THIS CONTRACT OF SINO-FOREIGN CONTRACTUAL JOINT VENTURE made this 22nd day of
August, 1996
BETWEEN:
SHANDONG XXX XX GEOLOGY AND MINERAL RESOURCES DEVELOPMENT
COMPANY, an enterprise incorporated under the laws of
People's Republic of China with its legal office located at
Xxxxx Xx Lu, Linyi City, Shandong Province, People's
Republic of China (hereinafter referred to as "Party A" )
OF THE FIRST PART
AND
XXXXXXX XXXXXX (ASIA) LIMITED, a company incorporated under
the laws of Hong Kong with its legal address located at 2203
Cameron Commercial Center, 000-000 Xxxxxxxx Xxxx, Xxxx Xxxx
(hereinafter referred to as "Party B")
OF THE SECOND PART
WHEREAS:
1. Party A and Party B wish to form a limited liability company that will
explore for diamonds, other accompanying minerals in an area of 1,500
square kilometers in Xxxx Xx, Fei Xian and Xxxx Xxxx Counties in Shandong
Province (hereinafter called the Work Area);
2. Party A and Party B wish to record their agreements relating to their
rights and obligations in respect of such company and between each other as
shareholders thereof;
3. Party A and Party B agree that their overriding purpose in entering into
and performing this contract is to enable each party to enjoy, in a spirit
of friendship and mutual benefit, the maximum possible profit from their
respective investments.
With friendly discussion Party A and Party B hereby agree as follows:
ARTICLE 1 - GENERAL PROVISIONS
1.1 Definitions The parties agree that where used in this Contract, unless
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otherwise required, the following terms shall have the meanings set
forth below:
1.1.1 Approving Authority means agencies of foreign economy and trade
of the State Council and/or local government agencies authorized
by the State Council.
1.1.2 Board means the board of directors of the company.
1.1.3 Business Day means Monday through Friday, both inclusive, except
for statutory holidays recognized in China.
1.1.4 Business License means a business license issued by State
Administration of Industry and Commerce (SAIC) to create the
company, and to permit the company to perform each item of
business set out in section 4.1;
1.1.5 Company means the limited liability company to be formed by the
Shareholders pursuant to Article 3 hereof and in accordance with
the Contractual Joint Venture Law.
1.1.6 Contractual Joint Venture Law means the law of the People's
Republic of China on Sino-Foreign Contractual Joint Venture;
1.1.7 Duration of the Joint Venture means a period of ten (10) years
commencing on the date the Business License is issued.
1.1.8 General Manager means the person engaged by the Company as its
general manager pursuant to section 9.2.
1.1.9 Independent Valuator means any one of the International and
Chinese Joint Venture Accounting Firms licensed to practice
accounting in China and such Accounting Firm shall be selected by
Party B in writing.
1.1.10 Investment means for any Shareholders all of its right, title
and interest in and to the Company and this Contract;
1.1.11 The Work Area means an area of approximately 1,500 square
kilometers in Xxxx Xx, Fei Xian and Xxxx Xxxx counties In
Shandong Province.
1.1.12 The Relevant Agencies of Geology and Mineral Resources means the
government agencies which approve the Company to survey and
explore the mineral resources as set forth in this Contract.
1.1.13 Survey and Exploration License means a license issued to the
Company by the Mining Authority which shall grant to the Company
for the entire Duration of the Joint Venture to do exploration of
diamonds and other accompanying minerals in the Work Area;
1.1.14 Party A means Shandong Xxx Xx Geology and Mineral Resources
Development Company, an enterprise incorporated under the laws of
China, and being the Party of the First Part of this Contract;
1.1.15 Party B means Xxxxxxx Xxxxxx (Asia) Limited, a company
incorporated under the laws of Hong Kong and being the Party of
the Second Part of this Contract;
1.1.16 SAIC means the State Administration of Industry and Commerce.
1.1.17 Shareholders mean Party A and Party B collectively, and
Shareholder means either one of them.
1.1.18 Parties means Party A and Party B collectively.
1.2 Interpretation For purposes of this Contract except as otherwise
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expressly provided.
1.2.1 Contract means this Contract as it may from time to time be
supplemented, amended or restated from time to time.
1.2.2 Articles, sections and other subdivisions of this contract mean
all references to designated articles, sections and other
subdivisions are to the designated articles, sections and other
subdivisions hereof.
1.2.3 The headings preceding the text, articles and sections hereof are
for convenience only, do not form a part hereof and are not
intended to interpret, define or limit the scope, extent or
intent hereof or of any provision hereof.
1.2.4 Any reference to an entity shall include and shall be deemed to
include reference to an entity that is a successor or assignee of
entity.
ARTICLE 2 - CONTRACTING PARTIES
2.1 Parties The parties to this Contract are as follows:
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2.1.1 Shandong Xxx Xx Geology and Mineral Resources Development
Company, an enterprise incorporated in the People's Republic of
China with its legal address at Lin Xi Xx Xx, Linyi City,
Shandong Province, People's Republic of China.
Legal Representative's Name: Hu Shi Jie
Position: General Manager
Nationality: Chinese
2.1.2 Xxxxxxx Xxxxxx ( Asia) Limited, a company incorporated in Hong
Kong with its legal address at 2203 Cameron Commercial Center,
000--000 Xxxxxxxx Xxxx, Xxxx Xxxx
Legal Representative's Name: Po Sun Liu
Position: Chairman and Chief Executive
Officer
Nationality: Canadian
2.2 Representations of Party B Party B represents and warrants to Party A
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as follows:
2.2.1 Party B is a duly organized company validly existing under the
laws of Hong Kong;
2.2.2 Party B has full corporate capacity, power and authority and
all necessary governmental approvals ( other than those referred
to in section 7.2.1) to enter into
and perform each of its obligations hereunder;
2.2.3 the execution and delivery of this Contract and the observance
and performance hereof have been duly authorized by all necessary
corporate action on the part of Party B;
2.2.4 once this contract has been signed by Party B, it constitutes a
legal, valid and binding obligation to Party 13;
2.2.5 the execution, delivery and performance by Party B of this
Contract does not and will not constitute a default under any
material agreement to which it is a party, any governmental
regulation, approval or order to which it is subject, or any
provision of its incorporation documents; and
2.2.6 no governmental approvals of any kind are required from any
relevant agencies in Hong Kong in respect of this Contract or the
operations of the Company as contemplated hereunder.
2.3 Representations of Party A Party A represents and warrants to Party B
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as follows.
2.3.1 Party A is a duly organized enterprise validly existing under the
laws of People's Republic of China;
2.3.2 Party A has full corporate capacity, power and authority and all
necessary governmental approvals ( other than those referred to
in section 7.2.1) to enter into and perform each of its
obligations hereunder;
2.3.3 the execution and delivery of' this Contract and the observance
and performance hereof have been duly authorized by all necessary
corporate action on the part of Party A;
2.3.4. once this Contract has been signed by Party A, it constitutes a
legal, valid and binding obligations to Part A,
2.3.5 the execution delivery and performance by Party A of this
Contract does not and will not constitute a default under any
material agreement to which it is a party, any governmental
regulation; approval or order to which it is subject, or any
provision of its incorporation document;
2.3.6 only government approvals from government authorities stated in
article 7.2.1 are required in respect of this contract or the
operation of the Company as contemplated hereunder;
2.3.7 the Company shall be required to pay no taxes, duties, royalties,
license fees or other payments of any kind except only for those
described in section 12.1;
2.3.8 Party A shall deliver to Party B all information concerning
diamonds, other accompanying minerals in respect of the Work Area
which are in Party A's possession or control, and such
information is accurate and complete;
2.3.9 Party A is the owner of all the Existing Assets, free and clear
of all liens, mortgages of other encumbrances of any kind.
2.4 Indemnity If any representation or warranty given herein by any
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party is untrue or inaccurate, such party shall indemnity and hold
harmless the other party for any loss damage caused to such other party
ARTICLE 3 - ESTABLISHMENT OF THE .JOINT VENTURE COMPANY
3.1 Contractual Joint Venture Company
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In accordance with the Sino-Foreign Contractual Joint Venture Law and
other relevant Chinese laws and regulations, Party A and Party B agree
that the Company shall be established as a contractual joint venture
3.2 Name The name of the Company shall be:
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3.2.1 in Chinese: [GRAPHIC OMITTED] and,
3.2.2 in English: Xxxxxxx Xxxxxx Diamond Development Co. Ltd., Linyi,
Shandong
3.3 Legal Address: The legal address of the company shall be , Xxxxx Xx Lu,
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Linyi City, Shandong Province, China
3.4 Laws of China All activities of the Company shall be governed by the
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published and publicly available laws, decrees, rules and regulations of
China
3.5 Limited Liability The Company shall be a limited liability company.
Each Shareholder shall be liable to the Company only for the registered
capital such Shareholder has agreed to contribute in accordance with and
subject to the provisions of Article 5 hereof.
3.6 Legal Person The Company shall be a legal person existing as a separate
entity from the Shareholders.
3.7 No Partnership. The parties expressly disclaim any intent to create a
partnership with respect to the administration or assets of the Company.
3.8 No Agency Neither party shall have any authority, actual or implied, to
act as agent for or to bind the other party or the Company, and is
hereby prohibited from so doing.
ARTICLE 4 - BUSINESS SCOPE AND PROJECT
4.1 Business Scope The parties agree that the business scope of the Company
shall include the following:
4.1.1 to explore diamonds, other precious gems and other mineral
resources throughout the work Area; and,
4.1.2 all such complementary activities as may be necessary or
desirable for the Company to fully engage in all activities
permitted by the Business License or the Survey and Exploration
License; and
4.1.3. after the first thirty months of exploration and appraisal, the
Board may decide upon recommendation of its geologists if it will
continue exploration or it will apply for mining;
4.1.4. Party A cannot cooperate with any other third party to explore
or mine the diamonds, precious gems and other minerals in the
Work Area. Any other third party wishing to explore or to mine
the diamonds, precious gems and other minerals in the Work Area
must negotiate with the Company and such agreement(s) must be
approved by the Board;
4.1.5 After reviewing the results of the first 12 months of survey and
exploration work, Party B may decide upon recommendation of Party
B's geologists/engineers not to do any further exploration work,
Party B shall notify Party A of its decision in writing and
terminate its further investment. This clause is solely for the
benefit of Party B.
ARTICLE 5 - TOTAL INVESTMENT AND REGISTERED CAPITAL
5.1 The Total Investment and Registered Capital The total investment amount
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of the Company is U.S. $3,000,000 The registered capital of the Company
is U.S. $3,000,000. Party A shall contribute U.S. $ 1,500;000 and Party
B shall contribute $ 1,500,000. The proportion of contribution between
the two parties is 50% to 50%.
This registered capital mentioned above shall be contributed to the Company by
the Shareholders at the time and in the forms set out in articles 5.2 and 5.3.
The investment hereof may be contributed in cash, equipment, technique or
service.
5.2 Part B's Capital Contribution. Party B may make its contribution under
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this Article 5 in the form of cash, or in kind of equipment and
machinery, and technical services as recommended by the engineers. The
investment schedule will be decided separately.
The Shareholders agree that Party 13's obligation to contribute its
capital contribution is subject to the fulfillment of each Party the
following conditions precedent to the satisfaction of Party B:
5.2.1 This Contract and the Charter of Association of the Company have
been approved in writing by Approving Authority;
5.2.2 the Business License has been issued by the SAIC to the Company;
5.2.3 the Survey and Exploration License has been issued by the Mining
Authority to the Company;
5.2.4 the Existing Assets has been transferred to the Company free and
clear of all liens, mortgages and encumbrances of any kind;
5.2.5 Party B has received a written legal opinion of a Chinese law
firm acceptable to Party B confirming the following matters:
A. the procedures of the application and issuance of the
foregoing approvals and licenses, and the acquire of the
relevant rights are legal and valid;
B. the legality, validity and bindingness of this Contract;
C. the completion of the transfer of the ownership of the
Existing Assets to the Company free and clear of all liens,
mortgages and encumbrances of any kind by Party A, and,
D. the accuracy of the tax description in the Contract .
5.2.6 Party B has received all the exploration, geology and other
accurate data of the Work Area,
5.2.7 the representations and warranties made by Party A in section 2.3
are true and correct as confirmed by a certificate to that effect
signed and delivered to Party B by the legal representative of
Party A.
5.3 Party A's Capital Contribution Party A shall make its contribution
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under this Article 5 in the form of past geological data, information
and techniques, existing assets, as listed in Schedule A, to equal Party
B's contribution.
As Party A's capital contribution, Party A shall cause the Company to
get the Survey and Exploration License; and it is part of Party A's
contribution of $1,500,000.
5.3.1 Party A shall be solely responsible for and cannot charge to the
Company any of the following costs or payments:
A. the retirement fee or replacement fee of any person,
company, or governmental employers who are retired or
unemployed because of the transfer of the Survey and
Exploration License, and existing assets to the company;
B. any person company entity or governmental authority in
respect of any other outstanding liability, tax or any debts
whatsoever owed by Party A.
5.3.2 Upon the transfer of the Survey and Exploration License, and the
transfer of the existing assets to the Company and the payment of
all amounts contemplated in 5.3.1., Party A shall be deemed to
have made a contribution to the Company's registered capital
equal to Party B's capital contribution of U.S. $ 1,500,000.
5.3.3 Upon the completion of Party B's contribution of $1,500,000 in
the survey and exploration period, Party A shall be deemed as
completion of its contribution.
5.4 Bank Loans
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If the Company requires to get loans from the bank, the parties shall
use their best efforts to obtain loans from Chinese or foreign xxxxx.
The Company shall grant such security over its assets as the lender may
require.
5.5. Additional Shareholder Contributions
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If the Company requires funds in addition to the bank loans obtained
under article 5.4, the Shareholders shall contribute such funds to
Company subject to the following conditions:
5.5.1 Neither shareholder shall be required to nuke any additional
contribution unless approved by a duly passed Board resolution,
and agreed in writing by the parties;
5.5.2 to the greatest extent permitted under Chinese law, such
additional contributions of the parties shall be made in the form
of shareholders loan, and shall be made in the form of registered
capital.
5.5.3 if the Shareholders are required to make additional contributions
under this article 5.5, whether in the form of shareholders loans
or registered capital, each Shareholder shall provide one-half of
such contribution;
ARTICLE 6 - ASSIGNMENT, ENCUMBRANCES AND TRANSFERS
6.1 Assignment. The assets and/or shares in whole or in part of each
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Shareholder in this Contract hereunder can at any time be assigned by
any Shareholder to a subsidiary upon written notice to the other
Shareholder.
6.2 Encumbrances In Favor of Lenders. If the Company agrees to borrow funds
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from a lender, any Shareholder giving a guarantee to the lender, if
required by the lender, may use, part or whole of its investment.
However it requires the consent of both parties.
6.3 Transfers. It is not a breach of this Contract when any Shareholder
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transfers all or part of its Investment at any time to a subsidiary if'
notice is given to the other Shareholder, but approval from the original
approving agency is required.
ARTICLE 7 - RESPONSIBILITIES OF EACH SHAREHOLDER
7.1 Responsibilities of Party B Party B shall be responsible for and hereby
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agrees to perform each of the following matters in a timely manner:
7.1.1 assist the Company in engaging any foreign consultants experts or
agents the Company may wish to hire to evaluate all the
historical geological, exploration data delivered to it by Party
A;
7.1.2 provide registered capital and shareholder's loans to the Company
subject to and in accordance with the terms and conditions of
articles 5.2 and 5.5 above;
7.1.3 entrusted to purchase on behalf of the Company, any equipment,
vehicles, and machinery the Company may need to purchase from
outside China;
7.1.4 handling any other matter entrusted by the Company.
7.2 Responsibilities of Party A Party A shall be responsible for and hereby
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agrees to perform each of the following matters at its own cost and in a
timely manner:
7.2.1 obtaining all approvals, business license, survey and
exploration, permit, registrations and renewals necessary for
establishing the Company and enabling the Company to engage in
the activities hereunder, including but not limited to (1) the
Business License, (2) the Survey and Exploration Permit and (3)
all access permits, right-of-way, occupation permits, surface
rights and other such rights in respect of places in the Work
Area as the Company may reasonably request for carrying out its
operation. And provided that such licenses and permits shall be
renewed on application by the Company ( which application shall
be submitted at least 3 months and no more than 6 months prior to
its expiration date) for a further period of ten (10) years so
long as the Company is engaged in exploration operations in the
Work Area
7.2.2 Party A shall deliver to Party B , upon Party B's request, all
relevant geological and historical data including maps, reports,
and past surveys, exploration data and any other data relating to
the finding of diamonds, other precious gems and other minerals
located in the Work Area;
7.2.3 Make available for consultation. to Party B and its consultants
and all technical experts in geology exploration of diamonds and
other accompanying minerals all data as referred to in 7.2.2.
7.2.4 Party A shall ensure that the Company may obtain at prices not
higher than prices normally paid by Chinese Joint Venture
enterprises, each of the following:
(A) all necessary utilities, including the necessary consent
from the Power Supply Administration, as may he required for
the Company's operations,
(B) office space to enable the Company to carry out its work and
business; and
(C) all necessary labor and personnel as may be deemed necessary
by the Company;
7.2.5 Party A shall assist the Company to deal with all local, county,
provincial and central government authorities, and any other
parties as may be necessary to ensure that the Company shall be
able to operate in the manner contemplate herein, and to ensure
that all of Party B's rights hereunder are also protected, and
7.2.6 Party A shall handle such other matters as may be entrusted to it
by the Company.
ARTICLE 8 - THE BOARD OR DIRECTORS
8.1 Date of Establishment The Board shall be established on the date the
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Business License is issued.
8.2 Representation The Board shall comprise seven (7) directors, of which
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three (3) shall be appointed by Party A and four (4) shall be appointed
by Party B. Any director may be removed and replaced at any time and for
any reason by the Shareholder that appointed such director.
8.3 Chairman and Vice-Chairman The Company shall have one (l) Chairman of
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the Board and one (1) Vice-Chairman. The Chairman shall be selected by
Party B from amongst the Board members appointed by Party 1:3; and the
Vice-Chairman shall be one of the directors selected by Party A from
amongst the Board members appointed by Party A.
8.4 Terms of Office The Chairman and Vice-Chairman and the directors of the
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Board shall hold office for terms of four (4) years and such terms of
office may be renewed by the continuous appointment of relevant
Shareholder.
8.5 Legal Representative The Chairman of the Board shall be the legal
---------------------
representative of the Company. If the Chairman is unable to exercise his
responsibilities for any reasons, he may temporarily delegate such
responsibilities to the Vice-Chairman or any other director by a written
authorization sent to such person and copied to the Company and each
Shareholder.
8.6 Quorum A quorum shall be formed by any five (5) directors. For such
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purpose, a director shall be deemed present at a meeting or conference
telephone call either if he participates in person or by the
representation of a duly appointed alternate director.
8.7 Board Decisions The Board shall manage the business and affairs of the
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Company. Board issues shall be decided by the approval by vote of any
four (4) directors present at a duly constituted meeting of the Board
except that the approval by vote of all the seven (7) directors present
at a duly constituted meeting of the Board shall be required for each of
the issues set out below.
8.7.1 any amendment to the Company's Articles of Association;
8.7.2 any increase in the registered capital of the Company other than
an increase in the registered capital resulting from a
requirement to contribute funds pursuant to article 5.5. Such
increases are hereby approved in advance by the Shareholders, and
the Shareholders each agree to cause the Board to vote in favor
thereof;
8.7.3 any merger of the Company with any other economic organization,
or the creation of another joint venture entity together with
some other economic organization; and
8.7.4 dissolution of the Company for any reason prior to the expire of
the Duration of the Joint Venture provided always, however, that
if unanimous approval of all the directors is not achieved in
this regard at any Board meeting duly convened for such purpose,
a resolution for such dissolution may be effectively passed at
the next Board meeting duly convened for such purpose if approved
by the votes of at least four (4) of the seven (7) directors at
such later meeting.
8.8 Meetings Board meetings shall be held at least once per year and
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whenever any two (2) of the seven (7) directors may request directors
may appoint alternate directors to represent and vote for them, or by
written proxy authorize another director to vote on his behalf'. Board
meetings may also be held by conference telephone call whereby each
participant is able to hear and speak to each other participant. The
Chairman or other person convening a meeting of' the Board shall give
each director at least ten (10) days' written notice of the time, place
and proposed agenda of the meeting.
8.9 Deemed Quorum If a quorum is for any reason not present within one (1)
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hour after the time set for a Board meeting, such meeting shall
automatically stand adjourned to the fifth (5th) business day
immediately following at the same item and place, and the directors
present or deemed present at such meeting shall be deemed to constitute
a quorum and able to pass effective resolutions.
ARTICLE 9 - GENERAL MANAGER
9.1 General Manager The Board shall delegate the day-to-day management of
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the Company to the General Manner. The General Manager shall be
nominated and hired by the Board.
9.2 Duties of the General Manager The General Manager shall be responsible
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for the overall management of the Company. The General Manager shall
report to the Board, and his duties shall include the following:
9.2.1 Preparation of annual operating and capital budgets, business
plans and financial projections for Board approval;
9.2.2 implementing budgets and plans approved by the Board;
9.2.3 establishing and maintaining an accounting system and a system
of financial, budgetary and internal controls designed by any one
of the International and Chinese Joint Venture Accounting firms
licensed to practice accounting in China and Such Accounting Firm
shall be approved by the Board;
9.2.4 maintaining accounting ledgers, books and records in accordance
with internationally accepted accounting principles and standards
and regulations;
9.2.5 payroll administration;
9.2.6 labor relations and personnel administration;
9.2.7 supervising and administering all exploration operations;
9.2.8 implementing a system of security designed by experts in the
security field in respect of the Company's diamonds and other
precious gems and minerals, and other assets that is in
accordance with good international standards and that is
satisfactory to the Board;
9.2.9 doing all other things necessary of advisable to ensure that the
business of the Company and is called in accordance with this
Contract.
9.3 The Vice-General Managers shall be nominated by the General Manager and
must be approved by the Board.
9.3.1 The Vice-General Managers shall assist the General Manager in
carrying out his duties.
ARTICLE 10 - PURCHASES AND CONTRACTS
10.1 Purchases Outside China If the Company needs to purchase any
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materials, equipment, vehicles, machinery or other items necessary from
outside China, Party B shall be entrusted to do so on behalf of the
Company.
ARTICLE 11 - EMPLOYMENT MATTERS
11.1 Employment Contracts All existing employees and retired employees of
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Party A are the responsibility of Party A. All employees required to be
engaged by the Company, including but not limited to the General
Manager, shall be hired pursuant to employment contracts approved by the
Board. Such contracts will set out, amongst other things, the title and
duties of the employee, the remuneration payable and the terms on which
such engagement may be terminated by the Company. Such employees, the
Company and the parties hereto shall be required to keep confidential
all the terms of the engagement of such employees.
11.2 Labor Market The Company shall be entitled to hire employees from the
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labor market by placing advertisements or using other direct methods for
recruiting employees, either from China or from abroad, as it deems tit,
Salaries and benefits payable to any management level employee from
China shall be based on standards prevailing in the Chinese labor market
for such kind of employee, and salaries and benefits payable to any
employee from outside of China shall be based on standards prevailing in
the international market for such kind of employee. Such employees,
confidential all, the terms of the engagement of such employees.
ARTICLE 12 - TAXES, FINANCE AND AUDIT
12.1 Company Taxes The Company shall pay taxes in accordance with the
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stipulations of published and publicly available Chinese laws and
regulations using the maximum deductions and allowable deductions and
preferential treatments allowed in these some laws and regulations of
the Income Tax for Foreign Investment Enterprises. The Company shall
apply for the maximum allowable deductions and maximum allowable credits
and maximum allowable preferential treatments allowed in these same laws
and regulations covering and taxes.
12.2 Personal Income Taxes. Employees of the Company shall pay individual
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income tax according to the Individual Income Tax Law of the People's
Republic of China.
12.3 Fiscal year. The Company's fiscal year shall commence on January 1 and
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end on December 31 of each year, except for the first fiscal year which
will commence on the day the Business License is issued and end on
December 31 of the same year.
12.4 Books of Account. The Company shall keep its books of accounts in
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English and Chinese, and in accordance with generally accepted
international accounting principles.
12.5 Accounting Currency. The Company shall use Chinese Renminbi and/or
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U.S. dollar as the base accounting currency.
12.6 Reporting to Directors. The General Manager and the management
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committee shall prepare and deliver the following statements and reports
to each member the Board:
12.6.1 quarterly unaudited financial statement within four (4) weeks of
the end of each fiscal quarter;
12.6.2 annual unaudited financial statements by no later than the
forty-fifth (45th) day after the end of the previous fiscal year;
12.6.3 annual audited financial statements and the auditor's report
thereon by no later than the sixtieth (60th) day after the end of
the previous fiscal year; and
12.7 Rights to Inspect Each director shall have the right to inspect and
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copy the books of account of the Company at any time.
12.8 Auditors The Company's books shall be audited by any one of the
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International and Chinese Joint Venture Accounting Firms licensed to
practice accounting in China and such Accounting Firm shall be selected
by Party l3 in writing.
12.9 Bank Accounts The Company shall open such bank accounts after approved
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by the People's Bank of China in designated banks.
ARTICLE 13 - INSURANCE
13.1 Standards of Insurance The Company shall purchase insurance for this
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project as required by China Law. The Board will then decide on any
other kind, value and duration of insurance it considers necessary,
having due reference to international insurance practices in respect of
similar projects.
13.2 Choice of Insurer The Company shall purchase such insurance from the
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insurance provider which the Board considers to be the most competitive
in terms of coverage, dependability and cost. If the People's Insurance
Company of China satisfies Board that its policies are at least as
favorable to the Company as those of its competitors in respect of all
the Board considers material, the Company shall purchase its insurance
from that insurer.
ARTICLE 14 - DURATION OF THE JOINT VENTURE
14.1 Duration of Joint Venture The Project shall have a duration (the
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"Duration of the Joint Venture ) of ten (10) years from the day when the
Business License is issued.:
14.2 Extended Duration The Company and the Shareholders shall make an
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application to the Approval Authority at least six (6) months prior to
the expire date of the Duration of the Joint Venture for the extension
of the Joint Venture Company.
14.3 Continuation of Contract and Licenses If the Duration of the Joint
-----------------------------------------
Venture is extended for any reason, notwithstanding any provision to the
contrary herein, this Contract shall continue in the full force and
effect, as amend by such extension. Party A shall obtain such renewals
of the Business License, Survey and Exploration and Mining License and
other rights and permits referred to article 7.2.1 as may be necessary
or desirable.
14.4 Joint Mining
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The parties shall enjoy the priority in mining right in the Work Area
according to the Laws of Mineral Resources of the People's Republic of
China. If diamond ore bodies are discovered and those ore bodies
demonstrate proven economic value for mining during the period of
cooperation, the Company shall apply for mining license according to the
relevant laws and regulations. The two parties herein also agree that in
future joint mining, venture company for this purpose will be set up
between the two parties. Each party shall be entitled to the profit
according to their contributions, however, the proportion of the
contributions on future joint mining shall be at least 50 to 50 or 60 to
40 in Party B's favour. In the case that Party A fails to supply funds
to meet the contribution requirement, Party B shall supply to Party A a
Shareholder's loan under favourable interest rates which shall be
decided later. Party A agrees that if Party A makes its contribution ,
in part or wherein the form of Shareholder loans it shall not get any
dividend distribution prior to the payment to Party B.
ARTICLE 15 - DISPOSAL OF COMPANY ASSETS ON EXPIRE OF DURATION
15.1 Litigation of Assets If the Duration of the Joint Venture expires or
----------------------
is terminated
pursuant to this Contract for any reason; the assets of the Company
shall be liquidated and the debts of the Company ( including any amounts
owed to any Shareholder hereunder ) shall be paid. The remaining cash of
the Company, if any, shall be distributed by the Company to the
Shareholders equally in accordance with the principles set forth in
article 12.4. Thereafter, the Company shall.
15.1.1 make a full report of the liquidation to each of the
Shareholders; and
15.1.2 cause the Business License to be canceled
15.2 Sales of Assets The liquidation committee shall use its best efforts
-----------------
to sell the non-cash assets of the Company ( including the Mining Rights
and Exclusive Marketing and Sales Rights) for the highest available
price. Any Shareholder may purchase all or part of those assets at a
purchase price equal to their fair market value, as determined by the
parties by agreement ( or by the Independent Valuator, if no written
agreement is reached within thirty (30) days). Such price may be paid by
way of set-off against any amount that may be owed by the Company to the
purchasing Shareholder. Such Mining Right shall get approval from the
appropriate Government Agency.
15.3 Survival of Terms The provisions o1' this Article 15 shall survive the
-----------------
expire or early termination of the Duration of the Joint Venture for any
reason.
ARTICLE 16 - AMENDMENT AND TERMINATION OF THE CONTRACT
16.1 Amendment This Contract may only be amended by a written amendment
---------
agreement signed by both Party A and Party B, and shall come into effect
on the day such amendment agreement is approved by the Approval
Authority.
16.2 Terms of Contract This Contract shall come into effect upon approval
-------------------
by the Approval Authority and subject to article 16.3; shall remain in
force until the procedures set forth in Article 15 above have been
completed following the expire or early termination of the Duration of
the Joint Venture pursuant.
16.3 Rescission of Contract if for any reason the conditions precedent set
-----------------------
forth in article 5.2 and 5.3 have not all been fulfilled by any Party on
or prior to the 180`h day after the Business License has been issued,
this Contract shall be deemed terminated and of no force and effect and
the Company shall be dissolved. The Party that has suffered damages
resulting for the breach of the contract can claim such damages against
the other Party.
16.4 Early Termination Either Shareholder may by written notice to the
------------------
Chairman and Vice-Chairman of the Company, request the Board to consider
and approve a resolution pursuant to article 8.7 to terminate the
Duration of' the Joint Venture prior to its expire date only any of the
following reasons:
16.4.1 the other Shareholder has caused an Event of Default to occur,
and has failed to cure such Event of Default within thirty (30)
days of written notice by the first Shareholder, or if such Event
of Default cannot be cured within thirty (30) days, the other
Shareholder has failed to use its beast efforts to cure such
default, or
16.4.2 there has been a material change in the applicable laws,
regulations or policies of the pertinent governmental authorities
that adversely affect the interests of such Shareholder; and
16.5 Government Approval If any Shareholder gives a notice requesting early
-------------------
termination under article 16.4 and the Board resolves according to
article 8.7.4 to dissolve the Company, the Shareholders shall cause the
Company and the Board to make such applications to the Approval
Authority, and to take all such other steps as may be necessary to
complete the dissolution of the Company in accordance herewith.
16.6 Survival of Certain Provisions and Obligations. The provisions of
---------------------------------------------------
Article 15 and this article 16.6 and all other provisions of this
Contract necessary to give full force and effect thereto shall survive
the expiration or early termination of the Duration of the Joint Venture
for any reason.
ARTICLE 17 - BREACH OF CONTRACT
17.1 Events of Default Each of the following events shall be deemed to be
-------------------
an Event of Default hereunder:
17.1.1 if any Shareholder shall be in breach of any of its material
obligations hereunder and such breach shall continue for a period
of thirty (30) days from the receipt of a written notice of
breach from the other Shareholder, or if such breach cannot be
cured within thirty (30) days, such Shareholder has failed to use
its best efforts to cure such breach;
17.1.2 if any Shareholder passes a resolution that it be wound up or
liquidated or a meeting is convened for the purpose of passing
any such resolution, or an order is made for the winding-up or
liquidation of such Shareholder;
17.1.3 if a receiver or receiver-manager is appointed in respect to the
whole or a substantial part of the affairs or assets of any
Shareholder; and
17.1.4 if a Shareholder is adjudged bankrupt or insolvent or files a
proposal in bankruptcy.
17.2 Remedies If an Event of Default occurs, the Non-Defaulting Shareholder
--------
shall be entitled to exercise against the Defaulting Party any and all
rights, remedies and recourses permitted hereunder or at law, including
without limitation, the right to obtain an injunction or order from a
court of competent jurisdiction setting aside the act giving rise to
such Event of Default. All such rights, remedies and recourses shall be
cumulative and the exercise of one shall not prevent the exercise of any
other or others.
17.3 Interest Unless otherwise provided herein, any sum at any time
--------
owing hereunder by any Shareholder to the Company or by the Company or
any Shareholder to another Shareholder which is not paid when due shall,
without derogation froth any other right or its due date until payment
in full at an interest rate equal to the Prime Rate set by the Bank of
Nova Scotia in Canada
ARTICLE 18 - FORCE MAJEURE
18.1 Event of Force Majeure An Event of Force Majeure includes any fire,
-------------------------
explosion, accident, earthquake, tidal wave, strike picketing, lockout,
labor dispute, flood, drought, embargo, war, riot or insurrection,
uprising, rebellion, or any other event whether similar or dissimilar to
the foregoing which shall be beyond the reasonable control of the
Shareholder affected hereby and which shall delay, interrupt of prevent
in whole or in part by such Shareholder or any of its obligations
hereunder other than an obligation to pay money.
18.2 Notice of Force Majeure. A Shareholder affected by an Event of Force
-------------------------
Majeure shall promptly give notice thereof to the other Shareholder and
shall indicate in such notice, as accurately as possible, the effect of
such Event of Force majeure on its capacity to perform its obligations
hereunder.
18.3 Effect of an Event of Force Majeure Subject to the giving of notice
--------------------------------------
provided for in the immediately preceding article:
18.3.1 the non-fulfillment of any obligation of any Shareholder
hereunder by reason of an Event of Force Majeure shall not
constitute a breach or an Event of Default, and shall not give
rise to damages or to any other recourse; and
18.3.2 any time period provided for the performance of any obligation
of any Shareholder hereunder shall be postponed or extended for
and by a duration equal toe the period during which the Event of
Force Major shall continue to exist.
18.1 No Termination An Event of Force Majeure shall not be a cause for
the early termination of this Contract or of the Duration of the Joint
Venture unless the Event of Force Majeure continues for a period in
excess of 12 months, in which case the Shareholder not directly affected
by such Event of Force Majeure may request the early termination of the
Project pursuant to the provisions of article 16.4.
ARTICLE 19 - APPLICABLE LAWS
19. Published Laws of China The formation, validity and interpretation of
-------------------------
this Contract shall be governed and interpretation of this Contract
shall be governed by the published and publicly available laws of the
People's Republic of China.
19.2 Effect of Future Laws The Shareholders agree that if any law or
------------------------
regulation of China that is amended of changed or a new la\v has an
adverse effect on any Shareholder then, if such Shareholder requests,
the parties shall forthwith amend this Contract so that such adverse
effect is eliminated or adjusted to shall cause the Company to use its
best efforts to cause such amendment to be approved by the Approval
Authority.
ARTICLE 20 - SETTLEMENT OF DISPUTES
20.1 Overriding Principle Any dispute arising out of or relating to this
---------------------
Contract shall be resolved by procedures set out in this Article 20.
First, there shall be friendly discussions between the Shareholders
based on the overriding principle that the Shareholders have a-xxxx to
establish the Company in order to generate maximum profits for each of
the Shareholders.
20.2 Binding Arbitration If the dispute is not resolved by friendly
--------------------
discussions under the immediately preceding article any Shareholder may
give to the other Shareholder written notice under this article 20.2
requesting the dispute to be resolved. If the dispute is not resolved
within forty (40) days after such notice, either Shareholder shall be
entitled to refer the dispute for arbitration by arbitrators pursuant to
the rules of an under the auspices of the International Arbitration
Institute of the Stockholm Chamber of Commerce. In their determination,
such arbitrators shall have due regard to international practice. The
award of such arbitrators shall be binding on the parties and may be
entered in any court of competent jurisdiction.
ARTICLE 21 - MISCELLANEOUS
21 Notices Any and all notices or other communications required or
-------
permitted pursuant to this Contract shall be in writing and shall be:
2 delivered by courier, by a fax or telex thereof to the
addresses referred to below in which case such notice or other
communication shall conclusively be deemed to have been given to
the addressee thereof at the time of such delivery or on the next
business day if delivered on a day that is not a business day; or
2 1.2 telexed or faxed to the addressee at the numbers referred to
below, confirmed by delivery by courier, in which case such
notice or other communication shall conclusively be deemed to
have been given to the addressee thereof on the day upon which it
was received if received prior to 3:00 p.m. ( local time) on such
day or on the next business day if received after 3:00 p.m.(local
time) on a business day or on the next business day it 'received
on a day that is not a business day:
For Party A:
------------
Shandong Xxx Xx Geology and Mineral Resources
Development Company
Xxxxx Xx Lu, Linyi City
Shandong Province
People's Republic of China
Attention: Hu Shi lie
Telephone: (0000) 0000000
For Party B:
------------
Xxxxxxx Xxxxxx (Asia) Limited
2203 Cameron Commercial Xxxxxx
000 - 000 Xxxxxxxxx), Xxxx
Xxxx Xxxx
Xxxxxxxxx: Po Sun Liu
Telephone: 000-000-0000
Each Shareholder may change its address for service by Written
notice, given in the manner provided above, to the other
Shareholder and such change shall be effective: upon the date the
notice shall be deemed to received.
21.2 Entire Agreement This Contract constitutes the entire agreement
-----------------
between the parties hereto. There are no, and shall not he any, verbal
or written statements, representations, warranties, undertakings or
agreements between the parties pertaining to the subject matter hereof
other than as expressly provided for herein. If any provision hereof
conflicts with any provision of the Articles of Association of the
Company or with anything in the feasibility Study, the provision of this
Contract shall prevail.
21.3 Business Day Where the time limit for the doing of anything hereunder
-------------
expires or falls upon a day that is not a business day the time so
limited extends to and the thing may be done on the day first following
that is a Business Day.
21.4 Time of Essence Time and each of the terms and conditions of this
-----------------
Contract shall be the essence of this Contract and no waiver by any
Shareholder of any default by the Shareholder of any provision herein
shall be deemed to be a waiver of any other provision herein nor to
release such other Shareholder from any such provision.
21.5 Further Assurances Cooperation Each of the parties hereto shall do
--------------------------------
all things and execute all documents necessary or desirable in order to
carry out the intents of this Contract, and shall fully cooperate with
each other and the Company in all respect in good faith to ensure that
the Company operates in the manner contemplated herein and achieves the
purpose set out in the Contract.
21.6 Corrective Actions If any time during the Duration of the Joint
-------------------
Venture, any government authority of China enacts or law or policy , and
if such actions have the effect ( a " Negative Effect" ) of preventing
or constraining the exercise of any right or of materially increasing
the burden of performance of any obligation of Party B or the Company
hereunder the Company shall, at the Company's cost, take such measures (
" Corrective Action") as may be required to restore Party B or the
Company to the position it would have retained had such actions not been
taken. Such Corrective Action may taken any or all of the following
forms:
21.6.1 obtaining from the relevant authority an exemption from the
application of the law or policy that is the direct or indirect
subject to the Unilateral Action or the direct or indirect cause
of the Negative Effect;
21.6.2 causing the enactment of specific legislation to eliminate the
Negative Effect; or 21.6.3 other actions acceptable to Party B. .
21.7 Language This Contract has been written in Chinese and in English and
--------
dully executed in Chinese and in English. The Parties asree that both
versions are equal, and legally binding on both Parties. In case of
discrepancy, the meaning and spirit of the Chinese version shall prevail
at the same time the meaning and the spirit of the English version shall
be referred to.
21.8 Enurement This Contract shall enure to the benefit of and be binding
---------
upon, the parties hereto and their respective successors and permitted
assigns.
IN WITNESS WHEREOF duly authorized officers of each of the parties have
executed this Contract in Linyi, Shandong province, China on this 22nd day of
August, 1996.
Shandong Xxx Xx Geology and Xxxxxxx Xxxxxx (Asia) Limited
Mineral Resources Development
Company
/s/ Zhou Denshi /s/ Dai Zhenfei
------------------------------- --------------------------------
Name: Zhou Denshi Name Dai Zhenfei
Title: Deputy General Manager Title: Senior Vice President
China Operations
