CONTRACT
OF
HENGLI (ZHANGJIAGANG FREE TRADE ZONE)
INTERNATIONAL TRADING & DEVELOPING CO., LTD.
A SINO-FOREIGN EQUITY JOINT VENTURE
(A direct translation from the original copy in Chinese)
-0-
CHAPTER 1: GENERAL PROVISION
Sunlight (Zhangjiagang Free Trading Zone) Investment Consulting Company
Limited, a company incorporated under the laws of China
(hereinafter referred to as "Party A")
AND
Heng Fai China Industries Acquisition Ltd., a company incorporated under
the laws of Hong Kong
(hereinafter referred to as "Party B")
WHEREAS
Party A and Party B wish to form a limited liability company in the form
of an equity joint venture, in Zhangjiagang Free Trade Zone, Jiangsu
Province, People's Republic of China, in accordance with the Law of the
People's Republic of China on Joint Ventures Using Chinese and Foreign
Investment, and other relevant Chinese laws and regulations (hereinafter
referred to as "Joint Venture Laws"), and the principle of friendly
negotiation and mutual benefit.
NOW THEREFORE in consideration of the mutual covenants herein, Party A and Party
B hereby agree as follows:
CHAPTER 2: CONTRACTING PARTIES
Article 1. The parties of this Contract are as follows.
Party A: Sunlight (Zhangjiagang Free Trading Zone) Investment
Consulting Company Limited
Address: Zhangjiagang Free Trade Zone, Jiangsu Province, China
Legal Representative:
Name: Xxxxx, Xxxxxx
Title: Chairman
Nationality: Chinese
Party B: Heng Fai China Industries Acquisition Ltd.
Address: Xxxx X, 00xx Xxxxx, Xxxxx Xxxxxxxx Tower
000-000 Xxxxxxxx Xxxx
Xxxxxxxx Xxx, Xxxx Xxxx
Legal Representative:
Name: Xxxx, Xxxx Fai
Title: Chairman
Nationality: British
-1-
CHAPTER 3: ESTABLISHMENT OF THE JOINT VENTURE
Article 2. In accordance with the Joint Venture Laws, Party A and Party B agree
to establish an equity joint venture in Zhangjiagang Free Trade Zone, Jiangsu
Province, China.
Article 3. The name of the joint venture shall be:
Chinese:
English: Hengli (Zhangjiagang Free Trade Zone) International Trading
& Developing Co., Ltd.
(hereinafter referred to as "Company")
Legal address: Zhangjiagang Free Trade Zone, Jiangsu Province, China
Article 4. The Company is a legal entity in the People's Republic of China. All
activities of the Company shall be governed by the published and publicly
available laws, decrees, rules and regulations of China.
Article 5. The Company shall be a limited liability company. Each party shall be
liable for the Company's liabilities only to the proportion by which the party
has contributed to the Company's registered capital. Each party shall share the
profit and risk based on the proportion by which the party has contributed to
the Company's registered capital. Shareholders and directors of each party shall
not be personally responsible for any other joint liabilities.
CHAPTER 4: OBJECTIVE AND SCOPE OF BUSINESS
Article 6. Party A and Party B wish to form the Company that will upgrade,
manage, and develop future business for the property of International
Development Center, by using advanced technology and management methods, and by
using the capital-raising and marketing channels of Party B, so as to make the
maximum possible profit and return for the Company and each party.
Article 7. The business scope of the Company shall include international trade,
international commodity display, real estate development and management.
CHAPTER 5: TOTAL INVESTMENT AND REGISTERED CAPITAL
Article 8. The total investment amount and registered capital of the Company are
set at $7,228,900 US and $5,421,700 US respectively.
Article 9. Amount and form of capital contributions:
-2-
Party A shall invest a real estate property worth $l,626,500 US (30%) and Party
B shall invest a real estate property worth $3,795,200 US (70%) respectively.
Article 10. Schedule of capital contributions:
The entire registered capital shall be invested by Party A and Party B in one
month after the business license is obtained and all the terms listed in
Article 59 of this Contract are met.
Article 11. The shares in whole or in part of the Company can not be transferred
by any party to a third party, unless consented by the other party. When the
shares in whole or in part of one party are being rendered, the other party has
priority to purchase these shares.
CHAPTER 6: RESPONSIBILlTIES OF EACH PARTY
Article 12. Besides the responsibilities specified in other articles of this
Contract, the two parties have the following responsibilities:
A. Responsibilities of both parties:
The two parties shall cooperate in good faith to secure the Company's
legality and to protect the Company's interests in accordance with Chinese
laws. Each party shall not damage the benefits of the Company or the other
party for its own interests.
B. Responsibilities of Party A:
1. to apply for, register and obtain the Business License and other legal
documents from Chinese authorities;
2. to inject its investment on the basis of this Contract;
3. to assist the Company with its legal matters regarding the importation
of office equipment, machinery, and raw materials, and to be
responsible for the transportation of such goods in China;
4. to secure the supply of natural gas, electricity, water and land for
the Company;
5. to assist the Company to hire local employees;
6. to assist foreign and Hong Kong employees regarding their entry and
work visa;
7. to handle such other matters as may be entrusted to it by the Company.
C. Responsibilities of Party B:
1. to provide cash investment specified in this Contract; and assist in
the legal procedure of establishing the Company;
2. to assist the Company developing real estate business and other
businesses in overseas and international markets;
3. to handle such other matters as may be entrusted to it by the Company.
-3-
CHAPTER 7: BOARD OF DIRECTORS
Article 13. The Company shall have a Board of Directors. The Board shall be
established on the date the Business License is issued.
Article 14. The Board shall be comprised of five (5) directors, of which two (2)
shall be appointed by Party A and three (3) shall be appointed by Party B. The
Chairman of the Board shall be selected by Party B from amongst the Board
members appointed by Party B, and the Vice-Chairman shall be one of the
directors selected by Party A from amongst the Board members appointed by Party
A. The directors, Chairman and Vice-Chairman of the Board shall hold office for
terms of three (3) years, and such terms of office may be renewed by the
continuous appointment of the relevant party. Any director may be removed and
replaced at any time and for any reason by the party that appointed such
director. One party shall inform the other party thechange of its directors
in writing.
Article 15. The Chairman of the Board shall be the legal representative of the
Company. If the Chairman is unable to exercise his responsibilities for any
reason, he may temporarily delegate such responsibilities to the Vice-Chairman
or any other director.
Article 16. The Board shall be the top authority of the Company. Board meetings
shall be held at least once per year. The meetings are usually held at the legal
address of the Company, however, they can also be held at other places. Board
meetings may also be held by faxing the necessary documents to each participant
and decisions can be made by signing the faxed documents by participants. A
board meeting shall be held whenever over one third of the directors may
request.
Article 17. The Chairman or other person convening a meeting of the Board shall
give each director at least ten (10) days written notice of the time, place and
proposed agenda of the meeting.
Article 18. Directors may appoint other directors to represent and vote for
them, or by written proxies authorizing other representatives to vote on their
behalf, if they can not attend the meeting in person. Authorized representatives
have the same rights as other directors at the meetings. When a director fails
to attend the meeting, and no legal representative is appointed at the meeting,
the director is considered to have abstained.
Article 19. Issues at the meeting of the Board shall be decided by the approval
of a 51% majority of the votes cast by the directors present at a
duly constituted meeting of the Board except that the approval of all the
directors at a duly constituted meeting of the Board shall be required for
each of the issues set out below:
l. any amendment to the Company's Constitution (see the attached
Constitution);
2. any transfer or increase in the registered capital of the Company;
3. dissolution of the Company;
4. any merger of the Company with any other economic organization.
-4-
Article 20. Records of the meetings shall be in Chinese and shall be signed by
all attending directors or their representatives, and shall be kept within the
Company for future references.
Article 21. A quorum shall be formed by two-thirds (2/3) of the directors. For
such purpose, a director shall be deemed present at a meeting either if he
participates in person or by the representation of a duly appointed alternate
director. If a quorum is for any reason not present at the time set for a board
meeting, the chairman shall inform all directors in writing that such meeting
shall stand adjourned to or before the seventh (7th) business day immediately
following for the same agenda, and the directors present or deemed present at
such meeting shall be deemed to constitute a quorum and able to pass effective
resolutions in accordance with Article 19.
CHAPTER 8: MANAGEMENT STRUCTURE
Article 22. The Board shall delegate the day-to-day management of the Company to
the General Manager and few Vice-General Managers. They are all appointed by the
Board. The office term of the General Manager and Vice-General Managers is three
years, and their appointment can be renewed. The General Manager, Vice-General
Managers can be replaced at any time, with the approval of the Board.
Article 23. The General Manager shall be responsible for the overall management
of the Company. The General Manager shall report to the Board, and implement the
Board's plans. The Vice-General Managers shall report to the General Manager and
assist him in carrying out his duties.
Article 24. The management structure of the Company is proposed by the General
Manager, and approved by the Board. The manager of finance (Financial
Controller) is nominated by Party B, and appointed by the Board. The nomination
of other department managers shall be decided jointly by the General Manager and
Vice-General Managers.
Article 25. At any time, the Chairman of the Board has the right to temporarily
discharge any manager who either uses the power of his position for his own
interests, or causes major production accidents due to dereliction of duty. The
final discharge and replacement shall be decided by the Board.
Article 26. At any time, the Board has the right to discharge the General
Manager who either uses the power of his position for his own interests, or
causes major production accidents due to dereliction of duty, or is unable to
achieve the goals set forth by the Board.
-5-
CHAPTER 9: PURCHASES
Article 27. Under the same conditions, Chinese suppliers shall be first
considered regarding Company's purchasing of raw materials, fuels, production
equipment, transportation tools, and office equipment.
CHAPTER 10: EMPLOYMENT MATTERS
Article 28. All the Company's employment matters such as hiring, firing,
quitting, salary, wage, medical insurance, benefits, bonuses, labor discipline,
are in accordance with the Labor Management Regulations for Sino-Foreign Joint
Ventures and other relevant laws.
Article 29. On the basis of the relevant regulations in China, employees' salary
standards shall be decided by the Board of the Company. The salary level and
other rewards shall be based on the contribution of the individual employee. The
total income of an employee shall be increased with the improvement of his
skills and the Company's profits. The Company shall pay for employees' medical
insurance, retirement plan, unemployment insurance, and other expenses according
to Chinese regulations.
Article 30. Employees of the Company have the right to form a union, based on
the Union Law of the People's Republic of China. The location, activities, fees
and other matters of the union shall be in accordance with Chinese regulations.
CHAPTER 11: FOREIGN CURRENCY MANAGEMENT & PROFIT SHARING
Article 31.
1. The trading of the Company's foreign currency shall be in accordance
with relevant Chinese regulations. Approved by the Foreign Currency
Management Bureau of China, the Company may open a foreign currency
bank account outside China.
2. Except the payments specified in this Contract or in other contracts
of the Company, or specified by Chinese regulations, that have to be
paid in foreign currencies, all other payments of the Company shall be
in RMB.
Article 32.
l. Part of the Company's after-tax profit shall be paid into three funds:
a reserve fund, an expansion fund and a welfare and bonus fund. Each
year, 10% of the profit are paid to the reserve fund until the
cumulated amount is over 50% of the Company's registered capital. The
respective amounts paid to the other two funds shall be decided by the
Board annually.
-6-
2. After the three funds are paid, the remaining after-tax profit is
available to be shared by the two parties. The two parties shall share
this portion of the profit according to their respective equity
investment.
Article 33.
l. In accordance with the Temporary Regulations of Foreign Currency
Management in China, Party B has the right to send the money received
from the Company (including the amount paid to Party B upon the
dissolution of the Company) out of China.
2. The foreign currency of the Company (initial investment from Party B
and loans in foreign currencies) shall be freely transferred into
China, and be deposited into accounts of the Company in China (in
foreign currencies or RMB). The Company's accounts payable in foreign
currencies shall be paid in foreign currencies according to Chinese
regulations.
Article 34. The balance of the Company's foreign currencies shall be maintained
with best efforts. The following methods shall be used by the two parties and
the Company to increase the amount of foreign currency savings:
l. The Company sells its products for foreign currencles;
2. Party B uses its profit in RMB to invest in other companies in China
with foreign currency earning potentials;
3. Approved by relevant authorities, the Company's RMB is exchanged
according to the market rate into US dollars at the Foreign Currency
Adjustment Center;
4. When the balance of foreign currency can not be maintained by the
above three avenues in any year, the Company shall ask Chinese
government for assistance, based on the relevant regulations.
Article 35. The Company's savings in foreign currencies shall be used for
different payments according to the following priorities:
1. costs of goods and services received from outside China;
2. interests and principles of loans in foreign currencies (if there are
any);
3. profit to Party B;
4. compensation and expenses for the managers sent by Party B;
5. other payments approved by the Board;
6. other payments that must be paid in foreign currencies.
CHAPTER 12: TAXATION, FINANCE, AUDITING AND INSURANCE
Article 36. The Company shall pay taxes in accordance with the stipulations of
published and publicly available Chinese laws and regulations.
-7-
Article 37. The General Manager and the Financial Controller of the Company
shall set up Accounting Regulations and a Financial Management Regulations in
accordance with the Accounting Systems of Sino-Foreign Joint Ventures and other
relevant laws. After being approved by the Board, copies of these documents
shall be sent to the local government's finance and taxation departments.
Article 38. The Company shall use the Accrual Accounting and Double-Entry
Bookkeeping systems. All books and reports shall be in Chinese. The Company
shall use Chinese RMB as the base currency of bookkeeping and accounting. When
necessary, US dollar and Hong Kong dollar can be used as assistant accounting
currencies.
Article 39. The Company's fiscal year shall commence on January 1 and end on
December 31 of each year. The first fiscal year shall commence on the day the
Business License is issued and end on December 31 of the same year.
Article 40. The Company shall present the two parties its annual Financial
Reports (including audited balance sheet, income statement, and statement of
retained earnings) within the first three months of the next year. Together with
the Auditor's Report, they shall be sent to the Board of Directors for final
approval. The Company shall also prepare the balance sheet, income statement,
and statement of cash flow for every month and every season. The annual,
seasonal, and monthly reports shall be in Chinese, and shall be signed by the
Chairman or his representative and the Financial Controller.
Article 41. The Company's books shall be audited by an auditing firm licensed to
practice independently in China. The auditor is responsible for auditing the
Company's annual Financial Reports and presenting an Auditor's Report to the
Board and the General Manager. If one party wishes to use another auditing firm
to repeat the audition, that party is responsible for the associated costs. The
Company shall cooperate with the audition.
Article 42. In order to prepare the Financial Reports, the Company's foreign
currency savings have to be converted into RMB. For this purpose, the exchange
rate for each amount shall be the rate of the day on which the corresponding
transaction took place.
Article 43. The Company shall purchase insurance to insure the full value of the
Company's buildings and machinery at all times from insurance companies in
China.
Article 44. The insurance policies shall be purchased from the People's
Insurance Company of China or other insurance companies approved by the Chinese
government. The insured amount shall be in either RMB or a foreign currency.
CHAPTER 13: DURATION OF THE JOINT VENTURE
-8-
Article 45. The cooperation of the two parties shall have an initial duration of
fifty (50) years commencing on the day the Business License is issued. Should
the cooperation be renewed, the Company shall make an application to the Chinese
authorities at least six (6) months prior to the expiry date of cooperation.
CHAPTER 14: TERMINATION OF COOPERATION & LIQUIDATION
Article 46. Because of one of the following reasons, one party can inform the
other party in writing sixty (60) days in advance that this Contract shall be
terminated before the expiry date of the cooperation. The request shall also be
presented to the Chinese authorities for approval.
1. The other party has breached the Contract, and has not corrected the
breaching activity after being informed so in writing for thirty (30)
days;
2. The other party has transferred part or all of its shares of the
Company to a third party against the specifications of this Contract;
3. This Contract can not be followed for over six (6) months due to force
majeure;
4. Any other reasons specified by relevant laws or regulations.
Article 47. If this Contract is terminated ahead of time, one party can purchase
the interests of the other party in the Company, and continue operating the
Company based on the following regulations:
1. The two parties shall jointly appraise the value of the Company. Each
party shall appoint an individual appraiser or firm for this purpose
within thirty (30) days after the termination date according to
Article 46. Their appraisal reports shall be prepared within sixty
(60) days. If the results from the reports are within 10% from each
other, the average figure shall be used as the value of the Company.
If the results are more l0% from each other, a third appraiser shall
be nominated jointly by the two appraisers and his appraisal shall be
considered final. The appraisal report from the third appraiser shall
be prepared within the next thirty (30) days.
2. Once the appraisal is completed, each party has the right to purchase
the other party's shares of the Company based on the appraised value.
Each party can exercise this right within sixty (60) days after the
Company has been informed the final appraised value in writing.
3. If there is a transfer of share as stated above, the entire payment
must be paid to the seller within forty-five (45) days after the
relevant government authorities have approved the Ownership Transfer
Contract (OTC) which had been signed by the two parties. If the OTC is
not approved by the authorities within sixty (60) days after it has
been signed by the two parties, the OTC becomes invalid. In this case,
the liquidation of the Company shall be conducted according to other
articles of this Contract.
-9-
4. If Party A shall purchase Party B's interests in the Company, the
payment shall be in foreign currencies. This amount shall be wired out
of China approved by the Foreign Currency Management Bureau of China.
If Party B does not receive the entire amount outside China within
forty-five (45) days after the OTC has been approved by Chinese
authorities, Party B has the right to deny the validity of the OTC.
The liquidation of the Company shall be conducted according to other
articles of this Contract if the validity of the OTC is denied.
Article 48. If this Contract is terminated according to Article 51, or a
transfer of ownership is not realized according to Article 47 and a third party
is not found to purchase the shares of the Company, a Liquidation Committee
shall be formed by the Company according to the Joint Venture Laws. The
Committee shall be responsible for the appraisal and liquidation of the
Company's assets. The Committee shall strive to obtain the highest prices for
the Company's assets. After all debts and taxes are paid, and the Liquidation
Report is verified by an accounting firm registered in China, the remaining
assets of the Company (including fixed and current), if any, shall be
distributed by the Company to the two parties in accordance with their initial
investment.
Article 49. At the end of the initial cooperation period (50 years), the Company
shall proceed with liquidation based on Chinese laws, should the two parties
decide not to cooperate further. The remaining assets of the Company shall be
distributed by the Company to the two parties in accordance with their initial
investment.
CHAPTER 15: BREACH OF CONTRACT
Article 50. If one party breaches this Contract, this party shall compensate the
other party the financial losses caused by the violation. If one of the major
articles in this Contract is breached, the other party has the right to
terminate the Contract. If both parties breach the Contract at the same time,
each party shall be responsible for its own losses. Naturally, the total
responsibility shall not be more than the party's total equity investment in the
Company.
CHAPTER 16: FORCE MAJEURE
Article 51. An event of force majeure includes any fire, explosion, accident,
earthquake, tidal wave, strike, picketing, lockout, labor dispute, flood,
drought, embargo, war, riot or insurrection, uprising, rebellion, or any other
event whether similar or dissimilar to the foregoing that shall be beyond the
reasonable control of the party affected. A party affected by an event of force
majeure shall give notice within seven (7) days to the other party and shall
indicate in such notice, as accurately as possible, the effect of such event of
force majeure on its capacity to perform its obligations. Such documents shall
be prepared by the local notary public. Depending on the degree of effect, both
parties shall decide jointly
-10-
regarding the issues of Contract termination and extension, or partial or
complete exemption of one party's responsibilities.
CHAPTER 17: APPLICABLE LAW
Article 52. The formation, validity and interpretation of this Contract shall be
governed by the published and publicly available laws of the People's Republic
of China.
Article 53. The two parties agree that if any law or regulation of China that is
amended or changed or a new law has an adverse effect on any party, then, if
such party requests, the parties shall forthwith amend this Contract so that
such adverse effect is eliminated or adjusted to the least extent possible, and
each party shall request the Company to use its best efforts to cause such
amendment to be approved by the relevant authorities.
CHAPTER 18: SETTLEMENT OF DISPUTES
Article 54. When there is any dispute arising out of or relating to this
Contract, the two parties shall try to resolve the dispute through friendly
negotiations. If the dispute is not resolved by friendly negotiations, it shall
be referred for arbitration to the Xxxxx Xxxxx Branch of China Council for
Promotion of International Trade. The judgment of such arbitrators shall be
binding on the parties and may enter any court of competent jurisdiction. The
associated expenses shall be the responsibility of the losing party.
Article 55. When a portion of the Contract is under arbitration, the rest of the
Contract shall remain effective.
CHAPTER 19: AMENDMENT AND TERMINATION OF THE CONTRACT
Article 56. This Contract may only be amended by a written amendment agreement
signed by both parties, and shall come into effect on the day such amendment
agreement is approved by the appropriate authorities.
CHAPTER 20: OTHER REGULATIONS
Article 57. The Appendixes of the Contract constitute the entire agreement
between the two parties, and are as effective as the Contract.
Article 58. If the signing of this Contact by the two parties is caused by Party
A's misleading or incorrect information, Party B has the right to disregard
this Contract. All associated financial losses of Party B shall be compensated
by Party A.
-11-
Article 59. This Contract and its Appendixes are all in Chinese, with six (6)
signed copies. Each party shall have two copies. The other two copies shall be
sent to the approval authorities. This Contract shall be effective only when the
following conditions are present:
l. Opinion Statements by Party B's lawyers from both Hong Kong and China;
2. A satisfactory report by a registered accounting firm;
3. A satisfactory report by a registered appraisal firm, and the
appraised value of the property of International Development Center is
over 45 million RMB yuans;
4. The approval of Party B's Board of Directors, shareholders' meeting,
and the Securities & Exchange Commission (SEC) of the United States;
5. The approval by the Administration Committee of Zhangjiagang Free
Trade Zone.
Article 60. Any and all notices or other communications from one party shall be
in writing (in Chinese) and shall be first telexed or faxed to the other party,
and then the original copy shall be delivered by courier to the other party for
confirmation. In the case of courier delivery, such notice shall conclusively be
deemed to have been received by the other party twelve (l2) days after the
document is given to the courier company. In the case of telex or fax, such
notice shall conclusively be deemed to have been received by the other party two
(2) days after the document is telexed or faxed.
Article 61. This Contract is signed in February l997, by the entrusted
representatives of Party A and Party B.
Party A: Sunlight (Zhangjiagang Free Trading Zone) Investment Consulting
Company Limited
Name of the Representative:
Position:
Signature:
Party B: Heng Fai China Industries Acquisition Ltd.
Name of the Representative:
Position:
Signature:
-12-
