June 24, 2009

 

 

Baoding Shengde Paper Co., Ltd

 

And

 

Liu Zhenyong

 

Zhao Shuangxi

 

Liu Xiaodong

 

__________________________________________

 

of

Hebei Baoding Orient Paper Milling Co., Ltd

 

Call Option Agreement

 

1

 

--------------------------------------------------------------------------------

Call Option Agreement

 

This Call Option Agreement (the “Agreement”) is made by the following parties in
Baoding, the People’s Republic of China (“China”) ,on June 24,2009.

 

1.

Liu Zhenyong

ID:13062519630822311X

Address:Liuzhuang, Cuizhuang Town, Xushui County, Baoding City, China

 

2.

Zhao Shuangxi

ID:13242319640606005X

Address:Hujiaying, Liucun Town, Xushui County, Baoding City, China

 

3.

Liu Xiaodong

ID:132423197408117114

Address:#113, No 268, Chaoyang South Avenue, Xinshi District, Baoding City,
China

 

(Hereinafter referred to as the “The existing shareholders” or “shareholders”)

 

AND

 

4. Hebei Baoding Orient Paper Milling Co., Ltd, a liability limited company
incorporated in Baoding whose registered offices are located at Wuji Village,
Xushui County,Hebei Province, China

 

Orient Paper and the existing shareholders are hereinafter collectively referred
to as the“PARTIES”and individually as a “PARTY”)

 

Herein:

 

(1) The existing shareholders are the shareholders of Hebei Baoding Orient Paper
Milling Co., Ltd ( a liability limited company incorporated under the laws of
the People’s Republic of China (PRC), whose registered offices are located at
Wuji Village, Xushui County,Hebei Province, China ,hereinafter referred as
“Orient Paper”)

 

(2) The existing shareholders have intention to transfer their stocks to Baoding
Shengde Paper Co., Ltd, respectively under doing not break Chinese laws, Shengde
Paper has intention to accept the exchange.

 

2

--------------------------------------------------------------------------------

(3) In order to carry out the exchange of the ownership of the stocks, the
existing shareholders hereby irrevocably grants to Shengde Paper an option to
purchase, to the extent permitted under PRC Law, according to the call option,
the existing shareholders shall transfer the Call Option (as defined below) to
Shengde Paper or its designated entity or person upon its requirement.

 

NOW, THEREFORE, the Parties to this Agreement hereby agree as follows:

 

Article 1 Definitions

 

Terms used in this Agreement shall have the meanings set forth below:

 

 

“PRC Laws and Regulations”:

Means the currently effective laws, administrative regulations, local
regulations, explanations and other binding legal documents.

 

 

“Call Option”:

Means equity interests each shareholder has in Orient Paper’s registered capital
and all the equity interests in Orient Paper in total.

 

 

“Orient Paper’s Registered Capital”:

Means at the date of this Agreement, Orient Paper’s registered capital (RMB
75,030,000), including any enlarged registered capital after future capital
increase.

 

 

“Exercise of Options”:

Means when Shengde Paper exercises its options, it has the right to ask the
shareholders transfer Orient Paper’s shares wholly or party to Shengde Paper or
its designated entity or natural person. The specific amount shall be freely
decided by Shengde Paper according to PRC laws and its business concerns.

 

 

“Exercise Price”:

Each time when Shengde Paper exercise the option, Shengde Paper shall pay
consideration to shareholders. The exercise price of Shengde Paper or its
designated entity or natural person is RMB 1 Yuan. If at that time there are any

 

3

 

--------------------------------------------------------------------------------

regulatory PRC laws regulating the minimum price, the minimum price regulated by
PRC laws shall be the exercise price.

 

 

“Certificates”:

Means Orient Paper’s approval, permission, registration, including but not
limited to Business License, Tax Registration and other related certificates
required by PRC laws for its effective and legal operation.

 

 

“Orient Paper’s Assets”:

Means all tangible and intangible assets owned or authorized by Orient Paper to
use during the term of this Agreement, including but not limited to trade mark,
copy right, patent, technology, domain name, software use right and other
intellectual property.

 

 

“Principal Agreement”:

Means agreements Orient Paper enters into and has material effect on Orient
Paper’s business and assets, including but not limit to Exclusive Technology and
Business Consulting Service Agreement.

 

 

“Loan Agreement”:

Means the Loan Agreement signed by Shareholders and ShengDe Paper.

 

Article 2 Grant Rights

 

Shareholder (“Transferor”) hereby irrevocably grants to Shengde Paper an option
to purchase or cause any designated person (“Designated Persons”) to purchase,
to the extent permitted under PRC Law, according to the steps determined by
Shengde Paper.

 

Article 3 Exercise of Option

 

3.1

Shengde Paper has the full power without limitation to decide the specific time,
amount and numbers of exercise as long as the conditions are in accordance with
PRC laws.

 

3.2

At the time of exercise, Shengde Paper and/or the Designated Persons can hold
all of Orient Paper’s shares under PRC laws, Shengde Paper is entitled to
exercise all the options; If at the time of exercise, Shengde Paper and/or the
Designated Persons can hold part of Orient Paper’s shares under PRC laws,

 

4

 

--------------------------------------------------------------------------------

Shengde Paper is entitled to exercise the option within the upper limit
regulated by PRC laws. Under the latter situation, Shengde Paper is entitled to
further exercise the option in accordance with PRC laws until all the option has
been exercised.

 

3.3

Each time Shengde Paper exercises its option, it can purchase the transferred
equity interests itself or designate third persons to purchase all or part of
the transferred equity interests.

 

3.4

According to the stipulations of PRC laws and regulation, Shengde Paper and/or
the Designated Persons may exercise Option by issuing a written notice (the
“Notice”) to the Transferor and specifying the equity interest purchased from
Transferor (the “Purchased Equity Interest”) and the manner of purchase. (Please
refer to Appendix II for the format). The shareholders shall transfer the equity
interests wholly or partly to Shengde Paper and/or the Designated Persons upon
receipt of the Notice.

 

3.5

In each time the performance of the Option:

 

 

(1)

The Transferor shall ask Orient Paper o convene the shareholders’ meeting.
During the meeting, the resolution, in which Transferor transfers Equity
Interest to Shengde Paper and/or the Designated Persons, shall be made;

 

 

(2)

The Transferor shall, upon the terms and conditions of this Agreement and the
Notice related to the Purchased Equity Interest, enter into Equity Interest
Transfer Agreement with Shengde Paper and/or the Designated Persons (as
applicable);；

 

 

(3)

The related parties shall execute all other requisite contracts, agreements or
documents, obtain all requisite approval and consent of the government, conduct
all necessary actions, without any security interest, transfer the valid
ownership of the Purchased Equity Interest to Shengde Paper and/or the
Designated Persons, and cause Shengde Paper and/or the Designated Persons to be
the registered owner of the Purchased Equity Interest. In this Clause and this
Agreement, “Security Interest” means the ensure, mortgage, pledge, the right or
interest of the third party, any purchase right of equity interest, right of
acquisition, right of first refusal, right of set-off, ownership detainment or
other security arrangements. But it does not include any security interest
subject to the Equity Pledge Agreement.

 

Article 4 Representations and Warranties

 

5

 

--------------------------------------------------------------------------------

4.1

As of the execution date of this Agreement and every transferring date, the
Shareholder hereby represents and warrants collectively and respectively as
follows:

 

 

4.1.1

It has the power and ability to enter into this Agreement, and any equity
interest transferring Agreement (“Transferring Agreement”, respectively) having
it as a party, for every single transfer of the Purchased Equity Interest
according to this Agreement;

 

 

4.1.2

It has the power and ability to deliver this Agreement, and any equity interest
transferring Agreement (“Transferring Agreement”, respectively) having it as a
party, for every single transfer of the Purchased Equity Interest according to
this Agreement, and to perform its obligations under this Agreement and any
Transferring Agreement. Upon execution, this Agreement and the Transferring
Agreements having it as a party constitute a legal, valid and binding obligation
of it enforceable against it in accordance with its terms;

 

 

4.1.3

At the date of this Agreement, it is the owner of the option. Except for the
rights designated by this Agreement, It does not set any security interest on
the Option, including liens, pledge, claims, guaranties and other limitations
from third party;

 

 

4.1.4

At the date of this Agreement, Orient Paper has all the certificates necessary
to its operation. Orient Paper has full right and qualification to operate
[Production of Writing Paper, Corrugated Paper and Packaging Paper, Wholesaling
and retailing of Pulp; Operations of exporting for own products and technology
and importing for raw and auxiliary materials ,machinery and equipment, spare
parts and technology which enterprise needs. But excluing the operations limited
by the State and the importing and exporting of products and technology
prohibited by the State] business within the territory of China. No litigation,
arbitration or administrative procedure relevant to the equity interest and
assets of Orient Paper or the corporation is in the process, to be settled or
potentially take place;

 

4.2

Shengde Paper represents and warrants as the following:

 

 

4.2.1

Shengde Paper is a limited company registered in accordance with PRC laws. It
has the power and ability to enter into, deliver and perform this Agreement;

 

 

4.2.2

ShengdePaper has performed all the necessary internal authorization procedures
within the company. It owns full rights and authorization to enter into and
perform the documents related to the transaction;

 

6

 

--------------------------------------------------------------------------------

 

Article 5 Promises of Shareholders and Orient Paper

 

As of the execution date of this Agreement and every transferring date, the
Shareholder and Orient Paper hereby promises collectively and respectively as
follows:

 

5.1

According to fair finance and business standard and tradition, to maintain the
existence of the corporation, prudently and effectively operate business and
deal with works during the term of the Agreement;

 

5.2

Without prior written consent by Shengde Paper during the term of the Agreement,

 

 

5.2.1

not, upon the execution of this Agreement, to sale, transfer, mortgage or
dispose, in any other form, any asset, legitimate or beneficial interest of
business or income of Orient Paper or to approve any other security interest set
on it;

 

 

5.2.2

not, in any form, to increase or decrease registered capital of the Orient
Paper, or to change the structure of the registered capital in any other forms;

 

 

5.2.3

Not, dispose or urge the management of Orient Paper dispose any of the Orient
Paper’s assets (except that it is in the due course of operation;)

 

 

5.2.4

Not to enter into any material Agreement with Orient Paper, other than the
Agreement in the process of normal business;

 

 

5.2.5

Not, appoint or remove any Orient Paper’s managing director, directors of the
board (if applicable), supervisors or other management personnel that shall be
appointed and removed by the Shareholders.

 

 

5.2.6

Not, declare distribution or actually distribute any distributable profits,
interests, or dividends;

 

 

5.2.7

Ensure Orient Paper’s going concern without being terminated, liquidated or
dissolution;

 

 

5.2.8

Not, in any form, to supplement, change or renew the Articles of Association of
Orient Paper.

 

5.3

To normally operate all business to maintain the asset value of Orient Paper,

 

7

 

--------------------------------------------------------------------------------

without make any action or nonfeasance that sufficiently affects its operation
and asset value during the term of the Agreement.

 

Article 6 Confidentiality

 

6.1

The Shareholder shall not discuss with any third party, other than for the
purpose of performing the obligations under this agreement, (i)the existence,
nature or terms of the negotiations and this Agreement; (ii)the Shengde Paper’s
trade secrets, proprietary business information, client information known to the
Shareholder during the construction and performance of this agreement and (iii)
trade secrets, proprietary business information, client information known to the
Shareholder as the shareholder of Orient Paper,(the "Confidential Information")
without the express written permission of Shengde Paper.

 

6.2

The Shareholder shall return to the Shengde Paper, destroy by other proper
means, upon the expiration of the agreement and request of the Shengde Paper all
documents, materials or software and cease to use any of the Confidential
Information.

 

6.3

Article 6 shall survive after the agreement is ceased or terminated.

 

Article 7 Term of Agreement

 

7.1

This Agreement has been duly executed by the parties’ authorized representatives
and terminates until all the call option under this Agreement has been
transferred to Shengde Paper or its designated entities or natural persons.

 

Article 8 Notice

 

8.1

Any communications among parties of this Agreement, including notice,
requirement and offer shall be delivered in written form.

 

8.2

In the case of transmission by facsimile, the transmission shall be deemed
delivered upon delivery; In case of delivering face to face, the transmission
shall be deemed delivered upon delivery; all notices or communications sent by
registered mail shall be deemed delivered five (5) Business Days from the time
of posting.

 

Article 9 Breach of Agreement

 

9.1

The Parties agree and confirm that if any party (the “Breaching Party”)

 

8

 

--------------------------------------------------------------------------------

materially breach any terms of this Agreement or unable to perform any
obligation under this Agreement, it will constitute a “Breach” act. Shengde
Paper (the “Observant Party”) shall ask for remedy measures in reasonable time.
If the Breaching Party does not perform any remedy measures in the reasonable
time required by the Observant Party or within 10 days after the written notice
of the Observant Party, then (1) if the shareholders or Orient Paper is the
breaching party, Shengde Paper can terminate this Agreement and ask for
remedies; (2)if Shengde Paper is the breaching party, the observant party shall
ask for remedies, but cannot terminate the Agreement.

 

9.2

The Parties agree and confirm that the Shareholders cannot terminate this
agreement under any circumstances and for any reason.

 

9.3

The rights and remedies designated by this Agreement are accumulative, and do
not exclude other rights or remedies under laws and regulations.

 

9.4

Article 9 shall survive after the agreement is ceased or terminated.

 

Article 10 Miscellaneous

 

10.1

This Agreement shall be executed in four (4) original copies in Chinese and is
hold respectively by each Party, and each original copy has the same legal
effect.

 

10.2

The execution, validity, interpretation, performance, amendment, termination and
the dispute resolution of this agreement are governed by the laws of PRC

 

10.3

The Parties shall strive to settle any dispute, conflicts, or compensation
claims arising from the interpretation or performance (including any issue
relating to the existence, validity and termination) in connection with this
Agreement through friendly consultation. In case no settlement can be reached
within thirty (30) day after one party ask for the settlement, each party can
submit such matter to China International Economic and Trade Arbitration
Commission (the “CIETAC”) in accordance with its rules. The arbitration award
shall be final and conclusive and binding upon the Parties.

 

10.4

Any right, power or remedy granted to a party by one term of this agreement does
not exclude the party from any right, power or remedy granted by other terms or
laws and regulations. And one party’s performance of its right, power and remedy
does not exclude the party from performing other right, power and remedy.

 

10.5

No failure or delay by any Party in exercising any right or remedy provided

 

9

 

--------------------------------------------------------------------------------

by law or under this Agreement shall impair such right or remedy or operate or
be construed as a waiver or variation of it or preclude its exercise at any
subsequent time and no single or partial exercise of any such right or remedy
shall preclude any other or further exercise of it or the exercise of any other
right or remedy.

 

10.6

The headings are for convenience and under no circumstances; the headings shall
affect the interpretation of the articles of the agreement.

 

10.7

This Agreement is severable. If any clause of this Agreement is judged as
invalid or non-enforceable according to relevant PRC Laws, such clause shall be
deemed invalid only within the applicable area of the PRC Laws, and without
affecting other clauses hereof in any way.

 

10.8

The Parties may amend and supply this Agreement with a written agreement. The
amendment and supplement duly executed by the Parties shall be a part of this
Agreement and shall have the same legal effect as this Agreement.

 

10.9

Without prior written approval of Shengde Paper, the Shareholders can not
transfer, pledge or assign any right, benefit or obligation under this
agreement. Shengde Paper can transfer, pledge or assign any right benefit or
obligation under this agreement upon notice of the other parties.

 

10.10

This agreement is binding to all the parties herein and their respective lawful
successors and assignees.

 

 

10

 

--------------------------------------------------------------------------------

The parties hereby sign as the following:

 

Liu Zhenyong

 

Signature: /s/ Liu Zhenyong          

 

Zhao Shuangxi

 

Signature: /s/ Zhao Shuangxi          

 

 

Liu Xiaodong

 

Signature: /s/ Liu Xiaodong          

 

 

Hebei Baoding Orient Paper Milling Co., Ltd

(seal)

 

Signature: /s/ Liu Zhenyong          

Name:Liu Zhenyong

Legal Representative/Authorized Representative

 

11

 

--------------------------------------------------------------------------------

Appendix I:

 

Current Situation of Hebei Baoding Orient Paper Milling Co., Ltd

 

Name:Hebei Baoding Orient Paper Milling Co., Ltd

 

Registered Address:

Wuji Village, Xushui County, Hebei Province, China

 

 

Registered:

RMB 75,030,000Yuan

 

Legal Representative: Liu Zhenyong

 

Share Structure:

 

Shareholde

Capital Contribution:RMB:

 

Percentage

Liu Zhenyong

69970000

93.26%

Zhao Shuangxi

100000

0.13%

Liu Xiaodong

4960000

6.61%

 

 

12

 

--------------------------------------------------------------------------------

Appendix II:

 

Format of Notice

 

To:[Name of the Shareholders]

 

Whereas our Company has entered into a Call Option Agreement on June 24, 2009,
which designated that under circumstances permitted by PRC laws and regulations,
upon our requirement, you shall transfer your equity interests in WuJi, XuShui
County,BaoDing City, China (Orient Paper) to our Company or any third person
designated by our Company.

 

Hereby, we issue the Notice of the following:

 

Our Company hereby exercises the option under the Call Option Agreement and
requires you to transfer [ ] % of equity interests of Orient Paper, you hold to
the Company or [ ](designated person). Please immediately transfer the equity
interests above mentioned to the Company or [ ](designated person) according to
Call Option Agreement upon receipt of this Notice.

 

 

 

Baoding Shengde Paper Co., Ltd

 

(seal)

 

Signature:______________

Name:

Legal Representative/Authorized Representative

 

13

 

--------------------------------------------------------------------------------