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SINO-FOREST: Will Operate Anhui Plantation with Mandra Resources
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Sino-Forest Corporation agreed to enter into a series ofagreements with Mandra Resources Limited and certain of itssubsidiaries that are start-up companies formed to acquire, grow,harvest and replant standing timber on commercial forestryplantations located in Anhui province in the People's Republic ofChina.Sino-Forest has been provided with a fairness opinion by aninvestment banking firm of international standing to the effectthat the commercial relationship between Sino-Forest and Mandra isfair from a financial point of view to Sino-Forest and itsrelevant subsidiaries. Mandra has received a report from JPManagement Consulting (Asia Pacific) Pte Ltd. relating to theMandra Project, which includes a review of the suitability ofareas around various cities in Anhui province for the developmentof commercial forestry plantations.The implementation of the proposed agreements is subject to MandraForestry Finance Limited raising third party financing sufficientto implement the Mandra Project, which Mandra Finance is currentlyseeking, and, in connection with the completion of the Financing,the parties will enter into agreements pursuant to which: -- Sino-Forest will advance a US$15 million subordinated loan to Mandra Forestry Holdings Limited, the parent corporation of Mandra Finance, at the completion of the Financing; -- Sino-Forest will acquire, for nominal consideration, a 15% equity investment in Mandra Holdings; -- Sino-Forest will be entitled and obligated to purchase substantially all of the commercially saleable cut logs harvested from the Plantations pursuant to a seven year committed sales agreement at a 3% discount to the then- prevailing market price, which agreement may be extended annually for up to another five years at Mandra's option; -- Sino-Forest will be engaged for a seven year period under an operating management agreement to provide certain management, operating and support services to help operate and manage the Plantations, in return for a quarterly service fee equal to the greater of US$250,000 and 10% of the estimated reimbursable expenses for the quarter, which agreement may be extended annually for up to another five years at Mandra's option; -- Subject to certain conditions, Sino-Forest will have an option to acquire all the other outstanding shares of Mandra Holdings at their then fair market value (subject to certain conditions), which option is exercisable from the third anniversary of the date of the Shareholders Agreement (or earlier in certain circumstance) to the fifth anniversary of the date of the Shareholders Agreement; -- Sino-Forest will be granted a right of first offer to purchase the equity securities of Mandra Holdings from the other shareholders thereof in respect of any proposed sales by such shareholders between the fifth and seventh anniversaries of the date of the Shareholders Agreement, and Mandra Resources Limited (the controlling shareholder of Mandra Holdings) will be granted a drag-along right to compel each of the other shareholders of Mandra Holdings to sell their shares in a sale by Mandra Resources any time after the fifth anniversary of the Shareholders Agreement; and -- Sino-Forest will gain access to potential plantation production in a province of the PRC where Sino-Forest does not currently carry on activities but which Sino-Forest considers to be an important strategic location given its proximity to the Yangzi River Delta.Sino-Forest believes that during the initial term of theagreements with Mandra, the combination of discounts to marketprices paid for cut logs, together with fees earned by Sino-Forestunder the operating agreement, will enable Sino-Forest to recoverthe amount of the investment made by it, assuming that the MandraProject proceeds according to current expectations. Sino-ForestChairman and CEO Allen Chan said "This strategic transaction isexpected to further strengthen Sino-Forest's leadership positionas a commercial plantation operator in China, by significantlyincreasing our access to logs with relatively little capitalinvestment. It will also further diversify our sources of revenuegeographically and give us the opportunity to significantlyincrease our investment in this new venture in the future."Under Mandra Finance's operating plan, Mandra Finance intends toacquire up to 270,000 hectares of mature, half-mature and youngChinese fir and pine trees, to grow and harvest them and to sellthem to Sino-Forest. This potential access to significant amountsof cut logs is therefore to be available to Sino-Forest withoutthe capital expenditure, which would be required if Sino-Forestwas initiating this project on its own. Mandra may also acquirean additional 50,000 hectares of standing timber.Mandra Finance's current acquisition plan contemplates acquiringstanding timber on approximately 133,300 hectares of commercialforests in each of the first two years of its operation, or soonerif possible. While Mandra Finance has undertakings with certainlocal forestry bureaus to assist in acquiring up to an aggregateof approximately 350,000 hectares of commercial forests from theholders of land use rights in their respective jurisdictions,Mandra Finance must still negotiate the final price and othercommercial terms in the definitive agreements with the holders ofland use rights.Sino-Forest will agree not to operate forestry plantations orprovide forestry plantation services to any other person in Anhuiprovince that could reasonably be expected to have a materialadverse effect on the performance of its obligations under thearrangements with Mandra Finance, and Mandra Finance and MandraHoldings will agree not to operate forestry plantations or provideforestry plantation services to anyone in the PRC outside of Anhuiprovince, in each case during the term of the agreements and for aperiod of three years thereafter.The rights and obligations of Sino-Forest under all of theforegoing agreements, whether executed prior to orcontemporaneously with, the completion of the Financing, will beconditional upon the completion of the Financing.
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Sino-Forest Corporation Finalizes Agreements Regarding Plantation Transaction With Mandra Resources Limited08:00 EDT Thursday, May 05, 2005
TORONTO, ONTARIO--(CCNMatthews - May 5, 2005) - NOT FOR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES OR TO U.S. WIRE SERVICES
Sino-Forest Corporation (together with its subsidiaries, "Sino-Forest") (TSX:TRE) today announced that the parties have agreed upon the form of the definitive agreements with Mandra Resources Limited and certain of its subsidiaries (collectively, "Mandra") in connection with the plantation transaction previously announced by Sino-Forest on April 7, 2005. Sino-Forest has been advised by Commerzbank AG that, at the closing of the financing by Mandra Forestry Finance Limited ("Mandra Finance"), it will deliver to Sino-Forest a fairness opinion to the effect that the commercial relationship between Sino-Forest Corporation and Mandra is fair from a financial point of view to Sino-Forest Corporation and its relevant subsidiaries.
Chairman and CEO Allen Chan said, "This transaction will allow Sino-Forest to significantly augment its access to standing timber and logs in the strategically important Anhui Province of China with relatively little capital investment. It will expand our plantation area under management, diversify our revenues geographically, and give us the opportunity to substantially increase our investment in Mandra in the future."
The implementation of the definitive agreements is conditional upon the completion by Mandra Finance of an international private placement consisting of US$195 million of debt securities, together with warrants ("Warrants") to subscribe for up to 20% (on a fully diluted basis) of the ordinary equity shares of Mandra Forestry Holdings Limited ("Mandra Holdings"), the parent corporation of Mandra Finance, for nominal consideration. The closing of such financing is expected to take place on or about May 11, 2005.
Sino-Forest's previously announced 15% ownership in the ordinary equity shares of Mandra Holdings will be protected from dilution by the exercise of the Warrants, in that Sino-Forest will have the right to subscribe for additional Shares for nominal consideration to maintain its 15% equity ownership after giving effect to the exercise of the Warrants. Sino-Forest's ability to purchase all of the outstanding Shares of Mandra Holdings under the previously announced option in favour of Sino-Forest will be unaffected by the grant of the Warrants, as the exercise of the Sino-Forest purchase option will result in a compulsory exercise of the Warrants and the resulting Shares will be subject to Sino-Forest's purchase option.
Mandra Holdings will covenant to use its commercially reasonable best efforts to cause a public offering or listing of not less than 20% of its ordinary shares after the fifth anniversary of the date of the closing.
Following the fifth anniversary of the date of the shareholders agreement to be entered into by the principal shareholders of Mandra at the closing, Sino-Forest will have a final purchase option to purchase all of the outstanding equity securities of Mandra Holdings from each of the shareholders of Mandra Holdings following notice from Mandra Holdings that it intends to effect a qualified public offering or listing; provided that if Sino-Forest declines to exercise the option and Mandra Holdings subsequently fails to effect a qualified public offering or listing within the following nine months, Sino-Forest will be granted the same purchase option prior to any future qualified public offering or listing proposed to be effected prior to the seventh anniversary of the date of the shareholders agreement. In that case, Sino-Forest's right of first refusal will drop away.
The previously announced right of first refusal in favour of Sino-Forest does not extend to the Shares resulting from the exercise of the Warrants. Nevertheless, the Shares resulting from the exercise of the Warrants will be subject to a drag along obligation when the controlling shareholder of Mandra Holdings sells its Shares (and such sale will be subject to Sino-Forest's right of first refusal).
The previously-announced operating management agreement and master sales agreement with Mandra will have initial terms of five years, subject to rights of renewal as previously announced.
The then-current versions of the various draft agreements to be entered into by Sino-Forest were described in detail in the material change report which Sino-Forest filed on April 11, 2005 on www.sedar.com. Sino-Forest intends to file a subsequent material change report reflecting a description of the various contractual arrangements consistent with the manner in which they are described in the final version of Mandra Finance's confidential offering memorandum.
Sino-Forest Corporation is the largest, foreign-owned, commercial forestry plantation operator in China in terms of plantation area. Sino-Forest trades, cultivates and harvests trees for sale as standing timber, logs and wood fiber for the manufacturing of wood chips for pulp & paper processing, and of engineered wood products for the furniture, construction and decoration industries. Sino-Forest is a Canadian corporation with executive offices in Hong Kong and plantations in southern China. Sino-Forest operates through two wholly-owned subsidiaries - Sino-Panel Holdings Limited and Sino-Wood Partners Limited. Sino-Forest's common shares have been listed on the Toronto Stock Exchange since 1995 and trade under the symbol TRE.
This press release does not constitute an offer to sell or the solicitation of an offer to buy securities in the United States or any other jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. Securities may not be offered or sold in the United States absent registration or any applicable exemption from registration. No public offer of securities is to be made in the United States.
Please note: This press release contains projections and forward-looking statements regarding future events. Information contained in this press release relating to the Mandra transaction and the Mandra entities is based upon information provided to Sino-Forest by Mandra Resources Limited and, although Sino-Forest has no reason to believe that any such information is incorrect, such information is included herein in reliance upon Mandra Resources Limited. Such forward-looking statements are not guarantees of future performance of Sino-Forest and are subject to risks and uncertainties that could cause actual results and company plans and objectives to differ materially from those expressed in the forward-looking statements. Such risks and uncertainties include, but are not limited to, changes in China and international economies; changes in currency exchange rates; changes in worldwide demand for Sino-Forest's products; changes in worldwide production and production capacity in the forest products industry; competitive pricing pressures for Sino-Forest's products and changes in wood and timber costs.
FOR FURTHER INFORMATION PLEASE CONTACT:Sino-Forest Corporation - in Hong Kong
Kee Wong
Executive Vice President and Chief Financial Officer
(852) 2877-0078
(852) 2877-0062 (FAX)
or
Allen Chan
Chairman and Chief Executive Officer
(852) 2877-0078
(852) 2877-0062 (FAX)
or
Sino-Forest Corporation - in Toronto
Jacques Charbin
Investor Relations
(416) 200-5513
jacquescharbin@sinoforest.com
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