China Energy Corp (OTC BB:CHGY)

CHGY changes ownership structure to variable interest entity (VIE) from  foreign invested enterprise (FIE).

China Energy Corporation has entered into a series of contractual arrangements pursuant to which the control and the economic benefits and costs of ownership of the two operating companies known as Inner Mongolia Tehong Coal And Power Group Co., Ltd. (“Coal Group”), and Inner Mongolia Heat Power Co., Ltd. (“Heat Power,” and together with the Coal Group, the “Operating Companies”) in the Peoples Republic of China (“PRC”) would flow directly to Beijing Tehong Energy Technology Consulting Co., Ltd. (the “WFOE”), an indirect, wholly owned subsidiary of the Company.

The Company first entered into a Termination And Restructuring Agreement with the Operating Companies, the WFOE, Pacific Projects Inc. (“PPI”) and the respective stockholders of the Operating Companies (collectively, the “PRC Shareholders”) dated November 30, 2010 pursuant to which the parties agreed (i) to terminate the Trust Agreement dated as of December 31, 2007 under which the PRC Shareholders agreed to hold their equity interests in the Operating Companies in trust for PPI, (ii) to the merger of PPI into the Company and (iii) to enter into Management and Control Agreements.

On November 30, 2010, the WFOE entered into (i) an Exclusive Business Cooperation Agreement with Coal Group, (ii) an Equity Interest Pledge Agreement and an Exclusive Option Agreement with Coal Group and the stockholders of Coal Group and (iii) a Power of Attorney, with each of the stockholders of the Coal Group.  The WFOE also entered into (i) an Exclusive Business Cooperation Agreement with Heat Power, (ii) an Equity Interest Pledge Agreement and an Exclusive Option Agreement with Heat Power and the stockholders of Heat Power and (iii) a Power of Attorney with each of the stockholders of Heat Power.  The foregoing agreements are herein collectively referred to as the “Management and Control Agreements.”

The Management and Control Agreements described below allow the WFOE to exercise control over, and derive all economic benefits from Coal Group and Heat Power.  Previously, our operating businesses were controlled pursuant to a trust arrangement which has been terminated as part of the restructuring described herein.

See page 6 of 2009 10K for history of this issue.