Document:

Exhibit
10.1

 

EXECUTION VERSION

 

SHARE EXCHANGE AGREEMENT

 

By and Among

 

 

CHINA NEW BORUN CORPORATION,

 

GOLDEN DIRECTION LIMITED

 

and

 

STAR ELITE ENTERPRISES LIMITED,

 

EARNSTAR HOLDING LIMITED,

 

TDR ADVISORS, INC.

 

and

 

CHINA HIGH ENTERPRISES LIMITED

 

Dated as of February 28, 2010

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  PAGE

  
	
   

  	
   

  	
   

  
	
  ARTICLE I REPRESENTATIONS, COVENANTS, AND
  WARRANTIES OF CHINA HIGH AND THE STOCKHOLDERS

  	
  2

  
	
   

  	
   

  	
   

  
	
  Section 1.01

  	
  Organization

  	
  2

  
	
  Section 1.02

  	
  Capitalization

  	
  2

  
	
  Section 1.03

  	
  Subsidiaries

  	
  3

  
	
  Section 1.04

  	
  Financial
  Statements

  	
  3

  
	
  Section 1.05

  	
  Absence
  of Certain Changes or Events

  	
  4

  
	
  Section 1.06

  	
  Contracts

  	
  5

  
	
  Section 1.07

  	
  No
  Conflict With Other Instruments

  	
  5

  
	
  Section 1.08

  	
  Compliance
  With Laws and Regulations

  	
  5

  
	
  Section 1.09

  	
  Approval
  of Agreement

  	
  5

  
	
  Section 1.10

  	
  Valid
  Obligation

  	
  5

  
	
  Section 1.11

  	
  Information

  	
  5

  
	
  Section 1.12

  	
  Representations
  and Warranties of the Stockholders

  	
  6

  
	
   

  	
   

  	
   

  
	
  ARTICLE II REPRESENTATIONS, COVENANTS, AND
  WARRANTIES OF NEW BORUN

  	
  7

  
	
   

  	
   

  	
   

  
	
  Section 2.01

  	
  Organization

  	
  7

  
	
  Section 2.02

  	
  Capitalization

  	
  7

  
	
  Section 2.03

  	
  Subsidiaries
  and Predecessor Corporations

  	
  7

  
	
  Section 2.04

  	
  No
  Financial Statements

  	
  7

  
	
  Section 2.05

  	
  Options
  or Warrants

  	
  8

  
	
  Section 2.06

  	
  Absence
  of Certain Changes or Events

  	
  8

  
	
  Section 2.07

  	
  Litigation
  and Proceedings

  	
  8

  
	
  Section 2.08

  	
  Contracts

  	
  8

  
	
  Section 2.09

  	
  No
  Conflict With Other Instruments

  	
  9

  
	
  Section 2.10

  	
  Compliance
  With Laws and Regulations

  	
  9

  
	
  Section 2.11

  	
  Approval
  of Agreement

  	
  9

  
	
  Section 2.12

  	
  Material
  Transactions or Affiliations

  	
  9

  
	
  Section 2.13

  	
  Valid
  Obligation

  	
  9

  
	
  Section 2.14

  	
  Information

  	
  9

  
	
   

  	
   

  	
   

  
	
  ARTICLE III PLAN OF EXCHANGE AND RELATED
  AGREEMENTS

  	
  10

  
	
   

  	
   

  	
   

  
	
  Section 3.01

  	
  The
  Closing

  	
  10

  
	
  Section 3.02

  	
  Stockholder
  Directorships; Appointment of Certain Directors

  	
  11

  
	
  Section 3.03

  	
  Termination
  of Investment Agreements

  	
  11

  
	
  Section 3.04

  	
  Closing
  Events

  	
  12

  
	
  Section 3.05

  	
  Termination

  	
  12

  

 

i

 

	
  ARTICLE IV COVENANTS OF CHINA HIGH AND THE
  STOCKHOLDERS

  	
  12

  
	
   

  	
   

  	
   

  
	
  Section 4.01

  	
  Access
  and Investigation

  	
  12

  
	
  Section 4.02

  	
  Delivery
  of Books and Records

  	
  12

  
	
  Section 4.03

  	
  Operation
  of the Business of China High

  	
  12

  
	
  Section 4.04

  	
  No
  Transfers of Interests

  	
  13

  
	
  Section 4.05

  	
  Required
  Filings and Approvals

  	
  13

  
	
  Section 4.06

  	
  Notification

  	
  13

  
	
  Section 4.07

  	
  Indemnification

  	
  14

  
	
  Section 4.08

  	
  Releases

  	
  14

  
	
  Section 4.09

  	
  Lock-Up
  Agreements

  	
  14

  
	
  Section 4.10

  	
  Approval
  by China High and the Stockholders

  	
  14

  
	
  Section 4.11

  	
  Director’s
  Certificate of China High

  	
  14

  
	
  Section 4.12

  	
  Director’s
  Certificate of each Stockholder

  	
  14

  
	
  Section 4.13

  	
  Good
  Standing Certificates

  	
  14

  
	
  Section 4.14

  	
  Shareholders
  Agreement

  	
  15

  
	
  Section 4.15

  	
  Closing
  Conditions

  	
  15

  
	
   

  	
   

  	
   

  
	
  ARTICLE V COVENANTS OF NEW BORUN AND GOLDEN
  DIRECTION

  	
  15

  
	
   

  	
   

  	
   

  
	
  Section 5.01

  	
  Access
  and Investigation

  	
  15

  
	
  Section 5.02

  	
  Issuance
  of Securities in New Borun

  	
  15

  
	
  Section 5.03

  	
  Required
  Filings and Approvals

  	
  15

  
	
  Section 5.04

  	
  Notification

  	
  15

  
	
  Section 5.05

  	
  Indemnification

  	
  16

  
	
  Section 5.06

  	
  Approval
  by New Borun and Golden Direction

  	
  16

  
	
  Section 5.07

  	
  Shareholders
  Agreement

  	
  16

  
	
  Section 5.08

  	
  Closing
  Conditions

  	
  16

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF NEW
  BORUN AND GOLDEN DIRECTION

  	
  16

  
	
   

  	
   

  	
   

  
	
  Section 6.01

  	
  Accuracy
  of Representations

  	
  16

  
	
  Section 6.02

  	
  Performance
  by China High and the Stockholders

  	
  16

  
	
  Section 6.03

  	
  Consents

  	
  17

  
	
  Section 6.04

  	
  Officer’s
  Certificate of China High

  	
  17

  
	
  Section 6.05

  	
  Officer’s
  Certificates of the Stockholders

  	
  17

  
	
  Section 6.06

  	
  Good
  Standing Certificates

  	
  17

  
	
  Section 6.07

  	
  No
  Governmental Prohibition

  	
  17

  
	
  Section 6.08

  	
  Additional
  Documents

  	
  17

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF
  CHINA HIGH AND THE STOCKHOLDERS

  	
  18

  
	
   

  	
   

  	
   

  
	
  Section 7.01

  	
  Accuracy
  of Representations

  	
  18

  
	
  Section 7.02

  	
  Performance
  by New Borun

  	
  18

  
	
  Section 7.03

  	
  Consents

  	
  18

  

 

ii

 

	
  Section 7.04

  	
  Officer’s
  Certificates

  	
  18

  
	
  Section 7.05

  	
  Director’s
  Certificates

  	
  19

  
	
  Section 7.06

  	
  Good
  Standing Certificate

  	
  19

  
	
  Section 7.07

  	
  Good
  Standing Certificate

  	
  19

  
	
  Section 7.08

  	
  Shareholders
  Agreement

  	
  19

  
	
  Section 7.09

  	
  Additional
  Documents

  	
  19

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII MISCELLANEOUS

  	
  19

  
	
   

  	
   

  	
   

  
	
  Section 8.01

  	
  Brokers

  	
  19

  
	
  Section 8.02

  	
  Governing
  Law; Jurisdiction; Venue; Waiver of Jury Trial

  	
  19

  
	
  Section 8.03

  	
  Attorney’s
  Fees

  	
  21

  
	
  Section 8.04

  	
  Confidentiality

  	
  21

  
	
  Section 8.05

  	
  Public
  Announcements and Filings

  	
  22

  
	
  Section 8.06

  	
  Recitals

  	
  22

  
	
  Section 8.07

  	
  Third
  Party Beneficiaries

  	
  22

  
	
  Section 8.08

  	
  Expenses

  	
  22

  
	
  Section 8.09

  	
  Survival;
  Termination

  	
  22

  
	
  Section 8.10

  	
  Counterparts

  	
  22

  
	
  Section 8.11

  	
  Amendment
  or Waiver

  	
  23

  
	
  Section 8.12

  	
  Best
  Efforts

  	
  23

  
	
  Section 8.13

  	
  Remedies

  	
  23

  
	
  Section 8.14

  	
  Construction

  	
  23

  
	
  Section 8.15

  	
  Entire Agreement

  	
  23

  
	
   

  	
   

  	
   

  
	
  CHINA
  HIGH SCHEDULES

  	
  1

  
	
   

  	
   

  
	
  NEW
  BORUN SCHEDULES

  	
  1

  
	
   

  	
   

  
	
  EXHIBIT
  A [FORM OF SHAREHOLDERS AGREEMENT]

  	
  1

  
	
   

  	
   

  
	
  EXHIBIT
  B [FORM OF RELEASE]

  	
  1

  
	
   

  	
   

  
	
  EXHIBIT
  C [FORM OF LOCK-UP AGREEMENT]

  	
  1

  

 

iii

 

SHARE
EXCHANGE AGREEMENT

 

THIS SHARE EXCHANGE AGREEMENT (this “Agreement”)
is entered into as of this 28th day of
February, 2010, by and among CHINA NEW BORUN
CORPORATION, a company organized under the laws of the Cayman
Islands (“New Borun”), GOLDEN DIRECTION LIMITED,
a company organized under the laws of the British Virgin Islands and a
wholly-owned subsidiary of New Borun (“Golden Direction”), STAR ELITE ENTERPRISES LIMITED, a company organized under
the laws of the British Virgin Islands (“Star Elite”), EARNSTAR HOLDING LIMITED, a company organized under the laws
of the British Virgin Islands (“Earnstar”), TDR ADVISORS
INC., a company organized under the laws of the British Virgin
Islands (“TDR”, and together with Star Elite and Earnstar, the “Stockholders”)
and CHINA HIGH ENTERPRISES LIMITED, a Hong
Kong investment holding company (“China High”), upon the following
premises:

 

RECITALS:

 

WHEREAS, Star Elite
owns 2,000 of the 2,776 preference shares issued and outstanding of China High,
which is equivalent to approximately 18.56% of the aggregate issued and
outstanding shares of capital stock of China High calculated on a fully diluted
basis; and

 

WHEREAS, Earnstar owns
574 of the 2,776 preference shares issued and outstanding of China High, which
is equivalent to approximately 5.33% of the aggregate issued and outstanding
shares of capital stock of China High calculated on a fully diluted basis; and

 

WHEREAS, TDR owns 202
of the 2,776 preference shares issued and outstanding of China High, which is
equivalent to approximately 1.87% of the aggregate issued and outstanding
shares of capital stock of China High on a fully diluted basis; and

 

WHEREAS, Golden
Direction owns 8,000 of the 8,000 ordinary shares issued and outstanding of
China High, which such ordinary shares are equivalent to approximately 74.24%
of the aggregate issued and outstanding shares of capital stock of China High
calculated on a fully diluted basis; and

 

WHEREAS, the parties
hereto desire that, in exchange for the assignment and transfer by the
Stockholders to Golden Direction of 100% of the preference shares owned by the
Stockholders of China High, which such preference shares represent
approximately 25.76% of the aggregate issued and outstanding shares of capital
stock of China High (the “Exchange”), New Borun shall issue:

 

(a)           3,711.952 newly-issued
shares of New Borun’s Class A convertible preference shares to Star Elite,
which shall be automatically convertible into 3,711,952 newly-issued shares of
New Borun Ordinary Shares upon the closing of a Qualified Public Offering (as
such term is defined in the Shareholders Agreement, which is defined in Section 3.01(b)(i) below),

 

(b)           1,065.330 newly-issued
shares of New Borun’s Class B convertible preference shares to Earnstar,
which shall be automatically convertible into 1,065,330 newly-issued shares of
New Borun Ordinary Shares upon the closing of a Qualified Public Offering and

 

1

 

(c)           374.907 newly issued shares
of New Borun’s Class C convertible preference shares to TDR, which shall
be automatically convertible into 374,907 newly-issued shares of New Borun
Ordinary Shares upon the closing of a Qualified Public Offering; and

 

WHEREAS, upon the
consummation of the Exchange, the parties hereto desire that China High be a
wholly-owned subsidiary of Golden Direction.

 

AGREEMENT:

 

NOW THEREFORE, on the stated
premises and for and in consideration of the mutual covenants and agreements
hereinafter set forth and the mutual benefits to the parties to be derived
herefrom, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by all parties hereto, and
intending to be legally bound hereby, New Borun, Golden Direction, the
Stockholders and China High hereby agree as follows:

 

ARTICLE I

REPRESENTATIONS,
COVENANTS, AND WARRANTIES OF

CHINA HIGH AND THE
STOCKHOLDERS

 

As an inducement to, and to obtain the
reliance of New Borun and Golden Direction, except as set forth in those
schedules prepared by China High which are attached and made a part hereto (the
“China High Schedules”), China High hereby represents and warrants to
New Borun and Golden Direction as follows as of the date hereof:

 

Section 1.01           Organization. 
China High is a company duly organized, validly existing, and in good
standing under the laws of the Hong Kong Special Administrative Region and has
the corporate power and is duly authorized under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in all material respects as it is now being conducted.  Included in Item 1.01 of the China High
Schedules are complete and correct copies of China High’s Certificate of
Incorporation as in effect on the date hereof and the Amended and Restated
Memorandum and Articles of Association of China High (together, the “China
High Charter”).  The execution and
delivery of this Agreement does not, and the consummation of the transactions
contemplated hereby will not, violate any provision of the China High
Charter.  China High has taken all
actions required by law, from its China High Charter, or otherwise to authorize
the execution and delivery of this Agreement. 
China High has full power, authority, and legal right and has taken all
action required by law, the China High Charter, and otherwise to consummate the
transactions herein contemplated.

 

Section 1.02           Capitalization. 
The authorized capitalization of China High consists of Eight Thousand
(8,000) ordinary shares of capital stock, par value HK$1.00 per share (the “China
High Ordinary Shares”) and Two Thousand Seven Hundred Seventy-Six (2,776)
preference shares of capital stock, par value HK$1.00 per share (the “China
High Preference Shares” and together with the China High Ordinary Shares,
the “China High Capital Stock”). 
There are Eight Thousand (8,000) China High Ordinary Shares currently
issued and outstanding, of which Golden Direction owns Eight Thousand
(8,000).  There are Two Thousand Seven
Hundred Seventy-Six (2,776) China High Preference Shares currently issued and
outstanding, of which Star Elite owns Two Thousand (2,000), Earnstar owns Five
Hundred Seventy-Four (574) 

 

2

 

and TDR owns Two Hundred Two (202).  All of the issued and outstanding shares of
China High Capital Stock are legally issued, fully paid and non-assessable and
not issued in violation of the preemptive or other rights of any person.  With the exception of those rights currently
held by the Stockholders pursuant to those certain investment agreements and
related documentation and instruments entered into by and between or among the
Stockholders and China High, together with all amendments and supplements
thereto which are also set forth in Item 1.02 of the China High Schedules
and which shall be terminated on the Closing Date:  (i) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
China High Capital Stock, or contracts, commitments, understandings or
arrangements by which China High is or may become bound to issue additional
shares of China High Capital Stock or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of China High Capital Stock, (ii) there
are no outstanding debt securities and (iii) there are no agreements or
arrangements under which China High is obligated to register the sale of any of
their securities.

 

Section 1.03           Subsidiaries. 
China High has one subsidiary, Weifang Great Chemical Inc. (“Weifang”),
a wholly-foreign owned entity organized as a limited liability company under
the laws of The People’s Republic of China (the “PRC”).  Weifang’s wholly-owned and chief operating
subsidiary is Shandong Borun Industrial Co., Ltd., a company organized under
the laws of the PRC (“Shandong Borun”). 
Shandong Borun owns one subsidiary, Daqing Borun Biotechnology Co.,
Ltd., a company organized under the laws of the PRC (“Daqing Borun”).  Shandong Borun and Daqing Borun are in the
business of manufacturing and selling edible alcohol, DDGS Feed and corn germ
in the PRC.  Beyond these entities, China
High does not have any other subsidiaries and does not own, beneficially or of
record, any shares of any other corporation. 
For purposes hereinafter, the term “China High” also includes Weifang,
Shandong Borun and Daqing Borun, except that the term “China High” does
not include any other entity when such term is used to describe or discuss the
China High Financial Statements (as such term is defined below).

 

Section 1.04           Financial Statements.

 

(a)           Included in Item 1.04(a) of the China High
Schedules are (i) the audited consolidated balance sheets of China
High as of December 31, 2006, 2007 and 2008, and the related audited
consolidated statements of income, shareholders’ equity and cash flows for the
years ended December 31, 2006, 2007 and 2008 together with the notes to
such statements (the “China High Annual Financial Statements”).

 

(b)           Included in Item 1.04(b) of the China High
Schedules are:  (i) the
unaudited consolidated balance sheets of China High at September 30, 2008
and 2009, and the related unaudited consolidated statements of income, shareholders’
equity and cash flows for the nine months ended September 30, 2008 and
2009, together with notes to such statements (together with the China High
Annual Financial Statements, the “China High Financial Statements”).

 

(c)           All such China High Financial Statements have been
prepared in accordance with generally accepted accounting principles of the
United States (“GAAP”) 

 

3

 

consistently applied throughout the periods
involved.  China High’s balance sheets
are true and accurate and present fairly as of their respective dates the
financial condition of China High.  As of
the date of such balance sheets, except as and to the extent reflected or
reserved against therein, China High had no other liabilities or obligations
(absolute or contingent) which should be reflected in the balance sheets or the
notes thereto prepared in accordance with GAAP, and all assets reflected
therein are properly reported and present fairly the value of the assets of
China High in accordance with GAAP. 
China High’s statements of operations, stockholders’ equity and cash
flows reflect fairly the information required to be set forth therein by GAAP.

 

(d)           China High has no liabilities with respect to the
payment of any federal, state, county, local or other domestic or foreign taxes
(including any deficiencies, interest or penalties), except for taxes accrued
but not yet due and payable (if any).

 

(e)           All of China High’s assets are reflected in the China
High Financial Statements, and, except as set forth in the China High Financial
Statements or the notes thereto, China High has no material liabilities, direct
or indirect, matured or unmatured, contingent or otherwise.

 

Section 1.05           Absence of Certain Changes or Events. 
Since September 30, 2009:

 

(a)           there has not been any material adverse change in the
business, operations, properties, assets, or condition (financial or otherwise)
of China High;

 

(b)           China High has not (i) amended the China High
Charter beyond that which has been provided for in connection with this
Agreement; (ii) declared or made, or agreed to declare or make, any
payment of dividends or distributions of any assets of any kind whatsoever to
stockholders or purchased or redeemed, or agreed to purchase or redeem, any of
its capital stock; (iii) made any material change in its method of
management, operation or accounting, (iv) entered into any other material
transaction other than sales in the ordinary course of its business; or (v) made
any increase in or adoption of any profit sharing, bonus, deferred
compensation, insurance, pension, retirement, or other employee benefit plan,
payment, or arrangement made to, for, or with its officers, directors, or
employees; and

 

(c)           China High has not (i) granted or agreed to grant
any options, warrants or other rights for its stocks, bonds or other corporate
securities calling for the issuance thereof, (ii) borrowed or agreed to
borrow any funds or incurred, or become subject to, any material obligation or
liability (absolute or contingent) except as disclosed herein and except
liabilities incurred in the ordinary course of business; (iii) sold or
transferred, or agreed to sell or transfer, any of its assets, properties, or
rights or canceled, or agreed to cancel, any debts or claims; or (iv) issued,
delivered, or agreed to issue or deliver any stock, bonds or other corporate
securities including debentures (whether authorized and unissued or held as
treasury stock) except in connection with this Agreement.

 

(d)           Except as set forth in the China High Financial
Statements, there are no material actions, suits, proceedings, or
investigations pending or, to the knowledge of 

 

4

 

China High after reasonable investigation, threatened
by or against China High or affecting China High or its properties, at law or
in equity, before any court or other governmental agency or instrumentality,
domestic or foreign, or before any arbitrator of any kind.  China High does not have any knowledge of any
material default on its part with respect to any judgment, order, injunction,
decree, award, rule, or regulation of any court, arbitrator, or governmental
agency or instrumentality or of any circumstances which, after reasonable
investigation, would result in the discovery of such a default.

 

Section 1.06           Contracts.  All
contracts, agreements, franchises, license agreements, and other commitments to
which China High is a party or by which its properties are bound and which are
material to the operations of China High taken as a whole are valid and
enforceable by China High in all respects, except as limited by bankruptcy and
insolvency laws and by other laws affecting the rights of creditors generally.

 

Section 1.07           No Conflict With Other Instruments. 
The execution of this Agreement and the consummation of the transactions
contemplated by this Agreement will not result in the breach of any term or
provision of, constitute a default under, or terminate, accelerate or modify
the terms of any indenture, mortgage, deed of trust, or other material
agreement, or instrument to which China High is a party or to which any of its
assets, properties or operations are subject.

 

Section 1.08           Compliance With Laws and Regulations. 
To the best of its knowledge, China High has complied with all
applicable foreign and domestic statutes and regulations of any federal, state,
provincial or other governmental entity or agency thereof, except to the extent
that noncompliance would not materially and adversely affect the business, operations,
properties, assets, or condition of China High or except to the extent that
noncompliance would not result in the occurrence of any material liability for
China High.

 

Section 1.09           Approval of Agreement. 
The board of directors of China High has unanimously authorized the
execution and delivery of this Agreement by China High and has approved this
Agreement and the transactions contemplated hereby.

 

Section 1.10           Valid Obligation. 
This Agreement and all agreements and other documents executed by China
High in connection herewith constitute the valid and binding obligation of
China High, enforceable in accordance with its terms, except as may be limited
by bankruptcy, insolvency, moratorium or other similar laws affecting the
enforcement of creditors’ rights generally and subject to the qualification
that the availability of equitable remedies is subject to the discretion of the
court before which any proceeding therefore may be brought.

 

Section 1.11           Information. 
The information concerning China High set forth in this Agreement and in
the China High Schedules is complete and accurate in all material respects and
does not contain any untrue statement of a material fact or omit to state a
material fact required to make the statements made, in light of the
circumstances under which they were made, not misleading.

 

5

 

Section 1.12           Representations and Warranties of the
Stockholders.  Each Stockholder severally, but not jointly,
represents and warrants to New Borun as of the date hereof and as of the
Closing Date as follows:

 

(a)           Organization; Authority.  Such
Stockholder is a company incorporated, validly existing and in good standing
under the laws of the British Virgin Islands, with full right, corporate power
and authority to enter into and to consummate the transactions contemplated by
this Agreement and otherwise to carry out its obligations hereunder and
thereunder.  The execution and delivery
of this Agreement and performance by such Stockholder of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate or similar action on the part of such Stockholder.  This Agreement has been duly executed by such
Stockholder, and is the valid and legally binding obligation of such
Stockholder, enforceable against it in accordance with its terms.

 

(b)           No Conflicts.  The
execution, delivery and performance of this Agreement by such Stockholder and
the consummation by such Stockholder of the transactions contemplated hereby do
not and will not:  (i) conflict with
or violate any provision of such Stockholder’s certificate or articles of
incorporation, bylaws or other organizational or charter documents, or (ii) conflict
with or result in a violation of or default (or be an event that with notice or
lapse of time or both would become a conflict, violation or default) under any
contract or agreement applicable to such Stockholder or any law, rule,
regulation, order, decree, ruling or pronouncement to which such Stockholder is
subject or by which any property or asset of such Stockholder is bound or
affected.

 

(c)           No General Solicitation.  Such
Stockholder is not acquiring the securities of New Borun hereunder as a result
of any advertisement, article, notice or other communication regarding such
securities published in any newspaper, magazine or similar media or broadcast
over television, radio the internet or presented at any seminar or any other
general advertisement.

 

(d)           Investment Intent.  Such
Stockholder:  (i) is acquiring the
securities of New Borun hereunder as a principal for its own account and not
with a view to or for distributing or reselling them in violation of any
applicable law, rule or regulation, (ii) has no present intention of
distributing any of such securities in violation of any applicable law, rule or
regulation and (iii) has no direct or indirect arrangement or
understandings with any other persons to distribute or regarding their
distribution of such securities.

 

(e)           Approval of Agreement.  The board of
directors (or equivalent) of each Stockholder has unanimously authorized the
execution and delivery of this Agreement by such Stockholder and has approved
this Agreement and the transactions contemplated hereby.

 

6

 

ARTICLE II

REPRESENTATIONS,
COVENANTS, AND WARRANTIES OF NEW BORUN

 

As an inducement to, and to obtain the
reliance of China High and the Stockholders, except as set forth in those
schedules prepared by New Borun which are attached and made a part hereto (the “New
Borun Schedules”), New Borun represents and warrants to China High and the
Stockholders as follows:

 

Section 2.01           Organization. 
New Borun is an exempted company incorporated, validly existing, and in
good standing under the laws of the Cayman Islands and has the corporate power
and is duly authorized under all applicable laws, regulations, ordinances, and
orders of public authorities to carry on its business in all material respects
as it is now being conducted.  Set forth
in Item 2.01 of the New Borun Schedules is a complete and correct copy
of the Certificate of Incorporation and Memorandum and Articles of Association
of New Borun, both dated as of the date hereof (together, the “New Borun
Charter”).  The execution and
delivery of this Agreement does not, and the consummation of the transactions
contemplated hereby will not, violate any provision of the New Borun
Charter.  New Borun has taken all action
required by law, the New Borun Charter or otherwise to authorize the execution
and delivery of this Agreement, and New Borun has full power, authority, and
legal right and has taken all action required by law, the New Borun Charter or
otherwise to consummate the transactions herein contemplated.

 

Section 2.02           Capitalization. 
New Borun’s authorized share capital consists of (a) One Hundred
Million (100,000,000) New Borun Ordinary Shares with a par value of US$0.001
each, of which Fourteen Million Eight Hundred Forty-Seven Thousand Eight
Hundred Eleven (14,847,811) shares were issued and outstanding prior to the
transaction contemplated by the Exchange and (b) Five Million (5,000,000)
preference shares with a par value of US$0.001 each (“New Borun Preference
Shares”), zero (0) of which were issued or outstanding immediately
preceding the consummation of the Exchange.

 

Section 2.03           Subsidiaries and Predecessor Corporations. 
New Borun does not have any predecessors or subsidiaries and does not
own, beneficially or of record, any shares of any other corporation except that
New Borun owns 100% of Golden Direction.

 

Section 2.04           No Financial Statements.

 

(a)           New Borun has not had any operations since its
incorporation and no financial statements have been prepared with the exception
of those financial statements set forth in Item 2.04 of the New Borun Schedules.

 

(b)           New Borun has no liabilities with respect to the
payment of any federal, state, county, local or other taxes (including any
deficiencies, interest or penalties).

 

(c)           New Borun has timely filed all income and/or franchise
tax returns required to be filed by it from its inception to the date
hereof.  Each of such income and/or
franchise tax returns reflects the taxes due for the period covered thereby,
except for amounts which, in the aggregate, are immaterial.

 

7

 

(d)           New Borun has no liabilities, direct or indirect,
matured or unmatured, contingent or otherwise.

 

Section 2.05           Options or Warrants. 
There are no existing options, warrants, calls, or commitments of any
character relating to the authorized and unissued stock of New Borun.

 

Section 2.06           Absence of Certain Changes or Events. 
Since its inception:

 

(a)           There has not been any business or operations of New
Borun and New Borun owns no assets or properties;

 

(b)           New Borun has not (i) amended the New Borun
Charter beyond that which has been provided for in connection with this
Agreement; (ii) declared or made, or agreed to declare or make any payment
of dividends or distributions of any assets of any kind whatsoever; (iii) made
any material change in its method of management, operation or accounting; (iv) entered
into any transactions or agreements other than in connection with this
Agreement and the transactions contemplated herein; or (v) made any
adoption of any profit sharing, bonus, deferred compensation, insurance,
pension, retirement, or other employee benefit plan, payment, or arrangement,
made to, for or with its officers, directors, or employees; and

 

(c)           New Borun has not (i) granted or agreed to grant
any options, warrants, or other rights for its stock, bonds, or other corporate
securities calling for the issuance thereof; (ii) borrowed or agreed to
borrow any funds or incurred, or become subject to, any material obligation or
liability (absolute or contingent) except liabilities incurred in the ordinary
course of business; (iii) sold or transferred, or agreed to sell or
transfer, any of its assets, properties, or rights, or canceled, or agreed to
cancel, any debts or claims; or (iv) issued, delivered or agreed to issue
or deliver, any stock, bonds or other corporate securities including debentures
(whether authorized and unissued or held as treasury stock), except in
connection with this Agreement.

 

Section 2.07           Litigation and Proceedings. 
There are no actions, suits, proceedings or investigations pending or
threatened by or against New Borun or affecting New Borun or its properties, at
law or in equity, before any court or other governmental agency or
instrumentality, domestic or foreign, or before any arbitrator of any kind.  New Borun has no knowledge of any default on
its part with respect to any judgment, order, writ, injunction, decree, award, rule or
regulation of any court, arbitrator, or governmental agency or instrumentality
or any circumstance which after reasonable investigation would result in the
discovery of such default.

 

Section 2.08           Contracts.  Except as set
forth in Item 2.08 of the New Borun Schedules:

 

(a)           New Borun is not a party to any contract, franchise,
license agreement, agreement, debt instrument or other commitments or
instruments whether such agreement is in writing or oral.

 

8

 

(b)           New Borun is not a party to or bound
by any charter or other corporate restriction or any judgment, order, writ,
injunction, decree, or award; and

 

(c)           New Borun is not a party to any oral
or written (i) contract for the employment of any officer or employee; (ii)
profit sharing, bonus, deferred compensation, stock option, severance pay,
pension benefit or retirement plan; (iii) agreement, contract, or indenture
relating to the borrowing of money; (iv) guaranty of any obligation; (vi) collective
bargaining agreement; or (vii) agreement with any present officer or
director of New Borun.

 

Section 2.09           No
Conflict With Other Instruments.  The
execution of this Agreement and the consummation of the transactions
contemplated by this Agreement will not result in the breach of any term or
provision of, constitute a default under, or terminate, accelerate or modify
the terms of, any indenture, mortgage, deed of trust, or other material
agreement or instrument to which New Borun is a party or to which any of its assets,
properties or operations are subject.

 

Section 2.10           Compliance
With Laws and Regulations.  New Borun
has materially complied with all applicable statutes and regulations of any
applicable governmental entity or agency thereof.

 

Section 2.11           Approval
of Agreement.  The sole director of
New Borun has authorized the execution and delivery of this Agreement by New
Borun and has approved this Agreement and the transactions contemplated hereby.

 

Section 2.12           Material
Transactions or Affiliations.  Except
as set forth in Item 2.12 of the New Borun Schedules, there exists
no contract, agreement or arrangement between New Borun and any person who was
at the time of such contract, agreement or arrangement an officer, director, or
person owning of record or known by New Borun to own beneficially, five percent
(5%) or more of the issued and outstanding common stock of New Borun and which
is to be performed in whole or in part after the date hereof or was entered
into prior to the date hereof since inception. 
Neither any officer, director, nor five percent (5%) stockholder of New
Borun has, or has had since inception of New Borun, any known interest, direct
or indirect, in any such transaction with New Borun which was material to the
business of New Borun.  New Borun has no
commitment, whether written or oral, to lend any funds to, borrow any money
from, or enter into any other transaction with, any such affiliated person.

 

Section 2.13           Valid
Obligation.  This Agreement and all
agreements and other documents executed by New Borun in connection herewith
constitute the valid and binding obligation of New Borun, enforceable in
accordance with its terms, except as may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting the enforcement of creditors’ rights
generally and subject to the qualification that the availability of equitable
remedies is subject to the discretion of the court before which any proceeding
therefore may be brought.

 

Section 2.14           Information.  The information concerning New Borun set
forth in this Agreement and the New Borun Schedules is complete and accurate in
all material respects and does not contain any untrue statements of a material
fact or omit to state a material fact 

 

9

 

required to make the statements made, in light of the
circumstances under which they were made, not misleading.

 

ARTICLE III

PLAN OF EXCHANGE AND RELATED AGREEMENTS

 

Section 3.01           The
Closing.

 

(a)                                  The closing (the “Closing”) of the
Exchange will occur at the offices of New Borun’s U.S. securities counsel,
K&L Gates LLP, located at 200 South Biscayne Boulevard, Suite 3900,
Miami, Florida 33131-2399 on such date that all of the conditions set forth in
Articles VI and VII have been satisfied or waived (the “Closing Date”).  The Closing may be undertaken remotely by
delivery of facsimile/email and/or pdf signatures and documents.

 

(b)                                 On the Closing Date, the Stockholders
shall assign and transfer, free and clear of all liens, pledges, encumbrances,
charges, restrictions or known claims of any kind, nature, or description, 100%
of the China High Preference Shares to Golden Direction in exchange for the
issuance by New Borun of the following:

 

(i)            Three Thousand Seven Hundred Eleven
and 952/1000 (3,711.952) newly-issued shares of Class A convertible New
Borun Preference Shares to Star Elite, which shall be automatically convertible
into Three Million Seven Hundred Eleven Thousand Nine Hundred Fifty-Two
(3,711,952) newly-issued New Borun Ordinary Shares pursuant to the terms and
conditions set forth in that certain Shareholders Agreement, of even date with
this Agreement, by and among the Stockholders and New Borun in the form of Exhibit A
attached hereto (the “Shareholders Agreement”), which such Shareholders
Agreement shall contain rights substantially similar to those rights held by
each Stockholder in China High as of the date of the execution of such
Shareholders Agreement;

 

(ii)           One Thousand Sixty-Five and 330/1000
(1,065.330) newly-issued Class B convertible New Borun Preference Shares
to Earnstar, which shall be automatically convertible into One Million
Sixty-Five Thousand Three Hundred Thirty (1,065,330) newly-issued New Borun
Ordinary Shares pursuant to the terms and conditions set forth in the Shareholders
Agreement; and

 

(iii)          Three Hundred Seventy-Four and
907/1000 (374.907) newly issued Class C convertible New Borun Preference
Shares to TDR, which shall be automatically convertible into Three Hundred
Seventy-Four Thousand Nine Hundred Seven (374,907) newly-issued New Borun
Ordinary Shares pursuant to the terms and conditions set forth in the
Shareholders Agreement.

 

(c)                                  On the Closing Date, New Borun shall
adopt by special resolution an amended and restated New Borun Charter
memorializing the preference rights of each Stockholder as set forth in the
Shareholders Agreement and file such special resolution, together with the
amended and restated New Borun Charter with the Registrar of 

 

10

 

Companies in the Cayman Islands not later than five (5) business
days following the Closing Date.

 

(d)                                 As a result of the Exchange as
contemplated herein:

 

(i)            the Stockholders, collectively, will
beneficially own approximately 25.76% of the issued share capital of New Borun
on the Closing Date, of which approximately 18.56% will be owned by Star Elite,
approximately 5.33% will be owned by Earnstar and approximately 1.87% will be
owned by TDR, calculated on a fully-diluted basis,

 

(ii)           all of the shares of China High Capital
Stock shall be held by Golden Direction, and

 

(iii)          there shall be Fourteen Million Eight
Hundred Forty-Seven Thousand Eight Hundred Eleven (14,847,811) New Borun
Ordinary Shares issued and outstanding, Three Thousand Seven Hundred Eleven and
952/1000 (3,711.952) Class A convertible New Borun Preference Shares
issued and outstanding, One Thousand Sixty-Five and 330/1000 (1,065.330) Class B
convertible New Borun Preference Shares issued and outstanding and Three
Hundred Seventy-Four and 907/1000 (374.907) Class C convertible New Borun
Preference Shares issued and outstanding.

 

Section 3.02           Stockholder
Directorships; Appointment of Certain Directors.  The Shareholders Agreement shall provide
that:  (i) each holder of New Borun
Preference Shares shall have the right to appoint one (l) director
(hereinafter, a “Stockholder Director”) at each annual or special
meeting of the stockholders of New Borun called for the purpose of electing
directors (the “Appointment Right”), (ii) the Appointment Right
shall terminate upon the closing of a Qualified Public Offering (as such term
is defined in the Shareholders Agreement) after which each Stockholder Director
shall serve until the next annual meeting of the shareholders of New Borun when
their successors are duly elected and qualified.  On the Closing Date, Star Elite shall
nominate Mr. Rong Chen, Earnstar shall nominate Mr. Yibin Wei and TDR
shall nominate Mr. Ruiping Wang to serve as initial Stockholder Directors
of New Borun, and New Borun shall effect the appointments of such Stockholder
Directors to the board of directors of New Borun, effective as of the Closing
Date.  New Borun shall draft all
necessary instruments to effect the appointments described in this Section 3.02.

 

Section 3.03           Termination
of Investment Agreements.  Effective
as of the Closing Date, each Stockholder and China High hereby agree and
acknowledge that the terms set forth in this Agreement, in the Shareholders
Agreement and in each document made a part hereof shall amended and restate and
supersede in all respect all prior agreements, understandings and negotiations,
written or oral, with respect to each of Stockholder’s rights against China
High and New Borun, including, without limitation, each of those investment
agreements and related documentation and instruments entered into by and
between or among the Stockholders and China High, together with all amendments
and supplements thereto which are listed in Item 1.02 of the China High
Schedules, all of which will be deemed to be terminated and of no further
force or effect effective as of the Closing Date.  The parties hereto also agree to enter into 

 

11

 

separate termination agreements to that end in a form
and in substance which is reasonably acceptable to New Borun.

 

Section 3.04           Closing
Events.  On the Closing Date, New
Borun, China High and the Stockholders shall execute, acknowledge, and deliver
(or shall ensure to be executed, acknowledged, and delivered), any and all
certificates, opinions, financial statements, schedules, agreements,
resolutions, rulings or other instruments required by this Agreement to be so
delivered on or prior to the Closing Date, together with such other items as
may be reasonably requested by the parties hereto and their respective legal
counsel in order to fully effectuate or evidence the transactions contemplated
hereby.

 

Section 3.05           Termination.  This Agreement may only be terminated prior
to the Closing Date by (a) New Borun in the event that China High or the Stockholders
fail to meet all non-waived conditions set forth in Article VI herein in
all material respects and (b) China High or the Stockholders only in the
event that New Borun fails to meet all non-waived conditions set forth in Article VII
herein in all material respects.  If this
Agreement is terminated pursuant this Section 3.05, this Agreement shall
be of no further force or effect, and no obligation, right or liability shall
arise hereunder, except as set forth herein below.

 

ARTICLE IV

COVENANTS OF CHINA HIGH AND THE STOCKHOLDERS

 

Section 4.01           Access
and Investigation.  Between the date
of this Agreement and the Closing Date, China High will (a) afford New Borun
and its agents, advisors and attorneys during normal business hours, and upon
reasonable notice, full and free access to China High’s senior personnel,
properties, contracts, books and records, and other documents and data, (b) furnish
new Borun and its agents, advisors and attorneys with copies of all such
contracts, books and records, and other existing documents and data as New
Borun may reasonably request and (c) furnish New Borun and its agents,
advisors and attorneys with such additional financial, operating, and other
data and information as New Borun may reasonably request.

 

Section 4.02           Delivery
of Books and Records.  On or prior to
the Closing Date, China High shall deliver to New Borun the originals of the
corporate minute books, books of account, contracts, records, and all other
books or documents of China High now in the possession of China High or its
representatives.

 

Section 4.03           Operation
of the Business of China High.

 

(a)                                  Between the date of this Agreement and
the Closing Date, China High will:

 

(i)            conduct its business only in the
ordinary course of business consistent with past practice;

 

(ii)           use its best efforts to preserve
intact its current business organization and business relationships and those
of Weifang, Shandong Borun and Daqing Borun, including, without limitation,
their respective relationships with suppliers, customers, landlords, creditors,
officers, employees and agents;

 

12

 

(iii)          not create any new, or capitalize or
conduct any business through, any subsidiary;

 

(iv)          not issue any equity securities (or
any interest therein); and

 

(v)           not perform any act that would
require the consent of the Stockholders or any of them.

 

(b)                                 Notwithstanding the foregoing, between
the date of this Agreement and the Closing Date, China High will not directly
or indirectly, without the prior written consent of New Borun, engage in any
transaction with, or enter into any agreement with any officer, director or
Stockholder of China High, or any affiliate thereof.

 

Section 4.04           No
Transfers of Interests.  Between the
date of this Agreement and the Closing Date, no Stockholder shall assign,
transfer, mortgage, pledge or otherwise dispose of any or all of its China High
Capital Stock (or any interest therein) or grant any person the option or right
to acquire any China High Capital Stock (or any interest therein).

 

Section 4.05           Required
Filings and Approvals.  As promptly
as possible after the date of this Agreement, China High will make all filings
and obtain all approvals required to be made by it in order to consummate the
transactions contemplated by this Agreement. 
Between the date of this Agreement and the Closing Date, China High and
the Stockholders will (i) cooperate with New Borun with respect to all
filings that New Borun elects to make or is required to make in connection with
the transactions contemplated by this Agreement and (ii) cooperate with
New Borun in obtaining any consents or approvals required to be obtained by New
Borun in connection herewith.

 

Section 4.06           Notification.  Between the date of this Agreement and the Closing
Date, China High and the Stockholders will promptly notify New Borun in writing
if China High or the Stockholders becomes aware of any fact or condition that
causes or constitutes a breach of any of the representations and warranties of
China High or the Stockholders, as the case may be, as of the date of this
Agreement, or if China High or any Stockholder becomes aware of the occurrence
after the date of this Agreement of any fact or condition that would (except as
expressly contemplated by this Agreement) cause or constitute a breach of any
such representation or warranty had such representation or warranty been made
as of the time of occurrence or discovery of such fact or condition.  Should any such fact or condition require any
change in the Schedules to this Agreement if such Schedules were dated the date
of the occurrence or discovery of any such fact or condition, China High or the
Stockholders, as the case may be, will promptly deliver to New Borun a
supplement to the Schedules to this Agreement specifying such change; provided,
however, that such delivery shall not materially adversely affect any rights of
New Borun set forth herein.  During the
same period, China High and the Stockholders will promptly notify New Borun of
the occurrence of any breach of any covenant of China High or the Stockholders
in this Article IV or in Article III herein or of the occurrence of
any event that may make the satisfaction of the conditions in Article VI
impossible or unlikely.

 

13

 

Section 4.07           Indemnification.  China High and the Stockholders hereby
jointly and severally agree to indemnify New Borun and each of the officers,
attorneys, agents and directors of New Borun as of the date of execution of
this Agreement against any loss, liability, claim, damage, or expense
(including, but not limited to, any and all expense whatsoever reasonably
incurred in investigating, preparing, or defending against any litigation,
commenced or threatened, or any claim whatsoever) (as used in this paragraph
alone, a “Loss”), to which it or they may become subject arising out of
or based on any inaccuracy appearing in or misrepresentations made under Article I
of this Agreement.  The indemnification
provided for in this paragraph shall survive the Closing and the consummation
of the transactions contemplated hereby and termination of this Agreement for
two (2) years following the Closing Date.

 

Section 4.08           Releases.  On or prior to the Closing Date, each
Stockholder shall execute a Release in the form of Exhibit B
attached hereto.

 

Section 4.09           Lock-Up
Agreements.  On the date hereof, each
Stockholder shall execute a Lock-Up Agreement in the form of Exhibit C
attached hereto.

 

Section 4.10           Approval
by China High and the Stockholders.  This Agreement and the transactions
contemplated hereby shall have been approved by the board of directors of China
High and by each of the Stockholders prior to the date hereof.

 

Section 4.11           Director’s
Certificate of China High.  On the
date hereof, China High shall deliver to New Borun a certificate, executed by a
Director (or equivalent thereof) of China High certifying attached copies of (i) the
organizational documents of China High, (ii) the resolutions of China High’s
board of directors approving this Agreement and the transactions contemplated
hereby and (iii) the incumbency of each authorized officer of China High
signing this Agreement and any other agreement or instrument contemplated
hereby to which China High is a party.

 

Section 4.12           Director’s
Certificate of each Stockholder.  On
the date hereof, each Stockholder shall deliver to New Borun a certificate,
executed by such Stockholder’s Director (or equivalent thereof) certifying
attached copies of (i) the resolutions of such Stockholder’s board of
directors (or equivalent thereof) approving this Agreement and the transactions
contemplated hereby and (ii) the incumbency of each authorized officer of
such Stockholder signing this Agreement and any other agreement or instrument
contemplated hereby to which such Stockholder is a party.

 

Section 4.13           Good
Standing Certificates.  China High
shall deliver to New Borun a certificate of good standing from the Registrar of
Companies of Hong Kong or the similar document from the Registered Agent of
Hong Kong, dated as of a date within ten (10) business days prior to the
Closing Date certifying that China High is in good standing as a company in
Hong Kong.  Each Stockholder shall
deliver a certificate of good standing (or the equivalent from the appropriate authority
in the British Virgin Islands, dated within ten (l0) business days of the
Closing Date certifying that such Stockholder is in good standing as a company
in the British Virgin Islands.

 

14

 

Section 4.14           Shareholders
Agreement.  Each of the Stockholders
shall execute the Shareholders Agreement contemporaneously with the Closing of
this Agreement, which such Shareholders Agreement shall contain rights which
are substantially similar to those rights held by the Stockholders in China
High.

 

Section 4.15           Closing
Conditions.  Between the date of this
Agreement and the Closing Date, each of China High and the Stockholders will
use its best efforts to cause the conditions in Article VI to be satisfied
as promptly as possible.

 

ARTICLE V

COVENANTS OF NEW BORUN AND GOLDEN DIRECTION

 

Section 5.01           Access
and Investigation.  Between the date
of this Agreement and the Closing Date, New Borun will (a) afford China
High, the Stockholders and each of their respective agents, advisors and
attorneys during normal business hours and upon reasonable notice, full and
free access to New Borun’s senior personnel, properties, contracts, books and
records, and other documents and data, (b) furnish China High, the
Stockholders and each of their respective agents, advisors and attorneys with
copies of all such contracts, books and records, and other existing documents
and data as China High may reasonably request and (c) furnish China High,
the Stockholders and each of their respective agents, advisors and attorneys
with such additional financial, operating, and other data and information as
China High or the Stockholders may reasonably request.

 

Section 5.02           Issuance
of Securities in New Borun.  Between
the date of this Agreement and the Closing Date, New Borun will not issue any
equity securities (or any interest therein).

 

Section 5.03           Required
Filings and Approvals.  As promptly
as practicable after the date of this Agreement, New Borun will make all
filings required to be made by it in order to consummate the transactions
contemplated by this Agreement.  Between
the date of this Agreement and the Closing Date, New Borun will cooperate with
China High with respect to all filings that China High elects to make or is
required to make in connection with the transactions contemplated by this
Agreement, and cooperate with China High in obtaining any consents or approvals
required to be obtained by China High in connection herewith.

 

Section 5.04           Notification.  Between the date of this Agreement and the
Closing Date, New Borun will promptly notify China High and the Stockholders in
writing if New Borun becomes aware of any fact or condition that causes or
constitutes a breach of any of the representations and warranties of New Borun,
as of the date of this Agreement, or if New Borun becomes aware of the
occurrence after the date of this Agreement of any fact or condition that would
(except as expressly contemplated by this Agreement) cause or constitute a
breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition.  Should any such fact or
condition require any change in the Schedules to this Agreement if the
Schedules to the Agreement were dated the date of the occurrence or discovery
of any such fact or condition, New Borun will promptly deliver to China High
and the Stockholders a supplement to the Schedules to the Agreement specifying
such change; provided, however, that such delivery shall not materially
adversely affect any 

 

15

 

rights of China High and the Stockholders set forth
herein.  During the same period, New
Borun will promptly notify China High and the Stockholders of the occurrence of
any breach of any covenant of New Borun in this Article V or of the
occurrence of any event that may make the satisfaction of the conditions in Article VII
impossible or unlikely.

 

Section 5.05           Indemnification.  New Borun hereby agrees to indemnify China
High and each of the officers, attorneys, agents, and directors of China High,
and the Stockholders as of the date of execution of this Agreement against any
loss, liability, claim, damage, or expense (including, but not limited to, any
and all expense whatsoever reasonably incurred in investigating, preparing, or
defending against any litigation, commenced or threatened, or any claim
whatsoever) (as used in this paragraph alone, a “Loss”) to which it or
they may become subject arising out of or based on any inaccuracy appearing in
or misrepresentation made under Article II of this Agreement.  The indemnification provided for in this
paragraph shall survive the Closing hereunder and the consummation of the
transactions contemplated hereby and termination of this Agreement for two (2) years
following the Closing Date.

 

Section 5.06           Approval
by New Borun and Golden Direction. 
This Agreement and the transactions contemplated hereby shall have been
approved by the boards of directors of New Borun and Golden Direction prior to
the date hereof.

 

Section 5.07           Shareholders
Agreement.  New Borun and Golden
Direction shall execute the Shareholders Agreement contemporaneously with the
Closing of this Agreement, which such Shareholders Agreement shall contain
rights which are substantially similar to those rights held by the Stockholders
in China High.

 

Section 5.08           Closing
Conditions.  Between the date of this
Agreement and the Closing Date, New Borun and Golden Direction will use its
best efforts to cause the conditions in Article VII to be satisfied as
promptly as possible.

 

ARTICLE VI

CONDITIONS PRECEDENT TO OBLIGATIONS OF

NEW BORUN AND GOLDEN DIRECTION

 

The obligations of New Borun and Golden
Direction under this Agreement are subject to the satisfaction, on or before
the Closing Date, of the following conditions (any of which may be waived by
New Borun, in whole or in part):

 

Section 6.01           Accuracy
of Representations.  The
representations and warranties made by China High and the Stockholders in this
Agreement were true when made and shall be true at the Closing Date with the
same force and effect as if such representations and warranties were made at
and as of the Closing Date (except for changes therein permitted by this
Agreement).

 

Section 6.02           Performance
by China High and the Stockholders.

 

(a)           All of the covenants and obligations
that China High and the Stockholders are required to perform or to comply with
pursuant to this Agreement at or prior to the 

 

16

 

Closing (considered collectively), and each of these
covenants and obligations (considered individually), must have been duly
performed and complied with in all material respects.

 

(b)           Each document required to be
delivered by China High and the Stockholders pursuant to this Agreement at or
prior to Closing must have been delivered.

 

Section 6.03           Consents.  All consents, waivers, approvals,
authorizations or orders pursuant to all contracts, licenses, laws, rules or
regulations, permits, trademarks and other intangibles required to be obtained,
and all filings required to be made, by China High and/or the Stockholders for
the authorization, execution and delivery of this Agreement and the
consummation by them of the transactions contemplated by this Agreement or for
the continued operation of China High as presently operated as a wholly-owned
subsidiary of Golden Direction after the Closing Date to the extent required by
law, shall have been obtained and made by China High and/or the Stockholders,
as the case may be; it being understood that all consents, waivers, approvals,
authorizations or orders of the Hong Kong Special Administrative Region, the
PRC or any other subdivision thereof are required to be delivered as promptly
as possible.

 

Section 6.04           Officer’s
Certificate of China High.  China
High shall have delivered to New Borun a certificate dated as of the Closing
Date and signed by a duly authorized officer of China High to the effect that (a) each
of the conditions set forth in Sections 6.01, 6.02 and 6.03 have been fully
satisfied and (b) no litigation, proceeding, investigation, or inquiry is
pending, or to the best knowledge of China High threatened, which might result
in an action to enjoin or prevent the consummation of the transactions
contemplated by this Agreement, or, to the extent not disclosed in the China
High Schedules, by or against China High, which might result in any material
adverse change in any of the assets, properties, business, or operations of
China High.

 

Section 6.05           Officer’s
Certificates of the Stockholders. 
Each Stockholder shall have delivered to New Borun a certificate dated
as of the Closing Date executed by an authorized officer of the Stockholder
certifying the satisfaction of the conditions specified in Sections 6.01, 6.02 and
6.03 herein above.

 

Section 6.06           Good
Standing Certificates.  On the
Closing Date, each Stockholder shall deliver to New Borun a certificate of good
standing, dated as of a date within ten (10) business days of the Closing
Date, certifying that such Stockholder is in good standing as a company in the
British Virgin Islands.

 

Section 6.07           No
Governmental Prohibition.  No order,
statute, rule, regulation, executive order, injunction, stay, decree, judgment
or restraining order shall have been enacted, entered, promulgated or enforced
by any court or governmental or regulatory authority or instrumentality which
prohibits the consummation of the transactions contemplated hereby.

 

Section 6.08           Additional
Documents.  China High and the
Stockholders shall have delivered to New Borun such other documents as New
Borun may have reasonably requested for the purpose of (i) evidencing the
accuracy of any of the representations and warranties of China High and the
Stockholders in this Agreement, (ii) evidencing the 

 

17

 

performance of, or compliance by China High and the
Stockholders with, any covenant or obligation required to be performed or
complied with hereunder by China High or the Stockholders, as the case may be, (iii) evidencing
the satisfaction of any condition referenced herein (including, without
limitation such opinions of the British Virgin Islands, Hong Kong or PRC
counsel to China High and the Stockholders that all consents and approvals of
all governmental authorities of the British Virgin Islands, Hong Kong, the PRC
or any other subdivision thereof necessary or required to consummate the
transactions contemplated herein, free and clear of all encumbrances have been
obtained and are in full force and effect) or (iv) otherwise facilitating
the consummation or performance of any of the transactions contemplated by this
Agreement.

 

ARTICLE VII

CONDITIONS PRECEDENT TO OBLIGATIONS OF CHINA HIGH

AND THE STOCKHOLDERS

 

The obligations of China High and the
Stockholders under this Agreement are subject to the satisfaction, at or before
the Closing Date, of the following conditions (any of which may be waived by
China High and the Stockholders, in whole or in part):

 

Section 7.01           Accuracy
of Representations.  The representations
and warranties made by New Borun in this Agreement were true when made and
shall be true at the Closing Date with the same force and effect as if such
representations and warranties were made at and as of the Closing Date (except
for changes therein permitted by this Agreement).

 

Section 7.02           Performance
by New Borun.

 

(a)           All of the covenants and obligations
that New Borun and Golden Direction are required to perform or to comply with
pursuant to this Agreement at or prior to the Closing (considered
collectively), and each of these covenants and obligations (considered
individually), must have been duly performed and complied with in all material
respects.

 

(b)           Each document required to be
delivered by New Borun and Golden Direction pursuant to this Agreement at or
prior to Closing must have been delivered.

 

Section 7.03           Consents.  All consents, waivers, approvals,
authorizations or orders pursuant to all contracts, licenses, laws, rules or
regulations, permits, trademarks and other intangibles required to be obtained,
and all filings required to be made, by New Borun and Golden Direction for the
authorization, execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement to the extent required by law,
shall have been obtained and made by New Borun and Golden Direction.

 

Section 7.04           Officer’s
Certificates.  New Borun and Golden
Direction each shall have delivered to China High and the
Stockholders a certificate dated as of the Closing Date and signed by a duly
authorized officer of each of New Borun and Golden Direction to the effect that
(a) each of the conditions set forth in Sections 7.01, 7.02 and 7.03
have been fully satisfied and (b) no litigation, proceeding, investigation, or
inquiry is pending, or to the best knowledge of New Borun and Golden Direction
threatened, which might result in an action to enjoin or prevent

 

18

 

the
consummation of the transactions contemplated by this Agreement, or, to the
extent not disclosed in the New Borun Schedules, by or against New Borun or
Golden Direction, which might result in any material adverse change in any of
the assets, properties, business, or operations of New Borun.

 

Section 7.05           Director’s Certificates.  On the Closing Date, New Borun and Golden
Direction shall each deliver to China High and the Stockholders a certificate,
executed by such company’s sole director certifying attached copies of (i) the
organizational documents of such company and (ii) the resolutions of such
company’s board of directors approving this Agreement and the transactions
contemplated hereby.

 

Section 7.06           Good Standing Certificate.  On the Closing Date, New Borun shall deliver
to China High and the Stockholders a certificate of good standing from the
Registrar of Companies, dated as of a date within ten (10) business days
of the Closing Date, certifying that New Borun is in good standing as a company
in the Cayman Islands.

 

Section 7.07           Good Standing Certificate.  On the Closing Date, Golden Direction shall
deliver to China High and the Stockholders a certificate of good standing,
dated as of a date within ten (10) business days of the Closing Date, certifying
that Golden Direction is in good standing as a company in the British Virgin
Islands.

 

Section 7.08           Shareholders Agreement.  New Borun and Golden Direction shall have
executed the Shareholders Agreement, which such Shareholders Agreement shall
contain rights which are substantially similar to those rights held by the
Stockholders in China High.

 

Section 7.09           Additional Documents.  New Borun and Golden Direction shall have
delivered such other documents as China High and/or the Stockholders may have reasonably
requested prior to the date hereof for the purpose of (i) evidencing the
accuracy of any of the representations and warranties of New Borun in this
Agreement, (ii) evidencing the performance of, or compliance by New Borun
and Golden Direction with, any covenant or obligation required to be performed
or complied with hereunder by New Borun and Golden Direction, (iii) evidencing
the satisfaction of any condition referenced herein or (iv) otherwise
facilitating the consummation or performance of any of the transactions
contemplated by this Agreement.

 

ARTICLE VIII

MISCELLANEOUS

 

Section 8.01           Brokers.  The
parties hereto hereby agree that there were no finders or brokers involved in
bringing the parties together or who were instrumental in the negotiation,
execution or consummation of this Agreement.

 

Section 8.02           Governing Law; Jurisdiction; Venue; Waiver of Jury
Trial.  This Agreement shall be
governed by, enforced, and construed under and in accordance with the laws of
the United States of America and, with respect to matters of State law, with
the laws of the State of New York.  Venue
for all matters shall be in the City of New York, New York, without giving
effect to principles of conflicts of law thereunder.  Each of the parties irrevocably consents and
agrees that any legal or equitable action or 

 

19

 

proceedings arising under or in connection with this Agreement shall be
brought exclusively in the federal courts of the United States sitting in New
York City, New York.  By execution and
delivery of this Agreement, each party hereto irrevocably submits to and
accepts, with respect to any such action or proceeding, generally and
unconditionally, the jurisdiction of the aforesaid court, and irrevocably
waives any and all rights such party may now or hereafter have to object to
such jurisdiction.  EACH PARTY
(ON BEHALF OF ITSELF AND, TO THE FULLEST EXTENT PERMITTED BY LAW, ON BEHALF OF
ITS RESPECTIVE EQUITY HOLDERS) HEREBY WAIVES ANY RIGHT THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED UPON, ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT.

 

Notices. 
Any notice or other communications required or permitted hereunder shall
be in writing and shall be sufficiently given if personally delivered to it or
sent by telecopy, overnight courier or registered mail or certified mail,
postage prepaid, addressed as follows:

 

	
  If
  to New Borun, to:

  	
  China
  New Borun Corporation

  
	
   

  	
  Bohai
  Industrial Park (Yangkou Town)

  
	
   

  	
  Shouguang,
  Shandong 262715

  
	
   

  	
  The
  People’s Republic of China

  
	
   

  	
  Attention:

  	
  WANG
  Jinmiao

  
	
   

  	
  Telephone:

  	
  +86-536-5451199/5451006

  
	
   

  	
  Facsimile:

  	
  +86-536-5451199

  
	
   

  	
   

  
	
  With
  copies to:

  	
  K&L
  Gates LLP

  
	
   

  	
  Wachovia
  Financial Center

  
	
   

  	
  200
  South Biscayne Blvd., Suite 3900

  
	
   

  	
  Miami,
  FL 33131

  
	
   

  	
  Attention:

  	
  Clayton
  E. Parker, Esq.

  
	
   

  	
  Telephone:

  	
  (305)
  539-3300

  
	
   

  	
  Facsimile:

  	
  (305)
  358-7095

  
	
   

  	
   

  
	
  If
  to Golden Direction, to:

  	
  Golden
  Direction Limited

  
	
   

  	
  Bohai
  Industrial Park (Yangkou Town)

  
	
   

  	
  Shouguang,
  Shandong 262715

  
	
   

  	
  The
  People’s Republic of China

  
	
   

  	
  Attention:

  	
  WANG
  Jinmiao

  
	
   

  	
  Telephone:

  	
  +86-536-5451199/5451006

  
	
   

  	
  Facsimile:

  	
  +86-536-5451199

  
	
   

  	
   

  
	
  If
  to Star Elite, to:

  	
  Star
  Elite Enterprises Limited

  
	
   

  	
  Floor
  5

  
	
   

  	
  No. 832
  Huamu Road, Pudong New Area

  
	
   

  	
  Shanghai
  201204

  
	
   

  	
  The
  People’s Republic of China

  
	
   

  	
  Attention:

  	
  WU
  Kezhong, LU Jun

  

 

20

 

	
   

  	
  Telephone:

  	
  +86-21-50591378

  
	
   

  	
  Facsimile:

  	
  +86-21-50453554

  
	
   

  	
   

  
	
  If
  to Earnstar Holding Limited, to:

  	
  Earnstar
  Holding Limited

  
	
   

  	
  Room 4006A

  
	
   

  	
  China
  Resources Building No. 26

  
	
   

  	
  Harbor
  Road, Wanchai

  
	
   

  	
  Hong
  Kong

  
	
   

  	
  Attention:

  	
  WEI
  Yi Bin

  
	
   

  	
  Telephone:

  	
  00852-69448409

  
	
   

  	
  Facsimile:

  	
  00852-25118818

  
	
   

  	
   

  
	
  If
  to TDR Advisors, to:

  	
  TDR
  Advisors, Inc.

  
	
   

  	
  Room 1601

  
	
   

  	
  Fuchun
  Dongfang Building

  
	
   

  	
  No. 7006
  Shennan Road, Futian District

  
	
   

  	
  Shenzhen,
  The People’s Republic of China

  
	
   

  	
  Attention:

  	
  GUO
  Xun

  
	
   

  	
  Telephone:

  	
  +86-755-3337
  1196

  
	
   

  	
  Facsimile:

  	
  +86-755-3337
  1191

  
	
   

  	
   

  
	
  If
  to China High, to:

  	
  China
  High Enterprises Limited

  
	
   

  	
  Bohai
  Industrial Park (Yangkou Town)

  
	
   

  	
  Shouguang,
  Shandong 262715

  
	
   

  	
  The
  People’s Republic of China

  
	
   

  	
  Attention:

  	
  WANG
  Rongjian

  
	
   

  	
  Telephone:

  	
  +86-536-5451199

  
	
   

  	
  Facsimile:

  	
  +86-536-5451199

  

 

or
such other addresses as shall be furnished in writing by any party in the
manner for giving notices hereunder, and any such notice or communication shall
be deemed to have been given (i) receipt, if personally delivered, (ii) on
the day after dispatch, if sent by overnight courier and (iii) upon
dispatch, if transmitted by facsimile or telecopy and receipt is confirmed by
telephone.

 

Section 8.03           Attorney’s
Fees.  In the event that either party
institutes any action or suit to enforce this Agreement or to secure relief
from any default hereunder or breach hereof, the prevailing party shall be
reimbursed by the losing party for all costs, including reasonable attorney’s
fees, incurred in connection therewith and in enforcing or collecting any
judgment rendered therein.

 

Section 8.04           Confidentiality.  Each party hereto agrees with the other that,
unless and until the transactions contemplated by this Agreement have been
consummated, it and its representatives will hold in strict confidence all data
and information obtained with respect to another party or any subsidiary
thereof from any representative, officer, director or employee, or from any
books or records or from personal inspection, of such other party, and shall
not use such data or information or disclose the same to others, except (i) to
the extent such data or information is published, is a matter of public
knowledge, or is required by law to be published; 

 

21

 

or (ii) to the extent that such data or
information must be used or disclosed in order to consummate the transactions
contemplated by this Agreement.  In the
event of the termination of this Agreement, each party shall return to the
other party all documents and other materials obtained by it or on its behalf
and shall destroy all copies, digests, work papers, abstracts or other
materials relating thereto, and each party will continue to comply with the
confidentiality provisions set forth herein.

 

Section 8.05           Public
Announcements and Filings.  The
parties hereto hereby acknowledge and agree that this Agreement will be filed
as an Exhibit to New Borun’s registration statement on Form F-l to be
filed with the U.S.  Securities and
Exchange Commission (the “Commission”) in connection with the initial
public offering of American Depositary Shares representing New Borun Ordinary
Shares, and that such registration statement will be made publicly available
upon such filing.  With the exception of
such filing, and unless required by applicable law or regulatory authority,
including, without limitation, the Commission, none of the parties will issue any
report, statement or press release to the general public, to the general trade
or trade press, or to any third party (other than its advisors and
representatives in connection with the transactions contemplated hereby) or
file any document, relating to this Agreement and the transactions contemplated
hereby, except as may be mutually agreed by the parties.  Copies of any such filings, public
announcements or disclosures, including any announcements or disclosures
mandated by law or regulatory authorities with the exception of any such
filings, announcements or disclosures made to the Commission, shall be
delivered to each party at least one (1) business day prior to the release
thereof.

 

Section 8.06           Recitals.  The recitals to this Agreement are true and
correct and are incorporated herein, in their entirety, by this reference.

 

Section 8.07           Third
Party Beneficiaries.  This Agreement
is strictly between New Borun, Golden Direction, the Stockholders and China
High, and, except as specifically provided herein, including, without
limitation, those persons indemnified pursuant to Sections 4.07 and 5.05
herein, no director, officer, stockholder (other than the Stockholders),
employee, agent, independent contractor or any other person or entity shall be
deemed to be a third party beneficiary of this Agreement.

 

Section 8.08           Expenses.  Subject to Section 8.03 above, whether
or not the Exchange is consummated, New Borun will bear all expenses, including
legal, accounting and professional fees, incurred in connection with the
Exchange or any of the other transactions contemplated hereby.

 

Section 8.09           Survival;
Termination.  The representations,
warranties, and covenants of the respective parties shall survive the Closing
Date and the consummation of the transactions herein contemplated for a period
of two (2) years.

 

Section 8.10           Counterparts.  This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall be but a single instrument. 
In the event that any counterpart signature is delivered by facsimile or
other electronic transmission, such signature shall create a valid and binding
obligation of the 

 

22

 

party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile or other
electronic signature page were an original thereof.

 

Section 8.11           Amendment
or Waiver.  Every right and remedy
provided herein shall be cumulative with every other right and remedy, whether
conferred herein, at law, or in equity, and may be enforced concurrently
herewith, and no waiver by any party of the performance of any obligation by
the other shall be construed as a waiver of the same or any other default then,
theretofore, or thereafter occurring or existing.  At any time prior to the Closing Date, this
Agreement may by amended by a writing signed by all parties hereto, with
respect to any of the terms contained herein, and any term or condition of this
Agreement may be waived or the time for performance may be extended by a
writing signed by the party or parties for whose benefit the provision is
intended.

 

Section 8.12           Best
Efforts.  Subject to the terms and
conditions herein provided, each party shall use its best efforts to perform or
fulfill all conditions and obligations to be performed or fulfilled by it under
this Agreement so that the transactions contemplated hereby shall be
consummated as soon as practicable.  Each
party also agrees that it shall use its best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective this Agreement and the transactions contemplated herein.

 

Section 8.13           Remedies.  In addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of damages, each
of the parties hereto will be entitled to specific performance of their
respective obligations hereunder.  The parties
agree that monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance of
any such obligation the defense that a remedy at law would be adequate.

 

Section 8.14           Construction.  The parties agree that each of them and/or
their respective counsel has reviewed and had an opportunity to revise this
Agreement and, therefore, the normal rule of construction to the effect
that any ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation of Agreements or any amendments hereto or the
transactions contemplated hereby.

 

Section 8.15           Entire
Agreement.  This Agreement represents
the entire agreement between the parties relating to the subject matter thereof
and supersedes all prior agreements, understandings and negotiations, written
or oral, with respect to such subject matter.

 

[Remainder
of Page Intentionally Left Blank]

 

23

 

IN WITNESS WHEREOF, the corporate
parties hereto have caused this Share Exchange Agreement to be executed by
their respective officers, hereunto duly authorized, as of the date first-above
written.

 

	
   

  	
  CHINA
  NEW BORUN CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Shan Junqin

  
	
   

  	
  Name:

  	
  Shan
  Junqin

  
	
   

  	
  Title:

  	
  Director

  
	
   

  	
   

  
	
   

  	
  GOLDEN
  DIRECTION LIMITED

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Shan Junqin

  
	
   

  	
  Name:

  	
  Shan
  Junqin

  
	
   

  	
  Title:

  	
  Director

  
	
   

  	
   

  
	
   

  	
  STAR
  ELITE ENTERPRISES LIMITED

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Chen Ping

  
	
   

  	
  Name:

  	
  Chen
  Ping

  
	
   

  	
  Title:

  	
  Director

  
	
   

  	
   

  
	
   

  	
  EARNSTAR
  HOLDING LIMITED

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Wei
  Yibin

  
	
   

  	
  Name:

  	
  Wei
  Yibin

  
	
   

  	
  Title:

  	
  Director

  
	
   

  	
   

  
	
   

  	
  TDR
  ADVISORS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Wang Ruiping

  
	
   

  	
  Name:

  	
  Wang
  Ruiping

  
	
   

  	
  Title:

  	
  Director

  
	
   

  	
   

  
	
   

  	
  CHINA
  HIGH ENTERPRISES LIMITED

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Shan Junqin

  
	
   

  	
  Name:

  	
  Shan
  Junqin

  
	
   

  	
  Title:

  	
  Director

  
				

 

24

 

CHINA HIGH SCHEDULES

 

	
  Item 1.01

  	
   

  	
  Certificate
  of Incorporation of China High

   

  Please
  see Annex A attached hereto.

   

  Amended
  and Restated Memorandum and Articles of Association of China High

   

  Please
  see Annex B attached hereto.

  
	
   

  	
   

  	
   

  
	
  Item 1.02

  	
   

  	
  Investment
  agreements and related documentation and instruments entered into by and
  between or among the Stockholders and China High:

   

  Please
  see Annex C attached hereto.

  
	
   

  	
   

  	
   

  
	
  Item 1.04(a)

  	
   

  	
  Audited
  Consolidated Financial Statements of China High for the years ended December 31,
  2006, 2007 and 2008

   

  Please
  see Annex D attached hereto.

  
	
   

  	
   

  	
   

  
	
  Item 104(b)

  	
   

  	
  Unaudited
  Consolidated Financial Statements of China High for the nine(9) months
  ended September 30, 2008 and 2009

   

  Please
  see Annex E attached hereto.

  

 

 

NEW BORUN SCHEDULES

 

	
  Item 2.01

  	
   

  	
  Certificate
  of Incorporation

   

  Please
  see Exhibit 3.1 to the Company’s Registration Statement on Form F-1 as filed
  with the SEC on April 27, 2010.

   

  Memorandum
  and Articles of Association

   

  Please
  see Exhibits 3.2 and 3.3 to the Company’s Registration Statement on Form F-1
  as filed with the SEC on April 27, 2010.

  
	
   

  	
   

  	
   

  
	
  Item 2.04

  	
   

  	
  Audited
  Balance Sheet of China New Borun Corporation and Pro Forma Financial
  Statements

  
	
   

  	
   

  	
   

  
	
  Item 2.08

  	
   

  	
  Contracts:

   

  None.

  
	
   

  	
   

  	
   

  
	
  Item 2.12

  	
   

  	
  Material
  Transactions or Affiliates:

   

  (1) Share
  Exchange Agreement, dated March 15, 2010, by and among China New Borun
  Corporation, King River Holding Limited, Golden Direction Limited and China
  High Enterprises Limited  (please see Exhibit 2.2
  to the Company’s Registration Statement on Form F-1 as filed with the
  SEC on April 23, 2010)

   

  (2) Shareholders
  Agreement, dated March 31, 2010, by and among China New Borun
  Corporation, King River Holding Limited, Star Elite Enterprises Limited,
  Earnstar Holding Limited and TDR Advisors, Inc. (please see Exhibit 4.4
  to the Company’s Registration Statement on Form F-1 as filed with the
  SEC on April 23, 2010)

  

 

1

 

ANNEX A

 

 

No. 1256980

 

CERTIFICATE OF INCORPORATION

 

 

 

I hereby certify that

 

CHINA HIGH ENTERPRISES
LIMITED

 

is this day incorporated in Hong
Kong under the Companies Ordinance

 

 

(Chapter 32) and that this
company is limited.

 

 

Issued on 15 July 2008.

 

 

 

 

	
   

  	
  

  
	
   

  	
   

  
	
   

  	
  Ms. Fanny Wing-chi LAM

  
	
   

  	
  for Registrar of Companies

  
	
   

  	
  Hong Kong

  
	
   

  	
   

  
	
   

  	
  

  
	
   

  	
  

  

 

Note:

Registration of a company name with the
Companies Registry does not confer any trade mark rights or any other
intellectual property rights in respect of the company name or any thereof.

 

 

 

ANNEX B

 

AMENDED AND RESTATED MEMORANDUM

 

AND

 

ARTICLES OF ASSOCIATION

 

OF

 

CHINA HIGH ENTERPRISES LIMITED

 

 

 

(adopted by a special resolution dated 30th September, 2009)

 

Hong Kong

 

CERTIFIED TRUE
COPY

 

	
   

  	
  For and on behalf of

  ILS CORPORATE SERVICES LIMITED

  /s/ Authorized Person

  	
  

  
	
   

  	
  Authorized Signature(s)

  	
   

  

 

ILS
CORPORATE SERVICES LIMITED

Secretary

 

 

 

No. 1256980

 

 

CERTIFICATE OF INCORPORATION

I hereby certify that

 

CHINA HIGH ENTERPRISES LIMITED

 

is this
day incorporated in Hong Kong under the Companies Ordinance

 

 

(Chapter 32) and that this company is limited.

 

 

Issued on 15 July 2008.

 

 

 

	
   

  	
  

  
	
   

  	
  Ms. Fanny Wing-chi LAM

  
	
   

  	
  for Registrar of Companies

  
	
   

  	
  Hong Kong

  
	
   

  	
  

  

 

Note
:

Registration
of a company name with the Companies Registry does not confer any trade mark
rights or any other intellectual property rights in respect of the company name
or any part thereof.

 

 

 

ANNEX B

 

AMENDED AND RESTATED MEMORANDUM

 

AND

 

ARTICLES OF ASSOCIATION

 

OF

 

CHINA HIGH ENTERPRISES LIMITED

 

 

 

(adopted by a
special resolution dated 30th September, 2009)

 

Hong Kong

 

1

 

THE COMPANIES ORDINANCE (Chapter 32)

 

 

Private Company Limited by Shares

 

 

AMENDED AND RESTATED MEMORANDUM OF ASSOCIATION

OF

 

CHINA HIGH ENTERPRISES LIMITED

 

 

(adopted by a special resolution dated 30th September 2009)

 

 

First:- The name of
the Company is “CHINA HIGH ENTERPRISES
LIMITED

 

 

.

 

	
  Second:-

  	
  The Registered
  Office of the Company is situated in Hong Kong.

  
	
   

  	
   

  
	
  Third:-

  	
  The liability of
  the members is limited.

  
	
   

  	
   

  
	
  Fourth:-

  	
  The Share Capital of the Company is HK$ 10776divided into 8,000
  ordinary shares of HK$1.00 each, 2776 Series A Preference Shares of
  HK$1.00 each with the power for the company to increase or reduce the said
  capital and to issue any part of its capital, original or increased, with or
  without preference, priority or special privileges, or subject to any
  postponement of rights or to any conditions or restrictions and so that,
  unless the conditions of issue shall otherwise expressly declare, every issue
  of shares, whether declared to be preference or otherwise, shall be subject
  to the power hereinbefore contained.

  

 

2

 

I/We the undersigned,
whose names, addresses and descriptions are hereto subscribed, am desirous of
being formed into a Company in pursuance of this Memorandum of Association, and
we respectively agree to take the number of share in the capital of the Company
set opposite to my respective name:-

 

	
  Names,
  Addresses and Description of Members

  	
   

  	
  Number of Share

  taken by each

  Member

  
	
   

  For and on behalf
  of

  ARSD06 LIMITED  

   

  (Sd.) Leung Wah Lok  

  	
   

  	
  1

   

   

  
	
   

  	
   

  	
   

  
	
  /s/ Authorized
  Person

  	
   

  	
   

  
	
  Authorized
  Signature  

  Room 904,
  Harvest Building,  

  29-35 Wing Kut
  Street,  

  Central,  

  Hong Kong.  

  Corporation

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Total Number of
  Share Taken

  	
   

  	
  1

  

 

Dated the 30th day of September 2009

 

WITNESS to the above
signature(s):

 

	
   

  	
  (Sd.)Leung Wai Fun
  Fanny

  
	
   

  	
  Merchant

  

 

3

 

	
   

  	
  Room 904,
  Harvest Building,

  
	
   

  	
  29-35 Wing Kut
  Street,

  
	
   

  	
  Central,

  
	
   

  	
  Hong Kong

  

 

THE COMPANIES ORDINANCE
(Chapter 32)

 

Company Limited by Shares

 

RESTATED

ARTICLES OF ASSOCIATION

OF

CHINA HIGH ENTERPRISES
LIMITED

 

 

( As adopted by special
resolution passed on the 25th September,2009 )

 

PRELIMINARY

 

1.               The regulations in Table A in the First Schedule to the Ordinance shall
not apply to the Company.

 

INTERPRETATION

 

2.
 (a)  In these Articles, save where
the context otherwise requires:

 

	
  “the
  Company”

  	
   

  	
  means
  the above named Company;

  
	
   

  	
   

  	
   

  
	
  “the
  Ordinance”

  	
   

  	
  means
  the Companies Ordinance ( Chapter 32 of the Laws of Hong Kong ), and includes
  every other Ordinance incorporated therewith or substituted therefor, and in
  the case of any such substitution the references in these Articles to the
  provisions of the Ordinance shall be read as references to the provisions
  substituted therefor in the new Ordinance;

  
	
   

  	
   

  	
   

  
	
  “the
  Board” and “the Directors”

  	
   

  	
  means
  the Directors for the time being of the Company or the Directors present at a
  duly convened meeting of Directors at which a quorum is present;

  
	
   

  	
   

  	
   

  
	
  “Dividend”

  	
   

  	
  includes
  bonuses, distributions in specie and in kind, capital distributions and
  capitalization issues;

  
	
   

  	
   

  	
   

  
	
  “month”

  	
   

  	
  means
  calendar month;

  
	
   

  	
   

  	
   

  
	
  “Ordinary
  Shares”

  	
   

  	
  means
  the ordinary shares of nominal value of HK$1.00 each in the capital of the
  Company;

  

 

4

 

	
  “Investors”

  	
   

  	
  means the holder of  Series A Preference Shares and any person to whom he or she or it shall have transferred any part o
  their respective shareholding in the Company;

  
	
   

  	
   

  	
   

  
	
  “the
  Office”

  	
   

  	
  means
  the registered office of the Company for the time being;

  
	
   

  	
   

  	
   

  
	
  “paid
  up”

  	
   

  	
  includes
  credited as paid up;

  
	
   

  	
   

  	
   

  
	
  “the
  Register”

  	
   

  	
  means
  the register of members of the Company kept pursuant to the Ordinance and
  includes any branch register kept pursuant to the Ordinance;

  
	
   

  	
   

  	
   

  
	
  “the
  Secretary”

  	
   

  	
  means
  the secretary for the time being of the Company;

  
	
   

  	
   

  	
   

  
	
  “the
  Seal”

  	
   

  	
  means
  the common seal of the Company or any official seal that the Company may have
  as permitted by the Ordinance;

  
	
   

  	
   

  	
   

  
	
  “Series A

  	
   

  	
   

  
	
  Preference
  Shares”

  	
   

  	
  means
  the Series A Preference Shares of nominal value of HK$1.00 each in the
  capital of the Company

  
	
   

  	
   

  	
   

  
	
  “Shares”

  	
   

  	
  means
  Ordinary Shares and Series A Preference Shares.

  
	
   

  	
   

  	
   

  
	
  “Shareholdings”

  	
   

  	
  means
  the respective shareholding held by the holders of Series A Preference
  Shares or holder of Ordinary Shares;

  
	
   

  	
   

  	
   

  
	
  “Investors Agreements”

  	
   

  	
  means
  the Investment Agreement and the Supplementary Agreement  (referred to as “the Investment Agreement
  1”) dated at the date of 5th  November,
  2008 by and among Golden Direction Limited(“GD”), China High Enterprises Limited(“the company”)
  and Star Elite Enterprises Limited(“SEE”),as well as the Investment Agreement
  (referred to as “Investment Agreement 2”) dated 8th June, 2009 by and among
  GD, the Company, SEE, EH and LI ZI WEN as well as the Investment Agreement
  (referred to as “Investment Agreement 3”) dated 26th June, 2009 by and among
  GD, the Company, SEE, EH, TDR and LI, ZI WEN.The Investment Agreement 1 and
  the Investment 

  

 

5

 

	
   

  	
   

  	
  Agreement 2 and Investment Agreement 3 are
  collectively referred to as “Investment Agreement”.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  the Investment Agreement and the Supplemental
  Agreement collectively be referred as the “Investors Agreements”

  
	
   

  	
   

  	
   

  
	
  “Subsidiaries”

  	
   

  	
  means the subsidiaries of the Company;

  
	
   

  	
   

  	
   

  
	
  “these
  Articles

  	
   

  	
  means
  the Articles of Association in their present form or as altered from time to
  time;

  
	
   

  	
   

  	
   

  
	
  “in
  writing” and “written”

  	
   

  	
  includes
  cable, telex, facsimile messages, electronic messages and any mode of mode of
  reproducing words in a legible and non-transitory from.

  

 

(b)  
In these Articles, if not inconsistent with the subject or context,
words importing the singular number only shall include the plural number and
vice versa, and words importing any gender shall include all genders and vice
versa.

 

(c)  Subject as aforesaid, any words defined
in the Ordinance or any statutory modification thereof in force at the date at
which these Articles become binding on the Company shall, if not inconsistent
with the subject or context, bear the same meaning in these Articles.

 

(d)  The headings are inserted for
convenience only and shall not affect the construction of these Articles.

 

(e) Earnstar Holding
Limited (“EH”) agreed to act in accordance
with the Investment Agreement entered into with China High Enterprises Limited
(“the Company”) dated 8th ,June, 2009. The Share Structure
of the Company is as follows after the completion of the foregoing
subscription. The nature of the stock held by EH is Series A Preference
Shares

 

TDR Advisors Inc. (“TDR”) agrees to act in
accordance with the Investment Agreement entered into with China High
Enterprises Limited (“the Company”) dated June 26, 2009. The Share
Structure of the Company is as follows after the completion of the foregoing
subscription. The nature of the stock held by TDR is Series A Preference
Share.

 

	
  Ordinary Shares

  	
   

  	
  No. of Shares

  	
   

  
	
  Golden Direction Limited

  	
   

  	
  8,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total Ordinary Share

  	
   

  	
  8,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Series A Preference Shares

  	
   

  	
   

  	
   

  
	
  Star Elite Enterprises Limited

  	
   

  	
  2,000

  	
   

  
	
  Earnstar Holding Limited

  	
   

  	
  574

  	
   

  
	
  TDR Advisors Inc.

  	
   

  	
  202

  	
   

  
	
  Total Series A Preference Shares

  	
   

  	
  2776

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total Shares

  	
   

  	
  10776

  	
   

  

 

6

 

PRIVATE COMPANY

 

3.
The Company is a private company, and accordingly:

 

(a)          any invitation to the public to subscribe for any shares or debentures
of the Company is prohibited;

 

(b)         the number of the members of the Company (not including persons who are
in the employment of the Company, and persons who, having been formerly in the
employment of the Company, were, while in such employment, and have continued
after the determination of such employment to be, members of the Company) shall
be limited to 50 PROVIDED that where two or more persons hold one or more
shares in the Company jointly they shall, for the purposes of this Article, be
treated as a single member;

 

(c)          the right to transfer the shares of the Company shall be restricted in
manner hereinafter prescribed; and

 

(d)         the Company shall not have power to issue share warrants to bearer.

 

THE OFFICE

 

4. The Office shall be at such place in Hong
Kong as the Directors or Secretary shall from time appoint.

 

SHARES

 

5. (a)  Subject to the provisions of Section 57B
of the Ordinance, and save as provided by contract or these Articles to
contrary, all unissued shares shall be at the disposal of the Directors who may
allot, grant options over, or otherwise deal with or dispose of the same to
such persons, at such times, for such consideration and generally upon such
terms and conditions as they think proper, but so that no shares of any class
shall be issued at a discount except in accordance with Section 50 of the
Ordinance.

 

(b)  The Company may give such financial
assistance for purposes of acquiring shares in the 

 

7

 

Company
as is not prohibited by the Ordinance.

 

(c)  For purposes of Article 8(b) the
Directors are authorised to make statutory declarations or take such other
steps as may be required by the Ordinance in relation to the giving of
financial assistance to acquire shares in the Company.

 

6. The Company may make arrangements on the
issue of shares for a difference between the holders of such shares in the
amount of calls to be paid and the time of payment of such calls.

 

7. If by the conditions of allotment of any
shares the whole or part of the amount or issue price thereof shall be payable
by installments, every such installment shall, when due, be paid to the Company
by the person who for the time being is the registered holder of shares, or his
legal personal representative.

 

8.  (a) 
Subject to sections 49 to 49S of the Ordinance, the Company may issue shares
which are to be redeemed or are liable to be redeemed at the option of the
Company or the shareholder. The redemption of shares may be affected upon such
terms and in such manner as the Company before or upon issue of the shares
shall by ordinary resolution determine.

 

(b)  Subject to sections 49 to 49S of the
Ordinance and these Articles, the Company may purchase its own shares
(including redeemable shares) and without prejudice to the generality of the
foregoing the Company may purchase its own shares (including any redeemable
shares) in order to:

 

(i)                                     settle or compromise a debt or claim;

 

(ii)                                  eliminate a fractional share or fractional entitlement;

 

(iii)                               fulfill an agreement in which the Company has an option or is obliged to
purchase shares under an employee share scheme which had previously been
approved by the Company in general meeting;

 

(iv)                              comply with an order of court under section 8(4),47G(6), or 168A(2) of
the Ordinance.

 

(c)  Subject to sections 49I to 49O of the
Ordinance and these Articles the Company may make a payment in respect of the
redemption or purchase under section 49A or (as the case may be) section 49B of
its own shares otherwise than out of its distributable profits or the proceeds
of a fresh issue of shares.

 

(d)  For purposes of Article 8(c), the
Directors are, subject to of these Articles, authorisesd to make statutory
declarations or take such other steps as many be required by the Ordinance in
relation to the redemption or purchase by the Company of its own shares out of
capital.

 

9.      Subject
to the provisions of these Articles, the Company shall not, except as required
by law, be

 

8

 

bound by or required in any way to recognize any
contingent, future, partial or equitable interest in any share or in any
fractional part of a share, or any other right in respect of any share, or any
other to or in respect of any such share on the part of any person (even when
having notice thereof) except an absolute right to the entirety thereof in the
registered holder.

 

10. The Company may in connection with the issue
of any shares exercise all powers of paying interest out of capital and of
paying commission and brokerage conferred or permitted by the Ordinance.

 

11.  No
person shall become a member until his name shall have been entered into
Register.

 

JOINT HOLDERS OF SHARES

 

12.  Where
two or more persons are registered as the holding of any share they are deemed
to hold the same as joint tenants with benefit of survivorship, subject to the
following provisions:

 

(a) the Company shall not be bound to
register more than three persons as the holders of any shares except in the
case of the legal personal representative of a deceases member;

 

(b) the joint holders of any shares shall
be liable severally as well as jointly in respect of all payments which ought
to be made in respect of such shares;

 

(c) on the death of any one of such joint
holders the survivor or survivors shall be the only person or persons
recognized by the Company as having any title to such shares, but the Directors
may require such evidence of death as they may deem fit;

 

(d) any one of such joint holders may give
effectual receipts for any dividend, return of capital or other payment in the
share; and

 

(e) the Company
shall be at liberty to treat the person whose name stands first in the Register
as one of the joint holders of any shares as solely entitles to delivery of the
certificate relating to such shares, or to receive notices from the Company,
and to attend and vote at general meetings of the Company, and any notice given
to such person shall be deemed notice to all the joint holders; but any one of
such joint holders may be appointed the proxy of the persons entitled to vote
on behalf such joint holders, and as such proxy to attend and vote at general meetings
of the Company, and if more than one of such joint holders be present whose
name stands first in the Register in respect of such shares shall alone be entitled
to vote in respect thereof.

 

SHARE CERTIFICATES

 

13. Every member shall ,without payment, be
entitled to receive within two months after allotment or lodgment of an
instrument of transfer duly stamped, or within such other period as the
conditions of issue may provide, a certificate for all his shares of any
particular class, or several certificates, each for one or more of his shares,
upon payment of such fee, not exceeding two dollars for every

 

9

 

certificate after the first, as the Directors
shall from time to time determine, provided that in the event of a member
transferring part of the shares represented by a certificate in his name a new
certificate in respect of the balance thereof shall be issued in his name
without payment and, in the case of joint holders, the Company shall not be
bound to issue more than one certificate for all the shares of any particular
class registered in their joint names.

 

14.  Every
share certificate shall be issued under the Seal and shall specify the number
and class of shares, and, if required, the distinctive numbers thereof
comprised therein, the amount paid up thereon and, if appropriate, whether such
shares carry no voting rights. No certificate shall be issued in respect of
more than one class of shares. If there shall be more than one class of shares
then certificate of every class shall state thereon that the share capital is
divided into different classes and the nominal value of the voting rights
attaching to each class.

 

15.  If
any share certificate shall be worn out, defaced, destroyed or lost, it may be
renewed on such evidence being produced as the Directors shall require, and in
case of wearing out or defacement, on delivery up of the old certificate, and
in case of destruction or loss, on the execution of such indemnity (if any), as
the Directors may from time to time require. In case of destruction or loss,
the person to whom such renewed certificate is given shall also bear and pay to
the Company all expenses incidental to the investigation by the Company of the
evidence of such destruction or loss and of such indemnity.

 

CONVERSION RIGHTS OF SERIES A
SERIES A SERIES A PREFERENCE SHARES

 

16.  The holders of the Series A Preference
Shares shall have conversion rights as follows (the “Conversion Rights”):

 

(a) Right to Convert. Each Series A Preference Share, at the option of
its holder, at the office of the Company, at any time after the
date of issuance of such shares, shall be convertible into such number of fully
paid Ordinary Shares as jointly determined by the Company and the respective
holder of the Series A Preference Shares. 

 

The conversion shall be based on the following principles: Except those
circumstances regulated in the Investment Agreement, the shareholding of SEE in
the Company shall be 18.56% after
all its Series A Preference Shares have been converted into ordinary
shares and the shareholding of EH in the Company shall be 5.33% after all its Series A
Preference Shares have been converted into ordinary shares and the shareholding proportion of TDR in the
Company shall be 1.87% after all its Series A Preference Shares have been
converted into ordinary shares.

 

(b) Automatic Conversion. Each Series A
Preference Share automatically shall be converted into Ordinary Shares at the
then effective and applicable conversion price immediately upon the closing of
a firm commitment underwritten public offering of the Ordinary Shares on an
internationally recognized stock exchange at a per-share price of no less than
a pre-determined ratio of the Original Issue Price (adjusted to reflect share
splits, share dividends, combinations, consolidations, recapitalizations and
the like.)

 

10

 

In any event, the conversion should not affect the
agreed shareholding proportion between the original shareholders and the Series A
Preference Shareholders in the Investors Agreements.

 

(c)  Mechanics of
Conversion. No fractional shares of Ordinary Shares shall be issued upon
conversion of any Series A Preference Shares. In lieu of any fractional
share to which the holder would otherwise be entitled (after aggregating all
shares into which the Series A Preference Shares held by such holder could
be converted), the Company shall pay each equal to such fraction multiplied by
the then fair market value of the Ordinary Shares ,as determined by the Board,
before any holder of Series A Preferences Shares shall be entitled or
certificates therefore, duly endorsed, at the office of the Company or of any
transfer agent for Series A Preference Shares, and shall give written
notice to the Company at such office that he elects to convert the same, the
Company shall, as soon as practicable thereafter, issue and deliver at such,
office to such holder of Series A Preference Shares, a certificate or
certificates for the number of Ordinary Shares to which such holder shall be
entitled, together with a check payable to the holder in the amount of any cash
amounts payable as the result of a conversion into fractional Ordinary Shares.
Such conversion shall be deemed to have been made immediately prior to the
close of business on the date of be converted, or in the case of conversion
pursuant to Article 16.2, on the effective date of the offering as
provided in article date of the offering as provided in Article 16.1above.
And the person or persons entitled to receive the Ordinary Shares issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such Ordinary Shares on such date; provided, that if any such
conversion is made in connection with any transaction that would, if completed,
constitute a liquidation of the Company for purposes of Article 113
hereof, or in connection with any public offering of the Company’s securities
then such conversion may be made contingent upon, and effective only as of, the
closing of such transaction or offering.

(d)  Adjustments to conversion price for diluting
issues.

(i) Special
definitions, for purposes of this Article 16(d) the following definitions shall apply;

(1) “Options” shall mean
rights, options or warrants to subscribe for, purchase or otherwise acquire
either ordinary shares or convertible securities.

(2) “Original issue date”
shall mean the date that shares of the Series A Preference Shares are
first issued. 

(3) “Convertible
securities” shall mean any evidences of indebtedness, shares (other than
Ordinary Shares) or other securities convertible into or exchangeable for
Ordinary Shares.

(4) “Additional ordinary
shares” shall mean all Ordinary Shares issued (or, pursuant to Article 16(d) (iii) deemed
to be issued) by the company after the original issue date, other than Ordinary
Shares issued or issuable (or pursuant to Article 16(d) (iii) deemed
to be issued;

(A) upon conversion of the Series A
Preference Shares;

(B) to officers directors or employees of,
or consultants to ,the company pursuant to a share grant, option plan or
purchase plan or other share incentive program or

 

11

 

agreement approved by a majority of the Board.

(C) to any bank, equipment
lesser, creditor, landlord, supplier or customer pursuant to a transaction that
is for primarily non-financing purposes and approved by a majority of the
Board; or

(D) pursuant to
acquisitions incenses joint ventures or transactions with strategic partners
which are for primarily non-financing purposes and approved by a majority of
the Board.

 

(ii)                                  No Adjustment of
conversion price. No adjustment in the Conversion Price of Series A
Preference Share shall be made in respect of the issuance of Additional
Ordinary Shares unless the consideration per share for an Additional Ordinary
Share issued or deemed to be issued by the Company is less than the Conversion
Price in effect on the date of and immediately prior to such issue.

 

(iii)                               Deemed issue of
additional Ordinary Shares.

 

(1)          Options and convertible
securities, in the event, at any time or from time to time after the original
issue date, the Company shall issue any options or convertible securities or
shall fix a record date for the determination of holders of any class of
securities entitled to receive any such options or convertible securities, then
the maximum number of Ordinary Shares issuable upon the exercise of such
options or in the case of convertible. Securities and options therefore, the
conversion or exchange of such convertible securities, shall be deemed to be
additional Ordinary Shares issued as of the time of such issue or in case such
a record date shall have been fixed as of the close of business on such record
date provided that additional Ordinary Shares shall not be deemed to have been
issued as to the be deemed to have been issued as to the Series A
Preference Shares unless the consideration per share (determined pursuant to Article 16(d)(v) hereof)
of such Additional Ordinary Shares would be less than the Conversion Price in
effect on the date of, and immediately prior to, such issue, or such record
date, as the case may be, and provided further that in any such case in which
Additional Ordinary Shares are deemed to be issued;

 

(A)        no further adjustment in the
Conversion Price shall be made upon the subsequent issue of convertible
securities or shares of Ordinary Shares upon the exercise of such options or
conversion or exchange of such convertible securities; and

 

(B)          if such options or convertible
securities by their terms provide with the passage of time or otherwise for any
change in the consideration payable to the Company or in the number of Ordinary
Shares issuable (including a change resulting from the extirpation of such
options or the rights of conversion or exchange of such convertible securities)
upon

 

12

 

the exercise conversion or
exchange thereof, the conversion price computed upon the original issue
thereof(or upon the occurrence of a record date with respect thereto) and any
subsequent adjustments based thereon, shall upon any such change becoming
effective, be recomputed to reflect such change insofar as it affects such
options or the rights of conversion or exchange under such convertible
securities.

 

(2)          Share Dividends. In the event
the Company at any time or from time to time after the Original Issue Date
shall declare or pay any dividend on the Ordinary Shares payable in Ordinary
Shares, options or convertible securities additional ordinary shares shall be
deemed to have been issued immediately after the close of business on the
record date for the determination of holders or any class of securities
entitled to receive such dividend.

 

(iv) Adjustment of
conversion price upon issuance of additional Ordinary Shares. In the event the
Company shall issue additional Ordinary Shares(including additional Ordinary
Shares deemed to be issued pursuant to Article 16(d)(iii) without
consideration or for a consideration per share less than the conversion price
in effect on the date of and immediately prior to such issue then, and in such
event the conversion price shall be reduced concurrently with such issue to a
price (calculated to the nearest cent ) equal to the amount of consideration
per share received by the Company a result of such issuance of additional
Ordinary Shares.

 

(v) Determination of
consideration, for purposes of this Article 16(d) the consideration
received by the company for the issue of any additional Ordinary Shares shall
be computed as follows:

 

(I) Cash and Property; such consideration shall;

(A) insofar as it consists
of cash, be computed at the aggregate amount of cash received by the Company
excluding amounts paid or payable for accrued interest or accrued dividends and
provided further that no deduction shall be made for any reasonable and
customary commissions or expenses paid or incurred by the Company for any
underwriting of the issue or otherwise in connection therewith;

 

(B) insofar as it consists
of property other than cash, be computed at the fair market value thereof at
the time of such issue, as determined in good faith by the Board provided that
such fair market value shall not exceed the aggregate current market price of
the Ordinary Shares being issued ;and

 

(C) in the event
Additional Ordinary Shares are issued together with other shares or securities
or other assets of the Company for consideration which covers both, be computed
as the portion of such consideration so received in respect of the Additional
Ordinary Shares computed as provided in clauses (A) and (B) above by
the Board.

 

13

 

(2) Options and
Convertible Securities. The consideration per share received by the Company for
Additional Ordinary Shares deemed to have been issued pursuant to Article 16(iii),
relating to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable by the Company as
consideration for the issue of such Options or Convertible Securities, plus the
minimum aggregate amount of additional consideration(as set forth in the
instruments relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such consideration) payable to the Company upon
the exercise such Options or the conversion or exchange of such Convertible
Securities or, in the case of Options for Convertible Securities, the exercise
of such Options for Convertible Securities, and the conversion or exchange of
such Convertible Securities by (y) the maximum number of Ordinary Shares
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the conversion or exchange of
such Convertible Securities.

 

(3) Share Dividends. Any
additional shares of Ordinary Shares deemed to have been issued relating to a
share dividend shall be deemed to have been issued for no consideration.

 

(e) Adjustment for share
splits and combinations. If the Company at any time or from time to time
effects a subdivision of the outstanding Ordinary Shares the conversion price
then in effect immediately before that subdivision shall be proportionately
decreased provided however that if the company simultaneously effects the same
subdivision of the outstanding Series A Preference Shares as is undertaken
with respect to the Ordinary Shares then both the original issue price and the
conversion price shall be proportionately decreased conversely ,if the Company
at any time or from time to time combines the outstanding Ordinary Shares the
conversion price then in effect immediately before the combination shall be
proportionately increased; provided, however ,that if the Company
simultaneously effects the same combination of the outstanding Series A
Preference Shares, then outstanding Series A Preference Shares as is
undertaken with respect to the Ordinary Shares ,then both the original issue
price and the conversion price shall be proportionately increased. Any
adjustment under this Article 16(e) shall become effective at the
close of business on the date the subdivision or combination becomes effective.

 

(f) Adjustment for Certain
Dividends and Distributions. In the event the Company at any time or from time
to time makes, or fixes a record date for the determination of holders of
Ordinary Shares entitled to receive, a dividend or other distribution payable
in additional ordinary shares, then and in each such event the conversion price
then in effect shall be decreased as of the time of such issuance or ,in the
event such a record date is fixed, as of the close of business on such record
date, by multiplying the conversion price then in effect by a fraction (1) the
numerator of which is the total number of Ordinary Shares issued and
outstanding immediately prior to the time of such issuance on the close of
business on such record date,

 

14

 

and(2) the denominator of which shall be the total
number of ordinary shares issued and outstanding immediately prior to the time
of such issuance on the close of business on such record date, plus the number
of Ordinary Shares issuable in payment of such dividend or distribution;
provided, however, that if such record date is fixed and such dividend is no
fully paid or if such distribution is not fully made on the date fixed
therefore, the conversion price shall be recomputed accordingly as of the close
of business on such record date and thereafter the conversion price shall be
adjusted pursuant to this Article 16(f) as of the time of actual
payment of such dividends or distributions.

 

(g) Adjustments for Other
Distributions. In the event the Company shall declare a distribution to holders
of Ordinary Shares payable in securities of other persons, evidences of
indebtedness issued by the Company or other persons, assets(excluding cash
dividends) or options or rights not referred to in Articles 16(e)and 16(f),
then, in each such case for the purpose of this Article 16(g), the holders
of the Series A Preference Shares shall be entitled to a proportionate
share of any such distribution as though they were the holders of the number of
Ordinary Shares of the Company into which their Series A Preference Shares
are convertible as of the record date fixed for the determination of the
holders of Ordinary Shares of the Company entitled to receive such
distribution.

 

(h) Adjustments for
Reclassification. If the Ordinary Shares issuable upon the conversion of
the  Series A Preference Shares are
changed into the same or a different number of shares of any class or classes
of shares, whether by recapitalization, reclassification or otherwise (other
than a subdivision or combination of 
shares or a share dividend, as provided for elsewhere in this Article 16),
then and in any such event each holder of Series A Preference Shares shall
have the right thereafter to convert such shares into the kind and amount of
shares and other securities and property receivable upon such reclassification
or other change, by holders of the number of the Ordinary Shares into which
such Series A Preference Shares might have been converted immediately
prior to such reclassification or change, all subject to further adjustment as
provided herein.

 

(i) No Impairment. The
Company will not, by amendment of its Articles of Association or through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action ,avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions of this Article 16 and in
the taking of all such action as may be necessary or appropriate in order to
protect the Conversion Rights of the holders of the Series A Preference
Shares against impairment.

 

(j) Certificate as to
Adjustments. Upon the occurrence of each adjustment or readjustment of the
Conversion Price pursuant to this Article 16, the Company at its expense
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and furnish to each holder of Series A Preference Shares a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is

 

15

 

based. The Company shall, upon the written request at
any time of any holder of the Series A Preference Shares, furnish or cause
to be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price and the Original
Issue Price at the time in effect, and (iii) the number of Ordinary Shares
and the amount, if any, of other property which at the time would be received
upon the conversion of the Series A Preference Shares.

 

(k) Notices of Record
Date. In the event that the Company shall propose at any time:

(i)                                       to declare any
dividend or distribution upon its Ordinary Shares, whether in cash, property,
shares or other securities, whether or not a regular cash dividend and whether
or not out of earnings or earned surplus;

 

(ii)                                    to offer for
subscription pro rate to the holders of any class or series of its shares any
additional shares of any class or series or other rights;

 

(iii)                                 to effect any
reclassification or recapitalization of its outstanding Ordinary Shares
involving a change in the Ordinary Shares ;or

 

(iv)                                to merge or
consolidate with or into any other company, or sell ,lease or convey all or
substantially all its property or business, or to liquidate ,dissolve or wind
up;

 

then, in connection with each such event, the Company
shall send to the holders of the Series A Preference Shares:

 

(1)          at least twenty (20) days’
prior written notice of the date on which a record shall be taken for such
dividend, distribution or subscription rights and a description thereof (and
specifying the date on which the holders of Ordinary Shares shall be entitled
thereto) or for determining rights to vote in respect of the matters referred
to in (iii) and (iv) above; and

(2)          in the case of the matters
referred to in (iii) and (iv) above, at least twenty (20) days’ prior
written notice of the date when the same shall take place (and specifying the
date on which the holders of Ordinary Shares shall be entitled to exchange
their Ordinary Shares for securities or other property deliverable upon the
occurrence of such event).

 

Each such written notice shall be given by first class
mail, postage prepaid, addressed to the holders of Series A Preference
Shares at the address for each such holder as shown on the books of the Company.

 

(l)                     Reservation of Shares Issuable.
The Company shall at all times reserve and keep available out of its authorized
but unissued Ordinary Shares, solely for the purpose of effecting the
conversion of the Series A Preference Shares, such number of its Ordinary
Shares as shall from time to time be sufficient to effect the conversion of all
outstanding Series A Preference Shares, and if at any time the number of
authorized but unissued Ordinary Shares shall not be sufficient to effect the
conversion of all then outstanding Series A Preference Shares, the Company
will take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued Ordinary Shares to such
number of shares as shall be

 

16

 

sufficient for such purpose.

 

(m)               Right of Buy Back.  In the event the Company fails to qualify for
an initial public offering within the stipulated months following the first
date of the execution of the Investors Agreements, the Investors at anytime
after the expiration of the such period shall be entitled to the right to
require the holder of the Ordinary Shares to purchase all or part of their
shares in accordance with the following amounts, whichever is higher:

 

i)             specified times in the
Investors Agreements of the Original Price of each Share plus the annual
accrued dividends and all accrued but unpaid dividends payable to the Investors
(in accordance with their corresponding Shareholdings they request to be
buy-back), in which the interim dividends shall be calculated in accordance
with the relevant portion of the dividends of such year; or

ii)          the fair market value of the
Shareholdings of the Investors (in respect of their corresponding Shareholdings
they request to be buy-back) which shall be determined by an independent third
party which is approved by the Investors and the Company.

 

(n)                 Right of Inspection.  The Investor shall be entitled to inspection
and the Company shall provide to the Investors of the following documents:

(i)         the annual financial statements
audited by an accounting firm approved by the Investors and the Company within
90 days following the end of each financial year;

(ii)      the monthly unaudited financial
statements prepared in accordance with the PRC GAAP within 21 days following
the end of each financial month; and

(iii)   the annual financial budget of
the next financial year within 30 days prior to the end of each financial year.

 

CALLS ON
SHARES

 

17. (a)       The Directors may from time to time make calls upon the
members in respect of all monies unpaid on their shares (whether on account of
the nominal value of the shares or by way of 
premium) but subject always to the terms of issue of such shares, and
any such call may be made payable by installments .

 

(b)               Each member shall, subject to
receiving at least fourteen days notice specifying the time or times and place
for payment, pay to the Company the amount called on his shares and at the time
or times and place so specified. The non-receipt of a notice of any call by, or
the accidental omission to give notice of a call to, any of the members shall
not invalidate the call.

 

18. A call shall be deemed to
have been made at the time when the resolution of the Directors authorizing
such call was passed. A call may be revoked, varied or postponed as the
Directors may determine.

 

19. If any part of a sum called
in respect of any shares or any installment of a call be not paid before or on
the day appointed for payment thereof, the person from whom the sum is due
shall be liable to

 

17

 

pay interest on the outstanding part thereof at such
rate as the Directors shall determine from the day appointed for the payment of
such call or installment to the time of discharge thereof in full; but the
Directors may, if they shall think fit, waive the payment of such interest or
any part thereof.

 

20. If, by the terms of the
issue of any shares or otherwise, any amount is made payable upon allotment or
at any fixed time, whether on account of the nominal amount of the shares or by
way of premium, every such amount shall be payable as if it were a call duly
made and payable on the date on which by the terms of the issue the same
becomes payable; and all the provisions thereof with respect to the payment of
calls and interest thereon, or to the forfeiture of shares for non-payment of
calls, shall apply to every such amount and the shares in respect of which it
is payable in the case of non-payment thereof .

 

21. The Directors may, if they
shall think fit, receive from any member willing to advance the same all or any
part of the monies uncalled and unpaid upon any shares held by him; and upon
all or any of the monies so paid in advance the Directors may (until the same
would, but for such payment in advance, become presently payable) pay interest
at such rate as may be agreed upon between the member paying the monies in
advance and the Directors. The Directors may also at any time repay the amount
so advanced upon giving to such member one month’s notice in writing.

 

22. On the trial or hearing of
any action for the recovery of any money due for any call, it shall be
sufficient to prove that the name of the member sued is entered in the Register
as the holder, or one of the holders, of the shares in respect of which such
debt accrued; that the resolution making the call is duly recorded in the
resolution making the call is duly recorded in the Minute Book; and that notice
of such call was duly given to the member sued in pursuance of these Articles;
and it shall not be necessary to prove the appointment of the Directors who
made such call, nor any other matters whatsoever, but the proof of the matters
aforesaid shall be conclusive evidence of the debt.

 

23. No member shall, unless the
Directors otherwise determine. Be entitled to receive any dividend, or, subject
to the Ordinance, to receive notice of or to be present or vote at any general
meeting, either personally or (save as proxy for another member ) by proxy, or
to exercise any privileges as a member, or be reckoned in a quorum, until he
shall have paid all calls or other sums for the time being due and payable on
every share held by him, whether alone or jointly with any other person,
together with interest and expenses(if any).

 

FORFEITURE

 

24. If any member fails to pay
in full any call or installment of a call on the day appointed for payment
thereof, the Directors may at any time thereafter, during such time as any part
of the call or installment remains unpaid serve a notice on him requiring him
to pay so much of the call or installment as is unpaid together with interest
accrued and any expenses incurred by reason of such non-payment.

 

25. The notice shall name a
further day (not being less than fourteen days from the date of the notice) on
or before which such call or installment or part thereof required by the notice
is to be made,

 

18

 

and shall state that in the event of non-payment at or
before the time appointed the shares in respect of which the call was made will
be liable to be forfeited.

 

25E.              The provisions of these
regulations as to forfeiture shall apply in the case of non-payment of any sum
which, by the terms of issue of a share, becomes payable at a fixed time, whether
on account of the nominal value of the share or by way of premium, as if the
same had been payable by virtue of a call duly made and notified.

 

TRANSFER OF SHARES

 

26.           Pre-emption
Rights.

 

The Company shall not issue any Shares to any
person (the “New Subscriber”)
unless there shall be Shares not taken up by the existing holders unless the
Company has first made an offer in writing to the Investors in the proportion
of their respective Shareholdings in the Company and if there is a New
Subscriber present, on terms identical to or more favourable terms than the
terms offered to the New Subscriber.

 

In the event the existing holders offer to sell all or part of their Shares to a third
party, such offer shall not be valid or effective until first giving an option
to the Investors to decide whether to (i) purchase such shares with the
identical terms offered to the third party; or (ii) sell their Series A
Preference Shares to the third party with the identical terms offered to the
third party in accordance with the Investors’ respective Shareholdings.

 

AMENDMENTS OF MEMORANDUM AND
ARTICLES OF ASSOCIATION AND ALTERATION OF CAPITAL

 

26.  No
resolution of the members shall be passed or other decision or action taken by
or on behalf of the following matters with respect to the Company without
affirmative vote or consent recording in writing of all the Investors and the
Company shall procure that no resolution of the members shall be passed or
other decision of action taken by or on behalf of the Subsidiaries concerning
any of the following matters with respect to the Subsidiaries without the
affirmation vote or consent recorded in writing of the Investors:

 

26.1                           increase the share capital by such sum as
the resolution shall prescribe and with such rights, priorities and privileges
annexed thereto, as the Company in general meeting may determine;

 

26.2                           consolidate and divide all or any of its
share capital into Shares of larger amount than its existing Shares;

 

19

 

26.3                           by subdivision of its existing Shares or
any of them divide the whole or any part of its share capital into Shares of
smaller amount than is fixed by the Memorandum or into Shares without par
value;

 

26.4         cancel any Shares that at the date of
the passing of the resolution have not been taken or agreed to be taken by any
person.

 

27.   Subject
to the provisions of the Ordinance and the provisions of these Articles as
regards the matters to be dealt with by Ordinary Resolution, no resolution of
the members shall be passed or other decision or action taken by or on behalf
of the following matters with respect to the Company without affirmative vote
or consent recording in writing of all Investors and the Company shall procure
that no resolution shall be passed or other decision of action taken by or on
behalf of the Subsidiaries concerning any of the following matters with respect
to the Subsidiaries without the affirmation vote or consent recorded in writing
of the Investors :

 

27.1         change
its name

 

27.2         alter
or add to these Articles;

 

27.3         alter or add to the Memorandum with respect to any objects,
powers or other matters specified therein; and

 

27.4         reduce
its share capital and any capital redemption reserve fund.

 

REGISTERED OFFICE

 

28.    Subject
to the provisions of the Ordinance, the Company may by resolution of the
Directors change the location of its Registered Office.

 

GENERAL MEETINGS

 

29.    All
general meetings other than annual general meetings shall be called
extraordinary general meetings.

 

30.         The
Company shall, if required by the Ordinance, in each year hold a general
meeting as its annual general meeting, and shall specify the meeting as such in
the notices calling it.  The annual
general meeting shall be held at such time and place as the Directors shall
appoint.  At these meetings, the report
of the Directors (if any) shall be presented.

 

31.         The
Company may hold an annual general meeting, but shall not (unless required by
Ordinance) be obliged to hold an annual general meeting.

 

32.         The
Directors may call general meetings, and they shall on a member’s requisition
forthwith proceed to convene an extraordinary general meeting of the Company.

 

20

 

33.         A
member’s requisition is a requisition of member’s of the Company holding, on
the date of deposit of the requisition, not less than either (i) a
majority of the voting power of all of the Ordinary Shares, or (ii) a
majority of the voting power of all the Series A Preference Shares (on an
as-if-converted basis) of the Company entitled to attend and vote at general
meetings of the Company.

 

34.         The
requisition must state the objects of the meeting and must be signed by the
requisitions and deposited at the Registered Office, and may consist of several
documents in like form each signed by one or more requisitions.

 

35.         If the
Directors do not within twenty-one (21) days from the date of the deposit of
the requisition duly proceed to convene a general meeting to be held within a
further twenty-one (21) days, the requisitions, or any of them representing
more than one-half of the total voting rights of all of them, may themselves
convene a general meeting, but any meeting so convened shall not be held after
the expiration of three (3) months after the expiration of the said
twenty-one (21) days.

 

36.         A
general meeting convened as aforesaid by requisitions shall be convened in the
same manner as nearly as possible as that in which general meetings are to be convened
by Directors.

 

NOTICE OF GENERAL MEETINGS

 

37.         At
least five (5) days’ notice shall be given of any general meeting unless
such notice is waived either before, at or after such meeting both (i) by
the members (or their proxies) holding a majority of the aggregate voting power
of all of the Ordinary Shares entitled to attend and vote thereat, and (ii) by
the members (or their proxies) holding a majority of the aggregate voting power
of all the Series A Preference Shares (on an as-if-converted basis) of the
Company entitled to attend and vote thereat. 
Every notice shall be exclusive of the day on which it is given or
deemed to be given and of the day for which it is given and shall specify the
place, the day and the hour of the meeting and the general nature of the
business and shall be given in the manner hereinafter mentioned or in such
other manner, if any, as may be prescribed by the Company, provided that a
general meeting of the Company shall, whether or not the notice specified in
this regulation has been given and whether or not the provisions of the
Articles regarding general meetings have been complied with, be deemed to have
been duly convened if it is so agreed both (i) by the members (or their
proxies) holding a majority of the aggregate voting power of all of the
Ordinary Shares entitled to attend and vote thereat, and (ii) by the
Members (or their proxies) holding a majority of the aggregate voting power of
all the Series A Preference Shares (on an as-if-converted basis)  of the Company entitled to attend and vote
thereat.

 

38.         The
accidental omission to give notice of a general meeting to, or the non-receipt
of notice of a meeting by, any person entitled to receive notice shall not
invalidate the proceedings of that meeting.

 

21

 

39.         The
officer of the Company who has charge of the Register of Members of the Company
shall prepare and make, at least two (2) days before every general
meeting, a complete list of the members entitled to vote at the general
meeting, arranged in alphabetical order, and showing the address of each member
and the number of shares registered in the name of each member.  Such list shall be open to examination by any
member for any purpose germane to the meeting, during ordinary business hours,
for a period of at least two (2) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held.  The
list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any mmber of the Company
who is present.

 

PROCEEDINGS AT GENERAL MEETINGS

 

40.         No
business shall be transacted at any general meeting unless a quorum is present
at the time when the meeting proceeds to business. The holders of a majority of
the aggregate voting power of all of the Ordinary Shares entitled to notice of
and to attend and vote at such general meeting and the holders of a majority of
the aggregate voting power of all the Series A Preference Shares (on an
as-if-converted basis) entitled to notice of and to attend and vote at such
general meeting, together, present in person or by proxy or if a company or
other non-natural person by its duly authorised representative shall be a
quorum.

 

41.         A
person may participate at a general meeting by conference telephone or other
communications equipment by means of which all the persons participating in the
meeting can communicate with each other. 
Participation by a person in a general meeting in this manner is treated
as presence in person at that meeting.

 

42.         Subject
to Articles 26 and 27, a resolution in writing (in one or more counterparts) shall
be as valid and effective as if the resolution had been passed at a duly
convened and held general meeting of the Company if:

 

42.1                           in the
case of a Special Resolution, it is signed by all members required for such
Special Resolution to be deemed effective under the Ordinance; or

 

42.2                           in the
case of any resolution passed other than as a Special Resolution, it is signed
by members for the time being holding Shares carrying in aggregate not less
than the minimum number of votes that would be necessary to authorize or take
such action at a general meeting at which all Shares entitled to vote thereon
were present and voted (calculated in accordance with Article 51) (or,
being companies, signed by their duly authorised representative).

 

43.         A
quorum, once established, shall not be broken by the withdrawal of enough votes
to leave less than a quorum and the votes present may continue to transact
business until adjournment.  If, however,
such quorum shall not be present or represented at any general meeting, the
members (or their proxies) holding a majority of the aggregate voting power of
all of the Shares (whether

 

22

 

Preference or Ordinary) of the
Company represented at the meeting may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted that might have been
transacted at the meeting as originally notified. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each member entitled to vote thereat.

 

44.         The
chairman, if any, of the Board of Directors shall preside as chairman at every
general meeting of the Company, or if there is no such chairman, or if he or
she shall not be present within ten (10) minutes after the time appointed
for the holding of the meeting, or is unwilling or unable to act, the Directors
present shall elect one of their number, or shall designate a member, to be
chairman of the meeting.

 

45.         With
the consent of a general meeting at which a quorum is present, the chairman may
(and shall, if so directed by the meeting), adjourn the meeting from time to
time and from place to place, but no business shall be transacted at any
adjourned meeting other than the business left unfinished at the meeting from
which the adjournment took place.  When a
general meeting is adjourned for thirty (30) days or more, notice of the
adjourned meeting shall be given as in the case of an original meeting.  Otherwise it shall not be necessary to give
any such notice.

 

46.         A
resolution put to the vote of the meeting shall be decided on a show of hands
unless before or on the declaration of the result of the show of hands, the
chairman demands a poll, or any other member or members collectively present in
person or by proxy and holding at least a majority of the aggregate voting
power of all of the Shares (whether Preference or Ordinary) of the Company
entitled to attend and vote at the meeting demand a poll.

 

47.         Unless
a poll is duly demanded, a declaration by the chairman that a resolution has been
carried or carried unanimously, or by a particular majority, or lost or not
carried by a particular majority and an entry to that effect in the minutes of
the proceedings of the meeting shall be conclusive evidence of that fact
without proof of the number or proportion of the votes recorded in favour of or
against such resolution.

 

48.         The
demand for a poll may be withdrawn.

 

49.         Except
on a poll demanded on the election of a chairman or on a question of
adjournment, a poll shall be taken as the chairman directs, and the result of
the poll shall be deemed to be the resolution of the general meeting at which
the poll was demanded.

 

50.         A poll
demanded on the election of a chairman or on a question of adjournment shall be
taken forthwith. A poll demanded on any other question shall be taken at such
time as the chairman of the general meeting directs, and any business other
than that upon which a poll has been demanded or is contingent thereon may
proceed pending the taking of the poll.

 

23

 

VOTES OF MEMBERS

 

51.         Except
as otherwise required by law or these Articles, the Ordinary Shares and the Series A
Preference Shares shall vote together on an as-if-converted basis on all
matters submitted to a vote of members. 
Each Ordinary Share issued and outstanding shall have one vote and each Series A
Preference Share issued and outstanding shall have the number of votes equal to
the number of Ordinary Shares into which such Series A Preference Shares
are convertible pursuant to Article 16.

 

52.         In the
case of joint holders of record, the vote of the senior holder who tenders a
vote, whether in person or by proxy, shall be accepted to the exclusion of the
votes of the other joint holders, and seniority shall be determined by the
order in which the names of the holders stand in the Register of Members.

 

53.         A
member of unsound mind, or in respect of whom an order has been made by any
court having jurisdiction in lunacy, may vote, whether on a show of hands or on
a poll, by his or her committee, receiver, curator bonis or other person on
such member’s behalf appointed by that court, and any such committee, receiver,
curator bonis or other person may vote by proxy.

 

54.         No
Person shall be entitled to vote at any general meeting or at any separate
meeting of the holders of a class of Shares unless he or she is registered as a
member on the record date for such meeting nor unless all calls or other monies
then payable by such member in respect of Shares have been paid.

 

55.         No objection
shall be raised to the qualification of any voter except at the general meeting
or adjourned general meeting at which the vote objected to is given or tendered
and every vote not disallowed at the meeting shall be valid.  Any objection made in due time shall be
referred to the chairman whose decision shall be final and conclusive.

 

56.         On a
poll or on a show of hands, votes may be cast either personally or by
proxy.  A member may appoint more than
one proxy or the same proxy under one or more instruments to attend and vote at
a meeting.  Where a member appoints more
than one proxy, the instrument of proxy shall state which proxy is entitled to
vote on a show of hands.

 

57.         A
member holding more than one Share need not cast the votes in respect of his or
her Shares in the same way on any resolution and therefore may vote a Share or
some or all such Shares either for or against a resolution and/or abstain from
voting a Share or some or all of the Shares and, subject to the terms of the
instrument appointing him or her, a proxy appointed under one or more
instruments may vote a Share or some or all of the Shares in respect of which
he or she is appointed either for or against a resolution and/or abstain from
voting.

 

PROXIES

 

58.         The
instrument appointing a proxy shall be in writing, be executed under the hand
of the appointer or of his or her attorney duly authorised in writing, or, if
the appointer is a corporation, under the

 

24

 

hand of an officer or attorney
duly authorised for that purpose.  A
proxy need not be a member of the Company.

 

59.         The
instrument appointing a proxy shall be deposited at the Registered Office or at
such other place as is specified for that purpose in the notice convening the
meeting, no later than the time for holding the meeting or adjourned
meeting.  The chairman may in any event,
at his or her discretion, direct that an instrument of proxy shall be deemed to
have been duly deposited.  An instrument
of proxy that is not deposited in the manner permitted shall be invalid.

 

60.         The
instrument appointing a proxy may be in any usual or common form and may be
expressed to be for a particular meeting or any adjournment thereof or
generally until revoked.  An instrument
appointing a proxy shall be deemed to include the power to demand or join or
concur in demanding a poll.

 

61.         Votes
given in accordance with the terms of an instrument of proxy shall be valid
notwithstanding the previous death or insanity of the principal or revocation of
the proxy or of the authority under which the proxy was executed, or the
transfer of the Share in respect of which the proxy is given unless notice in
writing of such death, insanity, revocation or transfer was received by the
Company at the Registered Office before the commencement of the general meeting
or adjourned meeting at which it is sought to use the proxy.

 

CORPORATE
MEMBERS

 

62.         Any
corporation or other non-natural person that is a member may in accordance with
its constitutional documents, or in the absence of such provision by resolution
of its directors or other governing body, authorise such person as it thinks
fit to act as its representative at any meeting of the Company or any class of
members, and the Person so authorised shall be entitled to exercise the same
powers on behalf of the corporation which he or she represents as the
corporation could exercise if it were an individual Member.

 

SHARES
THAT MAY NOT BE VOTED

 

63.         Shares
in the Company that are beneficially owned by the Company or held by it in a
fiduciary capacity shall not be voted, directly or indirectly, at any meeting
and shall not be counted in determining the total number of outstanding Shares
at any given time.

 

APPOINTMENT OF DIRECTORS

 

64 The number of members
comprising the Board of Directors shall be six (6),
GD shall appoint three (3), SEE and EH and TDR shall each have one(1). The
meeting of the Board of Directors shall be held at least twice a year and once
every half of a year. The minimum number of members attending the meeting shall
be (four), which shall include the directors appointed by SEE and EH and TDR.
All expenses incurred due to the activities of the Board of Directors,

 

25

 

including, but not
limited to, the expenses for attending the meeting of the Board of Directors,
shall be borne by the Company.

 

POWERS OF DIRECTORS

 

64.         Subject to the provisions of the Ordinance, the
Memorandum and these Articles and to any directions given by Special
Resolution, the business of the Company shall be managed by or under the
direction of the Directors who may exercise all the powers of the Company;
provided, however, that the Company shall not carry out any action inconsistent
with Articles 26 and 27.  No alteration
of the Memorandum or these Articles and no such direction shall invalidate any
prior act of the Directors that would have been valid if that alteration had
not been made or that direction had not been given.  A duly convened meeting of Directors at which
a quorum is present may exercise all powers exercisable by the Directors.

 

65.         All cheques, promissory notes, drafts, bills of
exchange and other negotiable instruments and all receipts for monies paid to
the Company shall be signed, drawn, accepted, endorsed or otherwise executed as
the case may be in such manner as the Directors shall determine.

 

66.         The Directors on behalf of the Company may pay a
gratuity or pension or allowance on retirement to any Director who has held any
other salaried office or place of profit with the Company or to his or her
spouse or dependants and may make contributions to any fund and pay premiums
for the purchase or provision of any such gratuity, pension or allowance.

 

67.         The Directors may exercise all the powers of the
Company to borrow money and to mortgage or charge its undertaking, property and
uncalled capital or any part thereof and to issue debentures, debenture shares,
mortgages, bonds and other such securities whether outright or as security for
any debt, liability or obligation of the Company or of any third party.

 

VACATION OF OFFICE AND REMOVAL
OF DIRECTOR

 

68.         The office of a Director shall be vacated if:

 

69.1                           a Director gives notice in writing to the Company that he or she resigns
the office of Director; or

 

69.2                           if the Director dies, becomes bankrupt or makes any arrangement or
composition with such Director’s creditors generally; or

 

69.3                           if the Director is found to be or becomes of unsound mind.

 

69.4                           any Director who shall have been elected by a specified group of Members
may be removed during the aforesaid term of office, either for or without
cause, by, and only by, the affirmative vote of the holders of a majority of
the Shares of such specified group, given at a special meeting of such members
duly called or by an action by written

 

26

 

consent for that
purpose. Any vacancy in the Board of Directors caused as a result of one or
more of the events set out in Article 69.1 to 69.3 of any such Director
who shall have been elected by a specified group of Members, may be filled by,
and only by, the vote of the holders of a majority of the Shares of such
specified group given at a special meeting of such members or by an action by
written consent, unless otherwise agreed upon among such members.

 

PROCEEDINGS OF DIRECTORS

 

69.         A Director
may by a written instrument appoint an alternate who need not be a Director and
an alternate is entitled to attend meetings in the absence of the Director who
appointed him and to vote or consent in place of the Director.  At
all meetings of the Board of Directors a majority of the number of Directors
elected in accordance with Article 64 that includes the Series A
Directors nominated by the holders of the Series A Preference Shares shall
be necessary and sufficient to constitute a quorum for the transaction of
business, and the vote of a majority of the Directors present (in person or in
alternate) at any meeting at which there is a quorum, shall be the act of the
Board of Directors, except as may be otherwise specifically provided by the
Ordinance, the Memorandum or these Articles. 
If a quorum shall not be present at any meeting of the Board of
Directors, the Directors present thereat may adjourn the meeting, until a
quorum shall be present.  If only one
Director is elected, such sole Director shall constitute a quorum.

 

70.         Subject to the provisions of these Articles, the
Directors may regulate their proceedings as they think fit, provided however
that the board meetings shall be held at least once every three (3) months
and that a written notice of each meeting, agenda of the business to be
transacted at the meeting and all documents and materials to be circulated at
or presented to the meeting shall be sent to all Directors entitled to receive notice
of the meeting at least three (3) days before the meeting and a copy of
the minutes of the meeting shall be sent to such Persons at least three (3) days
prior to the next regularly scheduled board meeting.

 

71.         A person may participate in a meeting of the Directors
or committee of the Board of Directors by conference telephone or other
communications equipment by means of which all the persons participating in the
meeting can communicate with each other at the same time. Participation by a
person in a meeting in this manner is treated as presence in person at that
meeting.  Unless otherwise determined by
the Directors, the meeting shall be deemed to be held at the place where the
chairman is at the start of the meeting.

 

72.         Subject to Article 77A, a resolution in writing
(in one or more counterparts) signed by all the Directors or all the members of
a committee of the Board of Directors shall be as valid and effectual as if it
had been passed at a meeting of the Directors, or committee of the Board of
Directors as the case may be, duly convened and held.

 

73.         Meetings of the Board of Directors may be called by
the President, Chief Executive Officer or the Series A Director of the
holders of the Series A Preference Shares on forty-eight (48) hours’ notice
to each Director, either personally, by telephone, by mail, by E-mail or by
telegram; meetings shall

 

27

 

be
called by the President, Chief Executive Officer or the Secretary in like
manner and on like notice on the written request of one (1) Director
unless the board consists of only one Director; in which case meetings shall be
called by the President, Chief Executive Officer or Secretary in like manner or
on like notice on the written request of the sole Director.

 

74.         The continuing Directors may act notwithstanding any
vacancy in their body, but if and so long as their number is reduced below the
number fixed by or pursuant to these Articles as the necessary quorum of
Directors, the continuing Directors or Director may act for the purpose of
increasing the number of Directors to that number, or of summoning a general
meeting of the Company, but for no other purpose.

 

75.         The Directors may elect a chairman of their board and
determine the period for which he or she is to hold office; but if no such
chairman is elected, or if at any meeting the chairman shall not be present
within ten (10) minutes after the time appointed for holding the same, the
Directors present may choose one of their members to be chairman of the
meeting.

 

76.         All acts done by any meeting of the Directors or of a
committee of the Board of Directors shall, notwithstanding that it be
afterwards discovered that there were some defects in the appointment of any
Director or that they or any of them were disqualified, be as valid as if every
such person had been duly appointed and qualified to be a Director.

 

77A. No resolution shall be
passed or no actions shall be taken with respect to the following matters by
the Board of Directors
without the consent of all the directors:

1)              any authorization, creation (by newly characterization
or by other means), issue of the company’s securities or undertaking any
liabilities of issuing any securities of the Company, or increase of the
registered capital of the subsidiaries of the Company;

2)              increase or decrease of the total shares owned by SEE,
EH and TDR;

3)              amend, delete or create any clauses in the Company’s
Memorandum or the Articles of
Association or other basic files and/or
documents;

4)              declare or pay dividends of the Company;

5)              increase the number of the Board of Directors in any
companies;

6)              involve in any liquidation, merge or sale or purchase
of substantial assets of the Company and/or its related companies, or change in
the controlling power within the Company and/or its related companies;

7)              increase the number of issued shares in respect of the
Employee Share Option Plan or similar plan;

8)              employ any senior management personnel whose annual
remuneration is more than HK$400,000.00. Increase the annual remuneration of
the Company’s senior management whose annual remuneration is more than
HKD400,000.00 or the equivalent amount of RMB with over 50% increment;

9)              allow or by other means transfer any of the Company’s
patents, copyrights, trademarks or other intellectual properties other than in
the normal course of the business.

10)        incur any liabilities exceeding HKD5,000,000 or the equivalent amount of
RMB by borrowing or other means, or incur any liabilities with the Company’s
patents, copyrights, trademarks or other intellectual properties as collateral;

 

28

 

11)        issue of any loans exceeding HKD1,000,000.00 or the equivalent in RMB to
any directors, company’s management or employees or related parties; or issue
any loans or loan guarantees exceeding HKD300,000.00 or the equivalent in RMB
to any related parties;

12)        purchase of any real properties exceeding HKD5,000,000.00 or the
equivalent in RMB;

13)        involve in any single transactions or series of transactions exceeding
the aggregate value of HKD5,000,000.00 or the equivalent amount of RMB other
than in the normal course of the Company;

14)        approve the annual budget of the Company;

15)        appoint or reappoint the companies general manager, assistant general
manager and chief financial officer;

16)        appoint or reappoint the Company’s auditors;

17)        change the nature and structure(including the shareholding structure) of
the Company and its subsidiaries; and

18)        involve in any behaviour adversely affect the ownership rights,
preferential rights or any other privileges entitled to and received by the
SEE, EH and TDR, where such adverse effect is reasonably foreseeable.

 

PRESUMPTION OF ASSENT

 

77.         A Director of the Company who is present at a meeting
of the Directors at which action on any Company matter is taken shall be
presumed to have assented to the action taken unless the Director’s dissent
shall be entered in the minutes of the meeting or unless the Director shall
file his or her written dissent from such action with the person acting as the
chairman or secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered post to such Person immediately after the
adjournment of the meeting.  Such right
to dissent shall not apply to a Director who voted in favour of such action.

 

DIRECTORS’ INTERESTS

 

78.         Subject to Article 84, a Director may hold any
other office or place of profit under the Company (other than the office of
Auditor) in conjunction with his or her office of Director for such period and
on such terms as to remuneration and otherwise as the Directors may determine.

 

79.         Subject to Article 84, a Director may act by
himself or herself or his or her firm in a professional capacity for the
Company and such Director or firm shall be entitled to remuneration for
professional services as if such Director were not a Director.

 

80.         Subject to Article 84, a Director of the Company
may be or become a director or other officer of or otherwise interested in any
Company promoted by the Company or in which the Company may be interested as
member or otherwise, and no such Director shall be accountable to the Company
for any remuneration or other benefits received by such Director as a director
or officer of, or from his or her interest in, such other Company.

 

29

 

81.         In addition to any further restrictions set forth in
these Articles, no person shall be disqualified from the office of Director or
prevented by such office from contracting with the Company, either as vendor,
purchaser or otherwise, nor shall any such contract or any contract or
transaction entered into by or on behalf of the Company in which any Director
shall be in any way interested (each, an “Interested
Transaction”) be or be liable to be avoided, nor shall any Director
so contracting or being so interested be liable to account to the Company for
any profit realised by any such Interested Transaction by reason of such
Director holding office or of the fiduciary relation thereby established, so
long as the material facts of the interest of each Director in the agreement or
transaction and his interest in or relationship to any other party to the
agreement or transaction are disclosed in good faith or are known by the other
Directors.

 

MINUTES

 

82.         The Directors shall cause minutes to be made in books
kept for the purpose of all appointments of officers made by the Directors, all
proceedings at meetings of the Company or the holders of any series of Shares
and of the Directors, and of committees of the Board of Directors including the
names of the Directors present at each meeting.

 

DELEGATION OF DIRECTORS’
POWERS

 

83.         Subject to these Articles, including but not limited
to Article 85, the Board of Directors may approve the delegation of any of
their powers to any committee consisting of one or more Directors.  The Board of Directors (including the
affirmative vote of the Director of holders of the Series A Preference
Shares) may designate one or more Directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
any such committee.  In the absence or
disqualification of a member of a committee, and in the absence of a
designation by the Board of Directors of an alternate member to replace the
absent or disqualified member, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he, she or they
constitute a quorum, may unanimously appoint another Director to act at the
meeting in the place of the absent or disqualified member if such other
Director’s appointment is approved or ratified by the Board of Directors
(including the affirmative vote of the Director of holders of the Series A
Preference Shares). Any committee, to the extent allowed by law and provided in
the resolution establishing such committee (which resolution shall include the
affirmative vote of the Director of holders of the Series A Preference
Shares), shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Company.  Each committee shall keep regular minutes and
report to the Board of Directors when required. 
The Board of Directors (including the affirmative vote of the Director
of holders of the Series A Preference Shares) may also delegate to any
managing Director or any Director holding any other executive office such of
their powers as they consider desirable to be exercised by such Person provided
that the appointment of a managing Director shall be revoked forthwith if he or
she ceases to be a Director.  Any such
delegation may be made subject to any conditions the Board of Directors may
impose and either collaterally with or to the exclusion of their own powers and
may be revoked or altered.  Subject to
any such

 

30

 

conditions, the
proceedings of a committee of the Board of Directors shall be governed by the
Articles regulating the proceedings of Board of Directors, so far as they are
capable of applying.

 

84.   Board Committees.

 

a)      Subject
to these Articles, including but not limited to Article 85(b), the Board
of Directors may establish any committees, local boards or agencies or appoint
any person to be a manager or agent for managing the affairs of the Company and
may appoint any Person to be a member of such committees or local boards.  Any such appointment may be made subject to
any conditions the Board of Directors may impose and either collaterally with
or to the exclusion of their own powers and may be revoked or altered.  Subject to any such conditions, the proceedings
of a committee of the Board of Directors shall be governed by the Articles
regulating the proceedings of the Board of Directors, so far as they are
capable of applying.  No committee
created by the Board of Directors shall have more than three (3) members
and the holders of a majority of the then outstanding Series A Preference
Shares, voting together as a separate class and on an as-if-converted into
Ordinary Shares basis, shall have the right, but not the obligation, to appoint
one (1) member to each committee.

 

b)      The
Company shall establish and maintain a Compensation Committee of the Board of
Directors (the “Compensation Committee”)
and an Audit Committee of the Board of Directors (the “Audit Committee”).  Each of the Compensation Committee and Audit
Committee shall be comprised of no more than three (3) members of the
Board of Directors, of which one (1) shall be designated and appointed by
the holders of the then outstanding Series A Preference Shares.

 

85.   The
Directors may by power of attorney or otherwise appoint any person to be the
agent of the Company on such conditions as the Directors may determine,
provided that the delegation is not to the exclusion of their own powers and
may be revoked by the Directors at any time.

 

86.   The
Directors may by power of attorney or otherwise appoint any company, firm,
person or body of persons, whether nominated directly or indirectly by the
Directors, to be the attorney or authorised signatory of the Company for such
purpose and with such powers, authorities and discretions (not exceeding those
vested in or exercisable by the Directors under these Articles) and for such
period and subject to such conditions as they may think fit, and any such
powers of attorney or other appointment may contain such provisions for the
protection and convenience of Persons dealing with any such attorneys or
authorised signatories as the Directors may think fit and may also authorise
any such attorney or authorised signatory to delegate all or any of the powers,
authorities and discretions vested in him or her.

 

87.   Subject
to these Articles, including but not limited to Articles 85(b) and 87, the
Directors may appoint such officers as they consider necessary on such terms,
at such remuneration and to perform such duties, and subject to such provisions
as to disqualification and removal as the

 

31

 

Directors may think
fit.  Unless otherwise specified in the
terms of an officer’s appointment, an officer may be removed by resolution of
the Directors or members.

 

NO MINIMUM SHAREHOLDING

 

88.   Subject
to the approval by a majority of the Directors (including the consent of the
Director of holders of the Series A Preference Shares), the Company in a
general meeting may fix a minimum shareholding required to be held by a
Director, but unless and until such a shareholding qualification is fixed, a
Director is not required to hold Shares.

 

REMUNERATION OF DIRECTORS

 

89.   The remuneration to be paid to
the Directors, if any, shall be such remuneration as determined by the Board of
Directors (including the consent of the Director of holders of the Series A
Preference Shares).  The Directors shall
also be entitled to be paid all travelling, hotel and other expenses properly
incurred by them in connection with their attendance at meetings of the Board
of Directors or committees of the Board of Directors, or general meetings of
the Company, or separate meetings of the holders of any class of Shares or
debentures of the Company, or otherwise in connection with the business of the
Company, or to receive a fixed allowance in respect thereof as may be
determined by the Board of Directors, or a combination partly of one such
method and partly the other.

 

90.   The
Directors may be resolution approve additional remuneration to any Director for
any services other than his or her ordinary routine work as a Director.  Any fees paid to a Director who is also
counsel or solicitor to the Company, or otherwise serves it in a professional
capacity shall be in addition to his or her remuneration as a Director.
Notwithstanding the above, the Director of holders of the Series A
Preference Shares and Joint Director shall be entitled to reimbursement from
the Company for all reasonable, documented expenses incurred in their service
as Directors.

 

SEAL

 

91.   The
Company may, if the Directors so determine, have a Seal.  The Seal shall only be used by the authority
of the Directors or of a committee of the Board of Directors authorised by the
Board of Directors.  Every instrument to
which the Seal has been affixed shall be signed by at least one person who
shall be either a Director or some officer or other person appointed by the
Directors for the purpose.

 

92.   The
Company may have for use in any place or places outside Hong Kong a duplicate
Seal or Seals each of which shall be a facsimile of the common Seal of the
Company and, if the Directors so determine, with the addition on its face of
the name of every place where it is to be used.

 

93.   A
Director or officer, representative or attorney of the Company may without
further authority of the Directors affix the Seal over his or her signature
alone to any document of the Company

 

32

 

required to be
authenticated by him or her under seal or to be filed with the Registrar of
Companies in  Hong Kong or elsewhere whosesoever.

 

DIVIDENDS, DISTRIBUTIONS AND RESERVE

 

94.   Subject
to the Ordinance and these Articles, the Directors may declare dividends and
distributions on Shares in issue and authorise payment of the dividends or
distributions out of the assets of the Company lawfully available therefor. No
dividend or distribution shall be paid except out of the realised or unrealised
profits of the Company, or out of the share premium account or as otherwise
permitted by the Ordinance.

 

95.   All
dividends and distributions shall be declared and paid according to the
provisions of these Articles .

 

96.   Subject
to Article 77A, the Directors may, if they think fit, from time to time,
pay to the members such interim dividends as appear to the Directors to be
justified by the profits of the Company. 
If at any time the share capital of the Company is divided into
different classes the Directors may pay such interim dividends in respect of
those shares in the capital of the Company which confer on the holders thereof
deferred or non-preferred rights as well as in respect of those shares which
confer on the holders thereof preferential or special rights in regard to the
dividend, and provided that the Directors act bona fide they shall not incur
any responsibility to the holders of shares conferring a preference for any
damage that they may suffer by reason of the payment of an interim dividend on
any shares having deferred or non-preferred rights.  The Directors may deduct from any dividend or
distribution payable to any member all sums of money (if any) then payable by
such member to the Company on account of calls or otherwise.

 

97.   Subject
to the provisions of these Articles, the Directors may declare that any
dividend or distribution be paid wholly or partly by the distribution of
specific assets and in particular of shares, debentures or securities of any
other Company or in any one or more of such ways and where any difficulty
arises in regard to such distribution, the Directors may settle the same as
they think expedient and in particular may issue fractional Shares and fix the
value for distribution of such specific assets or any part thereof and may
determine that cash payments shall be made to any members upon the basis of the
value so fixed in order to adjust the rights of all members and may vest any
such specific assets in trustees as may seem expedient to the Directors.

 

98.   Any
dividend, distribution, interest or other monies payable in cash in respect of
Shares may be paid by wire transfer to the holder or by cheque or warrant sent
through the post directed to the registered address of the holder or, in the
case of joint holders, to the registered address of the holder who is first named
on the Register of Members or to such Person and to such address as such holder
or joint holders may in writing direct. 
Every such cheque or warrant shall be made payable to the order of the
person to whom it is sent.  Any one of
two or more joint holders may give effectual receipts for any dividends,
bonuses or other monies payable in respect of the Share held by them as joint
holders.

 

33

 

99.   No
dividend or distribution shall bear interest against the Company, except as
expressly provided in these Articles.

 

100. Any
dividend that cannot be paid to a member and/or that remains unclaimed after
six (6) months from the date of declaration of such dividend may, in the
discretion of the Directors, be paid into a separate account in the Company’s
name, provided that the Company shall not be constituted as a trustee in
respect of that account and the dividend shall remain as a debt due to the
member.  Any dividend that remains
unclaimed after a period of six (6) years from the date of declaration of
such dividend shall be forfeited and shall revert to the Company.

 

101(a)

 

1)      Right of Sale

EH, SEE and TDR shall be entitled to sell all or part of their Series A
Preference Shares to a third party. 
Whereas when EH, SEE and TDR sell all or part of their Preference S
hares to a third party, other shareholders of the Company shall be entitled to
the right of preemption.

Such Right of Sale shall terminate upon qualified IPO of the Company.

 

2)      Right of Joint-Sale

In the event GD sell all or part of its shares, EH, SEE and TDR shall
be entitled to the same terms and conditions to sell their shares with GD in
accordance with their corresponding proportion of the shareholding in the
Company.

 

Such Right of Joint-Sale shall terminate upon qualified IPO of the
Company.

 

3)      Right of Preemption

In the event GD sell all or part of their shares, EH, SEE and TDR shall
be entitled to the right of preemption with the same price.

 

Such Right of Preemption shall terminate upon qualified IPO of the
Company.

 

4)      Right to Dividends

The Company shall issue dividends to its shareholders annually unless
SEE, EH and TDR agree not to do so. If the Company realized qualified IPO
before 31 December, 2009, SEE, EHL and TDR agree that the Company is not
obliged to distribute dividends; if the Company fails to complete qualified IPO
before 31 December, 2009, the clause of Right to Dividends shall still be valid
and effective.

 

The Company shall not issue any dividends to any other shareholders by
the way of cash, property, or authorized shares before SEE, EH and TDR have
received full amounts of dividends.

 

5)      Preferential Right of Subscription

Where the company proposes a new share offering of any number to any
third party (other

 

34

 

than for employees’ share option), SEE, EH and TDR shall be entitled to
have the first priority to purchase such new shares in accordance with their
corresponding proportion of shareholding at the same price. After the first
preferential purchase right has been exercised, other shareholders shall be
entitled to have the second priority to purchase the remaining proportion of
such new shares.

 

Such Preferential Right of Subscription shall terminate upon qualified
IPO of the Company.

 

6)      Rights to Information

 

A.     Information for financial situation. As
long as SEE, EH and TDR holds any Series A Preference Shares of the
Company, the Company shall deliver to SEE, EH and TDR the following documents
relevant to the Company (or to its associated/related Companies)

 

1 the annual financial statements audited by the accounting firm
approved by SEE, EH and TDR which shall be submitted to SEE, EH, and TDR within
90 days following the end of each financial year.

 

2 The monthly unaudited financial statements prepared in accordance
with the HK or PRC GAAP, which shall be submitted to SEE, EH and TDR within
21days following the end of each financial month.

 

3 The annual financial budget of next financial year, which shall be
submitted to SEE, EH and TDR prior to the end of each financial year.

 

B.      Right of Inspection. SEE, EH and TDR
shall be entitled to the right of inspection for any facilities and fields
owned by the Company and its subsidiaries, provided that SEE, EH and TDR shall
inform the Company to be inspected two business days in advance.

 

C.      Information for qualified IPO. EH and TDR
shall be entitled to participate entirely in the whole process of the Company’s
IPO for the purpose of fully understanding of its arrangements and progress so
that EH may provide relevant suggestions regarding the IPO.

 

101(b) Anti-Dilution
clause

According to the Investment Agreement 1, SEE shall be entitled to
adjust its proportion of shareholding by means of diluting the shareholding
proportion of other shareholders (that is, by means of solely issuing shares to
SEE by the Company), or by free transferring of the corresponding shares of GD
to SEE. In the event SEE adjusts its proportion of shareholding by means of
diluting the shareholding proportion of other shareholders (that is, by means
of solely issuing shares to SEE by the Company), EH and TDR shall be entitled
to acquire the newly issued shares for zero consideration to ensure their
proportion of shareholding in the Company stays to be 5.33% and 1.87% after the
completion of the foregoing adjustment.

 

According to the Investment Agreement 2, EH shall be entitled to adjust
its proportion of shareholding by means of diluting the shareholding proportion
of other shareholders (that is, by means of solely issuing shares to EH by the
Company), or by free transferring of the

 

35

 

corresponding shares of GD to EH. In the event EH adjusts its
proportion of shareholding by means of diluting the shareholding proportion of
other shareholders (that is, by means of solely issuing shares to EH by the
Company), TDR shall be entitled to acquire the newly issued shares for zero
consideration to ensure its proportion of shareholding stays to be 1.87% after
the completion of the foregoing adjustment.

 

In the event the above adjustment is not enforceable due to the
restriction of the legal system, EH and TDR shall be entitled to request GD to
undertake the said anti-dilution responsibility as an alternative. To achieve
this goal and to protect the well-structured anti-dilution provision, GD shall
transfer its shares to EH and TDR with zero consideration to ensure its
proportion of shareholding stays to be 5.33% and 1.87% after the completion of
the foregoing adjustment.

 

In the event Company issues any new shares (or convertible bonds), and
the unit price for such shares (“New Price”) is less than the unit price agreed
under the Investment Agreements, the anti-dilution provision shall be
applicable. EH and TDR shall be entitled to acquire the newly issued shares for
zero consideration, and the average price paid for the shares of EH and TDR
shall be equal to the new price after such issue of new shares, except as the
new shares issued under the Employee Option Plan, or the issued shares approved
by the all the directors of the Company under any other incentive plan.

 

In the event the above policy is not enforceable due to the restriction
of the legal system, EH and TDR shall be entitled to request GD to undertake
the said anti-dilution duty as an alternative. To achieve this goal and to
protect the well-structured anti-dilution provision , GD shall transfer its
shares to EH and TDR with zero consideration to ensure the average price paid
for the shares of EH and TDR (including the shares acquired in accordance with
the Investment Agreements) shall be equal to the new price after such transfer
of new shares.

 

In the event the Company sets up an Employee Share Option Plan, as a
measurement to protect anti-dilution agreement, EH and TDR shall be entitled to
further acquire the issued shares of the Company at zero consideration to
ensure its proportion of ownership not less than 5.33% and 1.87%.

 

In the event the above policy is not enforceable due to the
restrictions of the legal system, EH and TDR shall be entitled to request GD to
undertake the said anti-dilution duty as an alternative. To achieve this goal
and to protect the well-structured anti-dilution provision , GD shall transfer
its shares to EH and TDR with zero consideration to ensure the proportion of
ownership of EH not less than 5.33% and 1.87%.

 

No matter what make the proportion of shareholding of EH less than
5.33%, and the proportion of shareholding of TDR less than 1.87%, EH and TDR
shall be entitled to further acquire the shares of the Company with the
corresponding rational consideration to ensure their proportion of shareholding
not less than that descried in the “First” of the Amendment

 

36

 

of Articles of Association.

 

Such clause of Anti-Dilution shall terminate upon qualified IPO of the
Company.

 

CAPITALIZATION

 

101. Subject
to these Articles, the Directors may capitalise any sum standing to the credit
of any of the Company’s reserve accounts (including share premium account and
capital redemption reserve fund) or any sum standing to the credit of profit
and loss account or otherwise available for distribution and to appropriate
such sum to members in the proportions in which such sum would have been
divisible amongst them had the same been a distribution of profits by way of
dividend and to apply such sum on their behalf in paying up in full unissued
Shares for allotment and distribution credited as fully paid-up to and amongst
them in the proportion aforesaid.  In
such event, the Directors shall do all acts and things required to give effect
to such capitalization, with full power to the Directors to make such
provisions as they think fit for the case of Shares becoming distributable in
fractions (including provisions whereby the benefit of fractional entitlements
accrue to the Company rather than to the Members concerned).  The Directors may authorise any person to
enter on behalf of all of the members interested into an agreement with the
Company providing for such capitalization and matters incidental thereto and
any agreement made under such authority shall be effective and binding on all
concerned.

 

BOOKS OF ACCOUNT

 

102. Subject
to Article 16(m), the Directors shall cause proper books of account to be
kept at such place as they may from time to time designate with respect to all
sums of money received and expended by the Company and the matters in respect
of which the receipt or expenditure takes place, all sales and purchases of
goods by the Company and the assets and liabilities of the Company. Proper
books shall not be deemed to be kept if there are not kept such books of
account as are necessary to give a true and fair view of the state of the
Company’s affairs and to explain its transactions.  Subject to the Investors’ Right Agreement,
the Directors shall from time to time determine whether and to what extent and
at what times and places, and under what conditions or regulations, the
accounts and books of the Company or any of them shall be open to inspection of
members not being Directors and no such member shall have any right of
inspecting any account or book or document of the Company except as conferred
by the Ordinance or authorized by the Directors or the Company in general
meeting.

 

103. The
Directors may from time to time cause to be prepared and to be laid before the
Company in general meeting profit and loss accounts, balance sheets, group
accounts (if any) and such other reports and accounts as may be required by
law.

 

37

 

AUDIT

 

104. The
Directors may appoint an Auditor of the Company who shall hold office until
removed from office by a resolution of the Directors, and may fix the Auditor’s
remuneration.

 

105. Every
Auditor of the Company shall have a right of access at all times to the books
and accounts and vouchers of the Company and shall be entitled to require from
the Directors and officers of the Company such information and explanation as
may be necessary for the performance of the duties of the Auditor.

 

106. Auditors
shall, if so required by the Directors, make a report on the accounts of the
Company during their tenure of office at the next annual general meeting
following their appointment in the case of a Company that is registered with
the Registrar of Companies as an ordinary Company, and at the next
extraordinary general meeting following their appointment in the case of a
Company that is registered with the Registrar of Companies as an exempted
Company and at any other time during their term of office, upon request of the
Directors or any general meeting of the Members.

 

NOTICES

 

107. Except
as otherwise provided in these Articles, notices shall be in writing.  Notice may be given by the Company to any
member either personally or by sending it by next-day or second-day courier
service, fax, electronic mail or similar means to such member or to such Member’s
address as shown in the Register of members (or where the notice is given by
electronic mail by sending it to the electronic mail address provided by such
member).

 

108. Where
a notice is sent by next-day or second-day courier service, service of the
notice shall be deemed to be effected by properly addressing, pre-paying and
sending by next-day or second-day service through an internationally-recognized
courier a letter containing the notice, with a confirmation of delivery, and to
have been effected at the expiration of two (2) days (not including
Saturdays or Sundays or public holidays) after the letter containing the same
is sent as aforesaid.  Where a notice is
sent by fax, service of the notice shall be deemed to be effected by properly
addressing and sending such notice and shall be deemed to have been received on
the same day that it was transmitted. 
Where a notice is given by electronic mail, service shall be deemed to
be effected by transmitting the electronic mail to the electronic mail address
provided by the intended recipient and shall be deemed to have been received on
the same day that it was sent and it shall not be necessary for the receipt of
the electronic mail to be acknowledged by the recipient.

 

109. A
notice may be given by the Company to the person or persons that the Company
has been advised are entitled to a Share or Shares in consequence of the death
or bankruptcy of a member in the same manner as other notices that are required
to be given under these Articles and shall be addressed to them by name, or by
the title of representatives of the deceased, or trustee of the bankrupt, or by
any like description at the address supplied for that purpose by the persons
claiming to be so entitled, or at the option of the Company, by giving the
notice in any manner in which the same might have been given if the death or
bankruptcy had not occurred.

 

38

 

110. Notice
of every general meeting shall be given in any manner hereinbefore authorised
to every person shown as a member in the Register of members on the record date
for such meeting except that in the case of joint holders the notice shall be
sufficient if given to the joint holder first named in the Register of members
and every Person upon whom the ownership of a Share devolves by reason of his
or her being a legal personal representative or a trustee in bankruptcy of a
member of record where the member of record but for his or her death or
bankruptcy would be entitled to receive notice of the meeting, and no other
Person shall be entitled to receive notices of general meetings.

 

111. Whenever
any notice is required by law or these Articles to be given to any Director,
member of a committee or Member, a waiver thereof in writing, signed by the
Person or Persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.

 

WINDING UP

 

112. If the
Company shall be wound up, assets available for distribution amongst the
members shall be distributed, the holders of Series A Preference Shares
shall be entitled to receive, prior and in preference to any distribution of
any of the assets or surplus of the Company to the holders of the Ordinary
Shares, by reason of their shareholding thereof, the amount of specified times
of the Original Issue Price per share for each Series A Preference Share,
then held by them and, in addition, an amount equal to all dividend but unpaid
dividends on such Series A Preference Shares.

 

113. Subject
to Article 16, if the Company shall be wound up, the liquidator may, with
the sanction of a Special Resolution of the Company and any other sanction
required by the Ordinance, divide amongst the members in kind the whole or any
part of the assets of the Company (whether they shall consist of property of
the same kind or not) and may for that purpose value any assets and, determine
how the division shall be carried out as between the members or different
classes of members. The liquidator may, with the like sanction, vest the whole
or any part of such assets in trustees upon such trusts for the benefit of the
members as the liquidator, with the like sanction, shall think fit, but so that
no member shall be compelled to accept any asset upon which there is a
liability.

 

INDEMNITY

 

114. To the
maximum extent permitted by applicable law, the Directors and officers for the
time being of the Company and any trustee for the time being acting in relation
to any of the affairs of the Company and their heirs, executors, administrators
and personal representatives respectively shall be indemnified out of the
assets of the Company from and against all actions, proceedings, costs, charges,
losses, damages and expenses that they or any of them shall or may incur or
sustain by reason of any act done or omitted in or about the execution of their
duty in their respective offices or trusts, except such (if any) as they shall
incur or sustain by or through their own fraud or dishonesty, and no such
Director or officer or trustee shall be answerable for the acts, receipts,

 

39

 

neglects or
defaults of any other Director or officer or trustee or for joining in any
receipt for the sake of conformity or for the solvency or honesty of any banker
or other Persons with whom any monies or effects belonging to the Company may
be lodged or deposited for safe custody or for any insufficiency of any
security upon which any monies of the Company may be invested or for any other
loss or damage due to any such cause as aforesaid or which may happen in or
about the execution of his or her office or trust unless the same shall happen
through the fraud or dishonesty of such Director or officer or trustee.  Except with respect to proceedings to enforce
rights to indemnification pursuant to this Article, the Company shall indemnify
any such indemnitee pursuant to this Article in connection with a
proceeding (or part thereof) initiated by such indemnitee only if such
proceeding (or part thereof) was authorized by the Board of Directors.  The right to indemnification conferred in
this Article 115 shall include the right to be paid by the Company the
expenses incurred in defending any such proceeding in advance of its final
disposition to the maximum extent provided by, and subject to the requirements
of, applicable law, so long as the indemnitee agrees with the Company to repay
all amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal that such indemnitee is
not entitled to be indemnified for such expenses under this Article.

 

115. To the
maximum extent permitted by applicable law, the Directors and officers for the
time being of the Company and any trustee for the time being acting in relation
to any of the affairs of the Company and their heirs, executors, administrators
and personal representatives respectively shall not be personally liable to the
Company or its members for monetary damages for breach of their duty in their
respective offices, except such (if any) as they shall incur or sustain by or
through their own fraud or dishonesty respectively.

 

FISCAL YEAR

 

116. Unless
the Directors otherwise prescribe, the fiscal year of the Company shall end on
the 31st of December in each year and, following the year of
incorporation, shall begin on the 1st of January in each year.

 

NON-COMPETITION

 

117. The
Company together with other members holding majority Shares of the Company
shall not directly or
indirectly carry on or  engage or
involved in any business which may compete with the Company’s business.

 

INCONSISTENCIES

 

118. In the
event of any inconsistencies in respect of the rights of Series A Preference
Share between these
Articles and the Investors Agreements, the Investors Agreements shall prevail.

 

40

 

I/We the undersigned, whose names, addresses and descriptions are
hereto subscribed, am desirous of being formed into a Company in pursuance of
this Memorandum of Association, and we respectively agree to take the number of
share in the capital of the Company set opposite to my respective name:-

 

Names, Addresses
and Description of Members

 

41

 

	
  For and on
  behalf of

  	
   

  
	
  ARSD06 LIMITED

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  (Sd.) Leung Wah
  Lok

  	
   

  
	
   

  	
   

  
	
  /s/ Authorized
  Person

  	
   

  
	
  Authorized
  Signature

  	
   

  
	
  Room 904,
  Harvest Building,

  	
   

  
	
  29-35 Wing Kut
  Street,

  	
   

  
	
  Central,

  	
   

  
	
  Hong Kong.

  	
   

  
	
  Corporation

  	
   

  

 

Dated the 30th the day of September 2009

WITNESS to the
above signature(s):

 

	
   

  	
  (Sd.)Leung Wai
  Fun Fanny

  
	
   

  	
  Merchant

  
	
   

  	
  Room 904,
  Harvest Building,

  
	
   

  	
  29-35 Wing Kut
  Street,

  
	
   

  	
  Central,

  
	
   

  	
  Hong Kong

  

 

42

 

ANNEX C

 

Set forth below is a
complete list of all Investment Agreements and related instruments entered into
by and between or among the Stockholders and China High, all of which have
terminated as of March 31, 2010 and replaced with the Shareholders Agreement,
dated March 31, 2010, by and among China New Borun Corporation, King River
Holding Limited, Star Elite Enterprises Limited, Earnstar Holding Limited and
TDR Advisors, Inc.:

 

1)  Investment
Agreement, dated November 5, 2008, by and among Golden Direction, China
High and Star Elite

 

2) Supplementary Agreement to Investment Agreement,
dated November 5, 2008, by and among Golden Direction, China High and Star
Elite

 

3) Supplementary Agreement II, dated November 5,
2008, by and among Golden Direction, China High and Star Elite

 

4) Supplementary Agreement, undated, by and among
Golden Direction, China High and Star Elite

 

5) Investment Agreement, dated June 8, 2009, by
and among Golden Direction, China High, Star Elite, Earnstar and Li Zi Wen

 

6) Supplementary Agreement I, dated June 8,
2009, by and among Golden Direction, China High, Star Elite, Earnstar and Li Zi
Wen

 

7) Supplementary Agreement, undated, by and among
Golden Direction, China High, Star Elite, Earnstar and Li Zi Wen

 

8) Investment Agreement, dated June 26, 2009,
by and among Golden Direction, China High, Star Elite, Earnstar, TDR and Li Zi
Wen

 

9) Confirmation Letter, dated June 26, 2009, by
and among Golden Direction, China High, Star Elite, Earnstar, TDR and Li Zi Wen

 

10) Supplementary Agreement I, dated June 26,
2009, by and among Golden Direction, China High, Star Elite, Earnstar, TDR and
Li Zi Wen

 

11) Supplementary Investment Agreement, dated June 30,
2009, by and among Golden Direction, China High, Star Elite, Earnstar, TDR and
Li Zi Wen

 

 

ANNEX D

 

CHINA HIGH ENTERPRISES LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts
in RMB unless otherwise stated)

 

	
   

  	
   

  	
  December 31,

  	
   

  	
  September 30,

  	
   

  
	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2009

  	
   

  	
  2009

  	
   

  
	
   

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  ($)

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  ($)

  	
   

  
	
  Assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash

  	
   

  	
  25,234,304

  	
   

  	
  20,878,871

  	
   

  	
  $

  	
  3,058,637

  	
   

  	
  96,317,394

  	
   

  	
  115,970,899

  	
   

  	
  $

  	
  16,989,086

  	
   

  
	
  Trade accounts receivable

  	
   

  	
  40,908,652

  	
   

  	
  38,733,910

  	
   

  	
  5,674,300

  	
   

  	
  17,520,217

  	
   

  	
  44,273,079

  	
   

  	
  6,485,758

  	
   

  
	
  Inventories

  	
   

  	
  58,468,358

  	
   

  	
  35,269,695

  	
   

  	
  5,166,812

  	
   

  	
  32,975,352

  	
   

  	
  37,800,547

  	
   

  	
  5,537,568

  	
   

  
	
  Prepaid expenses and other current assets 

  	
   

  	
  2,518,196

  	
   

  	
  8,462,597 

  	
   

  	
  1,239,723 

  	
   

  	
  18,318,382 

  	
   

  	
  9,022,667 

  	
   

  	
  1,321,770 

  	
   

  
	
  Deferred income taxes

  	
   

  	
  —

  	
   

  	
  1,640,997

  	
   

  	
  240,397

  	
   

  	
  1,564,047

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Total current assets

  	
   

  	
  127,129,510

  	
   

  	
  104,986,070

  	
   

  	
  15,379,869

  	
   

  	
  166,695,392

  	
   

  	
  207,067,192

  	
   

  	
  30,334,182

  	
   

  
	
  Property, plant and equipment, net

  	
   

  	
  120,951,161

  	
   

  	
  309,786,576

  	
   

  	
  45,381,995

  	
   

  	
  243,148,618

  	
   

  	
  446,690,082

  	
   

  	
  65,437,591

  	
   

  
	
  Land use rights, net

  	
   

  	
  17,542,304

  	
   

  	
  32,561,369

  	
   

  	
  4,770,058

  	
   

  	
  32,668,495

  	
   

  	
  31,929,000

  	
   

  	
  4,677,419

  	
   

  
	
  Intangible assets, net

  	
   

  	
  —

  	
   

  	
  28,779,986

  	
   

  	
  4,216,106

  	
   

  	
  28,779,986

  	
   

  	
  25,902,804

  	
   

  	
  3,794,615

  	
   

  
	
  Total assets

  	
   

  	
  265,622,975

  	
   

  	
  476,114,001

  	
   

  	
  $

  	
  69,748,028

  	
   

  	
  471,292,491

  	
   

  	
  711,589,078

  	
   

  	
  $

  	
  104,243,807

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Liabilities and Shareholders’ Equity

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Trade accounts
  payable

  	
   

  	
  55,917,537

  	
   

  	
  24,987,338

  	
   

  	
  $

  	
  3,660,505

  	
   

  	
  66,308,518

  	
   

  	
  63,564,834

  	
   

  	
  $

  	
  9,311,892

  	
   

  
	
  Accrued expenses and other payables

  	
   

  	
  31,997,051

  	
   

  	
  57,839,153

  	
   

  	
  8,473,111

  	
   

  	
  106,421,864

  	
   

  	
  26,837,005

  	
   

  	
  3,931,471

  	
   

  
	
  Income taxes payable

  	
   

  	
  3,152,845

  	
   

  	
  6,199,770

  	
   

  	
  908,232

  	
   

  	
  7,047,226

  	
   

  	
  22,116,778

  	
   

  	
  3,239,984

  	
   

  
	
  Amount due to related party

  	
   

  	
  —

  	
   

  	
  1,407,960

  	
   

  	
  206,258

  	
   

  	
  500,000

  	
   

  	
  908,040

  	
   

  	
  133,023

  	
   

  
	
  Dividends payable

  	
   

  	
  11,017,500

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Short-term borrowings

  	
   

  	
  24,700,000

  	
   

  	
  89,700,000

  	
   

  	
  13,140,547

  	
   

  	
  24,700,000

  	
   

  	
  143,200,000

  	
   

  	
  20,977,997

  	
   

  
	
  Total current liabilities

  	
   

  	
  126,784,933

  	
   

  	
  180,134,221

  	
   

  	
  26,388,653

  	
   

  	
  204,977,608

  	
   

  	
  256,626,657

  	
   

  	
  37,594,367

  	
   

  
	
  Total liabilities

  	
   

  	
  126,784,933

  	
   

  	
  180,134,221

  	
   

  	
  26,388,653

  	
   

  	
  204,977,608

  	
   

  	
  256,626,657

  	
   

  	
  37,594,367

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Commitments and Contingencies

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Shareholders’ equity

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Convertible preferred series A share—par value of RMB0.88;
  2,000 shares authorized, issued and
  outstanding 

  	
   

  	
  —

  	
   

  	
  1,759 

  	
   

  	
  258

  	
   

  	
  —

  	
   

  	
  1,759 

  	
   

  	
  258 

  	
   

  
	
  Convertible preferred series B share—par value of RMB0.88; 776 shares authorized,
  issued and outstanding 

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  683 

  	
   

  	
  100

  	
   

  
	
  Common share—par value of RMB0.88;
  8,000 shares authorized,
  issued and outstanding

  	
   

  	
  7,037 

  	
   

  	
  7,037 

  	
   

  	
  1,031 

  	
   

  	
  7,037 

  	
   

  	
  7,037 

  	
   

  	
  1,031 

  	
   

  
	
  Subscription receivables

  	
   

  	
  (7,037

  	
  )

  	
  (8,796

  	
  )

  	
  (1,289

  	
  )

  	
  (7,037

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  
	
  Additional paid-in capital

  	
   

  	
  51,200,000

  	
   

  	
  173,200,000

  	
   

  	
  25,372,828

  	
   

  	
  131,200,000

  	
   

  	
  227,249,317

  	
   

  	
  33,290,750

  	
   

  
	
  Retained earnings—appropriated

  	
   

  	
  15,714,098

  	
   

  	
  27,991,612

  	
   

  	
  4,100,612

  	
   

  	
  15,714,098

  	
   

  	
  27,991,612

  	
   

  	
  4,100,612

  	
   

  
	
  Retained earnings—unappropriated

  	
   

  	
  71,923,944 

  	
   

  	
  94,776,558 

  	
   

  	
  13,884,234 

  	
   

  	
  119,400,785 

  	
   

  	
  199,940,851 

  	
   

  	
  29,290,213 

  	
   

  
	
  Accumulated other comprehensive income
  (loss)

  	
   

  	
  —

  	
   

  	
  11,610

  	
   

  	
  1,701

  	
   

  	
  —

  	
   

  	
  (228,838

  	
  )

  	
  (33,524

  	
  )

  
	
  Total shareholders’ equity

  	
   

  	
  138,838,042

  	
   

  	
  295,979,780

  	
   

  	
  43,359,375

  	
   

  	
  266,314,883

  	
   

  	
  454,962,421

  	
   

  	
  66,649,410

  	
   

  
	
  Total liabilities and shareholders’ equity 

  	
   

  	
  265,622,975 

  	
   

  	
  476,114,001  

  	
   

  	
  $

  	
  69,748,028

  	
   

  	
  471,292,491 

  	
   

  	
  711,589,078

  	
   

  	
  $

  	
  104,243,807

  	
   

  

 

See accompanying notes to consolidated financial statements.

 

F-1

 

CHINA HIGH ENTERPRISES LIMITED
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCO,.
3

(Amounts in RMB unless otherwise
stated)

 

	
   

  	
   

  	
  Year
  ended December 31,

  	
   

  	
  Nine-months
  Ended September 30,

  	
   

  
	
   

  	
   

  	
  2006

  	
   

  	
  2007

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2009

  	
   

  	
  2009

  	
   

  
	
   

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  ($)

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  ($)

  	
   

  
	
  Revenues

  	
   

  	
  271,808,571

  	
   

  	
  487,305,927

  	
   

  	
  615,881,195

  	
   

  	
  $

  	
  90,223,140

  	
   

  	
  441,388,902

  	
   

  	
  677,831,182

  	
   

  	
  $

  	
  99,298,465

  	
   

  
	
  Cost of good sold

  	
   

  	
  216,829,009

  	
   

  	
  387,729,613

  	
   

  	
  493,847,780

  	
   

  	
  72,345,929

  	
   

  	
  362,270,916

  	
   

  	
  522,039,815

  	
   

  	
  76,475,904

  	
   

  
	
  Gross profit

  	
   

  	
  54,979,562

  	
   

  	
  99,576,314

  	
   

  	
  122,033,415

  	
   

  	
  17,877,211

  	
   

  	
  79,117,986

  	
   

  	
  155,791,367

  	
   

  	
  22,822,561

  	
   

  
	
  Operating
  expenses:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Selling

  	
   

  	
  1,651,222

  	
   

  	
  1,996,368

  	
   

  	
  1,436,241

  	
   

  	
  210,401

  	
   

  	
  1,064,323

  	
   

  	
  1,998,781

  	
   

  	
  292,810

  	
   

  
	
  General and
  administrative

  	
   

  	
  6,765,806

  	
   

  	
  8,061,531

  	
   

  	
  11,492,104

  	
   

  	
  1,683,529

  	
   

  	
  8,307,013

  	
   

  	
  9,943,767

  	
   

  	
  1,456,706

  	
   

  
	
  Total operating
  expenses

  	
   

  	
  8,417,028

  	
   

  	
  10,057,899

  	
   

  	
  12,928,345

  	
   

  	
  1,893,930

  	
   

  	
  9,371,336

  	
   

  	
  11,942,548

  	
   

  	
  1,749,516

  	
   

  
	
  Operating income

  	
   

  	
  46,562,534

  	
   

  	
  89,518,415

  	
   

  	
  109,105,070

  	
   

  	
  15,983,281

  	
   

  	
  69,746,650

  	
   

  	
  143,848,819

  	
   

  	
  21,073,045

  	
   

  
	
  Other
  (income) expenses:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Interest income

  	
   

  	
  (106,696

  	
  )

  	
  (113,616

  	
  )

  	
  (344,378

  	
  )

  	
  (50,449

  	
  )

  	
  (280,307

  	
  )

  	
  (246,793

  	
  )

  	
  (36,154

  	
  )

  
	
  Interest expense

  	
   

  	
  1,180,000

  	
   

  	
  2,350,000

  	
   

  	
  2,983,610

  	
   

  	
  437,082

  	
   

  	
  2,280,000

  	
   

  	
  6,933,800

  	
   

  	
  1,015,763

  	
   

  
	
  Others, net

  	
   

  	
  —

  	
   

  	
  950

  	
   

  	
  2,694,720

  	
   

  	
  394,761

  	
   

  	
  2,704,720

  	
   

  	
  (1,417,541

  	
  )

  	
  (207,662

  	
  )

  
	
  Total other
  expense, net

  	
   

  	
  1,073,304

  	
   

  	
  2,237,334

  	
   

  	
  5,333,952

  	
   

  	
  781,394

  	
   

  	
  4,704,413

  	
   

  	
  5,269,466

  	
   

  	
  771,947

  	
   

  
	
  Income before
  income taxes

  	
   

  	
  45,489,230

  	
   

  	
  87,281,081

  	
   

  	
  103,771,118

  	
   

  	
  15,201,887

  	
   

  	
  65,042,237

  	
   

  	
  138,579,353

  	
   

  	
  20,301,098

  	
   

  
	
  Income tax
  expense

  	
   

  	
  15,504,371

  	
   

  	
  28,557,072

  	
   

  	
  26,640,990

  	
   

  	
  3,902,756

  	
   

  	
  17,565,396

  	
   

  	
  33,415,060

  	
   

  	
  4,895,119

  	
   

  
	
  Net income

  	
   

  	
  29,984,859

  	
   

  	
  58,724,009

  	
   

  	
  77,130,128

  	
   

  	
  11,299,131

  	
   

  	
  47,476,841

  	
   

  	
  105,164,293

  	
   

  	
  15,405,979

  	
   

  
	
  Amortization of
  preferred share discount

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (42,000,000

  	
  )

  	
  (6,152,764

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Participation in
  undistributed earnings by preferred shareholders

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (9,049,521

  	
  )

  	
  (1,325,704

  	
  )

  	
  —

  	
   

  	
  (27,090,322

  	
  )

  	
  (3,968,580

  	
  )

  
	
  Net income
  attributable to common shareholders

  	
   

  	
  29,984,859

  	
   

  	
  58,724,009

  	
   

  	
  26,080,607

  	
   

  	
  $

  	
  3,820,663

  	
   

  	
  47,476,841

  	
   

  	
  78,073,971

  	
   

  	
  $

  	
  11,437,399

  	
   

  
	
  Earnings
  Per share:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Basic

  	
   

  	
  3,748.11

  	
   

  	
  7,340.50

  	
   

  	
  3,260.08

  	
   

  	
  $

  	
  477.58

  	
   

  	
  5,934.61

  	
   

  	
  9,759,25

  	
   

  	
  $

  	
  1,429.68

  	
   

  
	
  Diluted

  	
   

  	
  3,748.11

  	
   

  	
  7,340.50

  	
   

  	
  3,121.56

  	
   

  	
  $

  	
  457.29

  	
   

  	
  5,934.61

  	
   

  	
  7,633.36

  	
   

  	
  $

  	
  1,118.24

  	
   

  
	
  Weighted
  average common shares outstanding:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Basic

  	
   

  	
  8,000

  	
   

  	
  8,000

  	
   

  	
  8,000

  	
   

  	
  8,000

  	
   

  	
  8,000

  	
   

  	
  8,000

  	
   

  	
  8,000

  	
   

  
	
  Diluted

  	
   

  	
  8,000

  	
   

  	
  8,000

  	
   

  	
  8,355

  	
   

  	
  8,355

  	
   

  	
  8,000

  	
   

  	
  10,228

  	
   

  	
  10,228

  	
   

  

 

See
accompanying notes to consolidated financial statements.

 

F-2

 

CHINA HIGH ENTERPRISES LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Amounts in RMB unless otherwise stated)

 

	
   

  	
   

  	
  Convertible

  Preferred

  Series A Share

  	
   

  	
  Convertible

  Preferred

  Series B Share

  	
   

  	
  Common Share

  	
   

  	
  Additional

  Paid-in

  Capital

  	
   

  	
  Subscription

  Receivables

  	
   

  	
  Appropriated

  Retained

  Earnings

  	
   

  	
  Unappropriated

  Retained

  Earnings

  	
   

  	
  Accumulated

  Other

  Comprehensive

  Income (Loss)

  	
   

  	
  Total

  Shareholders’

  Equity

  	
   

  
	
   

  	
   

  	
  Shares

  	
   

  	
  Amount

  	
   

  	
  Shares

  	
   

  	
  Amount

  	
   

  	
  Shares

  	
   

  	
  Amount

  	
   

  	
  Amount

  	
   

  	
  Amount

  	
   

  	
  Amount

  	
   

  	
  Amount

  	
   

  	
  Amount

  	
   

  	
  Amount

  	
   

  
	
  Balance as of January 1,
  2006

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  8,000

  	
   

  	
  7,037

  	
   

  	
  11,100,000

  	
   

  	
  (7,037

  	
  )

  	
  2,295,386

  	
   

  	
  11,269,269

  	
   

  	
  —

  	
   

  	
  24,664,655

  	
   

  
	
  Capital contributions

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  40,100,000

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  40,100,000

  	
   

  
	
  Net income

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  29,984,859

  	
   

  	
  —

  	
   

  	
  29,984,859

  	
   

  
	
  Transfer to statutory reserves

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  4,721,786

  	
   

  	
  (4,721,786

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  
	
  Dividends distribution

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (3,617,981

  	
  )

  	
  —

  	
   

  	
  (3,617,981

  	
  )

  
	
  Foreign currency translation adjustment

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Balance as of December 31,
  2006 (Audited)

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  8,000

  	
   

  	
  7,037

  	
   

  	
  51,200,000

  	
   

  	
  (7,037

  	
  )

  	
  7,017,172

  	
   

  	
  32,914,361

  	
   

  	
  —

  	
   

  	
  91,131,533

  	
   

  
	
  Net income

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  58,724,009

  	
   

  	
  —

  	
   

  	
  58,724,009

  	
   

  
	
  Transfer to statutory reserves

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  8,696,926

  	
   

  	
  (8,696,926

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  
	
  Dividends distribution

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (11,017,500

  	
  )

  	
  —

  	
   

  	
  (11,017,500

  	
  )

  
	
  Foreign currency translation adjustment

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Balance as of December 31,
  2007 (Audited)

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  8,000

  	
   

  	
  7,037

  	
   

  	
  51,200,000

  	
   

  	
  (7,037

  	
  )

  	
  15,714,098

  	
   

  	
  71,923,944

  	
   

  	
  —

  	
   

  	
  138,838,042

  	
   

  
	
  Capital contribution

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  10,000,000

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  10,000,000

  	
   

  
	
  Issuance of preferred shares

  	
   

  	
  2,000

  	
   

  	
  1,759

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  112,000,000

  	
   

  	
  (1,759

  	
  )

  	
  —

  	
   

  	
  (42,000,000

  	
  )

  	
  —

  	
   

  	
  70,000,000

  	
   

  
	
  Net income

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  77,130,128

  	
   

  	
  —

  	
   

  	
  77,130,128

  	
   

  
	
  Transfer to statutory reserves

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  12,277,514

  	
   

  	
  (12,277,514

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  
	
  Foreign currency translation adjustment

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  11,610

  	
   

  	
  11,610

  	
   

  
	
  Balance as of
  December 31,2008 (Audited)

  	
   

  	
  2,000

  	
   

  	
  1,759

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  8,000

  	
   

  	
  7,037

  	
   

  	
  173,200,000

  	
   

  	
  (8,796

  	
  )

  	
  27,991,612

  	
   

  	
  94,776,558

  	
   

  	
  11,610

  	
   

  	
  295,979,780

  	
   

  
	
  Balance as of December 31,
  2008 ($)

  	
   

  	
  2,000

  	
   

  	
  258

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  8,000

  	
   

  	
  1,031

  	
   

  	
  25,372,828

  	
   

  	
  (1,289

  	
  )

  	
  4,100,612

  	
   

  	
  13,884,234

  	
   

  	
  1,701

  	
   

  	
  43,359,375

  	
   

  
	
  Balance as of December 31,
  2008 (Audited)

  	
   

  	
  2,000

  	
   

  	
  1,759

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  8,000

  	
   

  	
  7,037

  	
   

  	
  173,200,000

  	
   

  	
  (8,796

  	
  )

  	
  27,991,612

  	
   

  	
  94,776,558

  	
   

  	
  11,610

  	
   

  	
  295,979,780

  	
   

  
	
  Capital contribution-common shares shareholder

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  7,037

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  7,037

  	
   

  
	
  Capital contribution-preferred shares shareholder

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  1,759

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  1,759

  	
   

  
	
  Issuance of preferred shares

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  776

  	
   

  	
  683

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  54,049,317

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  54,050,000

  	
   

  
	
  Net income

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  105,164,293

  	
   

  	
  —

  	
   

  	
  105,164,293

  	
   

  
	
  Foreign currency translation adjustment

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (240,448

  	
  )

  	
  (240,448

  	
  )

  
	
  Balance as of
  September 30, 2009 (Unaudited)

  	
   

  	
  2,000

  	
   

  	
  1,759

  	
   

  	
  776

  	
   

  	
  683

  	
   

  	
  8,000

  	
   

  	
  7,037

  	
   

  	
  227,249,317

  	
   

  	
  —

  	
   

  	
  27,991,612

  	
   

  	
  199,940,851

  	
   

  	
  (228,838

  	
  )

  	
  454,962,421

  	
   

  
	
  Balance as of September 30,2009
  ($)

  	
   

  	
  2,000

  	
   

  	
  258

  	
   

  	
  776

  	
   

  	
  100

  	
   

  	
  8,000

  	
   

  	
  1,031

  	
   

  	
  33,290,750

  	
   

  	
  —

  	
   

  	
  4,100,612

  	
   

  	
  29,290,213

  	
   

  	
  (33,524

  	
  )

  	
  66,649,440

  	
   

  

 

See accompanying
notes to consolidated financial statements.

 

F-3

 

CHINA HIGH ENTERPRISES LIMITED
AND SUBSIDIARIES

CONSOLIDATED
STATEMENTS OF CASH FLOWS

(Amounts in RMB unless otherwise
stated)

 

	
   

  	
   

  	
  Year
  ended December 31,

  	
   

  	
  Nine-months
  Ended September 30,

  	
   

  
	
   

  	
   

  	
  2006

  	
   

  	
  2007

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2009

  	
   

  	
  2009

  	
   

  
	
   

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  ($)

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  ($)

  	
   

  
	
  Net income

  	
   

  	
  29,984,859

  	
   

  	
  58,724,009

  	
   

  	
  77,130,128

  	
   

  	
  $

  	
  11,299,131

  	
   

  	
  47,476,841

  	
   

  	
  105,164,293

  	
   

  	
  $

  	
  15,405,979

  	
   

  
	
  Adjustments
  to reconcile net income to net cash provided by operating activities:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Depreciation
  and amortization

  	
   

  	
  7,575,298

  	
   

  	
  13,010,919

  	
   

  	
  13,125,666

  	
   

  	
  1,922,836

  	
   

  	
  9,915,565

  	
   

  	
  17,179,162

  	
   

  	
  2,516,651

  	
   

  
	
  Amortization
  expense

  	
   

  	
  136,140

  	
   

  	
  192,141

  	
   

  	
  518,721

  	
   

  	
  75,990

  	
   

  	
  411,595

  	
   

  	
  3,509,551

  	
   

  	
  514,130

  	
   

  
	
  Loss
  from disposal of production equipment

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  2,530,030

  	
   

  	
  370,635

  	
   

  	
  2,530,030

  	
   

  	
  (22,808

  	
  )

  	
  (3,341

  	
  )

  
	
  Deferred
  income taxes

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (642,375

  	
  )

  	
  (94,104

  	
  )

  	
  (565,425

  	
  )

  	
  1,640,997

  	
   

  	
  240,397

  	
   

  
	
  Changes
  in operating assets and liabilities:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Trade
  accounts receivable

  	
   

  	
  711,262

  	
   

  	
  (40,172,613

  	
  )

  	
  2,174,742

  	
   

  	
  318,588

  	
   

  	
  23,388,435

  	
   

  	
  (5,539,169

  	
  )

  	
  (811,457

  	
  )

  
	
  Inventories

  	
   

  	
  (21,015,645

  	
  )

  	
  (31,627,031

  	
  )

  	
  23,198,663

  	
   

  	
  3,398,474

  	
   

  	
  25,493,006

  	
   

  	
  (2,530,852

  	
  )

  	
  (370,756

  	
  )

  
	
  Prepaid
  expenses and other current assets

  	
   

  	
  13,771,100

  	
   

  	
  (1,250,538

  	
  )

  	
  (6,305,802

  	
  )

  	
  (923,765

  	
  )

  	
  (8,266,127

  	
  )

  	
  (560,070

  	
  )

  	
  (82,047

  	
  )

  
	
  Trade
  accounts payable

  	
   

  	
  774,809

  	
   

  	
  45,204,754

  	
   

  	
  (30,930,199

  	
  )

  	
  (4,531,101

  	
  )

  	
  10,390,981

  	
   

  	
  38,577,496

  	
   

  	
  5,651,387

  	
   

  
	
  Accrued
  expenses and other payables

  	
   

  	
  5,193,577

  	
   

  	
  (5,209,027

  	
  )

  	
  118,380

  	
   

  	
  17,342

  	
   

  	
  (7,356,613

  	
  )

  	
  27,537

  	
   

  	
  4,035

  	
   

  
	
  Income
  tax payable

  	
   

  	
  2,595,773

  	
   

  	
  557,072

  	
   

  	
  3,046,925

  	
   

  	
  446,357

  	
   

  	
  3,894,381

  	
   

  	
  15,917,008

  	
   

  	
  2,331,752

  	
   

  
	
  Amounts
  due to related party

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  1,407,960

  	
   

  	
  206,258

  	
   

  	
  500,000

  	
   

  	
  (499,920

  	
  )

  	
  (73,235

  	
  )

  
	
  Net
  cash provided by operating activities

  	
   

  	
  39,727,173

  	
   

  	
  39,429,686

  	
   

  	
  85,372,839

  	
   

  	
  12,506,641

  	
   

  	
  107,812,669

  	
   

  	
  172,863,225

  	
   

  	
  25,323,495

  	
   

  
	
  Cash flows from investing activities:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Purchases
  of property, plant and equipment

  	
   

  	
  (94,709,234

  	
  )

  	
  (4,206,268

  	
  )

  	
  (130,538,366

  	
  )

  	
  (19,123,137

  	
  )

  	
  (76,932,093

  	
  )

  	
  (146,659,099

  	
  )

  	
  (21,484,737

  	
  )

  
	
  Asset
  acquisition

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (93,184,016

  	
  )

  	
  (13,650,936

  	
  )

  	
  (28,779,986

  	
  )

  	
  (30,000,000

  	
  )

  	
  (4,394,832

  	
  )

  
	
  Purchases
  of land use rights

  	
   

  	
  —

  	
   

  	
  (11,200,000

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (8,428,687

  	
  )

  	
  (1,234,755

  	
  )

  
	
  Net
  cash used in investing activities

  	
   

  	
  (94,709,234

  	
  )

  	
  (15,406,268

  	
  )

  	
  (223,722,382

  	
  )

  	
  (32,774,073

  	
  )

  	
  (105,712,079

  	
  )

  	
  (185,087,786

  	
  )

  	
  (27,114,324

  	
  )

  
																		

 

F-4

 

CHINA HIGH ENTERPRISES LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS (Continued)

(Amounts in RMB unless otherwise
stated)

 

	
   

  	
   

  	
  Year
  ended December 31,

  	
   

  	
  Nine-months
  Ended September 30,

  	
   

  
	
   

  	
   

  	
  2006

  	
   

  	
  2007

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2009

  	
   

  	
  2009

  	
   

  
	
   

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  ($)

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  ($)

  	
   

  
	
  Cash
  flows from financing activities: 

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Capital
  contribution

  	
   

  	
  40,100,000

  	
   

  	
  —

  	
   

  	
  10,000,000

  	
   

  	
  $

  	
  1,464,944

  	
   

  	
  10,000,000

  	
   

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  Receipt from
  subscription receivable

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  7,037

  	
   

  	
  1,031

  	
   

  
	
  Proceeds from
  issuances of convertible preferred shares

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  70,000,000

  	
   

  	
  10,254,607

  	
   

  	
  70,000,000

  	
   

  	
  54,050,000

  	
   

  	
  7,918,022

  	
   

  
	
  Short-term
  borrowings (payments), net

  	
   

  	
  32,000,000

  	
   

  	
  (15,300,000

  	
  )

  	
  65,000,000

  	
   

  	
  9,522,136

  	
   

  	
  —

  	
   

  	
  53,500,000

  	
   

  	
  7,837,450

  	
   

  
	
  Dividend payments

  	
   

  	
  —

  	
   

  	
  (5,355,901

  	
  )

  	
  (11,017,500

  	
  )

  	
  (1,614,003

  	
  )

  	
  (11,017,500

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  
	
  Net cash provided
  by financing activities 

  	
   

  	
  73,100,000

  	
   

  	
  (20,655,901

  	
  )

  	
  133,982,500

  	
   

  	
  19,627,684

  	
   

  	
  68,982,500

  	
   

  	
  107,557,037

  	
   

  	
  15,756,503

  	
   

  
	
  Effect of foreign
  currency exchange translation

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  11,610

  	
   

  	
  1,701

  	
   

  	
  —

  	
   

  	
  (240,448

  	
  )

  	
  (35,225

  	
  )

  
	
  Net increase
  (decrease) in cash

  	
   

  	
  18,117,939

  	
   

  	
  3,367,517

  	
   

  	
  (4,355,433

  	
  )

  	
  (638,047

  	
  )

  	
  71,083,090

  	
   

  	
  95,092,028

  	
   

  	
  13,930,499

  	
   

  
	
  Cash—beginning of
  year

  	
   

  	
  3,748,848

  	
   

  	
  21,866,787

  	
   

  	
  25,234,304

  	
   

  	
  3,696,684

  	
   

  	
  25,234,304

  	
   

  	
  20,878,871

  	
   

  	
  3,058,637

  	
   

  
	
  Cash—end of year

  	
   

  	
  21,866,787

  	
   

  	
  25,234,304

  	
   

  	
  20,878,871

  	
   

  	
  $

  	
  3,058,637

  	
   

  	
  96,317,394

  	
   

  	
  115,970,899

  	
   

  	
  $

  	
  16,989,086

  	
   

  
	
  Supplemental
  disclosure of cash flow information:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Income taxes

  	
   

  	
  15,500,000

  	
   

  	
  28,000,000

  	
   

  	
  24,236,439

  	
   

  	
  $

  	
  3,550,502

  	
   

  	
  14,236,439

  	
   

  	
  16,154,424

  	
   

  	
  $

  	
  2,366,532

  	
   

  
	
  Interest

  	
   

  	
  1,179,635

  	
   

  	
  2,332,848

  	
   

  	
  2,701,184

  	
   

  	
  $

  	
  395,708

  	
   

  	
  2,320,194

  	
   

  	
  7,364,771

  	
   

  	
  $

  	
  1,078,898

  	
   

  
	
  Non-cash
  investing activities:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Asset acquisition

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (45,815,984

  	
  )

  	
  $

  	
  (6,711,785

  	
  )

  	
  (110,220,014

  	
  )

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  Accrued fixed
  asset purchases

  	
   

  	
  (25,622,446

  	
  )

  	
  3,246,900

  	
   

  	
  23,111,464

  	
   

  	
  $

  	
  3,385,670

  	
   

  	
  (26,571,860

  	
  )

  	
  (9,999,262

  	
  )

  	
  $

  	
  (1,591,383

  	
  )

  
	
  Disposal of
  production equipment

  	
   

  	
  566,810

  	
   

  	
  540,913

  	
   

  	
  211,243

  	
   

  	
  $

  	
  30,946

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  

 

See accompanying notes to consolidated
financial statements.

 

F-5

 

CHINA HIGH ENTERPRISES LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in RMB unless otherwise stated)

 

1. Description of business

 

The accompanying
consolidated financial statements include the financial statements of China High
Enterprises Limited (“China High”), Weifang Great Chemical, Inc. (“WGC”),
Shandong Borun Industrial Co., Ltd. (“Shandong Borun”) and Daqing Borun Biotechnology
Co., Ltd (“Daqing Borun”). 

 

China High,
the holding company, was incorporated in Hong Kong’s Special Administrative
Region on July 15, 2008.

 

WGC was established as a limited liability company on
March 21, 2001 in China’s Shandong Province under the laws of the PRC. For
restructuring and reorganization purposes, pursuant to an equity interest acquisition
agreement. China High acquired all of the equity interests of WGC on October 27,
2008.

 

In December 2008, China High through WGC acquired
100% equity interests in Shandong Borun, the operating company. Shandong Borun
was the predecessor of the Company and operated all of the business of the Company prior to a restructuring in
2008 (the “Restructuring”). Shandong Borun was set up in the city of Shouguang in China’s Shandong Province by
Mr. Jinmiao Wang (“Mr. Wang”) and his family members (collectively the “Wang Family”) on December 1,
2000.

 

On July 9, 2008, Shandong Borun acquired all of
the equity interests in Daqing Borun, a company formerly called Daqing Anxin
Tongwei Alcohol Manufacturing Co., Ltd., (Anxin Tongwei), a limited liability
company established under the laws of the PRC on September 20, 2004 in
Daqing city, Heilongjiang Province, China. Anxin Tongwei began production of
edible alcohol in 2005. Primary due to fundamental problems associated its
manufacturing process, Anxin Tongwei ceased production and applied for bankruptcy
on July 26, 2007. On July 1, 2008, the Court made the verdict to approve that
certain Acquisition Agreement between Shandong Borun and Anxin Tongwei on June
26, 2008, and on July 9, 2009 the parties completed the acquisition pursuant to
which Anxin Tongwei became a wholly-owned subsidiary of Shandong Borun.
Subsequent to the acquisition, Anxin Tongwei changed its name to Daqing Borun
Biotechnology Co., Ltd.

 

China High, WGC, Shangdong Borun and Daqing Borun are
collectively referred to as the “Company”. The establishment and acquisition of
China High, WGC and Shangdong Borun consisted of same majority shareholder and
did not change control ownership.

 

The Company develops and operates its business through
Shandong Borun and Daqing Borun. The Company is principally engaged in
manufacture and distribution of edible alcohol and its by-products, including
Distillers Dried Grains with Solubles high-protein feed (“DDGS Feed”), and corn
germ in the People’s Republic of China (“PRC”).

 

2. Summary of significant accounting
policies

 

Principles of
Consolidation and Presentation

 

The consolidated financial statements have been prepared in accordance with U.S. generally
accepted accounting principles (“U.S. GAAP”). The consolidated financial
statements include the financial

 

F-6

 

CHINA HIGH ENTERPRISES LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in RMB unless otherwise stated)

 

2. Summary of significant accounting policies (Continued)

 

statements of the China High,
WGC, Shangdong Borun and Daqing Borun. All
significant inter-company transactions and balances have been eliminated upon
consolidation.

 

The unaudited interim
consolidated financial statements reflect all normal recurring adjustments that
are, in the opinion of management, necessary for a fair statement of the
financial position as of September 30, 2009 and the statements of
operations for the nine month periods ended September 30, 2008 and 2009, as well as the statements of cash flows for the
nine months ended September 30, 2008 and 2009. Certain information and
disclosures normally included in annual financial statements prepared in
accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted.

 

These unaudited interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2008. The Company believes that these financial statements contain
all adjustments necessary so that they are not misleading.

 

The results of operations for interim periods are not
necessarily indicative of the results of operations that could be expected for
the full year.

 

Segment
Reporting

 

The Company operates and manages its business as a
single segment. As the Company primarily generates its revenues from customers
in the PRC, no geographical segments are presented.

 

Foreign
Currency Translation

 

The Company’s financial statements are presented in
Chinese Renminbi (“RMB”), which is the Company’s reporting currency. The
functional currency of the Company’s subsidiary in Hong Kong is the U.S. dollar
while the functional currency of the Company’s subsidiaries in the PRC is RMB.
In accordance with ASC 830, Foreign Currency Matters, the assets and
liabilities of the Company’s subsidiary in Hong Kong are translated at the
current exchange rate in effect at the balance sheet dates, and revenues and
expenses are translated at the average exchange rates it effect during the
reporting periods to RMB. Gains and losses resulting from foreign currency
translation to reporting currency are recorded in accumulated other
comprehensive income in the statements of changes in shareholders’ equity for
the periods presented.

 

In accordance with SFAS No. 52, the Company translates the assets and liabilities into RMB
using the rate of exchange prevailing at the applicable balance sheet date and
the statements of income and cash flows are translated at an average rate
during the reporting period. Adjustments resulting from the translation from Hong
Kong Dollar into RMB are recorded in Shareholders’ equity as part of
accumulated other comprehensive income.

 

F-7

 

CHINA
HIGH ENTERPRISES LIMITED AND SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts
in RMB unless otherwise stated)

 

2. Summary of significant
accounting policies (Continued)

 

Convenience
Translation into United States Dollar Amounts (Unaudited)

 

The Company reports its
financial statements using the RMB. The Dollar amounts disclosed in the
accompanying financial statements are presented solely for the convenience of
the reader, and have been converted at the rate of RMB6.8262 to one Dollar ($),
which is the noon buying rate of the U.S.
Federal Reserve Bank of New York in effect on September 30, 2009.
Such translations should not be construed as representations that the RMB amounts
represent, have been, or could be, converted into, $ at that or any other rate.

 

Use of Estimates

 

The preparation of
consolidated financial statements
in  conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could materially differ from those
estimates.

 

Revenue Recognition

 

The Company
recognizes revenue in accordance with ASC 605, Revenue Recognition, when
persuasive evidence of an arrangement exists, the price is fixed or
determinable, collection is reasonably assured and delivery of products has
occurred or services have been rendered. Delivery occurs upon receipt of
products by the customers at the customers’ warehouse or designated destination.

 

Cost of Goods Sold

 

The Company’s cost of
goods sold includes product costs, shipping and handling costs, and costs
related to inventory adjustments, including write downs for excess and obsolete
inventory. Product costs include raw materials, production overhead costs,
amortization of production license, and depreciation of property, plant and
equipment used directly or indirectly for production.

 

Advertising Expenses

 

Costs associated with
advertising are expensed as incurred. The Company did not incur any advertising
expenses for the years ended December 31, 2006, 2007, and 2008 and for the
nine months ended September 30, 2008 and 2009.

 

Shipping and
Handling Costs

 

The Company records all charges for outbound shipping
and handling as revenue. All corresponding
shipping and handling costs are classified as cost of goods sold.

 

Inventories

 

Inventories
are stated at the lower of cost or market determined using the weighted average
method which approximates cost and estimated net realizable value. Cost of work
in progress and finished

 

F-8

 

CHINA HIGH ENTERPRISES LIMITED AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

(Amounts in RMB unless otherwise stated)

 

2. Summary of
significant accounting policies (Continued)

 

goods comprise direct
material, direct production costs and an allocated portion of production
overhead costs based on normal operating capacity.

 

Property, Plant,
and Equipment

 

Property, plant, and
equipment are recorded at cost. Significant additions or improvements extending
useful lives of assets are capitalized. Maintenance and repairs are charged to
expense as incurred. Depreciation is calculated using the straight-line method (after
taking into account their respective estimated residual value) over the estimated
useful lives as follows.

 

	
  Buildings and improvements

  	
   

  	
  20 to 30 Years

  
	
  Machinery

  	
   

  	
  10 Years

  
	
  Office equipment and
  furnishing

  	
   

  	
  3 to 5 Years

  
	
  Motor vehicles

  	
   

  	
  4 to 5 Years

  

 

Land Use Rights

 

According to the laws of the PRC, the government owns all the land in
the PRC. Companies or individuals are authorized to possess and use the land
only through the land use rights granted by the government. The land use rights
represent cost of the rights to use the land in respect of properties located
in the PRC. Land use rights are carried at cost and amortized on a straight-line basis over the period of rights
of 50 years.

 

Intangible Assets

 

Intangible
assets include production license for use in the production and distribution of
edible alcohol. The production license is normally subject to inspection and
renewed for every five years. Amortization expense is calculated on a
straight-line basis over the useful life of the production license.

 

Impairment of Long-Lived Assets

 

The
Company, in accordance with ASC 360, Property, Plant, and Equipment, reviews
for impairment of long-lived assets and certain identifiable intangibles
whenever events or changes in circumstances indicate that the carrying amount
of the asset may not be recoverable.

 

An
impairment loss would be recognized when estimated discounted future cash flows
expected to result from the use of the asset and its eventual disposition is
less than its carrying amount. The Company performed impairment of long-lived
assets test and no impairment losses were deemed required and as a result, the
Company did not record any impairment losses for the years ended December 31,
2006, 2007, and 2008 and for the nine months ended September 30, 2008 and
2009.

 

Retirement and Other Postretirement
Benefits

 

Full time employees of the
Company in the PRC participate in a government mandated defined contribution
plan, pursuant to which certain pension benefits, medical care, employee
housing fund and other welfare benefits are provided to employees. Chinese
labor regulations require the Company

 

F-9

 

CHINA HIGH ENTERPRISES LIMITED AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in RMB unless otherwise stated)

 

2. Summary
of significant accounting policies (Continued)

 

to make contributions to the
government for these benefits based on certain percentages of the employees’
salaries. The Company accounts the mandated
defined contribution plan under the
vested benefit obligations
approach based on the guidance  of
ASC 715,  Compensation—Retirement Benefits.

 

The
total amounts for such employee
benefits which were expensed were
nil, nil and RMB633,679 ($92,830) for the years ended December 31, 2006,  2007 and 2008, respectively, and RMB520,522 and
RMB1,346,583 ($197,267) for the nine
months ended September 30, 2008 and 2009.

 

Appropriated Retained Earnings

 

The
income of the Company’s PRC subsidiaries is distributable to their shareholder
after transfer to reserves as required by relevant PRC laws and regulations and
the subsidiary’s Articles of Association. As stipulated by the relevant laws and regulations in
the PRC, these PRC subsidiaries are required to maintain reserves which are
non-distributable to shareholders. Appropriations to the reserves are approved by the  respective
boards of directors.

 

Reserves
include statutory surplus reserves and discretionary reserves. Statutory
surplus reserves can be used to make good previous years’ losses, if any, and
may be converted into capital in proportion to the existing equity interests of
shareholders, provided that the balance after such conversion is not less than
25%  of the registered capital. The
appropriation to the statutory surplus reserves must not be less than 10%  of
net profit after taxation. Such appropriation may cease to apply if the balance
of the fund is equal to 50% of the entity’s registered capital. The annual
appropriations of reserves of WGC, Shandong Borun and Daqing Borun are 10%, 15%
and 10% of the net profit after taxation.

 

Dividends

 

The Company provides
discretionary dividend payments based on the Company’s Board of Director’s
approval. The Board of Director’s of the Company approved dividend payment of
RMB3,617,981 as of December 31, 2006 which was paid in year 2007  and dividend
payment of RMB11,017,500 as of December 31,
2007  which
was paid in the first quarter of fiscal year 2008.

 

Income Taxes

 

The Company follows ASC 740,
Income Taxes, which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been included
in the financial statements or tax returns. Under this method, deferred income
taxes are recognized for the tax consequences in future years of differences
between the tax bases of assets and liabilities and their financial reporting
amounts at each period end based on enacted tax laws and statutory tax rates,
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized.

 

The Company adopted ASC 740-10-25 on January 1,
2007, which provides criteria for the recognition,
measurement, presentation and disclosure of uncertain tax position. The
Company must recognize the tax benefit from an uncertain tax position only
if it is more likely than not that the tax

 

F-10

 

CHINA HIGH ENTERPRISES LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in RMB unless otherwise stated)

 

2. Summary of significant
accounting policies (Continued)

 

position will be sustained on
examination by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements from such a
position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon
ultimate resolution. The Company did not recognize any additional liabilities
for uncertain tax positions as a result of the implementation of ASC 740-10-25.

 

Earnings per Share

 

The
Company computes earnings per share in accordance with ASC 260, Earnings Per
Share. Under the provisions of ASC 260, basic earnings per share is computed by
dividing the net income attributable to holders of common shares for the period
by the weighted average number
of common shares outstanding during the period. Diluted earnings per share is
computed by dividing the net income attributable to holders of common shares
for the period by the weighted average number of common and potentially
dilutive common shares outstanding during the period. Potentially dilutive
common shares consist of convertible preferred share (using the if-converted
method).

 

	
   

  	
   

  	
  Year ended December 31,

  	
   

  	
  Nine-months Ended September 30,

  	
   

  
	
   

  	
   

  	
  2006

  	
   

  	
  2007

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2009

  	
   

  	
  2009

  	
   

  
	
   

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  ($)

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  
	
  Numerator:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net income attributable in common shareholders

  	
   

  	
  29,984,859

  	
   

  	
  58,724,009

  	
   

  	
  26,080,607

  	
   

  	
  $

  	
  3,820,663

  	
   

  	
  47,476,841

  	
   

  	
  78,073,971

  	
   

  	
  $

  	
  11,437,399

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Denominator:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Weighted average basic shares

  	
   

  	
  8,000

  	
   

  	
  8,000

  	
   

  	
  8,000

  	
   

  	
  8,000

  	
   

  	
  8,000

  	
   

  	
  8,000

  	
   

  	
  8,000

  	
   

  
	
  Weighted average dilutive potential shares:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Convertible preferred series A share

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  355

  	
   

  	
  355

  	
   

  	
  —

  	
   

  	
  2,000

  	
   

  	
  2,000

  	
   

  
	
  Convertible preferred series B share

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  228

  	
   

  	
  228

  	
   

  
	
  Denominator for diluted shares

  	
   

  	
  8,000

  	
   

  	
  8,000

  	
   

  	
  8,355

  	
   

  	
  8,355

  	
   

  	
  8,000

  	
   

  	
  10,228

  	
   

  	
  10,228

  	
   

  
	
  Earnings per share:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Basic

  	
   

  	
  3,748.11

  	
   

  	
  7,340.50

  	
   

  	
  3,260.08

  	
   

  	
  $

  	
  477.58

  	
   

  	
  5,934.61

  	
   

  	
  9,759.25

  	
   

  	
  $

  	
  1,429.68

  	
   

  
	
  Diluted

  	
   

  	
  3,748.11

  	
   

  	
  7,340.50

  	
   

  	
  3,121.56

  	
   

  	
  $

  	
  457.29

  	
   

  	
  5,934.61

  	
   

  	
  7,633.36

  	
   

  	
  $

  	
  1,118.24

  	
   

  

 

F-11

 

CHINA HIGH ENTERPRISES LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in RMB unless otherwise stated)

 

2. Summary of significant
accounting policies (Continued)

 

Concentrations of Credit Risk and Risk Factors

 

Trade Accounts Receivable—Concentrations
of credit risk with
respect to accounts receivable are limited due to the large number of customers
dispersed across diverse markets and generally short payment terms. Credit is
extended based on an evaluation of the customer’s financial condition and
collateral generally is not required. The Company evaluates the collectability
of accounts receivable based on a combination of factors. In cases where the
Company is aware of circumstances that may impair a specific customer’s ability
to meet its financial obligations subsequent to the original sale, the Company
will record a specific allowance against amounts due, and thereby reduce the
net recognized receivable to the amount the Company reasonably believes will be
collected.

 

Revenues—Substantially all of the Company’s
revenues are derived from sales of edible alcohol and its by-products, including
DDGS Feed, and corn germ in PRC. Any significant decline in market acceptance
of the Company’s products or in the financial condition of our existing
customers could impair our ability to operate effectively.

 

Recently Issued
Accounting  Pronouncements

 

In December 2007, the FASB issued ASC 810-10-65,
Consolidation, which applies to all companies that prepare consolidated
financial statements, except not-for-profit organizations, but will affect only
those entities that have an outstanding non-controlling interest in one or more
subsidiaries or that deconsolidate a subsidiary. ASC 810-10-65 is effective for
the Company on January 1, 2009. Earlier adoption is prohibited. The Company
adopted ASC 810-10-65 on January 1, 2009 and the adoption of ASC 810-10-65 did
not have any impact on its results
of operations or financial position.

 

In May 2009, the FASB issued ASC 855, Subsequent
Events, ASC 855 establishes
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. The standard, which includes a new required disclosure
of the date through which an entity has evaluated subsequent events, is
effective for interim or annual periods ending after June 15, 2009. The
Company’s management evaluated all events or transactions that occurred after December 31, 2008 up through January 19,
2010, the date the Company issued the financial statements. During these
periods, the Company did not have any material recognizable subsequent events
required to be disclosed other than those disclosed in Note 18 to the financial
statements for the year ended December 31, 2008 and nine months ended September 30,
2009.

 

In April 2009, the FASB issued three related staff positions to clarify the application of
FASB ASC 820 to fair value measurements in the current economic environment,
modify the recognition of other-than-temporary impairments of debt securities,
and require companies to disclose the fair value of financial instruments in
interim periods. The final staff positions are effective for interim and annual
periods ending after June 15, 2009.

 

·                  FASB ASC 820
(Transitional 820-10-65-4)—which provides guidance on how to determine the fair
value of assets and liabilities under FASB ASC 820 in the current economic environment
and reemphasizes that the objective of a fair value measurement remains the

 

F-12

 

CHINA HIGH ENTERPRISES LIMITED
AND SUBSIDIARIES

 

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in RMB unless otherwise stated)

 

2. Summary of significant accounting policies (Continued)

 

price that would be
received to sell an asset or paid to
transfer a liability at the measurement date.

 

·      FASB ASC 320—which
modifies the requirements for recognizing other-than-temporarily impaired debt securities and significantly changes
the existing impairment model for such securities. It also modifies the
presentation of other-than-temporary impairment losses and increases the frequency of and expands
already required disclosures about other-than-temporary impairment for debt and
equity securities.

 

·      FASB ASC 820-10-50—which
requires disclosures of the fair value of financial instruments within the scope
of FASB ASC 820 in interim
financial statements, adding to the current requirement to make those
disclosures in annual financial statements. The staff position also requires
that companies disclose the method or methods and significant assumptions used
to estimate the fair value of financial instruments and a discussion of
changes, if any, in the method or methods and significant assumptions during
the period.

 

In June 2009, the
Financial Accounting Standards Board (“FASB”) issued its final Statement of
Financial Accounting Standards (“SFAS”)
No. 168, “The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB
Statement No. 162” (“SFAS No. 168”). SFAS No. 168 established the FASB Accounting Standards
Codification (“ASC”) as the single source of authoritative GAAP to be applied
by nongovernmental entities in the preparation of financial statements. Rules
and interpretive releases of the Securities and Exchange Commission (“SEC”) under
authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants. All guidance in the ASC carries an equal level of authority.
The ASC supersedes all previously existing non-SEC accounting and reporting standards.
The ASC simplifies user access
to all authoritative GAAP by reorganizing previously issued GAAP
pronouncements into approximately 90 accounting topics within a consistent
structure, without creating new accounting and reporting guidance. The ASC became
effective for financial statements issued for interim and annual periods ending
after September 15, 2009; accordingly, the Company adopted
the ASC in the third quarter of
fiscal 2009. Following SFAS No. 168,
the FASB will not issue new standards in the form of Statements, FASB Staff
Positions, or Emerging Issues Task Force Abstracts; instead, it will issue
Accounting Standards Updates. The FASB will not consider Accounting Standards
Updates as authoritative in their own right; these updates will serve
only to update
the ASC, provide background information about the guidance, and provide the
bases for conclusions on the change(s) in the ASC. In the discussion that
follows, the Company will refer to ASC citations
that relate to ASC Topics and their descriptive titles, as appropriate, and
will no longer refer to citations that relate to accounting pronouncements
superseded by the ASC.

 

In June 2009, the FASB
issued ASC 860, which eliminates the concept of a qualifying special-purpose
entity, creates more stringent conditions for reporting a transfer of a portion
of a financial asset as a sale, clarifies other sale-accounting criteria, and
changes the initial measurement of a transferor’s interest in transferred
financial assets. FASB ASC 860 will be effective for transfers of financial
assets in fiscal years beginning after November 15, 2009 and in interim periods
within those fiscal years with earlier adoption prohibited. The Company will
adopt FASB ASC 860 on October 1, 2010.

 

F-13

 

CHINA
HIGH ENTERPRISES LIMITED AND SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in RMB unless otherwise stated)

 

3. Fair value measurements

 

ASC 820 defines fair value
as the price that would be received from selling an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date. When determining the fair value measurements for assets and
liabilities required or permitted to be recorded at fair value, the Company
considers the principal or most advantageous market in which it would transact
and it considers assumptions that market participants would use when pricing
the asset or liability.

 

ASC 820 establishes a fair
value hierarchy that requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. A
financial instrument’s categorization within the fair value hierarchy is based
upon the lowest level of input that is significant to the fair value measurement.
ASC 820 establishes three levels of inputs that may be used to measure fair
value:

 

·      Level 1-Valuations based on
unadjusted quored prices in active markets for identical assets or liabilities
that the Company holds. An active market for the asset or liability is a market
in which transactions for the asset or liability occur with sufficient
frequency and volume to provide pricing information on an ongoing basis.

 

·      Level 2-Valuation based on quoted
prices in markets that are not active for which all significant inputs are
observable, either directly or indirectly.

 

·      Level 3-Valuations based on inputs
that are unobservable and significant to the overall  fair value measurement.

 

The Company adopted ASC 820, Fair Value Measurements
and Disclosures, on January 1, 2008 for all financial assets and liabilities
and nonfinancial assets and liabilities that are recognized or disclosed at
fair value in the consolidated financial statements on a recurring basis (at
least annually). ASC 820 defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements. The
Company has not adopted ASC 820 for non financial assets and non financial liabilities,
as these items are not recognized at fair value on a recurring basis. The
adoption of ASC 820 for all financial assets and liabilities did not have any
impact on the Company’s consolidated financial statements and the Company does
not expect to have any impact on the Company’s consolidated financial statements
if ASC 820 for nonfinancial assets and liabilities is adopted.

 

Financial instruments include
cash, accounts receivable, prepayments and other receivables, short-term
borrowings from banks, accounts payable and accrued expenses and other payables.
The carrying amounts of cash, accounts receivable, prepayments and other
receivables, short-term loans, accounts payable and accrued expenses
approximate their fair value due to the short term maturities of these
instruments.

 

4.
Acquisition

 

On July 9, 2008, Shandong Borun acquired all of
the equity interests in Anxin Tongwei which changed its name to be Daqing Borun
Biotechnology Co., Ltd. subsequent to the acquisition. The total purchase

 

F-14

 

CHINA HIGH ENTERPRISES LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in RMB unless otherwise stated)

 

4. Acquisition (Continued )

 

consideration
was approximately RMB139,000,000. The purchase consisted of cash payment and
short term payable arrangement. The Company fully paid the consideration amount
as of November 30, 2009.

 

Anxin
Tongwei was incorporated in Heilongjiang Province, PRC on September 20,
2004. It began production of edible alcohol in 2005. Primarily due to
fundamental problems associated with its manufacturing process, Anxin Tongwei
ceased production in June 2007 and filed for bankruptcy protection in July 2007.

 

As
of the acquisition date, Anxin Tongwei had been idle for more than one year,
with no management personnel or production employees, and no revenue. According
to Emerging Issues Task Force (“EITF”) 98-3, since the acquired set of assets exclude
several key items (employees, processes and customers), the Company concluded
that the acquired set of assets does not constitute a business, and as a
result, accounted for the transaction as an asset acquisition.

 

The total purchase price of RMB139,000,000
was allocated based on the estimated fair values of the assets acquired and
liabilities assumed at the date of purchase, determined in part by independent
appraisal, in accordance with ASC 805, Business Combinations. The operations of
the acquired assets since the date of acquisition are included in the consolidated
financial statements.

 

The cost of the assets
acquired was allocated to the individual assets acquired based on their relative
fair values as follows:

 

	
   

  	
   

  	
  July 8,

  	
   

  
	
   

  	
   

  	
  2008

  	
   

  
	
   

  	
   

  	
  (RMB)

  	
   

  
	
  Assets:

  	
   

  	
   

  	
   

  
	
  Property, plant, and equipment

  	
   

  	
  97,093,229

  	
   

  
	
  Land use rights

  	
   

  	
  7,249,645

  	
   

  
	
  Intangible asset—production license

  	
   

  	
  28,779,986

  	
   

  
	
  Deferred income tax—net loss carryforward

  	
   

  	
  998,622

  	
   

  
	
  Deductible value added tax carryforward

  	
   

  	
  5,717,004

  	
   

  
	
  Total assets

  	
   

  	
  139,838,486

  	
   

  
	
  Liabilities:

  	
   

  	
   

  	
   

  
	
  Tax payable

  	
   

  	
  838,486

  	
   

  
	
  Total liabilities

  	
   

  	
  838,486

  	
   

  
	
  Aggregate purchase price

  	
   

  	
  139,000,000

  	
   

  

 

F-15

 

CHINA HIGH ENTERPRISES LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Amounts in RMB unless otherwise stated)

 

5. Inventories

 

Inventories
consisted of the following:

 

	
   

  	
   

  	
  December 31,

  	
   

  	
  September 30,

  	
   

  
	
   

  	
   

  	
  2007

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2009

  	
   

  	
  2009

  	
   

  
	
   

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  (Unaudited)

  ($)

  	
   

  	
  (Unaudited)

  (RMB)

  	
   

  	
  (Unaudited)

  (RMB)

  	
   

  	
  (Unaudited)

  ($)

  	
   

  
	
  Raw materials

  	
   

  	
  18,528,601

  	
   

  	
  33,710,611

  	
   

  	
  $

  	
  4,938,415

  	
   

  	
  17,317,866

  	
   

  	
  32,079,587

  	
   

  	
  $

  	
  4,699,480

  	
   

  
	
  Work-in-process

  	
   

  	
  829,169

  	
   

  	
  349,980

  	
   

  	
  51,270

  	
   

  	
  1,514,353

  	
   

  	
  1,917,902

  	
   

  	
  280,961

  	
   

  
	
  Finished goods

  	
   

  	
  39,110,588

  	
   

  	
  1,209,104

  	
   

  	
  177,127

  	
   

  	
  14,143,113

  	
   

  	
  3,803,058

  	
   

  	
  557,127

  	
   

  
	
  Total inventories

  	
   

  	
  58,468,358

  	
   

  	
  35,269,695

  	
   

  	
  $

  	
  5,166,812

  	
   

  	
  32,975,352

  	
   

  	
  37,800,547

  	
   

  	
  $

  	
  5,537,568

  	
   

  

 

The Company did
not have any inventory reserve as of December 31, 2007 and 2008 and September 30,
2008 and 2009.

 

6. Property,
plant and equipment, net

 

Property, plant
and equipment consisted of the following:

 

	
   

  	
   

  	
  December 31,

  	
   

  	
  September 30,

  	
   

  
	
   

  	
   

  	
  2007

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2009

  	
   

  	
  2009

  	
   

  
	
   

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  (Unaudited)

  ($)

  	
   

  	
  (Unaudited)

  (RMB)

  	
   

  	
  (Unaudited)

  (RMB)

  	
   

  	
  (Unaudited)

  ($)

  	
   

  
	
  Buildings and improvements

  	
   

  	
  23,486,139

  	
   

  	
  27,173,149

  	
   

  	
  $

  	
  3,980,714

  	
   

  	
  24,045,955

  	
   

  	
  120,727,215

  	
   

  	
  $

  	
  17,685,860

  	
   

  
	
  Machinery

  	
   

  	
  125,683,330

  	
   

  	
  125,683,330

  	
   

  	
  18,411,903

  	
   

  	
  125,683,330

  	
   

  	
  347,760,178

  	
   

  	
  50,944,915

  	
   

  
	
  Office equipment and  furnishing

  	
   

  	
  188,180

  	
   

  	
  188,180

  	
   

  	
  27,567

  	
   

  	
  188,180

  	
   

  	
  777,817

  	
   

  	
  113,946

  	
   

  
	
  Motor vehicles

  	
   

  	
  1,570,112

  	
   

  	
  1,570,112

  	
   

  	
  230,013

  	
   

  	
  1,570,112

  	
   

  	
  2,272,654

  	
   

  	
  332,931

  	
   

  
	
  Construction in progress

  	
   

  	
  794,938

  	
   

  	
  199,034,830

  	
   

  	
  29,157,485

  	
   

  	
  132,348,144

  	
   

  	
  36,171,596

  	
   

  	
  5,298,936

  	
   

  
	
  Total

  	
   

  	
  151,722,699

  	
   

  	
  353,649,601

  	
   

  	
  51,807,682

  	
   

  	
  283,835,721

  	
   

  	
  507,709,460

  	
   

  	
  74,376,588

  	
   

  
	
  Depreciation and
  amortization

  	
   

  	
  (30,771,538

  	
  )

  	
  (43,863,025

  	
  )

  	
  (6,425,687

  	
  )

  	
  (40,687,103

  	
  )

  	
  (61,019,378

  	
  )

  	
  (8,938,997

  	
  )

  
	
  Property, plant, and
  equipment, net

  	
   

  	
  120,951,161

  	
   

  	
  309,786,576

  	
   

  	
  $

  	
  45,381,995

  	
   

  	
  243,148,618

  	
   

  	
  446,690,082

  	
   

  	
  $

  	
  65,437,591

  	
   

  

 

Certain buildings
with an aggregate carrying value of RMB8,914,612 ($1,305,941) were pledged as
collateral for bank loans as of September 30, 2009.

 

F-16

 

CHINA HIGH ENTERPRISES LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Amounts in RMB unless otherwise stated)

 

7. Land use rights, net

 

Land use rights
consisted of the following:

 

	
   

  	
   

  	
  Decemebr 31,

  	
   

  	
  September 30,

  	
   

  
	
   

  	
   

  	
  2007

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2009

  	
   

  	
  2009

  	
   

  
	
   

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  (Unaudited)

  ($)

  	
   

  	
  (Unaudited)

  (RMB)

  	
   

  	
  (Unaudited)

  (RMB)

  	
   

  	
  (Unaudited)

  ($)

  	
   

  
	
  Land use right

  	
   

  	
  18,006,800

  	
   

  	
  33,544,586

  	
   

  	
  $

  	
  4,914,094

  	
   

  	
  33,544,586

  	
   

  	
  33,544,586

  	
   

  	
  $

  	
  4,914,094

  	
   

  
	
  Less—Amortization

  	
   

  	
  (464,496

  	
  )

  	
  (983,217

  	
  )

  	
  (144,036

  	
  )

  	
  (876,091

  	
  )

  	
  (1,615,586

  	
  )

  	
  (236,675

  	
  )

  
	
  Land use rights, net

  	
   

  	
  17,542,304

  	
   

  	
  32,561,369

  	
   

  	
  $

  	
  4,770,058

  	
   

  	
  32,668,495

  	
   

  	
  31,929,000

  	
   

  	
  $

  	
  4,677,419

  	
   

  

 

As of September 30,
2009, certain land use rights with an aggregate carrying value of RMB18,825,793
($2,757,873) were pledged as collateral for short-term bank loans.

 

Future
amortization of land use rights is as follows:

 

	
  Years
  Ending December 31,

  	
   

  	
  (RMB)

  Amount

  	
   

  
	
  2009

  	
   

  	
  843,159

  	
   

  
	
  2010

  	
   

  	
  843,159

  	
   

  
	
  2011

  	
   

  	
  843,159

  	
   

  
	
  2012

  	
   

  	
  843,159

  	
   

  
	
  2013

  	
   

  	
  843,159

  	
   

  
	
  Thereafter

  	
   

  	
  28,345,574

  	
   

  
	
  Total

  	
   

  	
  32,561,369

  	
   

  

 

8. Intangible assets, net

 

Intangible assets
consisted of the following:

 

	
   

  	
   

  	
  December 31,

  	
   

  	
  September 30,

  	
   

  
	
   

  	
   

  	
  2007

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2009

  	
   

  	
  2009

  	
   

  
	
   

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  (Unaudited)

  ($)

  	
   

  	
  (Unaudited)

  (RMB)

  	
   

  	
  (Unaudited)

  (RMB)

  	
   

  	
  (Unaudited)

  ($)

  	
   

  
	
  Production license

  	
   

  	
  —

  	
   

  	
  28,779,986

  	
   

  	
  $

  	
  4,216,106

  	
   

  	
  28,779,986

  	
   

  	
  28,779,986

  	
   

  	
  $

  	
  4,216,106

  	
   

  
	
  Less—Amortization

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (2,877,182 

  	
  )

  	
  (421,491

  	
  )

  
	
  Land use rights, net

  	
   

  	
  —

  	
   

  	
  28,779,986

  	
   

  	
  $

  	
   4,216,106

  	
   

  	
  28,779,986

  	
   

  	
  25,902,804

  	
   

  	
  $

  	
  3,794,615

  	
   

  

 

F-17

 

CHINA HIGH ENTERPRISES LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in RMB unless otherwise stated)

 

8. Intangible assets, net (Continued)

 

Future amortization of intangible assets is as
follows:

 

	
  Years Ending December 31,

  	
   

  	
  (RMB)

  Amount

  	
   

  
	
  2009

  	
   

  	
  3,826,243

  	
   

  
	
  2010

  	
   

  	
  3,826,243

  	
   

  
	
  2011

  	
   

  	
  3,826,243

  	
   

  
	
  2012

  	
   

  	
  3,826,243

  	
   

  
	
  2013

  	
   

  	
  3,826,243

  	
   

  
	
  Thereafter

  	
   

  	
  9,648,771

  	
   

  
	
  Total

  	
   

  	
  28,779,986

  	
   

  

 

F-18

 

CHINA HIGH ENTERPRISES LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Amounts in RMB unless otherwise stated)

 

9. Short-term
borrowings

 

Short-term borrowings
consisted of the following:

 

	
   

  	
   

  	
  Year Ended December 31,

  	
   

  	
  Nine Months Ended September 30,

  	
   

  
	
   

  	
   

  	
  2007

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2009

  	
   

  
	
   

  	
   

  	
  Rate

  	
   

  	
  Bal.

  	
   

  	
  Rate

  	
   

  	
  Bal.

  	
   

  	
  Bal

  	
   

  	
  Rate

  	
   

  	
  Bal.

  	
   

  	
  Rate

  	
   

  	
  Bal.

  	
   

  	
  Bal.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  RMB

  	
   

  	
   

  	
   

  	
  RMB

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
  RMB

  	
   

  	
   

  	
   

  	
  RMB

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  (Unaudited)

  	
   

  	
   

  	
   

  	
  (Unaudited)

  	
   

  	
   

  	
   

  
	
  Shandong Borun

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  From Financial institutions

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Industrial
  & Commercial Bank of China

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  9.71

  	
  %

  	
  10,000,000

  	
   

  	
  1,464,944

  	
   

  	
  9.71

  	
  %

  	
  10,000,000

  	
   

  	
  6.37

  	
  %

  	
  10,000,000

  	
   

  	
  1,464,944

  	
   

  
	
  Industrial
  & Commercial Bank of China

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  5.84

  	
  %

  	
  20,000,000

  	
   

  	
  2,929,888

  	
   

  
	
  Agricultural
  Bank of China

  	
   

  	
  7.96

  	
  %

  	
  4,700,000

  	
   

  	
  9.71

  	
  %

  	
  4,700,000

  	
   

  	
  688,524

  	
   

  	
  9.71

  	
  %

  	
  4,700,000

  	
   

  	
  6.37

  	
  %

  	
  4,700,000

  	
   

  	
  688,524

  	
   

  
	
  Agricultural
  Bank of China

  	
   

  	
  9.48

  	
  %

  	
  10,000,000

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  9.48

  	
  %

  	
  10,000,000

  	
   

  	
  6.37

  	
  %

  	
  10,000,000

  	
   

  	
  1,464,944

  	
   

  
	
  Agricultural
  Bank of China

  	
   

  	
  8.89

  	
  %

  	
  10,000,000

  	
   

  	
  8.30

  	
  %

  	
  10,000,000

  	
   

  	
  1,464,944

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  8.30

  	
  %

  	
  10,000,000

  	
   

  	
  1,464,944

  	
   

  
	
  Agricultural
  Bank of China

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  6.37

  	
  %

  	
  20,000,000

  	
   

  	
  2,929,888

  	
   

  
	
  From third party 

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Shanghai
  Zhonglu Group

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  30.00

  	
  %

  	
  40,000,000

  	
   

  	
  5,859,776

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Sub-total

  	
   

  	
   

  	
   

  	
  24,700,000

  	
   

  	
   

  	
   

  	
  64,700,000

  	
   

  	
  9,478,188

  	
   

  	
   

  	
   

  	
  24,700,000

  	
   

  	
   

  	
   

  	
  74,700,000

  	
   

  	
  10,943,152

  	
   

  
	
  Daqing Borun:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  From Financial institutions

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Daqing
  Commercial Bank

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  4.86

  	
  %

  	
  25,000,000

  	
   

  	
  3,662,359

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  5.31

  	
  %

  	
  25,000,000

  	
   

  	
  3,662,359

  	
   

  
	
  Daqing
  Commercial Bank

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  6.90

  	
  %

  	
  30,000,000

  	
   

  	
  4,394,832

  	
   

  
	
  Agricultural
  Development Bank of China

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  5.31

  	
  %

  	
  13,500,000

  	
   

  	
  1,977,674

  	
   

  
	
  Sub-total

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
   

  	
   

  	
  25,000,000

  	
   

  	
  3,662,359

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
   

  	
   

  	
  68,500,000

  	
   

  	
  10,034,865

  	
   

  
	
  Total

  	
   

  	
   

  	
   

  	
  24,700,000

  	
   

  	
   

  	
   

  	
  89,700,000

  	
   

  	
  13,140,547

  	
   

  	
   

  	
   

  	
  24,700,000

  	
   

  	
   

  	
   

  	
  143,200,000

  	
   

  	
  20,977,997

  	
   

  

 

As of September 30,
2009, short-term bank loan of RMB20,000,000 ($2,929,888) from Industrial &
Commercial Bank of China was secured by the Company’s land use rights with a carrying
value of RMB10,752,000 ($1,575,108); and short-term bank loan of RMB13,500,000
($1,977,674) from Agricultural Development Bank of China was secured by the
Company’s buildings and land use right with total carrying value of
RMB8,914,612 ($1,305,941) and RMB8,073,793 ($1,182,765), respectively. All
other short-term bank borrowings were secured by third party guarantees.

 

F-19

 

CHINA HIGH ENTERPRISES LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts
in RMB unless otherwise stated)

 

9.
Short-term borrowings (Continued)

 

Except
of interest rate for short-term bank loan of RMB30,000,000 ($4,394,832) from Daqing
Commercial Bank which was fixed at 6.90% per annum and interest rate for
short-term loan of RMB40,000,000 ($5,859,776) from Shanghai Zhonglu Group was
fixed at 30.00% per annum, interest rates for all other short-term bank loans
are subject to be adjusted periodically in accordance with interest rate
published by the People’s Bank of China.

 

All
of the above short-term loans are fixed term loans with a period of 12 months
or less. Interest is payable on a monthly or quarterly basis. All short-term
loans mature at various dates within one year. These facilities contain no
specific renewal terms or any requirement for the maintenance of financial
covenants. The Company has traditionally and successfully negotiated the
renewal of certain facilities shortly before they mature.

 

10. Accrued expenses and other
payables

 

Accrued
expenses consisted of the following:

 

	
   

  	
   

  	
  December
  31,

  	
   

  	
  September 30,

  	
   

  
	
   

  	
   

  	
  2007

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2009

  	
   

  	
  2009

  	
   

  
	
   

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  ($)

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  ($)

  	
   

  
	
  Advance from customers

  	
   

  	
  —

  	
   

  	
  184,016

  	
   

  	
  $

  	
  26,957

  	
   

  	
  —

  	
   

  	
  4,479,998

  	
   

  	
  $

  	
  656,295

  	
   

  
	
  Payroll and welfare
  payable

  	
   

  	
  1,184,073

  	
   

  	
  2,030,596

  	
   

  	
  297,471

  	
   

  	
  1,286,324

  	
   

  	
  1,113,305

  	
   

  	
  163,093

  	
   

  
	
  Daqing acquisition
  payable

  	
   

  	
  —

  	
   

  	
  53,103,761

  	
   

  	
  7,779,403

  	
   

  	
  104,118,875

  	
   

  	
  7,287,777

  	
   

  	
  1,067,618

  	
   

  
	
  Other payables and
  accruals

  	
   

  	
  30,812,978

  	
   

  	
  2,520,780

  	
   

  	
  369,280

  	
   

  	
  1,016,665

  	
   

  	
  13,955,925

  	
   

  	
  2,044,465

  	
   

  
	
  Total

  	
   

  	
  31,997,051

  	
   

  	
  57,839,153

  	
   

  	
  $

  	
  8,473,111

  	
   

  	
  106,421,864

  	
   

  	
  26,837,005

  	
   

  	
  $

  	
  3,931,471

  	
   

  

 

Other
payables and accruals is primarily composed of capital expenditures.

 

11. Amount due to related party

 

An
amount due to related party is a non-interest bearing payable to one of the Company’s
director payable upon demand.

 

12.
Convertible  preferred share

 

On
October 28, 2008, the Company issued 2,000 convertible preferred series A share
(“SEE Preferred A Share”) to Star Elite Enterprises Limited (“Star Elite”) with
a par value of RMB0.88 in exchange for RMB1,759 preferred share subscription
receivable and RMB70,000,000 cash. The terms of the SEE Preferred A Share are
as follows.

 

Voting,
Liquidity, and Ownership Rights—The holder is
entitled to the number of votes and ownership shares equal to the number of common
share. The preferred shareholder is entitled to vote on all matters submitted
to a vote of shareholders. The holder has the same liquidity rights as the common
shareholder.

 

Conversion Rights—The holder is entitled
convert SEE Preferred A Share to common share anytime.

 

F-20

 

CHINA HIGH ENTERPRISES LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in RMB unless otherwise stated)

 

12.
Convertible preferred share (Continued)

 

Dividends—The holder  is entitled to receive dividends, when declared, on an as-converted
basis. The holder is also entitled to undistributed earnings proportionate to
its ownership interest.

 

Additional Shares Rights—The holder is entitled to
receive additional common shares from other common share holders if the Company
does not meet the minimum net income requirement based on an agreed upon
formula in the preferred series A share agreement. Such shares are not to be
issued by the Company but a transfer of common share from current common share
shareholders to the holder of preferred series A share which is a transaction
outside the Company level.

 

On
June 16, 2009, China High authorized and issued 563 convertible preferred
series B share (“Earnstar Preferred B Share”) to Earnstar Holding Limited (“Earnstar”)
with par value RMB0.88 in exchange for RMB40,000,000 cash. On September 22,
2009, China High authorized and issued an additional 202 convertible preferred
series B share (“TDR Preferred B Share”) to TDR Advisors Inc (“TDR”) in
exchange for RMB14,050,000 cash. An additional 11 Earnstar Preferred Shares was
authorized and issued to Earnstar in no consideration as result of
anti-dilution. The preferred series B share have the same terms as preferred
series A share with exception to minimum net income requirement whereas such
requirement threshold is different.

 

The
Company recognized a beneficial conversion feature discount on the convertible
series A preferred share at its intrinsic value, which was the fair value of
the common share at the commitment date for the convertible series A preferred
share investment, less the effective conversion price but limited to the
RMB70,000,000 of proceeds received from the sale in accordance with ASC 470-20,
Debt with Conversion and Other Options. The Company recognized RMB42,000,000 beneficial
conversion feature as an increase in additional paid-in capital in the
accompanying consolidated balance sheets on the date of issuance of the
convertible preferred series A share since the these shares were convertible to
common share at the issuance date. The fair value of the Company’s convertible
preferred series A share and convertible series B share was valued by an
independent valuation firm. Based on the fair value valuation performed, the
issuance price of convertible preferred series A share was approximately
RMB56,000 per share and was issued at RMB35,000 per share at the date of
issuance. The convertible preferred series B share approximated fair value at
the issuance date which was approximately RMB71,000 and RMB66,000 for 563
shares issued on June 16, 2009 and 213 shares issued on September 22,
009, respectively.

 

In
accordance with ASC 470-20, Debt with Conversion and Other Options, the Company
amortized the convertible preferred share discount of RMB42,000,000 which was
recorded as a reduction of net income attributable to common shareholder
resulting from recognition of the embedded beneficial conversion feature of the
SEE Preferred Shares on the date of issuance because convertible preferred
series A share were not mandatorily redeemable and are immediately convertible
into common share.

 

13.
Restricted net assets

 

The
Company’s ability to pay dividends is primarily dependent on the Company
receiving distributions of funds from its subsidiaries. Relevant PRC statutory
laws and regulations permit payments of dividends by the Company’s PRC subsidiaries
only out of their retained earnings, if any, as determined in accordance with
PRC accounting standards and regulations. The results of operations reflected
in

 

F-21

 

CHINA HIGH ENTERPRISES LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in RMB unless otherwise stated)

 

13.
Restricted net assets (Continued)

 

the
financial statements prepared in accordance with U.S. GAAP differ from those
reflected in the statutory financial statements of the Company’s subsidiaries.

 

In
accordance with the Regulations on Enterprises with Foreign Investment of China
and their articles of association, a foreign invested enterprise established in
the PRC is required to provide certain statutory reserves, namely general
reserve fund, the enterprise expansion fund and staff welfare and bonus fund
which are appropriated from net profit as reported in the enterprise’s PRC statutory
accounts. A wholly-owned foreign invested enterprise is required to allocate at
least 10% of its annual after-tax profit to the general reserve until such
reserve has reached 50% of its respective registered capital based on the
enterprise’s PRC statutory accounts. Appropriations to the enterprise expansion
fund and staff welfare and bonus fund are at the discretion of the board of
directors for all foreign invested enterprises. The aforementioned reserves can
only be used for specific purposes and are not distributable as cash dividends.
WGC was established as a wholly-owned foreign invested enterprise and therefore
are subject to the above mandated restrictions on distributable profits.

 

Additionally,
in accordance with the Company Law of the PRC, a domestic enterprise is
required to provide statutory common reserve at least 10% of its annual
after-tax profit until such reserve has reached 50% of its respective
registered capital based on the enterprise’s PRC statutory accounts. A domestic
enterprise is also required to provide for discretionary surplus reserve, at
the discretion of the board of directors, from the profits determined in
accordance with the enterprise’s PRC statutory accounts. The aforementioned
reserves can only be used for specific purposes and are not distributable as
cash dividends. Shandong Borun and Daqing Borun were established as domestic
invested enterprises and therefore are subject to the above mandated
restrictions on distributable profits.

 

As
a result of these PRC laws and regulations that require annual appropriations
of 10% of after-tax income to be set aside prior to payment of dividends as a
general reserve fund, the Company’s PRC subsidiaries are restricted in their
ability to transfer a portion of their net assets to the Company.

 

Amounts
restricted include paid-in capital and statutory reserve funds of the Company’s
PRC subsidiaries as determined pursuant to the PRC accounting standards and
regulations, totaling approximately RMB66,914,098 and RMB105,815,914($15,501,438)
as of December 31, 2007 and 2008, and RMB92,214,098 and RMB159,631,508
($23,385,120) as of September 30, 2008 and 2009 respectively; therefore in
accordance with Rules 504 and 4.08 (e) (3) of Regulations S-X,
the condensed parent company only financial statements as of December 31,
2007 and 2008, and September 30, 2008 and 2009, and for each of the three
years ended December 31, 2008 and the nine months ended September 30,
2008 and 2009 are disclosed in None 15.

 

F-22

 

CHINA HIGH ENTERPRISES LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in RMB unless otherwise stated)

 

14.
Income taxes

 

The
following table represents the Company’s effective tax rate reconciliation for
the periods presented:

 

	
   

  	
   

  	
  Year Ended December 31,

  	
   

  	
  Nine-months

  Ended

  September 30,

  	
   

  
	
   

  	
   

  	
  2006

  	
   

  	
  2007

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2009

  	
   

  
	
  Statutory tax rate

  	
   

  	
  33

  	
  %

  	
  33

  	
  %

  	
  25

  	
  %

  	
  25

  	
  %

  	
  25

  	
  %

  
	
  Expenses not deductible

  	
   

  	
  1

  	
  %

  	
  1

  	
  %

  	
  1

  	
  %

  	
  2

  	
  %

  	
  —

  	
   

  
	
  Income not subject to tax

  	
   

  	
  —

  	
   

  	
  (1

  	
  )%

  	
  —

  	
   

  	
  —

  	
   

  	
  (1

  	
  )%

  
	
  Effective tax rate

  	
   

  	
  34

  	
  %

  	
  33

  	
  %

  	
  26

  	
  %

  	
  27

  	
  %

  	
  24

  	
  %

  

 

The
provision for income taxes consists of taxes on income from operations plus
changes in deferred taxes for the periods presented:

 

	
   

  	
   

  	
  Year Ended December 31,

  	
   

  	
  Nine-months Ended September 30,

  	
   

  
	
   

  	
   

  	
  2006

  	
   

  	
  2007

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2009

  	
   

  	
  2009

  	
   

  
	
   

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  (Unaudited)

  ($)

  	
   

  	
  (Unaudited)

  (RMB)

  	
   

  	
  (Unaudited)

  (RMB)

  	
   

  	
  (Unaudited)

  ($)

  	
   

  
	
  Current tax expenses

  	
   

  	
  15,504,371

  	
   

  	
  28,557,072

  	
   

  	
  27,283,365

  	
   

  	
  $

  	
  3,996,860

  	
   

  	
  18,130,821

  	
   

  	
  31,774,063

  	
   

  	
  $

  	
  4,654,722

  	
   

  
	
  Deferred tax benefits

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (642,375

  	
  )

  	
  (94,104

  	
  )

  	
  (565,425

  	
  )

  	
  1,640,997

  	
   

  	
  240,397

  	
   

  
	
  Income tax expense

  	
   

  	
  15,504,371

  	
   

  	
  28,557,072

  	
   

  	
  26,640,990

  	
   

  	
  $

  	
  3,902,756

  	
   

  	
  17,565,396

  	
   

  	
  33,415,060

  	
   

  	
  $

  	
  4,895,119

  	
   

  

 

The
following represents the significant components of deferred tax assets:

 

	
   

  	
   

  	
  December 31,

  	
   

  	
  September 30,

  	
   

  
	
   

  	
   

  	
  2007

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2009

  	
   

  	
  2009

  	
   

  
	
   

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  (Unaudited)

  ($)

  	
   

  	
  (Unaudited)

  (RMB)

  	
   

  	
  (Unaudited)

  (RMB)

  	
   

  	
  (Unaudited)

  ($)

  	
   

  
	
  Taxes deductible operating loss carryforward

  	
   

  	
  —

  	
   

  	
  998,622

  	
   

  	
  $

  	
  146,293

  	
   

  	
  998,622

  	
   

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  Net operating loss in current period

  	
   

  	
  —

  	
   

  	
  642,375

  	
   

  	
  94,104

  	
   

  	
  565,425

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Total deferred tax assets

  	
   

  	
  —

  	
   

  	
  1,640,997

  	
   

  	
  240,397

  	
   

  	
  1,564,047

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Less—valuation allowance

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Total

  	
   

  	
  —

  	
   

  	
  1,640,997

  	
   

  	
  $

  	
  240,397

  	
   

  	
  1,564,047

  	
   

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  

 

The
balances of deferred tax assets as of September 30, 2008 and December 31,
2008, mainly consist of deferred tax assets arising from the tax deductible net
operating loss carry forward allowed by the tax authority as a result of
acquisition of Anxin Tongwei, and the accumulate net operating loss of Daqing Borun
in 2008. As Daqing Borun start to generate profit in 2009, such deferred tax
assets has been fully utilized in the nine months ended September 30,
2009.

 

F-23

 

CHINA
HIGH ENTERPRISES LIMITED AND SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

(Amounts
in RMB unless otherwise stated)

 

15.
Parent company condensed financial information 

 

Condensed
Balance Sheets:

 

	
   

  	
   

  	
  December
  31,

  	
   

  	
  September
  30,

  	
   

  
	
   

  	
   

  	
  2007

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2009

  	
   

  	
  2009

  	
   

  
	
   

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  ($)

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  ($)

  	
   

  
	
  Assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash

  	
   

  	
  —

  	
   

  	
  4,204

  	
   

  	
  $

  	
  616

  	
   

  	
  —

  	
   

  	
  7,049

  	
   

  	
  $

  	
  1,033

  	
   

  
	
  Total current
  assets

  	
   

  	
  —

  	
   

  	
  4,204

  	
   

  	
  616

  	
   

  	
  —

  	
   

  	
  7,049

  	
   

  	
  1,033

  	
   

  
	
  Investment in
  subsidiaries

  	
   

  	
  138,838,042

  	
   

  	
  296,883,536

  	
   

  	
  43,491,770

  	
   

  	
  266,314,883

  	
   

  	
  455,863,412

  	
   

  	
  66,781,430

  	
   

  
	
  Total assets

  	
   

  	
  139,838,042

  	
   

  	
  296,887,740

  	
   

  	
  $

  	
  43,492,386

  	
   

  	
  266,314,883

  	
   

  	
  455,870,461

  	
   

  	
  $

  	
  66,782,463

  	
   

  
	
  Liabilities
  and Shareholders’ Equity

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Amount due to
  related party

  	
   

  	
  —

  	
   

  	
  907,960

  	
   

  	
  $

  	
  133,011

  	
   

  	
  —

  	
   

  	
  908,040

  	
   

  	
  $

  	
  133,023

  	
   

  
	
  Total current
  liabilities

  	
   

  	
  —

  	
   

  	
  907,960

  	
   

  	
  133,011

  	
   

  	
  —

  	
   

  	
  908,040

  	
   

  	
  133,023

  	
   

  
	
  Total liabilities

  	
   

  	
  —

  	
   

  	
  907,960

  	
   

  	
  133,011

  	
   

  	
  —

  	
   

  	
  908,040

  	
   

  	
  133,023

  	
   

  
	
  Shareholders’
  equity 

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Convertible
  preferred series A share—par value of RMBO.88; 2,000 shares authorized issued
  and outstanding

  	
   

  	
  —

  	
   

  	
  1,759

  	
   

  	
  258

  	
   

  	
  —

  	
   

  	
  1,759

  	
   

  	
  258

  	
   

  
	
  Convertible
  preferred series B share—par value of RMBO.88; 776 shares authorized, issued
  and outstanding

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  683

  	
   

  	
  100

  	
   

  
	
  Common share—par
  value of RMBO.88; 8,000 shares authorized, issued and outstanding

  	
   

  	
  7,037

  	
   

  	
  7,037

  	
   

  	
  1,031

  	
   

  	
  7,037

  	
   

  	
  7,037

  	
   

  	
  1,031

  	
   

  
	
  Subscription
  receivables

  	
   

  	
  (7,037

  	
  )

  	
  (8,796

  	
  )

  	
  (1,289

  	
  )

  	
  (7,037

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  
	
  Additional paid-in
  capital

  	
   

  	
  51,200,000

  	
   

  	
  173,200,000

  	
   

  	
  25,372,828

  	
   

  	
  131,200,000

  	
   

  	
  227,249,317

  	
   

  	
  33,290,750

  	
   

  
	
  Retained earnings—appropriated

  	
   

  	
  15,714,098

  	
   

  	
  27,991,612

  	
   

  	
  4,100,612

  	
   

  	
  15,714,098

  	
   

  	
  27,991,612

  	
   

  	
  4,100,612

  	
   

  
	
  Retained earnings—unappropriated

  	
   

  	
  71,923,944

  	
   

  	
  94,776,558

  	
   

  	
  13,884,234

  	
   

  	
  119,400,785

  	
   

  	
  199,940,851

  	
   

  	
  29,290,213

  	
   

  
	
  Accumulated other
  comprehensive income (loss)

  	
   

  	
  —

  	
   

  	
  11,610

  	
   

  	
  1,701

  	
   

  	
  —

  	
   

  	
  (228,838

  	
  )

  	
  (33,524

  	
  )

  
	
  Total
  Shareholders’ equity

  	
   

  	
  138,838,042

  	
   

  	
  295,979,780

  	
   

  	
  43,359,375

  	
   

  	
  266,314,883

  	
   

  	
  454,962,421

  	
   

  	
  66,649,440

  	
   

  
	
  Total liabilities
  and Shareholders’ equity

  	
   

  	
  138,838,042

  	
   

  	
  296,887,740

  	
   

  	
  $

  	
  43,492,386

  	
   

  	
  266,314,883

  	
   

  	
  455,870,461

  	
   

  	
  $

  	
  66,782,463

  	
   

  

 

F-24

 

CHINA HIGH ENTERPRISES LIMITED AND SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts in RMB unless otherwise
stated)

 

15.
Parent company condensed financial information (Continued)

 

Condensed
Statements of Income:

 

	
   

  	
   

  	
  Year Ended December 31,

  	
   

  	
  Nine-months Ended September 30,

  	
   

  
	
   

  	
   

  	
  2006

  	
   

  	
  2007

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2009

  	
   

  	
  2009

  	
   

  
	
   

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  ($)

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  ($)

  	
   

  
	
  Operating income (loss)

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (915,366

  	
  )

  	
  $

  	
  (134,096

  	
  )

  	
  —

  	
   

  	
  11

  	
   

  	
  $

  	
  2

  	
   

  
	
  Equity in profit of subsidiaries

  	
   

  	
  29,984,859

  	
   

  	
  58,724,009

  	
   

  	
  78,045,494

  	
   

  	
  11,433,227

  	
   

  	
  47,476,841

  	
   

  	
  105,164,282

  	
   

  	
  15,405,977

  	
   

  
	
  Net income attributable to common shareholders

  	
   

  	
  24,984,859

  	
   

  	
  58,724,009

  	
   

  	
  77,130,128

  	
   

  	
  $

  	
  11,299,131

  	
   

  	
  47,476,841

  	
   

  	
  105,164,293

  	
   

  	
  $

  	
  15,405,979

  	
   

  

 

F-25

 

CHINA
HIGH ENTERPRISES LIMITED AND SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts
in RMB unless otherwise stated)

 

15.  Parent company condensed financial information
(Continued)

 

Condensed
Statements of Cash Flows:

 

	
   

  	
   

  	
  Year Ended
  December 31,

  	
   

  	
  Nine-months
  Ended September 30,

  	
   

  
	
   

  	
   

  	
  2006

  	
   

  	
  2007

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2009

  	
   

  	
  2009

  	
   

  
	
   

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  ($)

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  ($)

  	
   

  
	
  Net income

  	
   

  	
  29,984,859

  	
   

  	
  58,724,009

  	
   

  	
  77,130,128

  	
   

  	
  $

  	
  11,299,131

  	
   

  	
  47,476,841

  	
   

  	
  105,164,293

  	
   

  	
  $

  	
  15,405,979

  	
   

  
	
  Adjustments to
  reconcile net income to net cash provided by operating activities:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Equity in profit
  of subsidiaries

  	
   

  	
  (29,984,859

  	
  )

  	
  (58,724,009

  	
  )

  	
  (78,045,494

  	
  )

  	
  (11,433,227

  	
  )

  	
  (47,476,841

  	
  )

  	
  (105,164,282

  	
  )

  	
  (15,405,977

  	
  )

  
	
  Changes in
  operating assets and liabilities:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Amount due to
  related party

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  907,960

  	
   

  	
  133,011

  	
   

  	
  —

  	
   

  	
  80

  	
   

  	
  12

  	
   

  
	
  Net cash
  provided by operating activities

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (7,406

  	
  )

  	
  (1,085

  	
  )

  	
  —

  	
   

  	
  91

  	
   

  	
  14

  	
   

  
	
  Cash
  flows from investing activities:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Investment in
  subsidiaries

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (53,815,594

  	
  )

  	
  (7,883,682

  	
  )

  
	
  Net cash used in
  investing activities

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (53,815,594

  	
  )

  	
  (7,883,682

  	
  )

  
	
  Cash
  flows from financing activities:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Proceeds from
  issuance of common share and convertible preferred share

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  54,058,796

  	
   

  	
  7,919,310

  	
   

  
	
  Net cash
  provided by financing activities

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  54,058,796

  	
   

  	
  7,919,310

  	
   

  
	
  Effect of
  foreign currency exchange translation

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  11,610

  	
   

  	
  1,701

  	
   

  	
  —

  	
   

  	
  (240,448

  	
  )

  	
  (35,225

  	
  )

  
	
  Net increase in
  cash

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  4,204

  	
   

  	
  616

  	
   

  	
  —

  	
   

  	
  2,845

  	
   

  	
  417

  	
   

  
	
  Cash—beginning
  of year

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  4,204

  	
   

  	
  616

  	
   

  
	
  Cash—end of year

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  4,204

  	
   

  	
  616

  	
   

  	
  —

  	
   

  	
  7,049

  	
   

  	
  $

  	
  1,033

  	
   

  
																			

 

16.  Comprehensive income

 

Total comprehensive income includes, in
addition to net income, changes in equity that are excluded from the
consolidated statements of income and are recorded directly into a separate
section of

 

F-26

 

CHINA
HIGH ENTERPRISES LIMITED AND SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Amounts
in RMB unless otherwise stated)

 

16.  Comprehensive income (Continued)

 

Shareholder’s equity on the consolidated balance sheets. Comprehensive
income and its components consist of the following: 

 

	
   

  	
   

  	
  Year
  Ended December 31,

  	
   

  	
  Nine-months
  Ended September 30

  	
   

  
	
   

  	
   

  	
  2006

  	
   

  	
  2007

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2008

  	
   

  	
  2009

  	
   

  	
  2009

  	
   

  
	
   

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  (RMB)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  ($)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net income

  	
   

  	
  29,984,859

  	
   

  	
  58,724,009

  	
   

  	
  77,130,128

  	
   

  	
  $

  	
  11,299,131

  	
   

  	
  47,476,841

  	
   

  	
  105,164,293

  	
   

  	
  15,405,979

  	
   

  
	
  Foreign Currency
  translation adjustment

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  11,610

  	
   

  	
  1,701

  	
   

  	
  —

  	
   

  	
  (240,448

  	
  )

  	
  (35,225

  	
  )

  
	
  Comprehensive
  income

  	
   

  	
  29,984,859

  	
   

  	
  58,724,009

  	
   

  	
  77,141,738

  	
   

  	
  $

  	
  11,300,832

  	
   

  	
  47,476,841

  	
   

  	
  604,923,845

  	
   

  	
  15,370,754

  	
   

  

 

17.  Commitments
and contingencies

 

The Company is subject to various legal proceedings from time to time
as part of its business, As of September 30, 2009 and December 31,
2008, the Company was not any party to any legal proceedings or threatened
legal proceedings, the adverse outcome of which, individually or in the
aggregate, it believes would have a material adverse effect on its business,
financial condition and results of operations.

 

As of September 30, 2009, short-term bank loan of RMB20,000,000
($2,929,888) from Industrial & Commercial Bank of China was secured by the
Company’s land use rights with a carrying value of RMB10,752,000 ($1,575,108);
and short-term bank loan of RMB13,500,000 ($1,977,674) from Agricultural
Development Bank of China was secured by the Company’s buildings and land use
right with total carrying value of RMB8,914,612 ($1,305,941) and RMB8,073,793 ($1,182,765),
respectively. All other short-term bank borrowings were secured by third party
guarantees.

 

The Company is a guarantor to a third party, LiFeng Chemical
Corporation, in the amount of RMB10,000,000 short-term bank loan that mature on
March 25, 2010.

 

I8.  Subsequent
events

 

In May 2009, the FASB issued ASC 855, Subsequent Events. ASC 855
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued
or are available to be issued. The standard, which includes a new required
disclosure of the date through which an entity has evaluated subsequent events,
is effective for interim or annual periods ending after June 15, 2009. The
Company’s management evaluated all events or transactions that occurred after December 31,
2008 up through January 19, 2010, the date the Company issued the
financial statements. During these periods, the Company did not have any material
recognizable subsequent events required to be disclosed other than those
disclosed in this note to the financial statements for the year ended December 31,
2008 and nine months ended September 30, 2009.

 

F-27

 

ANNEX E

 

China New Borun Corporation

Balance Sheet

(Amounts in RMB unless otherwise stated)

 

	
  December 31,

  	
   

  	
  2009

  	
   

  	
  2009

  	
   

  
	
   

  	
   

  	
  (RMB)

  	
   

  	
  (Unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  ($)

  	
   

  
	
  Assets

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash and other current
  assets

  	
   

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  Deferred income taxes

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Total current assets

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Total assets

  	
   

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  Liabilities and Shareholder’s
  Equity

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accounts payable and
  other liabilities

  	
   

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  Total
  current liabilities

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Total liabilities

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Shareholder’s
  equity

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Common share—par
  value of RMB6.8259; 1 share
  authorized, issued and outstanding

  	
   

  	
  7

  	
   

  	
  1

  	
   

  
	
  Subscription receivables

  	
   

  	
  (7

  	
  )

  	
  (1

  	
  )

  
	
  Additional
  paid-in capital

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Retained
  earnings

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Total
  shareholder’s equity

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Total
  liabilities and shareholder’s equity

  	
   

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  

 

See
accompanying notes to financial statements.

 

F-28

 

CHINA NEW
BORUN CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Amounts
in RMB unless otherwise stated)

 

1.             Description of business

 

China New Borun Corporation (“New Borun”) was incorporated
in Cayman Islands on December 21, 2009. Upon the incorporation, New Borun
issued one share of the ordinary share holder.

 

China New Borun is referred to as the “Company” or “New
Borun”.

 

2.              Summary of significant accounting
policies

 

Principles of Presentation

 

The statement financial statements have been prepared
in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).
Separate statements of income, changes in shareholders’ equity and cash flows
have not been presented in the financial statements because there have been no
activities of the Company.

 

Convenience Translation into
United States Dollar Amounts (Unaudited)

 

The Company reports its financial statements
using the RMB. The Dollar amounts disclosed in the accompanying financial
statements are presented solely for the convenience of the reader, and have
been converted at the rate of RMB6.8259 to one Dollar ($), which is the noon
buying rate of the U.S. Federal Reserve Bank of New York in effect on September
30, 2009. Such translations should not be construed as representations that the
RMB amounts represent, have been, or could be, converted into, $ at that  or any other rate.

 

Use of Estimates

 

The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
materially differ from those estimates.

 

Earnings per
Share

 

The Company computes earnings per  share in
accordance with ASC 260, Earnings Per Share. Under the provisions of ASC 260,
basic earnings per share is computed by dividing the net income attributable to
holders of common shares for the period by the weighted average number of
common shares outstanding during the period.

 

3.              Shareholder’s
equity

 

New Borun is authorized to issue 50,000 shares of
common share of par value of RMB 6.8259. As of December 31, 2009, the
Company has issued 1 share of common share in exchange for RMB 6.8259, which is
beneficially owned by Mrs. Shan Jungin, the mother of Mr. Wang Jinmiao (“Mr. Wang”),
Mr. Wang and his family members (the “Wang Family”).

 

New Borun plans to consummate a share exchange
agreement with Golden Direction Limited, or Golden Direction, a British Virgin
Islands company beneficially owned by the Wang Family whereby China New Borun
acquired 100% of the voting
capital stock of Golden Direction in exchange for the

 

F-29

 

CHINA NEW BORUN CORPORATION

NOTES TO FINANCIAL STATEMENTS
(Continued)

(Amounts
in RMB unless otherwise stated)

 

3.              Shareholder’s equity (Continued)

 

issuance by New Borun to Mrs. Shan of
14,847,999 additional ordinary shares. As of the date of that agreement, (1) Golden
Direction became a wholly-owned subsidiary of New Borun and (2) Golden Direction held 74.24%
of the voting capital stock of China High Enterprises Limited, or China High, our
Hong Kong holding company.

 

New Borun and Golden Direction will execute a
share exchange agreement whereby Golden Direction shall acquire the remaining
25.76% of China High upon the satisfaction of certain conditions as set forth
in that share exchange agreement. Upon closing the exchange, the Company shall
issue (i) 3,712 of its Class A convertible preferred shares, which
are automatically convertible into 3,712,000 of its ordinary shares upon the
effectiveness of public offering, to one of China High’s private equity
investors. Star Elite Enterprises Limited, or Star Elite, a British Virgin
Islands company, and (ii) 1,440 shares of its Class B convertible
preferred shares, which are automatically convertible into 1,440,000 of its
ordinary shares upon the effectiveness of public offering, of which 1,066
shares shall be issued to China High’s private equity investor, Earnstar Holding
Limited, or Earnstar, a British Virgin Islands company, and 374 shares shall be
issued to China High’s private equity investor TDR Advisors, Inc., or TDR,
a British Virgin Islands company.

 

Upon the closing of above exchanges, Golden
Direction will continue to be a wholly-owned subsidiary of New Borun and China
High will be a wholly-owned subsidiary of Golden Direction. The whole
restructuring will consist of the same majority of shareholder and will not
change control ownership.

 

4.              Subsequent events

 

In May 2009, the FASB issued ASC 855,
Subsequent Events. ASC 855 establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. The standard,
which includes a new required disclosure of the date through which an entity
has evaluated subsequent events, is effective for interim or annual periods
ending after June 15, 2009. The Company’s management evaluated all events or
transactions that occurred after December 31,
2009 up through February 1, 2010, the date the Company issued the
financial statements. During these periods, the Company did not have any
material recognizable subsequent events required to be disclosed other than
those disclosed in this note to the financial statements.

 

F-30

 

UNAUDITED
CONDENSED COMBINED PRO FORMA FINANCIAL DATA

 

The following unaudited condensed combined
pro forma financial statements principally give effect to the following
transactions, which we refer to as our reorganization and which are further
described under “Our Corporate Structure and History”:

 

·                                          New Borun will
consummate a share exchange agreement with Golden Direction Limited, or Golden
Direction, a British Virgin Islands company beneficially owned by the Wang
Family whereby New Borun will acquire 100% of the voting capital stock of
Golden Direction in exchange for the issuance by New Borun to Mrs. Shan of
14,847,999 additional ordinary shares. 
As of the date of that agreement, (1) Golden Direction will become a
wholly-owned subsidiary of New Borun and (2) Golden Direction will hold 74.24%
of the voting capital stock of China High.

 

·                                          New Borun and
Golden Direction will execute a share exchange agreement whereby Golden
Direction shall acquire the remaining 25.76% of China High upon the
satisfaction of certain conditions as set forth in that share exchange
agreement.  Upon closing the exchange,
the Company shall issue (i) 3,712 of its Class A convertible preferred shares,
which are automatically convertible into 3,712,000 of its ordinary shares upon
the effectiveness of this offering, to one of China High’s private equity
investors, Star Elite Enterprises Limited, or Star Elite, a British Virgin
Islands company, and (ii) 1,440 shares of its Class B convertible preferred
shares, which are automatically convertible into 1,440,000 of its ordinary
shares upon the effectiveness of this offering, of which 1,066 shares shall be
issued to China High’s private equity investor, Earnstar Holding Limited, or
Earnstar, a British Virgin Islands company, and 374 shares shall be issued to
China High’s private equity investor TDR Advisors, Inc., or TDR, a British
Virgin Islands company.

 

·                                          Upon the
closing of the above exchange, Golden Direction will continue to be a
wholly-owned subsidiary of New Borun and China High will be a wholly-owned
subsidiary of Golden Direction.  After
the closing of the share exchanges, the shareholders of China High will become
the shareholders in New Borun and their ownership interests in New Borun will
be identical to that in China High.

 

The unaudited condensed combined pro forma
statements of operations for the nine months ended September 30, 2009 and for
the year ended December 31, 2008 give pro forma effect to the reorganization as
if it had occurred on January 1, 2008. 
The unaudited condensed combined pro forma balance sheet as of September
30, 2009 gives pro forma effect to the reorganization as if it had occurred on
such date.  The unaudited condensed
combined pro forma statements of operations and balance sheet are based on the
historical financial statements of China High and New Borun for the nine months
ended September 30, 2009 and for the year ended December 31, 2008.

 

The historical financial information has been
adjusted to give effect to pro forma events that are related and/or directly
attributable to the reorganization, are actually supportable and, in the case
of the unaudited pro forma statement of operations data, are expected to have
continuing impact on the combined results. 
The adjustments presented on the unaudited condensed combined pro forma
financial information have been identified and presented in “Unaudited Condensed Combined Pro Forma Financial Data” to
provide relevant information necessary for an accurate understanding of the
combined company upon consummation of the reorganization.

 

F-31

 

This information should be read together with
the consolidated financial statements of China High and the notes thereto, the
financial statements of New Borun and the notes thereto, included elsewhere in
this prospectus.

 

The unaudited condensed combined pro forma
financial statements are presented for informational purposes only and are
subject to a number of uncertainties and assumptions and do not purport to
represent what the companies’ actual performance or financial position would
have been had the transactions occurred on the dates indicated and does not
purport to indicate the financial position or results of operations as of any
future date or for any future period.

 

F-32

 

SELECTED UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEETS

September 30, 2009

(Amounts in RMB, unless otherwise stated)

 

	
   

  	
   

  	
  China High

  	
   

  	
  New Borun

  	
   

  	
  Pro Forma

  Adjustments

  	
   

  	
  Pro Forma

  Combined

  	
   

  
	
  Assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash and cash
  equivalents

  	
   

  	
  115,970,899

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  115,970,899

  	
   

  
	
  Trade accounts
  receivable

  	
   

  	
  44,273,079

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  44,273,079

  	
   

  
	
  Inventories

  	
   

  	
  37,800,547

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  37,800,547

  	
   

  
	
  Prepaid expenses and
  other current assets

  	
   

  	
  9,022,667

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  9,022,667

  	
   

  
	
  Deferred income taxes

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Total current assets

  	
   

  	
  207,067,192

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  207,067,199

  	
   

  
	
  Property, plant and
  equipment, net

  	
   

  	
  446,690,082

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  446,690,082

  	
   

  
	
  Land use rights, net

  	
   

  	
  31,929,000

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  31,929,000

  	
   

  
	
  Intangible assets, net

  	
   

  	
  25,902,804

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  25,902,804

  	
   

  
	
  Total assets

  	
   

  	
  711,589,078

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  711,589,078

  	
   

  
	
  Liabilities and Shareholders’
  Equity

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Trade accounts payable

  	
   

  	
  63,564,834

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  63,564,834

  	
   

  
	
  Accrued expenses and other
  payables

  	
   

  	
  26,837,005

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  26,837,005

  	
   

  
	
  Income taxes payable

  	
   

  	
  22,116,778

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  22,116,778

  	
   

  
	
  Amount due to related
  party

  	
   

  	
  908,040

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  908,040

  	
   

  
	
  Dividends payable

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Short-term borrowings

  	
   

  	
  143,200,000

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  143,200,000

  	
   

  
	
  Total current liabilities

  	
   

  	
  256,626,657

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  256,626,657

  	
   

  
	
  Total liabilities

  	
   

  	
  256,626,657

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  256,626,657

  	
   

  
	
  Shareholders’ equity

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Convertible
  preferred series A share

  	
   

  	
  1,759

  	
   

  	
  —

  	
   

  	
  (1,759

  	
  )(1)

  	
  25,338

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  25,338 

  	
  (1)

  	
   

  	
   

  
	
  Convertible
  preferred series B share

  	
   

  	
  683

  	
   

  	
  —

  	
   

  	
  (683

  	
  )(2)

  	
  9,829

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  9,829 

  	
  (2)

  	
   

  	
   

  
	
  Common
  share

  	
   

  	
  7,037

  	
   

  	
  7

  	
   

  	
  (7,037

  	
  )(3)

  	
  101,350,963

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  (7

  	
  )(3)

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  101,350,963

  	
  (3)

  	
   

  	
   

  
	
  Subscription
  receivables

  	
   

  	
  —

  	
   

  	
  (7

  	
  )

  	
  7 

  	
  (3)

  	
   

  	
   

  
	
  Additional
  paid-in capital

  	
   

  	
  227,249,317

  	
   

  	
  —

  	
   

  	
  (23,579

  	
  )(1)

  	
  125,872,666

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  (9,146

  	
  )(2)

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  (101,343,926

  	
  )(3)

  	
   

  	
   

  
	
  Retained
  earnings—appropriated

  	
   

  	
  27,991,612

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  27,991,612

  	
   

  
	
  Retained
  earnings—unappropriated

  	
   

  	
  199,940,851

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  199,940,851

  	
   

  
	
  Accumulated
  other comprehensive income (loss)

  	
   

  	
  (228,838

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  	
  (228,838

  	
  )

  
	
  Total shareholders’
  equity

  	
   

  	
  454,962,421

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  454,962,421

  	
   

  
	
  Total liabilities and
  shareholders’ equity

  	
   

  	
  711,589,078

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  711,589,078

  	
   

  

 

F-33

 

SELECTED UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENTS OF
OPERATIONS

Nine-months Ended September 30, 2009

(Amounts in RMB, unless otherwise stated)

 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Pro forma

  	
   

  	
  Pro Forma

  	
   

  
	
   

  	
   

  	
  China High

  	
   

  	
  New Borun

  	
   

  	
  Adjustments

  	
   

  	
  Combined

  	
   

  
	
  Revenues

  	
   

  	
  677,831,182

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  677,831,182

  	
   

  
	
  Cost of goods sold

  	
   

  	
  522,039,815

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  522,039,815

  	
   

  
	
  Gross profit

  	
   

  	
  155,791,367

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  155,791,367

  	
   

  
	
  Operating expenses:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Selling

  	
   

  	
  1,998,781

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  1,998,781

  	
   

  
	
  General and administrative

  	
   

  	
  9,943,767

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  9,943,767

  	
   

  
	
  Total operating expenses

  	
   

  	
  11,942,548

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  11,942,548

  	
   

  
	
  Operating income

  	
   

  	
  143,848,819

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  143,848,819

  	
   

  
	
  Other (income) expense:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Interest income

  	
   

  	
  (246,793

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  	
  (246,793

  	
  )

  
	
  Interest expense

  	
   

  	
  6,933,800

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (6,933,800

  	
  )

  
	
  Others, net

  	
   

  	
  (1,417,541

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  	
  (1,417,541

  	
  )

  
	
  Total other expense, net

  	
   

  	
  5,269,466

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  5,269,466

  	
   

  
	
  Income before income taxes

  	
   

  	
  138,579,353

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  138,579,353

  	
   

  
	
  Income tax expense

  	
   

  	
  33,415,060

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  33,415,060

  	
   

  
	
  Net income

  	
   

  	
  105,164,293

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  105,164,293

  	
   

  
	
  Participation in undistributed earnings by
  preferred shareholders

  	
   

  	
  (27,090,322

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  	
  (27,090,322

  	
  )

  
	
  Net income attributable to common shareholders

  	
   

  	
  78,073,971

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  78,073,971

  	
   

  
	
  Earnings per share:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Basic

  	
   

  	
  9,759.25

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  5.26

  	
   

  
	
  Diluted

  	
   

  	
  7,633.36

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  4.11

  	
   

  
	
  Weighted average common shares outstanding:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Basic

  	
   

  	
  8,000

  	
   

  	
  —

  	
   

  	
  14,840,000

  	
   

  	
  14,848,000

  	
  (A)

  
	
  Diluted

  	
   

  	
  10,228

  	
   

  	
  —

  	
   

  	
  18,972,280

  	
   

  	
  18,982,508

  	
  (B)

  

 

Note
A         To reflect the
common shares issued by New Borun to Wang Family.

Note
B           To reflect the
common shares issued by New Borun taken into impact of conversion of preferred
shares.

 

F-34

 

Pro Forma Adjustments:

 

Note 1           To restate Class A convertible preferred shares
(3,712) to be issued by New Borun to Star Elite with par value at RMB6.8259,
and remove the historical preferred shares issued by China High on combine
level.

 

	
  Decrease
  Convertible preferred series A share

  	
   

  	
  $

  	
  (1,759

  	
  )

  
	
  Increase
  Convertible preferred series A share

  	
   

  	
  25,338

  	
   

  
	
  Decrease APIC

  	
   

  	
  $

  	
  (23,579

  	
  )

  

 

Note
2             To restate
Class B convertible preferred shares (1,440) to be issued by New Borun to China
High’s private equity investors, Earnstar and TDR, with par value ar RMB6.8259,
and remove the historical preferred shares issued by China High on combine
level

 

	
  Decrease
  Convertible preferred series B share

  	
   

  	
  $

  	
  (683

  	
  )

  
	
  Increase
  Convertible preferred series B share

  	
   

  	
  9,829

  	
   

  
	
  Decrease APIC

  	
   

  	
  $

  	
  (9,146

  	
  )

  

 

Note 3             To adjust new shares (14,848,000) to be issued to Wang
Family by New Borun with par value at RMB6.8259.

 

	
  Decrease Common
  share

  	
   

  	
  $

  	
  (7,037

  	
  )

  
	
  Decrease Common
  share

  	
   

  	
  (7

  	
  )

  
	
  Increase Common
  share

  	
   

  	
  $

  	
  101,350,963

  	
   

  
	
  Decrease
  Subscription receivable

  	
   

  	
  $

  	
  7

  	
   

  
	
  Decrease APIC

  	
   

  	
  (101,343,926

  	
  )

  

 

F-35

 

SELECTED
UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS

Year
Ended December 31, 2008

(Amounts
in RMB, unless otherwise stated)

 

	
   

  	
   

  	
  China High

  	
   

  	
  New Borun

  	
   

  	
  Pro
  forma

  Adjustments

  	
   

  	
  Pro
  Forma

  Combined

  	
   

  
	
  Revenues

  	
   

  	
  615,881,195

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  615,881,195

  	
   

  
	
  Cost of goods sold

  	
   

  	
  493,847,780

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  493,847,780

  	
   

  
	
  Gross profit

  	
   

  	
  122,033,415

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  122,033,415

  	
   

  
	
  Operating expenses:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Selling

  	
   

  	
  1,436,241

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  1,436,241

  	
   

  
	
  General and administrative

  	
   

  	
  11,492,104

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  11,492,104

  	
   

  
	
  Total operating expenses

  	
   

  	
  12,928,345

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  12,928,345

  	
   

  
	
  Operating income

  	
   

  	
  109,105,070

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  109,105,070

  	
   

  
	
  Other (income) expense:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Interest income

  	
   

  	
  (344,378

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  	
  (344,378

  	
  )

  
	
  Interest expense

  	
   

  	
  2,983,610

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (2,983,610

  	
  )

  
	
  Others, net

  	
   

  	
  2,694,720

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  2,694,720

  	
   

  
	
  Total other expense, net

  	
   

  	
  5,333,952

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  5,333,952

  	
   

  
	
  Income before income taxes

  	
   

  	
  103,771,118

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  103,771,118

  	
   

  
	
  Income tax expense

  	
   

  	
  26,640,990

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  26,640,990

  	
   

  
	
  Net income

  	
   

  	
  77,130,128

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  77,130,128

  	
   

  
	
  Amortization of preferred share discount

  	
   

  	
  (42,000,000

  	
  )

  	
   

  	
   

  	
   

  	
   

  	
  (42,000,000

  	
  )

  
	
  Participation in undistributed earnings by preferred shareholders

  	
   

  	
  (9,049,521

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  	
  (9,049,521

  	
  )

  
	
  Net income attributable to common shareholders

  	
   

  	
  26,080,607

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  26,080,607

  	
   

  
	
  Earnings per share:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Basic

  	
   

  	
  3,260.08

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  1.76

  	
   

  
	
  Diluted

  	
   

  	
  3,121.56

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  1.68

  	
   

  
	
  Weighted average common shares outstanding:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Basic

  	
   

  	
  8,000

  	
   

  	
   

  	
   

  	
  14,848,000

  	
   

  	
  14,848,000

  	
  (A)

  
	
  Diluted

  	
   

  	
  8,355

  	
   

  	
   

  	
   

  	
  15,498,880

  	
   

  	
  15,507,235

  	
  (B)

  

 

Note A         To reflect the common shares issued by New Borun or
Wang Family.

Note B           To reflect the common shares issued by New Borun
taken into impact of conversion of preferred shares. 

 

F-36

 

EXHIBIT A

 

[FORM OF SHAREHOLDERS AGREEMENT]

 

[Please see Exhibit 4.4 to the company’s Registration Statement on Form
F-1 as filed with SEC on April 27, 2010.]

 

 

EXHIBIT B

 

FORM OF RELEASE

 

This Release (this “Release”) is being
executed and delivered by                           , a British Virgin Islands company, in
accordance with Section 4.08 of that certain Share Exchange Agreement, of
even date herewith, (the “Exchange Agreement”), by and among China New
Borun Corporation, a Cayman Islands company (“New Borun”), Golden
Direction Limited, a company organized under the laws of the British Virgin
Islands (“Golden Direction”), China High Enterprises Limited, a Hong
Kong investment holding company (“China High”, and together with New
Borun and Golden Direction, the “Company”), Star Elite Enterprises
Limited, a company organized under the laws of the British Virgin Islands,
Earnstar Holding Limited, a company organized under the laws of the British
Virgin Islands and TDR Advisors Inc., a company organized under the laws of the
British Virgin Islands.  Initially
capitalized terms used but not defined in this Release have the respective
meanings given to them in the Exchange Agreement.

 

The undersigned acknowledges that execution
and delivery of this Release is a condition to the obligations of New Borun and
Golden Direction to consummate the Exchange Agreement pursuant to the Exchange Agreement and that
New Borun and Golden Direction are relying on this Release in consummating the
Exchange Agreement.

 

The undersigned, for the payment of $100 and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged and intending to be legally bound, in order to
induce New Borun and Golden Direction to consummate the Exchange Agreement
pursuant to the Exchange Agreement, hereby agrees as follows:

 

Effective as of the Closing Date of the
Exchange Agreement, the undersigned, including each of its predecessors, parent
companies, affiliates, associates, subsidiaries, divisions, related entities,
agents, former and current share or interest holders, former and current
principals, officers, directors, managers, managing members, employees, attorneys,
consultants, bankers, heirs, executors, administrators, successors, assigns and
other legal representatives (collectively, the “Releasing
Parties”),
hereby unconditionally and irrevocably releases and forever discharges
the Company, including their predecessors, parent companies, affiliates,
associates, subsidiaries, divisions, related entities, agents, former and
current share or interest holders, former and current principals, officers,
directors, managers, managing members, employees, attorneys, consultants,
bankers, heirs, executors, administrators, successors, assigns and other legal
representatives (individually, a “Released Party”
and collectively, “Released Parties”)
from all circumstances, demands, actions, causes of action, suits, debts, dues,
bonds, executions, covenants, contracts, controversies, agreements, promises,
sums of money, accounts, bills, reckonings, damages and any and all other
claims, counterclaims, rights, defenses, rights of set-off, demands and
liabilities whatsoever of every name and nature, known or unknown, suspected or
unsuspected, contingent or fixed, both at law or in equity (a “Claim”), which the undersigned now has, has ever had or may
hereafter have against the respective Released Parties for, upon, or by reason
of any action, demand, cause of action, suit, controversy, proceeding and all
other claims, counterclaims, rights, defenses and rights of set-off whatsoever
of every name and nature, known or unknown, suspected or unsuspected,
contingent or fixed, both at law or in equity whatsoever from the beginning of
the world to the date of this Release, including, without limitation, any and
all obligations of the Company to the Releasing Parties arising under any and
all investment agreements, including, without limitation, any amendments,
addendums and supplements thereto, which had previously been entered into and
subsequently cancelled or terminated by and among the Company and the Releasing
Parties; provided,

 

 

however, that nothing contained herein shall operate to release any
obligations of the Company to the Releasing Parties arising under the Share
Exchange Agreement or the Shareholders Agreement.

 

The undersigned hereby irrevocably covenants to refrain from, directly
or indirectly, asserting any Claim, or commencing, instituting or causing to be
commenced, any proceeding of any kind against any Released Party, based upon
any Claim released hereby.

 

The undersigned hereby represents and warrants that he  has not
assigned, in whole or in part, to any other person or entity any Claim released
hereby.

 

Without in any way limiting any of the rights and remedies otherwise
available to any Released Party, the undersigned shall pay each Released Party
for any losses, liabilities, claims or damages it may suffer, whether or not
involving third party claims, directly or indirectly, as a result of (i) the
assertion by or on behalf of the undersigned of any Claim released pursuant to
this Release and (ii) the assertion by any third party of any Claim
against any Released Party which Claim arises, directly or indirectly, as a
result of any assertion by or on behalf of the undersigned or any of its
representatives against such third party of any Claims released pursuant to
this Release.

 

The undersigned hereby acknowledges that it understands and agrees that
the execution of this Release does not constitute in any manner whatsoever an
admission of liability on the part of the Released Parties for any matters
covered by this Release, but that such liability is specifically denied.

 

If any provision of this Release is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Release will
remain in full force and effect. Any provision of this Release held invalid or
unenforceable only in part or degree will remain in full force and effect to
the extent not held invalid or unenforceable.

 

This Release may not be changed except in a writing signed by the
person(s) against whose interest such change shall operate. This Release
shall be governed by and construed under the laws of the State of New York
without regard to principles of conflicts of law.

 

All words used in this Release will be construed to be of such gender
or number as the circumstances require.

 

*  *  * 
*  *

 

2

 

IN WITNESS WHEREOF, the undersigned has executed and delivered this on
this      day of February, 2010.

 

 

	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
  Agreed and
  acknowledged:

  	
   

  
	
   

  	
   

  
	
  CHINA NEW BORUN CORPORATION

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
  GOLDEN DIRECTION LIMITED

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
  CHINA HIGH ENTERPRISES LIMITED

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

3

 

EXHIBIT C

 

FORM OF LOCK-UP AGREEMENT

 

                              
      , 2010

 

Piper
Jaffray & Co.

800
Nicollet Mall, Suite 800

Minneapolis,
MN 55042

 

	
  Re:

  	
   

  	
  Public
  Offering of American Depositary Shares Representing

  
	
   

  	
   

  	
  Ordinary
  Shares of China New Borun Corporation

  

 

Ladies
and Gentlemen,

 

The undersigned acknowledges and understands that the
undersigned is executing this Lock-Up Agreement (this “Agreement”)
pursuant to Section 4.09 of that certain Share Exchange Agreement, dated February 28,
2010, by and among China New Borun Corporation, a Cayman Islands company (the “Company”),
Golden Direction Limited, a company organized under the laws of the British
Virgin Islands, Star Elite Enterprises Limited, a company organized under the
laws of the British Virgin Islands, Earnstar Holding Limited, a company
organized under the laws of the British Virgin Islands, TDR Advisors Inc., a
company organized under the laws of the British Virgin Islands and China High
Enterprises Limited, a Hong Kong investment holding company (the “Share
Exchange Agreement”).

 

The undersigned further acknowledges that the Company
has filed a registration statement on Form F-1 (the “Registration
Statement”) with the U.S. Securities and Exchange Commission for the
registration of American Depositary Shares (the “ADSs”) representing
ordinary shares of the Company, par value US$0.001 per share (the “Shares”),
to be sold pursuant to an initial public offering (the “Offering”) to be
underwritten by Piper Jaffray & Co. (“Piper Jaffray”) and Newbridge
Securities Corporation.

 

In accordance with the terms of the Share Exchange
Agreement, and as an inducement for the Company and Piper Jaffray to proceed
with the Offering, the undersigned irrevocably agrees, for the benefit of the
Company and Piper Jaffray, that the undersigned will not (and will not announce
or disclose any intention to), without the prior written consent of Piper
Jaffray, for a period of 180 days subsequent to the initial date of
effectiveness of the Registration Statement, directly or indirectly,

 

(a) offer, sell, assign, transfer, pledge,
encumber, agree or contract to sell, grant an option to purchase or enter into
any transaction or device that is designed to, or could reasonably be expected
to, result in the disposition by any person at any time in the future of, or

 

(b) enter into any swap, derivative or
transaction or other arrangement that transfers to another, in whole or in
part, any of the economic benefits or risks of ownership of,

 

any
ADSs or Shares, any option, right or warrant to purchase ADSs or Shares or any
securities convertible into or exchangeable for ADSs or Shares (collectively,
the “Restricted Securities”), 

 

 

including,
but not limited to any of the Company’s preference shares and Shares, that may
be deemed to be beneficially owned (within the meaning of Rule 13d-3 of
the Securities Exchange Act of 1934, as amended) by the undersigned on the date
hereof or hereafter acquired.  In
addition, the undersigned agrees that, without the prior written
consent of Piper Jaffray, the undersigned will not, during the period commencing on the date
hereof and ending 180 days subsequent to the initial date of effectiveness of
the Registration Statement, make any demand for or exercise any right with
respect to, the registration of the Restricted Securities.

 

The undersigned agrees and consents to the entry of
stop transfer instructions with the Company’s transfer agent against the
transfer of any Restricted Securities if such transfer would constitute a
violation or breach of this Agreement.

 

If (i) the Company issues an earnings release or
material news, or a material event relating to the Company occurs, during the
last 17 days of the Lock-up Period, or (ii) prior to the expiration of the
Lock-up Period, the Company announces that it will release earnings results
during the 16-day period beginning on the last day of the Lock-up Period, the
restrictions imposed by this agreement shall continue to apply until the
expiration of the 18-day period beginning on the issuance of the earnings
release or the occurrence of the material news or material event, unless Piper
Jaffray waives such extension.

 

The undersigned, whether or not participating in the
Offering, understands that the Company and Piper Jaffray will proceed with the
Offering in reliance upon the representations set forth in this Agreement, and
that, upon request, the undersigned will execute any additional documents
necessary in connection with the enforcement hereof.  The undersigned hereby represents and
warrants that the undersigned has full power and authority to enter into this
Agreement.  This Agreement shall be
binding upon the undersigned and the successors, heirs, personal
representatives and assigns of the undersigned.

 

This Agreement shall only become effective upon the
initial date of effectiveness of the Registration Statement.

 

	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:  

  
	
   

  	
   

  	
  Title:

  

 

2Exhibit 10.2

 

SHARE EXCHANGE AGREEMENT

 

By and Among

 

CHINA NEW BORUN CORPORATION

 

and

 

KING RIVER HOLDING LIMITED

 

and

 

GOLDEN DIRECTION LIMITED

 

Dated as of March 15, 2010

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  PAGE

  
	
   

  	
   

  	
   

  
	
  ARTICLE I
    REPRESENTATIONS, COVENANTS, AND WARRANTIES
  OF KING RIVER AND GOLDEN DIRECTION

  	
  1

  
	
  Section 1.01

  	
  Organization

  	
  1

  
	
  Section 1.02

  	
  Capitalization

  	
  2

  
	
  Section 1.03

  	
  Subsidiaries

  	
  2

  
	
  Section 1.04

  	
  No
  Financial Statements

  	
  2

  
	
  Section 1.05

  	
  Absence
  of Certain Changes or Events

  	
  2

  
	
  Section 1.06

  	
  Litigation
  and Proceedings

  	
  3

  
	
  Section 1.07

  	
  Contracts

  	
  3

  
	
  Section 1.08

  	
  No
  Conflict With Other Instruments

  	
  3

  
	
  Section 1.09

  	
  Compliance
  With Laws and Regulations

  	
  3

  
	
  Section 1.10

  	
  Approval
  of Agreement

  	
  4

  
	
  Section 1.11

  	
  Valid
  Obligation

  	
  4

  
	
  Section 1.12

  	
  Information

  	
  4

  
	
  Section 1.13

  	
  Representations
  and Warranties of King River

  	
  4

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  II   REPRESENTATIONS, COVENANTS, AND WARRANTIES
  OF NEW BORUN

  	
  5

  
	
  Section 2.01

  	
  Organization

  	
  5

  
	
  Section 2.02

  	
  Capitalization

  	
  5

  
	
  Section 2.03

  	
  Subsidiaries
  and Predecessor Corporations

  	
  5

  
	
  Section 2.04

  	
  No
  Financial Statements

  	
  6

  
	
  Section 2.05

  	
  Options
  or Warrants

  	
  6

  
	
  Section 2.06

  	
  Absence
  of Certain Changes or Events

  	
  6

  
	
  Section 2.07

  	
  Litigation
  and Proceedings

  	
  6

  
	
  Section 2.08

  	
  Contracts

  	
  7

  
	
  Section 2.09

  	
  No
  Conflict With Other Instruments

  	
  7

  
	
  Section 2.10

  	
  Compliance
  With Laws and Regulations

  	
  7

  
	
  Section 2.11

  	
  Approval
  of Agreement

  	
  7

  
	
  Section 2.12

  	
  Material
  Transactions or Affiliations

  	
  7

  
	
  Section 2.13

  	
  Valid
  Obligation

  	
  8

  
	
  Section 2.14

  	
  Information

  	
  8

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  III   PLAN OF EXCHANGE AND RELATED
  AGREEMENTS

  	
  8

  
	
  Section 3.01

  	
  The
  Closing

  	
  8

  
	
  Section 3.02

  	
  Closing
  Events

  	
  8

  
	
  Section 3.03

  	
  Termination

  	
  9

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  IV   COVENANTS OF GOLDEN DIRECTION
  AND KING RIVER

  	
  9

  
	
  Section 4.01

  	
  Access
  and Investigation

  	
  9

  
	
  Section 4.02

  	
  Delivery
  of Books and Records

  	
  9

  
	
  Section 4.03

  	
  Operation
  of the Business of Golden Direction

  	
  9

  
	
  Section 4.04

  	
  No
  Transfers of Interests

  	
  10

  

 

i

 

	
  Section 4.05

  	
  Required
  Filings and Approvals

  	
  10

  
	
  Section 4.06

  	
  Notification

  	
  10

  
	
  Section 4.07

  	
  Indemnification

  	
  10

  
	
  Section 4.08

  	
  Approval
  by Golden Direction and King River

  	
  11

  
	
  Section 4.09

  	
  Director’s
  Certificate of Golden Direction

  	
  11

  
	
  Section 4.10

  	
  Good
  Standing Certificate

  	
  11

  
	
  Section 4.11

  	
  Closing
  Conditions

  	
  11

  
	
   

  	
   

  	
   

  
	
  ARTICLE V   COVENANTS OF NEW BORUN

  	
  11

  
	
  Section 5.01

  	
  Access
  and Investigation

  	
  11

  
	
  Section 5.02

  	
  Issuance
  of Securities in New Borun

  	
  11

  
	
  Section 5.03

  	
  Required
  Filings and Approvals

  	
  11

  
	
  Section 5.04

  	
  Notification

  	
  12

  
	
  Section 5.05

  	
  Indemnification

  	
  12

  
	
  Section 5.06

  	
  Approval
  by New Borun

  	
  12

  
	
  Section 5.07

  	
  Closing
  Conditions

  	
  12

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VI   CONDITIONS PRECEDENT TO
  OBLIGATIONS OF NEW BORUN

  	
  12

  
	
  Section 6.01

  	
  Accuracy
  of Representations

  	
  13

  
	
  Section 6.02

  	
  Performance
  by Golden Direction and King River

  	
  13

  
	
  Section 6.03

  	
  Consents

  	
  13

  
	
  Section 6.04

  	
  Officer’s
  Certificate

  	
  13

  
	
  Section 6.05

  	
  Certificate
  of King River

  	
  13

  
	
  Section 6.06

  	
  No
  Governmental Prohibition

  	
  13

  
	
  Section 6.07

  	
  Additional
  Documents

  	
  13

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VII   CONDITIONS PRECEDENT TO OBLIGATIONS OF
  GOLDEN DIRECTION AND KING RIVER

  	
  14

  
	
  Section 7.01

  	
  Accuracy
  of Representations

  	
  14

  
	
  Section 7.02

  	
  Performance
  by New Borun

  	
  14

  
	
  Section 7.03

  	
  Consents

  	
  14

  
	
  Section 7.04

  	
  Officer’s
  Certificate

  	
  14

  
	
  Section 7.05

  	
  Director’s
  Certificate

  	
  15

  
	
  Section 7.06

  	
  Good
  Standing Certificate

  	
  15

  
	
  Section 7.07

  	
  Additional
  Documents

  	
  15

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VIII   MISCELLANEOUS

  	
  15

  
	
  Section 8.01

  	
  Brokers

  	
  15

  
	
  Section 8.02

  	
  Governing
  Law; Jurisdiction; Venue; Waiver of Jury Trial

  	
  15

  
	
  Section 8.03

  	
  Attorney’s
  Fees

  	
  17

  
	
  Section 8.04

  	
  Confidentiality

  	
  17

  
	
  Section 8.05

  	
  Public
  Announcements and Filings

  	
  18

  
	
  Section 8.06

  	
  Recitals

  	
  18

  
	
  Section 8.07

  	
  Third
  Party Beneficiaries

  	
  18

  
	
  Section 8.08

  	
  Expenses

  	
  18

  
	
  Section 8.09

  	
  Survival;
  Termination

  	
  18

  
	
  Section 8.10

  	
  Counterparts.

  	
  18

  

 

ii

 

	
  Section 8.11

  	
  Amendment
  or Waiver

  	
  19

  
	
  Section 8.12

  	
  Best
  Efforts

  	
  19

  
	
  Section 8.13

  	
  Remedies

  	
  19

  
	
  Section 8.14

  	
  Construction

  	
  19

  
	
  Section 8.15

  	
  Entire
  Agreement

  	
  19

  
	
   

  	
   

  	
   

  
	
  GOLDEN
  DIRECTION SCHEDULES

  	
  1

  
	
   

  	
   

  	
   

  
	
  NEW BORUN
  SCHEDULES

  	
  1

  

 

iii

 

SHARE EXCHANGE AGREEMENT

 

THIS SHARE
EXCHANGE AGREEMENT (this “Agreement”) is entered into as of
this 15th day of March, 2010, by and among CHINA NEW
BORUN CORPORATION, a company organized under the laws of the Cayman
Islands (“New Borun”), GOLDEN DIRECTION LIMITED,
a limited liability company organized under the laws of the British Virgin
Islands (“Golden Direction”) and KING RIVER HOLDING
LIMITED, a limited liability company organized under the laws of the
British Virgin Islands and the sole shareholder of Golden Direction (“King
River”), upon the following premises:

 

RECITALS:

 

WHEREAS, King River owns
100% of the issued share capital of Golden Direction (the “Golden Direction
Capital Stock”); and

 

WHEREAS, the parties
hereto desire for Golden Direction to be a wholly-owned subsidiary of New
Borun, whereby New Borun shall acquire from King River the Golden Direction
Capital Stock in exchange for the issuance by New Borun to King River of
14,847,810 newly issued ordinary shares of New Borun, par value US$0.001 per
share (“New Borun Ordinary Shares”).

 

AGREEMENT:

 

NOW
THEREFORE, on the stated premises and for and in
consideration of the mutual covenants and agreements hereinafter set forth and
the mutual benefits to the parties to be derived herefrom, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by all parties hereto, and intending to be legally bound hereby,
New Borun, Golden Direction and King River hereby agree as follows:

 

ARTICLE I

REPRESENTATIONS, COVENANTS, AND WARRANTIES OF KING RIVER AND GOLDEN DIRECTION

 

As an inducement to, and to
obtain the reliance of New Borun, except as set forth in those schedules
prepared by Golden Direction which are attached and made a part hereto (the “Golden
Direction Schedules”), Golden Direction and King River hereby represent and
warrant to New Borun as follows as of the date hereof:

 

Section 1.01           Organization.  Golden Direction is a company duly organized,
validly existing, and in good standing under the laws of the British Virgin
Islands and has the corporate power and is duly authorized under all applicable
laws, regulations, ordinances and orders of public authorities to carry on its
business in all material respects as it is now being conducted.  Included in Item 1.01 of the Golden
Direction Schedules are complete and correct copies of Golden Direction’s
Certificate of Incorporation and the Memorandum and Articles of Association of
Golden Direction as in effect on the date hereof (together, the “Golden Direction
Charter”).  The execution and
delivery of this Agreement does not, and the consummation of the transactions
contemplated hereby will not, violate any provision of the Golden Direction 

 

1

 

Charter.  Golden Direction has taken all actions
required by law, from its Golden Direction Charter, or otherwise to authorize
the execution and delivery of this Agreement. 
Golden Direction has full power, authority, and legal right and has
taken all action required by law, the Golden Direction Charter, and otherwise
to consummate the transactions herein contemplated.

 

Section 1.02           Capitalization.  Golden Direction is authorized to issue Fifty
Thousand (50,000) ordinary shares, par value $0.001 per share, of which one (1) share
is currently issued and outstanding and held by King River.  All of the issued and outstanding shares of
such Golden Direction Capital Stock are legally issued, fully paid and
non-assessable and not issued in violation of the preemptive or other rights of
any person.  Furthermore, (i) there
are no outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of Golden Direction Capital Stock, or contracts,
commitments, understandings or arrangements by which Golden Direction is or may
become bound to issue additional shares of Golden Direction Capital Stock or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of Golden Direction Capital Stock, (ii) there are no outstanding
debt securities of Golden Direction and (iii) there are no agreements or
arrangements under which Golden Direction is obligated to register the sale of
any of their securities.

 

Section 1.03           Subsidiaries.  Golden Direction does not have any
subsidiaries and does not own, beneficially or of record, any shares of any
corporation except that Golden Direction owns 8,000 ordinary shares of the
8,000 ordinary shares issued and outstanding of China High Enterprises Limited,
a Hong Kong investment company (“China High”), which is equivalent to
approximately 74.24% of the aggregate issued and outstanding shares of capital
stock in China High calculated on a fully diluted basis.

 

Section 1.04           No Financial Statements.

 

(a)           Golden Direction has
not had any operations since its incorporation and no financial statements have
been prepared.

 

(b)           Golden Direction has
no liabilities with respect to the payment of any federal, state, county, local
or other taxes (including any deficiencies, interest or penalties).

 

(c)           Golden Direction has
timely filed all income and/or franchise tax returns required to be filed by it
from its inception to the date hereof. 
Each of such income and/or franchise tax returns reflects the taxes due
for the period covered thereby, except for amounts which, in the aggregate, are
immaterial.

 

(d)           Golden Direction has
no liabilities, direct or indirect, matured or unmatured, contingent or
otherwise.

 

Section 1.05           Absence of Certain Changes or
Events.  Since its inception:

 

(a)           There has not been
any business or operations of Golden Direction and Golden Direction owns no
assets or properties;

 

2

 

(b)           Golden Direction has
not (i) amended the Golden Direction Charter beyond that which has been
provided for in connection with this Agreement; (ii) declared or made, or
agreed to declare or make any payment of dividends or distributions of any
assets of any kind whatsoever; (iii) made any material change in its
method of management, operation or accounting; (iv) entered into any
transactions or agreements other than in connection with this Agreement and the
transactions contemplated herein; or (v) made any adoption of any profit
sharing, bonus, deferred compensation, insurance, pension, retirement, or other
employee benefit plan, payment, or arrangement, made to, for or with its
officers, directors, or employees; and

 

(c)           Golden Direction has
not (i) granted or agreed to grant any options, warrants, or other rights
for its stock, bonds, or other corporate securities calling for the issuance
thereof; (ii) borrowed or agreed to borrow any funds or incurred, or
become subject to, any material obligation or liability (absolute or
contingent) except liabilities incurred in the ordinary course of business; (iii) sold
or transferred, or agreed to sell or transfer, any of its assets, properties,
or rights, or canceled, or agreed to cancel, any debts or claims; or (iv) issued,
delivered or agreed to issue or deliver, any stock, bonds or other corporate
securities including debentures (whether authorized and unissued or held as
treasury stock), except in connection with this Agreement.

 

Section 1.06           Litigation and Proceedings.  There are no actions, suits, proceedings or
investigations pending or threatened by or against Golden Direction or
affecting Golden Direction or its properties, at law or in equity, before any
court or other governmental agency or instrumentality, domestic or foreign, or
before any arbitrator of any kind. 
Golden Direction has no knowledge of any default on its part with
respect to any judgment, order, writ, injunction, decree, award, rule or
regulation of any court, arbitrator, or governmental agency or instrumentality
or any circumstance which after reasonable investigation would result in the
discovery of such default.

 

Section 1.07           Contracts.  All contracts, agreements, franchises,
license agreements, and other commitments to which Golden Direction is a party
or by which its properties are bound and which are material to the operations
of Golden Direction taken as a whole are valid and enforceable by Golden
Direction in all respects, except as limited by bankruptcy and insolvency laws
and by other laws affecting the rights of creditors generally.

 

Section 1.08           No Conflict With Other Instruments.  The execution of this Agreement and the
consummation of the transactions contemplated by this Agreement will not result
in the breach of any term or provision of, constitute a default under, or
terminate, accelerate or modify the terms of any indenture, mortgage, deed of
trust, or other material agreement, or instrument to which Golden Direction is
a party or to which any of its assets, properties or operations are subject.

 

Section 1.09           Compliance With Laws and
Regulations.  To the best of its
knowledge, Golden Direction has complied with all applicable foreign and
domestic statutes and regulations of any federal, state, provincial or other
governmental entity or agency thereof, except to the extent that noncompliance
would not materially and adversely affect the business, 

 

3

 

operations,
properties, assets, or condition of Golden Direction except to the extent that
noncompliance would not result in the occurrence of any material liability for
Golden Direction.

 

Section 1.10           Approval of Agreement.  The board of directors of Golden Direction
has unanimously authorized the execution and delivery of this Agreement by
Golden Direction and has approved this Agreement and the transactions
contemplated hereby.

 

Section 1.11           Valid Obligation.  This Agreement and all agreements and other
documents executed by Golden Direction in connection herewith constitute the
valid and binding obligation of Golden Direction, enforceable in accordance
with its terms, except as may be limited by bankruptcy, insolvency, moratorium
or other similar laws affecting the enforcement of creditors’ rights generally
and subject to the qualification that the availability of equitable remedies is
subject to the discretion of the court before which any proceeding therefore
may be brought.

 

Section 1.12           Information.  The information concerning Golden Direction
set forth in this Agreement and in the Golden Direction Schedules is complete
and accurate in all material respects and does not contain any untrue statement
of a material fact or omit to state a material fact required to make the
statements made, in light of the circumstances under which they were made, not
misleading.

 

Section 1.13           Representations and Warranties of
King River.  In addition to the
representations and warranties made by King River in Sections 1.01 through 1.12
hereof, King River represents and warrants to New Borun as of the date hereof
and as of the Closing Date as follows:

 

(a)          Authority.  King River is a company duly organized,
validly existing, and in good standing under the laws of the British Virgin
Islands and has the corporate power and is duly authorized under all applicable
laws, regulations, ordinances and orders of public authorities to carry on its
business in all material respects as it is now being conducted.  The execution and delivery of this Agreement
does not, and the consummation of the transactions contemplated hereby will
not, violate any provision of King River’s Certificate of Incorporation and the
Memorandum and Articles of Association as in effect on the date hereof (the “King
River Charter”).  King River has taken
all actions required by law, from its King River Charter, or otherwise to
authorize the execution and delivery of this Agreement.  King River has full power, authority, and
legal right and has taken all action required by law, the King River Charter,
and otherwise to consummate the transactions herein contemplated.  .

 

(b)          No Conflicts.  The execution, delivery and performance of
this Agreement by King River and the consummation by King River of the
transactions contemplated hereby do not and will not conflict with or result in
a violation of or default (or be an event that with notice or lapse of time or
both would become a conflict, violation or default) under any contract or
agreement applicable to King River or any law, rule, regulation, order, decree,
ruling or pronouncement to which King River is subject or by which any property
or asset of King River is bound or affected.

 

4

 

(c)          No General Solicitation.  King River is not acquiring the securities of
New Borun hereunder as a result of any advertisement, article, notice or other
communication regarding such securities published in any newspaper, magazine or
similar media or broadcast over television, radio the internet or presented at
any seminar or any other general advertisement.

 

(d)          Investment Intent.  King River: (i) is acquiring the
securities of New Borun hereunder as a principal for its own account and not with a view to or for distributing or reselling
them in violation of any applicable law, rule or regulation, (ii) has
no present intention of distributing any of such securities in violation of any
applicable law, rule or regulation and (iii) has no direct or
indirect arrangement or understandings with any other persons to distribute or
regarding their distribution of such securities.

 

ARTICLE
II

REPRESENTATIONS, COVENANTS, AND WARRANTIES OF NEW BORUN

 

As an inducement to, and to
obtain the reliance of Golden Direction and King River, except as set forth in
those schedules prepared by New Borun which are attached and made a part
hereto (the “New Borun Schedules”), New Borun represents and
warrants to Golden Direction and King River as follows:

 

Section 2.01           Organization.  New Borun is an exempted company
incorporated, validly existing, and in good standing under the laws of the
Cayman Islands and has the corporate power and is duly authorized under all
applicable laws, regulations, ordinances, and orders of public authorities to
carry on its business in all material respects as it is now being conducted.  Set forth in Item 2.01 of the New Borun
Schedules is a complete and correct copy of the Memorandum and Articles of
Association of New Borun as of the date hereof 
(the “New Borun Charter”). 
The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not, violate any
provision of the New Borun Charter.  New
Borun has taken all action required by law, the New Borun Charter or otherwise
to authorize the execution and delivery of this Agreement, and New Borun has
full power, authority, and legal right and has taken all action required by
law, the New Borun Charter or otherwise to consummate the transactions herein
contemplated.

 

Section 2.02           Capitalization.  New Borun’s authorized share capital consists
of (a) One Hundred Million (100,000,000) New Borun Ordinary Shares
with a par value of $0.001 each, of which one (1) share was issued and
outstanding prior to the transaction contemplated by the Exchange and (b) Five
Million (5,000,000) preference shares with a par value of US$0.001 each  (“New Borun Preference Shares”), zero (0) of which
were issued or outstanding immediately preceding the consummation of the
Exchange.

 

Section 2.03           Subsidiaries and Predecessor
Corporations.  New Borun does not have
any predecessors or subsidiaries and does not own, beneficially or of record,
any shares of any other corporation.

 

5

 

Section 2.04           No Financial Statements.

 

(a)           New Borun has not
had any operations since its incorporation and no financial statements have
been prepared.

 

(b)           New Borun has no
liabilities with respect to the payment of any federal, state, county, local or
other taxes (including any deficiencies, interest or penalties).

 

(c)           New Borun has timely
filed all income and/or franchise tax returns required to be filed by it from
its inception to the date hereof.  Each
of such income and/or franchise tax returns reflects the taxes due for the
period covered thereby, except for amounts which, in the aggregate, are
immaterial.

 

(d)           New Borun has no
liabilities, direct or indirect, matured or unmatured, contingent or otherwise.

 

Section 2.05           Options or Warrants.  There are no existing options, warrants,
calls, or commitments of any character relating to the authorized and unissued
stock of New Borun.

 

Section 2.06           Absence of Certain Changes or
Events.  Since its inception:

 

(a)           There has not been
any business or operations of New Borun and New Borun owns no assets or
properties;

 

(b)           New Borun has not (i) amended
the New Borun Charter beyond that which has been provided for in connection
with this Agreement; (ii) declared or made, or agreed to declare or make
any payment of dividends or distributions of any assets of any kind whatsoever;
(iii) made any material change in its method of management, operation or
accounting; (iv) entered into any transactions or agreements other than in
connection with this Agreement and the transactions contemplated herein; or (v) made
any adoption of any profit sharing, bonus, deferred compensation, insurance,
pension, retirement, or other employee benefit plan, payment, or arrangement,
made to, for or with its officers, directors, or employees; and

 

(c)           New Borun has not (i) granted
or agreed to grant any options, warrants, or other rights for its stock, bonds,
or other corporate securities calling for the issuance thereof; (ii) borrowed
or agreed to borrow any funds or incurred, or become subject to, any material
obligation or liability (absolute or contingent) except liabilities incurred in
the ordinary course of business; (iii) sold or transferred, or agreed to
sell or transfer, any of its assets, properties, or rights, or canceled, or
agreed to cancel, any debts or claims; or (iv) issued, delivered or agreed
to issue or deliver, any stock, bonds or other corporate securities including
debentures (whether authorized and unissued or held as treasury stock), except
in connection with this Agreement.

 

Section 2.07           Litigation and Proceedings.  There are no actions, suits, proceedings or
investigations pending or threatened by or against New Borun or affecting New
Borun or its properties, at law or in equity, before any court or other
governmental agency or instrumentality, domestic or foreign, or before any
arbitrator of any kind.  New Borun has no
knowledge of any default on its part with respect to any judgment, order, writ,
injunction, decree, 

 

6

 

award, rule or regulation of any court, arbitrator, or
governmental agency or instrumentality or any circumstance which after
reasonable investigation would result in the discovery of such default.

 

Section 2.08           Contracts.  Except as set forth in Item 2.08 of the
New Borun Schedules:

 

(a)           New Borun is not a
party to any contract, franchise, license agreement, agreement, debt instrument
or other commitments or instruments whether such agreement is in writing or
oral.

 

(b)           New Borun is not a
party to or bound by any charter or other corporate restriction or any
judgment, order, writ, injunction, decree, or award; and

 

(c)           New Borun is not a
party to any oral or written (i) contract for the employment of any
officer or employee; (ii) profit sharing, bonus, deferred compensation,
stock option, severance pay, pension benefit or retirement plan; (iii) agreement,
contract, or indenture relating to the borrowing of money; (iv) guaranty
of any obligation; (vi) collective bargaining agreement; or (vii) agreement
with any present officer or director of New Borun.

 

Section 2.09           No Conflict With Other Instruments.  The execution of this Agreement and the
consummation of the transactions contemplated by this Agreement will not result
in the breach of any term or provision of, constitute a default under, or
terminate, accelerate or modify the terms of, any indenture, mortgage, deed of
trust, or other material agreement or instrument to which New Borun is a party
or to which any of its assets, properties or operations are subject.

 

Section 2.10           Compliance With Laws and
Regulations.  New Borun has
materially complied with all applicable statutes and regulations of any
applicable governmental entity or agency thereof.

 

Section 2.11           Approval of Agreement.  The sole director of New Borun has authorized
the execution and delivery of this Agreement by New Borun and has approved this
Agreement and the transactions contemplated hereby.

 

Section 2.12           Material Transactions or
Affiliations.  Except as set forth in
Item 2.12 of the New Borun Schedules, there exists no contract,
agreement or arrangement between New Borun and any person who was at the time
of such contract, agreement or arrangement an officer, director, or person
owning of record or known by New Borun to own beneficially, five percent (5%)
or more of the issued and outstanding common stock of New Borun and which is to
be performed in whole or in part after the date hereof or was entered into
prior to the date hereof since inception. 
Neither any officer, director, nor five percent (5%) stockholder of New
Borun has, or has had since inception of New Borun, any known interest, direct
or indirect, in any such transaction with New Borun which was material to the
business of New Borun.  New Borun has no
commitment, whether written or oral, to lend any funds to, borrow any money from,
or enter into any other transaction with, any such affiliated person.

 

7

 

Section 2.13           Valid Obligation.  This Agreement and all agreements and other
documents executed by New Borun in connection herewith constitute the valid and
binding obligation of New Borun, enforceable in accordance with its terms,
except as may be limited by bankruptcy, insolvency, moratorium or other similar
laws affecting the enforcement of creditors’ rights generally and subject to
the qualification that the availability of equitable remedies is subject to the
discretion of the court before which any proceeding therefore may be brought.

 

Section 2.14           Information.  The information concerning New Borun set
forth in this Agreement and the New Borun Schedules is complete and accurate in
all material respects and does not contain any untrue statements of a material
fact or omit to state a material fact required to make the statements made, in
light of the circumstances under which they were made, not misleading.

 

ARTICLE
III

PLAN OF EXCHANGE AND RELATED AGREEMENTS

 

Section 3.01           The Closing.

 

(a)          The closing (the
“Closing”) of the Exchange will occur at the offices of New Borun’s U.S.
securities counsel, K&L Gates LLP, located at 200 South Biscayne Boulevard,
Suite 3900, Miami, Florida 33131-2399 on such date as shall be one (1) business
day after all of the conditions set forth in Articles VI and VII have been
satisfied or waived (the “Closing Date”).  The Closing may be undertaken remotely by
delivery of facsimile/email and/or pdf signatures and documents.

 

(b)          On the Closing Date, King
River shall assign and transfer, free and clear of all liens, pledges,
encumbrances, charges, restrictions or known claims of any kind, nature, or
description, all of the shares of Golden Direction Capital Stock, including
voting power, of Golden Direction to New Borun. 
In exchange for the transfer of all of the Golden Direction Capital
Stock by King River to New Borun, New Borun shall issue Fourteen Million Eight
Hundred Forty-Seven Thousand Eight Hundred and Ten (14,847,810) newly-issued
New Borun Ordinary Shares to King River.

 

(c)          On the Closing
Date, King River shall surrender its certificate or
certificates representing 100% of the shares of Golden Direction Capital Stock
to New Borun, New Borun’s counsel or New Borun’s registrar or transfer agent.

 

(d)          As a result of the Exchange
as contemplated herein, (i) King River will beneficially own 14,847,811 New Borun Ordinary Shares,
representing 100% of the issued share capital of New Borun on the Closing Date
and (ii) Golden Direction will be a wholly-owned subsidiary of New Borun.

 

Section 3.02           Closing Events.  On the Closing Date, New Borun, Golden
Direction and King River shall execute, acknowledge, and deliver (or shall
ensure to be executed, acknowledged, and delivered), any and all certificates,
opinions, financial statements, schedules, agreements, resolutions, rulings or
other instruments required by this Agreement to be so delivered on or prior to
the Closing Date, together with such other items as may be reasonably 

 

8

 

requested by the parties hereto and their respective legal counsel in
order to fully effectuate or evidence the transactions contemplated hereby.

 

Section 3.03           Termination.  This Agreement may only be terminated prior
to the Closing Date by (a) New Borun in the event that Golden Direction or
King River fail to meet all non-waived conditions set forth in Article VI
herein in all material respects and (b) Golden Direction or King River
only in the event that New Borun fails to meet all non-waived conditions set
forth in Article VII herein in all material respects.  If this Agreement is terminated pursuant this
Section 3.06, this Agreement shall be of no further force or effect, and
no obligation, right or liability shall arise hereunder, except as set forth herein
below.

 

ARTICLE
IV

COVENANTS OF GOLDEN DIRECTION AND KING RIVER

 

Section 4.01           Access and Investigation.  Between the date of this Agreement and the
Closing Date, Golden Direction will (a) afford New Borun and its agents,
advisors and attorneys during normal business hours, and upon reasonable
notice, full and free access to Golden Direction’s properties, contracts, books
and records, and other documents and data, (b) furnish New Borun and its
agents, advisors and attorneys with copies of all such contracts, books and
records, and other existing documents and data as New Borun may reasonably
request and (c) furnish New Borun and its agents, advisors and attorneys
with such additional financial, operating, and other data and information as
New Borun may reasonably request.

 

Section 4.02           Delivery of Books and
Records.  On or prior to the Closing
Date, Golden Direction shall deliver to New Borun the originals of the
corporate minute books, books of account, contracts, records, and all other
books or documents of Golden Direction now in the possession of Golden
Direction or its representatives.

 

Section 4.03           Operation of the Business of
Golden Direction.

 

(a)           Between the
date of this Agreement and the Closing Date, Golden Direction will:

 

(i)            conduct its
business only in the ordinary course of business consistent with past practice;

 

(ii)           use its best
efforts to preserve intact its current business organization and business
relationships;

 

(iii)          not create any
new, or capitalize or conduct any business through, any subsidiary;

 

(iv)          not issue any
equity securities (or any interest therein); and

 

(v)           not perform any
act that would require the consent of King River.

 

(b)           Notwithstanding
the foregoing, between the date of this Agreement and the Closing Date, Golden
Direction will not directly or indirectly, without the prior 

 

9

 

written
consent of New Borun, engage in any transaction with, or enter into any
agreement with any officer, director or stockholder of Golden Direction, or any
affiliate thereof.

 

Section 4.04           No Transfers of Interests. Between the
date of this Agreement and the Closing Date, King River shall not assign,
transfer, mortgage, pledge or otherwise dispose of any or all of the Golden
Direction Capital Stock (or any interest therein) or grant any person the
option or right to acquire any Golden Direction Capital Stock (or any interest
therein).

 

Section 4.05           Required Filings and
Approvals.  As promptly
as possible after the date of this Agreement, Golden Direction will make all
filings and obtain all approvals required to be made by it in order to
consummate the transactions contemplated by this Agreement.  Between the date of this Agreement and the
Closing Date, Golden Direction and King River will (i) cooperate with New
Borun with respect to all filings that New Borun elects to make or is required
to make in connection with the transactions contemplated by this Agreement and (ii) cooperate
with New Borun in obtaining any consents or approvals required to be obtained
by New Borun in connection herewith.

 

Section 4.06           Notification.  Between the date of this Agreement and the
Closing Date, Golden Direction and King River will promptly notify New Borun in
writing if Golden Direction or King River becomes aware of any fact or
condition that causes or constitutes a breach of any of the representations and
warranties of Golden Direction or King River, as the case may be, as of the
date of this Agreement, or if Golden Direction or King River becomes aware of the
occurrence after the date of this Agreement of any fact or condition that would
(except as expressly contemplated by this Agreement) cause or constitute a
breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition.  Should any such fact or
condition require any change in the Schedules to this Agreement if such
Schedules were dated the date of the occurrence or discovery of any such fact
or condition, Golden Direction or King River, as the case may be, will promptly
deliver to New Borun a supplement to the Schedules to this Agreement specifying
such change; provided, however, that such delivery shall not materially
adversely affect any rights of New Borun set forth herein.  During the same period, Golden Direction and
King River will promptly notify New Borun of the occurrence of any breach of
any covenant of Golden Direction or King River in this Article IV or in Article III
herein or of the occurrence of any event that may make the satisfaction of the
conditions in Article VI impossible or unlikely.

 

Section 4.07           Indemnification.  Golden Direction and King River hereby
jointly and severally agree to indemnify New Borun and each of the officers,
attorneys, agents and directors of New Borun as of the date of execution of
this Agreement against any loss, liability, claim, damage, or expense
(including, but not limited to, any and all expense whatsoever reasonably
incurred in investigating, preparing, or defending against any litigation,
commenced or threatened, or any claim whatsoever) (as used in this paragraph
alone, a “Loss”), to which it or they may become subject arising out of
or based on any inaccuracy appearing in or misrepresentations made under Article I
of this Agreement.  The indemnification
provided for in this paragraph shall survive the Closing and the consummation
of the transactions 

 

10

 

contemplated hereby and termination of this Agreement for two (2) years
following the Closing Date.

 

Section 4.08           Approval by Golden Direction
and King River.  This
Agreement and the transactions contemplated hereby shall have been approved by
the board of directors of Golden Direction and by King River prior to the date
hereof.

 

Section 4.09           Director’s Certificate of
Golden Direction.  On the date
hereof, Golden Direction shall deliver to New Borun a certificate, executed by
Golden Direction’s sole director certifying attached copies of (i) the
organizational documents of Golden Direction and (ii) the resolutions of
Golden Direction’s board of directors approving this Agreement and the
transactions contemplated hereby.

 

Section 4.10           Good Standing Certificate.  On the date hereof, Golden Direction shall
deliver to New Borun a certificate of good standing or the equivalent from the
appropriate authority in the British Virgin Islands, dated as of a date within
ten (10) business days prior to the date hereof certifying that
Golden Direction is in good standing as a company in the British Virgin
Islands.

 

Section 4.11           Closing Conditions.  Between the date of this Agreement and the
Closing Date, each of Golden Direction and King River will use its best efforts
to cause the conditions in Article VI to be satisfied as promptly as
possible.

 

ARTICLE V

COVENANTS OF NEW BORUN

 

Section 5.01           Access and Investigation.  Between the date of this Agreement and the
Closing Date, New Borun will (a) afford Golden Direction, King River and
their respective agents, advisors and attorneys during normal business hours
and upon reasonable notice, full and free access to New Borun’s senior
personnel, properties, contracts, books and records, and other documents and
data, (b) furnish Golden Direction, King River and their respective
agents, advisors and attorneys with copies of all such contracts, books and
records, and other existing documents and data as Golden Direction may
reasonably request and (c) furnish Golden Direction, King River and their
respective agents, advisors and attorneys with such additional financial,
operating, and other data and information as Golden Direction or King River may
reasonably request.

 

Section 5.02           Issuance of Securities in
New Borun.  Between the
date of this Agreement and the Closing Date, New Borun will not issue any
equity securities (or any interest therein).

 

Section 5.03           Required Filings and
Approvals.  As promptly
as practicable after the date of this Agreement, New Borun will make all
filings required to be made by it in order to consummate the transactions
contemplated by this Agreement.  Between
the date of this Agreement and the Closing Date, New Borun will cooperate with
Golden Direction and King River with respect to all filings that Golden
Direction and/or King River elects to make or is required to make in connection
with the transactions contemplated by this Agreement, and 

 

11

 

cooperate with Golden Direction and/or King River in obtaining any
consents or approvals required to be obtained by Golden Direction and/or King
River in connection herewith.

 

Section 5.04           Notification.  Between the date of this Agreement and the
Closing Date, New Borun will promptly notify Golden Direction and King River in
writing if New Borun becomes aware of any fact or condition that causes or
constitutes a breach of any of the representations and warranties of New Borun,
as of the date of this Agreement, or if New Borun becomes aware of the
occurrence after the date of this Agreement of any fact or condition that would
(except as expressly contemplated by this Agreement) cause or constitute a
breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition.  Should any such fact or
condition require any change in the Schedules to this Agreement if the
Schedules to the Agreement were dated the date of the occurrence or discovery
of any such fact or condition, New Borun will promptly deliver to Golden
Direction and King River a supplement to the Schedules to the Agreement
specifying such change; provided, however, that such delivery shall not
materially adversely affect any rights of Golden Direction and King River set
forth herein.  During the same period,
New Borun will promptly notify Golden Direction and King River of the
occurrence of any breach of any covenant of New Borun in this Article V or
of the occurrence of any event that may make the satisfaction of the conditions
in Article VII impossible or unlikely.

 

Section 5.05           Indemnification.  New Borun hereby agrees to indemnify Golden
Direction and King River and each of their respective officers, attorneys,
agents, and directors as of the date of execution of this Agreement against any
loss, liability, claim, damage, or expense (including, but not limited to, any
and all expense whatsoever reasonably incurred in investigating, preparing, or
defending against any litigation, commenced or threatened, or any claim
whatsoever) (as used in this paragraph alone, a “Loss”) to which it or they
may become subject arising out of or based on any inaccuracy appearing in or
misrepresentation made under Article II of this Agreement.  The indemnification provided for in this
paragraph shall survive the Closing hereunder and the consummation of the
transactions contemplated hereby and termination of this Agreement for
two (2) years following the Closing Date.

 

Section 5.06           Approval by New Borun.  This Agreement and the transactions
contemplated hereby shall have been approved by the board of directors of New
Borun prior to the date hereof.

 

Section 5.07           Closing Conditions.  Between the date of this Agreement and the
Closing Date, New Borun will use its best efforts to cause the conditions in Article VII
to be satisfied as promptly as possible.

 

ARTICLE
VI

CONDITIONS PRECEDENT TO OBLIGATIONS OF NEW BORUN

 

The obligations of New Borun
under this Agreement are subject to the satisfaction, on or before the Closing
Date, of the following conditions (any of which may be waived by New Borun, in
whole or in part):

 

12

 

Section 6.01           Accuracy of Representations.  The representations and warranties made by
Golden Direction and King River in this Agreement were true when made and shall
be true at the Closing Date with the same force and effect as if such
representations and warranties were made at and as of the Closing Date (except
for changes therein permitted by this Agreement).

 

Section 6.02           Performance by Golden
Direction and King River.

 

(a)           All of the
covenants and obligations that Golden Direction and King River are required to
perform or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of these covenants and obligations
(considered individually), must have been duly performed and complied with in
all material respects.

 

(b)           Each document
required to be delivered by Golden Direction and/or King River pursuant to this
Agreement at or prior to Closing must have been delivered.

 

Section 6.03           Consents.  All consents, waivers, approvals,
authorizations or orders pursuant to all contracts, licenses, laws, rules or
regulations, permits, trademarks and other intangibles required to be obtained,
and all filings required to be made, by Golden Direction and/or King River for
the authorization, execution and delivery of this Agreement and the
consummation by them of the transactions contemplated by this Agreement or for
the continued operation of Golden Direction as presently operated as a
subsidiary of New Borun after the Closing Date to the extent required by law,
shall have been obtained and made by Golden Direction and/or King River, as the
case may be.

 

Section 6.04           Officer’s Certificate.  Golden Direction shall have delivered to New
Borun a certificate dated as of the Closing Date and signed by a duly
authorized officer of Golden Direction to the effect that (a) each of the
conditions set forth in Sections 6.01, 6.02 and 6.03 have been fully satisfied
and (b) no litigation, proceeding, investigation, or inquiry is pending,
or to the best knowledge of Golden Direction threatened, which might result in
an action to enjoin or prevent the consummation of the transactions
contemplated by this Agreement, or, to the extent not disclosed in the Golden
Direction Schedules, by or against Golden Direction, which might result in any
material adverse change in any of the assets, properties, business, or
operations of Golden Direction.

 

Section 6.05           Certificate of King River.  King River shall have delivered to New Borun
a certificate dated as of the Closing Date executed by King River certifying
the satisfaction of the conditions specified in Sections 6.01, 6.02 and 6.03
herein above.

 

Section 6.06           No Governmental Prohibition.  No order, statute, rule, regulation,
executive order, injunction, stay, decree, judgment or restraining order shall
have been enacted, entered, promulgated or enforced by any court or
governmental or regulatory authority or instrumentality which prohibits the
consummation of the transactions contemplated hereby.

 

Section 6.07           Additional Documents.  Golden Direction and King River shall have
delivered to New Borun such other documents as New Borun may have reasonably
requested for the purpose of (i) evidencing the accuracy of any of the
representations and 

 

13

 

warranties of Golden Direction and King River in this Agreement, (ii) evidencing
the performance of, or compliance by Golden Direction and King River with, any
covenant or obligation required to be performed or complied with hereunder by
Golden Direction or King River, as the case may be, (iii) evidencing the
satisfaction of any condition referenced herein (including, without limitation
such opinions of PRC counsel to Golden Direction and King River that all consents
and approvals of all governmental authorities of the British Virgin Islands
necessary or required to consummate the transactions contemplated herein, free
and clear of all encumbrances have been obtained and are in full force and
effect) or (iv) otherwise facilitating the consummation or performance of
any of the transactions contemplated by this Agreement.

 

ARTICLE
VII

CONDITIONS PRECEDENT TO OBLIGATIONS OF GOLDEN DIRECTION

AND KING RIVER

 

The obligations of Golden
Direction and King River under this Agreement are subject to the satisfaction,
at or before the Closing Date, of the following conditions (any of which may be
waived by Golden Direction and King River, in whole or in part):

 

Section 7.01           Accuracy of Representations.  The representations and warranties made by
New Borun in this Agreement were true when made and shall be true at the
Closing Date with the same force and effect as if such representations and
warranties were made at and as of the Closing Date (except for changes therein
permitted by this Agreement).

 

Section 7.02           Performance by New Borun.

 

(a)           All of the
covenants and obligations that New Borun is required to perform or to comply
with pursuant to this Agreement at or prior to the Closing (considered
collectively), and each of these covenants and obligations (considered
individually), must have been duly performed and complied with in all material
respects.

 

(b)           Each document
required to be delivered by New Borun pursuant to this Agreement at or prior to
Closing must have been delivered.

 

Section 7.03           Consents.  All consents, waivers, approvals,
authorizations or orders pursuant to all contracts, licenses, laws, rules or
regulations, permits, trademarks and other intangibles required to be obtained,
and all filings required to be made, by New Borun for the authorization,
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement to the extent required by law,
shall have been obtained and made by New Borun.

 

Section 7.04           Officer’s Certificate.  New Borun shall have delivered to Golden
Direction and King River a certificate dated as of the Closing Date and signed
by a duly authorized officer of New Borun to the effect that (a) each of
the conditions set forth in Sections 7.01, 7.02 and 7.03 have been fully
satisfied and (b) no litigation, proceeding, investigation, or inquiry is
pending, or to the best knowledge of New Borun threatened, which might result
in an action to enjoin or prevent the consummation of the transactions contemplated
by this Agreement, or, to the extent not disclosed in the New Borun Schedules,
by or against New 

 

14

 

Borun, which might result in any material adverse change in any of the
assets, properties, business, or operations of New Borun.

 

Section 7.05           Director’s Certificate.  On the Closing Date, New Borun shall deliver
to Golden Direction and King River a certificate, executed by New Borun’s sole
director certifying attached copies of (i) the organizational documents of
New Borun and (ii) the resolutions of New Borun’s board of directors
approving this Agreement and the transactions contemplated hereby.

 

Section 7.06           Good Standing Certificate.  On the Closing Date, New Borun shall deliver
to Golden Direction and King River a certificate of good standing from the
Registrar of Companies, dated as of a date within ten (10) business days
of the Closing Date, certifying that New Borun is in good standing as a company
in the Cayman Islands.

 

Section 7.07           Additional Documents.  New Borun shall have delivered such other
documents as Golden Direction and King River may have reasonably requested
prior to the date hereof for the purpose of (i) evidencing the accuracy of
any of the representations and warranties of New Borun in this Agreement, (ii) evidencing
the performance of, or compliance by New Borun with, any covenant or obligation
required to be performed or complied with hereunder by New Borun, (iii) evidencing
the satisfaction of any condition referenced herein or (iv) otherwise
facilitating the consummation or performance of any of the transactions
contemplated by this Agreement.

 

ARTICLE
VIII

MISCELLANEOUS

 

Section 8.01           Brokers.  New Borun, Golden Direction and King River
agree that there were no finders or brokers involved in bringing the parties
together or who were instrumental in the negotiation, execution or consummation
of this Agreement.  New Borun, on the one
hand, and Golden Direction and King River, on the other hand, agree to
indemnify the other against any claim by any third person other than those
described above for any commission, brokerage, or finder’s fee arising from the
transactions contemplated hereby based on any alleged agreement or
understanding between the indemnifying party and such third person, whether
express or implied from the actions of the indemnifying party.

 

Section 8.02           Governing
Law; Jurisdiction; Venue; Waiver of Jury Trial.  This Agreement shall be governed by,
enforced, and construed under and in accordance with the laws of the United
States of America and, with respect to matters of State law, with the laws of
the State of New York.  Venue for all
matters shall be in the City of New York, New York, without giving effect to
principles of conflicts of law thereunder. 
Each of the parties irrevocably consents and agrees that any legal or
equitable action or proceedings arising under or in connection with this
Agreement shall be brought exclusively in the federal courts of the United
States sitting in New York City, New York. 
By execution and delivery of this Agreement, each party hereto
irrevocably submits to and accepts, with respect to any such action or
proceeding, generally and unconditionally, the jurisdiction of the aforesaid
court, and irrevocably waives any and all rights such party may now or
hereafter have to object to such jurisdiction. 
EACH PARTY (ON BEHALF OF 

 

15

 

ITSELF AND, TO THE FULLEST EXTENT
PERMITTED BY LAW, ON BEHALF OF ITS RESPECTIVE EQUITY HOLDERS) HEREBY WAIVES ANY
RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED UPON,
ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT.

 

Notices.  Any notice or other communications required
or permitted hereunder shall  be in
writing and shall be sufficiently given if personally delivered to it or sent
by telecopy, overnight courier or registered mail or certified mail, postage
prepaid, addressed as follows:

 

	
  If
  to New Borun, to:

  	
  China
  New Borun Corporation

  
	
   

  	
   

  
	
   

  	
  Bohai
  Industrial Park (Yangkou Town)

  
	
   

  	
   

  
	
   

  	
  Shouguang,
  Shandong 262715

  
	
   

  	
   

  
	
   

  	
  The
  People’s Republic of China

  
	
   

  	
   

  
	
   

  	
  Attention:    Mr. WANG
  Jinmiao

  
	
   

  	
   

  
	
   

  	
  Telephone:
   +86-536-5451199/5451006

  
	
   

  	
   

  
	
   

  	
  Facsimile:
    +86-536-5451199

  

 

16

 

	
  With copies to:

  	
  K&L Gates LLP

  
	
   

  	
   

  
	
   

  	
  Wachovia Financial Center

  
	
   

  	
   

  
	
   

  	
  200 South Biscayne Blvd.,
  Suite 3900

  
	
   

  	
   

  
	
   

  	
  Miami, FL 33131

  
	
   

  	
   

  
	
   

  	
  Attention:

  	
  Clayton E.
  Parker, Esq.

  
	
   

  	
   

  	
   

  
	
   

  	
  Telephone:

  	
  (305) 539-3300

  
	
   

  	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  (305) 358-7095

  
	
   

  	
   

  	
   

  
	
  If to King River or Golden
  Direction, to:

  	
  Golden Direction Limited

  
	
   

  	
   

  
	
   

  	
  Bohai Industrial Park
  (Yangkou Town)

  
	
   

  	
   

  
	
   

  	
  Shouguang, Shandong 262715

  
	
   

  	
   

  
	
   

  	
  The People’s Republic of
  China

  
	
   

  	
   

  
	
   

  	
  Attention:

  	
  WANG Jinkun

  
	
   

  	
   

  	
   

  
	
   

  	
  Telephone:

  	
  +86-536-5451199

  
	
   

  	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  +86-536-5451199

  

 

or such other addresses as shall be furnished in
writing by any party in the manner for giving notices hereunder, and any such
notice or communication shall be deemed to have been given (i) upon
receipt, if personally delivered, (ii) on the day after dispatch, if sent
by overnight courier and (iii) upon dispatch, if transmitted by facsimile
or telecopy and receipt is confirmed by telephone.

 

Section 8.03   Attorney’s Fees.  In
the event that either party institutes any action or suit to enforce this
Agreement or to secure relief from any default hereunder or breach hereof, the
prevailing party shall be reimbursed by the losing party for all costs,
including reasonable attorney’s fees, incurred in connection therewith and in
enforcing or collecting any judgment rendered therein.

 

Section 8.04   Confidentiality. 
Each party hereto agrees with the other that, unless and until the
transactions contemplated by this Agreement have been consummated, it and its
representatives will hold in strict confidence all data and information
obtained with respect to another party or any subsidiary thereof from any
representative, officer, director or employee, or from any books or records or
from personal inspection, of such other party, and shall not use 

 

17

 

such data or information or
disclose the same to others, except (i) to the extent such data or
information is published, is a matter of public knowledge, or is required by
law to be published; or (ii) to the extent that such data or information
must be used or disclosed in order to consummate the transactions contemplated
by this Agreement.  In the event of the
termination of this Agreement, each party shall return to the other party all
documents and other materials obtained by it or on its behalf and shall destroy
all copies, digests, work papers, abstracts or other materials relating
thereto, and each party will continue to comply with the confidentiality
provisions set forth herein.

 

Section 8.05   Public Announcements and Filings.  The parties hereto hereby acknowledge and
agree that this Agreement will be filed as an Exhibit to New Borun’s
registration statement on Form F-1 to be filed with the U.S. Securities
and Exchange Commission (the “Commission”) in connection with the initial
public offering of American Depositary Shares representing New Borun Ordinary
Shares, and that such registration statement will be made publicly available
upon such filing.  With the exception of
such filing, and unless required by applicable law or regulatory authority,
including, without limitation, the Commission, none of the parties will issue
any report, statement or press release to the general public, to the general
trade or trade press, or to any third party (other than its advisors and representatives
in connection with the transactions contemplated hereby) or file any document,
relating to this Agreement and the transactions contemplated hereby, except as
may be mutually agreed by the parties. 
Copies of any such filings, public announcements or disclosures,
including any announcements or disclosures mandated by law or regulatory
authorities with the exception of any such filings, announcements or
disclosures made to the Commission, shall be delivered to each party at least
one (1) business day prior to the release thereof.

 

Section 8.06   Recitals.  The
recitals to this Agreement are true and correct and are incorporated herein, in
their entirety, by this reference.

 

Section 8.07   Third Party Beneficiaries. 
This Agreement is strictly between New Borun, Golden Direction and King
River, and, except as specifically provided herein, including, without
limitation, those persons indemnified pursuant to Sections 4.07 and 5.05
herein, no director, officer, stockholder (other than King River), employee, agent,
independent contractor or any other person or entity shall be deemed to be a
third party beneficiary of this Agreement.

 

Section 8.08   Expenses.  Subject to
Section 8.04 above, whether or not the Exchange is consummated, each of
New Borun, Golden Direction and King River will bear its own respective
expenses, including legal, accounting and professional fees, incurred in
connection with the Exchange or any of the other transactions contemplated
hereby.

 

Section 8.09   Survival; Termination. 
The representations, warranties, and covenants of the respective parties
shall survive the Closing Date and the consummation of the transactions herein
contemplated for a period of two (2) years.

 

Section 8.10   Counterparts.  This
Agreement may be executed in multiple counterparts, each of which shall be
deemed an original and all of which taken together shall be but a single
instrument.  In the event that any
counterpart signature is delivered by facsimile or 

 

18

 

other electronic
transmission, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or other electronic signature page were
an original thereof.

 

Section 8.11   Amendment or Waiver. 
Every right and remedy provided herein shall be cumulative with every
other right and remedy, whether conferred herein, at law, or in equity, and may
be enforced concurrently herewith, and no waiver by any party of the
performance of any obligation by the other shall be construed as a waiver of
the same or any other default then, theretofore, or thereafter occurring or
existing.  At any time prior to the
Closing Date, this Agreement may by amended by a writing signed by all parties
hereto, with respect to any of the terms contained herein, and any term or
condition of this Agreement may be waived or the time for performance may be
extended by a writing signed by the party or parties for whose benefit the
provision is intended.

 

Section 8.12   Best Efforts. 
Subject to the terms and conditions herein provided, each party shall
use its best efforts to perform or fulfill all conditions and obligations to be
performed or fulfilled by it under this Agreement so that the transactions
contemplated hereby shall be consummated as soon as practicable.  Each party also agrees that it shall use its
best efforts to take, or cause to be taken, all actions and to do, or cause to
be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective this Agreement and the
transactions contemplated herein.

 

Section 8.13   Remedies.  In
addition to being entitled to exercise all rights provided herein or granted by
law, including recovery of damages, each of the parties hereto will be entitled
to specific performance of their respective obligations hereunder.  The parties agree that monetary damages may
not be adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.

 

Section 8.14   Construction.  The
parties agree that each of them and/or their respective counsel has reviewed
and had an opportunity to revise this Agreement and, therefore, the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of Agreements or any
amendments hereto or the transactions contemplated hereby.

 

Section 8.15   Entire Agreement. 
This Agreement represents the entire agreement between the parties
relating to the subject matter thereof and supersedes all prior agreements,
understandings and negotiations, written or oral, with respect to such subject
matter.

 

[Remainder of Page Intentionally Left Blank]

 

19

 

IN WITNESS WHEREOF, the corporate
parties hereto have caused this Share Exchange Agreement to be executed by
their respective officers, hereunto duly authorized, as of the date first-above
written.

 

	
   

  	
  CHINA NEW BORUN CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Shan Junqin

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Shan Junqin

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GOLDEN DIRECTION LIMITED

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Shan Junqin

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Shan Junqin

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  KING RIVER HOLDING LIMITED

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Shan Junqin

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Shan Junqin

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Director

  

 

20

 

GOLDEN DIRECTION
SCHEDULES

 

	
  Item 1.01

  	
   

  	
  Certificate
  of Incorporation of Golden Direction

   

  Please see Annex A
  attached hereto.

   

  Memorandum
  and Articles of Association of Golden Direction

   

  Please
  see Annex B attached hereto.

  

 

 

NEW BORUN
SCHEDULES

 

	
  Item 2.01

  	
   

  	
  Memorandum and Articles of Association

   

  Please see Exhibits 3.2 and 3.3 to the Company’s
  Registration Statement on Form F-1 as filed with the SEC on April 27, 2010.

  
	
   

  	
   

  	
   

  
	
  Item 2.08

  	
   

  	
  Contracts:
  

   

  None.

  
	
   

  	
   

  	
   

  
	
  Item 2.12

  	
   

  	
  Material
  Transactions or Affiliations: 

   

  (1) Share
  Exchange Agreement, dated February 28, 2010, by and among China New
  Borun Corporation, Golden Direction Limited, Star Elite Enterprises Limited,
  Earnstar Holding Limited and TDR Advisors, Inc. (please see
  Exhibit 2.1 to the Company’s Registration Statement on Form F-1 as
  filed with the SEC on April 23, 2010) 

   

  (2) Shareholders Agreement, dated
  March 31, 2010, by and among China New Borun Corporation, King River
  Holding Limited, Star Elite Enterprises Limited, Earnstar Holding Limited and
  TDR Advisors, Inc. (please see Exhibit 4.4 to the Company’s
  Registration Statement on Form F-1 as filed with the SEC on
  April 23, 2010)

  

 

 

ANNEX A

 

TERRITORY OF THE BRITISH VIRGIN
ISLANDS

BVI BUSINESS COMPANIES ACT, 2004

 

CERTIFICATE OF INCORPORATION

(SECTION 7)

 

The REGISTRAR of
CORPORATE AFFAIRS, of the British Virgin Islands HEREBY CERTIFIES, that
pursuant to the BVI Business Companies Act, 2004, all the requirements of the
Act in respect of incorporation having been complied with,

 

GOLDEN DIRECTION LIMITED

 

BVI COMPANY NUMBER:
1472637

 

is incorporated in the
BRITISH VIRGIN ISLANDS as a BVI BUSINESS COMPANY, this 28th day of March, 2008.

 

 

	
  

  	
  

  for REGISTRAR OF CORPORATE AFFAIRS

  28th day of March, 2008

  

 

 

ANNEX B

 

 

	
  TERRITORY
  OF THE BRITISH VIRGIN ISLANDS

  	
  

  
	
   

  
	
  THE
  BVI BUSINESS COMPANIES ACT (No. 16 of 2004)

  

  Memorandum

  

  and

  

  Articles of
  Association

  

  of

  

 

GOLDEN
DIRECTION LIMITED

 

BVI
BC No.:

 

Incorporated
the 28th day of March, 2008

 

ILS
FIDUCIARY (B.V.I.) LIMITED

MILL MALL, SUITE 6 

WICKHAMS CAY 1, PO BOX 3085 

ROAD TOWN, TORTOLA

BRITISH
VIRGIN ISLANDS

 

 

TERRITORY OF THE VIRGIN ISLANDS

 

THE BVI BUSINESS COMPANIES ACT, 2004

 

MEMORANDUM OF ASSOCIATION

 

OF

 

GOLDEN DIRECTION LIMITED

 

A COMPANY LIMITED BY SHARES

 

1.           NAME

 

The name of the Company is GOLDEN DIRECTION LIMITED.

 

2.           INCORPORATION

 

The Company is incorporated as a company limited by shares.

 

3.           REGISTERED OFFICE

 

The first registered office of the Company shall be
situated at ILS FIDUCIARY (B.V.I) LIMITED, Mill Mall, Suite 6, Wickhams Cay 1, P.O. Box
3085, Road Town, Tortola, British Virgin Islands.

 

4.           REGISTERED AGENT

 

The first registered agent of the Company shall be
at ILS FIDUCIARY (B.V.I) LIMITED of Mill Mall, Suite 6, Wickhams Cay 1,
P.O. Box 3085, Road Town, Tortola, British Virgin Islands.

 

5.           OBJECTS AND POWERS

 

(a)          The object for which the
Company is incorporated is to engage without limitation in any act or
activities which are not prohibited under any law for the time being in force
in the British Virgin Islands.

 

(b)        The Company shall have full capacity, power, right
and privilege to:

 

(i)       engage in any business or
businesses whatsoever, or in any act or activities which are not prohibited
under any law for the time being in force in the British Virgin Islands;

 

(ii)      carry on business with
persons resident in the British Virgin Islands.

 

1

 

(iii)     carry on banking or trust
business, pursuant to a license issued to it under the Banks and Trust Companies Act,
1990 and to act as trustee of a Virgin Islands Special Trust;

 

(iv)     carry on business as an
insurance company or as a reinsurance company, insurance agent, or insurance
broker, pursuant to a license issued to it under the Insurance Act, 1994;

 

(v)      carry on the business of
company management pursuant to a license issued to it under the Company Management
Act, 1990;

 

(vi)     act a as a custodian of
shares in a company incorporated under the laws of the British Virgin Islands,
pursuant to a license issued to it under the Financial Services Commission Act,
2001;

 

(vii)    issue, cancel, and hold
treasury shares, grant options over unissued shares in the Company and treasury
shares, issue securities that are converted into shares, and give financial
assistance to any person in connection with the acquisition of its own shares;

 

(viii)   issue debentures, guarantee
a liability or obligation of any person and secure any of its obligations by mortgage,
pledge or other charge of any of its assets;

 

(ix)      protect the assets of the
Company for the benefit of the Company, its creditors and its members and, at
the discretion of the directors, for any person having a direct or indirect
interest in the Company;

 

(x)       buy, sell, underwrite,
invest in, exchange or otherwise acquire and hold, manage, develop, deal with
and turn to account any bonds, debentures, shares, (whether fully paid or not)
stocks, options, commodities, futures, forward contracts, notes or securities
of Governments, States, municipalities, public authorities or public or private
limited or unlimited companies in any part of the world, precious metals, gems,
works of art and other articles of value and whether on a cash or margin basis
and including short sales, and to lend money against the security of any of the
aforementioned property;

 

(xi)      buy, own, hold, subdivide,
lease, sell, rent, prepare building sites, construct, reconstruct, alter,
improve, decorate, furnish, operate, maintain, reclaim or otherwise deal with
and/or develop land and buildings and otherwise deal in real estate in all
its branches, make advances upon the

 

2

 

security of land or houses or other property or any
interest therein, and whether erected or in course of erection and whether on first
mortgage or charge or subject to prior mortgage or charge, and to develop land
and buildings as may seem expedient to the Company;

 

(xii)     borrow or raise money by the
issue of debentures, debenture stock (perpetual or terminable), bonds,
mortgages, or any other securities founded or based upon all or any of the
assets or property of the Company or without any such security and upon such
terms as to priority or otherwise as the Company may think fit;

 

(xiii)    do all such other things as
are incidental to, or which the company may think conducive to the attainment
of all the above objects, powers, rights and privileges.

 

(c)          For the purposes of Section 9(4) of
the Act, there are no limitations on the business that the Company may carry
on.

 

6.           SHARES IN THE COMPANY

 

(1)          The Company shall be
authorised to issue a maximum of 50,000 shares with a par value of US$1.00 for
each share.

 

(2)          The shares in the Company
shall be issued in the currency of the United States of America.

 

(3)          Shares in the Company shall be
issued as registered shares only.

 

(4)          The shares may be divided
into such number of classes and series as the directors may by resolution from
time to time determine, and until so divided shall comprise one class and
series.

 

(5)          The Company shall not be
authorized to issue bearer shares; convert registered shares to bearer shares;
or exchange registered shares for bearer shares.

 

7.           DESIGNATIONS,
RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS ATTACHING TO SHARES

 

The directors shall by resolution have the power to issue any class or
series of shares that the Company is authorized to issue, with or subject to
any designations, powers, preferences, rights, qualifications, limitations and
restrictions.

 

3

 

8.             VARIATION OF
CLASS RIGHTS

 

If at any time the
number of shares which the Company is authorised to issue is divided into
different classes of shares, the rights attached to any class (unless otherwise
provided by the terms of issue of the shares of that class) shall whether or
not the Company is being wound up, be varied by way of resolution or with the
consent in writing of the holders of not less than 51% of the issued shares of
that class and of the holders of not less than 30% of the issued shares of any
other class of shares which may be affected by such variation.

 

9.             RIGHTS NOT VARIED BY
THE ISSUE OF SHARES PARI PASSU

 

Rights conferred
upon the holders of the shares of any class issued with preferred or other
rights shall not, unless otherwise expressly provided by the terms of issue of
the shares of that class, be deemed to be varied by the creation or issue of
such further shares ranking pari passu therewith.

 

10.           AMENDMENTS

 

(1)           The
Company may by resolution of the members, or by a resolution of directors if no
shares have been issued, amend this Memorandum of Association and the Articles
of Association of the Company.

 

(2)           Amendments to this Memorandum of
Association and to the Articles of Association may include changing the name of
the Company; and increasing the number of shares which the Company is
authorised to issue.

 

(3)           No
amendment may be made by a Resolution of Directors:

 

(i)    to
restrict the rights or powers of members to amend the Memorandum of Association
or the Articles of Association;

 

(ii)   to change
the percentage of members required to pass a resolution of members to amend the
Memorandum of Association or Articles of Association;

 

(iii)  to clauses
7,  8, 9, and 10 of this
Memorandum of Association of the Company;

 

(iv)  to prohibit
members from amending the Memorandum of Association or Articles of Association;
or

 

(v)   to
Regulations 122, 126, or 127 of the Articles of Association of the Company.

 

4

 

(4)          Where a resolution is passed
to amend the Memorandum or Articles of Association, the Company shall file for
registration with the Registrar of Corporate Affairs:

 

(i)            a notice of amendment in the
approved form; or

 

(ii)          a restated Memorandum or
Articles of Association incorporating the amendment made.

 

5

 

We, ILS FIDUCIARY (BVI) LIMITED,
Mill Mall, Suite 6, Wickhams Cay 1, P.O. Box 3085, Road Town,
Tortola, British Virgin Islands for the purpose of incorporating a BVI Business
Company under the laws of the British Virgin Islands hereby sign this
Memorandum of Association the 28 March, 2008.

 

 

Incorporator

 

	
  /s/ Bernadette Rawlins

  	
   

  
	
  Bernadette Rawlins

  	
   

  
	
  Authorised Signatory

  	
   

  
	
  ILS
  FIDUCIARY (B.V.I.) LIMITED

  	
   

  
	
  Mill
  Mall, Suite 6

  	
   

  
	
  Wickhams
  Cay 1

  	
   

  
	
  P.O.
  Box 3085

  	
   

  
	
  Road
  Town, Tortola

  	
   

  
	
  British
  Virgin Islands

  	
   

  

 

6

 

 

TERRITORY OF THE VIRGIN ISLANDS

 

THE BVI BUSINESS COMPANIES ACT, 2004

 

ARTICLES OF ASSOCIATION

 

OF

 

GOLDEN DIRECTION LIMITED

 

A COMPANY LIMITED BY SHARES

 

INTERPRETATION

 

1.             References in these Articles to the “Act”
shall mean the BVI Business Companies Act, 2004 and shall include amendments to
the Act and any regulations as may from time to time be made under the Act.

 

2.             (1) The following Regulations shall constitute the
Articles of the Company.

 

(2) In these Articles words and expressions defined in the Act shall
have the same meaning.

 

(3) Unless otherwise required by the context, the
singular shall include the plural and vice versa, and the masculine gender
shall include the feminine and the neuter genders.

 

(4) References to
“person” shall include corporations and all other entities which are capable of
having legal existence.

 

ISSUE
OF SHARES AND VARIATION OF RIGHTS

 

3.   (1)     Subject
to the provisions of these Articles, the unissued shares of the Company shall
be at the disposal of the directors who may offer, allot, grant options over,
or otherwise dispose of them to such persons at such times and for such
consideration, and upon such terms and conditions as the directors may
determine.

 

(2)   The directors shall not issue a share for
a consideration which shall be less than the par value of the share.

 

(3)   Section 46 of the Act in respect of
pre-emptive rights shall not apply to the issue, allotment, transfer, purchase,
redemption, or acquisition of shares in the Company.

 

(4)   The Company shall not be authorized to
issue bearer shares; convert registered shares to bearer shares; or exchange
registered shares for bearer shares.

 

(5)   The directors shall issue no shares for a
consideration other than money, unless the directors have passed a resolution
stating:

 

7

 

(a)   the amount to be credited for the issue
of the Shares;

 

(b)   their determination of the reasonable
present cash value of the non-money consideration for the issue; and

 

(c)   that, in their opinion, the present cash
value of the non money consideration for the issue is not less that the amount
to be credited for the issue of the Shares.

 

4.             The directors may issue shares in the
Company with such preferred, deferred or other special rights or such restrictions,
whether in regard to dividend, voting, return of capital or otherwise as the
directors may determine.

 

5.             The Company shall keep a register of members which
shall contain the following:

 

(a)   the names and addresses of the persons
who hold registered shares in the Company;

 

(b)   the number of each class and series of
shares held by each shareholder;

 

(c)   the date on which the name of each
shareholder was entered in the register of members; and

 

(d)   the date on which a person ceased to be a
shareholder.

 

6.   (1)     Every
person whose name is entered as a member in the register of members, being the
holder of shares shall, without payment, be entitled to a certificate signed by
two directors or two officers or by one director or one officer of the Company
or under the common seal of the Company with or without the signature of any
director or officer of the Company.

 

(2)   The certificate shall specify the share
or shares held and the par value thereof (if any) provided that in respect of a
share, or shares, held jointly by several persons, the Company shall not be
bound to issue more than one certificate, and delivery of a certificate for a
share to one of several joint holders shall be sufficient delivery to all.

 

(3)   If a certificate is worn out or lost it
may be renewed on production of the worn out certificate, or on satisfactory
proof of its loss together with such indemnity as the directors may reasonably
require.

 

(4)   Any member receiving a share certificate
shall indemnify and hold the Company and its officers harmless from any loss or
liability which it or they may incur by reason of wrongful or fraudulent use or
representation made by any person by virtue of the possession of such a
certificate.

 

7.             A share issued by the Company upon
conversion of, or in exchange for, another share or a debt obligation or other
security in the Company, shall be treated for all purposes as having been
issued for money equal to the consideration received or

 

8

 

deemed to have
been received by the Company in respect of the other share, debt obligation or
security.

 

8.             The Company may issue fractions of a
share and a fractional share shall have the same corresponding fractional
liabilities, limitations, preferences, privileges, qualifications,
restrictions, rights and other attributes of a whole share of the same class or
series of shares.

 

9.             The consideration in respect of the
shares constitutes capital to the extent designated by the directors and the
excess constitutes surplus, except that the directors must designate as capital
an amount of the consideration that is at least equal to the amount that the
share is entitled to as a preference, if any, in the assets of the Company upon
liquidation of the Company.

 

10.           Subject to the provisions of the Act,
shares may be issued on the terms that they are redeemable, or at the option of
the Company be liable to be redeemed on such terms and in such manner as the
directors before or at any time of the issue of the shares may determine.

 

ACQUISITION
OF OWN SHARES AND REDEMPTION OF SHARES

 

11.  (1)    The
directors may, in accordance with the Act, on behalf of the Company purchase,
redeem, or otherwise acquire any of the Company’s own shares for such
consideration as they consider fit, and may either cancel or hold such shares
as treasury shares.

 

(2)   The directors may dispose of any shares
held as treasury shares on such terms and conditions as they may from time to time
determine. Shares may be purchased or otherwise acquired in exchange for newly
issued shares in the Company.

 

(3)   The directors may redeem any such share
at a premium.

 

(4)   The directors shall by resolution determine whether
sections 60, 61, and 62 of the Act shall apply to the acquisition of shares.

 

(5)   Upon cancellation of a share, the amount
included as capital of the Company with respect to that share shall be deducted
from the capital of the Company.

 

NOTICE OF TRUST

 

12.           No notice of a trust, whether expressed,
implied or constructive, shall be entered in the register  of
members.

 

13.           Except as required by law, no person
shall be recognized by the Company as holding any share upon any trust, and the
Company shall not be bound by or be compelled in any way to recognize (even
when having notice thereof) any equitable, contingent, future, or partial
interest in any share or any interest in any fractional part of a share.

 

9

 

TRANSFER
OF SHARES

 

14.  (1)    Registered shares in the Company may be transferred by
a written instrument signed by the transferor and containing the name and
address of the transferee or such other manner or form and subject to such
evidence as the directors shall consider appropriate.

 

(2)   The Instrument of transfer shall be signed by the
transferee if registration as a holder of the share imposes a liability to the
Company on the transferee.

 

(3)   The Instrument of transfer of a
registered share shall be sent to the Company for registration.

 

15.  (1)    The directors shall pass a resolution to register or
refuse to register a transfer of shares.

 

(2)   The directors having resolved to register
the shares shall enter the name of the transferee of the shares in the register
of members.

 

(3)   If the directors of the Company are
satisfied that an instrument of transfer relating to Shares has been signed but
that the instrument has been lost or destroyed, they may resolve by Resolution:

 

(a)   to accept such evidence of the transfer of shares as
they consider appropriate; and

 

(b)   that the transferee’s name should be
entered in the register of members notwithstanding the absence of the
instrument of transfer.

 

TRANSMISSION
OF SHARES

 

16.  (1)    The
personal representative of a deceased member, the guardian of an incompetent
member, or the trustee of a bankrupt member shall be the only person recognized
by the Company as having any title to his share.

 

(2)   Such personal representative, guardian, or trustee
shall not be entitled to exercise any rights as a member of the Company until
that person has proceeded in the manner set out below.

 

(3)   The production to the Company of any document which is
evidence of:

 

(a)   a grant of probate of the will, or grant
of letters of administration of the estate, or confirmation of the appointment
as executor, of a deceased member; or

 

(b)   the appointment of a guardian of an
incompetent member; or

 

(c)   the trustee of a bankrupt member; or

 

10

 

(d)         any other documentation
providing reasonable evidence of the applicants beneficial ownership of the
shares,

 

shall be accepted by the Company.

 

(4)  If the deceased, incompetent
member or bankrupt member is domiciled outside the British Virgin Islands the
Company shall accept the documents referred to in sub-regulation (3) above,
if such documents are issued by a foreign court which had competent
jurisdiction in the matter.

 

(5)  For the purposes of
establishing whether or not a foreign court had competent jurisdiction in the
matter the directors may obtain appropriate legal advice.

 

(6)  The directors may also
require an indemnity to be given by the personal representative, guardian, or
trustee of the member.

 

17.        An application by any such
person to be registered as a member shall for all purposes be deemed to be a
transfer of shares of the deceased, incompetent, or bankrupt member and the
directors shall treat it as such.

 

18.        Any person who has become
entitled to a share in consequence of the death, incompetence, or bankruptcy of
any member may, instead of being registered himself, request in writing that
some person to be named by him be registered as the transferee of such share
and such request shall likewise be treated as if it were a transfer.

 

19.        What amounts to incompetence
on the part of a person is a matter to be determined by the court having regard
to all the relevant evidence and the circumstances of the case.

 

LIEN

 

20.  (1) The Company shall
have a first and paramount lien on every share which has been registered in the
name of a member, whether singly or jointly with any other person, for all the
debts incurred before or after the notice to the Company of any interest of any
person other than such member, and whether the time for the payment or
discharge of the same shall have actually arrived or not, and notwithstanding
that the same are joint debts or liabilities of such member or his estate and
any other person, whether a member of the Company or not.

 

(2)  The Company’s lien on a share shall extend to all
dividends payable thereon.

 

(3)  The directors may at any
time either generally, or in any particular case, waive any lien that has
arisen or may declare any share to be wholly or in part exempt from the
provisions of this regulation.

 

21.         The Company may sell, in
such manner as the directors may by resolution determine, any share on which
the Company has a lien, but no sale shall be made

 

11

 

unless the sum in respect of which the lien exists is payable nor until
the expiration of twenty one days after a notice in writing, demanding payment
of the sum payable and giving notice of the intention to sell in default of
such payment, has been served on the holder for the time being of the share.

 

22.  (1)    The net proceeds of the sale
by the Company of any share on which it has a lien shall be applied in or
towards payment in respect of which the lien exists so far as the same is
payable and any residue shall (subject to a like lien for debts or liabilities
not payable as existed upon the share prior to the sale) be paid to the holder
of the share immediately before such sale.

 

(2)   For giving effect to any
such sale the directors may authorise some person to transfer the share sold to
the purchaser thereof.

 

(3)   The purchaser shall be registered as the
holder of the share and he shall not be bound to see the application of the
purchase money, nor shall his title to the share be affected by any
irregularity or invalidity in the proceedings in reference to the sale.

 

MEETINGS OF MEMBERS

 

23.           The directors shall convene
meetings of the members of the Company at such times and in such manner and
place as the directors consider necessary or desirable, and they shall convene
such a meeting upon the written request of members holding no less than 30% of
the votes of the issued voting shares in the Company.

 

24.           Seven days’ notice at the
least specifying the place, the day and the hour of the meeting and general
nature of the business to be conducted shall be given in the manner hereinafter
mentioned to such persons whose names on the date the notice is given appear as
members in the register of members of the Company and who are entitled to vote.

 

25.           A meeting of
the members shall be deemed to have been validly held, notwithstanding that it
is held in contravention of the requirement to give notice.

 

26.           Notice of a meeting may be
waived by an absolute majority in number of the members having a right to
attend and vote at the meeting.

 

27.           The inadvertent
failure of the directors to give notice of a meeting to a member, or the fact
that a member has not received the notice, does not invalidate the meeting.

 

28.           A meeting of the members may
on the application of a member, a director or the directors of the Company be
ordered by the Court if:

 

(a)     it is impracticable to call
or conduct a meeting of the members of the Company in the manner specified in
the Act or in these Articles; or

 

(b)     if it is in the interest of
the members of the Company that a meeting of members is held.

 

12

 

PROCEEDINGS AT MEETINGS OF MEMBERS

 

29.           No business shall be
transacted at any meeting unless a quorum of members is present at the time
when the meeting proceeds to business. A quorum shall consist of the holder or
holders present in person or by proxy of a majority in excess of 50% of the
voting shares.

 

30.           If, within half an hour from
the time appointed for the meeting, a quorum is not present, the meeting shall
be dissolved.

 

31.           At every meeting the members
present shall choose someone of their number to be the chairman. If the members
are unable to choose a chairman for any reason, then the person representing
the greatest number of shares entitled to vote and who is present at the
meeting shall preside as chairman failing which the oldest individual person
shall take the chair.

 

32.           The chairman may, with the
consent of the meeting, adjourn any meeting from time to time, and from place
to place, but no business shall be transacted at any adjourned meeting other
than the business left unfinished at the meeting form which the adjournment
took place.

 

33.           At any meeting a resolution
put to the vote shall be decided on a show of hands by a simple majority unless
a poll is (before or on the declaration of the result of the show of hands)
demanded:

 

(a)   by the chairman; or

 

(b)   by any member present in
person, voting trustee, committee or by proxy and representing not less than
one tenth of the shares entitled to vote.

 

34.           Unless a poll be so
demanded, a declaration by the chairman that a resolution has, on a show of
hands, been carried, and an entry to that effect in the book containing the
minutes of the proceedings of the Company, shall be sufficient evidence of the
fact, without proof of the number or proportion of the votes recorded in favour
of or against such resolution.

 

35.           If a poll is duly demanded
it shall be taken in such manner as the chairman directs, and the result of the
poll shall be deemed to be the resolution of the meeting at which the poll was
demanded.

 

36.           The demand for a poll may be
withdrawn.

 

37.           In the case of an equality
of votes, whether on a show of hands, or on a poll, the chairman of the meeting
at which the show of hands takes place, or at which the poll is demanded, shall
be entitled to a second or casting vote.

 

13

 

VOTES OF MEMBERS

 

38.           At any meeting of members
whether on a show of hands or on a poll, every member entitled to vote and who
is present in person, by a voting trustee, by a committee, or by proxy shall
have one vote for every voting share of which he is the holder.

 

39.           A member may be represented
at a meeting of members by a voting trustee, by a committee, or by proxy who
may speak and vote on behalf of that member.

 

40.           A resolution which has been
notified to all members and which has been approved by a majority in excess of
50% of the votes of those members in the form of one or more documents in
writing or by telex, telegram, cable, or other written electronic communication
shall forthwith, without the need for any notice, become effectual as a resolution of the members.

 

41.           If a committee shall be
appointed for any member who is entitled to vote and who is of unsound mind
that member may vote by his committee.

 

42.           If two or  more persons are jointly entitled to a
share or shares and if more than one of such persons shall vote in person or by
voting trustee or by committee or by proxy at any meeting of members, the vote
of that person whose name appears first among such voting joint holders in the
register of members shall alone be counted.

 

43.           The instrument appointing a
proxy shall be in such form as the chairman of the meeting shall accept as
properly evidencing the wishes of the member appointing the proxy.

 

44.           The instrument appointing a
proxy shall be in writing under the hand of the appointer unless the appointer
is a corporation or other form of legal entity other than one or more
individuals holding as joint owners in which case the instrument appointing a
proxy shall be in writing under the hand of an individual duly authorised by such
corporation or legal entity to execute the same.

 

45.           The chairman of any meeting
at which a vote is cast by proxy so authorised may call for a notarially
certified copy of such authority which shall be produced within seven days of
being so requested or the vote or votes cast by such proxy shall be disregarded.

 

46.           The instrument appointing a
proxy shall be produced at the place appointed for the meeting before the time
for holding the meeting at which the person named in such instrument proposes
to vote.

 

47.           A member of the Company
shall be deemed to be present at a meeting of members if:

 

(a)   he participates by telephone
or other electronic means; and

 

(b)   all members participating in
the meeting are able to hear each other.

 

14

 

CORPORATIONS ACTING BY
REPRESENTATIVES AT MEETINGS

 

48.           A corporation or other form
of corporate legal entity which is a member of the Company may by resolution of
its directors or other governing body authorise such person as it thinks fit to
act as its representative at any meeting of the members of the Company, and the
person so authorised shall be entitled to exercise the same powers on behalf of
the corporation which he represents as that corporation could exercise if it
were an individual member of the Company.

 

49.           An action that may be taken
by members of the Company at a meeting of members may also be taken by a
resolution of members consented to in writing, or by telex, telegram, cable, or
other written electronic communication without the need for any notice.

 

50.           A resolution consented to in
writing may consist of several documents including electronic communication in
like form each signed or assented to by one or more members.

 

DIRECTORS

 

51.           The number of the directors
shall be not less than one nor more than seven.

 

52.  (1)    The first director or
directors shall be appointed by the first Registered Agent of the Company
within such period after the date of incorporation as may be prescribed by law.
Thereafter, the directors shall be elected by the members who are entitled to
vote for such period as the members may determine.

 

(2)   Where the Company has only
one member who is an individual and that member is also the sole director of
the Company, that sole member/director may, by instrument in writing, nominate
a person who is not disqualified from being a director of the Company under the
Act, as a reserve director of the Company to act in the place of the sole
director/member.

 

(3)   The nomination of a person as a reserve director of
the Company shall cease if:

 

(a)   before the death of the sole
member/director who nominated him

 

(i)    he resigns as a reserve
director, or

 

(ii)   the sole member/director
revokes the nomination in writing; or

 

(b)   the sole member/director who
nominated him ceases to be the sole member/director of the Company for any
reason other than the death of the sole member/director.

 

53.           The directors shall only be
removed by the members.

 

15

 

54.           A person shall not be
appointed as a director of the Company or be nominated as a reserve director
unless that person has consented in writing to be a director, or a reserve
director as the case may be.

 

55.           The Company
shall keep and maintain a register of directors which shall contain:

 

(a)   the names and addresses of
the persons who are directors of the Company or who has been nominated as a
reserve director of the Company;

 

(b)   the date on which each
person whose name is entered in the register was appointed as a director of the
Company or who has been nominated as a reserve director of the Company;

 

(c)   the date on which each
person named as a director or who has been nominated as a reserve director of
the Company ceased to be a director of the Company or a reserve director; and

 

(d)   such other information as
may be prescribed by law.

 

56.           Each director holds office
until his successor takes office or until his earlier death, resignation, or
removal.

 

57.           A vacancy in the board of
directors may be filled by a resolution of the members who are entitled to
vote.

 

58.           The office of director shall
be vacated if the director:

 

(a)   dies; or

 

(b)   is removed from office by a
resolution of members; or

 

(c)   becomes bankrupt or makes
any arrangement or composition with his creditors generally; or

 

(d)   becomes of unsound mind, or
of such infirm health as to be incapable of managing his affairs; or

 

(e)   resigns his office by a
notice in writing to the Company.

 

59.  (1)    A director shall not require
a share qualification, but nevertheless shall be entitled to attend and speak
at any meeting of the members.

 

(2)   A trustee of designated
shares in the Company which may be held under a Virgin Islands Special Trust
shall not be a director of the Company.

 

60.  (1)    A director by writing under
his hand deposited at the Registered Office of the Company, may from time to
time appoint another director or another person to be his alternate.

 

16

 

(2)   Every such alternate shall
be entitled to be given notice of meetings of the directors and to attend and
vote as a director at any such meeting at which the director appointing him is
not personally present and generally at such meeting to have and exercise all
the powers, rights, duties and authorities of the director appointing him

 

61.           Every such alternate shall
be deemed to be an officer of the Company and shall not be deemed to be an
agent of the director appointing him.

 

62.           If undue delay or difficulty
would be occasioned by giving notice to a director of a resolution of which his
approval is sought, his alternate (if any) shall be entitled to signify
approval of the same on behalf of that director.

 

63.           The remuneration of an
alternate shall be payable out of the remuneration payable to the director
appointing him, and shall consist of such portion of the last mentioned
remuneration as shall be agreed between such alternate and the director
appointing him.

 

64.           A director by writing under
his hand deposited at the Registered Office of the Company may at any time
revoke the appointment of an alternate appointed by him.

 

65.           If a director shall die or
cease to hold the office of director, the appointment of his alternate shall
thereupon cease.

 

66.           The directors may, by
resolution, fix the emoluments of directors in respect of services rendered or
to be rendered in any capacity to the Company. The directors may also be paid
such traveling, hotel, and other expenses properly incurred by them in
attending and returning from meetings of the directors, or any committee of the
directors or meeting of the members, or in connection with the business of the
Company as shall be approved by resolution of the directors.

 

67.           A director who, by request,
goes or resides abroad for any purposes of the Company, or who performs
services which in the opinion of the Board go beyond the ordinary duties of a
director, may be paid such extra remuneration (whether by way of salary,
commission, participation in profits or otherwise) as shall be approved by
resolution of the directors.

 

68.           The Company may pay to a
director who at the request of the Company holds any office (including a
directorship) in, or renders services to, any company in which the Company may
be interested, such remuneration (whether by way of salary, commission,
participation in profits or otherwise) in respect of such office or services as
shall be approved by resolution of the directors.

 

69.           A director may hold any
other office or position of profit under the Company (except that of auditor)
in conjunction with his office of director, and may act in a professional
capacity to the Company on such terms as to remuneration or otherwise as the
directors shall determine.

 

17

 

CONFLICT
OF INTEREST

 

70. (1)     A director may be or become
a director or officer of, or otherwise be interested in any company promoted by
the Company, or in which the Company may be interested, as a member or
otherwise and no such director shall be accountable for any remuneration or
other benefits received by him as director or officer or from his interest in
such other company.

 

(2)   A director may also exercise
the voting powers conferred by the shares in any other company held or owned by
the Company in such manner in all respects as they think fit, including the
exercise thereof in favour of any resolutions appointing them, or of their
number, directors or officers of such other company, or voting or providing for
the payment of remuneration to the directors or officers of such other company.

 

(3)   A director may vote in
favour of the exercise of such voting rights in the manner aforesaid
notwithstanding that he may be, or be about to become a director or officer of
such other company, and as such in any other manner is, or may be, interested
in the exercise of such voting rights in the manner aforesaid.

 

(4)   No director shall be
disqualified by his office from contracting with the Company either as a
vendor, purchaser or otherwise, nor shall any such contract or arrangement
entered into by or on behalf of the Company in which any director shall in any
way interested be voided, nor shall any director so contracting or being so  interested be liable to account to the
Company for any profit realized by any such contract or arrangement, by reason
of such director holding that office or of the fiduciary relationship thereby
established.

 

(5)     The nature of a
director’s interest must be declared by him at the meeting of the directors at
which the question of entering into the contract or arrangement is first taken
into consideration, and if the director was not at the date of the meeting
interested in the proposed contract or arrangement, or shall become interested
in a contract or arrangement after it is made, he shall forthwith after
becoming so interested, advise the Company in writing of the fact and nature of
his interest.

 

(6)   A general notice to the
directors by a director that he is a member of a special firm or company, and
is to be regarded as interested in any contract or transaction which may, after
the date of notice, be made with such firm or company shall (if such director
shall give the same at a meeting of the directors, or shall take reasonable
steps to secure that the same is brought up and read at the next meeting of the
directors after it is given) be a sufficient declaration of interest in
relation to such contract or transaction with such firm or company.

 

(7)   A director may be counted as
one of a quorum upon a motion in respect of any contract or arrangement which
he shall make with the Company, or in which he is so interested as aforesaid, and may vote upon such motion.

 

18

 

 

POWERS OF DIRECTORS

 

71.           The business and affairs of
the Company shall be managed by the directors who may pay all expenses incurred
preliminary to and in connection with the formation and registration of the
Company, and may exercise all such powers of the Company as are not by the Act
or by these Articles required to be exercised by the members subject to any
delegation of such powers as may be authorised by these Articles and to such
requirements as may be prescribed by resolution of the members, but no
requirement made by resolution of the members shall prevail if it be
inconsistent with these Articles nor shall such requirement invalidate any
prior act of the directors which would have been valid if such requirement had
not been made.

 

72.           The Board may entrust to and
confer upon any director or officer any of the powers exercisable by it upon
such terms and conditions and with such restrictions as it thinks fit, and
either collaterally with, or to the exclusion of, its powers, and may from time
to time revoke, withdraw, alter or vary all or any of such powers.

 

73.           The directors may delegate
any of their powers to committees consisting of such member or members of their
body as they think fit. Any committee so formed shall in the exercise of powers
so delegated conform to any regulations that may be imposed on it by the
directors.

 

74.           Subject to the provisions of
the Act, the directors may from time to time by power of attorney appoint any
company, firm or person or body of persons, whether nominated directly or
indirectly by the directors, to be the attorney or attorneys of the Company for
such purposes and with such powers authorities and discretions (not exceeding
those vested in or exercisable by the directors under these Articles) and for
such period and subject to such conditions as they think fit, and any such
powers of attorney may contain such provisions for the protection and
convenience of persons dealing with any such attorney to delegate all or any of
the powers authorities and discretions vested in him.

 

75.           Any director who is a body
corporate may appoint any person its duly authorised representative for the
purpose of representing it at Board meetings and of transacting any of the
business of the directors.

 

76.           All cheques, promissory notes,
drafts, bills of exchange and other negotiable instruments and all receipts for
monies paid to the Company, shall be signed, drawn, accepted, endorsed or
otherwise executed as the case may be, in such manner as the directors shall by
resolution determine.

 

77.           The directors may exercise
all of the powers of the Company to borrow money and to mortgage or charge its
undertakings, property and uncalled capital or any part thereof, to issue
debentures, debenture stock and other securities whenever money is borrowed or
as security for any debt, liability or obligation of the Company or of any
third party.

 

78.           If the number of directors
shall have been fixed at two or more persons and by reason of vacancies having
occurred in the Board there shall be only one

 

19

 

continuing director, he shall be authorised to act alone only for the
purpose of appointing another director.

 

PROCEEDINGS OF DIRECTORS

 

79.  (1)   The
meetings of the Board of Directors and any committee thereof shall be held at
such place or places as the directors shall determine.

 

(2)   Any one or more directors may convene a meeting of
directors.

 

80.           A director may at any time
summon a meeting of the directors.

 

81.           A director shall be given no
less than seven days’ notice of a meeting of directors.

 

82.           If the Company shall have only
one director, the provisions hereinafter contained for meetings of the
directors shall not apply but such sole director shall have full power to
represent and act for the Company in all matters and in lieu of minutes of a
meeting shall record in writing and sign a note or memorandum of all matters
requiring a resolution of the directors. Such note or memorandum shall
constitute sufficient evidence of such resolution for all purposes.

 

83.           The directors may elect a
chairman of their meeting and determine the period for which he is to hold
office; but if no such chairman is elected, or if at any meeting the chairman
is not present at the time appointed for holding the same, the directors
present may choose one of their number to be chairman for the meeting.

 

84.           The directors may meet
together for the dispatch of business, adjourn and otherwise regulate their
meetings as they think fit.

 

85.           Questions arising at any
meeting shall be decided by a majority of votes. In case of an equality in
votes the Chairman shall have a second or casting vote.

 

86.           A meeting of the directors
held in contravention of the notice requirement shall be valid if a majority of
the directors entitled to vote at the meeting have waived notice of the
meeting.

 

87.           The inadvertent failure to
give notice of a meeting to a director, or the fact that a director has not
received the notice, shall not invalidate the meeting.

 

88.           A meeting of the directors
is duly constituted for all purposes if at the commencement of the meeting
there are present in person or by alternate, a majority of the total number of
directors. If the total number of directors is two, a meeting shall be duly
constituted for all purposes with both directors. If the total number of
directors is three, a meeting of directors shall be duly constituted for all
purposes if, at the commencement of that meeting, there are present in person,
or by alternate, no less than two directors.

 

89.           If within half an hour from
the time appointed for the meeting a quorum is not present, the meeting shall
be dissolved.

 

20

 

90.           Any one or more members of the Board of Directors or
any committee thereof may participate in a meeting of such Board or committee
by means of a conference telephone or similar communications equipment allowing
all persons participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at a meeting.

 

91.           A resolution approved by a
majority of the directors for the time being entitled to receive notice of a
meeting of the directors or of a committee of the directors and taking the form
of one or more documents in writing or by telex, telegram, cable or other
written or electronic communication shall be as valid and effectual as if it
had been passed at a meeting of the directors or of such committee duly
convened and held, without the need for notice.

 

OFFICERS AND AGENTS

 

92.           The directors of the Company
may, by resolution, appoint officers of the Company at such times as shall be
considered necessary or expedient, and such officers may consist of a
President, one or more Vice Presidents, a Secretary, and a Treasurer and such
other officers as may from time to time be deemed desirable.

 

93.           The officers shall perform
such duties as shall be prescribed at the time of their appointment subject to
any modifications in such duties as may be prescribed by the directors. In the absence
of any specific allocation of duties it shall be the responsibility of the
President to manage the day to day affairs of the Company, the Vice Presidents
to act in order of seniority in the absence of the President, but otherwise to
perform such duties as may be delegated to them by the President; the Secretary
to maintain the registers, minute books and records (other than financial records)
of the Company and to ensure compliance with all procedural requirements
imposed on the Company by law; and the Treasurer to be responsible for the
financial affairs of the Company.

 

94.           A person may hold more than
one office and no officer need be a director or member of the Company. The
officers shall remain in the office until removed from office by the directors
whether or not a successor is appointed.

 

95.           An officer who is a body
corporate may appoint any person its duly authorised representative for the
purpose of representing it and of transacting any of the business of the
Company.

 

INDEMNITY

 

96.           Subject to the provisions of
the Act and of any other statute for the time being in force every director or
other officer of the Company shall be entitled to be indemnified out of the
assets of the Company against all losses or liabilities which he may sustain or
incur in or about the execution of the duties of his office or otherwise in
relation thereto, and no director or other officer shall be liable for any loss,
damage, or misfortune which may happen to, or be incurred by the Company in the
execution of the duties of his office, or in relation thereto.

 

21

 

SEAL

 

97.  (1)   The
Company shall have a Common Seal, an imprint of which shall be kept at the office
of the registered agent of the Company.

 

(2)   The directors
shall provide for the safe custody of the common seal of the Company.

 

(3)   The common seal
when affixed to any instrument except as provided herein, shall be witnessed by a director or any
other person so authorised from time to time by the directors to witness the
application of the seal.

 

98.           The directors may provide
for a facsimile of the common seal and approve the signature of any director or
authorised person which may be reproduced by printing or other means on any
instrument and it shall have the same force and validity as if the seal had
been affixed to such instrument and the same had been signed as hereinbefore described.

 

DIVIDENDS AND RESERVES

 

99.           The directors may,
by resolution, declare a dividend.

 

100.         No dividend shall be declared
and paid except out of surplus and unless the directors determine that
immediately after the payment of the dividend

 

(a)     the Company wilt be able to
satisfy its liabilities as they become due in the ordinary course of its
business; and

 

(b)     the realisable value of the
assets of the Company will not be less than the sum of its total liabilities,
other than deferred taxes, as shown in the books of account, and its capital.

 

101.         The Directors may pay dividends
in money, shares, or other property of the Company.

 

102.         In computing the surplus for
the purpose of resolving to declare and pay a dividend, the directors may
include in their computation the net unrealised appreciation of the assets of
the Company.

 

103.         The directors
may from time to time pay to the members such interim dividends as appear to
the directors to be justified by the surplus of the Company.

 

104.         Subject to the rights of the
holders of shares entitled to special rights as to dividends, all dividends
shall be declared and paid according to the par value of the shares in issue,
excluding those shares which are held by the Company as treasury shares at the
date of declaration of the dividend.

 

22

 

105.         The directors may, before
recommending any dividend, set aside out of the profits of the Company such
sums as they think proper as a reserve or reserves which shall, at their
discretion, either be employed in the business of the Company or be invested in
such investments as the directors may think fit.

 

106.         If several persons are
registered as joint holders of any share, any of them may give effectual
receipt for any dividend or other monies payable on or in respect of the share.

 

107.         Notice of any dividend that
may have been declared shall be given to each member and all dividends
unclaimed for three years after having been declared may be forfeited by the
directors for the benefit of the Company.

 

108.         No dividend shall bear
interest against the Company.

 

BOOKS AND RECORDS

 

109.         The Company shall keep such
accounts and records as the directors consider necessary or desirable in order
to reflect the financial position of the Company.

 

110.         The Company shall keep
minutes of all meetings of directors, members, committees of directors,
committees of officers and committees of members, and copies of all resolutions
consented to by the directors, members, committees of directors, committees of
officers and committees of members.

 

111.         The books, records, and
minutes shall be kept at the Registered Office of the Company or at such other
place as the directors may determine, and shall be open to the inspection of
the directors at all times.

 

112. (1)   The directors
shall from time to time determine whether and to what extent and at what times
and places and under what conditions or regulations the books, records and
minutes of the Company or any of them shall be open to the inspection of members
not being directors, and no member (not being a director) shall have any right
of inspecting any book, record, minute or document of the Company except as
conferred by law or authorised by resolution of the directors.

 

(2)   The Company shall keep the
following documents at the office of its registered agent:

 

(a)     the Memorandum of
Association and the Articles of Association;

 

(b)     the register of members, or
a copy of the register of members;

 

(c)     the register of directors,
or a copy of the register of directors; and

 

(d)     copies of all notices and
other documents filed by the Company with the Registrar of Corporate Affairs in
the previous 10 (ten) years.

 

23

 

(3)   If the Company
shall maintain only a copy of the register of members or a copy of the register
of directors at the office of its registered agent, it shall within such period
as may be prescribed by law, in either register, notify the registered agent in
writing of the change.

 

(4)   The Company
shall keep the following records at the office of its registered agent or at
such other place or places:

 

(a)      minutes of meetings and
resolutions of shareholders and classes of shareholders;

 

(b)      minutes of meetings and
Resolutions of Directors and committees of directors; and

 

(c)      an impression of the Seal.

 

(5)   Where the
original records referred to in these Regulations are maintained other than at
the office of the registered agent of the Company, and the place at which the
original records is changed, the Company shall within such time as may be
prescribed by law provide the registered agent with the physical address of the
new location of the records.

 

(6)   The records
kept by the Company under this Regulation shall be in written form or either
wholly or partly as electronic records complying with the requirements of the
Electronic Transactions Act (No. 5 of 2001)

 

REGISTER OF CHARGES

 

113.         The Company shall keep at
the office of its registered agent a register of charges in which there shall
be entered the following particulars regarding each charge created by the
Company:

 

(a)      the date of creation of the
charge;

 

(b)      a short description of the
liability secured by the charge;

 

(b)      a short description of the
property charged;

 

(c)      the name and address of the
trustee for the security or, if there is no such trustee, the name and address
of the chargee;

 

(d)      unless the charge is a
security to bearer, the name and address of the holder of the charge; and

 

(e)      details of any prohibition
or restriction contained in the instrument creating the charge on the power of
the Company to create any future charge ranking in priority to or equally with
the charge.

 

24

 

AUDIT

 

114.         The directors may, by
resolution call for the accounts of the Company to be examined by an auditor or
auditors to be appointed by them at such remuneration as may from time to time
be agreed.

 

115.         The auditor may be a member
of the Company but no director or officer shall be eligible to be an auditor of
the Company during his continuance in office.

 

116.         Every auditor of the Company
shall have a right of access at all times to the books of accounts and vouchers
of the Company, and shall be entitled to require from the officers of the
Company such information and explanations as he may think necessary for the
performance of his duties.

 

117.         The report of the auditor
shall be annexed to the accounts upon which he reports, and the auditor shall
be entitled to receive notice of, and to attend, any meeting at which the
Company’s audited Profit and Loss Account and Balance Sheet are to be presented.

 

NOTICES

 

118.         Any notice, information, or
written statement required to be given to members shall be served by air-mail
service addressed to each member at the address shown in the register of
members.

 

119.         All notices directed to be
given to the members shall, with respect to any registered shares to which
persons are jointly entitled, be given to whichever of such persons is named
first in the register of members, and notice so given shall be sufficient
notice to all the holders of such shares.

 

120.         Any notice served by post
shall be deemed to have been served within ten days of posting, and in proving
such service it shall be sufficient to prove that the letter containing the
notice was properly addressed and put into the Post Office.

 

PENSION AND SUPERANNUATION FUND

 

121.         The directors may establish,
maintain, or procure the establishment and maintenance of any non-contributory
or contributory pension or superannuation fund for the benefit of, and give or
procure the giving of donations, gratuities, pensions, allowances or emoluments
to any directors, officers or any other persons who are or were at any time in
the employment or service of the Company or any company which is a subsidiary
of the Company or is allied to or associated with the Company or with any of its
subsidiaries, and to the wives, widows, families and dependents of any such
persons. The Company may any of the matters aforesaid either alone or in
conjunction with any such other company as aforesaid. All persons described
above shall be entitled to participate in and retain for his own benefit any
such donation, gratuity, pension, allowance, or emolument.

 

25

 

WINDING UP

 

122.   (1)   The Company may
voluntarily commence to wind up and dissolve by resolution of members.

 

(2)   If the Company
has never issued shares, it may voluntarily commence to wind up and dissolve by
a Resolution of Directors.

 

(4)   If the Company
shall be wound up, the Liquidator may, in accordance with a resolution of
members, divide amongst the members in specie or in kind the whole or any part
of the assets of the Company and may for such purpose set such value as he
deems fair upon any such property to be divided as aforesaid and may determine
how such division shall be carried out as between the members or different
classes of members.

 

123.    The Liquidator may vest the whole or any part of
such assets in trustees upon such trust for the benefit of the contributors as
the Liquidator shall think fit, but so that no member shall be compelled to
accept any shares or other securities whereon there is any liability.

 

ARBITRATION

 

124.    Whenever any difference
arises between the Company on the one hand and any of the members, their
personal representatives or assigns on the other hand touching the true intent
and construction or the incidence or consequences of these presents or of the
Act. The parties agree to refer the same to a single arbitrator, or failing that,
be referred to two arbitrators, one to be chosen by each of the parties and the
arbitrators shall before
entering on the reference appoint an umpire.

 

125.    If either party to the
reference makes default in appointing an arbitrator either originally or by way
of substitution (in the event that an appointed arbitrator shall die, be
incapable of acting, or refuse to act) for ten days after the other party has given
him notice to appoint the same, such other party may appoint an arbitrator to
set  in the place of the
arbitrator of the defaulting party.

 

MERGER, CONSOLIDATION AND ARRANGEMENTS

 

126.    The Company may by
resolution of members or by a resolution of Directors if no shares have been issued,
merge, consolidate or arrange with other companies in the manner prescribed in
the Act.

 

CONTINUATION

 

127.    The Company may by a
resolution of members or by a resolution of Directors if no shares have been
issued, continue as a company incorporated under the laws of a jurisdiction outside
the Virgin Islands.

 

26

 

We, ILS FIDUCIARY (BVI) LIMITED,
Mill Mall, Suite 6, Wickhams Cay 1, P.O. Box 3085, Road Town,
Tortola, British Virgin Islands for the purpose of incorporating a BVI Business
Company under the laws of the British Virgin Islands hereby sign these Articles
of Association the 28 March, 2008.

 

 

Incorporator

 

 

	
  /s/ Bernadette Rawlins

  	
   

  
	
  Bernadette Rawlins

  	
   

  
	
  Authorised Signatory

  	
   

  
	
  ILS
  FIDUCIARY (B.V.I.) LIMITED

  	
   

  
	
  Mill
  Mail, Suite 6

  	
   

  
	
  Wickhams
  Cay 1

  	
   

  
	
  P.O.
  Box 3085

  	
   

  
	
  Road
  Town, Tortola

  	
   

  
	
  British
  Virgin Islands

  	
   

  

 

27

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