COOPERATIVE JOINT VENTURE CONTRACT
FOR
GUANGXI GUANGHE METALS. LTD.
AMONG
HECHI INDUSTRIAL CO. LTD.
AND
BIOGAN INTERNATIONAL INC.
JANUARY 27, 2000
CHAPTER I
GENERAL PROVISIONS
Pursuant to the Law of the People's Republic of China on Sino-Foreign
Co-Operative Enterprises and other relevant Chinese laws and regulations, on the
basis of the principles of equality and mutual benefit, HECHI INDUSTRIAL CO.
LTD. a company organized and existing under the laws of the People's Republic of
China (hereafter referred to as "PARTY A" ) and BIOGAN INTERNATIONAL INC. a
limited liability company organized and existing under the laws of the State of
Delaware of the United States of America (hereafter referred to as "PARTY B")
agree, after friendly consultations, to jointly invest in and set up a
co-operative joint venture in Guangxi Zhuang Autonomous Region of the People's
Republic of China and hereby enter into this Contract.
ARTICLE 1
When used in this Contract, the following terms shall have the meanings set
forth below:
"ARTICLES OF ASSOCIATION" shall mean the Articles of Association of the
Cooperative Joint Venture Company, a copy of which is attached hereto as Annex
A;
"FEASIBILITY STUDY REPORT" shall mean the feasibility study submitted to the
Hechi Foreign Trade and Economic Co-operation Administration in connection with
the application for approval of establishment of the Cooperative Joint Venture
Company.
"PARTIES" shall collectively mean Party A and Party B;
"PARTY A" shall mean Hechi Industrial Co. Ltd;
"PARTY B" shall mean Biogan International Inc.
CHAPTER II
PARTIES TO THE JOINT VENTURE
ARTICLE 2
The Parties to this Contract are:
HECHI INDUSTRIAL CO. LTD.
Legal Address: Xx. 000, Xxxxxxx Xxxx, Xxxxx Xxxx, Xxxxxxx, 000000
The People's Republic of China
Legal Representative: Xxxxx Yihuai
Title: Chairman
Nationality: Chinese
BIOGAN INTERNATIONAL INC.
Legal Address: Potomac Drive, Boise Idaho, U.S.A.
Legal Representative: Xxxxxx Xxxxxxxxx e
Title: President
Nationality: Canadian
CHAPTER III
ESTABLISHMENT OF THE COMPANY
ARTICLE 3
Pursuant to the Co-Operative Joint Venture Law and other relevant Chinese laws
and regulations, the Parties hereto agree to establish the Cooperative Joint
Venture Company as a limited liability co-operative enterprise for developing,
manufacturing and selling the products of the Cooperative Joint Venture Company
with advanced and applicable technology introduced by the both parties of the
Cooperative Joint Venture Company.
ARTICLE 4
The name of the Cooperative Joint Venture Company shall be [Chinese characters]
in Chinese, and "GUANGHE METALS CO. LTD." in English.
The legal address of the Cooperative Joint Venture Company shall be Xx. 000,
Xxxxxxx Xxxx, Xxxxx, Xxxxxxx, xxx Xxxxxx'x Xxxxxxxx of China
ARTICLE 5
All activities of the Cooperative Joint Venture Company must comply with the
published laws, decrees and pertinent rules and regulations of the People's
Republic of China and shall be governed and protected by Chinese law.
ARTICLE 6
The liability of the Cooperative Joint Venture Company shall be limited to the
registered capital of the Cooperative Joint Venture Company and that of the
Parties to the Cooperative Joint Venture Company shall be limited to their
respective subscriptions to the registered capital and no party shall have any
liability to the Company or to any third party severally or jointly in excess of
such amount.
CHAPTER IV
PURPOSE, SCOPE AND SCALE OF PRODUCTION AND OPERATION
ARTICLE 7
The purpose of the Parties in forming the Cooperative Joint Venture Company is
to further strengthen economic and technological cooperation; to develop,
manufacture and sell its products with advanced and applicable technology
introduced by the both parties of the Cooperative Joint Venture Company. The
Cooperative Joint Venture Company shall also raise economic efficiency and use
its best effort to export its products to bring satisfactory economic returns to
the Parties by improving product quality, developing new products and achieving
a competitive quality and price position in both domestic and overseas mining
industry through the adoption of scientific management methods.
ARTICLE 8
The scope of operation of the Cooperative Joint Venture Company shall be:
(1) Exploration, selection, smelting and sales of mineral products and
by-products;
(2) Manufacturing and sales of metal materials and non-metal materials, raw
coal, coke, machinery and electronic equipment and chemical products;
(3) Delivery service by motor vehicle;
(4) Installation of water and electric equipment;
(5) Research, development and sales of hi-tech products; and
(6) Research, development and sales of medical products.
ARTICLE 9
As provided in the Feasibility Study Report, the scale of production of the
Cooperative Joint Venture Company shall be in accordance with market demand and
a projection of the initial annual demand for the products of the Cooperative
Joint Venture Company.
The production capacity may be expanded during the term of the Contract with the
development of market demand and other conditions. In the event that the
Cooperative Joint Venture Company expands its production capacity and needs more
capital, Party B shall be responsible to raise such capital for the Cooperative
Joint Venture Company.
CHAPTER V
TOTAL INVESTMENT AND REGISTERED CAPITAL
ARTICLE 10
The total investment amount of the Cooperative Joint Venture Company shall be
US$25,000,000.
ARTICLE 11
The total registered capital of the Cooperative Joint Venture Company shall be
US$10,000,000, and shall be contributed by the Parties in the following
proportions:
Party A: US$800,000
Party B: US$9,200,000
ARTICLE 12
The capital contributions of the Parties shall be contributed in accordance with
the following:
Party A shall make its capital contribution in kind with those assets specified
in the Appendix 1 to this Contract, of which US$800,000 shall be Party A's
capital contribution, to the Cooperative Joint Venture Company in a lump sum
after the Cooperative Joint Venture Company obtains its Business License from
the Hechi Administration for Industry and Commerce.
Party B has remitted US$200,000 into the account designated by Party A. This
amount will be transferred into the account of the Cooperative Joint Venture
Company once the Cooperative Joint Venture Company obtains its Business License
and opens an account in a bank in the People's Republic of China. Before or on
20th February, 2000, Party B shall remit US$300,000 into the account of the
Cooperative Joint Venture Company. Within three (3) months of receipt of the
Business License of the Cooperative Joint Venture Company, Party B shall remit
US$1,500,000 into the account of the Cooperative Joint Venture Company. Within
eighteen (18) months of the receipt of the Business License of the Cooperative
Joint Venture Company, Party B shall remit US$7,200,000 into the account of the
Cooperative Joint Venture Company. Or the Board of the Cooperative Joint Venture
Company can resolve to adjust the amount of the registered capital of the
Cooperative Joint Venture Company at an appropriate time.
ARTICLE 13
The contributions of the Parties shall be made in the following manner:
(a) Party A's Contribution: Party A shall make its capital contribution in
kind as specified in the Appendix 1 to this Contract to the JVC.
(b) Party B's Contribution: Party B shall contribute in United State
Currency US$9,000,000 and the remaining amount in the form of
intellectual property rights and trademark rights.
ARTICLE 14
The obligation of both Parties to make any contribution toward the registered
capital of the Cooperative Joint Venture Company hereunder shall be subject to
the following conditions:
all government approvals required for establishment of a joint venture with the
scope of operation set forth under Article 8 above under law, regulation or
administrative ruling in the People's Republic of China have been obtained for
the establishment of the Cooperative Joint Venture Company.
ARTICLE 15
The Parties hereby make the following representations and warranties:
1. they are legally established in accordance with the laws specified in
the General Provisions of this Contract;
2. they have the authorities and capacities of executing this Contract and
perform the obligations stipulated herein;
3. the representatives who execute this Contract have received full
authorization based on a valid authorization letter. The copy of such
authorization has been provided to the other Party;
4. The execution of this Contract and performance of the obligations
herein will neither constitute nor cause to constitute violation to any
other contracts or commitments which the Parties to the Cooperative
Joint Venture Company is (are) a party to, and will not constitute or
cause to constitute any violation of any contracts or commitments
involving any of their assets or properties.
The above representatives and warranties shall be valid at the execution of this
Contract and during the existence of the Cooperative Joint Venture Company.
ARTICLE 16
Subject to the approval of the Board of Directors, the Cooperative Joint Venture
Company shall have the power to borrow any funds needed in addition to the
registered capital and to mortgage its properties in relation thereto.
ARTICLE 17
No Party shall assign or otherwise dispose of all or part of its interest in the
Cooperative Joint Venture Company to the other Party or a third party without
first obtaining the prior approval of the other Party through a resolution of
the Board of Directors and the approval of the original examination and approval
authority.
However, any Party may freely assign its interest in the Cooperative Joint
Venture Company to its own affiliate without first obtaining the consent of the
other Party or giving the other Party a right of first refusal, but subject to
the giving of a written notice to the Board of Directors for the record. An
affiliate for the purpose of this Article means the parent company of the Party
and said parent company's wholly owned subsidiaries and any company which is a
wholly owned subsidiary of such Party. Such assignment shall be reported to the
original examination and approval authority for approval.
Subject to the requirements of the first paragraph of this Article, a Party (the
"SELLING PARTY" ) to this Contract may sell, transfer, assign, or otherwise
dispose of the whole or any part of its interest in the Cooperative Joint
Venture Company to a third party only after giving notice in wring (herein
referred to as the "OFFER NOTICE" ) to the other Party to this Contract (the
"NON-SELLING PARTY" ), notifying the Non-Selling Party of its intention to sell,
transfer, assign or otherwise dispose of the whole or part of its interest in
the Cooperative Joint Venture Company (the "OFFERED SHARES" ), and specifying
details of the transaction including the name and address of the third party to
whom it intends to offer to sell the Offered Shares involved in the transaction
or transactions, the price, and any other terms and conditions relating to the
proposed sale. The Offer Notice shall include an offer to sell a portion of the
Offered Shares to each of the Non-Selling Party. The percentage of the Offered
Shares to be offered to any one of the Non-Selling Party shall be computed as
follows:
Percentage interest of Non-Selling Party in the Profit
Distributions of the Cooperative Joint Venture Company/Total
Percentage interest of all Non-Selling Party in the Profit
Distributions of the Cooperative Joint Venture Company
The Offer contained in the Offer Notice shall be on terms and conditions no less
favourable than those to be offered to the third party, and shall require each
Non-Selling Party to accept the offer within thirty (30) days of the date
thereof in writing whereupon:
(a) A Non-Selling Party who receives an Offer Notice may, within
thirty (30) days of the date of the Offer Notice, by notice in
writing to the Selling Party (the "ACCEPTANCE NOTICE" ),
confirm its acceptance of the Offer. The closing date for the
acquisition shall be fifteen (15) days after the date of the
Acceptance Notice.
(b) To the extent that a Non-Selling Party fails to purchase all
or a portion of the Offered Shares it is entitled to purchase,
then the Selling Party shall, in an additional Offer notice
offer such unpurchased Offered Shares (the "UNPURCHASED
OFFERED SHARES" ) to the other Non-Selling Party in equal lots
(or if there is only one other Non-Selling Party, then all of
the Unpurchased Offered Shares shall be offered to that Party)
on the same terms as and pursuant to the procedures provided
above.
(c) In the event that any Offered Shares remain unpurchased after
the expiration of thirty (30) days (the "EXPIRATION DATE" )
from the date of the last Offer Notice required to be given
above, then the Selling Party may sell the shares specified in
the Offer Notice to the third party or third parties concerned
at such price and upon such terms and conditions as shall not
be more favourable to such third party or parties than those
contained in the Offer Notice.
(d) If the Selling Party shall not dispose of the Offered Shares
or any portion thereof by the tenth calendar day following the
Expiration Date, then the Selling Party shall continue to hold
such Shares subject to the provisions of this Article.
In the case of an assignment of all or part of the interest of any of the
Parties in the Cooperative Joint Venture Company, the assignee shall be bound by
the terms and conditions of this Contract to the same extent as was the
assignor.
ARTICLE 18
After the Parties have each made their contributions to the registered capital,
an accountant registered in China shall be retained by the Cooperative Joint
Venture Company for verification of such contributions. Upon the issuance of the
verification report by the accountant, the Cooperative Joint Venture Company
shall issue an investment certificate to each Party signed by the Chairman and
the Vice-Chairman of the Board of Directors, confirming the amount contributed
by such Party.
CHAPTER VI
PROFIT DISTRIBUTIONS
ARTICLE 19
Profits shall be paid to the Parties from the after tax profits and retained
earnings of the Cooperative Joint Venture Company at such times and in such
amounts as may be determined by the Board of Directors. Profits of the
Cooperative Joint Venture Company shall be distributed to the Parties in the
following proportions:
a. Party A shall be entitled to receive a five percent (5%) share of any
profit distribution.
b. Party B shall be entitled to receive a ninety-five percent (95%) share
of any profit distribution.
To the extent that the foreign exchange reserves of the Cooperative Joint
Venture Company are insufficient to pay Party B's profit distributions in
foreign exchange, the Cooperative Joint Venture Company shall assist Party B in
processing the conversion of any Renminbi profit distributions to Party B into
foreign exchange, in accordance with regulations of the People's Republic of
China concerning foreign exchange control.
CHAPTER VII
RESPONSIBILITIES OF THE PARTIES
TO THE COOPERATIVE JOINT VENTURE
ARTICLE 20
The Parties shall be responsible for the following matters:
1. Party A shall be responsible:
1.1 to obtain all government approval required under law,
regulation or administrative ruling for the establishment of
the Cooperative Joint Venture Company;
1.2 to handle matters for the establishment of the Cooperative
Joint Venture Company including applications for approval,
registration and the issuance of the business license;
1.3 to assist the Cooperative Joint Venture Company in recruiting
operational and management personnel, technical personnel,
workers and other necessary personnel;
1.4 to assist foreign personnel of Party B and the Cooperative
Joint Venture Company in handling the necessary procedures for
entry visas, work permits, traveling arrangements, drivers
licenses and other necessary permits and authorizations;
1.5 to assist the Cooperative Joint Venture Company to apply for
and obtain all possible tax reductions and exemptions and all
other relevant investment incentives available to the
Cooperative Joint Venture Company under Chinese laws;
1.6 to assist the Cooperative Joint Venture Company in applying to
the Bank of China as well as to other banks approved by the
Bank of China for the establishment of foreign currency and
Renminbi accounts, and to assist the Cooperative Joint Venture
Company in securing local financing in Renminbi;
1.7 to handle all other matters entrusted by the Cooperative Joint
Venture Company.
2. Party B shall be responsible for:
2.1 providing information on equipment required by the Cooperative
Joint Venture Company and assisting the Cooperative Joint
Venture Company in the purchase of machinery and equipment in
China and from abroad an arranging transportation of the same
and preparing a report on the anticipated foreign exchange
requirements of the Cooperative Joint Venture Company;
2.2 providing the necessary technical personnel during the period
when the equipment of the Cooperative Joint Venture Company is
being installed and tested, as well as during trial production
stages;
2.3 assisting in organizing the training, as required, of the
personnel of the Cooperative Joint Venture Company;
2.4 assisting the Cooperative Joint Venture Company in purchasing
materials used in the exploration of various mines.
2.5 Assisting the Cooperative Joint Venture Company to apply
foreign currency loans from foreign banks or financial
institutions;
2.6 Handling all other matters entrusted by the Cooperative Joint
Venture Company.
CHAPTER VIII
THE BOARD OF DIRECTORS
ARTICLE 21
The Board of Directors of the Cooperative Joint Venture Company shall be
appointed effective as of the date of issuance of the business license of the
Cooperative Joint Venture Company.
ARTICLE 22
The Board of Directors shall comprise five (5) directors:
Two (2) directors shall be appointed by Party A and three (3) directors shall be
appointed by Party B.
One director appointed by Party B shall be the Chairman of the Board of
Directors. There shall be one Vice-Chairman appointed by Party A. The Chairman
of the Board shall be the legal representative of the Cooperative Joint Venture.
ARTICLE 23
The directors, Chairman and Vice Chairman shall each serve a term of office of
four (4) years and may serve consecutive terms if reappointed by the Party which
made the original appointment.
The Parties shall conduct consultations prior to appointment of said Chairman
and Vice Chairman.
ARTICLE 24
Directors shall not be paid a salary by the Cooperative Joint Venture Company;
however, this provision shall not prevent the Cooperative Joint Venture Company
from paying salaries to employees who serve as directors.
ARTICLE 25
The Board of Directors shall be the highest authority of the Cooperative Joint
Venture Company. It shall decide all major issues concerning the Cooperative
Joint Venture Company. Resolutions involving the following matters shall only be
adopted by the unanimous affirmative vote of all members of the Board of
Directors:
(1) the amendment of the Articles of Association of the Cooperative Joint
Venture Company;
(2) the suspension of production, early termination and dissolution of the
Cooperative Joint Venture Company;
(3) the increase or assignment of the registered capital of the Cooperative
Joint Venture Company;
(4) the merger of the Cooperative Joint Venture Company will other economic
organizations;
(5) the termination of the Cooperative Joint Venture Company;
(6) the appointment of the auditor for the Cooperative Joint Venture
Company.
ARTICLE 26
All other matters to be resolved by the Board of Directors, including but not
limited to the following matters, shall be adopted upon the affirmative vote of
four (4) directors provided that at least one (1) director appointed by each of
the Parties hereto votes in favor of the resolution:
(1) decisions on and approval of important reports submitted by the General
Manager;
(2) Approval of the Cooperative Joint Venture Company's cost budget for
construction and purchases of equipment;
(3) Approval of all annual production, product distribution plans and
business reports, as well as annual operating budgets, including
financial statements, cash flow, working capital and capital
expenditures, marketing and advertising total expenditure amount,
annual profit distribution and remedies for losses;
(4) Adoption of important rules and regulations of the Cooperative Joint
Venture Company including wages, reward and punishment methods, welfare
benefits and the employment and dismissal of staff and workers;
(5) Decisions to establish branch organizations of the Cooperative Joint
Venture Company;
(6) Decisions on borrowing and lending, guarantees, mortgaging and other
financing arrangements of the Cooperative Joint Venture Company;
(7) Decisions on the proportion to be set aside for the reserve fund, the
staff and workers' bonus and welfare fluid and the enterprise
development fiend of the Cooperative Joint Venture Company;
(8) Decisions on the alteration of the Cooperative Joint Venture Company's
production scale, renovation of equipment and new product types;
(9) Examination and approval of all unbudgeted purchases and expenditure
for which no offset is provided within the operating budget;
(10) Deciding on appointment of the General Manager, Deputy General Manager,
Operations Manager, finance Manager and Deputy Finance Manager and on
their functions and powers, remuneration, social insurance and welfare
benefits;
(11) Decisions on the liquidation of the Cooperative Joint Venture Company
upon its expiration or early termination;
(12) Approval of work rules for the General Manager and Deputy General
Managers and the chart of authority for the management organization;
(13) Establishing the date of the Parties' contribution to the Cooperative
Joint Venture Company's registered capital; and
(14) Approval of the annual distribution of profits to the Parties.
ARTICLE 27
The Chairman of the Board of Directors shall call and preside over meetings of
the Board of Directors. In the event that the Chairman of the Board of Directors
cannot perform his/her duties for any reason, he/she may temporarily authorize
in writing the Vice Chairman or any other director to act as his/her
representative. Should any director be unable to attend a meeting of the Board
of Directors, he may authorize a representative by written proxy to attend such
meeting. Such representative shall enjoy the rights of such directors.
ARTICLE 28
The Board of Directors shall convene at least two (2) meetings every year Such
meetings shall in principle be held at the place where the Cooperative Joint
Venture Company is located, and may also be held alternately at the places where
the Parties agree. The quorum to be present at a meeting of the Board of
Directors shall be four (4) directors, which must include one (1) director
appointed by each Party. Any resolution adopted at a meeting of the Board of
Directors with less than the quorum referred to in the preceding sentence shall
be invalid.
Expenses incurred by the directors in attending meetings of the Board of
Directors shall be paid by the Cooperative Joint Venture Company as provided in
the Articles of Association.
Upon the request of one-half or more of the directors, the Chairman may, after
consulting with the Vice Chairman, convene an interim meeting of the Board of
Directors. Minutes of a meeting shall be signed and approved by all members who
attended the meeting and kept on file by the Cooperative Joint Venture Company.
Minutes of meetings shall be kept in Chinese and English.
In lieu of a meeting of the Board of Directors, a written resolution may be
adopted by the Board of Directors if such resolutions sent to all members of the
Board of Directors and affirmatively signed and adopted by the number of
directors who could adopt such resolution at a duly convened meeting of the
Board of Directors pursuant to the relevant provisions of this Contract;
provided, however that at least one (1) director appointed by each of the
Parties must affirmatively sign such resolution.
CHAPTER IX
OPERATION AND MANAGEMENT ORGANIZATION
ARTICLE 29
The Cooperative Joint Venture Company shall establish an operation and
management organization which shall be responsible for the production,
distribution and sales as well as the day-to-day management work of the
Cooperative Joint Venture Company. The operation and management organization
shall have one General Manager, one Finance Manager, one Operations Manager, one
Deputy General Manager and one Deputy Finance Manager. Each of the aforesaid
mangers shall be recommended by Party A and appointed by the Board of Directors
and their respective terms of office shall be four (4) years. Consecutive terms
may be served upon reappointment. The Parties shall conduct consultations prior
to recommending the aforesaid management personnel.
ARTICLE 30
The General Manager shall have responsibility for organizing the management and
operations work of the Cooperative Joint Venture Company and implementing the
resolutions of the Board of Directors.
ARTICLE 31
The concrete operations of management shall be in accordance with the rules and
chart of authority as approved by the Board of Directors for the General Manager
and Deputy General Managers.
The terms of employment offered by the Cooperative Joint Venture Company to
managerial personnel (including but not limited to salary, benefits, housing and
transportation fees) shall be provided with reference to treatment of managers
of other Sino-Foreign joint ventures located in Guanxi, People's Republic of
China and decided by the Board of Directors.
ARTICLE 32
In the event of graft or serious breach of duty on the part of the General
Manager, the Deputy General Managers or any of the other senior managers of the
Cooperative Joint Venture Company, they may be replaced at any time subject to
the decision of a meeting of the Board of Directors.
CHAPTER X
PURCHASE OF RAW MATERIALS AND EQUIPMENT
ARTICLE 33
Priority shall given to purchase in the People's Republic of China of items
required by the Cooperative Joint Venture Company including equipment, raw
materials, fuels, parts, vehicles, and office supplies so long as the terms
applicable to such purchase are equal to or better than terms offered by sellers
of such items outside of the People's Republic of China. Prices for the above
stated goods and materials which are purchased in the People's Republic of China
shall in accordance with the provisions of the Regulations for the
Implementation of the Law of the People's Republic of China on Joint Ventures
using Chinese and Foreign Investment be the same as the prices paid for such
goods and materials by state-owned enterprises and payable in Renminbi.
CHAPTER XI
LABOR MANAGEMENT
ARTICLE 34
The General Manager shall formulate plans regarding the employment, dismissal,
wages, labor insurance, welfare benefits, rewards and punishments of the staff
and workers of the Cooperative Joint Venture Company, which shall be examined
and approved by the Board of Directors. Such plans shall be in accordance with
the Regulations of the People's Republic of China on Labor Management in Joint
Venture Using Chinese and Foreign Investment and other relevant laws and
regulations.
ARTICLE 35
The General Manager shall determine and report to the Board of Director the
number of employees needed for the efficient operation of the Cooperative Joint
Venture Company.
The Cooperative Joint Venture Company shall publicly recruit its staff and
workers. Those candidates who receive the best results in the examination
administered by the General Manager or the Deputy General Managers shall be
employed on a probationary basis and, after the General Manager determines that
an employee has successfully completed the probationary period, the employee,
shall be officially employed by the Cooperative Joint Venture Company.
ARTICLE 36
The standards of wages and benefits paid by the Cooperative Joint Venture
Company to the general personnel shall be based on the relevant stipulations and
shall be discussed and decided by the Board of Directors.
The employment, remuneration, social insurance, welfare benefits, travel
allowance, and overseas allowances of the management personnel of the rank of
department manager and above, shall be submitted by the General Manager to the
Board of Director for discussion and approval. The salary and benefit level of
other management personnel of the Cooperative Joint Venture Company shall be set
by the General Manager after consultation with the Deputy General Managers and
shall be reported by the General Manager to the Board of Directors and to the
extent required to the department concerned.
ARTICLE 37
Provisions relating to the employment, dismissal, resignation, remuneration,
welfare benefits, rewards, discipline, punishments, labor insurance and labor
discipline of the staff and workers of the Cooperative Joint Venture Company
shall be specified in a labor contract to be entered into by and between the
Cooperative Joint Venture Company and each individual staff member and worker of
the Cooperative Joint Venture Company.
After each labor contract is signed, it shall be filed with the Hechi Labor
Management Department. Matters relating to labor management shall be reported to
the Hechi Labor Department to the extent required under relevant regulations.
ARTICLE 38
In accordance with guidelines set forth by the Board of Directors, the General
Manager, in consultation with the Deputy General Managers, shall have the right
to take disciplinary action against staff and workers by giving warning,
recording a demerit or reducing salaries or wages. Staff and workers who have
committed serious offenses may be dismissed. Dismissal of any staff member or
worker shall be reported to the local labor department. Dismissal of
departmental managers shall be in accordance with the provisions of the Articles
of Association of the Cooperative Joint Venture Company.
ARTICLE 39
The Cooperative Joint Venture Company shall establish a trade union organization
in accordance with the relevant provisions of the relevant Regulations.
CHAPTER XII
TAXES
ARTICLE 40
The Cooperative Joint Venture Company shall pay various taxes in accordance with
the stipulations of relevant Chinese laws and regulations and shall apply for
the various preferential tax treatments given by the State to joint venture
companies, including those provided under the Income Tax Law of the People's
Republic of China for Enterprises with Foreign Investment and Foreign
Enterprises (April 9, 1991) and its Implementing Regulations (July 1, 1991),
State Council Regulations Concerning Encouragement of Foreign Investment
(October 11, 1986), the Measures of the Ministry of Finance for the
Implementation of the Preferential Tax Treatment Provisions of the State Council
Regulations Concerning Encouragement of Foreign Investment (January 31, 1987)
and the other relevant local regulations promulgated by Guangxi government. In
the event that new laws or regulations permit more favorable taxation for joint
ventures at a later date, the Cooperative Joint Venture Company shall be
entitled to apply for the benefit of the relevant new tax law or regulation.
ARTICLE 41
The Cooperative Joint Venture Company shall be entitled to obtain the maximum
additional preferential customs and tax treatment permitted by the current an
effective Chinese laws and regulations.
ARTICLE 42
Among the preferential tax provisions to be enjoyed, the Cooperative Joint
Venture Company shall be exempted from enterprise income tax in its first two
(2) profit-making years and shall enjoy a fifty percent (50%) reduction in
enterprise income tax in the third to fifth profit-making year.
ARTICLE 43
Staff and workers of the Cooperative Joint Venture Company shall pay individual
income tax in accordance with the Individual Income Tax Law of the People's
Republic of China.
CHAPTER XIII
FINANCE AND ACCOUNTING
ARTICLE 44
The Cooperative Joint Venture Company shall set aside from its after tax profits
the reserve fund, the enterprise development fund and the bonus and welfare
fund for staff and workers in accordance with the stipulations in the Joint
Venture Law. The proportion to be set aside annually shall be discussed and
decide by the Board of Directors according to the business situations of the
Cooperative Joint Venture Company. The total amount set aside for the three
funds each year shall be limited strictly to amounts required to fund the
reasonable financial needs of said fiends and shall generally not exceed ten
percent (10%) of the after tax profit in such year.
ARTICLE 45
The Cooperative Joint Venture Company shall adopt the internationally practiced
accrual basis of accounting and the debit and credit method for book keeping,
and shall prepare complete, accurate and appropriate financial and accounting
books and records in accordance with the Accounting System of the People's
Republic of China for Joint Ventures Using Chinese and Foreign Investment and
relevant financial systems. The accounting system and procedures to be adopted
by the Cooperative Joint Venture Company shall be prepared by the General
Manager, the Deputy General Manager responsible for finance, and the Finance
Manager. The accounting system and procedures so adopted shall be submitted to
the Board of Directors for approval. Once approved by the Board of Directors,
the accounting system and procedures shall be filed with the local department of
finance and the tax authorities.
ARTICLE 46
After the business license has been issued, the Cooperative Joint Venture
Company shall separately open a foreign exchange account and a Renminbi account
at a branch of the Bank of China in Hechi or other bank(s) approved by the
People's Bank of China.
ARTICLE 47
Renminbi shall be used as the unit of accounting by the Cooperative Joint
Venture Company in its financial accounting. Profits and earnings of the Parties
shall be computed in Renminbi. Except for payments to be made in foreign
exchange under Chapter XIV or as otherwise required, payments of the Cooperative
Joint Venture Company shall be made in Renminbi. The earning of the staff and
workers shall be computed and payable in Renminbi whereas staff members
appointed by the Board of Directors to be remunerated in foreign exchange shall
be paid in foreign exchange.
ARTICLE 48
The fiscal year of the Cooperative Joint Venture Company shall begin on January
1 and end on December 31 of each year. Monthly, quarterly and annual accounting
statements shall be written in both the Chinese and English languages and copies
shall be provided in a timely fashion to each Party.
ARTICLE 49
The Cooperative Joint Venture Company shall engage an accounting firm registered
in China to be its auditor and to examine and verify the financial accounting of
the Cooperative Joint Venture Company and to deliver an audit report to the
Board of Directors and the General Manager.
If necessary, any Party may engage an auditor at its own expense from China or
another country to examine the financial accounting books of the Cooperative
Joint Venture Company. The Cooperative Joint Venture Company shall provide the
necessary convenience for such examination.
ARTICLE 50
The balance sheet, profit and loss statement and profit distribution plan for
each business year must be submitted for examination and approval at a meeting
of the Board of Directors.
CHAPTER XIV
FOREIGN EXCHANGE
ARTICLE 51
All matters concerning the foreign exchange matters of the Cooperative Joint
Venture Company shall be handled in accordance with the Provisional Regulations
for Foreign Exchange Control of the People's Republic of China and other
relevant stipulations, including the Regulations of the State Council Concerning
the Issue of Balancing Foreign Exchange Receipts and Disbursements by Joint
Ventures Using Chinese and Foreign Investment and other relevant regulations.
Issues concerning the balance of foreign exchange of the Cooperative Joint
Venture Company shall be resolved by the Cooperative Joint Venture Company on
its own in accordance with the relevant regulations.
ARTICLE 52
All foreign exchange earnings of the Cooperative Joint Venture Company must be
deposited in the foreign exchange bank account opened by the Cooperative Joint
Venture Company. All foreign exchange expenditures shall be paid out of its
foreign exchange deposits. The foreign exchange of the Cooperative Joint Venture
Company shall be used in the following order of priority:
(1) To purchase imported raw materials and spare parts for machinery and
equipment required for the production of the Cooperative Joint Venture
Company;
(2) To pay the wages of the expatriate management personnel of the
Cooperative Joint Venture Company and the expenses of the Cooperative
Joint Venture Company personnel while traveling abroad;
(3) To repay foreign exchange loans;
(4) To distribute profits to the parties;
(5) To pay to the parties their respective proceeds from liquidation of the
assets of the Cooperative Joint Venture Company.
Whenever a payment computed in Renminbi terms is made by the Cooperative Joint
venture Company in foreign exchange the equivalency between U.S. Dollars and
Renminbi shall be determined in accordance with the exchange rate quoted by the
State Administration of Exchange Control of the People's Republic of China on
the date the payment is made.
CHAPTER XV
DURATION OF THE COOPERATIVE JOINT VENTURE
ARTICLE 53
The term of the Cooperative Joint Venture Company shall commence on the date of
issuance of its business license (the "ESTABLISHMENT DATE" ) and shall terminate
on the date which is thirty (30) years from the Establishment Date, provided,
however, that unless one of the parties notifies the other party in writing
within one hundred and eighty (180) days of the expiration of the term that the
notifying parties do not wish for the term of the Cooperative Joint Venture
Company to be extended, the term shall be automatically extended for consecutive
ten (10) year terms upon approval of such extension by the original examination
and approval authority; provided further that the Cooperative Joint Venture
Company may be earlier terminated in any of the following events:
i) if the Parties to the Cooperative Joint Venture Company unanimously
agree to terminate the Cooperative Joint Venture Company; or
ii) In the event of a material breach by a party (the "DEFAULTING PARTY" )
in the performance of its obligations under the Contract, where within
ninety (90) days of having become aware of the breach, the
non-defaulting Party agrees to terminate the Cooperative Joint Venture
Contract and gives written notice thereof to the Defaulting Party.
Upon termination, the assets of the Cooperative Joint Venture Company shall
immediately be liquidated pursuant to Article 11.
ARTICLE 54
Within thirty (30) days of an agreement or notification to termination the
Cooperative Joint Venture Company under Article 57 hereof, or the date upon
which the term of the Cooperative Joint Venture Company expires without
extension, the Board of Directors shall establish a liquidation committee
comprised of two (2) persons representing Party A, two (2) persons representing
Party B. Within ninety (90) days of its establishment, the liquidation committee
shall submit to the Chairman of the Board of Directors a liquidation report
which shall contain:
i) a written inventory of the properties (including personal property and
real property), creditors rights and debts of the Cooperative Joint
Venture Company, which shall set forth the basis for evaluation of the
properties;
ii) a balance sheet of the Joint Venture Company.
The Board of Directors shall, based upon the report of the liquidation
committee, approve the liquidation of the Cooperative Joint Venture Company
within twenty (20) days of the submission of the liquidation committee's
liquidation report to the Chairman of the Board, and shall authorize the
liquidation committee to proceed immediately with the liquidation. In the event
that the Board of Directors fails or is unable to (i) establish a liquidation
committee; or (ii) resolve to approve the liquidation of the Cooperative Joint
Venture Company, then the matter of liquidation of the Cooperative Joint Venture
Company shall be deemed a dispute under this Contract and shall be referred by
any one Party to arbitration pursuant to Article 59, in which case, the
arbitrators shall decide to establish a liquidation committee and resolve on the
liquidation of the Cooperative Joint Venture Company as would the Board of
Directors pursuant to the procedures set forth in this Article.
The liquidation plan shall provide for the sale of the assets of the Cooperative
Joint Venture Company as expeditiously as possible either within or outside the
People's Republic of China at prices which are determined at the sole discretion
of the liquidation committee to reflect the fair market value of said property;
provided, however, that the liquidation committee shall maximize foreign
exchange proceeds from the sale of said property and shall sell said property
outside of the People's Republic of China if foreign exchange proceeds can, by
that means, be maximized so long as the price obtained outside of the People's
Republic of China is no less than that which may be obtained within the People's
Republic of China. Party A shall have a first right of refusal to purchase all
or a part of said assets on the terms offered by the liquidation committee. The
proceeds of liquidation shall be used first to pay off all debts of the
Cooperative Joint Venture Company, including but not limited to taxes and
government imposed levies and fees.
In the event the assets of the Cooperative Joint Venture Company are liquidated,
to the extent it is necessary to calculate the proceeds of liquidation in U.S.
Dollars, the exchange rate quoted by the State Administration of Exchange
Control of the People's Republic of China on the date such proceeds are paid to
the Parties shall be used.
Party A shall have a right of first refusal to purchase the assets of the
Cooperative Joint Venture Company on terms (including but not limited to price,
currency of payment, and time of payment) no less favorable than those offered
by any third party or parties.
CHAPTER XVI
FORCE MAJEURE
ARTICLE 55
In the event that any Party (an "AFFECTED PARTY" ) is unable to perform certain
obligations (the "AFFECTED OBLIGATIONS" ) under the Contract as a result of any
event of force majeure that is unforeseeable and the occurrence and consequence
of which is unpreventable or unavoidable (such as, for example, natural
disaster, war, work stoppage or political reasons), the Affected Party shall
immediately notify the other Parties of the conditions of the event by cable or
telex and shall, within twenty-five (25) days provide details of the event and
the reasons such event has prevented performance of the Affected Obligations.
Performance by an Affected Party of Affected Obligations shall be suspended for
a period of time equivalent to the period of time during which performance of
the Affected Obligations has been prevented by an event of force majeure. If an
event of force majeure occurs, none of the Parties shall be responsible for any
damage, increased costs, or loss which the other Party may sustain by reason of
a failure or delay of performance, and such failure or delay shall not be deemed
a breach of this Contract. In the event that an event of force majeure renders
the Cooperative Joint Venture Company economically unviable, the Parties may
agree to terminate the Cooperative Joint Venture Contract under Article 53.
CHAPTER XVII
AMENDMENT
ARTICLE 56
Any amendment to this Contract shall be effective only after a written agreement
is signed by the Parties and approved by the original examination and approval
authority.
CHAPTER XVIII
LIABILITIES FOR BREACH OF CONTRACT
ARTICLE 57
(1) In the event that one of the Parties fails to make all or part of its
capital contribution at the time and in the amount as stipulated in
Articles 13 and 14 of this Contract, the Party in default shall pay to
the other Party a penalty interest in accordance with the relevant
stipulation promulgated by the People's Bank of China.
(2) Should one of the Parties fail to make the capital contribution on time
or in full in accordance with the stipulations of the Contract and the
contribution or full payment has been overdue for two (2) months, such
Party shall be deemed to have waived all of its rights in the Contract
and it shall be deemed to have withdrawn voluntarily from the
Cooperative Joint Venture Company. The performing Party shall have the
right to apply to the original examination and approval authority for
approval to dissolve the Cooperative Joint Venture Company or apply for
approval to find another party to assume the rights and obligations of
the defaulting Party under the Contract. The performing Party may at
the same time claim compensation from the defaulting Party in
accordance with law for losses caused by its failure to make or fully
make the capital contribution.
If the defaulting Party has already paid part of its capital
contribution in accordance with the provisions of the Contract, the
Cooperative Joint Venture Company shall liquidate such capital
contribution.
CHAPTER XIX
APPLICABLE LAW AND SETTLEMENT OF DISPUTES
ARTICLE 58
The execution, construction, effectiveness, interpretation, performance and
settlement of disputes under of this Contract shall be governed by the laws of
the People's Republic of China. If a material change occurs to the economic
benefits of any Party after the effective date of this Contract due to the
promulgation of new laws, decrees, rules and regulations or any amendment to the
laws, decrees, rules and regulations made by the government of the People's
Republic of China, the Parties shall consult promptly and make necessary
revisions and adjustment to the relevant provisions of this Contract in order to
maintain the normal economic benefits of such Party hereunder.
ARTICLE 59
All disputes arising out of this Contract, so far as is reasonably possible,
shall be settled amicably through friendly consultations by the Board of
Directors.
In the event that the Board of Directors unable to settle any dispute within
sixty (60) days of its submission in writing by one Party to each of the other
Parties, then such dispute shall be submitted for mediation or arbitration to
the China International Economic and Trade Arbitration Commission in Beijing, in
accordance with its arbitration rules.
ARTICLE 60
The arbitration award shall be final and binding on the Parties and shall be
enforceable in accordance with its terms. The cost of the arbitration (including
the reasonable fees and expenses of the lawyers appointed by each of the
Parties) shall be borne by the losing Party or in accordance with the ruling of
the arbitration tribunal.
ARTICLE 61
During the course of consultation or arbitration, this Contract shall continue
to be performed except for the part which the Parties are disputing and which is
undergoing consultation or arbitration.
CHAPTER XX
LANGUAGE
ARTICLE 62
This Contract has been written in both the Chinese and English languages. Both
languages shall be equally effective.
CHAPTER XXI
EFFECTIVENESS OF THE CONTRACT, APPROVAL AUTHORITY AND MISCELLANEOUS
ARTICLE 63
The Articles of Association of the Cooperative Joint Venture Company and the
annexes hereto shall be an integral part of this Contract.
ARTICLE 64
The government agency with authority to approve this Contract is the Hechi
Foreign Trade and Economic Co-operation Administration.
ARTICLE 65
This Contract shall become effective upon:
(1) The execution of this Contract by the Parties; and
(2) The approval of the Hechi Foreign Trade and Economic Co-operation
Administration.
Upon receiving the approval of the Hechi Foreign Trade and Economic Co-operation
Administration, Party A shall immediately notify all the other Parties and
supply them with copies of the approval document.
HECHI INDUSTRIAL CO. LTD. BIOGAN INTERNATIONAL INC.
Signed by: /s/ XXXXX YIHUAI Signed by: /s/ XXXXXX XxXXXXXXXX
Name: Xxxxx Yihuai Name: Xxxxxx XxXxxxxxxx
Title: Chairman Title: President
EXHIBIT LIST
APPENDIX I - List of Party A's Assets and Assets Evaluation Report
APPENDIX A - Articles of Association of Guangxi Guanghe Metals Co., Ltd.
