EXHIBIT (10) (viii)
EXECUTION COPY
JOINT VENTURE CONTRACT
BETWEEN
NINGBO GENERAL AIR CONDITIONER FACTORY
AND
FEDDERS INVESTMENT CORPORATION
FOR THE ESTABLISHMENT OF
FEDDERS XINLE CO. LTD
July 00, 0000
Xxxxxx, Xxxxxxxx Xxxxxxxx, Xxxxx
T A B L E O F C O N T E N T S
Articles Page
ARTICLE 1. GENERAL PROVISIONS 1
ARTICLE 2. PARTIES TO THE CONTRACT 4
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF PARTIES 4
ARTICLE 4. ESTABLISHMENT OF THE JOINT VENTURE COMPANY 6
ARTICLE 5. PURPOSE, SCOPE AND SCALE OF PRODUCTION AND
BUSINESS OF THE COMPANY 7
ARTICLE 6. TOTAL AMOUNT OF INVESTMENT AND REGISTERED CAPITAL 8
ARTICLE 7. RESPONSIBILITIES OF THE PARTIES 13
ARTICLE 8. MATERIALS AND SUPPLIES 15
ARTICLE 9. RIGHT TO USE LAND, PLANT AND UTILITIES 15
ARTICLE 10. TECHNOLOGY LICENSE CONTRACT, SERVICES AND
SECONDMENT CONTRACT AND TRADEMARK CONTRACTS 17
ARTICLE 11. SALE OF PRODUCTS 17
ARTICLE 12. BOARD OF DIRECTORS 18
ARTICLE 13. BUSINESS MANAGEMENT 20
ARTICLE 14. PERSONNEL AND LABOR MANAGEMENT 22
ARTICLE 15. PREPARATION OF THE COMPANY 25
ARTICLE 16. FINANCIAL AFFAIRS AND ACCOUNTING 25
ARTICLE 17. TAXATION AND INSURANCE 28
ARTICLE 18. FOREIGN EXCHANGE REQUIREMENTS OF THE
COMPANY AND FOREIGN EXCHANGE BALANCING 28
ARTICLE 19. CONFIDENTIALITY AND NON-COMPETITION 29
ARTICLE 20. JOINT VENTURE TERM 31
ARTICLE 21. TERMINATION; DISPOSAL OF ASSETS ON DISSOLUTION 32
ARTICLE 22. LIABILITY FOR BREACH OF CONTRACT 34
ARTICLE 23. FORCE MAJEURE 35
ARTICLE 24. APPLICABLE LAW 36
ARTICLE 25. SETTLEMENT OF DISPUTES 36
ARTICLE 26. MISCELLANEOUS 37
Schedule 1 Contributions of Parties and Terms Thereof
Schedule 2 Tax Preferences and Holidays
Schedule 3 Utilities
Schedule 4 Initial Management Organization Chart
Annex A Asset Transfer Contract
Annex B Labor Contract
Annex C Party A Trademark Contract
Annex D Party B Trademark Contract
Annex E Services and Secondment Contract
Annex F Technology License Contract
Attachments Joint Feasibility Study Certificate of Approval
Articles of Association
JOINT VENTURE CONTRACT
THIS JOINT VENTURE CONTRACT (the "Contract") is made this 31st day
of July, 1995, in Ningbo Municipality, Zhejiang Province between
Ningbo General Air Conditioner Factory ("Party A"), a collectively-
owned enterprise established pursuant to the laws of the People's
Republic of China ("China"), and Fedders Investment Corporation
("Party B"), a company organized and existing pursuant to the laws
of the State of Delaware, United States of America ("USA"). Party
A and Party B are collectively referred to herein as the "Parties"
and individually as a "Party". This Contract is made in accordance
with the Law of China on Joint Ventures Using Chinese and Foreign
Investment (the "Joint Venture Law"), the implementing regulations
issued thereunder (the "Joint Venture Regulations"), and other
relevant laws and regulations of China and Zhejiang Province.
ARTICLE 1. GENERAL PROVISIONS
1.1 Preliminary Statement
Party A is a collectively-owned enterprise producing air
conditioners, air cleaners, stabilizers and other appliances and
related components in its factory within the Ningbo Economic and
Technological Development Zone, Ningbo City, Zhejiang Province,
China, and selling its products primarily in China. Party B is a
corporation 100% owned by Fedders Corporation which is a
corporation producing high quality, high efficiency room air
conditioners and dehumidifiers produced in highly efficient
factories within the United States of America and other countries.
The Parties wish to establish a joint venture company for the
production of the Products as hereafter defined.
After friendly consultations conducted in accordance with the
principles of equality and mutual benefit, the Parties have agreed
to establish an equity joint venture enterprise, using advanced
technology and modern management methods for the production and
sale of the Products, in accordance with the Joint Venture Law, the
Joint Venture Regulations, other relevant laws and regulations of
China and Zhejiang Province, and the provisions of this Contract.
The Parties therefore have entered into this Contract as of the
date first set forth above.
1.2 Definitions
The following terms as used in this Contract shall have the
meanings set forth below:
(a) An "Affiliate" of a Party means a corporation, partnership,
trust or other entity directly or indirectly controlling or
controlled by the Party or under direct or indirect common control
with the Party. For the purposes of this definition, "control"
means direct or indirect ownership of at least fifty percent (50%)
of the voting rights of said entity.
(b) "Approval Authority" means the Ningbo Economic and
Technological Development Zone Administrative Committee.
(c) "Articles of Association" means the articles of association of
the Company signed by the Parties and attached to this Contract as
an attachment.
(d) "Asset Transfer Contract" means the asset transfer contract
between the Company and Party A substantially in the form attached
hereto as Annex A.
(e) "Board" means the board of directors of the Company.
(f) "Company" means the joint venture company to be established
pursuant to the laws of China and the terms of this Contract.
(g) "Establishment Date" means the date on which the business
license of the Company is issued by the relevant administration for
industry and commerce.
(h) "Feasibility Study" means the jointly prepared feasibility
study report dated May, 1995, which has been approved by the
Approval Authority on June 9, 1995, the Certificate of Approval of
which is attached to this Contract as an attachment.
(i) "Initial Contribution Date" shall have the meaning ascribed to
it in Article 6.4(c).
(j) "JV Employee" means a Chinese staff member or worker of the
Company, including, where applicable, ranking officers, other than
such personnel provided pursuant to the Services and Secondment
Contract or nominated by Party B in accordance with Article 14.6.
(k) "Labor Contract" means the contract between the Company and
each JV Employee substantially in the form attached hereto as Annex
B.
(l) "Land" means the sites occupying an area of approximately
14,420 square meters located within the Zone in Ningbo
Municipality, Zhejiang Province, China, the boundaries of which are
marked on the Land Map.
(m) "Land Map" means the map attached as Exhibit A to the Land
Lease Contract on which the boundaries of the Land are marked.
(n) "Land Lease Contract" means the contract between the Company
and Ningbo Economic Development Zone (or its affiliated company)
leasing the factory complex to the Company for a thirty year period
with an option to extend for a further 20 years on substantially
the same terms and conditions as the lease to Party A, which should
allow the Company to carry out its business operations in
accordance with and as contemplated by this Contract, in accordance
with applicable Chinese laws and regulations.
(o) "Party A Trademark Contract" means the trademark license
contract between the Company and Party A substantially in the form
attached hereto as Annex C.
(p) "Party B Trademark Contract" means the trademark license
contract between the Company and Party B or its Affiliate
substantially in the form attached hereto as Annex D.
(q) "Plant" means the buildings and facilities of the Company to
be located on the Land.
(r) "Products" means high quality, high efficiency air
conditioners, dehumidifiers, air cleaners, stabilizers and other
appliances and other related components and service parts therefor,
to be produced by the Company.
(s) "RMB" means Renminbi, the lawful currency of China.
(t) "Services and Secondment Contract" means the secondment and
services contract between the Company and Party B or its Affiliate
substantially in the form attached hereto as Annex E.
(u) "Guarantee Letter" means the letter from Fedders Corporation
confirming its guarantee for the performance of Party B's
obligations under this Contract.
(v) "Technology License Contract" means the technology license
contract between the Company and Party B or its Affiliate
substantially in the form attached hereto as Annex F.
(w) "Term" shall have the meaning ascribed to it in Article 20.2.
(x) "Three Funds" shall have the meaning ascribed to it in Article
16.5(a).
(y) "Zone" means the Ningbo Economic and Technological Development
Zone, Ningbo Municipality, Zhejiang Province, China.
ARTICLE 2. PARTIES TO THE CONTRACT
2.1 Parties
The parties to this Contract are as follows:
(a) Ningbo General Air Conditioner Factory, a collectively-owned
enterprise registered with the Ningbo Economic and Technological
Development Zone Administrative Bureau for Industry and Commerce
(Business License No. 14410030-X) and with its legal address at
Factory Building 8502, Ningbo Economic and Technological
Development Zone, Ningbo Municipality, Zhejiang Province, China.
The Legal Representative of Party A is:
Name: Cai Kangqian
Position: Director
Nationality: Chinese
(b) Fedders Investment Corporation, a corporation organized and
existing under the laws of the State of Delaware, USA, with its
principal place of business at Westgate Corporate Center, 000
Xxxxxxxxxxxx Xxxx, Xxxxxxx Xxxxxx, Xxx Xxxxxx 00000, XXX.
The Legal Representative of Party B is:
Name: Xxxxxx X. Xxxxxxx, Xx.
Position: Executive Vice President Finance and Administration
and Chief Financial Officer
Nationality: USA
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF PARTIES
3.1 Representations and Warranties of Party A
Party A hereby represents and warrants to Party B as follows:
(a) Party A is a collective enterprise duly organized, validly
existing and in good standing as a legal person under the laws of
China.
(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 it is a party and to observe
and perform its obligations hereunder and thereunder.
(c) Party A has taken all appropriate and necessary collective,
corporate and administrative action to authorize the execution and
delivery of this Contract and all of the contracts and documents
referred to in this Contract to which it 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 it is a party and to observe and perform its
obligations hereunder and thereunder; provided, however, that this
Contract is subject to the approval of the Approval Authority
before the same may become effective.
(e) Party A is not aware of any material litigation, arbitration
or administrative proceeding which is currently taking place or
pending or threatened against Party A or the assets of Party A
which are the subject of this Contract. Furthermore, Party A is
not in default under any law, regulation, government directive
whether having force of law or not, judgment, order, authorization,
agreement or obligation applicable to the business or assets of
Party A which are the subject of this Contract.
(f) All information supplied to Party B by Party A in relation to
this Contract, including the information concerning the business
and financial status of Party A and its assets, inventories and
outstanding contractual arrangements with its suppliers and
customers, is true and correct whether the same has been verified
or audited by an independent third party or not.
3.2 Representations and Warranties of Party B
Party B hereby represents and warrants to Party A as follows:
(a) Party B is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, USA.
(b) Party B 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 it is a party and to observe
and perform its obligations hereunder and thereunder.
(c) Party B has taken all appropriate and necessary corporate
action to authorize the execution and delivery of this Contract and
all of the contracts and documents referred to in this Contract to
which it is a party and to authorize the performance and observance
of the terms and conditions hereof and thereof.
(d) Party B 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 it is a party; provided, however, that this
Contract is subject to the approval of the Approval Authority
before the same may become effective.
(e) Party B is not aware of any material litigation, arbitration
or administrative proceeding which is currently taking place or
pending or threatened against Party B or the assets of Party B
which are the subject of this Contract. Furthermore, Party B is
not in default under any law, regulation, government directive
whether having force of law or not, judgment, order, authorization,
agreement or obligation applicable to the business or assets of
Party B which are the subject of this Contract.
(f) All information supplied to Party A by Party B in relation to
this Contract, including the information concerning the business
and financial status of Party B and its assets, inventories and
outstanding contractual arrangements with its suppliers and
customers, is true and correct whether the same has been verified
or audited by an independent third party or not.
ARTICLE 4. ESTABLISHMENT OF THE JOINT VENTURE COMPANY
4.1 Establishment of the Joint Venture Company
In accordance with the Joint Venture Law and the Joint Venture
Regulations and relevant Chinese laws and regulations, the Parties
hereby agree to establish the Company pursuant to the terms of this
Contract.
4.2 Name and Address of the Company
(a) The name of the Company shall be "Fedders Xinle Co. Ltd." in
English and in Chinese.
(b) The legal address of the Company shall be G3 Zone, Ningbo
Economic and Technological Development Zone, Ningbo Municipality,
Zhejiang Province, China.
4.3 Limited Liability Company
The Company shall be a limited liability company. Except as
expressly agreed in this Contract or other contracts executed
between the Parties and the Company from time to time, the
liability of each Party with respect to the Company shall be
limited to the amount of its respective subscribed capital
contributions required under this Contract. Neither Party shall
have any liability jointly or severally to any third party in
respect of the debts or obligations of the Company.
4.4 Legal Person
The Company shall be a legal person under the laws of China.
4.5 Compliance with Chinese Law
(a) All of the activities of the Company shall comply with the
published laws, regulations and rules of China and shall be
protected by such laws, regulations and rules.
(b) The legal rights of the Company and its investors shall be
protected by Chinese law.
ARTICLE 5. PURPOSE, SCOPE AND SCALE OF PRODUCTION AND BUSINESS OF
THE COMPANY
5.1 Purpose of the Company
The purpose of the Company is:
(a) to manufacture and sell high quality Products to meet the
growing demands of customers inside and outside China;
(b) to apply Party B's advanced technology, management techniques
and market knowledge to improve capacity utilization, product
quality, production efficiency and cost controls, and generally to
upgrade and expand the existing production capacity, and to utilize
Party A's experience in manufacturing and facilities; and
(c) to utilize the well recognized technology and technical know-
how of Party B to expand existing markets and increase sales of air
conditioners in China and abroad;
so as to enable the Parties to operate the Company profitably and
receive satisfactory returns on their investments.
5.2 Scope of Business of the Company
The scope of business of the Company is:
(a) to manufacture the Products;
(b) to sell the Products on the domestic and export markets;
(c) to provide or arrange for the provision of after-sale services
such as repair and maintenance for the Products; and
(d) to carry out such other business and activities, subject to
relevant government approvals, as are necessary to generate foreign
exchange or implement actions approved by the Board in furtherance
of the goals of the Company (including the production of related
raw materials and packaging materials for the Company's own use,
and sub-contracting production as required by the production needs
of the Company and other business and activities related to and/or
supportive to the above business purpose and scope).
5.3 Estimated Scale of Production
The estimated scale of production of the Products is as set forth
in the Feasibility Study. The total productive capacity of the
Company is estimated to be approximately 500,000 units by the 1999
calendar year of production. The figures contained in this Article
and the Feasibility Study relating to production and capacity are
estimates and may be either increased or decreased by the Board or
the President during actual production based on the market
situation, improvements in productive capacity and other relevant
factors.
5.4 Location of Production Activities
The Company shall carry out its production and operation activities
at the Plant which is to be located within the boundaries specified
on the Land Map and at such other locations as the Board may
determine from time to time.
ARTICLE 6. TOTAL AMOUNT OF INVESTMENT AND REGISTERED CAPITAL
6.1 Total Investment
The total amount of investment of the Company shall be RMB
203,500,000 (Two Hundred Three Million Five Hundred Thousand
Chinese Yuan).
6.2 Registered Capital
The total amount of the registered capital of the Company shall be
RMB 117,373,000 (One Hundred Seventeen Million Three Hundred
Seventy-three Thousand Chinese Yuan). The respective contributions
of the Parties shall be as follows:
(a) Party A's aggregate contribution to the registered capital of
the Company shall be forty percent (40%) of the total registered
capital of the Company, that is RMB 46,949,000 (Forty-six Million
Nine Hundred Forty Nine Thousand Chinese Yuan)* to be contributed
in the form of the assets less liabilities assumed by the Company
as set forth on Schedule 1(a).
(b) Party B's aggregate contribution to the registered capital of
the Company shall be sixty percent (60%) of the total registered
capital of the Company, that is the United States Dollar equivalent
of RMB 70,424,000 (Seventy Million Four Hundred Twenty-four
Thousand Chinese Yuan)* to be contributed in the form of cash and
know-how as set forth in Schedule 1(b).
6.3 Rate of Exchange
To the extent any installment of either Party's contribution is
denominated in or has been valued in United States Dollars, the
Chinese Yuan equivalent shall be determined at the middle rate
announced daily by the People's Bank of China for the exchange of
United States Dollars to RMB based on the average prevailing rate
of the previous day on the inter-bank foreign exchange market or,
if such rate is no longer announced by the People's Bank of China,
such other rate as the Parties may agree in writing.
*Subject to adjustment based upon the pre-closing audit of Party
A's net assets to be completed as of July 31, 1995, and further
adjustments, if necessary, in the post-closing audit.
6.4 Timing of Capital Contributions
(a) Subject to the conditions of this Article 6.4, the registered
capital of the Company shall be paid by the Parties in installments
according to Schedule 1(c).
(b) Notwithstanding Article 6.4(a), the Parties shall have no
obligation to contribute their respective shares of the registered
capital of the Company until:
(1) the Asset Transfer Contract, Land Lease Contract, Services
and Secondment Contract, Party A Trademark Contract, Party B
Trademark Contract, Services Contract, Technology License Contract
and Guarantee Letter have been executed by the parties thereto and
have received the approval of the relevant Chinese authorities, if
required;
(2) the Labor Contract has been approved by competent labor
authorities in a form satisfactory to the Parties, if such approval
is at any time required;
(3) valid use certificates in respect of the Land have been
issued in the name of the Company in a form consistent with
applicable government regulations and acceptable to Party B and an
environmental assessment and remediation (if deemed necessary by
either Party) has been completed to the reasonable satisfaction of
both Parties;
(4) the form and substance of the approvals received in
connection with or in accordance with this Contract and the
documents referred to in Article 6.4(b)(1)-(3) are acceptable to
each Party;
(5) financing for the operation of the Company in accordance
with Article 6.5 of this Contract has been arranged in amounts and
on terms acceptable to the Parties and the Company has entered into
contractually binding loan agreements or definitive commitment
letters with the relevant banks or financial institutions;
(6) arrangements satisfactory to the Parties in relation to
availability of foreign exchange have been secured;
(7) the Parties have received evidence to their respective
satisfaction that all tax preferences, holidays and concessions
referred to in Article 17.1(c) and Schedule 2 have been obtained;
(8) The Environmental Protection Agency of the Zone shall
have issued a certificate to the Company confirming that the Land
and Plant which Party A is to arrange to lease to the Company as of
the Initial Contribution Date: (i) are free from any environmental
liabilities to and claims from both government and non-government
parties and (ii) there are no environmental conditions on the Land
and Plant, nor have there been any releases of contaminants into
the soils, surface waters, or groundwater of the Land, which would
adversely impact public health or the environment.
(c) As soon as the conditions set forth in Article 6.4(b) have
been fulfilled, the Parties shall immediately notify each other in
accordance with Article 26.6 and agree upon a mutually convenient
date which shall be within one month of such notification (the
"Initial Contribution Date") on which the Parties shall
simultaneously make full contribution of their respective initial
subscriptions of the registered capital as provided for in this
Article 6 and Schedule 1.
6.5 Additional Financing
(a) The Company may borrow any necessary funds from domestic or
international banks or other financial institutions on terms and
conditions approved by the Board. None of the Parties shall be
obligated to lend funds to the Company or to guarantee loans from
third parties or financial institutions. However, if, at the
request of the Board, a Party does agree to lend funds to the
Company, or to guarantee a loan to the Company from a third party
or financial institution, such Party shall be entitled to be paid
interest on the loan or guarantee fees as if such Party were not a
party to the joint venture and as if the transaction were a
negotiated, arm's length financing from a third party.
(b) Prior to the contribution of capital referred to in Article
6.4, the Company shall have received a firm commitment from a
Chinese financial institution expressing its willingness to lend to
the Company the principal sum of RMB 86,000,000 (Eighty-six Million
Chinese Yuan) for a term of at least twelve (12) years at a fixed
rate of interest and on other terms and conditions acceptable to
the Company and its Board of Directors. The said loan may be
secured by a mortgage over the Company's assets, but in no event
shall Party B be required to guarantee such loan. Notwithstanding
the above, the fixed rate of interest is subject to adjustment
during the term of the loan if required by the relevant laws of
China. The proceeds from this loan will be used, in part, to
satisfy Party A's short term debt under the assumed liabilities set
forth on Schedule 1(a).
(c) The Company shall also seek to obtain a short-term working
capital loan or line of credit in the amount of RMB 55,000,000
(Fifty-five Million Chinese Yuan) at an acceptable rate of interest
to be used during the Company's first calendar year of operation.
In the event that such loan or line of credit has not been arranged
prior to September 30, 1995, the Parties may delay their capital
contribution until such time as the said loan or line of credit is
arranged.
6.6 Decrease or Increase of Registered Capital
During the term of the Company, the Company shall not reduce the
amount of its registered capital. Any increase in the registered
capital of the Company shall require the unanimous approval of the
Board and the approval of the Approval Authority.
6.7 Transfer of Registered Capital
(a) Subject to the provisions of Article 6.7(b) and (c) below, a
Party may assign, sell or otherwise dispose of 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.
(b) When a Party (the "Disposing Party") wishes to assign, sell or
otherwise dispose of all or part of its registered capital
contribution to a third party (a "Transfer"), it shall provide
written notice (the "Notice") to the other Party (the "Non-
Disposing Party") specifying its wish to make the Transfer; the
interest it wishes to transfer; the terms and conditions of the
Transfer; and the identity of the proposed transferee.
(c) The Non-Disposing Party shall have a preemptive right to
purchase the whole of such interest on terms and conditions no less
favorable than those specified in the Notice. If the Non-Disposing
Party elects to exercise its preemptive right, it shall notify the
Disposing Party in writing within thirty (30) days of the giving of
the Notice to the Non-Disposing Party of its intention to purchase
the whole of the interest to be transferred; the Non-Disposing
Party shall then, subject to obtaining the approval of the Approval
Authority, purchase such interest on the terms and conditions
specified in the Notice, unless both Parties agree otherwise in
writing. If the Non-Disposing Party consents to the Transfer, the
Disposing Party may assign, sell or otherwise dispose of such
interest to such proposed transferee, on the terms and conditions
set forth in the Notice, provided that such sale or disposal takes
place within six (6) months after the giving of the Notice. The
Disposing Party shall provide the Non-Disposing Party with a
duplicate of the executed written agreement with the transferee
within fourteen (14) days after the agreement is executed.
(d) Notwithstanding the provisions of this Article 6.7, Party B
may assign its registered capital contribution to an Affiliate of
Party B and Party A hereby consents to such assignment, provided
that Party B guarantees the affiliate's performance under this
Contract and the Articles of Association, and to amend this
Contract if appropriate to indicate such obligation, and Party B
shall also notify the Board and Party A in writing of the
assignment and specify the name and the legal address of the
Affiliate, as well as the name, position, nationality and address
of the legal representative of the Affiliate. The assignment shall
be reported to the Approval Authority for approval.
6.8 Encumbrance of Registered Capital
A Party shall not mortgage or otherwise encumber all or any part of
its contribution to the registered capital of the Company without
the prior written consent of the other Party.
6.9 Investment Certificates
After the Parties have made their initial capital contributions,
the Company shall engage an internationally recognized firm of
auditors registered in China to verify the contributions. Upon the
issuance of a verification report by such accountant, the Company
shall issue an investment certificate to each of the Parties in
accordance with the Joint Venture Law. The Company may issue
investment certificates from time to time as the Parties make
further capital contributions and the same are verified by the
registered auditors.
ARTICLE 7. RESPONSIBILITIES OF THE PARTIES
7.1 Responsibilities of Party A
In addition to its other responsibilities under this Contract,
Party A and/or its Affiliates shall:
(a) assist in handling all matters relating to the establishment
of the Company, including submission of the applications to the
Approval Authority and any other relevant governmental authority
whose approval is required for approval of this Contract, the
registration of the Company and the issuance of the Company's
business license, and the opening of RMB and foreign exchange bank
accounts;
(b) assist the Company and Party B, and use its best efforts, to
handle procedures in connection with the submission of applications
for, and the grant of, all necessary approvals, permits,
certificates and licenses required in connection with all matters
regulated by Chinese governmental authorities, including without
limitation safety and environmental matters, foreign exchange
matters and approvals, and Chinese tax preferences, holidays and
concessions and any other investment incentives available to or for
the Company and Party B;
(c) assist the Company, if requested, to handle procedures and
obtain all relevant import and export licenses and approvals for
any import supply agreements and arrangements, and the Company's
imported equipment, machinery, vehicles, raw materials and exported
products of the Company;
(d) arrange for the Company to obtain a thirty year lease the Land
with an option to extend for twenty years as set forth in Article
9.1, handle the registration of the Company's lease of the Land
with the relevant government department, and handle all other
necessary procedures in relation thereto to ensure that the Company
has the right to use the Land in conformity with the scope of its
operations for the term of the Company, as extended from time to
time, and that the Company is issued a certificate from the
relevant government department evidencing such right;
(e) assist the Company in contracting for and obtaining
electricity, water and other necessary utilities required by the
Company, as set forth in Article 9;
(f) assist directors and foreign personnel of Party B and the
Company to obtain all necessary entry visas, travel documents and
work permits;
(g) assist the Company with the smooth transfer of employees from
Party A who are recruited by the Company and with the recruitment
of other qualified Chinese management personnel, technical
personnel, workers and other needed personnel, and with other
employment related matters;
(h) generally assist the Company in its relations with local
government authorities and Chinese domestic companies, including
the customers and suppliers of the Company;
(i) assist the Company to obtain adequate allocations and supplies
of raw materials, local equipment, means of transportation,
articles for office use and communication facilities in accordance
with Article 8 hereof;
(j) assist the Company in obtaining RMB and foreign exchange loans
from financial institutions in China;
(k) assist the Company to qualify for the status of
"Technologically Advanced Enterprise";
(l) enter into those contracts attached to this Contract as
Annexes to which it is a party; and
(m) handle other matters entrusted to it by the Company and as
agreed from time to time by Party A.
7.2 Responsibilities of Party B
In addition to its other responsibilities under this Contract,
Party B shall:
(a) assist the Company, if requested, to procure domestically and
from abroad equipment, supplies and raw materials in accordance
with Article 8 hereof;
(b) assist the Company as requested to recruit appropriate
management and senior technical personnel;
(c) enter into, or cause its Affiliates to enter into, those
contracts and agreements with the Company to which it or any of its
Affiliates is a party;
(d) assist the Company, if requested, to gather information
regarding and develop export markets for the Products;
(e) handle other matters entrusted to it by the Company and agreed
from time to time by Party B; and
(f) export fifty (50) per cent of the Products manufactured, based
upon a rolling three calendar year average, provided that the
Products are competitive in price and meet international standards
of quality.
ARTICLE 8. MATERIALS AND SUPPLIES
8.1 Asset Transfer Contract
The Parties agree that within thirty (30) days after the
Establishment Date, the Company and Party A shall enter into the
Asset Transfer Contract in order to provide for the transfer to the
Company of all of the assets listed in the Asset Transfer Contract
and in Exhibit 1 to Schedule 1 currently used in the business of
Party A at the Plant, together with existing inventory so as to
permit the Company to carry-on the business previously conducted by
Party A.
8.2 General Principles
The Company shall have the right to purchase materials and supplies
at its own discretion on the domestic and foreign markets.
8.3 Supply of Components
To the extent that the Company's specifications for construction
and raw materials with respect to quality, quantity, price, and
delivery terms and dates cannot be met from sources within China,
the Company may procure such materials and supplies from abroad
provided that such materials and supplies are competitive in price
and meet international standards of quality and the requirements of
all relevant authorities or agencies are complied with.
ARTICLE 9. RIGHT TO USE LAND, PLANT AND UTILITIES
9.1 Right to Use the Land and Plant
(a) Within thirty (30) days after the Establishment Date, Party A
shall arrange for the signing of the Land Lease Contract by the
Zone (or its affiliate) and the Company. Party A shall undertake
all actions required in order to implement the Land Lease Contract
so that the Zone (or its affiliate) leases the land use rights to
the Company for a period of thirty years with an option to extend
for a further period of twenty years in accordance with China's
laws and regulations, the terms hereof and the Land Lease Contract,
including obtaining all approvals and completing all registrations
and/or filings required by applicable laws and regulations from any
land use authority or real estate bureau in connection with the
transfer of the use of the Land and the Plant to the Company as
contemplated hereby.
(b) Party A shall assist the Company to obtain from the relevant
department in charge of land a valid certificate evidencing the
registration of the Land Lease Contract in the name of the Company
(including all necessary means of access to the nearest public
roads to enable the Company to access the Land and to conduct
thereon the activities contemplated by this Contract).
(c) The Land shall be leased to the Company free and clear of any
structure other than those facilities to be contributed by Party A
to the Company, together with other facilities ancillary thereto,
as specified in this Contract.
(d) Party A warrants that the Land and Plant to be provided to the
Company by Party A shall be as set forth in the Land Map; that the
Land and Plant shall be connected to the water, electricity, sewer,
steam, and waste water treatment and telecommunications systems.
Party A also agrees to exercise every reasonable effort to cause
the supply of water, steam and electricity to the production
facilities of the Company to be continuous and uninterrupted in
accordance with the specifications and conditions set forth in the
Feasibility Study. Party A warrants that the Land and Plant to be
leased to the Company as of the Initial Contribution Date: (i) are
free from any environmental liabilities to and claims from both
government and non-government parties and (ii) there are no
environmental conditions on the Land and Plant, nor have there been
any releases of contaminants into the soils, surface waters, or
groundwater of the Land, which would adversely impact public health
or the environment. Party A agrees to defend and indemnify the
Company against any claims or rulings at any time asserted against
the Company attributable to the pre-existing environmental
condition of the Land and Plant at the time the Land and Plant is
leased to the Company. Party A's obligations under this Article
9.1(d) shall survive the termination of this Contract and the
liquidation of the Company.
(e) The actual boundaries of the Land will be verified by the
Ningbo Municipal Land Administration Bureau or the Zone after
consultation with Party A and Party B.
9.2 Utilities
Party A shall ensure that on the Initial Contribution Date all
utilities required by the Company, including water, electricity,
sewerage services, steam, and waste water treatment shall be
supplied to the Company by the same suppliers currently utilized by
Party A for the Company, at the same (or lower) price and on the
same (or more favorable) terms and conditions now enjoyed by Party
A. Payment for any such services shall be made in RMB. Attached
to this Contract as Schedule 3 is a list of the utility services
now supplied to Party A and their current prices in RMB.
9.3 Services
The Parties agree that within thirty (30) days after the
Establishment Date, the Company and Party A shall enter into the
Services Contract for the provision to the Company of the services
stipulated therein.
ARTICLE 10. TECHNOLOGY LICENSE CONTRACT, SERVICES AND SECONDMENT
CONTRACT AND TRADEMARK CONTRACTS
10.1 Technology License Contract
The Parties agree that within thirty (30) days after the
Establishment Date the Company and Party B or its Affiliate shall
enter into the Technology License Contract providing for the
licensing of certain of Party B's advanced technology to the
Company.
10.2 Services and Secondment Contract
The Parties agree that within thirty (30) days after the
Establishment Date the Company and Party B or its Affiliate shall
enter into the Services and Secondment Contract.
10.3 Trademark Contracts
The Parties agree that within thirty (30) days after the
Establishment Date the Company and Party A shall enter into the
Party A Trademark Contract, and the Company and Party B or its
Affiliate shall enter into the Party B Trademark Contract, so as to
obtain the right to use the trademarks needed for marketing and
sale of the Products.
ARTICLE 11. SALE OF PRODUCTS
11.1 General Principles
Subject to Article 7.2 (f) of this Contract and this Article 11,
the Products of the Company shall be sold on the domestic and
export markets for both RMB and foreign exchange. Subject to the
approval of the Board and a separate agreement with Party B and/or
its Affiliates, the Company may enter into arrangements pursuant to
which Party B and/or its Affiliates, whether as an agent of the
Company or in its or their own right or otherwise, provide some or
all marketing and sales and engineering services required by the
Company for the Products.
11.2 Domestic Sales
Products sold by the Company on the Chinese domestic market shall
be sold by the Company either by the Company itself or through its
branches. The prices charged to domestic purchasers of the Products
may be denominated in RMB. The principles for determining the
currency and sales prices of Products sold on the domestic market
shall be established by the Board.
11.3 Export Sales
Export price policies and guidelines shall be made by the Board
after considering reports from the President assisted by the Senior
Vice President, Finance; provided, however that prices should not
be lower than cost plus a small profit margin for the Company.
Products sold by the Company in the export market shall be handled
exclusively by Party B as provided in Article 7.2 (f) of this
Contract. The President shall make day-to-day decisions within
these guidelines. In addition, such sales shall be made by Party B
only if the Products continue to meet international requirements in
terms of price, quality, delivery, performance and packaging.
ARTICLE 12. BOARD OF DIRECTORS
12.1 Establishment
The Board shall be established on the Establishment Date. The
first meeting of the Board shall be held within sixty days (60)
days after the Establishment Date.
12.2 Composition and Term
The Board shall consist of five (5) directors, as follows:
(a) two (2) directors to be appointed by Party A, one of whom
shall be appointed by Party A to be the Vice Chairman of the Board;
and
(b) three (3) to be appointed by Party B, one of whom shall be
appointed by Party B to be the Chairman of the Board.
The term of office of the Board shall be three (3) years, and
directors may serve consecutive terms if reappointed by the
appointing Party.
12.3 Authority
The Board shall be the highest authority of the Company and shall
decide all major issues of the Company. The following matters
shall require the unanimous approval of the Board:
(a) amendment of the Articles of Association;
(b) termination or dissolution of the Company, subject to Article
21.1 of this Contract;
(c) increase or assignment of the registered capital of the
Company, unless otherwise expressly stipulated herein;
(d) merger of the Company with any other economic organization;
(e) the appointment, dismissal and compensation of the President;
and
(f) modification of the rights and responsibilities of the
Company's Chairman and President.
12.4 Other Important Decisions of the Board
Unless otherwise specified in the Articles of Association,
decisions with respect to all matters other than those set forth in
Article 12.3(a) - (f) shall be adopted if they receive the
affirmative votes of a majority of the directors present in person
or by proxy, or in the case of a resolution by writing, by a
majority of the directors. Without limiting the generality of the
foregoing, the following matters shall require the majority
approval of the Board:
(a) change the scope of business of the Company.
(b) subject to Article 13.2(b), the appointment of the Senior Vice
President, Finance, Vice President, Vice President, Quality and
department managers;
(c) the determination of annual contributions to the Three Funds
in excess of the minimum amounts required therefor in Article 9.1
of the Articles of Association, and any modifications to the
Company's policy regarding the distribution of net profits as set
forth in Article 9.2 of the Articles of Association; and
(d) approval of the Company's five (5) year business plan, which
will include all significant plans for (i) the introduction of new
products and (ii) new investments by the Company.
(e) the dismissal and compensation of the Senior Vice President,
Finance, Vice President, Vice President, Quality and department
managers;
(f) modification of the Company's management level organizational
structure;
(g) modification of the rights and responsibilities of the
Company's Vice President and other management level officers;
(h) approval of the Company's annual budget, including the
Company's production, personnel and welfare plans; and
(i) approval of the Company's sales policy, including pricing and
export sales policies.
12.5 Legal Representative
The Chairman of the Board shall be the legal representative of the
Company within the scope expressly authorized by the Board. If the
Chairman is unable to perform such duties for any reason, the Vice
Chairman shall perform such duties. If the Vice Chairman is unable
to perform such duties, the Board shall authorize another director
to perform such duties.
12.6 Compensation and Expenses
Directors shall serve the Company without compensation. Expenses
incurred by any director in connection with attending meetings of
the Board shall be borne by the Company.
12.7 Meetings
The quorum for all meetings of the Board shall be four (4) of the
directors present in person or by proxy. Meetings of the Board
shall generally be held at least two (2) times a year. Board
meetings shall be convened and presided over by the Chairman of the
Board or as otherwise provided in the Articles of Association.
12.8 Further Powers and Procedures
The detailed powers and procedures of the Board shall be as set
forth in the Articles of Association.
ARTICLE 13. BUSINESS MANAGEMENT
13.1 Business Management
The day-to-day management of the overall operations of the Company
shall be under the direction of the President, who shall be
assisted by a Senior Vice President, Finance, other Vice
Presidents, Vice President, Quality and such other officers as the
Board may consider necessary.
13.2 Appointment of the Managers
(a) The Board shall determine the management structure and
additional management level officers of the Company from time to
time and according to the Articles of Association. Initially, the
Company shall be organized in accordance with the structure set
forth on the organizational chart attached hereto as Schedule 4
with the following divisions: Sales; Quality; Manufacturing and
Technology; Purchasing; Finance; and Personnel and Administration.
(b) The President, Senior Vice President, Finance and Vice
President, Quality shall be nominated by Party B. The Vice
President, Manufacturing and Technology Manager, Purchasing
Manager, Sales Manager, and Personnel and Administration Manager
shall be nominated by Party A. The responsibilities of the
President, Senior Vice President, Finance, Vice President and the
Vice President, Quality shall be as set forth in Articles 5.7 to
5.9 of the Company's Articles of Association, and the reporting
relationships shall be as set forth in Schedule 4 hereto, as
initially approved and modified by the Board from time to time.
(c) Notwithstanding the foregoing, each management level officer
(other than the President, Senior Vice President, Finance, Vice
President, Quality, and other Vice Presidents) shall be subject to
a probation period of six (6) months following such manager's
confirmation by the Board. If, during the relevant probation
period, any manager proves to be incapable of performing the duties
required of such manager, the President shall have the right to
remove him and request the original nominating Party to nominate a
new candidate for the post for appointment by the Board.
13.3 Term of Office
The President, Senior Vice President, Finance, Vice President,
Quality and the other Vice Presidents shall, unless they become
incapacitated, resign, retire or are removed from office earlier by
the Board, hold office for a term of three (3) years each and are
eligible for reappointment for further terms, and the Senior Vice
President, Finance shall serve, on a temporary basis, as the acting
President when the President becomes incapacitated, resigns,
retires, or is removed by the Board prior to the expiration of his
term or any subsequent term, until the President is replaced by the
Board.
13.4 Responsibilities of the Managers
The powers and duties of the managers shall be as set forth in the
Articles of Association.
13.5 Approval of Officers to Hold Other Positions
The President, Senior Vice President, Finance, Vice President,
Quality and other Vice Presidents of the Company shall not, except
with the express approval of the Board, concurrently occupy any
operational position in any other economic organization.
13.6 Power of Board to Dismiss Officers
Subject to the terms of the Labor Contract, the Board may remove
any of the managers or any other officer or employee of the Company
at any time.
ARTICLE 14. PERSONNEL AND LABOR MANAGEMENT
14.1 Recruitment
The Company shall have the right to recruit its own employees in
accordance with applicable laws and the Labor Contract. The
President shall make all decisions in relation to the recruitment
of employees.
14.2 Party A's Employees
Party A shall ensure that all wages, bonuses and accrued retirement
or other benefits of all employees of Party A who are offered
positions with the Company, which relate to the period prior to the
transfer of such employees to the Company, have been fully paid to
such employees, into the relevant statutory fund, or properly set
aside as required by applicable laws. The Company shall not be
liable for any payments to JV Employees or any individual
previously employed by Party A accrued during any period prior to
their employment by the Company.
14.3 Labor Contract
The Company shall enter into a Labor Contract with each individual
JV Employee, substantially in the form attached hereto as Annex B
as modified based on Chinese Labor Law from time to time by the
Board.
14.4 Wages and Salaries
The levels of salaries and all welfare benefits and subsidies for
all employees shall be as approved by the Board. The wage levels
of Chinese employees to be employed upon the formation of the
Company shall be competitive with wages received by employees in
Party A's plant as at the date of this Contract. Thereafter, the
wage levels of the JV Employees shall be determined in accordance
with Article 14.5(b) and (g) of this Contract.
14.5 Labor Policies
Labor and personnel policies of the Company shall be determined by
the Board. These policies shall be in accordance with applicable
Chinese laws and regulations and shall include the following principles:
(a) All JV Employees shall be selected on the basis of examination
and the best qualifications. In this regard, the Company shall be
free to hire qualified personnel from any location in China.
However, priority will be given to current well qualified employees
of Party A who successfully pass the applicable examination and
other selection criteria.
(b) Responsibility for approval of all merit salary increases for
specific JV Employees shall be based upon the individual employee's
performance and shall be determined by the President, subject to
the approval of the Board.
(c) All bonuses of whatever type shall be established as an
incentive, and shall be awarded on the basis of performance. All
such bonuses shall be awarded at the discretion of the President.
(d) The Company shall have the power to dismiss JV Employees in
accordance with the Labor Contract and the applicable labor laws in
force at the relevant time. Such power shall be vested in the
President on behalf of the Board.
(e) JV Employees who are high ranking officers of the Company
shall be paid a salary approved by the Board.
(f) All personnel of Party B or its Affiliates (other than Chinese
personnel recruited and nominated by Party B to be employed by the
Company as management level officers) employed by or provided to
the Company shall be provided pursuant to the Services and
Secondment Contract.
(g) Any general increases or decreases in wages, salaries, any
benefits or any subsidies of JV Employees shall be determined by
the Board in accordance with the principles set forth herein and
shall take into consideration the economic condition of the
Company, and the salary and wage situation in the Ningbo area.
(h) The Parties recognize that the Company will incur significant
expense in the training of JV Employees with critical skills, as
determined by the President of the Company, and that the Company
will be seriously damaged if these JV Employees are transferred to
other Chinese enterprises within a short period of time after such
training. The Parties also recognize that such training will
provide benefits to Chinese industry. Accordingly, Party A agrees
that JV Employees will not be transferred to Party A or other
Chinese enterprises without the approval of the Board and the
President.
14.6 Chinese Nationals Recruited and Nominated by Party B as
President and Senior Vice President, Finance of the Company
Party B will nominate the President, Senior Vice President, Finance
and Vice President, Quality of the Company in accordance with the
terms of this Contract and the Articles of Association. Such
personnel may be resident expatriates seconded to the Company in
accordance with the Services and Secondment Contract, or Party B
may recruit and nominate Chinese nationals resident in China to
serve in such positions. To the extent that Party B so recruits
and nominates such Chinese nationals (who are not employed by Party
A at the time of nomination):
(a) upon approval by the Board, such personnel shall be employed
by the Company;
(b) such personnel shall be subject to the same rules and
regulations and policies and procedures as set forth in Articles
14.3 through 14.5 of this Contract as though such personnel were JV
Employees, except that:
(1) the wage and compensation packages for such personnel
shall be as negotiated between the relevant personnel and Party B,
using guidelines established by the Board taking into consideration
rank, experience, and other related considerations, and after full
discussion by the Board in accordance with Article 12.4 of this
Contract;
(2) to the extent that such wage and compensation package
includes additional benefits for such personnel, including but not
limited to special housing arrangements, leave and vacation
entitlements, insurance policies or other benefits, the Company
shall provide such benefits to the relevant personnel. To the
extent that the Parties agree that such benefits may not be
provided directly by the Company, Party B may provide such benefits
to the personnel, and the Company shall reimburse Party B for all
such costs; and
(3) The Labor Contract for such personnel shall be revised as
necessary to take into account the terms of such personnel's
employment in accordance with this Article.
14.7 Trade Union Fund
The Company shall reserve for the Company's trade union fund for
such trade union's use as is required in accordance with the
applicable laws of China on the management of trade union funds.
ARTICLE 15. PREPARATION OF THE COMPANY
15.1 Preparation Committee
Within twenty one (21) days of the execution of this Contract by
both Parties, each Party shall appoint representatives to form a
preparation committee (the "Preparation Committee") to formulate
and implement plans for the establishment of the Company. The
Preparation Committee shall be comprised of two (2) members, with
each Party appointing one member. The tasks of the Preparation
Committee shall include but not be limited to implementing the plan
for the separation of the Company from Party A's existing business
located within Ningbo Municipality and establishing an accounting
system for the Company. The Preparation Committee shall report to
the Board.
15.2 Office
The office of the Preparation Committee will be located at such
place as the Parties shall agree.
15.3 Dissolution
The Preparation Committee shall be dissolved by the Board at its
discretion and in no event later than one month after the
completion of the tasks referred to in this Article 15, but no
earlier than the Initial Contribution Date.
15.4 Expenses
Each Party shall bear its own travel and personnel costs and
expenses for its representatives on the Preparation Committee. All
other costs incurred in the operation of the Preparation Committee
shall be borne by the Parties pro rata based on their respective
equity interests in the Company set forth in Article 6.2.
ARTICLE 16. FINANCIAL AFFAIRS AND ACCOUNTING
16.1 Accounting System
(a) The Company shall maintain its accounts in accordance with the
Foreign Investment Enterprise Accounting System of China, United
States generally accepted accounting principles ("US GAAP") and the
provisions of the Articles of Association and in a manner
sufficient to satisfy the financial reporting requirements of the
Parties.
(b) The fiscal year of the Company shall be the calendar year.
The Company may also prepare financial and accounting statements
and reports for the period from September 1 of one year to August
31 in the following year for internal purposes. All accounting
records, vouchers, books and statements of the Company shall be
made and kept in the Chinese and English languages and shall be
retained for such period of time as may be required to permit the
Company, Party A and Party B to fulfill their respective
obligations to applicable taxation authorities. To permit the
Parties to comply with such obligations, the Company shall provide
to the Parties copies of all such documents as requested by the
Parties and access to such materials. All important financial and
accounting records and statements shall require the approval and
the signature of the President and the Senior Vice President,
Finance.
(c) Each Party shall take all appropriate action to cause the
Board of the Company to adopt such internal control policies and
procedures as are necessary to assure that the business of the
Company and the conduct of its officers, directors, employees, and
agents, are consistent with the following operating principles:
(1) no money or any other thing of value shall be offered,
promised, or given to any government official, any political party
or official thereof, any candidate for political office, or any
other person while knowing or having reason to know that all or a
portion of such money or thing of value will be offered, promised,
or given directly to any of the those listed above for the purpose
of influencing any action, omission, or decision by the recipient
in order to obtain or retain business for the Company or to direct
business to another; and
(2) all operations are in full compliance with all applicable
laws and regulations, including but not limited to, such laws and
regulations which may be applicable as a result of the ownership or
control of the Company by Party B, which is not a domestic Chinese
company and is subject to the laws of its country of incorporation.
16.2 Audit
(a) An internationally recognized firm of auditors, registered in
China, shall be appointed as the Company's auditors (the
"Registered Auditor") and shall be engaged by the Company to
examine and verify the annual accounts, and submit its report to
the Board and the President. The Company shall submit to the
Parties and to each director the audited annual accounts within
ninety (90) days after the end of the fiscal year, together with
the audit report of the Registered Auditor.
(b) If it so chooses, each Party may appoint on its behalf and at
its expense an accountant, registered either in China or abroad
(including a certified accountant from a Party or a foreign firm of
publicly certified accountants), to audit the Company's accounts.
If the results of any such audit are significantly different from
that conducted by the Registered Auditor and are accepted by the
Board, the expense of the audit shall be borne by the Company. The
Company will permit such accountant to have access to the Company's
books and records and will provide such accountant with office
space and all other reasonable facilities to enable the accountant
to carry out the audit. The Party appointing the accountant shall
ensure that the accountant keeps confidential all documents audited
by such person.
16.3 Bank Accounts
The Company shall separately open foreign exchange accounts and RMB
accounts at one or more banks located in China, in accordance with
applicable laws and regulations. The Company may open accounts at
banks located abroad with the approval, if required by relevant
Chinese laws or regulations, of the State Administration of
Exchange Control.
16.4 Settlement of Expenses
In principle, except where payment in foreign exchange is required
pursuant to this Contract or other contracts entered into by the
Company, all payments to be made by the Company in China (including
but not limited to expenses and compensation for labor other than
expatriate personnel) shall be settled and paid by the Company in
RMB.
16.5 Profits Distribution
(a) After providing for income tax to be paid by the Company, the
Board will determine the respective amounts to be transferred to
the Company's reserve fund, bonus and welfare fund and the
enterprise expansion fund (the "Three Funds"), and such amounts
will be deducted from the Company's after-tax net profits.
(b) After providing for income tax to be paid by the Company and
deduction of amounts to be transferred to the Three Funds, the
Board shall, except as otherwise decided by the Board, declare that
all the net profits of the Company shall be distributed to the
Parties in proportion to each of their respective shares of
registered capital. The profit distribution plan shall be on an
annual basis, with a final profit distribution to be determined by
the Board and paid to the Parties within sixty days after the
receipt of the audited annual accounts referred to in Article
16.2(a) above.
ARTICLE 17. TAXATION AND INSURANCE
17.1 Income Tax, Customs Duties and Other Taxes
(a) The Company shall pay tax in accordance with the relevant laws
and regulations of China and applicable local regulations. Chinese
and foreign employees shall pay individual income tax in accordance
with applicable Chinese laws and regulations.
(b) The Parties shall, prior to the establishment of the Company
and at such times as the same become obtainable, apply to obtain
for the Company and the Parties the benefits of all applicable tax
exemptions, reductions, privileges and preferences which are now or
in the future become obtainable under Chinese law or any treaties
or international agreements to which China is or may become a
party.
(c) In order to confirm the tax treatment applicable to the
Company and the Parties, the Parties shall, immediately after the
establishment of the Company, procure that the Company submit an
application to the appropriate tax authorities of China requesting
confirmation of the tax exemptions, reductions and other
preferences to be accorded to the Company as set forth in Schedule
2 hereto.
17.2 Insurance
The Company will take out and maintain insurance in accordance with
the Articles of Association and applicable law.
ARTICLE 18. FOREIGN EXCHANGE REQUIREMENTS OF THE COMPANY AND
FOREIGN EXCHANGE BALANCING
18.1 Foreign Exchange Requirements of the Company
All payments to be made by the Company to Party B and to any
expatriate employees of the Company shall be made in United States
Dollars, unless some other freely convertible currency shall be
mutually agreed upon. Party B shall have the right to remit
outside China of all payments made to it by the Company, including
amounts paid to it upon dissolution of the Company, in accordance
with applicable Chinese laws and regulations. Unless otherwise
specified in this Contract or in contracts entered into by the
Company pursuant to a valid decision of the Board, all expenses,
loan repayments, labor compensation and other charges of the
Company paid to Chinese enterprises or nationals shall be paid in
RMB.
18.2 Foreign Exchange Balancing
The Company shall strive to achieve a balance of foreign exchange
receipts and expenditures. In order to do so, the Parties and the
Company shall be permitted to adopt all methods permitted by
applicable laws from time to time as determined by the Board, and
shall apply for all governmental approvals appropriate therefor.
The Parties intend that such methods may include, among others, the
following:
(a) subject to Article 8, the Parties intend that the Company will
purchase in RMB productive materials for manufacturing Products
from local sources in China at competitive prices;
(b) subject to Articles 13 and 14 and the Articles of Association,
the Parties intend that the majority of the Company's managers will
be Chinese nationals, and that the compensation for such managers
will be paid in RMB; and
(c) subject to Article 16.5 hereof and the Articles of
Association, the Parties may agree to permit the Company to
withhold distribution of profits to the Parties.
18.3 Appropriation of Foreign Exchange Available
Funds in any foreign exchange account of the Company shall be used
by the President in accordance with sound business practices in the
following order of priority:
(a) Payment for imported raw materials, spare parts, equipment,
items used by and services rendered to the Company;
(b) Payments required under the Services and Secondment Contract;
(c) Interest and principal on loans payable in foreign exchange,
if any;
(d) Dividends payable to Party B;
(e) Payments of salaries, allowances, and related expenses of the
Company's expatriate employees, including costs and expenses in
foreign exchange incurred in China;
(f) Repatriation of Party B's capital on such capital becoming
payable to Party B; and
(g) Other payments which the Board decides should be made in
foreign exchange.
ARTICLE 19. CONFIDENTIALITY AND NON-COMPETITION
19.1 Confidentiality
(a) During the term of this Contract (including any extensions
thereof) or for so long as the Company continues to exist, and for
a period of five (5) years thereafter, or unless and until the
information properly comes into the public domain, each Party shall
maintain the secrecy and confidentiality of any proprietary or
secret information ("Confidential Information") related to the
Company, and shall not disclose to any third party or person any
Confidential Information disclosed to it by the other Party at any
time during or for the purpose of negotiation of this Contract or
for the establishment or operation of the Company, provided that
Party B shall be permitted to disclose information received by it
under this Contract to its Affiliates when such disclosure is
necessary for Party B to carry out its obligations under this
Contract.
(b) The Parties shall cause their directors, staff, and other
employees, and those of their subsidiaries or affiliated companies,
also to comply with the confidentiality obligation set forth in
Article 19.1(a).
19.2 Non-competition
(a) On and after the Initial Contribution Date and for the term of
the Company, neither Party shall conduct any business activities,
including but not limited to the establishment of another joint
venture in China, which will directly or indirectly compete with
the business of the Company. If the Company is terminated due to a
material breach of this Contract, the Articles of Association, or
any annex to this Contract, this covenant of non-competition shall
remain in force as to the breaching Party for a period of two full
years after the termination of the Company. If, however, the
termination is due to the normal expiration of this Contract or is
otherwise mutually agreed to by the Parties, this covenant shall
not survive the termination of the Company.
(b) Subject to the consent of the Company, Party A may transfer to
the Company promptly after the Establishment Date pursuant to the
terms of the Asset Transfer Contract all of its outstanding
contracts with third party purchasers for the sale of any products
which directly or indirectly compete with the Company's Products.
Any such contractual arrangements which the Company does not elect
to take over from Party A shall be fulfilled by Party A, but Party
A shall not enter into any further contracts for the production or
sale of such competitive products.
19.3 Survival
The provisions and obligations set forth in Articles 19.1(a) and
(b) and 19.2(a) shall, subject to such term limitations as
described therein, survive the termination of this Contract and the
liquidation of the Company.
ARTICLE 20. JOINT VENTURE TERM
20.1 Effective Date
(a) This Contract and its Annexes shall be submitted to the
Approval Authority for approval and shall come into force on the
day on which the Approval Authority issues its certificate of
approval.
(b) In the event that (i) the Establishment Date does not occur
within four (4) months of the date set forth on the first page of
this Contract or (ii) the Approval Authority requires the Parties
to amend this Contract in a manner or imposes conditions that are
unacceptable to either of the Parties, then either Party may
terminate this Contract by written notice to the other Party, and
upon the effectiveness of such notice in accordance with Article
26.6 hereof this Contract shall be void and of no force and effect.
20.2 Joint Venture Term
The term of the Company (the "Term") shall be thirty (30) years
from the Establishment Date with an option to renew for an
additional twenty (20) year period upon the mutual consent of the
Parties.
20.3 Extension of Joint Venture Term
At least two (2) calendar years prior to the expiration of the
Term, the Parties shall hold consultations to discuss the extension
of the Term. If both Parties agree to extend the Term, an
application for extension shall be submitted to the Approval
Authority for approval not less than six (6) months prior to the
expiration of the Term.
20.4 Sale of Company as a Going Concern
If, after discussion and consultation pursuant to Article 20.3,
either Party fails to agree to extend the Term of the Company, then
the other Party may elect to continue the business of the Company,
provided such election shall be approved by the Approval Authority
in accordance with applicable law. The Party making such an
election (the "Purchasing Party") shall be obligated to purchase
the interest of the other Party (the "Selling Party") in the
Company at a price calculated and paid as follows:
(a) the Selling Party and the Purchasing Party shall discuss and
agree upon a purchase price which shall in all cases reflect the
going concern value (including reputation and goodwill) and the
projected future profitability of the Company. The method of
calculating such price in respect of the interest of the Selling
Party shall be as follows:
(1) the net worth of the Company, to be determined by a
balance sheet effective on the date of termination, multiplied by
the percentage of the Company's registered capital contributed by
the Selling Party, plus
(2) an additional payment to be negotiated in good faith to
reflect the going concern value of the Company based on the actual
circumstances of the Company and taking into account the market
value of companies in similar manufacturing industries and
internationally accepted principles relevant to the determination
of going concern value.
(b) If the Selling Party and Purchasing Party cannot agree on a
price, they shall appoint a valuation committee to value the
interest of the Selling Party by reference to the principles set
forth above. The valuation committee shall consist of three (3)
members. The Selling Party shall select one member, the Purchasing
Party shall select one member and the third member shall be
selected by the first two members. If the valuation committee
cannot agree on the value of the interest of the Selling Party
within sixty (60) days after its appointment, the matter shall be
settled in accordance with Article 25.
(c) After the purchase price has been determined in accordance
with this Article 20.4, the Parties shall use their best efforts to
secure all necessary governmental approvals and comply with all
administrative procedures required in connection with the purchase.
Payment shall be made within forty-five (45) days following the
completion of the purchase procedures, provided that the Selling
Party shall not be required to complete any sale pursuant to this
Article 20.4 unless the entire purchase price is paid in the lawful
currency of, or a currency which may be freely converted and
remitted to, the jurisdiction of organization of the Selling Party.
ARTICLE 21. TERMINATION; DISPOSAL OF ASSETS ON DISSOLUTION
21.1 Termination And Dissolution
Subject to Article 20.4, the Company shall be dissolved and this
Contract terminated in accordance with the Joint Venture Law, the
Joint Venture Regulations and the Articles of Association (i) upon
expiration of the Term (if not extended) or any extension thereof;
or (ii) if any of the conditions or events set forth below shall
occur and be continuing. The following are events that may trigger
dissolution:
(a) The Company sustains significant losses in three (3)
consecutive calendar years and, after consultations, the Parties
are unable to agree on a method to improve the economic situation
of the Company to the extent satisfactory to both Parties;
(b) The Company is unable to carry out operations for six (6)
consecutive months or more because of an Event of Force Majeure (as
defined in Article 23.1);
(c) The Company is unable to carry out operations because any of
the Land Lease Contract, the Technology License Contract, the Party
A Trademark Contract, the Party B Trademark Contract, the Asset
Transfer Contract, the Services and Secondment Contract, the
Services Contract, and the Lease Contract are not entered into
within three (3) months after the Establishment Date or are
terminated early, or the Company is not issued with a valid land
use certificate in a form reasonably satisfactory to Party B within
a period of three (3) months after the Establishment Date;
(d) Any Party fails to perform any of its material obligations
under this Contract or the other contracts referred to in 21.1(c)
above if, in the reasonable opinion of the non-breaching Party,
such non-performance creates a material risk of loss to such
non-breaching Party or the Company or materially and adversely
affects the value of the non-breaching Party's interest in the
Company;
(e) Either Party fails to make its contributions to the registered
capital of the Company in accordance with the provisions of Article
6 of this Contract, where such failure continues for a period of
more than three months and is not waived by the other Party;
(f) All or a material portion of the assets or property of the
Company or the interest of either Party in the Company is
expropriated or requisitioned, or any JV Employees are reassigned
or withdrawn with the effect that the operations of the Company are
adversely affected;
(g) Any new law or regulation, or any new interpretation of
existing law or regulation, is imposed (i) which controls the
export or sale for foreign exchange of the products of the Company,
the effect of which will render the Company unable to carry out its
normal operations, or (ii) which materially withdraws or reduces
any tax exemptions, reductions, privileges, preferences and/or
incentives granted to or enjoyed by the Company; and
(h) The Parties agree to dissolve the Company.
(g) An early termination (other than a termination for the reasons
specified in Article 21.1(d) or (e)) shall require a resolution
unanimously adopted at a meeting of the Board which shall be
submitted to the Approval Authority for approval. The Parties agree
that a non-breaching Party may terminate this Contract by notice in
writing to the other Party and apply directly to the Approval
Authority for dissolution of the Company without the necessity of
obtaining such a Board resolution upon the occurrence of any of the
events specified in Article 21.1(d) and (e). After the Board
resolves to dissolve the Company, it shall apply to the Approval
Authority for approval of such dissolution.
21.2 Liquidation Committee
If, upon the expiration of the Term of the Company's business
license or upon early dissolution of the Company pursuant to
Article 21.1, neither Party purchases the interest of the other
Party in the Company, the Parties shall cause the directors
appointed by them to adopt a resolution to liquidate the Company,
formulate liquidation procedures, establish a liquidation committee
(the "Liquidation Committee"), and submit its proposals to the
department in charge for verification. The composition, powers and
functions of the Liquidation Committee shall be as set forth in the
Articles of Association.
21.3 Effect of Termination, Dissolution or Sale
The termination of this Contract for any reason, the dissolution of
the Company or the sale of a Party's interest to a third party
shall not release a Party from its liability to pay any sums of
money accrued, due and payable to the other Party, or to discharge
its then-accrued and unfulfilled obligations including any
liability to the Company or the other Party in respect of any
breach of this Contract.
ARTICLE 22. LIABILITY FOR BREACH OF CONTRACT
22.1 Breach of Contract
If a Party fails to perform any of its material obligations under
this Contract, or if a representation or warranty made by a Party
under this Contract is untrue or materially inaccurate, the Party
shall be deemed to have breached this Contract.
22.2 Failure to Pay Capital Contributions
Should one of the Parties fail to pay any portion of its
contribution to the registered capital of the Company at the time
and in the amounts stipulated in Article 6 of this Contract, the
breaching Party shall pay to the Company a monthly amount equal to
two percent (2%) of such contribution, starting from the first
month the contribution is overdue. In the event that a Party's
payment is overdue for a period in excess of three (3) months, a
non-breaching Party may terminate this Contract by notice in
writing to the breaching Party in accordance with Article 21.1;
provided that the non-breaching Party may, within one month after
expiry of the time limit stated in its notice, apply to the
original Approval Authority for approval to seek another Party to
undertake the breaching Party's rights and obligations under this
Contract.
22.3 Indemnity
(a) If the Company suffers any cost, expense, liability or loss,
as a result of a breach of this Contract by either Party, then the
breaching Party shall indemnify and hold the Company harmless in
relation to any such cost, expense, liability or loss.
(b) If the non-breaching Party suffers any cost, expense,
liability or loss, as a result of a breach of this Contract by the
breaching Party, the breaching Party shall indemnify and hold the
non-breaching Party harmless in relation to any such cost, expense,
liability or loss incurred by the non-breaching Party.
ARTICLE 23. FORCE MAJEURE
23.1 Force Majeure
"Event of 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,
epidemic, fire, flood, earthquake, storm, tidal wave or other acts
of nature.
23.2 Notification of Occurrence
If one Party has been prevented from performing its
responsibilities stipulated in this Contract because of an Event of
Force Majeure, it shall notify the other Party in writing within
fourteen (14) 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, no Party shall be responsible for any damage,
increased costs or loss which the other Parties 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.
ARTICLE 24. APPLICABLE LAW
24.1 Applicable Law
The formation, validity, interpretation, execution, amendment and
termination of this Contract shall be governed by the published
laws of China. When the published laws of China do not govern a
certain matter, international legal principles and practices shall
apply.
24.2 Prior and Subsequent Laws
This Contract and its Schedules and Annexes constitute the valid
and binding obligations of the Parties. If there is (i) any
conflict between this Contract and any laws, decrees, rules and
regulations, or any ruling having the force of law, promulgated by
any Chinese authority after the effective date of this Contract; or
(ii) any amendment to previously promulgated laws, decrees, rules
and regulations which take effect after the effective date of this
Contract, this Contract shall be amended in accordance with Article
24.3 so as to preserve the original economic interests of the
respective Parties.
24.3 Economic Adjustment
If a Party's economic benefits are adversely and materially
affected by the promulgation of any new laws, rules or regulations
of China, or the amendment or interpretation of any existing laws,
rules or regulations of China after the date on which this Contract
comes into force, the Parties shall promptly consult with each
other and use their best efforts to implement any adjustments
necessary to maintain each Party's economic benefits derived from
this Contract on a basis that is no less favorable than the
economic benefits each would have derived if such laws, rules or
regulations had not been promulgated or amended or so interpreted.
ARTICLE 25. SETTLEMENT OF DISPUTES
25.1 Arbitration
(a) Any dispute arising from, out of or in connection with this
Contract shall be settled through friendly consultations between
the Parties. Such consultations shall begin immediately after one
Party has delivered to the other Party a written request for such
consultation. If within ninety (90) days following the date on
which such notice is given, the dispute cannot be settled through
consultations, the dispute shall, upon the request of any Party
with notice to the other Party, be submitted to arbitration in
Stockholm, Sweden under the auspices of the Arbitration Institute
of the Stockholm Chamber of Commerce (the "Institute").
(b) There shall be three (3) arbitrators. Party A shall select
one arbitrator and Party B shall select one arbitrator, and both
arbitrators shall be selected within thirty (30) days after giving
or receiving the demand for arbitration. Such arbitrators shall be
freely selected, and the Parties shall not be limited in their
selection to any prescribed list. The President of the Institute
shall select the third arbitrator. If a Party does not appoint an
arbitrator who has consented to participate within thirty (30) days
after the selection of the first arbitrator, the relevant
appointment shall be made by the President of the Institute.
(c) The arbitration tribunal shall apply the arbitration rules of
the Institute in effect on the date of the signing of this
Contract. However, if such rules are in conflict with the
provisions of this Article 25.1, including the provisions
concerning the appointment of arbitrators, the provisions of this
Article 25.1 shall prevail.
(d) Each Party shall cooperate with the other Party in making full
disclosure of and providing complete access to all information and
documents requested by the other Party in connection with such
proceedings, subject only to any confidentiality obligations
binding on such Party.
(e) The arbitral award shall be final and binding upon all
Parties, not subject to any appeal, and shall deal with the
question of costs of arbitration and all matters related thereto.
(f) Judgment upon the award rendered by the arbitration may be
entered into any court having jurisdiction, or application may be
made to such court for a judicial recognition of the award or any
order of enforcement thereof.
25.2 Continued Implementation of Contract
During the period when a dispute is being resolved, the Parties
shall in all other respects continue their implementation of this
Contract.
ARTICLE 26. MISCELLANEOUS
26.1 Amendment and Modification of Contract
Amendments to this Contract or its Schedules or Annexes may be made
only by a written agreement in English and Chinese signed by duly
authorized representatives of each of the Parties and, unless prior
approval from the Approval Authority is statutorily required, will
become effective as soon as the amendments are filed with the
Approval Authority for record.
26.2 Severability
The invalidity of any provision of this Contract shall not affect
the validity of any other provision of this Contract.
26.3 Language
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.
26.4 Entire Contract
This Contract and the Schedules and Annexes attached hereto
constitute the entire contract between the Parties with respect to
the subject matter of this joint venture and supersede all previous
oral and written agreements, contracts, understandings and
communications of the Parties in respect of the subject matter of
this Contract. The headings to Articles are for ease of reference
only and shall have no legal effect.
26.5 Waiver
Unless otherwise provided for, failure or delay on the part of any
Party hereto to exercise any right, power or privilege under this
Contract shall not operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege
preclude exercise of any other right, power or privilege.
26.6 Notices
Notices or other communications required to be given by any Party
or the Company pursuant to this Contract shall be written in
English and in Chinese (with a translation attached) and may be
delivered personally or sent by registered airmail (postage
prepaid), by a recognized courier service or by facsimile
transmission to the addresses of the other Parties set forth below.
The dates on which 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.
(b) Notices given by registered airmail (postage prepaid) shall be
deemed effectively given on the seventh day after the date on which
they were mailed (as indicated by the postmark).
(c) Notices given by courier shall be deemed effectively given on
the third day after they were sent by recognized courier service.
(d) Notices given by facsimile transmission shall be deemed
effectively given on the first business day following the date of
transmission.
For the purpose of notices, the addresses of the Parties are as
follows:
Party A: Ningbo General Air Conditioner Factory
Factory Building 8502, Ningbo Economic and
Technological Development Zone
Ningbo Municipality, Zhejiang Province
People's Republic of China
Attention: Director
Telephone No: (00-000) 000-0000
Facsimile No.: (00-000) 000-0000
Party B: Fedders Investment Corporation
Xxxxxxxx Xxxxxxxxx Xxxxxx
000 Xxxxxxxxxxxx Xxxx
P.O. Box 000
Xxxxxxx Xxxxxx, Xxx Xxxxxx 00000
Xxxxxx Xxxxxx of America
Attention: Legal Department
Telephone No: (0-000) 000-0000
Facsimile No: (0-000) 000-0000
Any Party may at any time change its address for service by notice
in writing delivered to the other Party in accordance with the
terms hereof.
26.7 Schedules and Annexes
The Schedules and Annexes attached hereto are hereby made an
integral part of this Contract and will when executed be equally
binding upon the parties thereto as provided therein. The
Schedules and Annexes are as follows:
Schedule 1 Contributions of Parties and Terms Thereof
Schedule 2 Tax Preferences and Holidays
Schedule 3 Utilities
Schedule 4 Initial Management Organization Chart
Annex A Asset Transfer Contract
Annex B Labor Contract
Annex C Party A Trademark Contract
Annex D Party B Trademark Contract
Annex E Services and Secondment Contract
Annex F Technology License Contract
Attachments Articles of Association Joint Feasibility Study
Certificate of Approval
IN WITNESS WHEREOF, each of the Parties hereto have caused this
Contract to be executed by its duly authorized representative on
the date first set forth above.
NINGBO GENERAL AIR FEDDERS INVESTMENT CORPORATION
AIR CONDTIONER FACTORY
By:_______________________ By:______________________
Xxx Xxxx Xxxx Xxxxxx X. Xxxxxxx, Xx.
Title: Director Title: Executive Vice
Nationality: Chinese President, Finance and
Administration and Chief
Financial Officer
Nationality: USA
