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A Course in Translation of Legal Documents

2003 1

2B

............................ - 1 0.1 ............................................................. - 1 0.2 ............................................................. - 1 1................................................................- 1 2............................................- 2 3 ...- 2 4....................................................................- 2 5............................................- 3 0.3 ...................................................... - 3 1................................................................- 4 2....................................................- 4 0.4 ............................................................. - 5 0.5 ...................................................... - 6 -

.............................. - 7 1 Assignment / Transfer..................................................... - 7 ..................................................................................- 7 ..................................................................................- 9 ........................................................................- 13 2 Breach and Infringement............................................ - 15 ................................................................................- 15 ................................................................................- 17 ........................................................................- 20 3 Confidentiality.............................................................. - 22 ................................................................................- 22 ................................................................................- 23 ........................................................................- 25 -1-

4 Definition and Interpretation ...................................... - 27 ................................................................................- 27 ............................................................................- 28 ........................................................................- 30 5 Entire Agreement, Amendment and Language...... - 31 ................................................................................- 31 ................................................................................- 33 ........................................................................- 34 6 Force Majeure and Notice ......................................... - 35 ................................................................................- 35 ................................................................................- 36 ........................................................................- 38 7 Governing Law and Dispute Resolution .................... - 39 ................................................................................- 39 ................................................................................- 41 ........................................................................- 42 8 Insurance ...................................................................... - 43 ................................................................................- 43 ................................................................................- 45 ........................................................................- 46 9 Liability, Indemnification and Release....................... - 48 ................................................................................- 48 ................................................................................- 49 ........................................................................- 50 10 Representations, Warranties and Undertakings ..... - 52 ................................................................................- 52 ................................................................................- 53 ........................................................................- 55 11 Responsibilities and Obligations ............................... - 56 ................................................................................- 56 ................................................................................- 57 ........................................................................- 59 12 Severability and Waiver ............................................ - 60 ................................................................................- 60 ................................................................................- 61 ........................................................................- 63 -2-

13 Taxation ...................................................................... - 64 ................................................................................- 64 ................................................................................- 65 ........................................................................- 66 14 Term and Termination................................................ - 67 ................................................................................- 67 ................................................................................- 69 15 Title/Ownership .......................................................... - 71 ................................................................................- 71 ................................................................................- 72 ........................................................................- 73 -

unit 1 ...................................................... - 77 1.1.1 .......................................................................- 77 1.2.1 ......................................................................- 80 unit 2 ............................................... - 82 2.1.1 ......................................................................- 82 2.2.1 ......................................................................- 86 unit 3 .................................................................... - 89 3.1.1 ......................................................................- 89 3.2.1 ......................................................................- 91 unit 4 ......................................................... - 94 4.1.1 .......................................................................- 94 4.2.1 ......................................................................- 96 unit 5 ......................................................... - 98 5.1.1 .......................................................................- 98 5.2.1 .....................................................................- 102 unit 6 ........................................... - 105 6.1.1 .....................................................................- 105 6.2.1 ....................................................................- 109 unit 7 ......................................... - 112 7.1.1 ....................................................................- 112 -3-

7.2.1 ....................................................................- 114 unit 8 ........................................... - 117 8.1.1 ....................................................................- 117 8.2.1 ....................................................................- 120 unit 9 .................................................. - 123 9.1.1 ....................................................................- 123 9.2.1 .....................................................................- 125 unit 10 ............................................ - 128 10.1.1 ..................................................................- 128 10.2.1 ...................................................................- 131 unit 11 ..................................... - 134 11.1.1 ...................................................................- 134 11.2.1 ...................................................................- 137 -

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3B

0.1

solemn
rigid

mystical
assiduously stilted

0.2
formal

before prior after subsequent


but provided that
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construe, deem, operate, same, object to,


whereas, without, prejudice
affividat being first duly sworn, depose and
says; before me, a notary public Now therefore, It is ordered,
adjudged, and decreed

actionalienation
avoidconsideration
counterpartexecutehand

instrument
negligenceparty
prejudice
presents
saidsaveserve

3
Old English 1100
Middle English 1100 1500

here, there where

- hereafter, herein, hereof, hereto, heretofore, hereunder, herewith


- thereafter, thereat, thereby, therefore, therefrom, therein, thereof,
thereon, thereto, theretofore, thereunder, therewith;
- whereas, whereby, wherein, whereof
aforesaid, forthwith said such

affidavit
alias
alibi
quorum

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ad hocbona fide
de facto
in reinter aliamutatis
mutandispart passuper se
pro bonopro rata

alibiappeal
bailburden of proofcause of action
contributory negligencedamagesdefendant
due diligencefelonylessee

lessorletters Patent negotiable instrument

novationplaintiffprejudice
reasonable
doubtremedysecondmenttort

and for no other purposes, shall not


operate as a waiver, shall not be deemed a consent, including but not limited
to, or other similar or dissimilar causes, without prejudice to, nothing
contained herein shall

Words in the singular Include the


plural and vice versawords used in the masculine gender include every
gender

0.3

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If, after the signing of this Agreement, the Chinese government either
at the State, provincial, municipal or local level adopts any new law,
regulation, decree or rule, amends or repeals any provision of any law,
regulation, decree or rule, or adopts any different interpretation or method of
implementation of any law, regulationdecree or rule, which contravenes
this Agreement or which materially and adversely affects a Partys economic
benefit under this Agreement, then upon written notice thereof from the
affected party to the other Party, the Party shall promptly consult and decide
whetherito continue to implement the Agreement in accordance with the
original provisions thereof as per the relevant provisions of the Contract
Law of the Peoples Republic of China; oriito effectuate necessary
adjustments in order to preserve each Partys economic benefit under this
Agreement on a basis no less favorable than the economic benefit it would
have received if such law, regulation, decree or rule had not been adopted
amendedrepealed or so Interpreted or implemented.

Unless otherwise provided for herein, failure or delay on the part of


any party to exercise any right, power or privilege under this Agreement
shall not operate as a waiver thereof, not shall any single or partial exercise
of any rightpower or privilege preclude further exercise thereof or exercise

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of any other right, power or privilegeA waiver by one of the parties at any
time of a breach of any term or provision of this Agreement committed by
the other party shall not be construed as a waiver by such party of any
subsequent breach to be committed by the other party, nor shall it be
construed as a waiver by such party of its rights under such provision or any
of its other rights under this Agreement.

failure, delay, waiver, exercise, breach unless otherwise


provided for herein, shall not be construed as

0.4

action

at, in, on

Party A represents and warrants that there are no conditions at, on,
under, or related to, the real property constituting all or any portion of the
Land which presently or potentially pose a hazard to human health or the
environment, whether or not in compliance with law and there has been no
manufacture, use, treatment, storage, transportation, or disposal of any
hazardous or toxic substance, pollutant, or contaminant on the Land nor any
release of any hazardous or toxic substance, pollutant, or contaminant into
or upon or over the Land.

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0.5

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4B

1 Assignment / Transfer

1. Neither Party may assign this Agreement, in whole or in part, without the
other Party's prior written consent, except to (i) any corporation resulting
from any merger, consolidation or other reorganization involving the
assigning Party, and (ii) any entity to which the assigning Party may transfer
all or substantially all of its assets; provided that the assignee agrees in
writing to be bound by all the terms and conditions of this Agreement and
provides documentation as evidence that the assignee has the ability and
capability of meeting all of the obligations under this Agreement.
2. Without prior written approval, no Party shall assign any and all of its
rights and interests and delegate its responsibilities under this Agreement to
any third party. However, Party B shall have the right to assign its rights and
interests and delegate its responsibilities hereunder to an affiliate; provided
that Party B shall continue to warrant that such affiliate will complete the
purchase of the equity interest in the manner contemplated by this
Agreement.
3. Neither Party hereto shall assign this Agreement or any of its rights and
interests hereunder without the other Party's prior written consent, which
shall not be unreasonably withheld. Notwithstanding the above provision of
this Clause, (a) Party A shall have the right to assign its rights to any
subsidiary, affiliate or successor entity as long as Party A remains liable to
perform all of its obligations under this Agreement as applicable, and (b)
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Party B may, without the consent of Party A, assign in whole, but not in part,
its rights hereunder to any subsidiary, affiliate or successor entity of Party B
or its ultimate parent company (provided that any such assignment to any
such subsidiary shall not be deemed as a release of Party B's obligations
hereunder unless Party A shall have given prior written consent to any such
release and Party B shall remain liable to Party A in respect of any breach of
this Clause). Any attempted assignment in contravention of this Clause shall
be void.
4. Transfer of Registered Capital
a) Either Party may transfer all or part of its registered capital contribution
to the Company to any third party, provided that it first obtains the
unanimous approval of the Board and the approval of the Approval
Authority and complies with the provisions of this Article.
b) When a Party (the "Disposing Party") wishes to transfer all or part of its
registered capital contribution to a third party, it shall provide a written
notice (the "Notice") to the other Party (the "Non-Disposing Party"). The
Notice shall state that the Disposing Party wishes to make the transfer and
shall specify the interest it wishes to transfer, the terms and conditions of the
transfer, and the identity of the proposed transferee (the "Transferee").
c) The Non-Disposing Party shall have a preemptive right to purchase the
whole of such interest (i) on terms and conditions no less favorable than
those specified in the Notice or (ii) at a fair market value appraised as set
forth in paragraph (e). If the Non-Disposing Party elects to exercise its
preemptive right, it shall notify the Disposing Party in writing (the
"Acceptance Notice") within thirty (30) days of the actual delivery of the
Notice to the Non-Disposing Party that it intends to purchase the whole of
the interest to be transferred.
d) If the Non-Disposing Party fails to respond in writing to the Notice
within such thirty (30)-day period, the Non-Disposing Party shall be deemed
to have consented to the transfer. If the Non-Disposing Party consents, or is
deemed to have consented to the transfer, the Disposing Party may transfer
such interest to the Transferee, on the terms and conditions set forth in the
Notice, but not otherwise, provided that such transfer takes place within six
(6) months after the delivery of the Notice and that the Transferee agrees in
writing to become subject to and to comply with the terms and conditions of
this Contract and the Articles of Association. The Disposing Party shall
provide the Non-Disposing Party with a duplicate of its executed transfer
agreement with the Transferee within fourteen (14) days after the agreement
is executed.
e) If the Non-Disposing Party elects to purchase the interest to be transferred
at fair market value, the Non-Disposing Party shall state in the Acceptance
Notice that it so elects, and shall include in the Acceptance Notice a list of at
least two (2) internationally recognized accounting firms with experience in
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conducting valuations in China. The Disposing Party shall, within thirty (30)
days after receiving the Acceptance Notice, by notice in writing delivered to
the Non-Disposing Party, nominate one of the accounting firms whose
names were provided by the Non-Disposing Party to value the interest to be
transferred. The Non-Disposing Party shall arrange the valuation, which
shall be completed within three (3) months after the delivery of the
Acceptance Notice.

1. Neither Party may assign this Agreement, in whole or in part, without


the other Partys prior written consent, except to (i) any corporation
resulting from any merger, consolidation or other reorganization involving
the assigning Party, and (ii) any entity to which the assigning Party may
transfer all or substantially all of its assets; provided that the assignee agrees
in writing to be bound by all the terms and conditions of this Agreement and
provides documentation as evidence that the assignee has the ability and
capability of meeting all of the obligations under this Agreement.

1
2

ii

2. Without prior written approval, no Party shall assign any and all of its
rights and interests and delegate its responsibilities under this Agreement to
any third party. However, Party B shall have the right to assign its rights and
interests and delegate its responsibilities hereunder to an affiliate; provided
that Party B shall continue to warrant that such affiliate will complete the
purchase of the equity interest in the manner contemplated by this
Agreement.

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3. Neither Party hereto shall assign this Agreement or any of its rights and
interest hereunder without the other Partys prior written consent, which
shall not be unreasonably withheld. Notwithstanding the above provision of
this Clause, (a) Party A shall have the right to assign its rights to any
subsidiary, affiliate or successor entity as long as Party A remains liable to
perform all of its obligations under this Agreement as applicable, and (b
Party B may, without the consent of Party A, assign in whole , but not in
part, its rights hereunder to any subsidiary, affiliate or successor entity of
Party B or its ultimate parent company (provided that any such assignment
to any such subsidiary shall not be deemed as a release of Party Bs
obligations hereunder unless Party A shall have given prior written consent
to any such release and Party B shall remain liable to Party A in respect of
any breach of this Clause). Any attempted assignment in contravention of
this Clause shall be void.

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4. Transfer of Registered Capital

(a)
Either Party may transfer all or part of its registered capital
contribution to the Company to any third party, provided that it first obtains
the unanimous approval of the Board and the approval of the Approval
Authority and complies with the provisions of this Article.

(b) When a Party (the Disposing Party) wishes to transfer all or part of
its registered capital contribution to a third party, it shall provide a written
notice (the Notice) to the other Party (the Non-Disposing Party). The
Notice shall state that the Disposing Party wishes to make the transfer and
shall specify the interest it wishes to transfer, the terms and conditions of the
transfer, and the identity of the proposed transferee (the Transferee).

(c) The Non-Disposing Party shall have a preemptive right to purchase


the whole of such interest (i) on terms and conditions no less favorable than
those specified in the Notice or (ii) at a fair market value appraised as set
forth in paragraph (e). If the Non-Disposing Party elects to exercise it
preemptive right, it shall notify the Disposing Party in writing (the
Acceptance Notice) within thirty (30) days of the actual delivery of the
Notice to the Non-Disposing Party that it intends to purchase whole of the
interest to be transferred.

1
2e

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30

Iii
e
30

(d) If the Non-Disposing Party fails to respond in writing to the Notice


within such thirty (30)-day period, the Non-Disposing Party shall be deemed
to have consented to the transfer. If the Non-Disposing Party consents, or is
deemed to have consented to the transfer, the Disposing Party may transfer
such interest to the Transferee, on the terms and conditions set forth in the
Notice, but not otherwise, provided that such transfer takes place within six
(6) months after the delivery of the Notice and that the Transferee agrees in
writing to become subject to and to comply with the terms and conditions of
this Contract and the Articles of Association. The Disposing Party shall
provide the Non-Disposing Party with a duplicate of its executed transfer
agreement with the Transferee within fourteen (14) days after the agreement
is executed.

30

14

30

14
(e)
If the Non-Disposing Party elects to purchase the interest to be
transferred at fair market value, the Non-Disposing Party shall state in the
Acceptance Notice that is so elects, and shall include in the Acceptance
Notice a list of at lease two (2) internationally recognized accounting firms
with experience in conducting valuations in China. The Disposing Party
shall, within thirty (30) days after receiving the Acceptance Notice, by
notice in writing delivered to the Non-Disposing Party, nominate one of the
accounting firms whose names were provided by the Non-Disposing Party
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to value the interest to be transferred. The Non-Disposing Party shall


arrange the valuation, which shall be completed within three (3) months
after the delivery of the Acceptance Notice.

30

30

1. The rights and obligations of the JVC under this Agreement may not be
assigned or sub-contracted in whole or in part without the prior written
consent of Party A.

2.
Should one Party assign all or part of its registered capital, prior
written consent shall be obtained from the other Party. In addition, the other
Party shall have a preemptive right on the same terms and conditions to the
extent permitted by law.

Notwithstanding the foregoing, a Party hereby waives its preemptive right in


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the case of any assignment of all or part of the other Partys registered
capital to an affiliate of the other Party. Each of the Parties further agrees to
cause the directors(s) it has appointed to the Board of Directors to vote in
favor of any such proposed assignment. If, as a result of its corporate
restructuring, Party A transfers its equity interest in the CJV to one of its
newly-founded affiliates (Party A affiliate), Party A shall provide Party B
with a written assurance guaranteeing the performance of the obligations
under this Contract by Party A affiliate.

3.
If a Party (Intending Transferor) intends to sell or otherwise
transfer (collectively referred to in this Clause as Transfer) all or part of
its equity interest in the JV Company (collectively referred to in this Clause
as Transferred Equity Interest), it shall first send a written notice
(Transfer Notice) to the other two Parties, stating its intention to make the
transfer, the quantity of the Transferred Equity Interest, the conditions for
purchase thereof and the identity of the proposed transferee. The other two
Parties shall have the preemptive right to purchase the Transferred Equity
Interest. If the other two Parties exercise their preemptive right to purchase
all (but not part) of the Transferred Equity Interest, they shall, within ninety
(90) days of receipt of the Transfer Notice, purchase the Transferred Equity
Interest at a price equal to the selling price set out in the Transfer Notice. If
the other two Parties fail to exercise such preemptive right to purchase or
pay the selling price to the Intending Transferor within the ninety (90)-day
period, they shall be deemed to have given their prior written consent to the
proposed transfer. When the Intending Transferor transfers the Transferred
Equity Interest, the actual conditions for such transfer may not be more
favorable than the conditions for purchase set out in the Transfer Notice.
Where the Intending Transferor is either Party B or Party C, and Party A
cannot increase its Equity Ration in the registered capital of the JV
Company due to the restriction imposed by Chinese law, then Party A shall
have the right to assign its preemptive right of purchase to a third party
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approved by Party A.

90
90

90
90

2 Breach and Infringement

1. If Party A materially breaches this Contract, Party B or it; successor in


interest is entitled to terminate this Contract or claim damages for the breach
of contract. If Party B materially breaches this Contract, Party A is entitled
to request Party B, by issuing a written notice, to redress the breach within
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fifteen (15) days upon receiving such notice. If Party B fails to redress the
breach within the fifteen (15) day period, Party A is entitled to rescind the
Contract and claim damages for the breach of contract.
2. If a Party materially fails to perform any of its obligations under this
Contract or if a Party's representation or warranty under this Contract is
materially untrue or inaccurate, such Party shall be deemed to have breached
this Contract. The Party in breach shall have thirty (30) days from receipt of
a notice from the other Party specifying the breach to correct such breach if
it is remediable. The Party in breach shall in any case be liable to the other
Party for all damages caused by the breach. Liability for such damages shall
not be waived in the event the non-breaching Party terminates this Contract
under Article X. All remedies provided for herein and under law shall be
cumulative.
3. The Licensee shall promptly notify the Licensor, in writing, of any acts of
infringement or suspected infringement or acts of unfair competition
involving the Trademarks and of any applications or registrations of
confusingly similar marks which may come to its attention. The Licensee
shall not be entitled to take any proceedings or call on the Licensor to take
any proceedings in any of the aforesaid matters; provided, however, that the
Licensor may, at its own discretion and cost, prosecute or otherwise stop or
prevent such actual or threatened infringement in the name of both the
Licensor and the Licensee or either of them, and in each case the Licensee
shall render all reasonable assistance required by the Licensor.
4. Infringement and legal proceedings
a) The Licensee shall give the Licensor in writing full particulars of any use
or proposed use by any other person, firm or company of a trade name,
trademark or get-up of goods or means of promotion or advertising which
amounts to or is likely to amount to infringement of the rights of the
Licensor in relation to the Licensed Trademarks or contravention of the
Anti-unfair Competition Law as soon as it becomes aware of such use or
proposed use.
b) If the Licensee becomes aware that any other person, firm or company
alleges that any of the Licensed Trademarks is invalid or that use of the
Licensed Trademarks infringes any rights of another party, the Licensee
shall immediately give the Licensor in writing full particulars thereof and
may make no disclosure of information or admission to any third party in
respect thereof.
c) The Licensor shall conduct all legal proceedings in respect of any
infringement or alleged infringement of the Licensed Trademarks and any
claim or counterclaim brought or threatened to be brought in connection
with the use or registration of the Licensed Trademarks and shall in its
absolute discretion decide what to do. The Licensor shall not be obliged to
bring or defend any proceedings in relation to the Licensed Trademarks if
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the Licensee decides in its sole discretion to do so.


d) The Licensee will, at the request of the Licensor and at the Licensor's
expense, give full cooperation to the Licensor in any action or claim brought
or threatened to be brought in respect of the Licensed Trademarks, including
joining in as a party to any proceedings.

1If Party A materially breaches this Contract, Party B or its successor in


interest is entitled to terminate this Contract or claim damages for the breach
of contract. If Party B materially breaches this Contract, Party A is entitled
to request Party B, by issuing a written notice, to redress the breach within
fifteen (15) days upon receiving such notice. If Party B fails to redress the
breach within the fifteen (15)-day period, Party A is entitled to rescind the
Contract and claim damages for the breach of contract.

1515

15
15

2If a Party materially fails to perform any of its obligations under this
Contract or if a Partys representation or warranty under this Contract is
materially untrue or inaccurate, such Party shall be deemed to have breached
this Contract. The Party in breach shall have thirty (30) days from receipt of
a notice form the other party specifying the breach to correct such breach if
it is remediable. The Party in breach shall in any case be liable to the other
Party for all damages caused by the breach. Liability for such damages shall
not be waived in the event the non-breaching Party terminates this Contract
under Article X. All remedies provided for herein and under law shall be
cumulative.

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30

30

3The Licensee shall promptly notify the Licensor, in writing, of any acts of
infringement or suspected infringement or acts of unfair competition
involving the Trademarks and of any applications or registrations of
confusingly similar marks which may come to its attention. The Licensee
shall not be entitled to take any proceedings or call on the Licensor to take
any proceedings in any of the aforesaid matters; provided, however, that the
Licensor may, at its own discretion and cost, prosecute or otherwise stop or
prevent such actual or threatened infringement in the name of both the
Licensor and the Licensee or either of them, and in each case the Licensee
shall render all reasonable assistance required by the Licensor.

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4Infringement and Legal Proceedings


(a) The Licensee shall give the Licensor in writing full particulars of any
use or proposed use by any other person, firm or company of a trade name,
trademark or get-up of goods or means of promotion or advertising which
amounts to or is likely to amount to infringement of the rights of the
Licensor in relation to the Licensed Trademarks or contravention of the
Anti-unfair Competition Law as soon as it becomes aware of such use or
proposed use.

(b) If the Licensee becomes aware that any other person, firm or company
alleges that any of the Licensed Trademarks is invalid or that use of the
Licensed Trademarks infringes any rights of another party, the Licensee
shall immediately give the Licensor in writing full particulars thereof and
may make no disclosure of information or admission to any third party in
respect thereof.

(c) The Licensor shall conduct all legal proceedings in respect of any
infringement or alleged infringement of the Licensed Trademarks and any
claim or counterclaim brought or threatened to be brought in connection
with the use or registration of the Licensed Trademarks and shall in its
absolute discretion decide what to do. The Licensor shall not be obliged to
bring or defend any proceedings in relation to the Licensed Trademarks if
the Licensee decides in its sole discretion to do so.

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(d) The Licensee will, at the request of the Licensor and at the Licensors
expense, give full cooperation to the Licensor in any action or claim brought
or threatened to be brought in respect of the Licensed Trademarks, including
joining in as a party to any proceedings.

1. If any party fails to perform any of its obligations in any material respect
under this Agreement or breaches any of the terms or Warranties set out in
this Agreement in any material respect, then without prejudice to all and any
other rights and remedies available at any time to a non-defaulting party
(including but not limited to the right to damages for any loss suffered by
that party), the not-defaulting party may, by notice either require the
defaulting party to perform such obligations or remedy such breach, or treat
the defaulting party as having repudiated this Agreement and rescind the
same. The rights conferred upon the respective parties by the provisions of
this Clause are additional to and do not prejudice any other rights the
respective parties may have.

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2. In the event that Licensor or Licensee becomes aware of an actual or


threatened infringement of a Patent anywhere in the Territory, that party
shall promptly notify the other party in writing. Licensor shall have the right
but not the obligation to bring, at its own expense, an infringement action
against any third party and use Licensees name in connection therewith and
to name Licensee as a party thereto.

3. In the event of the institution of any suit by a third party against Licensor,
Licensee or its sub-licensees or distributors for patent infringement
involving the manufacture, use, sale, distribution or marketing of the
Product anywhere in the Territory, the party sued shall promptly notify the
other party in writing. Licensor shall have the right but not the obligation to
defend such suit at its own expense. Licensor and Licensee shall assist each
other and co-operate in any such litigation at the others request without
expense to the requesting party.

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3 Confidentiality

1. Each Party undertakes with the other Party that it shall treat as strictly
confidential all information received or obtained by it or its employees,
agents or advisers as a result of ente-ring into or performing this Agreement
including information relating to the provisions of this Agreement, the
negotiations leading up to this Agreement, the subject matter of this
Agreement or the business or affairs of the other Party or any member of the
other Party's group of companies and that it shall not at any time hereafter
make use of or disclose or divulge to any person any such information and
shall use its best endeavors to prevent the publication or disclosure of any
such information.
2. From and after the date of this Agreement, Party A shall, and shall cause
its affiliates and successors to, use the same efforts to maintain the
confidentiality of any Confidential Information as Party A used to maintain
the confidentiality of such information prior to the date hereof.
Notwithstanding the foregoing, Party A and its affiliates and successors shall,
after prior notice to, and consultation with Party B, be permitted to disclose
any such Confidential Information to the extent legally required or
necessary for obtaining appropriate regulatory licenses or approvals.
3. All Proprietary Information disclosed by either Party or its affiliates to the
CJV in accordance with the provisions of this Contract and the Technology
License Agreement and/ or the Trademark License Agreement to be entered
into between an affiliate of Party B and the CJV on or about the date hereof
substantially in the form attached hereto as Appendix X shall be used by the
CJV and its personnel solely for the CJV's account and purposes. Each Party
and any of its affiliates shall maintain the secrecy of all Proprietary
Information that may be disclosed or furnished to it by the CJV or the other
Party and its affiliates, and neither of the Parties or their affiliates shall
disclose or reveal any such Proprietary Information to any third party
without explicit written authorization from the other Party. Any Proprietary
Information obtained by the CJV or a Party or its affiliates may be disclosed
only to the designated employees of the CJV or that Party and its affiliates
whose duties so require for the implementation of this Contract. The CJV
and each Party and its affiliates shall take all reasonable precautions
(including the conclusion of confidentiality contracts with each such
employee) to prevent such employees from using and disclosing the
Proprietary Information in contravention of this Article 3.
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4. "Confidential Information" means all documents, software and


documentation, reports, financial or other data, records, forms, tools,
products, services, methodologies, present and future research, technical
knowledge, marketing plans, trade secrets, and other materials obtained by
Consultant and Client from each other in the course of performing any
Services, whether tangible or intangible and whether or not stored, compiled,
or memorized physically, electronically, graphically, in writing, or by any
means now known or later invented. Confidential Information includes
without limitation records and information and Consultant's Information (i)
that has been marked as proprietary or confidential; (ii) whose confidential
nature has been made known by Client or Consultant; or (iii) that due to its
character and nature, a reasonable person under like circumstances would
treat as confidential. Notwithstanding the foregoing. Confidential
Information does not include information which (i) is already known to the
recipient at the time of disclosure; (ii) is or becomes publicly known through
no wrongful act or failure of the recipient; (iii) is independently developed
by the recipient without benefit of the other party's Confidential Information;
or (iv) is received from a third party which is not under and does not thereby
breach an obligation of confidentiality. Each party agrees to protect the
other's Confidential Information at all times and in the same manner as each
protects the confidentiality of its own proprietary and confidential materials,
but in no event with less than a reasonable standard of care. Consultant will
deliver to Client all Confidential Information and all copies thereof (and all
other property obtained from or through Client) when Client requests the
same or immediately upon termination of this Agreement, whichever occurs
earlier, except for one copy thereof that Consultant, may retain for its
records. Neither party shall, except with respect to those of its employees
with a need to know under this Agreement, use or disclose to any person,
firm or entity any Confidential Information of the other party without such
other party's express, prior written permission; provided, however, that
notwithstanding the foregoing, Consultant may disclose Confidential
Information to the extent that it is required to be disclosed pursuant to a
statutory or regulatory provision or court order. The confidentiality
restrictions and obligations imposed by this Section 4 shall terminate two (2)
years after the expiration or termination of this Agreement.

1.
- 23 -

2.

3.

4.

iiiii

ii
iii
iv

- 24 -

1. During the term of this Agreement, all the oral and written information,
including but not limited to manufacturing technologies, procedures,
methods, formulas, data, techniques, experiences, know-how, and business
information ("Confidential Information") to be provided by Party A to Party
B shall be treated as strictly confidential and shall be used only for the
purpose set forth herein. Title to such information and the interest related
thereto shall remain with Party A at all time.
Party B agrees to take all necessary steps to prevent Confidential
Information from being disclosed to third parties and shall require its
personnel to abide by the same confidentiality regulation. Party B shall not
disclose Confidential Information to anyone other than to such persons who
require access thereto for the exclusive purpose provided hereunder and who
are aware of their obligations of confidentiality hereunder.
2. Party A acknowledges that the System, all technical documentation
delivered to Party A by Party B hereunder, and all other information relating
to the design, development, configuration, use, installation, operation and
maintenance of the System constitutes confidential or proprietary
information of Party B, and Party B acknowledges that Party A may provide
confidential or proprietary information to Party B hereunder (collectively
referred to as "Confidential Information"). Each Party agrees to use
Confidential Information received from the other Party only for the purpose
contemplated by this Agreement and for no other purposes. Except as
specified in this Agreement, no other rights express or implied, including
but not limited to licenses, of trademarks, inventions, copyrights, patents, or
any other intellectual property rights whatsoever, are granted hereunder or
by the conveying of Confidential Information. Confidential Information
provided is not to be reproduced in any form except as required to
accomplish the intent of, and in accordance with the terms of, this
Agreement. Each Party shall provide the same care to avoid disclosure or
unauthorized use of the other Party's Confidential Information as it provides
to protect its own similar proprietary information. Confidential Information
must be kept by the receiving Party in a secure place with access limited to
only such Party's employees, contractors, or agents who need to know such
information for the purposes of this Agreement and who have similarly
- 25 -

agreed to keep such information confidential pursuant to a written


confidentiality agreement which reflects the terms hereof. Except as
provided herein and unless otherwise specified in writing, all Confidential
Information (i) remains the property of the disclosing Party, and (ii) must be
returned to the disclosing Party or destroyed after the receiving Party's need
for it has expired. At the request of the disclosing Party, the receiving Party
shall furnish a certificate signed by a director or authorized office of the
receiving Party certifying that Confidential Information not returned to the
disclosing Party has been destroyed.

1.

2.

iii

- 26 -

4 Definition and Interpretation

1. "Affiliate" means any person or company that directly or indirectly


controls a Party or is directly or indirectly controlled by a Party, including a
Party's parent or subsidiary, or is under direct or indirect common control
with such Party. For the purpose of this Agreement, "control" shall mean
either the ownership of fifty per cent (50%) or more of the ordinary share
capital of the company carrying the right to vote at general meetings or the
power to nominate a majority of the board of directors of the Company.
2. "Proprietary Know-how" shall mean processes, methods and
manufacturing techniques, experience and other information and materials
including but not limited to the Technical Information and Technical
Assistance supplied or rendered by the Licensor to the Licensee hereunder
which have been developed by and are known to the Licensor on the date
hereof and/or which may be further developed by the Licensor or become
known to it during the continuance of this Agreement excepting, however,
any secret know-how acquired by the Licensor from third parties which the
Licensor is precluded from disclosing to the Licensee.
3. "Proprietary Information" means the information, whether patentable or
not, disclosed to the CJV by either Party or its Affiliates or disclosed by the
CJV to either Party or its Affiliates during the term of this Contract,
including technology, inventions, creations, know-how, formulations,
recipes, specifications, designs, methods, processes, techniques, data, rights,
devices, drawings, instructions, expertise, trade practices, trade secrets and
such commercial, economic, financial or other information as is generally
treated as confidential by the disclosing Party, its Affiliates, or the CJV, as
the case may be; provided that when such information is in unwritten or
intangible form, the disclosing Party, its Affiliates or the CJV shall, within
one month of making the disclosure, provide the other Party and/or the CJV
with a written confirmation that such information constitutes its Proprietary
Information.
4. "Encumbrances" include any option, right to acquire, right of preemption,
mortgage, charge, pledge, lien, hypothecation, title creation, right of set-off,
counterclaim, trust arrangement or other security or any equity or restriction
(including any relevant restriction imposed under the relevant law).
5. In this Agreement, unless the context otherwise requires:
a) headings are for convenience only and shall not affect the interpretation
- 27 -

of this Agreement;
b) words importing the singular include the plural and vice versa;
c) words importing a gender include any gender;
d) an expression importing a natural person includes any company,
partnership, joint venture, association, corporation or other body corporate
and any governmental agency;
e) a reference to any law, regulation or rule includes all laws, regulations, or
rules amending, consolidating or replacing them, and a reference to a law
includes all regulations and rules under that law;
f) a reference to a document includes an amendment or supplement to, or
replacement or novation of, that document;
g) a reference to a party to any document includes that party's successors
and permitted assigns;
h) a reference to an agreement includes an undertaking, agreement or legally
enforceable arrangement or understanding whether or not in writing;
i) a warranty, representation, undertaking, indemnity, covenant or agreement
on the part of two or more persons binds them jointly and severally; and
j) the schedules, annexures and appendices to this Agreement shall form an
integral part of this Agreement.

1.

50
50

2.

3.

- 28 -

4. j

5.
a)
b)
c)
d)

e)

f)
g)
h)

i)

j)
Body corporate
BLACKS LAW DICTIONARYOK185 body corporate
corporation 365 corporation
an entity (usu. A business) having authority under law to act as
a single person distinct from the shareholders who own it and
having rights to issue stock and exist indefinitely; a group or
succession of persons established in accordance with legal rules

- 29 -

into a legal or juristic person that has legal personality


distinct from the natural persons who make it up, exists
indefinitely apart from them, and has the legal powers that its
constitution gives it. ---- Also termed corporation aggregate;
aggregate corporation; body corporate; corporate body.

1. "Control" means the power of any entity to direct the affairs of another
entity whether by any of the following means or otherwise:
a) beneficial ownership of or entitlement to acquire shares or assets of the
other;
b) power to exercise voting rights in relation to the other;
c) power to appoint members of the supervisory board, board of directors or
bodies legally representing the other; or
d) power to operate, direct or manage the general affairs of the other.
2. "Technical Information" shall mean all technical data, drawings, designs,
formulae, specifications, processes, methods of manufacture, computer
programs or other software or technical documents and similar intellectual
property rights of or developed by the Licensor as of the date hereof or to be
developed by the Licensor during the term of this Agreement relating to the
Product, including improvements thereto.
3. The headings used in this Contract are for ease of reference only, and in
no event shall the substance of any paragraph or the intent of the Parties be
interpreted or controlled by such headings.
4. References to:
a) Clauses and Schedules are to clauses in and schedules to this Agreement
(unless the context otherwise requires) and the Recitals and Schedules to
this Agreement shall be deemed to form part of this Agreement;
b) "person" shall include body corporate unincorporated association and
partnership (whether or not having separate legal personality);
c) writing shall include any methods of producing or reproducing words in a
legible and non-transitory form; and
d) masculine gender shall include the feminine and neuter and the singular
number shall include the plural and vice versa.

- 30 -


1.

a)

b)
c)
d)
2.

3.

4.
a)

b)

c)

d)

5 Entire Agreement, Amendment and Language

1. All the appendices to this Agreement shall be an integral part of this


Agreement. This Agreement and all its appendices shall constitute the entire
agreement between the Parties with respect to the subject matter set forth
herein and supersede any and all previous oral and written discussions,
negotiations, notices, memoranda, documents, agreements, contracts and
communications between the Parties relating to such subject matter.
- 31 -

2. The terms and conditions herein contained, including the Appendices


hereto, constitute the entire agreement between the parties hereto. This
Contract shall supersede all previous communications, either oral or written,
between the parties. Amendments modifying or extending the Contract shall
be binding upon both parties only if in writing and signed by a duly
authorized officer or representative of each party.
3. This Agreement, entered into as of the date written above, constitutes the
entire agreement between the Parties relating to the subject matter hereof
and shall be in addition to and not in derogation of the provisions of the
Supply Agreement. No terms or provisions of this Agreement shall be varied
or modified by any prior or subsequent statement, conduct or act of either of
the Parties, except that the Parties may amend this Agreement by written
instruments referring to and executed in the same manner as this Agreement.
4. This Agreement, including any Statement of Work entered into pursuant
hereto, constitutes the entire agreement of the parties hereto with respect to
its subject matter and supersedes all prior and contemporaneous
representations, proposals, discussions, and communications, whether oral
or in writing. In the event of a conflict between the provisions of this
Agreement and the specific provisions set forth in a Statement of Work, the
provisions of the Agreement shall control, except to the extent the
provisions in a Statement of Work expressly provide otherwise.
5. This Agreement constitutes the entire agreement between the parties with
respect to its subject matter (no party having relied on any representation or
warranty made by any other party which is not contained in this Agreement)
and no variation of this Agreement shall be effective unless made in writing
and signed by all of the parties.
6. Amendments to this Contract may be made only by a written instrument
signed by a duly authorized representative of each of the Parties and, unless
prior approval from the Ex-amination and Approval Authority/the
appropriate government department is statutorily required such
amendments shall become effective upon the signing by the duly authorized
representatives of both Parties.
7. This Agreement shall be signed in four (4) counterparts and all such
counterparts taken together shall be deemed to constitute one and the same
instrument. The Parties shall sign a Chinese language version of this
Agreement as soon as reasonably possible. Should there be any discrepancy
between the two language versions, the English version of this Agreement
shall prevail.
8. This Agreement may be executed by the parties hereto in any number of
counterparts and on separate counterparts, each of which when so executed
shall be deemed an original but all of which shall constitute one and the
same instrument and shall be binding on all parties. A party may execute this
Agreement and the documents referred to herein on a facsimile copy
- 32 -

counterpart and deliver its signature and seal by facsimile.

1.

2.

3.

4.

5.

6.

7. 4

8.

- 33 -

1. This Agreement and the schedules hereto constitute the entire agreement
between the Parties relating to the subject matter hereof and supersede all
previous writings and understandings related hereto.
2. Any amendments to this Contract shall become effective only after a
written agreement to effect the amendments signed by Party A and Party B
has been approved by the Examination and Approval Authority.
3. This Contract is executed in English and Chinese. Both language versions
shall be equally authentic. Each Party acknowledges that it has reviewed
both language texts and that they are substantially the same in all material
respects.
4. This Agreement is executed in Chinese. If necessary, it may be translated
into other languages. However, if there is any conflict, ambiguity or
discrepancy between the Chinese version and a version in any other
language, the Chinese version shall prevail.
5. This Contract shall be written in both Chinese and English. Both versions
are equally authentic. Each version shall be in eight (8) counterparts. Each
of the Parties shall hold one counterpart of each language version. The
remaining counterparts shall be submitted to the Examination and Approval
Authority for approval or reference, or retained by the CJV, as required.
1.

2.

3.

4.

5.
8

- 34 -

6 Force Majeure and Notice

1. Force majeure means an event beyond the control of a Party, as a result of


which the Party is unable to perform its obligations under this Contract. An
event of Force Majeure includes, but is not limited to, prohibition or acts by
government or public agency, riot, war, hostility, public disturbance, strikes,
other labor disputes and work stoppages, failure or interruption of
transportation or other utilities, epidemic, fire, flood, earthquake, storm,
tidal wave or other acts of nature.
Force majeure preventing a party from performing any of its obligations
under this Contract, in whole or in part, may be asserted against the other
party only if the prevented party gives notice by registered mail of the
inception and cessation of the force majeure within fifteen (15) days in each
case enclosing a confirmation by the proper authorities or published
information attesting the reality of the facts and the accuracy of the data
supplied. A party claiming force majeure has the burden to prove the direct
relationship between the force majeure and the non-performance of its
obligations under this Contract.
2. Should any Party be directly prevented from executing this Agreement or
be delayed in performing this Agreement by any event of force majeure,
such as earthquake, typhoon, flood, fire and war and other unforeseen events,
the happening and consequences of which are unpreventable and
unavoidable, the affected Party shall notify the other Parties without delay
and, within fifteen (15) days thereafter, provide detailed information
regarding the events of force majeure and sufficient proof thereof,
explaining the reason for its inability to perform or the delay in the
execution of all or part of this Agreement. A certificate issued by the
Chamber of Commerce or other appropriate authority where such
circumstances occur shall be sufficient proof of the existence of such
circumstances and their duration. The Parties shall, through consultations,
decide whether to alter the Agreement to reflect the effects of the event of
force majeure on the performance of this Agreement or to terminate the
Agreement in the event that such force majeure persists for a period of six (6)
months or more.
- 35 -

3. If one Party is prevented from performing any of its obligations under this
Agreement due to an event of force majeure, the time for performing the
obligations under this Agreement specifically prevented from performance
by such event of force majeure shall be extended by a period equal to the
period of delay caused by such event of force majeure. The party claiming
inability to perform its obligations due to an event of force majeure shall
take appropriate measures to minimize or remove the effects of the event of
force majeure and, within the shortest possible time, do its best to resume
performance of the obligation (s) affected by the event of force majeure. If
an event of force majeure occurs, neither party shall be responsible for any
damage, increased cost or loss which the other party may sustain by reason
of such a failure or delay of performance, and such failure or delay shall not
be deemed a breach of this Agreement. All other obligations under this
Agreement and the time for performance thereof shall not be affected
thereby.
4. Notices or other communications required to be given by one Party
pursuant to this Agreement shall be written in Chinese and may be delivered
personally, sent by registered airmail (postage prepaid), by courier service or
by facsimile transmission to the address of the other party set forth below or
to such other address as may from time to time be designated by such party
through notification to the other party. The dates on such notices shall be
deemed to have been effectively given shall be determined as follows:
a) Notices given by personal delivery shall be deemed effectively given on
the date of personal delivery, provided that receipt shall be acknowledged in
writing by the receiving party;
b) Notices sent by registered airmail (postage prepaid) shall be deemed
effectively given on the tenth (10th) day after the date on which they were
mailed (as indicated by the postmark);
c) Notices sent by courier shall be deemed effectively given on the third (3rd)
day after they were sent by courier service;
d) Notices sent by facsimile transmission shall be deemed effectively given
on the first (1st) business day following the date of transmission, as
indicated on the document in question.
During the valid term of this Agreement, if any party changes its address at
any time, it shall forthwith notify the other party in writing of such change.

- 36 -

1.

2.

3.

4.

a)

b)
- 37 -

10
c) 3
d) 1

1. If one Party has been prevented from performing its responsibilities


stipulated in the Contract because of an Event of Force Majeure, it shall
notify the other Party in writing within fifteen (15) days after the occurrence
of such Event of Force Majeure, and both Parties shall use reasonable
endeavors to mitigate damages, to the extent possible. If an Event of Force
Majeure occurs, neither Party shall be responsible for any damage, increased
costs or loss which the other Party may sustain by reason of such a failure or
delay of performance, and such failure or delay shall not be deemed a
breach of this Contract. A Party claiming inability to perform due to an
Event of Force Majeure shall take appropriate means to minimize or remove
the effects of the Event of Force Majeure and, within the shortest possible
time, attempt to resume performance of the obligation affected by the Event
of Force Majeure.
2. Any notice required to be given hereunder shall be considered properly
given if sent by registered airmail or courier or by facsimile to the address of
the other Party indicated below or to such other address as the addressee
shall have furnished in writing to the addresser and shall take effect on the
date of dispatch.
3. Notices required or permitted under this Contract shall be effective if
given in writing, written in English, sent by registered airmail, or by telex or
facsimile confirmed by registered air mail letter, return receipt requested,
addressed as follows; unless otherwise specified in this Contract, notices
shall be effective from the date of receipt of the telex or facsimile or in the
event a telex or facsimile is not received, eight (8) days after the service of
the registered letter.

1.
- 38 -

15

2.

3.

7 Governing Law and Dispute Resolution

1. The formation of this Contract, its validity, interpretation, execution and


settlement of disputes in connection herewith shall be governed by the laws
of the People's Republic of China ("PRC"), but in the event that there is no
published and publicly available law in the PRC governing a particular
matter relating to this Contract, reference shall be made to general
international commercial practices.
2. If, after the signing of this Agreement, the Chinese government either at
the State, provincial, municipal or local level adopts any new law, regulation,
decree or rule, amends or repeals any provision of any law, regulation,
decree or rule, or adopts any different interpretation or method of
implementation of any law, regulation, decree or rule, which contravenes
this Agreement or which materially and adversely affects a party's economic
benefit under this Agreement, then upon written notice thereof from the
affected party to the other Party, the Parties shall promptly consult and
decide whether (i) to continue to implement this Agreement in accordance
with the original provisions thereof as per the relevant provisions of the
Contract Law of the People's Republic of China; or (ii) to effectuate
- 39 -

necessary adjustments in order to preserve each Party's economic benefit


under this Agreement on a basis no less favorable than the economic benefit
it would have received if such law, regulation, decree or rule had not been
adopted, amended, repealed or so interpreted or implemented.
3. Any controversy or claim arising out of, or relating to, this Agreement
shall be settled under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce by three (3) arbitrators appointed in
accordance with said Rules. The place of Arbitration shall be Hong Kong.
The language of Arbitration shall be English. In no event shall any
arbitration award provide a remedy beyond those permitted under these
Terms and Conditions, and any award providing a remedy beyond those
permitted under this Agreement shall not be confirmed, no presumption of
validity shall attach, and such award shall be vacated.
4. Any dispute arising from, out of, or in connection with, this Agreement
shall be settled by the Parties through friendly consultation. Such
consultation shall begin immediately after one Party has delivered to the
other party a written request for such consultation. If the dispute cannot be
settled through consultation within thirty (30) days after such notice is given,
the Parties shall submit the dispute to China International Trade Arbitration
Committee, Shanghai Branch ("Arbitration Institute") to be arbitrated
according to its rules and regulations.
There shall be three (3) arbitrators. Party A and Party B shall appoint one (1)
arbitrator each. The two arbitrators shall be selected within thirty (30) days
after giving or receiving of the request for arbitration. The chairman of the
Arbitration Institute shall select the third arbitrator. If a Party fails to appoint
an arbitrator within thirty (30) days after the other Party has appointed an
arbitrator, the chairman of the Arbitration Institute shall make the
appoint-ment.
The arbitration proceedings shall be conducted in Chinese language. The
arbitration tribunal shall apply the arbitration rules of the Arbitration
Institute in effect on the date of the signing of this Agreement. However, if
such rules are in conflict with the provisions of the previous paragraph of
this Article, including the provisions for appointing arbitrators, the
provisions of this Article shall prevail.
The arbitration award shall be final and binding on both parties. No party
shall appeal in connection with the matters in relation to the arbitration
award.
Each Party may request any court having jurisdiction to make a judgment
for enforcing the arbitration award, or apply with such court for judicial
recognition of the award or any order of enforcement thereof.
During the process of arbitration, the Parties shall continue to implement
- 40 -

this Agreement without interruption, except for the matters in dispute.

1.

2.

i
ii

3.
3

4.

30

31

30

- 41 -

1. This Agreement shall be governed by and construed in accordance with


the laws of New York (USA), without regard to the conflict of laws
provisions thereof. The United Nations Convention on Contracts for the
International Sale of Goods shall not apply to this Agreement.
2. The Parties will make every effort to settle amicably any dispute or claim
arising in connection with the Contract. Should the Parties fail to resolve
any such dispute within sixty (60) days after one Party gives a written notice
of a dispute to the other, any and all such disputes shall be finally settled in
accordance with the Rules of Arbitration of the International Chamber of
Commerce by three (3) arbitrators appointed in accordance with said Rules.
Any arbitration decision rendered in conformity with this Article shall be
final and binding upon the Parties. Arbitration shall take place in Geneva,
Switzerland. The proceedings shall be conducted in English. All arbitration
fees shall be borne by the losing party or, where appropriate, in conformity
with the stipulations of the award. All other fees including legal fees shall be
borne by the respective parties or, where appropriate, in conformity with the
stipulations of the award.
3. Should any dispute arise from the execution or implementation of this
Contract or otherwise relating thereto, both Parties shall resolve the dispute
through friendly negotiations. If the dispute cannot be resolved by
negotiations within thirty (30) days after one Party has issued notice to the
other Party requesting the commencement of such negotiations, then either
Party may submit it to the Singapore International Arbitration Center (the
"Arbitration Institute") for arbitration in accordance with the UNCITRAL
rules of arbitration then in effect and the following provisions:
a) The arbitration shall be conducted in the English language and three (3)
arbitrators (one appointed by each Party and the third appointed by the
Arbitration Institute) may refer to both the English and Chinese text of the
Contract;
b) The arbitration award shall be final and binding on the Parties and shall
be enforced in accordance with its terms; and
c) The costs of arbitration shall be borne by the Party as designated in the
- 42 -

arbitration award.

1.

2.
60
3

3.

30

a) 3

b)

c)

8 Insurance

1. The JVC shall purchase appropriate comprehensive insurance to cover


various kinds of risks as would be usual for a joint venture enterprise
engaged in the same type of industry and in manufacturing products similar
- 43 -

to the Products including, without limitation, product liability covering the


manufacture and supply of the Products and such insurance shall be
underwritten by an insurance company registered in the PRC. The types,
value and duration of insurance shall be decided by the Board of Directors
after discussion with the insurance companies and Party B.
The premises, plant, machinery and equipment, raw materials, components
and the Products shall be insured by JVC for adequate replacement value
against fire, storm, tempest, accident, flood, theft and other risks which may
destroy or diminish the value of the Products or which may render the
Products unfit for consumption.
2. Insurance shall, to the extent it is available on premium and terms
comparable to those abroad and as required by applicable Chinese law, be
obtained in China and such policies will be denominated in Renminbi or
foreign currency or both, as appropriate.
The Company shall, at its own cost and expense, at all times during
operation of the factory and other facilities and during any construction
work take out and maintain full and adequate property insurance covering
the buildings, contents, and other first party risks of the Company as are
customarily insured against in China.
The Company shall maintain product liability insurance, third party liability
insurance and other relevant insurance coverage in order to protect the
Company, its employees, agents and other appropriate parties from claims.
3. During the term of this Agreement, Party A shall undertake, renew and
maintain for its benefit and interest, and at its own cost and expense, the
following primary insurance policies:
a) General Public Liability Policy with Party B being named as a co-insured
covering all loss, damage or liability incurred or arising from the operation
of the Services including, without limitation, for bodily injury, death or
property damage, for an amount not less than RMB25,000,000 per accident
or occurrence ;
b) Employer's Liability Policy with Party B being named as a co-insured in
conformity with local laws and regulations and accepted practice in the
PRC;
c) Property Damage Policy covering its premises against all risks of direct
physical loss or damage from any cause, or if such a policy is not available,
against the risks of fire and associated risks such as explosion, electrical
damage, water damage, riots, strikes, civil commotion, terrorism,
windstorms, hurricanes, cyclones, floods, burglary, theft and other similar
risks;
d) Property Damage Policy with Party B being named as the sole
beneficiary covering loss or damage to the materials, Products, Bulk
Products, Equipment and other property of Party B as a result of natural
- 44 -

disaster or negligence or omission by Party A; and


e) Any other insurance policy or policies against such other insurable risks
as shall be normal and customary in the PRC for operations similar to that of
Party A, in each case with Party B named in the policy or a certificate of
insurance as loss payee, additional insured, or in such manner as Party B's
insurance company and Party A's insurance company may agree.
Party A shall inform Party B of any change to its insurance policies listed
above which would result in a reduced insurance coverage.


1.

2.

3.

a)

25000000

b)
- 45 -


c)

d)

e)

1. Throughout the term of this Agreement, Consultant shall at its own


expense, obtain and maintain the following insurance policies: (a)
Commercial General Liability insurance, with coverage of not less than US
$ 1,000,000 per occurrence and US $ 2,000,000 in the aggregate for bodily
injury and property damage, (b) Motor Vehicle Liability insurance for
owned, non-owned and hired vehicles, with limits of not less than US $
1,000,000 combined single limit for bodily injury and property damage, (c)
Workers' Compensation insurance in the amount required by statute for all
states in which the project or work is to be performed, and (d) Professional
Liability insurance with limits of not less than US $ 1,000,000 per claim.
Consultant will endeavor to notify Client in writing of any material change
to its coverage as described herein. Consultant shall furnish certificates of
insurance evidencing coverage or other acceptable evidence of
self-insurance to Client upon request.
2. Insurance required under this Agreement shall be:
a) Commercial General Liability insurance including bodily injury, property
damage, personal injury, advertising injury and products/completed
operations, with a limit of not less than US $ 1,000,000 each occurrence and
US $ 2,000,000 annual aggregate.
b) Worker's Compensation and Employer's Liability insurance covering all
persons whom the Contractor may employ in carrying out the services
hereunder. Worker's Compensation insurance will be in accordance with the
- 46 -

Worker's Compensation Law of the jurisdiction where the work is


performed. Employer's Liability shall be provided with limits of not less
than US$500,000 each accident; US$500,000 each disease; and US $
500,000 disease policy limit.
c) Professional Liability insurance covering the negligent acts, errors or
omissions committed by Consultant pursuant to rendering or failure to
render professional services pursuant to the terms and conditions contained
in the contract with limits of not less than US $ 5,000,000 per claim.
Prior to the commencement of services hereunder, the Contractor shall
furnish Party B with Certificates of Insurance (or evidence of self-insurance)
for all insurance required herein. Each insurer must be reasonably
acceptable to Party B, and possess a minimum Best's rating of 'AVII' (or
equivalent rating agency in the country) and licensed to conduct business in
all states/countries where this Agreement shall apply.

1. (a)
1000000
2000000 (b)

1000000
c
(d)
1 000000

2.
a)
1000
000 2 000000
b)

500000
500000 500000

c)

- 47 -

5000000

AVII

9 Liability, Indemnification and Release

1. Each party shall indemnify the other from any and all losses that may
arise out of breach by such party of any of the warranties set forth in this
Article, and each party shall indemnify the other party from any and all
losses that may arise out of breach by such party of any of the agreed terms
in this Agreement.
2. Without limiting any right or remedy available to the non-defaulting party
at law or in equity, upon the termination of this Agreement in accordance
with Articles X, the defaulting party shall indemnify the other party for all
damages, costs, charges and expenses suffered or incurred by it in
connection with the termination due to the negligence, breach of duty or
other default or wrongdoing of the defaulting party, its servants, employees,
agents or contractors.
3. The CJV shall be solely and fully responsible for the quality of the
Products manufactured hereunder, for their conformity with the Technical
Data and for their compliance with the laws and regulations from time to
time in force in the Territory. The CJV shall indemnify Party B against any
loss or damage directly or indirectly suffered by Party B as a result of the
failure of the Products manufactured hereunder to comply with the
Technical Data ("Defective Products") or to comply with such laws or
regulations; provided, however, that such indemnification shall not exceed
the total of ex-factory sales price, costs of delivery and transportation and
other costs associated with the recall of these Defective Products.
4. Each Party hereby indemnifies the other Party and undertakes to hold
harmless and defend the other Party against any and all claims, suits, losses,
damages, disbursements (including legal and management costs) arising out
of any alleged or actual breach or failure to comply with the terms and
- 48 -

conditions hereof including but not limited to any infringement of the other
Party's intellectual property or other rights occurring as a result of the
offending Party's fault, omission or activities in connection with the Project.
5. Consultant hereby agrees to indemnify, hold harmless and defend Client
from and against any and all claims, liabilities, losses, expenses (including
reasonable attorneys' fees), or damages (collectively "Liabilities") asserted
against Client by a third party to the extent such Liabilities result from the
infringement of the Works delivered on any third party's trade secret,
trademark, service mark, copyright or patent issued as of the date of this
Agreement (collectively, an "Intellectual Property Right"); provided that
Client: (i) promptly notifies Consultant of any third party claim subject to
indemnification hereunder, (ii) gives Consultant the right to control and
direct the preparation of a defense, the defense and any settlement of any
such claim, (iii) gives full cooperation to Consultant for the defense of same,
and (iv) complies with Consultant's direction to cease any use of the Works
which, in Consultant's sole judgment, is likely to be ruled an infringement
on a third party's Intellectual Property Right.
6. Each Party forever releases and discharges the other from all claims,
debts, allegations, actions, causes of action and demands, whether known or
unknown, arising from or in connection with the Claim and existing as at the
date of this Settlement Agreement, including without limitation any liability
for legal costs connected with or arising out of the subject matter of the
Claim. Any other claims unrelated to the Claim that one Party may have
against another, whether prior to or after the date hereof, shall not be
affected or otherwise prejudiced by this Agreement.
Party B irrevocably waives all rights that it may have in law or contract
against Party A, its affiliates, subsidiaries and related companies howsoever
arising in respect of or in connection with the Claim.

1.

2.
X

- 49 -

3.

4.

5.

ii
iii
iv

6.

1. Licensee hereby agrees to indemnify and hold Licensor free and harmless
of and from any and all claims, suits against Licensor, losses, property
damages or bodily injury suffered by Licensor, including reasonable
attorney's fees, resulting from defective manufacture or sale by Licensee of
the Licensed Products.
- 50 -

2. In no event shall either party or its employees, officers and directors be


liable for consequential, special, indirect, incidental, punitive or exemplary
damages, costs, expenses, or losses (including, without limitation, lost
profits and opportunity costs). Client agrees that Consultant, its employees,
officers and directors shall not be liable to Client for any actions, damages,
claims, liabilities, costs expenses, or losses in any way arising out of or
relating to the services performed hereunder for an aggregate amount in
excess of the fees paid by Client to Consultant in performing the Services.
3. Except in the event of breach of confidentiality, in no event shall either
party be liable for any damages, including loss of data, lost profits, cost of
cover or other special, incidental, consequential, direct or indirect damages
arising from the use of the Products, or provision of, or failure to provide,
support, however caused and whether based on agreement, tort (including
negligence) or any other theory of liability. This limitation shall apply even
if Party A has been advised of the possibility of such damage. The Parties
agree that this is a reasonable allocation of risk. In any event, except as
otherwise provided by law, the liability of Party B or its suppliers, whether
for negligence, breach of agreement, breach of warranty, or otherwise, shall
not, in the aggregate, exceed the amounts paid to Party B (if any) for the
licenses granted hereunder.

1.

2.

3.

- 51 -

10 Representations, Warranties and Undertakings

1. Party A hereby represents and warrants to Party B as follows:


a) Party A is a company duly organized, validly existing and in good
standing as a legal person under the laws of the PRC.
b) Party A has full legal right, power and authority to execute and deliver
this Contract and all of the contracts and documents referred to in this
Contract to which Party A is a party and to observe and perform its
obligations hereunder and thereunder.
c) Party A has taken all appropriate and necessary corporate actions to
authorize the execution and delivery of this Contract and all of the contracts
and documents referred to in this Contract to which Party A is a party and to
authorize the performance and observance of the terms and conditions
hereof and thereof.
d) Party A has obtained all consents, approvals and authorizations necessary
for the valid execution and delivery of this Contract and all of the contracts
and documents referred to in this Contract to which Party B is a party;
provided, however, that this Contract is subject to the approval of the
Examination and Approval Authority before the same may become
effective.
2. The Vendor represents, warrants and undertakes to and with the Purchaser
that each of the statements set out in Schedule A is now and shall at all times
between the date hereof and Completion (both dates inclusive) be true and
accurate. The Vendor acknowledges that the Purchaser has entered into this
Agreement in reliance upon the Warranties and has been induced by them to
enter into this Agreement.
3. Party A represents and warrants that there are no conditions at, on, under,
or related to, the real property constituting all or any portion of the Land
which presently or potentially pose a hazard to human health or the
environment, whether or not in compliance with law, and there has been no
manufacture, use, treatment, storage, transportation, or disposal of any
- 52 -

hazardous or toxic substance, pollutant, or contaminant on the Land nor any


release of any hazardous or toxic substance, pollutant, or contaminant into
or upon or over the Land.
Party A further represents and warrants that the Land is free and clear of any
and all claims, charges, easement, encumbrances, lease, covenants, security
interest, liens, option, pledge, rights of others, or restrictions, whether
imposed by agreement, understanding, law, equity or otherwise.
4. Party A warrants, agrees and undertakes to Party B that neither Party A
(whether directly or indirectly) nor any Connected Person (whether
individually or jointly) shall, during the term of this Agreement, and for two
(2) years after the expiry or termination of this Agreement:
a) undertake any business which is in direct competition with the business of
Party B without the written consent issued by the legal representative of
Party B;
b) solicit or entice away any customer, employee, director or supplier of
Party B for whatever reason; and
c) produce any products which is identical or similar in composition or
appearance to any of the Products without the prior consent of Party B.
For the purposes of this Article 4:
"Connected Person" means any or all of the following persons: (i) the parent
company or shareholders holding 50% or more of the equity of Party A; (ii)
any corporation or business that is affiliated with Party A; or (iii) any officer,
employee, independent contractor, partner, joint venturer or agent of Party A
or of any business affiliated with Party A; or (iv) any firm or corporation in
which Party A or its parent company or affiliate company has an interest
whether such interest is legally enforceable or not.
5. The express warranties in this Agreement shall be in lieu of all other
warranties, express or implied, including the implied warranties of
merchantability, non-infringement, interoperability, and fitness for a
particular purpose.

1.
a)
b)

- 53 -


c)

d)

2. A

3.

4.
2

a)

b)
c)

i 50 50
ii
iii

5.

- 54 -


1. Each of the parties hereby represents and warrants to the other that it has
the power and authority to enter into this Agreement and perform its
obligations hereunder and that this Agreement constitutes valid obligations
against it in accordance with its terms.
2. The Parties undertake that as long as this Memorandum of Understanding
remains effective, the Parties shall not, whether directly or indirectly,
conduct negotiations or have discussions with any other parties concerning
the establishment of any ventures or other forms of cooperation devoted to
the provision of the Services or services similar to or likely to compete with
the arrangement described in this Memorandum of Understanding.
3. The JVC hereby makes to Party A the following warranties:
a) The JVC is a company organized and existing under the laws of PRC, and
has full power and right to conduct its business within the scope of its
business license; and
b) The execution and performance of this Agreement by the JVC will not
violate any other contract or obligation of the JVC or any currently effective
law, regulation, decree, order or judgment of any court or governmental
agency.
4. Party A makes no warranties of any kind, whether express, implied,
statutory or otherwise, and Party A specifically disclaims any implied
warranty of merchantability, non-infringement or fitness for a particular
purpose.

1.

2.

3.
a)

- 55 -

b)

4.

11 Responsibilities and Obligations

1. Party A shall exercise, and ensure that all its servants, employees, agents
or contractors exercise, all due diligence and care in the performance of the
Services and each of the re-sponsibilities so described. Specifically, and
without limiting the generality of the foregoing, Party A shall bear all
responsibility for any losses or damages suffered by Party B as a result of
any mistakes, errors or omissions caused by Party A in connection with the
processing and packing of the Products.
2. The Company appreciates that whilst the Sponsor will use its reasonable
endeavors to discharge its duties as sponsor to the Company and provide the
Company with advice and assistance as described above, it remains the
primary responsibility of the directors of the Company to ensure that the
Company will comply in full with and discharge its responsibili-ties under
the Growth Enterprise Market ("GEM") Listing Rules and other relevant
laws and regulations applicable to the Company. Save as described
hereunder, the Sponsor does not have any duty to monitor or otherwise to
ensure that the Company is in continuous compliance with the GEM Listing
Rules and other relevant laws and regulations applicable to the Company.
3. It is understood and agreed that each of the parties hereto is an
independent contractor and that neither party is, nor shall be considered to
be, an agent, distributor, fiduciary or representative of the other. Neither
party shall act or represent itself, directly or by implication, as an agent of
the other or in any manner assume or create any obligation on behalf of, or
in the name of, the other.
4. Responsibilities of Party A:
In addition to its other obligations under this Contract, Party A shall, from
time to time throughout the period of the Joint Venture term, be responsible,
- 56 -

at no cost to the JVC (excepted as provided in Section X or as may


otherwise be agreed by the JVC in writing), for the following:
a) to use best efforts to apply and take all actions necessary or appropriate
on behalf of the JVC to obtain the necessary approvals, permits, certificates
and licenses for the establishment and operation of the JVC, and use the best
efforts to do, fulfill and perform any and all acts, conditions and things
required to ensure the continuing validity and effectiveness of such
approvals, permits, certificates and licenses;
b) to assist the JVC in applying for, obtaining and maintaining tax
(including without limitation income tax, tariffs, customs duties, excise
taxes, business tax, and value-added tax) reductions and exemptions and
other investment incentives that may be available to the JVC;
c) to assist the JVC in applying for, obtaining and maintaining special
business opportunities, relationships or qualifications relating to or made
available by any gov-ernment departments or agencies, including without
limitation tax-advantaged import quotas, subsidies for purchase of local raw
materials, and special toll processing or government supply contracts;
d) to assist the JVC in obtaining water and power supplies, transportation
and communications services and facilities, and use best efforts to obtain for
the JVC utility rates and quotas and other rights under the most favorable
terms and conditions available to the JVC, and to liaise with the relevant
authorities effectively to achieve all of the above;
e) to assist the directors and employees of the JVC and any employees of
Party B and the JVC's foreign contractors and consultants traveling to China
in connection with the JVC's activities to obtain all necessary entry visas,
work permits and residence permits;
f) (f) to assist the JVC in preparing and presenting customs declarations,
handling clearing procedures for machinery and equipment purchased or
leased outside China by the JVC, applying for all available exemptions from
customs duty, value added tax, sales tax or other charges, and arranging for
transportation of the same within China;
g) to assist the JVC in obtaining loans and other credit facilities from
Chinese banks or other financial institutions at the most favorable rates and
terms available; and
h) to handle other matters entrusted to it by the JVC.

- 57 -

1.

2.

3.

4.

a)

b)

c)

d)

e)

f)

- 58 -

g)

h)

1. Client acknowledges and agrees that Consultant may, in performing its


obligations pursuant to this Agreement, be dependent upon or use data,
material, and other information furnished by Client without any independent
investigation or verification thereof, and that Consultant shall be entitled to
rely upon the accuracy and completeness of such information in performing
the Services. Consultant, in performing the Services, will be making
recommendations and providing advice, but all decisions as to implementing
such advice and recommendations shall be made by and be the sole
responsibility of the Client.
2. Party B agrees that in the event it continues to operate or subsequently
begins to operate any other business, in addition to the requirements set
forth in Section V of this Agreement, it will not use, or permit, participate in
or aid the use of any reproduction, counterfeit, copy or colorable imitation
of the Products, Proprietary Equipment or Samples, either in part or in
whole, or the Marks in connection with such other business which may
cause confusion, mistake or deception or which may dilute Party A's
exclusive rights in and to the Products, Proprietary Equipment or Samples,
and further agrees not to utilize or aid or participate in the use of any
designation of origin or description or representation which falsely suggests
or represents an association or connection with Party A. Party B further
agrees not to reverse engineer, or otherwise attempt or proceed to duplicate,
copy, permit, participate in or aid the reverse engineering, duplication or
copying of a specific design or know how, in part or in whole, unique to, or
owned by, Party A.

1.

- 59 -


2.

12 Severability and Waiver

1. If any one or more of the provisions contained in this Agreement or any


document executed in connection herewith shall .; be invalid, illegal, or
unenforceable in any respect under any applicable law, (i) the validity,
legality and enforce-j ability of the remaining provisions contained herein
or c therein shall not in any way be affected or impaired and shall remain
in full force and effect; and (ii) the invalid, illegal or unenforceable
provision shall be replaced by a valid, legal and enforceable provision that
comes closest to expressing the true intent of such invalid, illegal or
unenforceable provision.
2. If any of the provisions of this Agreement is held invalid or unenforceable
and unless the invalidity or unenforceability thereof does substantial
violation to the underlying intent \- and sense of the remainder of this
Agreement, such invalidity or unenforceability shall not affect in any way
the validity and enforceability of any other provisions of this Agreement
except those which the invalidated or unenforceable provisions comprise an
integral part of or are otherwise clearly inseparable from. That invalidity or
unenforceability shall not affect any valid and enforceable application of the
remaining provisions, and each such provision shall be deemed to be
effective, operative, made, or entered into in the manner and to the full
extent permitted by law.
3. Any provision of this Deed prohibited by or which is unlawful or
unenforceable under any applicable law actually applied by any court of
- 60 -

competent jurisdiction shall, to the extent required by such law, be severed


from this Deed and rendered ineffective so far as is possible without
modifying the remaining provisions of this Deed. Where, however, the
provisions of any such applicable law may be waived, they are hereby
waived by the parties hereto to the full extent permitted by such law to the
end that this Deed shall be valid, binding and enforceable in accordance
with its terms.
4. Unless otherwise provided for herein, failure or delay on the part of any
party to exercise any right, power or privilege under this Agreement shall
not operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege preclude further exercise thereof or exercise of
any other right, power or privilege. A waiver by one of the parties at any
time of a breach of any term or provision of this Agreement committed by
the other party shall not be construed as a waiver by such party of any
subsequent breach to be committed by the other party, nor shall it be
construed as a waiver by such party of its rights under such provision or any
of its other rights under this Agreement.
5. The failure of either party at any time or times to require performance of
any provision hereof shall in no manner affect its right at a later time to
enforce the same. No waiver by either party of any condition or any breach
of any of the terms, covenants or conditions contained in this Agreement
shall be effective unless in writing, and no waiver in any one or more
instances shall be construed as a further or continuing waiver of any other
condition or any breach of any other terms, covenants or conditions.
6. The Parties recognize and agree that their respective covenants and
undertakings contained in this Agreement are of a special and unique nature
and that a breach will result in irreparable injury for which there is no
adequate remedy at law, and therefore the parties expressly agree that if
either party shall at any time breach or in any way violate this Agreement,
then Party A or Party B, as the case may be, shall be entitled to equitable
relief by way of injunction (in addition to, and not in substitution for, any
and all other relief to which such party may be entitled either at law or in
equity) to restrain such breach and to compel compliance with the
obligations undertaken. Each of the parties do hereby waive any proof that
such breach will cause irreparable injury to such party or that there is no
adequate remedy at law.

- 61 -

1.

ID

2.

3.

4.

5.

6.

- 62 -

1. If any portion, term or provision of this Agreement shall be held illegal,


void or ineffective under, or in conflict with, any applicable law, the validity
of the remaining provisions shall not be affected thereby, and a substitute
provision will be negotiated to preserve as near as possible the original
intent of the Agreement.
2. If any term or provision of this Agreement shall become or be declared
illegal, invalid or unenforceable for any reason whatsoever, such term or
provision shall be severed from this Agreement and shall be deemed to be
deleted from this Agreement; provided that if such deletion materially
affects or alters the basis of this Agreement, the parties shall negotiate in
good faith to amend and modify the provisions and terms of this Agreement
as may be necessary or desirable in the circumstances.
3. The failure of either party hereto strictly to enforce at any time any of the
provisions of this Agreement, or any of its rights granted hereunder, or to
exercise any election herein provided, shall in no circumstances be deemed
to constitute a waiver of such provisions, rights or elections nor in any way
to affect the right of such party at any future time to strictly enforce or
exercise the same.
4. Time shall be of the essence of this Agreement, but no failure by any
party to exercise, and no delay on its part in exercising any right hereunder
will operate as a waiver thereof, nor shall any single or partial exercise of
any right under this Agreement preclude any other or further exercise of it or
the exercise of any right or prejudice or affect any right against the other.
The rights and remedies provided in this Agreement are cumulative and not
exclusive of any rights or remedies provided by law.

125
1.

2.
- 63 -

3.

4.

13 Taxation

1. All taxes, customs duties and other charges payable i) in connection


with the importation of the Equipment to China and (ii) in the execution of
this Agreement to be levied by the Government of the PRC on Party A shall
be paid by Party A.
2. "Taxation" means:
a) any liability of the Company to any form of taxation whether created or
imposed in the PRC or any other part of the world and, without prejudice to
the generality of the foregoing, includes any tax computed on profits or
income, any tax computed on capital assets, estate duty, profits tax,
provisional profits tax, interest tax, death duty, gift duty, payroll tax
withholding tax, rates, custom and excise duty, transfer tax, inheritance tax,
stamp duty, capital duty, employment taxes, value added tax, and generally
any tax, imposition, levy or rates or any amount payable to the revenue,
customs or fiscal authorities in any part of the world; and
b) all costs, interest, penalties, charges and expenses incidental or relating to
the liability referred to in (a) above.
3. All fees, expenses and other charges payable to Consultant hereunder do
not include any sales, use, excise, value added or other applicable taxes,
- 64 -

tariffs or duties, payment of which shall be the sole responsibility of Client


(excluding any applicable taxes based on Consultant's net income or taxes
arising from the employment or independent contractor relationship between
Consultant and its personnel). In the event that such taxes, tariffs or duties
are assessed against Consultant, Client shall reimburse Consultant for any
such amounts paid by Consultant or, prior to the payment of such amounts
by Consultant, provide Consultant with valid tax exemption certificates with
respect thereto. If Client is required by law to make any tax deduction,
withholding or payment from any amount paid or payable by Client to
Consultant under this Agreement, the amount paid or payable to Consultant
shall be grossed-up to the extent necessary to ensure that Consultant
receives and retains, free of liability, the net amount equal to the amount that
Consultant would have received and retained, had no tax deduction or
withholding been made.
4. It is understood and agreed specifically by the parties to this Agreement
that Party B shall be an independent contractor, and that nothing in this
Agreement or in the performance of any of its provisions is intended or shall
be construed to constitute either party an agent, legal representative,
subsidiary, joint venturer, partner, employer, or employee of the other for
any purpose whatsoever. As an independent contractor, Party B agrees that it
will be responsible for and will pay all income and other national, federal,
state, provincial, and local taxes and charges assessable on it. It is
understood and agreed that nothing in this Agreement authori-zes Party B to
make any contract, agreement, warranty or representation on Party A's
behalf, or to incur any debt or other obligation in Party A's name, and that
Party A shall in no event assume liability or be deemed liable hereunder as a
result of any such action of Party B.


1. iii

2.
a)

- 65 -

b) a

3.

4.

1. "Taxes" include all forms of taxation, estate duties, deductions,


withholdings, duties, imposts, levies, fees, charges, social security
contributions and rates imposed, levied, collected, withheld or assessed by
any local, municipal, regional, urban, governmental, state, federal or other
body in Hong Kong and elsewhere, and any interest, additional taxation,
penalty, surcharge or fine in connection therewith.
2. Consultant is performing the Services as an independent contractor and
not as an employee of Client and none of Consultant's personnel shall be
entitled to receive any compensation, benefits or other incidents of
employment from Client. Subject to Article X, Consultant shall be
- 66 -

responsible for all taxes and other expenses arising from the employment or
independent contractor relationship between Consultant and its personnel
and the rendition of Services here-under by such personnel to Client.
Nothing in this Agreement shall be deemed to constitute a partnership, joint
venture, or fiduciary relationship between Client and Consultant, nor shall
anything in this Agreement be deemed to create an agency relationship
between Consultant and Client. Neither Consultant nor Client shall be or
become liable or bound by any representation, act or omission whatsoever
of the other.

1.

2.

14 Term and Termination

1. This Agreement shall take effect on the Effective Date and shall continue
for a period of ten (10) years. This Agreement shall be automatically
renewed for one-year terms thereafter unless and until terminated by either
Party hereto by giving six (6) months' written notice to the other.
2. Either Party may terminate the Contract in case of failure on the part of
the other Party to fulfill or perform any of its obligations hereunder and in
the event that such failure remains unremedied sixty (60) days after the
service of a written notice as described in Article X below by the
non-defaulting Party to the other Party specifying the failure in question and
- 67 -

requiring it to be remedied.
3. If one Party hereto shall commit any material breach of this Agreement or
its representations and warranties hereunder and fail to remedy the breach
within thirty (30) days of notice from the other Party requesting it to remedy
such breach (if capable of remedy), or offer adequate compensation therefor,
the other Party may terminate this Agreement immediately by notice to the
Party in breach.
4. Upon termination or expiration of this Contract, the Parties hereto shall
not be released from their respective obligations to pay monies due or to
become due to the other Party. To the fullest extent possible under
applicable law, Articles X (Warranty) and Y (Confidentiality) hereof shall
survive the expiration or earlier termination of the Agreement and continue
to bind the Parties.
5. This Contract shall terminate upon expiration of the Joint Venture Term.
In addition, any Party may terminate this Contract prior to the expiration of
the Joint Venture Term by delivery to the other Parties of a written notice of
its intention to terminate under any of the following circumstances, or as
otherwise provided in this Contract or under law:
a) if any other Party materially breaches this Contract and such breach is not
cured within sixty (60) days of a written notice to the breaching Party;
b) if the JVC becomes bankrupt or is the subject of proceedings for
liquidation or dissolution by reason of insolvency or ceases to carry on
business or becomes unable to pay its debts as they become due;
c) if any other Party purports to transfer or takes any steps for the transfer of
its equity participation in the JVC in violation of the provisions of this
Contract;
d) if all or any part of the assets of the JVC are temporarily or permanently
expropriated by any government authority;
e) if any government department having authority over any Party requires
any provision of this Contract to be revised or imposes conditions or
restrictions upon the implementation of this Contract in a such a way as to
cause significant adverse consequences to the JVC or any Party;
f) if any other Party shall come under the control of any third Party or
Parties other than that by which it is controlled at the date hereof or other
than by an Affiliate of it for the purposes of a bona fide reorganization;
g) if the conditions and consequences of Force Majeure prevail for a period
in excess of six (6) months and the Parties have been unable to find an
equitable solution pursuant to Article X; or
h) for any other reasons provided for in this Contract or in relevant laws and
regulations.
6. Termination of this Agreement for any reason shall be without prejudice
- 68 -

to any right of action vested in either Party at the date of termination. Except
as otherwise expressly provided herein, the Licensee shall have no claim
against the Licensor in respect of the termination of this Agreement whether
for the payment of compensation for expenses incurred or loss of profit or
otherwise.

1. 10
6
1
2.
X
60

3.

4.
X Y

5.

a) 60

b)

c)

d)
e)
- 69 -

f)

g) 6
X
h)
6.

1. This Agreement shall come into force on the Effective Date and shall,
unless earlier terminated in accordance with the provisions of Clause X of
this Article, remain in force for an initial period of ten (10) years from such
date.
2. If one Party to this Agreement shall compound, or make arrangements
with its creditors, or be adjudicated bankrupt, or have a Receiver appointed
over all or any part of its assets, or go into liquidation (whether voluntary or
otherwise) otherwise than as part of a bona fide amalgamation or
reconstruction without insolvency, then the other Party may terminate this
Agreement immediately by notice.
3. Automatic Termination; Party A, at its sole discretion, judgment and
option, shall have the right to automatically terminate this Agreement and all
rights granted herein without notice to Party B if Party B (i) becomes
insolvent; (ii) makes a general assignment for the benefit of creditors; (iii) a
petition in bankruptcy is filed by Party B or such petition is filed against,
and consented to by Party B; (iv) is adjudicated as bankrupt; (v) a receiver is
appointed by any court of competent jurisdiction for its assets and property;
(vi) a substantial portion of its assets are confiscated or frozen by any
government authority; (vii) no longer has the necessary power, authority,
permit, license or certificate for conducting business as required in this
Agreement; or (viii) if any other circumstance arises that will substantially
impair its ability to perform duties and provide services as set forth in this
Agreement.

- 70 -


1. X
10
2.

3.
i
n
iii
ivv
vi
vii
viiii

15 Title/Ownership

1. All intellectual property rights which are in existence prior to the date of
the commencement of this Agreement and which are proprietary to Party A
are and shall remain the property of Party A. Party A grants Party B a
non-exclusive right to use such intellectual property rights free of charge
solely for the performance by Party B of the Service under this Agreement.
2. Title to the System or any of its components shall remain with Party A.
Party B and Party A therefore agree that no right, interest or title in or to the
System is transferred to Party B hereunder, except as otherwise set forth in
Section X of this Agreement. Party B agrees that other than provided herein,
it does not and shall not claim any proprietary interest in the System.
3. All intellectual property rights subsisting in or used in connection with the
Project, including all the documents and manuals relating thereto, and
including all intellectual property rights owned by Party B prior to the
execution of this Contract as well as all intellectual property rights acquired
or created by Party B during the term of this Contract, are and shall remain
- 71 -

the sole property of Party B and/or its possible licensor(s). Party A shall not
during the term of, or at any time after the expiry or termination of, this
Contract in any way question or dispute the ownership of such intellectual
property rights of Party B or its licensor(s).
4. Licensor shall have and retain sole and exclusive title to all inventions,
discoveries, know-how and patents which are made, conceived, reduced to
practice or generated by its employees, agents, or other persons acting under
its authority in the course of or as a result of this Agreement. Except as
expressly provided in this Agreement, Licensor may use, sell, keep, license,
assign, or mortgage such jointly owned inventions, discoveries and
know-how, and otherwise undertake all activities a sole owner might
undertake with respect to such inventions, discoveries and know-how,
without the consent of and without accounting to Licensee.
5. The parties agree that all ideas, know-how, processes, information,
drawings, documents, designs, models, inventions, copyrightable materials
and other tangible and intangible materials authored, prepared, created,
made, delivered, conceived or reduced to practice, in whole or in part, by
Contractor in the course of providing the Services, including without
limitation computer programs, computer systems, data and documentation
(collectively, the "Works") are the sole and exclusive property of the
Company and shall be considered works made for hire. In the event any
such Works do not fall within the specifically enumerated works that
constitute works made for hire under the United States or any other local,
national, federal or international copyright laws. Contractor hereby
irrevocably, expressly and au-tomatically assigns all right, title and interest
worldwide in and to such Works to the Company, including without
limitation all copyrights, patent rights, trade secrets, trademarks, moral
rights and all other applicable proprietary and intellectual property rights. If
Contractor has any rights to the Works that cannot be assigned to the
Company, Contractor unconditionally and irrevocably: (i) waives the
enforcement of such rights; and (ii) grants to the Company during the term
of such rights, an exclusive, irrevocable, perpetual, worldwide, royalty-free
license to reproduce, create derivative works of, distribute, publicly perform
and publicly display such Works, by all means now known or later
developed. Contractor agrees to render all reasonably required assistance to
the Company to protect the Company's rights herein above described.

1.
- 72 -

2.

3.

4.

5.

iii

- 73 -

1. The Licensee expressly acknowledges and agrees that, other than the
rights and licenses granted under this Agreement, it does not hereby acquire
and has no right, proprietary or other claim to any other rights in, or to the
use of, the Trademarks, patents, copyright or other industrial property rights
or technical knowledge owned, used or adopted by the Licensor.
2. Party B shall have title to the Bulk Products, Products (whether
completed or semi-finished), raw materials, labels, packaging materials and
other materials purchased on Party B's account or handled, stored or located
pursuant to this Agreement at Party A's premises or in transit or at any time
under the control of or in the custody of Party A and/ or its servants,
employees, agents or contractors.
3. The parties agree, subject to the terms of this Agreement, that upon full
and final payment all documents, designs, inventions, computer programs,
computer systems, data, computer documentation and other tangible
materials ("Works") authored or prepared by Consultant for Client shall
become the sole and exclusive property of Client and shall be considered
works made for hire. In the event any such Works do not fall within the
specifically enumerated works that constitute works made for hire under the
United States or any other local, national, federal or international copyright
laws, Consultant hereby agrees to assign and, upon their authorship or
creation, expressly and automatically assigns all copyrights, proprietary
rights, trade secrets, and other right, title and interest in and to such Works
to Client. Consultant agrees to render, at Client's sole cost and expense, all
reasonably required assistance to Client to protect the rights herein above
described.

1.

2.

3.

- 74 -

- 75 -


A Course in Translation of Legal Documents

2003 1

- 76 -

unit 1

1.1.1
1.

1. Chinese-foreign equity joint ventures (hereinafter referred to as joint


ventures) established within Chinese territory upon the approval in
accordance with the Law on Chinese-Foreign Equity Joint Ventures are
Chinese legal persons, who shall be governed and protected by Chinese law.
2.

2. Joint ventures established within Chinese territory shall be able to


promote the development of the economy and the enhancement of the
science and technology of China and facilitate Chinas socialist
modernization.
Industries in which the establishment of joint ventures is encouraged,
permitted, restricted or prohibited by the State shall be determined in
accordance with provisions of the State in the Regulations on Foreign
Investment Guidelines and the Guideline Catalogue of Foreign Investment
Industries.
3.

3. The establishment of a joint venture within Chinese territory shall be


subject to the examination and approval by the Ministry of Foreign Trade
- 77 -

and Economic Cooperation of the Peoples Republic of China (MOFTEC).


Upon approval, MOFTEC shall issue a certificate of approval thereof.
4.

4. The State Council shall delegate to the peoples governments of the


provinces, autonomous regions and municipalities directly under the Central
Government or the relevant departments under the State Council the power
to examine and approve joint ventures which meet the following conditions:
(1) The total investment of a joint venture is within the amount limited by
the authority as granted by the State Council for examination and approval
of investment, and the source of capital of the Chinese party has been
ascertained; and
(2) No additional allocation of raw materials by the State is required and the
national balance in respect of fuel, power, transportation, foreign trade
export quota is not affected.
Joint ventures established in accordance with provisions of the proceeding
paragraphs shall be reported to MOFTEC for record.
MOFTEC and the peoples governments of provinces, autonomous regions,
municipalities directly under the Central Government authorized by the
State Council or the relevant departments under the State Council shall
hereinafter be referred to as the examination and approval authority.
5.
1
2
3
4
5
234

- 78 -

5. When applying for establishing a joint venture, the Chinese and foreign
partners shall jointly submit the following documents to the examination
and approval authority:
(1) an application for the establishment of the joint venture;
(2) the feasibility study report jointly prepared by the parties to the joint
venture;
(3) the joint venture agreement, contract and articles of association executed
by the duly authorized representatives of the parties to the joint venture;
(4) list of the candidates for the chairman, vice-chairman and directors of
the joint venture nominated by the parties to the joint venture; and
(5) other documents specified by the examination and approval authority.
The documents listed in the proceeding paragraphs must be written in
Chinese, among them. Documents (2), (3) and (4) may be written
simultaneously in a foreign language agreed upon by the parties to the joint
venture. Documents written in both languages shall be equally authentic.
If anything inappropriate is found in the documents submitted, the
examination and approval authority shall require that it be amended within
the specified time.
6. 3

6. The examination and approval authority shall, within three months of the
receipt of all the documents stipulated in Article 5 of these regulations,
decide whether to approve or not to approve such documents.
7. 1

7. The applicant shall, within one month of the receipt of the certificate of
approval, go through the registration procedures with the administrative
authority of industry and commerce in accordance with the relevant
stipulations of the State. The date on which the business license of a joint
venture is issued shall be the date of the establishment of the joint venture.

- 79 -

1.2.1
1.

1. In accordance with the Law of the Peoples Republic of China on


Chinese-Foreign Equity Joint Ventures and other relevant Chinese laws and
regulations, Shanghai Sun Co., Ltd. (hereinafter referred to as Party A)
and Warren Inc. (hereinafter referred to as Party B), adhering to the
principles of equality and mutual benefit, and through friendly consultations,
agree to jointly establish an equity joint venture company (the JV
company) in Shanghai, the Peoples Republic of China (China), and
hereby enter into this Equity Joint Venture Contract (Contract).
2. -
Shanghai Sun-Warren Co., Ltd.

1705
The name of the JV company is - in Chinese,
and Shanghai Sun-Warren Co., Ltd. in English. The legal address of the
JV Company is 1705 Dong Yi Road, Shanghai, China.

/
/
60
/
/
If either party ceases to be a party of the JV Company at any time during the
Joint Venture Term, and if at such time any word in any language and/or
logo which is the same as or similar to the corporate name and/or logo of
that party appears in any part of the name and/or logo of the JV Company,
the other party shall procure that the JV Company shall forthwith change its
name to exclude such word and/or logo from the corporate name within
sixty (60) days of that party ceasing to be a party to the JV Company, and
shall procure that the all stationary, written materials and publications
containing any reference to such corporate name and/or logo shall be
forthwith destroyed.
- 80 -

3.

3. The JV Company shall be a limited liability company. It shall be liable to


the full extent of its assets. The liability of each party to the JV Company
shall be limited to the amount it has contributed to the registered capital of
the JV Company pursuant to this Contract. Unless otherwise agreed by the
parties, neither party shall have any liability to the JV Company in excess of
such amount. Neither of the party shall be jointly and severally liable to any
third party for the JV Companys liabilities and obligations.
4.

4. The JV Company shall be a limited liability company. Each partys


liability to the Company shall be limited to the amount of capital
contribution subscribed by it. The parties shall share the profits and bear the
risks and losses in proportion to their respective contribution to the
registered capital of the JV Company.
5.

5. JV Company is a legal person in China who shall be governed and


protected by Chinese law. All its activities shall comply with the provisions
of Chinese laws and regulations.
6.

6. In accordance with the Law of the Peoples Republic of China on Foreign


Investment Enterprises and its implementation rules and other relevant laws
and regulations of China, the Parties to this Contract agree to jointly operate
a wholly foreign-owned enterprise in Shanghai, China.
7.

- 81 -


7. The company shall be a legal person in China, which is by nature a
wholly foreign-owned enterprise. It shall be governed and protected by
Chinese law. And, it shall comply with the provisions of the laws and
regulations of China in all its activities. It shall be entitled to all preferential
treatment accorded by the State and the local governments to wholly
foreign-owned enterprises.

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

unit 2

2.1.1
1.

1. The total amount of investment (including borrowings) of a joint venture


refers to the sum total of the capital construction funds and the circulating
funds required to be invested in conformity with the joint ventures
production scale as set out in the contract and the articles of association of
the joint venture.
2.

2. The registered capital of a joint venture refers to the total capital


registered with the registration authority for the establishment of the joint
venture. It shall be the sum of the capital contributions subscribed by all
parties to the joint venture.
The registered capital shall generally be denominated in Renminbi or may
be in a foreign currency agreed upon by the parties to the joint venture.
3.

- 82 -


3. No joint venture may reduce its registered capital during the term of the
joint venture. If there is a real need for reduction of the registered capital
due to changes in the total amount of investment, the scale of production
and operation, or other circumstances, such reduction shall be subject to
approval by the examination and approval authority.
4.

4. If a party to a joint venture intends to transfer all or part of its equity to a


third party, consent shall be obtained form the other parties to the joint
venture, and approval from the examination and approval authority shall be
required. Such transfer shall be registered with the registration authority for
the corresponding changes in the registration particulars.
When a party transfers all or part of its equity, the other parties shall have
the preemptive right.
In case one of party to the Joint Venture intends to transfer all or part of its
interest rights, the other party shall be entitled to the preemptive right to buy
such interest rights.
When a party transfers its equity to a third party, the conditions offered for
such transfer may not be more favorable than those offered to the other
parties to the joint venture.
Any transfer in contravention of the above provisions shall be invalid.
Any transfer in breach of the proceeding provisions shall be void.
5.

5. Any increase in or reduction of the registered capital of a joint venture


shall be approved by a board meeting and submitted to the examination and
approval authority for approval. Such increase or reduction shall be
registered with the registration authority for the corresponding changes in
the registration particulars.
6.
- 83 -

6. A party to a joint venture may make its capital contribution in money, or


in the form of buildings, factory premises, machinery, equipment or other
materials, industrial property, proprietary technology or site use rights, the
value of which shall be appraised. Where the contribution is in the form of
buildings, factory premises, machinery, equipment or other materials,
industrial property or proprietary technology, the value thereof shall be
determined by the parties to the joint venture through consultation and on
the principle of fairness and reasonableness or shall be appraised by a third
party agreed upon by parties to the joint venture.
7.

7. The foreign exchange contribution made by the foreign party shall be


converted into Renminbi or cross exchanged into a predetermined foreign
currency at the standard exchange rate published by the Peoples Bank of
China on the day the payment is made.
Where the cash contribution in Renminbi made by the Chinese party needs
to be converted into a foreign currency, it shall be converted at the standard
exchange rate published by the Peoples Bank of China on the day the
payment is made.
8.

8. The machinery, equipment or other materials contributed by the foreign


party shall be those that are indispensable for the production of the joint
venture.
The valuation of the machinery, equipment or other materials mentioned in
the proceeding paragraph may not be higher than the current international
market price of machinery, equipment or other materials of the same kind.
9.

- 84 -

1
2
9. The industrial property or proprietary technology contributed by the
foreign party shall meet one of the following conditions:
(1) It is capable of notably improving the performance and quality of
existing products and raising productivity; or
(2) It is capable of notably economizing on raw materials, fuel or power.
10.

10. A foreign party who contributes industrial property or proprietary


technology shall deliver documentation relating to, including photocopies of
the letters patent or trademark registration certificates, statements of validity,
technical features and practical value thereof, the basis for calculating the
price, and the agreement signed with the Chinese partner on the value
thereof, as annexes attached to the joint venture contract.
11.

11. The machinery, equipment or other materials, industrial property or


proprietary technology contributed by the foreign parties shall be submitted
to the examination and approval authority for approval.
12.

12. Each party to a joint venture shall make its capital contribution in full
and within the time limited prescribed in the contract. If a party delays in
making its contribution or fails to make its contribution in full, it shall pay
interest on such default or compensate for any losses pursuant to the
provisions of the contract.
13.

- 85 -

13. After the parties have made their capital contributions to the joint
venture, such contributions shall be verified by a certified public accountant
registered in China. Upon the issuance of the capital verification report by
the said accountant, the joint venture shall issue a capital contribution
certificate to each party, which shall contain the following particulars: the
name of the joint venture, the date, month and year of the establishment of
the joint venture, the names of the parties and their capital contribution, the
date, month and year on which their capital contribution is made, and the
date, month and year of the issuance of the capital contribution certificate.

2.2.1
1.
1. The total amount of investment of the JV Company is fifteen million
(15,000,000) US Dollars, and the registered capital of the JV Company is
ten million (10,000,000) US dollars.
2.
80%
20%

2. Party A shall contribute the Reminbi (RMB) equivalent of eight million


(8,000,000) US Dollars in cash to the JV Company, accounting for 80% of
the registered capital of the JV Company. Party shall contribute the RMB
equivalent of two million (2,000,000) US Dollars in cash to the JV
Company, accounting for 20% of the registered capital of the JV Company,
provided, however, that Party B will provide evidence proving the lawful
source of its RMB contribution.
3. 90
100%i
90 25%

ii 2002 5
25%

iii
50%

3. Party B shall contribute 1000% of its share of the registered capital of the
JV Company (i.e. the RMB equivalent of US $ 2,000,000) within ninety (90)
days after the JV Company obtains its business license. Party A shall
- 86 -

contribute (i) 25% of its share of the registered capital of the JV Company
(i.e. the RMB equivalent of US $ 2,000,000) within ninety (90) days after
the JV Company obtains its business license; (ii) 25% of its share of the
registered capital of the JV Company (i.e. the RMB equivalent of US $
2,000,000) by the end of May, 2002; (iii) 50% of its share of the registered
capital of the JV Company (i.e. the RMB equivalent of US $ 4,000,000)
within three years after the JV Company obtains its business license.
4.

4. If either party fails to make its contribution to the registered capital as


required by Article 3 above, such failure shall be dealt with in accordance
with Article 6 and 7 of the Several Provisions Concerning Capital
Contributions by Parties to the Chinese-Foreign Equity Joint Venture
Enterprises. In addition, interest shall accrue and shall be payable by such
party to JV Company on the value of each late contribution from its
scheduled contribution date specified in Article 3 till the date when such
contribution is actually made. The rate of interest shall be equal to one
percent over the monthly London interbank offered rate for US Dollars.
5. i
ii

5.The JV Company shall engage a certified public accountant registered in


China (CAP) to verify the contribution to the JV Company made by each
of the Parties (i) after party B has contributed its share of the registered
capital of the JV Company in full and Party A has paid its second
installment of contribution to the registered capital of the JV Company, and
(ii) after Party A has paid in full its contribution to the registered capital of
the JV Company. After the CPA has issued each capital verification report,
the JV Company shall issue to each Party a capital contribution certificate
signed by the Chairman of the Board of directors, indicating the name of the
party and the cumulative amount of its contribution.
6.

- 87 -

6. The difference between the total investment and the registered capital of
the JV Company is five million (5,000,000) US Dollars ( the Difference).
The Parties agree to cooperate in raising the Difference for the JV Company.
To this end Party B shall procure one of its affiliates to lend to the JV
Company an amount of up to four million two hundred thousand (4,200,000)
US Dollars in installments (the Party B Loan). The specific terms and
conditions of the Party B Loan, including without limitation the interest
rates, conditions precedent to advancement of each installment and other
relevant terms shall be set forth in a Loan agreement to be entered into by
and between the JV Company and Party Bs affiliate. The principal of and
interest on the Party B Loan shall be repaid over a term of ten years from the
date of issuance of the JV Companys business license.
The amount to make up the shortage in the Difference (i.e. 800,000 US
Dollars) shall be borrowed by the JV Company in or out of PRC pursuant to
the decisions of the board of directors.
7.

7. Should one Party transfer all or part of its share of the registered capital of
the JV Company, prior consent shall be obtained in writing from the other
Party. In addition, the other Party shall have the preemptive right on the
same terms and conditions and to the extent permitted by law.

Upon the transfer of all or part of either Partys share of the registered
capital to the JV Company, the transferee thereof shall assume the
corresponding obligations and responsibilities of the transferring Party as
stipulated in this contract.

- 88 -

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

unit 3

3.1.1
1.

1. A joint venture shall set up a board of directors, the member and


composition of which shall be specified in the contract and articles of
association by the parties to the joint venture through consultation. The
directors shall be appointed and replaced by the parties. Chairman or
vice-chairman shall be determined by the parties to the joint venture through
consultation or elected by the board of directors. Where the Chinese party or
the foreign party assumes the office of chairman, the other party shall be the
vice-chairman. The board of directors shall decide important matters
concerning the joint venture on the principles of equality and mutual benefit.
2.

2. As its functions and powers, the board of directors shall, in accordance


with the provisions of the articles of association of the joint venture, discuss
and decide all important matters concerning the joint venture, namely, the
enterprise expansion plan, plans for production and business activities,
budget for revenues and expenditures, profit distribution, plans concerning
labor and wages and winding up, as well as the appointment or engagement
of the general manager, deputy general manager, chief engineer, chief
accountant, and auditors and their functions and powers, and salaries and
benefits.
3.
3. The board of directors shall be the highest authority of a joint venture. It
shall decide all major matters concerning the joint venture.
- 89 -

4. 3

4
4. The board of the directors shall consist of no less than three members.
The number of directors to be appointed by each party shall be determined
through consultation by the parties to the joint venture with reference to the
proportion of their respective capital contribution.
The term of office for each director shall be four years. Such term shall be
renewed when a director is re-appointed by the original appointing party to
the joint venture.
5.

1/3
2/3

5. The board meeting shall be convened at least once a year, which shall be
called and presided over by the chairman of the board. If the chairman is
unable to call the meeting, he shall appoint the vice-chairman or another
director the power to call and preside over the meeting. The chairman may
convene an interim meeting upon a proposal made by more than one third of
the total number of directors.
The board meeting shall be held only when over two-third of the directors
are present. If a director is unable to attend the meeting, he may issue a
power of attorney to appoint a proxy to represent him and vote on his
behalf.
The board meeting shall generally be held at the location of the joint
ventures legal address.
6.
1
2
3
4

- 90 -


6. Resolutions on the following matters shall be made only after they have
been unanimously approved by the directors present at the board meeting:
(1) amendment to the articles of association;
(2) termination and dissolution of the joint venture;
(3) increase in and reduction of the joint ventures registered capital; and
(4) merger or division of the joint venture.
Resolutions on other matters may be made in accordance with the rules of
procedure stated in the articles of association of the joint venture.
7.

7. The chairman of the board is the legal representative of the joint venture.
When the chairman is unable to perform his duties, he shall authorize the
vice-chairman or another director to represent the joint venture.

3.2.1
1.
1. The day of the issuance of the JV Companys business license shall be
date of the establishment of the JV Company and the board of directors.
2. 5 3 2
. 3

7
2. The board of directors shall consist of 5 directors, of whom three (3) shall
be appointed by Party A and two (2) shall be appointed by Party BThe
chairman of the board shall be appointed by Party A. The term of office of
the chairman and other directors shall be three (3) years, and they may serve
consecutive terms when they are re-appointed by the original appointing
Party.
When a vacancy arises on the board of directors, the original appointing
Party shall promptly appoint a successor. Any Party may at any time appoint
- 91 -

a new director (including the chairman of the board). When a new director,
chairman or vice-chairman is appointed, the appointing party shall notify the
board of directors and the other party seven (7) days in advance.
3.

3. The chairman of the board is the legal representative of the JV Company.


He shall be responsible for calling and presiding over the board meeting.
Without the prior written authorization by the board of directors in the form
of a resolution, the chairman shall have no right to take any action that is
binding on the JV Company or the board of directors. Should the chairman
be unable to perform his duties, he shall appoint another director to perform
the duties of the chairman and represent the JV Company for the time being.
4. 14

4. The board meeting shall be convened at least once a year. The chairman
of the board shall give each director a written notice fourteen (14) days prior
to the date of the board meeting, stating the agenda, time and place of the
meeting. Each director may at any time prior to the date of a meeting
specified in the notice of meeting issued by the chairman, by giving at least
five (5) days notice to the chairman, request for additional matters to be
discussed at such meeting. The chairman of the board shall forthwith
distribute a revised notice of meeting to each of the directors following
receipt of any such request. The board of directors may not at any meeting
adopt any resolutions on subjects not specified in the notice of the meeting
unless approved by all the directors.
5.

2/3 2/3

- 92 -

5. Where the director is unable to attend a board meeting for any reason, he
may appoint a proxy by a power of attorney to attend the meeting on his
behalf. If the director or his proxy fails to attend the duly convened board
meeting, such director shall be deemed to have abstained form voting.
The quorum of the board meeting shall be two-thirds of the total number of
directors. Resolutions passed by a board meeting attended by less than
two-thirds of the directors shall be invalid.
6.
14

6. Detailed minutes of the board meeting shall be prepared in Chinese and


English by the General Managers office and shall be delivered to each
director within fourteen (14) days of the conclusion of the meeting to be
signed and confirmed by each of the directors who attended the board
meeting. The minutes of the board meeting shall actually fully and truly
record the opinions of the directors or their proxies on the matters being
resolved, and any objection raised by any director or his proxy shall also be
recorded in the minutes. No director may refuse to sign the minutes of the
board meeting on the ground that he objects to any resolution adopted at the
board meeting. The minutes of the board meeting that are signed by the
directors shall be the true record of the matters discussed and voted on at the
board meeting, and shall be kept and complemented by the General
Managers office. Photocopies thereof shall be promptly signed by the
chairman (or his proxy attended at the time) and distributed to each director.
In case of any discrepancy between the Chinese and English versions, the
minutes of the meeting prepared in Chinese shall prevail.
7.

7. An action may be taken by the board of directors without the convening


of a board meeting if all the members of the board of directors consent in
writing to the action. Such written consent shall be placed on record, and
shall have the same force and effect as a unanimous affirmative vote taken
- 93 -

at a duly convened board meeting.

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

unit 4

4.1.1
1.

1, A joint venture shall establish its business management organization,


which shall be responsible for its day-to-day business management. The
business management organization shall have one general manager and
several deputy general managers, who shall assist the general manager in his
work.
2.

2. The general manager shall carry out the various decisions of the board
meeting, and organize and lead the daily management work of the joint
venture. The general manager shall, within the authority given by the board
of directors, represent the joint venture externally and appoint and dismiss
his subordinates in the joint venture and exercise other powers granted by
the board of directors.
3.

3. The general manager or deputy general manager shall be engaged by the


board of directors of the joint venture. These positions may be held either by
- 94 -

Chinese citizens or by foreign citizens.


As the invitation of the board of directors, chairman, vice-chairman or
directors may concurrently be the general manager, deputy general manager
or other officer of the joint venture.
In handling important matters, the general manager shall consult with the
deputy general managers.
The general manager or deputy general manager may not hold posts
concurrently as the general manager or deputy general manager of another
economic organization and they may not join other economic organizations
in commercial competition with their own enterprise.
4.

4. The general manager, deputy general manager or other officer commits an


act of graft or serious dereliction of duty, the board of directors may adopt a
resolution to dismiss him at any time.
5.

5. When a joint venture needs to establish branches (including sales offices)


overseas or in the Hong Kong or Macao Special Administrative Region of
China, approval from the Ministry of Foreign Trade and Economic
Cooperation shall be required.
6.

6. The cooperative joint venture shall have a general manager who shall be
responsible for its day-to-day business management. The general manager
shall be responsible to the board of directors or the joint management
committee.
The general manager of the cooperative joint venture shall be engaged and
dismissed by the board of directors or joint management committee.
At the invitation of the board of directors or the joint management
committee, a director or committee member may concurrently be the
general manager or other officers of the cooperative joint venture.
- 95 -

7.

7. The general manager or any other officer may be dismissed for


incompetence or an act of graft or serious dereliction of duty, subject to a
resolution of the board of directors or the joint management committee. He
who has caused losses to the cooperative joint venture shall be legally liable
for such losses.

4.2.1
1.

1. The JV Company shall practice the general manager responsibility system


under the leadership of the board of directors. The JV Company shall have a
general manager, who shall be nominated by Party A, and a deputy general
manager, who shall be nominated by Party B. The general manager, deputy
general manager shall be appointed by the board of directors, for a term of
three (3) years. Their term of office may be renewed with the approval by
the board of directors. The general manager shall be directly responsible to
the board of directors, and the deputy general manager shall assist the
general manager in his work.
2.

2. The business management organization shall comprise several


departments, which shall take charge of various works of the company,
handle the matters assigned by the general manager or deputy general
manager and be responsible to the general manager and the deputy general
manager. The general manager shall have the right to make and implement
decisions on hiring, dismissal, promotion, demotion or transfer of the
managers of the various departments and the staff and workers at lower
levels in accordance with the labor contracts and the provisions of the
relevant laws of China.

- 96 -

3.

1
2

3
4
5
6
3. The main responsibilities of the general manager shall be to implement
the various decisions of the board of directors, to organize and lead the
day-to-day production, operation and management, and to prepare and
submit to the board of directors the annual plan and budget, including the
financial budget, and the plan for capital investments and dispositions,
borrowings, and forecasts of price level, sales volumes, expenses, earnings,
distributable profits and such other items as are required for business
operations. In addition, the general manager shall exercise the following
rights and duties:
(1) submit periodic written reports to the board of directors on the incomes
and expenditures of the company together with suggestions of improvement;
(2) formulate rules and regulations for the operation and management of the
Company and a plan for the division of labor, and responsibilities and
functions of various departments, and implement same after they are
approved by the board of directors;
(3) formulate personnel training programs and implement such programs
following their examination and approval by the board of directors;
(4) handle external relations, and represent the Company in signing
commercial documents and other corporate documents with third parties;
(5) act as the authorized representative of the Company in connection with
the institution or defense of any lawsuits or arbitration proceedings; and
(6) exercise such other rights and duties as are entrusted by the board of
directors (which shall be specified by the Company).

- 97 -

4.

4. The Company shall have a chief accountant, who shall be responsible for
directing the financial and accounting work of the Company. The chief
accountant shall prepare monthly financial reports required by the board of
directors and in compliance with the relevant provisions of Chinese laws.
5.

5. The general manager, deputy general manager, chief accountant or other


officers shall protect the legitimate rights and interests of the Company.
Without the approval by the board of directors, none of them may
concurrently hold any position in any economic organization that is likely to
compete against the Company, or joint it in competing against the Company.
6. 3

6. If the general manager, the deputy general manager, the chief accountant
or any other officer wishes to resign from his office, he shall submit a prior
written report to the board of directors three (3) months in advance.
If any of the above personnel commits an act of graft or serious dereliction
of duty, the board of directors may decide to dismiss him at any time. He
who has violated the criminal law shall be prosecuted according to law.

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

unit 5

5.1.1
1.

- 98 -

1. Joint ventures must implement the principle of economizing on land in


their use of sites. A joint venture shall submit an application for the use of a
site to the local land administration authority at municipal (county) level and
shall, upon approval from the said authority, obtain the right to sue the site
through the conclusion of a contract. The contract shall specify the area,
location and purpose of the site, the term of the contract, the fee for the right
to use the site (hereinafter referred to as the site use fee), the rights and
obligations of the parties to the contract, and the penalty for breach of
contract.
2.

2. If the right to use the site needed by a joint venture is already owned by
the Chinese party, it may contribute such right as its investment in the joint
venture. The amount appraised for such right shall be equivalent to the site
use fee payable for obtaining the right to the use of a site of the same kind.
3.

3. The rate for the use of a site shall be determined by the peoples
government of the province, autonomous region or municipality directly
under the Central Government where the site is located in consideration of
such factors as the purpose and geographical and environmental conditions
of the site, expenses for land requisition, demolishing of the houses on the
site and relocation of the residents, and the joint ventures requirements in
respect of the infrastructure, which shall be filed with the Ministry of
Foreign Trade and Economic Cooperation and the State Land administration
authority for the record.
4. 5

- 99 -

4. The site use fee shall not be adjusted within the first five (5) years of the
commencement of land use. Thereafter, when adjustment is necessitated by
economic development and changes in supply and demand and in
geographical and environmental conditions, the interval in between such
adjustment shall not be less than three years.
The site use fee contributed by the Chinese party as its investment may not
be adjusted during the term of contract.
5.

5. If its right to the use of a site is obtained pursuant to Article 1 above, the
joint venture shall pay the site use fee per annum from the commencement
of the use of the site during the term of site use as specified in the contract.
For the first calendar year, a half-year fee shall be paid if the site has been in
use for more than six months; the site use fee shall be exempted if the use of
the site is less than six months. During the term of the contract, if the site
use fee is adjusted, it shall be paid at the new rate beginning from the year
of adjustment.
6.
6. In addition to obtaining the site use right pursuant
to the provisions of this chapter, joint ventures may acquire such right in
accordance with the relevant stipulations of the State.
7.

7. Land to be used by a wholly foreign-owned enterprise shall be arranged


by the local peoples government at county level or above in the light of the
local conditions after it has been verified by the said government.
8. 30

8. A wholly foreign-owned enterprise shall, within thirty (30) days of the


issuance of its business license, present the approval certificate and the
business license to the land administration authority of the local peoples
government at county level or above, go through the land use procedures
- 100 -

and collect the land use certificate.


9.

9. The land use certificate shall be the legal proof for a wholly
foreign-owned enterprise to use the land. During the term of operation, the
wholly foreign-owned enterprise may not assign its land use right without
approval.
10.

10. When collecting the land use certificate, a wholly foreign-owned


enterprise shall pay the land use fee to the local land administration
authority.
11.

11. If a land to be used by a wholly foreign-owned enterprise has been


developed, it shall pay the land development fee.
The land development fee mentioned in the preceding paragraph includes
the expenses for land requisition, demolishing of the houses on the land and
relocation of the residents and the expenses involved in the building of the
infrastructure for the wholly foreign-owned enterprise. The land
development fee may be collected by the land development unit in one lump
sum or by yearly installments.
12.

12. If a land to be used by a wholly foreign-owned enterprise is undeveloped,


it may develop the land by itself or commission relevant Chinese unites to
develop it. The building of the infrastructure on the land shall be arranged
by the local peoples government at county level or above under unified
planning.
Where the land used by the wholly foreign-owned is undeveloped, the
wholly foreign-owned enterprise may develop the land by itself or
- 101 -

commission relevant Chinese units to develop it.


13.

13. The land use and land development rates to be collected from wholly
foreign-owned enterprises shall be in accordance with the relevant
regulations of China.
14.

14. The term for land use by a wholly foreign-owned enterprise shall
coincide with the approved term of its operation.
15.

15. In addition to obtaining the land use right pursuant to the provisions of
this chapter, wholly foreign-owned enterprises may acquire such right
pursuant to other regulations of China.

5.2.1
1. 535
15150

1. Party A hereby grants to Party B a parcel of land, Lot No. 535 located to
the north of Xin Cun Road and to the west of Dong Feng Road, Jiading
District, Shanghai and covering an area of 15,150 square meters. The exact
area, location and four boundaries of the Land are shown on the map
attached to this Contract as Appendix I, which map has been affirmed
through signature of both parties.
2. 20
303,000 50

2. Party B shall pay Party A a Land Use Rights grant fee (the Land Grant
Fee) of US $ 20 per square meter for a total of Three Hundred and Three
- 102 -

Thousand U.S. Dollars (US $303,000) to obtain the Land Use Rights to the
Land for a term of fifty (50) years (the Land Use Term), which
commences from the 60th day of the execution of this contract. However,
the total amount of the Land Grant Fee shall be adjusted according to the
actual area of the Land measured and confirmed by Party A.
Party B shall pay 20 US Dollars for every square meters of land to Party A
as the transference price on the land use right (land transference price"), the
total of which shall be 303,000 US Dollars, to obtain the right to use such
land for 50 years (land use term"). Such term shall be commencing from
the sixtieth day after the execution of this contract
3. 1

6 30 12 31
3. In addition, Party B shall pay Party A a land use fee (the Land Use Fee)
for the Land of RMB 1.00 per square meter per year during the Land Use
Term. The Land Use Fee shall be payable in two (2) semi-annual
installments, with the first installment due by June 30 and the second
installment due by December 31 each year.
4. 7 1

4. Party B shall pay Party A, within seven (7) days after the execution of this
contract, Ten Thousand U.S. Dollars (US $ 10,000) as a deposit (the Land
Grant Fee), which shall constitute part of the payment of the Land Grant
Fee payable by Party B under this contract.
5. 60
293,000
5. Party B shall pay Party A, within sixty (60) days after the execution of the
contract, the remaining amount of the Land Grand Fee of Two Hundred and
Ninety Three Thousand US Dollars (US $293,000) in full.
6.
1

6. The Land Grant Fee shall cover all payments (other than the Land Use
Fee of RMB 1.00 per square meter per year as set forth in Article 3 above)
that Party B will be required to pay in order to use the Land.

- 103 -

7.

30

0.3%
7. If Party B fails to pay the Land Grant Fee on time, Party A shall have the
right to terminate this contract and claim damages from Party B for breach
of contract; provided that prior to such termination and claim for damages,
Party A shall provide Party B with a written notice of Party Bs failure to
pay the Land Grant Fee and Party B shall have thirty days from the receipt
of Party As notice to cure such failure. If Party B intends to postpone the
payment of the Land Grant Fee, a written application shall be made to Party
A before such payment is due. Where Party A consents to such delay, a 0.3%
per day late payment penalty shall be charged.
8. 10

30
8. Party B shall file an application with the Shanghai Municipal Real Estate
Registration Office (the Registration Office) for initial registration of the
Land Use Rights within seven (7) days after having paid the Land Grant Fee
in full and being issued a receipt in respect thereof. The Registration Office
shall issue to Party B a Shanghai Municipal Real Estate Title Certificate
within thirty (30) days after its acceptance of Party Bs filing of the said
registration.
9.

9. The ownership of the Land, for which the Land Use Rights are granted,
still belongs to the State. The State shall retain, over the Land, its judicial
power, the administrative power and other powers granted by law, as well as
other rights and interests which are necessitated by public interest.
10.

10. The Shanghai Municipal Peoples Government retains the power of


- 104 -

urban planning and design in respect of the Land. When the Land Use Term
is due for renewal, the then effective urban planning must be complied with.
The government shall not compensate Party B for consequences brought to
Party B by the modification of the planning.
11.

5
11. During the Land Use Term, Party A shall, subject to Party Bs right to
protect its and its customers confidential information, have the right to
supervise and inspect, in accordance with law, the development, utilization,
assignment, lease, mortgage and termination of the Land Use Right to the
Land. If Party A desires to inspect Party Bs use of the Land, Party A shall
notify Party B of the contemplated inspection in writing five (5) working
days prior to the date on which the inspection will be conducted.
12.
1

12. Upon expiration of the Land Use Term, Party B shall go through the
formalities for reverting the Land to Party A on the expiration date. If Party
B wishes to renew the Land Use Term, it shall submit an application to Party
A one (1) year prior to the expiration date. Upon Party As consent to the
renewal, Party B shall again carry out the procedures for the grant of Land
Use Rights.

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

unit 6

6.1.1
1.

1. A joint venture shall have the right to decide for itself to purchase
required machinery and equipment, raw materials, fuels, accessories and
- 105 -

fittings, means of transport and office supplies, etc, (hereinafter referred to


as materials) in China or from abroad.
2.

2. There is no limit on quantities of office supplies and articles for daily use
to be purchased in China by joint ventures to meet their needs. A joint
venture may purchase the office and live supplies in accordance with the
requirement, and without any restriction.
3.
3. The Chinese government encourages joint ventures to sell their products
to the international market.
4.

4. A joint ventures shall have the right to export its products by itself, or
commission the sales agencies of the foreign party to the joint venture or
Chinese foreign trade companies to sell its products on a consignment or
distribution basis.
5.

5. If a machinery and equipment, spare parts and fittings, raw materials, and
fuels to be imported by a joint venture to meet the needs of its production
within the business scope as set out in the joint venture contract shall require
import licenses under State regulations, the joint venture shall work out a
plan per annum and apply for such licenses every six months. For the
importation of machinery and equipment and other goods contributed by the
foreign party, the joint venture may directly apply for import licenses on the
strength of the approval documents issued by the examination and approval
authority. A joint venture may directly apply the import license upon the
approval documents issued by the examination and approval authority for
- 106 -

the machine and equipment or other material contributed to the joint venture
by the foreign party to the contract. In respect of the importation of
materials beyond the scope as set out in the joint venture contract, the joint
venture shall make a separate application for import licenses required under
State regulations.
A joint venture may operate the business of exporting products
manufactured by itself. Where export license for its products are required
under State regulations, the joint venture shall apply for them every six
months in line with its annual export plan.
6.

6. With respect to prices of materials to be purchased in China and fees


charged for the supply of water, electricity, gas and heat and the services
such as transportation of goods, labor, project designing, consulting and
advertising, joint ventures shall enjoy equal treatment accorded to other
domestic enterprises.
7.

7. In business intercourse between a joint venture and another Chinese


economic organization, the two parties shall undertake economic
responsibilities and settle disputes in connection with their contract pursuant
to relevant laws and the contract concluded between them.
8.

8. A joint venture shall provide statistical data and submit statistical


statements in accordance with the Law of the Peoples Republic of China on
Statistics and Chinese regulations concerning the statistical system for the
utilization of foreign capital.
9.

9. A wholly foreign-owned enterprises shall have the right to decide for


itself to purchase machine and equipment, raw materials, fuels, parts and
components, accessories, elements, means of transport and office supplies
- 107 -

for its own use.


In purchasing materials in China, the wholly foreign-owned enterprises shall
enjoy equal treatments accorded to Chinese enterprises under the same
conditions.
10.

10. A wholly foreign-owned enterprise may sell its products on the Chinese
domestic market; The State encourages wholly foreign-owned enterprises to
export their products.
11.

11. A wholly foreign-owned enterprise shall have the right to export its
products by itself, or may commission Chinese foreign trade companies or
companies outside Chinese territory to sell its products on a consignment
basis.
A wholly foreign-owned enterprise may sell its products buy itself, or
commission commercial organizations to sell its products on a consignment
basis.
12.

12. If the machinery and equipment contributed by a foreign investor as


investment shall require import licenses under Chinese regulations, the
wholly foreign-owned enterprise shall directly apply or entrust an agency to
apply with the license issuing authority for the import licenses on the
strength of the list of equipment and materials approved for importation by
the enterprise.
Where materials to be imported by a wholly foreign-owned enterprise for its
- 108 -

own use and for the needs of its production within the approved business
scope shall require import licenses under Chinese regulations, the wholly
foreign-owned enterprise shall work out an annual import plan, and apply
with the license issuing authority for import license every six months.
Where products to be exported by the wholly foreign-owned enterprises
shall require export licenses under State regulations, the enterprises shall
work out the annual export plan and apply with the license issuing authority
for such export licenses every six months.
13.

13. Prices for materials and skilled labor to be exported by a wholly


foreign-owned enterprise may not be higher than the normal prices of
materials and skilled labor of the same kind prevailing on the international
market. Prices of export products of a wholly foreign-owned enterprise shall
be determined by the enterprise itself with reference to the current
international market prices. If a wholly foreign-owned enterprise employs
high import prices and low export prices to evade taxation, the tax
authorities shall have the right to take a legal action against it according to
tax laws.

6.2.1
1.

1. For the purchase of required materials and goods, the JV Company shall
work out a purchase plan and budget and make a detailed list for the record.
All major investment projects involving fixed assets must be reported to the
board of directors for approval before they may be carried out.
2.

2. The raw materials, machinery and equipment, components, spare parts,


chemicals, fuels and the like required by the JV Company may be purchased
on the domestic market or from abroad based on their quality and on the
principles of fairness and reasonableness.
- 109 -

3.

3. If Party A shall purchases on behalf of the JV Company or arrange for the


JV Company to purchase materials in accordance with the Business
Management Contract, Party A shall abide by the principles of fairness and
reasonableness, and safeguard the interests of the JV Company. For
purchase under such circumstances, the purchase price of such materials to
be paid by the JV Company shall be equal to the purchase price of materials
of the same kind paid by Party A or its Affiliates plus freight, incidental
expense and insurance. The JV Company shall decide for itself if it intends
to purchase materials within China or from abroad by other means (not
including the arrangement by Party A). Where the JV Company intending to
purchase materials in or outside of the PRC by other means (including
purchase not under the arrangement of Party A), the JV Company shall
make its own decision.
4.

4. Party A shall assist the JV Company in applying for and procuring


licenses for the importation of necessary quantities of machinery, equipment,
raw materials and supplies (if any). At the request of Party B or the JV
Company, Party A shall assist the JV Company in purchasing raw materials
in the PRC, without being primarily responsible thereof.
5.

5. Party A shall assist the JV Company in purchasing certain equipment,


including the sale by Party A of the auxiliary equipment and facilities listed
in Appendix 1 (Party A Equipment). Party A hereby warrants that it shall
- 110 -

only sell the Party A Equipment to the JV Company following Party Bs


confirmation of the valuation of the Party A Equipment. Party A hereby
further warrants that the Party A Equipment shall be in good workable
condition and, at the time of sale to the JV Company, shall be wholly owned
by it and shall not be subject to any hire purchase arrangement, lease,
mortgage, pledge, lien or other encumbrances in favor of any third party
whatsoever and shall, upon completion of the sale to the JV Company,
constitute the wholly owned, unencumbered property of the JV Company.
6.

6. Party B shall assist the JV Company in purchasing the equipment listed in


Appendix II from overseas suppliers and in securing the best commercial
terms and conditions for such purchase.
7.

7. Party A shall assist the JV Company in procuring raw materials and


packing materials both in and out of the PRC and in selecting suppliers of
raw materials and packing materials, and shall determine, on behalf of the
JV Company, the price and terms of procurement of raw materials and
packing materials pursuant to the relevant provisions of the Products Supply
Agreement.
8.

8. The JV Company shall make every endeavor to expand the market share
of Products in China, market Products in Chinese market, increase the sale
of Products and energetically promote the export sales of Products.
9.

9. The parties hereby agree that the JV Company may sell all its output of
products to Party B or Party Bs designated affiliates (including Party Bs
affiliates outside the PRC) in accordance with the terms and conditions of
the Product Supply Agreement.

- 111 -

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

unit 7

7.1.1
1.
1. Joint venture shall pay taxes in accordance with the provisions of the
relevant laws of the Peoples Republic of China.
2.

2. Staff and workers of joint ventures shall pay individual income tax in
accordance with the Individual Income Tax Law of the Peoples Republic of
China.
3.
1

3. Taxes on the following materials imported by a joint venture shall be


reduced or exempted in accordance with the relevant provisions of the
Chinese tax law:
(1) Machinery and equipment, spare parts and components, and other goods
(other goods shall, herein and hereinafter, mean materials needed by a
joint venture to build its factory or site and to install and consolidate the
machinery.) contributed by the foreign party to the joint venture as
investment under the joint venture contract;
- 112 -

(2) Machinery and equipment, spare parts and components, and other goods
imported with funds out of the total investment of a joint venture;
(3) Machinery and equipment, spare parts and components and other goods
imported by a joint venture with additional capital and upon the approval by
the examination and approval authority, the production and supply of which
cannot be guaranteed in China;
(4) Raw materials, auxiliary materials, components, elements, spare parts,
and packing material imported by a joint venture for the production of
export goods.
When the above-mentioned materials on which taxes are reduced or
exempted are approved for resale in China or used for products to be sold in
China, taxes shall be paid or the balance in tax payment shall be made up in
accordance with the relevant provisions of the Chinese tax law.
4.

4. Taxes on export products manufactured by a joint venture other than those


restricted by China shall be reduced, exempted or refunded in accordance
with the relevant provisions of the Chinese tax law.
5.

5. All matters relating to foreign exchange of joint ventures shall be handled


in accordance with the Regulations of the Peoples Republic of China on
Foreign Exchange Control and the provisions of relevant administrative
measure.
6.

6. A joint venture shall, on the strength of its business license, open accounts
in foreign exchange and in Renminbi with banks in China, which shall
supervise its receipts and payments.
7.

7. Approval from the State Administration of Exchange Control or one of its


- 113 -

branches shall be required for a joint venture to open a foreign exchange


account with a bank overseas or in Hong Kong SAR or Macao SAR, and the
joint venture shall report its receipts and payments and provide the bank
statements to the State Administration of Exchange Control or its branch.
8.

8. Branches set up by a joint venture in foreign countries or in Hong Kong


SAR or Macao SAR shall submit their annual balance sheet and annual
profit statement to the State Administration of Exchange Control or its
branches through the joint venture.
9.

9. A joint venture may, in light of its operation needs, apply with financial
institutions in China for loans in foreign exchange and in Renminbi. It may
also borrow funds in foreign exchange from banks abroad or in Hong Kong
SAR or Macao SAR in accordance with the relevant stipulations of the State,
and carry out the procedures for registration or filing for the record with the
State Administration of Exchange Control or one of its branches.
10.

10. After paying taxes on their salaries and other legitimate incomes
according to law and deducting their expenses in China, foreign employees
and employees from Hong Kong SAR AND Macao SAR may remit the
remainder of their foreign exchange out of China in accordance with the
relevant stipulations of the State.
11.
11. Joint ventures shall take out various insurance policies with insurance
companies in China.

7.2.1

- 114 -

1.

1. The company shall pay taxes and enjoy preferential tax treatment in
respect of its economic activities in accordance with the relevant laws and
regulations of PRC and the relevant policies of (or applicable in) the
Industrial Park.
2.

2. The staff and workers of the company shall pay individual income tax in
accordance with the relevant PRC laws and regulations. All profits and
salaries of the expatriate staff of the company may be freely remitted out of
the PRC, provided that matters relating to taxation and foreign exchange
control shall be handled in accordance with the relevant laws and
regulations of PRC.
3.

3. All foreign exchange matters of the Company shall be handled in


accordance with the relevant provisions of the Regulations of the Peoples
Republic of China on Foreign Exchange Control and other relevant PRC
laws and regulations.
4.

4. All transactions of the Companys foreign exchange shall be handled


through the Bank of China or other banks authorized by the State
Administration of Exchange Control.
5.

1
2
3
4
5. The Company and the parties to this contract may remit their lawful
- 115 -

incomes and expenditures in foreign exchange out of the PRC in accordance


with the regulations of the relevant Chinese laws, including but not limited
to:
(1) the shareholders loans and provided by the parties hereto to the
Company and the interests thereon;
(2) the profits earned by the Parties hereto after taxes have been paid
according to law;
(3) the amount receivable by the Parties hereto for the transfer of their
equity interests; and
(4) the amount receivable by the parties hereto after the settlement and
liquidation of the Company.
6.

6. To the extend permitted by the PRC law, all payment by the JV Company
to Party B shall be made in U.S. Dollars. In case of Renminbi settlement, the
JV Company shall arrange for payments to be made to Party B in U.S.
Dollars through the relevant foreign exchange bank by converting such
Renminbi into U.S. Dollars at the middle price between the buying and
selling rates for U.S. Dollars published by the Peoples Bank of China on
the date of payment, provided that all taxes and expenses incurred in
converting Renminbi into U.S. Dollars and/or remitting U.S. Dollars out of
the PRC (including but not limited to foreign exchange remittance fees and
withholding taxes) shall be borne by Party B under the PRC law.
7.

7. The various types of insurance required by the Company shall be


purchased from insurance companies registered in the PRC. If insurance
companies registered in the PRC are unable to meet the Companys
requirements in respect of the types of insurance and scope of coverage, the
Company may purchase such insurance policies outside the PRC to the
extend permitted by the PRC law. Prior to commencing operations, the
Company shall complete the formalities for taking out insurance policies for
- 116 -

its Chinese employees, including overage against bodily injury, with the
relevant insurance companies.
8.

8. The JV Company shall purchase from a reputable insurance company


operating in the PRC insurance policies that are capable of providing
adequate protection to the JV Company. Specific types of insurance,
amounts and period of such insurance shall be decided by the board after
consultation with the insurance company.

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

unit 8

8.1.1
1. ,

1. A joint venture shall formulate rules and regulations for its financial
affairs and accounting in accordance with the relevant Chinese laws and
regulations on financial affairs and accounting and in light of its condition,
and file such rules and regulations with the local financial department and
tax authority for the record.
2.

2. A joint venture shall have a chief accountant, who shall assist the general
manager in managing the financial affaires of the enterprise. When
necessary, a deputy chief accountant may also be appointed.
3.

- 117 -

3. A joint venture shall (a small venture may have no need to) have an
auditor, who shall be responsible for examining and auditing the financial
receipts, payments and the accounts of the joint venture and submitting
reports to the board of directors and the general manager.
4. 1 1 12 31

4. The accounting year of a joint venture shall coincide with the calendar
year, i.e. from January 1 to December 31 on the Gregorian calendar.
5.

5. A joint venture shall adopt the internationally accepted accrual system and
debit and credit bookkeeping method to keep accounts. All vouchers,
account books and statements prepared by the joint venture must be written
in Chinese. They may simultaneously be written in foreign language agreed
upon by the parties to the joint venture.
6.

6. In principle, a joint venture shall adopt Renmibi as the standard currency


for accounting. It may also adopt a foreign currency for the same purpose
upon agreement by the parties to the joint venture.
7.

7. In addition to keeping account in the standard currency, a joint venture


shall record the actual receipts and payments of cash, bank deposits, sums in
other currencies, and claims, liabilities, incomes, expenses, etc. in currencies
other than the standard currency for accounting.
Where a foreign currency is adopted as the standard currency for accounting,
- 118 -

the joint venture shall convert such currency into Renminbi when it prepares
and submits its financial and accounting statements.
Differences arising from conversion into the standard currency for
accounting due to different exchange shall be entered as losses or gains on
exchange. Balance on foreign currency accounts due to changes in the
exchange rate in account keeping shall be handled as the year-end settlement
of account in accordance with the relevant Chinese laws and rules for
financial affairs and accounting.
8.

31

8. Principles for a joint venture to distribute its profit after payment of


income tax in accordance with the Income Tax Law of the Peoples
Republic of China Governing Foreign Investment Enterprises and Foreign
Enterprises are as follows:
Principles for a joint venture to distribute its profit after the payments of
income taxes in accordance with the Law of the Peoples Republic of China
on Income Tax of Enterprises with Foreign Investment and Foreign
Enterprises shall be:
(1) A reserve fund, a bonus and welfare fund for staff and workers and an
enterprise expansion fund shall be drawn, and the proportion of such
drawing shall be determined by the board of directors;
(2) In addition to its use in making up the losses of the joint venture, the
reserve fund may be used to increase the capital of the joint venture and
expand its production upon approval by the examination and approval
authority; and
(3) Any distributable profit remaining after the drawing of the three funds in
accordance with the proportion of Paragraph (1) of this Article shall be
distributed to the parties to the joint venture in proportion to their capital
contribution when the board of directors decides to distribute such profit.
- 119 -

9.

9. No profit may be distributed unless the losses of the previous year have
been made up. Such profit shall not be distributed if the losses of the
previous year of the joint venture have not been made up. Undistributed
profit from the previous year may be distributed together with the profit of
the current year.
10.

10. A joint venture shall submit the quarterly and annual accounting
statements to the parties to the joint venture, local tax authority and the
financial department.
11.

2
3
11. The following documents, certificates and statements shall be valid only
after they have been verified by a certified public accountant registered in
China and verification certificates have been issued by the accountant:
(1) certificates for the capital contributions made by the parties to the joint
venture (in case materials, site use rights, industrial property or proprietary
technology is used as capital contribution, a detailed list of the assessed
value of such property and the written agreement thereon signed by the
parties to the joint venture shall be included);
(2) annual accounting statements of the joint venture; and
(3) accounting statements on liquidation of the joint venture.

8.2.1
1. 1 1 12 31

- 120 -

12 31

1. The fiscal year of the JV Company shall coincide with the calendar year,
i.e. from January I to December 31. However, the first fiscal year of the JV
Company shall commence on the date of its establishment and end on the
date of dissolution of the JV Company.
2.

2. The JV Company shall comply with the Foreign Investment Enterprise


Accounting System, keep true and accurate records and account books
containing all data necessary for the determination of the JV Companys
financial conditions, and prepare all vouchers, receipts, accounts and other
accounting records of the JV Company in Chinese. The JV Company shall
provide Party A and Party B with the JV Companys quarterly financial
statements within a month after each calendar quarter ends.
3.

3. Within the first three (3) months of every fiscal year, the general manager
of the JV Company shall supervise the preparation of the previous years
balance sheet, profit and loss statement and cash flow statement of the JV
Company. The JV Company shall engage an independent auditor registered
in PRC (the Independent Auditor), to audit the financial statements of the
JV Company. The preparation of the financial statements for a fiscal year
and auditing of same by the Independent Auditor must be completed by the
end of April of the following year. After the financial statements have been
examined and signed by the Independent Auditor, they shall be submitted to
the board of directors for approval.
4.

4. Each of the parties hereto shall have the right to engage an auditor at its
own expense to examine the annual financial statements of the JV Company,
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and the other parties shall give their consent to and the JV Company shall
provide convenience for such examination.
5.

5. The JV Company shall adopt Renminbi (RMB) as the standard


currency for accounting. Foreign exchange in the revenue and expenditure
shall be converted to RMB. All the foreign currencies received and paid
shall be kept in the accounts in Renminbi as converted from such foreign
currencies. The conversion of the foreign exchange to RMB shall be made at
the middle price of the exchange rate published by the Peoples Bank of
China on the day such transaction actually takes place.
6.
1
2
3
4
5
6. The following particulars shall be entered in the JV Companys financial
account books:
(1) the amount of all cash receipts and payments of the JV Company;
(2) all materials purchases and supplies of the JV Company;
(3) the registered capital and debts of the JV Company;
(4) the time of payment, adjustment and assignment of the registered capital
of the JV Company; and
(5) other items as required by the relevant PRC laws and regulations.
7.

50%

7. The JV Company shall make allocations to the reserve fund, bonus and
welfare fund for staff and workers and enterprise expansion fund out of the
after tax profit of the JV Company each fiscal year. The percentage of the
- 122 -

allocation of the reserve fund shall be determined by the board of directors


pursuant to the relevant PRC laws and regulations. The allocation shall be
suspended in the event that the accumulated fund amounts to 50% of the
registered capital of the JV Company. The percentage of the allocation of
the bonus and welfare fund for staff and workers shall be determined by the
board of directors.
8.

8. The JV Company shall distribute its profit once every year. The profit
distribution plan and the amount of profit to be distributed to each party
shall be published within three (3) months following each fiscal year.

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

unit 9

9.1.1
1.
.
1. Matters relating to the employment and dismissal of, and the
remuneration, welfare benefits, labor protection and labor insurance for,
staff and workers of a joint venture shall be provided for in contracts
concluded according to law.
2.
.
2. A joint venture shall make every effort to conduct professional and
technical training of its staff and workers and establish a strict assessment
system so as the enable them to meet the requirements of a modernized
enterprise in respect of production and management skills.
3..
3. The wage and incentive systems of a joint venture must be in conformity
with the principle of distribution according to work and more pay for more
- 123 -

work.
4.
.
4. Salaries and benefits of the general manager, deputy general manager,
chief engineer, deputy chief engineer, chief accountant and deputy chief
account, auditor and other officers of a joint venture shall be decided by its
board of directors.
5.
.
.
5. Staff and workers of a joint venture shall establish a trade union
organization according to law to carry out trade union activities and
safeguard their legitimate rights and interests.
A joint venture shall provide necessary conditions for the trade union to
carry out its activities.
6.
.
6. The trade union in a joint venture represents the interests of its staff and
workers. It shall have the right to conclude labor contracts with the joint
venture on behalf of the staff and workers and supervise the implementation
of the contracts.
7.

.
7. The fundamental tasks of the trade union in a joint venture shall be: to
protect the democratic rights and material benefits of the staff and workers
according to law; to assist the joint venture in the arrangement and rational
use of the welfare and bonus fund; to organize the staff and workers to study
politics, science, technology and professional knowledge and carry out
literary, artistic and sports activities; and to educate the staff and workers to
observe labor discipline and strive to fulfill the various economic tasks of
the enterprise.

- 124 -

8.
.

.
8. When the board of directors of a joint venture convenes a meeting to
discuss such important matters as expansion plans and production and
operational activities of the joint venture, the trade union representatives
shall have the right to attend the meeting as nonvoting members and voice
the opinions and demands of the staff and workers.
When a board meeting is convened to discuss and decide matters relating to
the reward and penalty system, wage system, welfare benefits, labor
protection and labor insurance for the staff and workers, the trade union
representatives shall have the right to attend the meeting as nonvoting
members, and the directors shall heed the comments of the trade union and
enlist its cooperation.
9..

.
2%
.
9. A joint venture shall actively support the work of the trade union in its
work and in accordance with the provisions of the Trade Union Law of the
Peoples Republic of China, provide necessary housing and equipment for
the trade union organization to do its routine work, hold meetings, and carry
out collective welfare, cultural and sports activities for the staff and workers.
The joint venture shall appropriate an amount accounting for two percent of
the actual payroll per month as the trade union fund, which shall be used by
the trade union of the joint venture in accordance with the relevant rules for
management of trade union funds formulated by the All China Federation of
Trade Unions.

9.2.1
1.

.
.
- 125 -

1. Matters concerning the recruitment, employment and dismissal of the


employees of the company and their remuneration, labor insurance and
welfare benefits shall be decided by the board of directors after a plan
thereof has been worked out and submitted by the general manager in
accordance with the stipulations of the State relating to labor and social
security, and shall be set out in the labor contracts to be entered into
between the company and the trade union organization of the company on a
collective basis or each employee individually. The executed labor contracts
shall be filed with the local labor department for the record.
The recruitment, employment and dismissal of, and the salaries, labor
insurance and welfare benefits for, the staff and workers of the company
shall be determined by the general manager and then submitted to the board
of directors for approval in accordance with the state provisions in respect of
labor and social security. All such matters shall be provided in the contract
concluded between the joint venture and the trade union organization of the
company on a collective basis or each employee individually. After the
conclusion, such contract shall be reported to the local labor management
authority for record.
2.
.
2. The engagement of the general manager, deputy general manager and
other senior officers of the company and their salaries, social insurance,
welfare benefits and business travel allowance shall be decided by the board
of directors.
3.
.
3. The plan of the salaries, social security, welfare benefits and business
travel allowances for the managerial personnel of the various departments
shall be worked out by the general manager and submitted to the board of
directors for approval.
4..
.
.
.
.
4. The organizational structure of the Company shall be decided by the
- 126 -

board of directors. The number of employees and requirements of local staff


shall be determined by the board of directors on the basis of the Companys
operational needs. The company shall have the right to recruit and hire staff
and workers as appropriate from the public human resources market. The
company may decide what necessary skills and qualifications employees
must possess, and shall file a record of their employment with the local
labor bureau. Unless otherwise decided by the board of directors, the
company shall conclude an individual labor contract with each employee.
5.
.
.
.
5. The company shall have the right to give disciplinary warnings, record
demerits and reduce salary against those employees who have violated the
rules and regulations and labor discipline of the company as set out in the
workers book or other written materials. In accordance with the PRC Labor
Law the company shall also have the right to dismiss those employees who
have seriously breached the rules and regulations of the company or who are
incompetent to carry out their duties. Dismissal of employees shall be filed
with the local labor department for the record.
6.
..
.
6. The wages and benefits of the employees of the company shall be
determined by the Board with reference to the Regulations on Labor
Management in Foreign Investment Enterprises and other relevant PRC
labor regulations. The salary of the general manager shall be decided by the
board of directors. The salaries of other personnel shall be decided by the
general manager.
7.
.
7. Subject to the PRC Labor Law and Labor Regulations, the employees
welfare, bonus, labor protection and labor insurance shall be so regulated in
the company policies as to ensure that the employees may work under
normal working conditions.
8..
- 127 -


.
8. The companys relations with its employees shall comply with all
applicable legal requirements for employment and trade union matters. The
employees of the company shall have the right to establish a trade union to
carry out trade union activities in accordance with the provisions of the
Trade Union Law of the Peoples Republic of China

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

unit 10

10.1.1
1.

1. The duration of a joint venture shall be determined in accordance with the


Provisional Regulations on the Duration of Chinese-Foreign Equity Joint
Enterprises.
2.
1
2
3

4
5
6
2456
3

- 128 -

2. A joint venture shall be dissolved when:


(1) the joint venture term expires;
(2) the joint venture incurs serious losses, rendering it unable to continue
operation;
(3) a party to the joint venture fails to perform its obligations under the joint
venture agreement, contract and/or articles of association, making it
impossible for the joint venture to continue operation;
(4) the joint venture cannot continue operation due to heavy losses caused
by an event of force majeure such as natural calamity, war, etc.;
(5) the joint venture fails to achieve its business objectives, with no
prospects for its development; or
(6) any other cause for dissolution of the joint venture under the joint
venture contract and articles of association has cropped up.
In the case of (2),(4),(5) and (6)of the preceding paragraphs, the board of
directors shall make an application for dissolution and submit it to the
examination and approval authority for approval; in the case of (3) above,
the party which performs the contract shall make such application and
submit it to the examination and approval authority for approval.
In case of (3) of this Article, the party which fails to perform its obligations
under the joint venture agreement, contract and/or articles of association
shall be liable for indemnifying the joint venture for its losses arising
therefrom.
3.

3. A joint venture announcing its dissolution shall undergo liquidation


procedures. It shall set up a liquidation committee in accordance with the
provisions of the Measures for Liquidation of Foreign Investment
Enterprises. The liquidation committee shall be in charge of liquidation
matters.
4.

4. Members of the liquidation committee shall generally be selected among


the directors of the joint venture. In case the directors cannot serve as or are
unsuitable to be members of the liquidation committee, the joint venture
may appoint accountants and lawyers registered in China to the committee.
The examination and approval authority may dispatch personnel to
- 129 -

supervise the liquidation process when it deems that it is necessary to do so.


Liquidation expenses and remuneration to members of the liquidation
committee shall be paid in priority from the existing assets of the joint
venture.

5.

5. The tasks of the liquidation committee shall be to take all-round check of


the property, claims and liabilities of the joint venture, work out the balance
sheet and the inventory of the property, put forward the basis for the
property evaluation and calculation, work out and carries out the liquidation
plan after the approval of the board of directors.
The tasks of the liquidation committee are to conduct a thorough check of
the property, claims and liabilities of the joint venture, work out the balance
sheet and an inventory of the property, put forward the basis for property
evaluation and calculation, and formulate a liquidation plan. All these shall
be carried out upon approval by the board of directors.
During the process of liquidation, the liquidation committee shall represent
the joint venture in the institution of and defense in legal proceedings.
6.

6. A joint venture shall be liable to its debts with all of its assets. The
remaining property after liquidation of the debts of the joint venture shall be
distributed to the parties in proportion to their capital contribution, unless
otherwise provided for in the joint venture agreement, contract or articles of
association.
At the time of when a joint venture is dissolved, any portion of its net assets
or the balance of its residual property less the undistributed profits, various
funds and liquidation expenses that is in excess of the paid-in capital shall
be income derived from liquidation, which shall be subject to income tax
- 130 -

according to law.
7.

7. Upon completion of liquidation of a joint venture, the liquidation


committee shall submit a final liquidation report to the board meeting. After
the report has been approved, the joint venture shall report to the
examination and approval authority, go through formalities for canceling its
registration with the registration office and turn in its business license.
8.
8. After a joint venture is dissolved, its accounts books, and documents shall
be kept by the Chinese party to the original joint venture.

10.2.1
1. 20

1. The term of the joint venture (JV Term) shall be twenty (20)
commencing from the date of the establishment of the JV Company, or until
this Contract is terminated in accordance with its provisions for termination,
whichever occurs first.
2.
10

2. If both Parties agree to extend the JV Term, after a unanimous resolution


to that effect has been passed by the board of directors, the JV Term may be
extended for ten (10) years. The party (Notifying Party) wishing to extend
the JV Term shall notify the other party of its intention to renew the term
(the Renewal Notice) eight (8) months prior to the expiry of the original
JV Term. After receiving the Renewal Notice, the other Party shall, six (6)
months prior to the expiry of the original JV Term, notify the Notifying
Party whether the other Party is willing to renew the JV Term.
3.
- 131 -

3. For the purpose of extension, a written application shall be submitted to


the Examination and Approval Authority for its approval six (6) months
prior to the expiry of the original JV Term. Upon obtaining approval of the
extension, the JV Company shall go through the registration formalities to
alter the registration particulars with Shanghai Administration for Industry
and Commerce.
4.
1
2
3
4
5
6
4. The contract may be terminated and the JV Company may be dissolved if:
(1) the Board has not decided to extend the JV Term upon its expiry;
(2) in the opinion of the Board, the Company has suffered such heavy losses
that it is unable to continue operation;
(3) the Company is unable to continue operations because of an event of
force majeure;
(4) the Company is declared bankrupt or insolvent;
(5) the Company is unable to achieve its operational objectives and the
Parties do not expect any improvement in the Companys business; or
(6) the Company encounters any other events which, in the opinion of the
Board, necessitate the dissolution of the Company.
5.

2
3

- 132 -

4
30

5. If the business of the JV Company is not to be continued following


termination of the JV Term, the Board shall set up a liquidation committee
to liquidate the JV Company in accordance with relevant PRC regulations
and the following provisions:
(1) the tasks of the liquidation committee shall be to conduct a thorough
check of the property, claims and liabilities of the Company, prepare a
balance sheet and an inventory of the assets, work out a liquidation plan and
implement it after such plan has been submitted to and approved by the
Board.
(2) During the period of liquidation, the liquidation committee shall
represent the joint venture in the institution of and defense in legal
proceedings;
(3) The expenses of liquidation and remuneration to the members of the
liquidation committee shall be paid in priority from the existing assets of the
Company; and
(4) After all the debts of the Company have been cleared off, the remaining
assets shall be returned to the investor. Payments to the Investors after
liquidation shall be made in US Dollars or other currency acceptable to the
Investors within thirty (30) days after all the debts of the Company have
been repaid.
6.

6. After the dissolution of the JV Company, all the original financial and tax
documents of the Company shall be kept by the investors.
7.

7. After the completion of liquidation, the JV Company shall submit a report


to the examination and approval authority, apply with the original
registration office for cancellation of the Companys registration, return the
business license of the Company to it and make a formal public
announcement stating that the Company has ceased to exist.

-------------------------------------------------------------------------------- 133 -

unit 11

11.1.1
1.

1. The conclusion, validity, interpretation, and performance of the contract


of a joint venture and settlement of disputes in connection therewith shall be
governed by the laws of the Peoples Republic of China.
2.

2. The disputes arising from the interpretation or performance of the joint


venture agreement, contract and/or articles of association shall be settled
through friendly consultation or conciliation between the parties to the joint
venture. In case such consultation or conciliation fails, the disputes may be
submitted to arbitration or a law court for settlement.
2. When a dispute between the parties to a joint venture arises from the
interpretation or performance of the joint venture agreement, contract and/or
articles of association, the parties shall make every endeavor to resolve it
through friendly consultation or mediation. If such consultation or mediation
comes to no avail, the parties shall submit the dispute to arbitration or a law
court for settlement.
3.

3. The parties to a joint venture may apply for arbitration in a Chinese


arbitration institution or another arbitration institution in accordance with
their written agreement on arbitration.
If there is no written agreement on arbitration between the parties to a joint
venture, each party may start legal proceedings with a Peoples Court
according to law.
4
- 134 -


4. In the course of dispute resolution, the parties to a joint venture shall
continue to perform the provisions of the joint venture agreement, contract
and articles of association, except for matters in dispute.
5.

5. The State will protect the legitimate rights and interests of the cooperative
joint venture and the Chinese and foreign parties it according to law.
Cooperative joint ventures must abide by Chinese laws and regulations, and
must not jeopardize the public interests of China. The State authorities
concerned shall exercise supervision over cooperative joint ventures
according to law.
6.

6. When a dispute between the Chinese and foreign parties arises from the
performance of the contract and/or articles of association of a cooperative
joint venture, the parties shall resolve it through consultation or mediation.
If the Chinese party and/or the foreign party are/is unwilling to settle the
dispute through consultation or mediation, or the parties fail to settle it
through consultation or mediation, they may submit it to a Chinese
arbitration institution or another arbitration institution for arbitration in
accordance with the arbitration clause contained in the cooperative joint
venture contract or a written agreement on arbitration reached afterwards.
If the cooperative joint venture contract between the Chinese and foreign
parties does not contain any arbitration clause and not written agreement on
arbitration is reached between the parties afterwards, the Chinese party or
the foreign party may take a legal action in a Chinese court.
Any disputes arising from the performance of cooperative venture contract
and/or articles of association by the Chinese and foreign parties shall be
settled through consultation or mediation. If the Chinese and/or foreign
parties are/is unwilling to settle dispute by means of consultation or
mediation, or such consultation or mediation fails, the disputes may be
submitted to arbitration institutions of China or other countries in
accordance with the arbitration clauses in the cooperative joint venture
- 135 -

contract or written agreement on arbitrations reached after the disputes have


occurred.
In case there is neither arbitration clause in the cooperative joint venture
contract nor written arbitration agreement reached after the dispute, legal
actions can be commenced to Chinese Court.
7.

7. If a dispute arises between the parties over the understanding of a clause


of the contract, the true intention of that clause shall be determined in
accordance with the words and sentences used in the contract, the relevant
clauses of the contract, the purpose of the contract, trade practice and the
principle of good faith.
If a contract is written in two or more languages and the parties agree that
the various versions of the contract are equally authentic, it shall be
presumed that the corresponding words and sentences in the various
versions shall have the same meaning. In the case of a discrepancy in any
word or sentence used in different versions, such word or sentence shall be
interpreted on the basis of the purpose of the contract.
8.

8. The parties to a contract involving a foreign partner may decide on the


law to be applied to the handling of disputes in connection with the contract,
unless otherwise stipulated by law. If the parties to a contract involving a
foreign party have made no decision thereon, the law of the country that
bears on the contract most closely shall apply.
With respect to contracts for Chinese-foreign equity joint ventures, for
Chinese-foreign cooperative joint ventures and for Chinese-foreign
cooperative exploration and development of natural resources performed
within the territory of the Peoples Republic of China, the laws of the
Peoples Republic of China shall apply.

- 136 -

11.2.1
1.

1. The conclusion, effectiveness, interpretation and performance of this


contract and the settlement of disputes in connection with this contract shall
be governed by the laws of the Peoples Republic of China (China).
2.

2. After the execution of this contract, if any change takes place in the
relevant laws and regulations of PRC which is more favorable to the JV
Company and the Parties than such laws or regulations in effect on the date
of execution of this contract, the JV Company and the parties shall promptly
apply to receive the benefits brought about by such change.
3.
90

3. Any dispute arising out of this contract or from its performance shall be
resolved through consultation between the parties. If any Party is unwilling
to resolve a dispute through consultation, or if the dispute cannot be
resolved within ninety (90) days of the commencement of consultation, the
dispute shall be submitted to the China International Economic and Trade
Arbitration Committee to be arbitrated in Beijing in accordance with its
arbitration procedures and rules. The parties agree to jointly appoint one (1)
arbitrator designated by the chairman of the arbitration committee as the
sole arbitrator in the arbitral tribunal to try the case alone.
4.

- 137 -

4. All disputes between the Parties that arise from this Contract or are
related to this Contract (including but not limited to dispute, controversies or
claims with respect to its effectiveness, interpretation and performance)
shall first be resolved through friendly consultation. If a dispute cannot be
resolved through friendly consultation within two (2) months after a Party
has notified in writing the other party of the issue in dispute, then any party
may at any time submit the dispute to the China International Economic and
Trade Arbitration Committee (the Arbitration Committee) to be arbitrated
in accordance with its arbitration rules by three (3) arbitrators, who shall be
selected from the panel of the Arbitration Committee. Each party shall select
one (1) arbitrator, and the chairman of the Arbitration Committee shall select
the third arbitrator to be the chief arbitrator.
All disputes arising out of or in connection with the contract (including
without limited the disputes, discrepancy or claims of the validity,
interpretation, and implementation of the contract) shall be settled at first
through friendly consultation between the parties. If such disputes can not
be settled within two (2) months after a party has deliver written notice
about the dispute to the other party, any of the party may submit such
dispute to the China International Economic and Trade Arbitration
Commission (hereinafter referred to as Arbitration Commission) to be
arbitrated by three arbitrators in accordance with arbitration rules. The
arbitrators shall be selected among the arbitrator lists of the commission,
each party selects one arbitrator. The third arbitrator shall be appointed by
the chairman of arbitration commission, and shall be the chief arbitrator.
5.

5. The place of arbitration shall be Shanghai, China, and the arbitration shall
be conducted in Chinese. If a party requires and interpreter in the course of
the arbitration proceedings or an English translation of the arbitration
instruments, in may request the secretariat of the Arbitration Committee to
provide the necessary assistance, provided that it shall undertake to bear the
costs incurred.
The arbitration shall be conducted in Shanghai, China in Chinese. When a
party needs interpreter or the arbitration documents to be translated into
English during the period of arbitration, it shall, at its own expense, ask the
secretariat of arbitration commission to offer necessary assistant.

- 138 -

6.

6. The arbitration award shall be final and binding upon the parties. Unless
otherwise specified in the arbitration award, the arbitration fees shall be
born by the losing party.
7.
7. During the period when a dispute is being resolved, the Parties shall
continue to perform this contract in all respects other than the issue in
dispute.

- 139 -