OPERATING AGREEMENT (English Translation)
(English
Translation)
This
Operating Agreement (this “Agreement”)
is
dated September 6, 2006, and is entered into in Beijing, China by and among
Lotus Pharmaceutical International, Inc., a company incorporated under the
laws
of the State of Nevada, the United States, located at Boca Corporate Plaza,
0000
Xxxxxx Xxxx, Xxxxx 000, Xxxx Xxxxx, Xxxxxxx 00000, the United States of America,
(“Party
A”),
and
Xxxxx Xxxx Pharmaceutical Co., Ltd., a limited liability company organized
under
the laws of the PRC (“Party
B”),
with
a registered address at No.18 Jian She Road, Xxxxx Xxxxx Xxx Xxxx Street,
Fangshan District, Beijing, P.R.C., and shareholders holding 100% outstanding
shares of Party B (the “Shareholders of Party B”). Party A and Party B, and
Shareholders of Party B are referred to collectively in this Agreement as the
“Parties.”
RECITALS
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1.
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Party
A is a company incorporated in the State of Nevada under the laws
of the
State of Nevada, the United States, which has the expertise in the
business of pharmaceuticals.
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2.
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Party
B is a company incorporated in Beijing, China, and is engaged in
sales of
Chinese traditional patent medicine, western medicine, biochemical
medicine, drinks of Chinese traditional medicine (limited to retail),
medical appliance, packed foodstuff, machine and electric equipments,
timbering, decorative materials, knit goods and textile, general
merchandise, hardware, software, hardware and peripheral equipment
of
computers, artwork of handcraft, undertaking exhibit, consultation
of
information (except agency), technique exploration and transfer (the
“Business”);
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3.
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The
undersigned Shareholders of Party B collectively own over 100% of
the
equity interests of Party B;
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4.
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Party
A has established a business relationship with Party B by entering
into
the “Consulting Services Agreement” dated September 6, 2006 (hereinafter
referred to as the “Services
Agreement”),
and Party B’s daily operations will have a material effect on its ability
to pay the fees payable to Party A;
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5.
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Pursuant
to the above-mentioned agreement between Party A and Party B, Party
B
shall pay certain consulting fees to Party A.
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6.
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The
Parties are entering into this Agreement to further define and clarify
the
relationship between Party A and Party B, relating to Party B’s
operations.
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NOW
THEREFORE,
all
parties of this Agreement hereby mutually agree as follows:
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1.
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Party
A agrees, subject to the satisfaction of the relevant provisions
by Party
B herein, as the guarantor for Party B in the contracts, agreements
or
transactions in connection with Party B’s operation between Party B and
any other third party, to provide full guarantee for the performance
of
such contracts, agreements or transactions by Party B. Party B agrees,
as
a counter-guarantee, to pledge all of its assets, including accounts
receivable, to Party A. According to the aforesaid guarantee, Party
A
wishes to enter into written guarantee agreements with Party B’s counter
parties thereof to assume liability as the guarantor when and if
needed;
therefore, Party B and Shareholders of Party B shall take all necessary
actions (including but not limited to executing and delivering relevant
documents and filing of relevant registrations) to carry out the
arrangement of counter-guarantee to Party A.
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2.
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In
consideration of the requirement of Article 1 herein and assuring
the
performance of the Consulting Services Agreement (“Services Agreement”)
between Party A and Party B and the payment of the payables accounts
by
Party B to Party A, Party B together with the Shareholders of Party
B
hereby jointly and severally agree that Party B shall not conduct
any
transaction which may materially affect the assets, obligations,
rights or
the operations of Party B (excluding the business contracts, agreements,
sell or purchase assets during Party B’s regular operation and the lien
obtained by relevant counter parties due to such agreements) without
prior
written consent of Party A, including but not limited to the following:
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2
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2.1
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To
borrow money from any third party or assume any debt;
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2.2
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To
sell, license, transfer, or acquire from or to any third party any
asset
or right, including but not limited to any plant, equipment, real
property
or personal property, or any intellectual property right;
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2.3
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To
provide any guarantees to any third parties using its assets or
intellectual property rights or to provide any guaranty for any third
party obligations;
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2.4
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To
assign to any third party any agreements related to the Business.
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2.5
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To
engage in any other business consulting agreements with any third
party or
to engage in any other business activities other than the Business.
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3.
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In
order to ensure the performance of the Services Agreement between
Party A
and Party B and the payment of the various payables by Party B to
Party A,
Party B together with the Shareholders of Party B hereby jointly
and
severally agree to accept, from time to time, operation guidance
set by
Party A on, including but not limited to, business and marketing
strategies, business planning, business operation guidance, the
appointment and dismissal of its directors and officers, the hiring
and
firing employees, its daily operation of the Business, and its financial
and budgeting system.
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4.
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Party
B together with the Shareholders of Party B hereby jointly and severally
agree that the Shareholders of Party B shall appoint the person
recommended by Party A as the directors of Party B, and Party B shall
appoint Party A’s senior managers as Party B’s General Manager, Chief
Financial Officer, and other senior officers. If any of the above
senior
officers resigns or is dismissed by Party A, he or she shall no longer
be
qualified to take any position as an officer or director of Party
B and
Party B shall appoint other senior officers of Party A recommended
by
Party A to take such position. The person recommended by Party A
in
accordance with this Article herein should comply with the stipulation
on
the qualifications of directors, General Manager, Chief Financial
Officer,
and other senior officers pursuant to applicable law.
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3
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5.
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Party
B together with the Shareholders of Party B, hereby jointly and severally
agree and confirm that Party B shall seek a guarantee from Party
A prior
to any attempt to obtain such guarantee from another party, if Party
B
needs any guarantee for the performance of any contract, loan or
financing
transaction. In such case, Party A shall have the right but not the
obligation to provide the appropriate guarantee to Party B at its
own
discretion. If Party A decides not to provide such guarantee, Party
A
shall issue a written notice to Party B as soon as practicable and
Party B
may seek a guarantee from other third party.
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6.
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In
the event that any of the agreements between Party A and Party B
terminate
or expire, Party A shall have the right but not the obligation to
terminate all agreements between Party A and Party B including but
not
limited to the Services Agreement.
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7.
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Any
amendment and supplement of this Agreement shall be made in writing.
The
amendment and supplement duly executed by all parties shall be deemed
as a
part of this Agreement and shall have the same legal effect as this
Agreement.
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8.
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If
any clause hereof is judged as invalid or non-enforceable according
to
applicable laws, such clause shall be deemed invalid only with respect
to
the affected clauses, and without affecting other clauses hereof
in any
way.
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9.
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Party
B shall not assign its rights and obligations under this Agreement
to any
third party without the prior written consent of Party A. Party B
hereby
agrees that Party A may assign its rights and obligations under this
Agreement at its discretion and such transfer shall only be subject
to a
written notice sent to Party B by Party A, and no any further consent
from
Party B will be required.
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4
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10.
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All
parties acknowledge and confirm that any oral or written materials
communicated pursuant to this Agreement are confidential documents.
All
parties shall keep confidential all such documents and not disclose
any
such documents to any third party without prior written consent (except
the written consent of the Shareholders of Party B shall not be required)
from other parties except under the following conditions: (a) such
documents are known or shall be known by the public (excluding the
receiving party discloses such documents to the public without
authorization); (b) any documents disclosed in accordance with applicable
laws or rules or regulations of stock exchange; (c) any documents
required
to be disclosed by any party to its legal counsel or financial consultant
for the purpose of the transaction of this Agreement by any party,
and
such legal counsel or financial consultant shall also comply with
the
confidentiality as stated hereof. Any disclosure by employees or
agencies
employed by any party shall be deemed the disclosure of such party
and
such party shall assume the liabilities for its breach of contract
pursuant to this Agreement. This Article shall survive termination
of this
Agreement.
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11.
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This
Agreement shall be governed by and construed in accordance with the
laws
of the PRC.
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12.
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The
parties shall strive to settle any dispute arising from the interpretation
or performance of this Agreement through friendly consultation. In
case no
settlement can be reached through consultation, each party can submit
such
matter to China International Economic and Trade Arbitration Commission
(“CIETAC”)
for arbitration in accordance with its rules of CIETAC. The arbitration
proceedings shall take place in Beijing and shall be conducted in
Chinese.
Any resulting arbitration award shall be final and conclusive and
binding
upon all the parties.
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13.
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This
Agreement shall be executed by a duly authorized representative of
each
party as of the date first written above and become effective
simultaneously.
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5
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14.
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Notwithstanding
Article 13 hereof, the parties confirm that this Agreement shall
constitute the entire agreement of the Parties with respect to the
subject
matters therein and supersedes and replaces all prior or contemporaneous
verbal and written agreements and
understandings.
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15.
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The
term of this agreement is ten (10) years unless early termination
occurs
in accordance with relevant provisions herein or in any other relevant
agreements reached by all parties. This Agreement may be extended
only
upon Party A’s written confirmation prior to the expiration of this
Agreement and the extended term shall be determined by the Parties
hereto
through mutual consultation. During the aforesaid term, if Party
A or
Party B is terminated at expiration of the operation term (including
any
extension of such term) or by any other reason, this Agreement shall
be
terminated upon such termination of such party, unless such party
has
already assigned its rights and obligations in accordance with Article
9
hereof.
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16.
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This
Agreement shall be terminated on the expiration date unless it is
renewed
in accordance with the relevant provision herein. During the valid
term of
this Agreement, Party B shall not terminate this Agreement.
Notwithstanding the above stipulation, Party A shall have the right
to
terminate this Agreement at any time by issuing a thirty (30) days
prior
written notice to Party B.
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17.
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This
Agreement has been executed in duplicate originals, each Party has
received one (1) duplicate original, and all originals shall be equally
valid. This Agreement has both an English version and a Chinese version.
Both versions are equally authentic. Where a comparison of the authentic
texts of both versions of this Agreement renders a difference in
meaning,
the meaning which best reconciles the texts, having regard to the
object
and purpose of this Agreement shall be
adopted.
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[SIGNATURE
PAGE FOLLOWS]
6
SIGNATURE
PAGE
IN
WITNESS WHEREOF
each
party hereto has caused this Operating Agreement duly executed by itself or
a
duly authorized representative on its behalf as of the date first written above.
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PARTY
A:
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Lotus
Pharmaceutical International, Inc.
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By:
/s/
Xxx Xxxxxxx
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Name:
Xxx
Xxxxxxx
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Title:
CEO
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PARTY
B:
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Xxxxx
Xxxx Pharmaceutical Co., Ltd.
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By:
/s/
Xxx Xxxxxxx
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Name:
Xxx
Xxxxxxx
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Title:
CEO
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7
SIGNATURE
PAGE FOR SHAREHOLDERS OF PARTY B
SHAREHOLDERS
OF PARTY B:
/s/
Xxx Xxxxxxx
By:
Xxx
Xxxxxxx
(PRC
ID
Card No.: 110106611008275)
Shares
of
Xxxxx Xxxx Company owned by Xxx Xxxxxxx: 70%
/s/
XIAN Xxx Xx
By:
XIAN
Xxx Xx
(PRC
ID
Card No.: 510102196805196123)
Shares
of
Xxxxx Xxxx Company owned by XIAN Xxx Xx: 5%.
/s/
SONG Zhenghong
By:
SONG
Zhenghong
(PRC
ID
Card No.: 110106196711082783)
Shares
of
Xxxxx Xxxx Company owned by SONG Zhenghong: 25%
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