transfer of the Trust Funds shall be made to the Shareholders. Upon expiration
of the Agreed Period and any extension thereof wherein the Conversion has not
materialized; all Trust Funds in any amount whether it be less, equivalent or in
excess of the Conversion Price shall accrue to the benefit of PPI and PPI may
use such funds to pursue other business opportunities that may arise from time
to time which, in PPI’s sole opinion, are profitable for PPI or its affiliates.
  5.3      Trust Funds shall be transferred to the Shareholders only when the
following conditions have been met by the Shareholders:     (a)       the
Conversion Price is determined and approved by Government Authorities as stated
in official documents. Such documents shall be express couriered to PPI upon
receipt by the Shareholders;     (b)  the Shareholders have received
confirmation whether the Conversion qualifies for an extension for payment of
the Conversion Price and if so, the transfer of the Trust Funds shall be
transferred at the rate of the payment schedule;     (c) the FIE business
licenses have been issued under the name of Coal Group and Heat Power are deemed
FIE’s wherein Coal Group is a 100% FIE and Heat Power is a 49% FIE;     (d)
 delivery of the FIE business licence to PPI is within the Holding Period
following the receipt of the Notice of Exercise by the Shareholders pursuant to
Paragraph 4.4.  

5.4                           Should the Shareholders not able to obtain the FIE
business licenses pursuant to Paragraph 4.3, PPI shall deem the exercise of the
 

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  Exclusive Right to be null and void and PPI may use its financial resources to
pursue other business opportunities that may arise from time to time which, in
PPI’s sole opinion, are profitable for PPI or its affiliates.  
5.5                           Any Trust Funds in excess of the Conversion Price
held in escrow shall accrue to the benefit of PPI.   6.      SUBJECT CONDITIONS
  6.1      The exercise of the Exclusive Right is subject to the completion of
Conversion. If the Conversion is not materialized within the Approved Period and
any extensions thereof, the exercise of the Exclusive Right shall be null and
void and PPI may use its financial resources to pursue other business
opportunities that may arise from time to time which, in PPI’s sole opinion, are
profitable for PPI or its affiliates. For greater certainty, the failure in one
instance to obtain Conversion in no way requires PPI to re-attempt the exercise
of the Exclusive Right or prevents PPI from seeking to exercise the Exclusive
Right at a later time. PPI is under no obligation to exercise the Exclusive
Right and may use its financial resources to pursue other business opportunities
that may arise from time to time which, in PPI’s sole opinion, are profitable
for PPI or its affiliates.   7.      ACKNOWLEDGEMENTS AND WARRANTIES   7.1     
The Shareholders jointly and severally warrant to PPI that:     (a)      the PUC
are duly authorized, fully paid, non-assessable and free of pre-emptive rights
and held on record and beneficially by the Shareholders as registered with the
Government Authorities;     (b)      the total PUC on record as of the date of
this Agreement is 100 million RMB for Coal Group and 50 million RMB for Heat
Power;     (c)      the total PUC shall not be increase at anytime during the
duration of the Agreed Period and any extension thereof;     (d)      the
proceeds raised by PPI shall vest in PPI the full beneficial ownership, free of
encumbrances of any kind;     (e)      except as provided under this Agreement,
there are no outstanding options, warrants, rights or agreements of any kind:  

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                                     (i) for the issuance or sale of the PUC;  
        (ii)      for any outstanding securities convertible into any additional
PUC; or         (iii)      that require Coal Group to purchase, redeem or
otherwise acquire any of the PUC.  

                               (f)      Collectively, will determine to the best
of the Shareholder’s ability through communication with the Government
Authorities and appointment of a PRC asset valuator that a Conversion Price
shall be determined as accurately as possible and approved by the Government
Authorities.   (g)      Upon receipt of the FIE business licences, such licenses
will be delivered to PPI in the agreed period pursuant to Paragraph 4.4 and the
FIE business licenses shall remain the property of PPI.  

8.                           SHAREHOLDER RIGHTS   8.1      PPI shall have no
right whatsoever to receive dividends, except in respect of which the Exclusive
Right has been properly exercised in accordance with this Agreement.   9.     
COVENANTS OF THE PARTIES   9.1      Upon delivery of the Notice of Exercise, the
Shareholders shall forthwith make all reasonable efforts to seek the Conversion
and thus the FIE business license and deliver of such FIE business license to be
within the time limitations pursuant to Paragraph 4.4.   9.2      Upon attaining
Approval and the FIE business license and subsequent transfer of the Trust Funds
equivalent to the Conversion Price, the Shareholders shall make the necessary
filings and take all necessary steps to register the ownership of the amount as
stated in the Notice of Exercise in the name of PPI with the appropriate
Government Authorities.   9.3      Following execution of this Agreement and
during the Agreed Period, and the extensions thereto, no Shareholder will allow
or permit any mortgage, pledge, lien, charge or other encumbrance to attach,
effect or encumber the PUC without the prior written consent of PPI, nor will
any Shareholder sell, transfer, assign or otherwise dispose of any  

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                              PUC held by it except in accordance with the terms
of this Agreement.   9.4      No Shareholder shall permit any subdivision,
consolidation, redivision or change of the PUC, including without limitation,
any increase in the PUC of Coal Group and Heat Power, at any time during the
Agreed Period and extensions thereof, into a greater or lesser amount of the
PUC, unless mutually agreed to by the parties hereto, and if such is permitted,
the price at which PPI agrees to purchase the PUC from the Shareholder shall be
adjusted to reflect such subdivision, consolidation, redivision or change of the
PUC.   9.5      The Shareholders shall ensure that Coal Group and Heat Power
prepare financial statements from time to time, as required by PRC law and the
above companies’ constating documents, and will ensure that all such financial
statements are immediately provided to the U.S appointed external auditor (the
“External Auditor”) appointed by PPI or any of its parent or affiliated
companies, including, without limitation, CEC.   9.6      Unless PPI or any of
its parent or affiliated companies, including, without limitation, CEC,
instructs the Shareholders otherwise, the Shareholders shall ensure that Coal
Group and Heat Power comply with all recommendations of the External Auditor in
matters affecting the internal financial controls and financial accounting
records of the companies.   10.      COSTS   10.1      Each Party will bear
their own costs in respect of this Agreement.   11.      GOVERNING LAW   11.1   
  This Agreement shall be governed by the laws of the State of Nevada.   12.   
  PRIORITY   12.1      This Agreement supersedes and takes priority over any
prior agreements in this regard between the parties hereto, including but not
limited to an agreement of even date hereof.  

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13.                        COUNTERPARTS   13.1      This Agreement may be
executed in one or more counterparts which, when so executed by facsimile
signature or otherwise, shall be read together and be construed as one
agreement.   14.      NOTICE   14.1      All notices, requests, demands and
other communication hereunder shall be deemed to have duly given, if delivered
by hand or mailed, certified or registered mail with postage prepaid:  

  If to PPI:

  245 East Liberty Street, Suite 200,
Reno, Nevada 89501, U.S.A.

  If to the Shareholders:

                      GuanBanWuSu Coal mine, XuanJiaWan Town,
                      Zhunger County, Inner Mongolia, China 010300

15.                       ACCRUMENT   15.1      This Agreement will accrue to
the benefit of and be binding upon the parties and their respective heirs,
executors, administrators, successors, and assigns.   16.      ELECTRONIC MEANS
  16.1      Delivery of an executed copy of this Agreement by electronic
facsimile transmission or other means of electronic communication capable of
producing a printed copy will be deemed to be execution and delivery of this
Agreement as of the date set forth on page one of this Agreement.  

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IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day
and year first above written.

  PACIFIC PROJECTS INC.

        /s/ Dudley Delapenha
Per: ___________________________
               Authorized Signatory

For Inner Mongolia Tehong Coal and Power Group Co. Ltd :

/s/ Wenxiang Ding                                /s/ Yi
Ding                                           WENXIANG DING YI DING   /s/ Biao
Ding                                      /s/ Yanhua Li                    
                   BIAO DING YANHUA LI    

For Inner Mongolia Heat Power Ltd :

HANGZHOU DAYUAN GROUP CO. LTD

            /s/Authorized signatory

Per: ________________________________
                     Authorized Signatory

ORDOS CITY YIYUAN INVESTMENT CO. LTD

            /s/Authorized signatory

Per: _______________________________
                    Authorized Signatory

XINGHEHAIFU TRANSPORTATION & SALES CO. LTD

            /s/Authorized signatory

Per: _______________________________
                    Authorized Signatory

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SCHEDULE A

INNER MONGOLIA TEHONG COAL AND POWER GROUP CO. LTD.

Registered Shareholders and Capital Contributions as at December 31, 2007

SHAREHOLDERS Total PUC in RMB % of Issued and     Outstanding Shares Wenxiang
Ding 16,670,000 16.67 Yanhua Li 16,670,000 16.67 Yi Ding 33,330,000 33.33 Biao
Ding 33,330,000 33.33 Total 100,000,0000 RMB 100.00 %

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SCHEDULE B

INNER MONGOLIA HEAT POWER LTD.

49% of The Registered Shareholders and Capital Contributions as at December 31,
2007

SHAREHOLDERS Total PUC in RMB % of Issued and     Outstanding Shares Hangzhou
DaYuan 11,500,000 23 Group Co. Ltd     Ordos City YiYuan 7,000,000 14 Investment
Co. Ltd     XingHeHaiFu 6,000,000 12 Transportation &     Sales Co. Ltd      
Total 24,500,0000 RMB 49.00 %

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