CHINA LINEN TEXTILE INDUSTRY, LTD. INDEPENDENT DIRECTOR AGREEMENT
This INDEPENDENT DIRECTOR AGREEMENT
(the “Agreement”)
is made and entered into as of this 30th day of
August 2010 by and between China Linen Textile Industry, Ltd., an exempted
company incorporated in the Cayman Islands (the “Company”),
and Xxxxxxx Xxxxxxxxxx, a citizen of the United States, with the following
address: c/o Mosaic Investments LLC, 000 Xxxxxxx Xxxxxx, Xxxxx 0000, Xxx
Xxxxxxxxx, XX 00000 (the “Independent
Director”).
WHEREAS,
the Company desires to engage the Independent Director, and the Independent
Director desires to serve, as a non-employee, independent director of the
Company, subject to the terms and conditions contained in this
Agreement.
NOW,
THEREFORE, in consideration of the mutual promises and covenants contained
herein, the receipt of which is hereby acknowledged, the Company and the
Independent Director, intending to be legally bound, hereby agree as
follows:
1.
DEFINITIONS.
(a) “Corporate
Status” describes the capacity of the Independent Director with respect to the
Company and the services performed by the Independent Director in that
capacity.
(b) “Entity”
shall mean any corporation, partnership, limited liability company, joint
venture, trust, foundation, association, organization or other legal
entity.
(c) “Proceeding”
shall mean any threatened, pending or completed claim, action, suit,
arbitration, alternate dispute resolution process, investigation, administrative
hearing, appeal, or any other proceeding, whether civil, criminal,
administrative or investigative, whether formal or informal, including a
proceeding initiated by the Independent Director pursuant to Section 12 of this
Agreement to enforce the Independent Director’s rights hereunder.
(d) “Expenses”
shall mean all reasonable fees, costs and expenses, approved by the Company in
advance and reasonably incurred in connection with any Proceeding, including,
without limitation, attorneys’ fees, disbursements and retainers, fees and
disbursements of expert witnesses, private investigators, professional advisors
(including, without limitation, accountants and investment bankers), court
costs, transcript costs, fees of experts, travel expenses, duplicating, printing
and binding costs, telephone and fax transmission charges, postage, delivery
services, secretarial services, and other disbursements and
expenses.
(e) “Liabilities”
shall mean judgments, damages, liabilities, losses, penalties, excise taxes,
fines and amounts paid in settlement.
(f)
“Parent” shall mean any corporation or other
entity (other than the Company) in any unbroken chain of corporations or other
entities ending with the Company, if each of the corporations or entities, other
than the Company, owns stock or other interests possessing 50% or more of the
economic interest or the total combined voting power of all classes of stock or
other interests in one of the other corporations or entities in the
chain.
(g) “Subsidiary”
shall mean any corporation or other entity (other than the Company) in any
unbroken chain of corporations or other entities beginning with the Company, if
each of the corporations or entities, other than the last corporation or entity
in the unbroken chain, owns stock or other interests possessing 50% or more of
the economic interest or the total combined voting power of all classes of stock
or other interests in one of the other corporations or entities in the
chain.
2.
SERVICES OF INDEPENDENT
DIRECTOR. While this Agreement is in effect, the Independent Director shall
perform duties as an independent director and/or a member of the committees of
the Board of Directors of the Company (the “Board”),
be compensated for such and be reimbursed expenses in accordance with the
Schedule A attached to this Agreement, subject to the following.
(a) The
Independent Director will perform services as is consistent with Independent
Director’s position with the Company, as required and authorized by the
Memorandum and Articles of Association of the Company, and in accordance with
high professional and ethical standards and all applicable laws and rules and
regulations pertaining to the Independent Director’s performance hereunder,
including without limitation, laws, rules and regulations relating to a public
company.
(b) The
Independent Director is solely responsible for taxes arising out of any
compensation paid by the Company to the Independent Director under this
Agreement. The Independent Director acknowledges and agrees that because
he is not an employee of the Company the Company will not withhold any amounts
for taxes from any of his payments under the Agreement.
(c) The
Company may offset any and all monies payable to the Independent Director to the
extent of any monies owing to the Company from the Independent
Director.
(d) The
rules and regulations of the Company notified to the Independent Director, from
time to time, apply to the Independent Director. Such rules and regulations are
subject to change by the Company in its sole discretion. Notwithstanding the
foregoing, in the event of any conflict or inconsistency between the terms and
conditions of this Agreement and rules and regulations of the Company, the terms
of this Agreement control.
3.
REQUIREMENTS OF
INDEPENDENT DIRECTOR. During the term of the Independent Director’s services to
the Company hereunder, Independent Director shall observe all applicable laws
and regulations relating to independent directors of a public company as
promulgated from to time, and shall not: (1) be an employee of the Company or
any Parent or Subsidiary; (2) accept, directly or indirectly, any consulting,
advisory, or other compensatory fee from the Company other than as a director
and/or a member of a committee of the Board; (3) be an affiliated person of the
Company or any Parent or Subsidiary, as the term “affiliate” is defined in 17
CFR 240.10A-3(e)(1), other than in his capacity as a director and/or a member of
a committee of the Board; (4) possess an interest in any transaction with the
Company or any Parent or Subsidiary, for which disclosure would be required
pursuant to 17 CFR 229.404(a), other than in his capacity as a director and/or a
member of a committee of the Board committees; and (5) be engaged in a business
relationship with the Company or any Parent or Subsidiary, for which disclosure
would be required pursuant to 17 CFR 229.404(b), except that the required
beneficial interest therein shall be modified to be 5% hereby.
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4.
REPORT OBLIGATION. While
this Agreement is in effect, the Independent Director shall immediately report
to the Company in the event: (1) the Independent Director knows or has reason to
know or should have known that any of the requirements specified in Section 3
hereof is not satisfied or is not going to be satisfied; and (2) the Independent
Director simultaneously serves on an audit committee of any other public
company.
5.
TERM AND TERMINATION. The
initial term of this Agreement and the Independent Director’s services hereunder
shall be from the date hereof to the date of the Company’s next annual
stockholders meeting, unless terminated as provided for in this Section 5 (the
“Initial
Term”). In the event that the Independent Director is elected to
serve as a member of the Board of Directors at the Company’s next annual
stockholders meeting, the term shall automatically renew for one (1) year from
the date of such meeting, unless terminated as provided for in this Section 5
(the “Term”).
This Agreement and the Independent Director’s services hereunder shall terminate
upon the earlier of the following:
(a) Removal
of the Independent Director as a director of the Company, upon proper Board or
stockholder action in accordance with the Memorandum and Articles of Association
of the Company and applicable law;
(b) Resignation
of the Independent Director as a director of the Company upon written notice to
the Board of Directors of the Company; or
(c) Termination
of this Agreement by the Company, in the event any of the requirements specified
in Section 3 hereof is not satisfied, as determined by the Company in its sole
discretion.
6.
LIMITATION OF LIABILITY.
In no event shall the Independent Director be individually liable to the Company
or its shareholders for any damages for breach of fiduciary duty as an
independent director of the Company, unless the Independent Director’s act or
failure to act involves intentional misconduct, fraud or a knowing violation of
law.
7.
AGREEMENT OF INDEMNITY.
The Company agrees to indemnify the Independent Director as
follows:
(a) Subject
to the exceptions contained in Section 8(a) below, if the Independent Director
was or is a party or is threatened to be made a party to any Proceeding (other
than an action by or in the right of the Company) by reason of the Independent
Director’s Corporate Status, the Independent Director shall be indemnified by
the Company against all Expenses and Liabilities incurred or paid by the
Independent Director in connection with such Proceeding (referred to herein as
“Indemnifiable
Expenses” and “Indemnifiable
Liabilities,” respectively, and collectively as “Indemnifiable
Amounts”).
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(b) Subject
to the exceptions contained in Section 8(b) below, if the Independent Director
was or is a party or is threatened to be made a party to any Proceeding by or in
the right of the Company, to procure a judgment in its favor by reason of the
Independent Director’s Corporate Status, the Independent Director shall be
indemnified by the Company against all Indemnifiable Expenses.
(c) For
purposes of this Agreement, the Independent Director shall be deemed to have
acted in good faith in conducting the Company’s affairs as an independent
director of the Company and/or a member of a committee of the Board of the
Company, if the Independent Director: (i) exercised or used the same degree of
diligence, care, and skill as an ordinarily prudent man would have exercised or
used under the circumstances in the conduct of his own affairs; or (ii) took, or
omitted to take, an action in reliance upon advise of counsels or other
professional advisors for the Company, or upon statements made or information
furnished by other directors, officers or employees of the Company, or upon a
financial statement of the Company provided by a person in charge of its
accounts or certified by a public accountant or a firm of public accountants,
which the Independent Director had reasonable grounds to believe to be
true.
8.
EXCEPTIONS TO
INDEMNIFICATION. Director shall be entitled to indemnification under Sections
7(a) and 7(b) above in all circumstances other than the following:
(a) If
indemnification is requested under Section 7(a) and it has been adjudicated
finally by a court or arbitral body of competent jurisdiction that, in
connection with the subject of the Proceeding out of which the claim for
indemnification has arisen, (i) the Independent Director failed to act in good
faith and in a manner the Independent Director reasonably believed to be in or
not opposed to the best interests of the Company, (ii) the Independent Director
had reasonable cause to believe that the Independent Director’s conduct was
unlawful, or (iii) the Independent Director’s conduct constituted willful
misconduct, fraud or knowing violation of law, then the Independent Director
shall not be entitled to payment of Indemnifiable Amounts
hereunder.
(b) If
indemnification is requested under Section 7(b) and
(i) it
has been adjudicated finally by a court or arbitral body of competent
jurisdiction that, in connection with the subject of the Proceeding out of which
the claim for indemnification has arisen, the Independent Director failed to act
in good faith and in a manner the Independent Director reasonably believed to be
in or not opposed to the best interests of the Company, including without
limitation, the breach of Section 4 hereof by the Independent Director, the
Independent Director shall not be entitled to payment of Indemnifiable Expenses
hereunder; or
(ii) it
has been adjudicated finally by a court or arbitral body of competent
jurisdiction that the Independent Director is liable to the Company with respect
to any claim, issue or matter involved in the Proceeding out of which the claim
for indemnification has arisen, including, without limitation, a claim that the
Independent Director received an improper benefit or improperly took advantage
of a corporate opportunity, the Independent Director shall not be entitled to
payment of Indemnifiable Expenses hereunder with respect to such claim, issue or
matter.
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9.
WHOLLY OR PARTLY
SUCCESSFUL. Notwithstanding any other provision of this Agreement, and without
limiting any such provision, to the extent that the Independent Director is, by
reason of the Independent Director’s Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, the Independent
Director shall be indemnified in connection therewith. If the Independent
Director is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Company shall indemnify the Independent Director
against those Expenses reasonably incurred by the Independent Director or on the
Independent Director’s behalf in connection with each successfully resolved
claim, issue or matter. For purposes of this section, the termination of any
claim, issue or matter in such a Proceeding by dismissal, with or without
prejudice, shall be deemed to be a successful result as to such claim, issue or
matter.
10.
ADVANCES AND INTERIM EXPENSES. The
Company may pay to the Independent Director all Indemnifiable Expenses incurred
by the Independent Director in connection with any Proceeding, including a
Proceeding by or in the right of the Company, in advance of the final
disposition of such Proceeding, if the Independent Director furnishes the
Company with a written undertaking, to the satisfaction of the Company, to repay
the amount of such Indemnifiable Expenses advanced to the Independent Director
in the event it is finally determined by a court or arbitral body of competent
jurisdiction that the Independent Director is not entitled under this Agreement
to indemnification with respect to such Indemnifiable Expenses.
11.
PROCEDURE FOR PAYMENT OF INDEMNIFIABLE
AMOUNTS. The Independent Director shall submit to the Company a written request
specifying the Indemnifiable Amounts, for which the Independent Director seeks
payment under Section 7 hereof and the Proceeding of which has been previously
notified to the Company and approved by the Company for indemnification
hereunder. At the request of the Company, the Independent Director shall furnish
such documentation and information as are reasonably available to the
Independent Director and necessary to establish that the Independent Director is
entitled to indemnification hereunder. The Company shall pay such Indeminfiable
Amounts within thirty (30) days of receipt of all required
documents.
12.
REMEDIES OF INDEPENDENT
DIRECTOR.
(a) RIGHT
TO PETITION COURT. In the event that the Independent Director makes a request
for payment of Indemnifiable Amounts under Sections 7, 9-11 above, and the
Company fails to make such payment or advancement in a timely manner pursuant to
the terms of this Agreement, the Independent Director may petition the
appropriate judicial authority to enforce the Company’s obligations under this
Agreement.
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(b) BURDEN
OF PROOF. In any judicial proceeding brought under Section 12 (a) above, the
Company shall have the burden of proving that the Independent Director is not
entitled to payment of Indemnifiable Amounts hereunder.
(c) EXPENSES.
The Company agrees to reimburse the Independent Director in full for any
Expenses incurred by the Independent Director in connection with investigating,
preparing for, litigating, defending or settling any action brought by the
Independent Director under Section 12 (a) above, or in connection with any claim
or counterclaim brought by the Company in connection therewith.
(d) VALIDITY
OF AGREEMENT. The Company shall be precluded from asserting in any Proceeding,
including, without limitation, an action under Section 12 (a) above, that the
provisions of this Agreement are not valid, binding and enforceable or that
there is insufficient consideration for this Agreement and shall stipulate in
court that the Company is bound by all the provisions of this
Agreement.
(e) FAILURE
TO ACT NOT A DEFENSE. The failure of the Company (including its Board of
Directors or any committee thereof, independent legal counsel, or stockholders)
to make a determination concerning the permissibility of the payment of
Indemnifiable Amounts or the advancement of Indemnifiable Expenses under this
Agreement shall not be a defense in any action brought under Section 12(a)
above.
13.
PROCEEDINGS AGAINST COMPANY. Except as
otherwise provided in this Agreement, the Independent Director shall not be
entitled to payment of Indemnifiable Amounts or advancement of Indemnifiable
Expenses with respect to any Proceeding brought by the Independent Director
against the Company, any Entity which it controls, any director or officer
thereof, or any third party, unless the Company has consented to the initiation
of such Proceeding. This section shall not apply to counterclaims or affirmative
defenses asserted by the Independent Director in an action brought against the
Independent Director.
14.
INSURANCE. The Company will use
commercially reasonable efforts to secure and maintain a policy or policies of
director and officer liability insurance, in an amount not less than $5.0
million, of which the Independent Director will be named as an insured,
providing the Independent Director with coverage for Indemnifiable Amounts
and/or Indemnifiable Expenses in accordance with said insurance policy or
policies (“D&O
Insurance”).
15.
SUBROGATION. In the event of any
payment of Indemnifiable Amounts under this Agreement or the D&O Insurance,
the Company or its Insurance Carrier, as the case may be, shall be subrogated to
the extent of such payment to all of the rights of contribution or recovery of
the Independent Director against other persons, and the Independent Director
shall take, at the request of the Company, all reasonable action necessary to
secure such rights, including the execution of such documents as are necessary
to enable the Company to bring suit to enforce such rights.
16.
AUTHORITY. Each party has all
necessary power and authority to enter into, and be bound by the terms of, this
Agreement, and the execution, delivery and performance of the undertakings
contemplated by this Agreement have been duly authorized by each party
hereto.
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17.
SUCCESSORS AND ASSIGNMENT. This
Agreement shall (a) be binding upon and inure to the benefit of all successors
and assigns of the Company (including any transferee of all or a substantial
portion of the business, stock and/or assets of the Company and any direct or
indirect successor by merger or consolidation or otherwise by operation of law),
and (b) be binding on and shall inure to the benefit of the heirs, personal
representatives, executors and administrators of the Independent Director. The
Independent Director has no power to assign this Agreement or any rights and
obligations hereunder.
18.
CHANGE IN LAW. To the extent that a
change in applicable law (whether by statute or judicial decision) shall mandate
broader or narrower indemnification than is provided hereunder, the Independent
Director shall be subject to such broader or narrower indemnification and this
Agreement shall be deemed to be amended to such extent.
19.
SEVERABILITY. Whenever possible, each
provision of this Agreement shall be interpreted in such a manner as to be
effective and valid under applicable law, but if any provision of this
Agreement, or any clause thereof, shall be determined by a court of competent
jurisdiction to be illegal, invalid or unenforceable, in whole or in part, such
provision or clause shall be limited or modified in its application to the
minimum extent necessary to make such provision or clause valid, legal and
enforceable, and the remaining provisions and clauses of this Agreement shall
remain fully enforceable and binding on the parties.
20.
MODIFICATIONS AND WAIVER. Except as
provided in Section 18 hereof with respect to changes in applicable law which
broaden or narrow the right of the Independent Director to be indemnified by the
Company, no supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by each of the parties hereto. No delay in
exercise or non-exercise by the Company of any right under this Agreement shall
operate as a current or future waiver by it as to its same or different rights
under this Agreement or otherwise.
21.
NOTICES. All notices, requests,
demands and other communications hereunder shall be in writing and shall be
deemed to have been duly given (a) when delivered by hand, (b) when transmitted
by facsimile and receipt is acknowledged, or (c) if mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
If to
Independent Director, to: Xxxxxxx Xxxxxxxxxx, c/o Mosaic Investments LLC, 000
Xxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxxxxxxx, XX 00000, XXX, Fax:
x0-000-000-0000
If to the
Company, to: Gao Ren, CEO, China Linen Textile Industry, Ltd., Chengdong Street,
Lanxi County, Heilongjiang Province, Fax: x00-000-0000-0000, with a copy to
Xxxxx X. Xxxxxxxx, Xxxx & Xxxx LLP, Suite 4301, Tower C, Beijing Xxxxxx
Xxxxxx, 0 Xxxxxxxxxxxxx Xxxxx, Xxxxxxxx Xxxxxxxx, Xxxxxxx 000000, People’s
Republic of China, Fax: x00-00-0000-0000
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or to
such other address as may have been furnished in the same manner by any party to
the other.
22.
GOVERNING LAW. This Agreement shall be
governed by and construed and enforced under the laws of the State of New
York.
23.
CONSENT TO JURISDICTION. The parties
hereby consent to the jurisdiction of the courts having jurisdiction over
matters arising in New York County, New York for any proceeding arising out of
or relating to this Agreement. The parties agree that in any such proceeding,
each party shall waive, if applicable, inconvenience of forum and right to a
jury.
24.
AGREEMENT GOVERNS. This Agreement is
to be deemed consistent wherever possible with relevant provisions of the
Memorandum and Articles of Association of the Company; however, in the event of
a conflict between this Agreement and such provisions, the provisions of this
Agreement shall control.
25.
INDEPENDENT CONTRACTOR. The parties
understand, acknowledge and agree that the Independent Director’s relationship
with the Company is that of an independent contractor and nothing in this
Agreement is intended to or should be construed to create a relationship other
than that of independent contractor. Nothing in this Agreement shall be
construed as a contract of employment/engagement between the Independent
Director and the Company or as a commitment on the part of the Company to retain
the Independent Director in any capacity, for any period of time or under any
specific terms or conditions, or to continue the Independent Director’s service
to the Company beyond any period.
26.
ARBITRATION. Any dispute, controversy
or claim arising out of or relating to this Agreement or the breach thereof,
shall be settled by arbitration, before one arbitrator in accordance with the
rules of the American Arbitration Association then in effect and judgment upon
the award rendered by the arbitrator may be entered in any court having
jurisdiction. The arbitrator will be selected, by the parties, from a panel of
attorney arbitrators. The parties agree that any arbitration shall be held in
New York, New York. The language of the arbitration shall be in English. The
arbitrator will have no authority to make any relief, finding or award that does
not conform to the terms and conditions of this Agreement. Each party shall bear
its own attorneys’ or expert fees and any and all other party specific costs.
Either party, before or during any arbitration, may apply to a court having
jurisdiction for a restraining order or injunction where such relief is
necessary to protect its interests. Prior to initiation of arbitration, the
aggrieved party will give the other party written notice, in accordance with
this Agreement, describing the claim as to which it intends to initiate
arbitration.
27.
ENTIRE AGREEMENT. This Agreement
constitutes the entire agreement between the Company and the Independent
Director with respect to the subject matter hereof, and supersedes all prior
understandings and agreements with respect to such subject
matter.
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IN
WITNESS WHEREOF, the parties hereto have executed this Independent Director
Indemnification Agreement as of the day and year first above
written.
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AGREED
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AGREED
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Independent
Director
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/s/ Gao Ren
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/s/ Xxxxxxx Xxxxxxxxxx
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Name: Gao
Ren
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Name:
Xxxxxxx Xxxxxxxxxx
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Title: Chairman
and CEO
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SCHEDULE
A
I.
COMPENSATION:
A. Fees. For all
services rendered by the Independent Director pursuant to this Agreement, both
during and outside of normal working hours, including but not limited to,
attending all required meetings of the Board or applicable committees thereof,
executive sessions of the independent directors, reviewing filing reports and
other corporate documents as requested by the Company, providing comments and
opinions as to business matters as requested by the Company, the Company agrees
to pay to the Independent Director (i) within 10 business days of the execution
of this Agreement a one-time, sign-on fee in cash of Seven-Thousand Five-Hundred
Dollars ($7,500), and (ii) during the Independent Director’s term, (x) a fee in
cash of Three Thousand Dollars ($3,000) per month (prorated for any service
during any portion thereof) during the Initial Term and the Term (the “Base
Fee”), and (y) a fee in cash of Five Hundred Dollars ($500) (the “Audit Committee
Fee”), per month (prorated for any service during any portion thereof)
during any period during which the Independent Director serves as the
chairperson of the Audit Committee of the Company. The Base Fee and the
Audit Committee Fee shall be paid in cash to the Independent Director on or
before the 10th
business day following the end of the calendar quarter in which they are
accrued.
B. Stock Grant. Upon
execution of this Agreement the Independent Director shall be granted One
Hundred Thousand restricted shares that vest over a 3-year period in three
installments of 33,333, 33,333 and 33,334, shares, respectively, on the date of
this Agreement, July 15, 2012 and July 15, 2013 during which period
this Agreement is performed by the Independent Director. The Independent
Director must be actively serving in such capacity for the Company to receive
any stock grant as of any applicable vesting date. The Independent Director’s
rights in respect to any grant shall be determined solely by the Board or, if
applicable, the Compensation Committee thereof, and are subject to execution by
Independent Director of any applicable agreements as established and requested
by the Company.
C. Expenses. During the
term of the Independent Director’s service as a director of the Company, the
Company shall reimburse the Independent Director for all reasonable expenses
incurred by him in connection with attending (a) all meetings of the Board or
applicable committees thereof, (b) executive sessions of the independent
directors, and (c) stockholder meetings, as a director or a member of any
committee of the Board, which are approved by the Company in advance. It is
understood that the Company shall reimburse the Independent Director for
reasonable business class airfare for all meetings described above requiring his
personal attendance. The Independent Director shall rely on the Company to
arrange all hotel accommodations in connection with any such meetings the
Independent Director must attend. The amount of such expenses eligible for
reimbursement by the Company during a calendar year shall not affect such
expenses eligible for reimbursement by the Company in any other calendar year,
and the reimbursement of any such eligible expenses shall be made on or before
the 10th
business day following the end of the calendar quarter in which they are
incurred.
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NO OTHER
BENEFITS OR COMPENSATION. The Independent Director acknowledges and agrees that
he/she is not granted and is not entitled to any other benefits or compensation
from the Company for the services provided under this Agreement except expressly
provided for in this Schedule A.
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AGREED
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AGREED
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Independent
Director
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/s/ Gao Ren
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/s/ Xxxxxxx Xxxxxxxxxx
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Name: Gao
Ren
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Name: Xxxxxxx
Xxxxxxxxxx
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Title: Chairman
and CEO
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