| The Management Board of Peixin International Group N.V. informs that on 16th May 2014, its direct subsidiary Peixin International Group Ltd., a limited liability company incorporated under the laws of British Virgin Islands (“Peixin BVI") and Preparation Construction Committee of Yongchun County Light Industry Base, which is a state-owned company acting on behalf of the Chinese government (“the Committee"), concluded the Agreement on a land use right (“the Agreement"), which is another significant step in a multi-stage process of the land use right (“the Land") acquisition. At this point, the Agreement provides details regarding the Land itself as well as the scope and timing of investment to be carried out by Peixin BVI, required by the Committee. Due to the location of the Land, the Committee is allowed to impose additional investment requirements on the buyer, aiming at proper use of the Land. The Land is located in Yongchun County, around 60 km from the Group’s current premises. Due to the fact that the Land is located in a different city than the current operational subsidiary of the Group, based on the Chinese law, Peixin BVI was obliged to establish a new entity Quanzhou Baixin Machinery Manufacturing Industrial Co., Ltd. (“Baixin") which will acquire the Land on the terms specified therein. As a result both – Peixin BVI and Baixin to the extent described in this report - will be involved in the process of the Land acquisition. The total area of the Land to be purchased amounts to 71,262 sqm, actual land use area (after deduction of public usage area) amounts to 60,000 sqm and the total construction area amounts to 45,000 sqm. Total price of the Land specified in the Agreement amounts to RMB 80.25m (excluding tax) and the payment is divided into four instalments, three of which were already paid between December 2013 and March 2014. The remaining payment in the amount of RMB 10.25m (EUR 1.2m) shall be paid by 30 June 2014. In case of a delay of the installments payment, a contractual penalty is to be paid to the Committee by Peixin BVI in the amount of 0.1% of the outstanding price per day. Moreover in case of delay in payment of more than 60 days, the Committee is entitled to terminate the Agreement, excluding Peixin BVI from the Land acquisition process. In such a case Peixin BVI will be entitled to reclaim the prepayments made. As mentioned, the Committee imposes certain investments requirements on Peixin BVI, listed in the Agreement, aiming at proper use of the Land. In terms of investment time frame, the Agreement requires Baixin to complete the construction of a new production facility within 3 years from the date of conclusion of the Agreement, however the construction works shall commence no later than 6 months from the conclusion of the Agreement. If the construction works are not started within 6 months from the date of the conclusion of the Agreement or in case the construction is not completed within 3 years from the conclusion date Peixin BVI is required to pay contractual penalty of 0.1% of the Land total price per day. In case Peixin BVI is not able to pay the contractual penalties, it is obliged to return the Land to the Committee without compensation. In terms of investment scope, Peixin BVI is required to invest no less than RMB 250m (EUR 29.2m) in the construction by 30 June 2015. Additionally Peixin BVI shall make further investment on the Land in the amount of RMB 250m (EUR 29.2m) by 31 December 2017 and complete the whole construction by then. In case Peixin BVI does not fulfil above specified investment schedule it will be subject to the penalty in the amount of the outstanding amount of the investment. Customary in China, especially in case of long time perspective and due to changing business environment, some clauses of such kind of agreements could be subject to adjustments and further negotiations. In particular, the Group believes it can be the case in terms of the final amounts to be invested or the deadline for the full completion of the investment plan. In terms of operational requirements, under the Agreement, Baixin shall begin production in the new plant no later than by the end of 2016. Moreover ,the annual value of output from the constructed facilities shall be no less than RMB 100m (EUR 11.7m) and the annual tax paid by Baixin (including VAT, business tax and corporate income tax) shall be no less than RMB 5m. Apart from requirements imposed, there are certain conditional benefits granted in the Agreement. In case the annual tax paid exceeds RMB 5m and production starts within 3 years after the conclusion of the Agreement, Baixin will be granted government award in the next three years in the amount of 15%, 12.5% and 10% of VAT in each year respectively. In case Peixin BVI decides to terminate the project due to Peixin BVI’s own reasons and consequently returns the Land to the government, the Committee shall cooperate with Peixin BVI in the procedure of reclaiming the part of the Land price, with no additional compensation, and the Committee has the right to ask Peixin BVI to level the Land. No compensation for the constructed facilities will be made to Peixin BVI unless the Committee intends to use the facilities located on the Land. Further formal steps to finalize the Land acquisition include i.a. participating in the bid, auction or listing, signing the formal land use right purchase agreement with the government as well as applying for and being granted the land use right certificate, to be the rightful owner. If the Group fails to complete the process, it may be able to reclaim the price for the land it has paid together with the levelling costs, however it may lose any additional investment the Group will be required to carry out on the Land under the Agreement. The above described stipulations are typical in China, specifically for such types of agreements concluded between private entities and entities acting on behalf of the Chinese government. All the amounts specified in the Agreement are in Renminbi (RMB), however for the purpose of presentation, the corresponding amounts in EUR (in brackets) have been presented, calculated using the exchange rate as of the date of publication of this report. | |
