JOINT VENTURE CONTRACT For GUANGXI GUANGHE METALS CO. LTD. among HECHI INDUSTRIAL CO. LTD. And BIOGAN (BVI) INTERNATIONAL INC. July 19, 2002 INDEX
Exhibit 10.2
For
GUANGXI GUANGHE METALS CO. LTD.
among
HECHI INDUSTRIAL CO. LTD.
And
BIOGAN (BVI) INTERNATIONAL INC.
July 19, 2002
INDEX
CHAPTER I GENERAL PROVISIONS
Article 1
CHAPTER II PARTIES TO THE JOINT VENTURE
Article 2
CHAPTER III ESTABLISHMENT OF THE COMPANY
Article 3
Article 4
Article 5
Article 6
CHAPTER IV PURPOSE, SCOPE AND SCALE OF PRODUCTION AND OPERATION
Article 7
Article 8
Article 9
CHAPTER V TOTAL INVESTMENT AND REGISTERED CAPITAL
Article 10
Article 11
Article 12
Article 13
Article 14
Article 15
Article 16
Article 17
Article 18
CHAPER VI PROFIT DISTRIBUTIONS
Article 19
CHAPTER VII RESPONSIBILITIES OF THE PARTIES TO THE JV
Article 20
CHAPTER VIII THE BOARD OF DIRECTORS
Article 21
Article 22
Article 23
Article 24
Article 25
Article 26
Article 27
Article 28
CHAPTER IX OPERATION AND MANGEMENT ORGANIZATION
Article 29
Article 30
Article 31
Article 32
CHAPTER X PURCHASE OF RAW MATERIALS AND EQUIPMENT
Article 33
CHAPTER XI LABOR MANAGEMENT
Article 34
Article 35
Article 36
Article 37
Article 38
Article 39
CHAPTER XII TAXES
Article 40
Article 41
Article 42
Article 43
CHAPTER XIII FINANCE AND ACCOUNTING
Article 44
Article 45
Article 46
Article 47
Article 48
Article 49
Article 50
CHAPTER XIV FOREIGN EXCHANGE
Article 51
Article 52
CHAPTER XV DURATION OF THE JV
Article 53
Article 54
CHAPTER XVI FORCE MAJEURE
Article 55
CHAPTER XVII AMENDMENT
Article 56
CHAPTER XVIII LIABILITIES FOR BREACH OF CONTRACT
Article 57
CHAPTER XIX APPLICABLE LAW AND SETTLEMENT OF DISPUTES
Article 58
Article 59
Article 60
Article 61
CHAPTER XX LANGUAGE
Article 62
CHAPTER XXI EFFECTIVENESS OF THE CONTRACT, APPROVAL AUTHORITY AND MISCELLANEOUS
Article 63
Article 64
Article 65
APPENDIX 1 LIST OF PARTY A'S ASSETS AND ASSETS EVALUATION REPORT
CHAPTER I
GENERAL PROVISIONS
Pursuant to the Law of the People's Republic of China on Sino-Foreign Co-Operative Enterprises, the corresponding Implementation Rules and other relevant Chinese laws and regulations, on the basis of the principles of equality and mutual benefit, HECHI INDUSTRIAL XX.XXX. (hereafter referred to as "Party A"), a limited liability company organized and existing under the Company Law of the People's Republic of China and BIOGAN INTERNATIONAL INC. (hereinafter referred to as "Biogan"), a limited liability company organized and existing under the laws of the State of Delaware of the United States of America agreed after friendly consultations to jointly invest in and set up a co-operative joint venture-"Guangxi Guanghe Metals Co. Ltd. (hereafter referred to as "JV") in Guangxi Zhuang Autonomous Region of the People's Republic of China which has been approved by Hechi Foreign Trade and Economic Co-operation Administration on February 16th, 2000. Biogan has agreed to assign its interest in the JV to Biogan (BVI) International, Inc. (hereinafter referred to as "Party B"), a limited liability company organized and existing under the laws of British Virgin Islands, and it has been unanimously approved by the Board of Directors of the JV that the foreign party to the JV shall be changed from Biogan to Party B. Upon mutual agreement by both Parties, the Former Cooperative Joint Venture Contract shall be amended and replaced by this Contract.
When used in this Contract, the following terms shall have the meanings set forth below unless otherwise defined:
"Biogan" shall mean Biogan International Inc.
"China" shall mean, for the purpose of this Contract, the People's Republic of China, excluding Hong Kong, Taiwan and Macao regions.
"The Former Articles of Association" shall mean the Articles of Association of the JV signed by and between Party A and Biogan International, Inc on January 27th, 2000, which has been amended by Party A and Party B.
"The Former JV Contract" shall mean Cooperative Joint Venture Contract signed by and between Party A and Biogan International, Inc. on January 27th, 2000.
"Feasibility Study Report " shall mean the feasibility study submitted to the Hechi Foreign Trade and Economic Co-operation Administration in connection with the application for approval of establishment of the JV.
"Parties" shall collectively mean Party A and Party B.
"Party A" shall mean Hechi Industrial Co. Ltd.
"Party B" shall mean Biogan (BVI) International Inc.
CHAPTER II
PARTIES TO THE JOINT VENTURE
The Parties to this Contract are:
HECHI INDUSTRIAL CO. LTD.
| Legal Address: | Xx.000, Xxxxxxx Xxxx, Xxxxx Xxxx, Xxxxxxx, 000000 |
| The People's Republic of China | |
| Legal Representative: | Liang Changjiang |
| Title: | Chairman |
| Nationality: | Chinese |
| BIOGAN (BVI) INTERNATIONAL INC. | |
| Legal Address: | East Asia Corporate Service(BVI)Limited, East Asia Xxxxxxxx, X.X.Xxx 000, Xxxx Xxxx, Xxxxxxx, Xxxxxxx Xxxxxx Xxxxxxx. |
| Legal Representative: | Xxxxxx Xxxxxxxxxx |
| Title: | President |
| Nationality: | Canadian |
CHAPTER III
ESTABLISHMENT OF THE COMPANY
Pursuant to the Law of the People's Republic of China on Sino-Foreign Co-Operative Enterprises, the corresponding Implementation Rules (hereafter referred to as "Cooperative Joint Venture Regulations") and other relevant Chinese laws and regulations, the Parties hereto agree to establish the JV as a limited liability enterprise for developing, manufacturing and selling the products of the JV with advanced and applicable technology introduced by the both parties of the JV.
| 4.1 | The name of the JV shall be "GUANGXI GUANGHE METALS CO. LTD." in English. |
| 4.2 |
The name of the JV shall be "广 西 广 河 金 属 有 限 公 司" in Chinese. |
| 4.3 |
The legal address of the JV shall be Xx. 000, Xxxxxxx Xxxx, Xxxxx, Xxxxxxx, xxx Xxxxxx'x Xxxxxxxx of China |
All activities of the JV must comply with the published laws, decrees and pertinent rules and regulations of the People's Republic of China and shall be governed and protected by Chinese law.
The liability of the JV shall be limited to the registered capital of the JV and that of the Parties to the JV shall be limited to their respective subscriptions to the registered capital and no party shall have any liability to the Company or to any third party severally or jointly in excess of such amount.
CHAPTER IV
PURPOSE, SCOPE AND SCALE OF PRODUCTION AND OPERATION
The purpose of the Parties in forming the JV is to further strengthen economic and technological cooperation; to develop, manufacture and sell its products with advanced and applicable technology introduced by the both parties of the JV. The JV shall also raise economic efficiency and use its best effort to export its products to bring satisfactory economic returns to the Parties by improving product quality, developing new products and achieving a competitive quality and price position in both domestic and overseas mining industry through the adoption of scientific management methods.
The scope of operation of the JV shall be:
| (1) | Exploration, selection, smelting and sales of mineral products and by-products; |
| (2) | Manufacturing and sales of metal materials and non-metal materials. |
| 9.1 | As provided in the Feasibility Study Report, the scale of production of the JV shall be in accordance with market demand and a projection of the initial annual demand for the products of the JV. |
| 9.2 | The production capacity may be expanded during the term of the Contract with the development of market demand and other conditions. In the event that the JV expands its production capacity and needs more capital, Party B shall be responsible to raise such capital for the JV. |
CHAPTER V
TOTAL INVESTMENT AND REGISTERED CAPITAL
The total investment amount of the JV shall be US$25,000,000.
The total registered capital of the JV shall be US$10,000,000, and shall be contributed by the Parties in the following proportions:
Party A: US$800,000
Party B:: US$9,200,000
The capital contributions of the Parties have been or shall be contributed in accordance with the following:
| (1) | Party A shall make its contribution to the JV in kind with those assets specified in the Appendix 1 to this Contract, of which US$800,000 shall be Party A's capital contribution to the JV in a lump sum after the JV obtains its Business License from the Hechi Administration for Industry and Commerce. |
| (2) | It is acknowledged that Biogan has previously made capital contributions to the JV in cash in the aggregate amount of US$1,700,000. Before September 1st, 2003, Party B shall remit an additional US$7,300,000 into the account of the JV in cash and complete the remaining contribution to JV in the form of intellectual property rights and trademark rights. |
The Board of the JV can resolve to adjust the amount of the registered capital of the JV at an appropriate time.
The contributions of the Parties shall be made in the following manner:
| (1) | Party A's Contribution: Party A shall make its capital contribution in kind as specified in the Appendix 1 to this Contract to the JV. |
| (2) | Party B's Contribution: Party B shall contribute in United States Currency an aggregate of US$9,000,000 and the remaining amount in the form of intellectual property rights and trademark rights. |
The obligation of both Parties to make any contribution toward the registered capital of the JV hereunder shall be subject to the following conditions: all government approvals required for establishment of a joint venture with the scope of operation set forth under Article 8 above under law, regulation or administrative ruling in the People's Republic of China have been obtained for the establishment of the JV.
| 15.1 | The Parties hereby make the following representations and warranties: | |
| 15.1.1 | they are legally established in accordance with the laws specified in the General Provisions of this Contract; | |
| 15.1.2 | they have the authorities and capacities of executing this Contract and perform the obligations stipulated herein; | |
| 15.1.3 | the representatives who execute this Contract have received full authorization based on a valid authorization letter. The copy of such authorization has been provided to the other Party; | |
| 15.1.4 | The execution of this Contract and performance of the obligations herein will neither constitute nor cause to constitute violation to any other contracts or commitments which the Parties to the JV is (are) a party to, and will not constitute or cause to constitute any violation of any contracts or commitments involving any of their assets or properties. | |
| 15.2 |
The above representatives and warranties shall be valid at the execution of this Contract and during the existence of the JV. |
|
Subject to the approval of the Board of Directors, the JV shall have the right to borrow any funds needed in addition to the registered capital and to mortgage its properties in relation thereto.
| 17.1 | No Party shall assign or otherwise dispose of all or part of its interest in the JV to the other Party or a third party without first obtaining the prior approval of the other Party through a resolution of the Board of Directors and the approval of the original examination and approval authority. | |
| However, any Party may freely assign its interest in the JV to its own affiliate without first obtaining the consent of the other Party or giving the other Party a right of first refusal, but subject to the giving of a written notice to the Board of Directors for the record. An affiliate for the purpose of this Article means the parent company of the Party and said parent company's wholly owned subsidiaries and any company which is a wholly owned subsidiary of such Party. Such assignment shall be reported to the original examination and approval authority for approval. | ||
| 17.2 |
Subject to the requirements of the first paragraph of this Article, a Party (the "Selling Party") to this Contract may sell, transfer, assign, or otherwise dispose of the whole or any part of its interest in the JV to a third party only after giving notice in writing (herein referred to as the "Offer Notice") to the other Party to this Contract (the"Non-Selling Party"), notifying the Non-Selling Party of its intention to sell, transfer, assign or otherwise dispose of the whole or part of its interest in the JV (the "Offered Shares"), and specifying details of the transaction including the name and address of the third party to whom it intends to offer to sell the Offered Shares involved in the transaction or transactions, the price, and any other terms and conditions relating to the proposed sale. The Offer Notice shall include an offer to sell a portion of the Offered Shares to each of the Non-Selling Party. The percentage of the Offered Shares to be offered to any one of the Non-Selling Party shall be computed as follows: |
|
| 17.3 | Percentage interest of Non-Selling Party in the Profit | |
| Distributions of the JV ) | ||
| Total Percentage interest of all Non-Selling Party in the Profit | ||
| Distributions of the JV | ||
| 17.3 | The Offer contained in the Offer Notice shall be on terms and conditions no less favourable than those to be offered to the third party, and shall require each Non-Selling Party to accept the offer within thirty (30) days of the date thereof in writing whereupon: | |
| 17.3.1 | A Non-Selling Party who receives an Offer Notice may, within thirty (30) days of the date of the Offer Notice, by notice in writing to the Selling Party (the "Acceptance Notice"), confirm its acceptance of the Offer. The closing date for the acquisition shall be fifteen (15) days after the date of the Acceptance Notice. | |
| 17.3.2 | To the extent that a Non-Selling Party fails to purchase all or a portion of the Offered Shares it is entitled to purchase, then the Selling Party shall, in an additional Offer notice offer such unpurchased Offered Shares (the"Unpurchased Offered Shares") to the other Non-Selling Party in equal lots (or if there is only one other Non-Selling Party, then all of the Unpurchased Offered Shares shall be offered to that Party) on the same terms as and pursuant to the procedures provided above. | |
| 17.3.3 | In the event that any Offered Shares remain unpurchased after the expiration of thirty (30) days (the "Expiration Date") from the date of the last Offer Notice required to be given above, then the Selling Party may sell the shares specified in the Offer Notice to the third party or third parties concerned at such price and upon such terms and conditions as shall not be more favourable to such third party or parties than those contained in the Offer Notice. | |
| 17.3.4 | If the Selling Party shall not dispose of the Offered Shares or any portion thereof by the tenth calendar day following the Expiration Date, then the Selling Party shall continue to hold such Shares subject to the provisions of this Article. | |
| 17.4 | In the case of an assignment of all or part of the interest of any of the Parties in the JV, the assignee shall be bound by the terms and conditions of this Contract to the same extent as was the assignor. | |
After the Parties have each made their contributions to the registered capital, an accountant registered in China shall be retained by the JV for verification of such contributions. Upon the issuance of the verification report by the accountant, the JV shall issue an investment certificate to each Party signed by the Chairman and the Vice-Chairman of the Board of Directors, confirming the amount contributed by such Party.
CHAPER VI
PROFIT DISTRIBUTIONS
| 19.1 | Profits shall be paid to the Parties from the after tax profits and retained earnings of the JV at such times and in such amounts as may be determined by the Board of Directors. Profits of the JV shall be distributed to the Parties in the following proportions: | |
| 19.1.1 | Party A shall be entitled to receive a five percent (5%) share of any profit distribution. | |
| 19.1.2 | Party B shall be entitled to receive a ninety-five percent (95%) share of any profit distribution. | |
| 19.2 | To the extent that the foreign exchange reserves of the JV are insufficient to pay Party B's profit distributions in foreign exchange, the JV shall assist Party B in processing the conversion of any Renminbi profit distributions to Party B into foreign exchange, in accordance with regulations of the People's Republic of China concerning foreign exchange control. | |
CHAPTER VII
RESPONSIBILITIES OF THE PARTIES TO THE JV
The Parties shall be responsible for the following matters:
| 19.1 | Party A shall be responsible: | |
| 20.1.1 |
to obtain all government approval required under law, regulation or administrative ruling for the establishment of the JV; |
|
| 20.1.2 | to handle matters for the establishment of the JV including applications for approval, registration and the issuance of the business license; | |
| 20.1.3 | to assist the JV in recruiting operational and management personnel, technical personnel, workers and other necessary personnel; | |
| 20.1.4 | to assist foreign personnel of Party B and the JV in handling the necessary procedures for entry visas, work permits, traveling arrangements, drivers licenses and other necessary permits and authorizations; | |
| 20.1.5 | to assist the JV to apply for and obtain all possible tax reductions and exemptions and all other relevant investment incentives available to the JV under Chinese laws; | |
| 20.1.6 | to assist the JV in applying to the Bank of China as well as to other banks approved by the Bank of China for the establishment of foreign currency and Renminbi accounts, and to assist the JV in securing local financing in Renminbi; | |
| 20.1.7 | to handle all other matters entrusted by the JV. | |
| 20.2 | Party B shall be responsible for: | |
| 20.2.1 | providing information on equipment required by the JV and assisting the JV in the purchase of machinery and equipment in China and from abroad an arranging transportation of the same and preparing a report on the anticipated foreign exchange requirements of the JV; | |
| 20.2.2 | providing the necessary technical personnel during the period when the equipment of the JV is being installed and tested, as well as during trial production stages; | |
| 20.2.3 | assisting in organizing the training, as required, of the personnel of the JV; | |
| 20.2.4 |
assisting the JV in purchasing materials used in the exploration of various mines. |
|
| 20.2.5 | Assisting the JV to apply foreign currency loans from foreign banks or financial institutions; | |
| 20.2.6 |
Handling all other matters entrusted by the JV. |
|
CHAPTER VIII
THE BOARD OF DIRECTORS
The Board of Directors of the JV shall be appointed effective as of the date of issuance of the business license of the JV.
| 22.1 |
The Board of Directors shall comprise five (5) directors: |
| Two (2) directors shall be appointed by Party A and three (3) directors shall be appointed by Party B. | |
| 22.2 | One director appointed by Party B shall be the Chairman of the Board of Directors. There shall be one Vice-Chairman appointed by Party A. The Chairman of the Board shall be the legal representative of the JV. |
The directors, Chairman and Vice Chairman shall each serve a term of office of four (4) years and may serve consecutive terms if reappointed by the Party which made the original appointment.
The Parties shall conduct consultations prior to appointment of said Chairman and Vice Chairman.
Directors shall not be paid a salary by the JV; however, this provision shall not prevent the JV from paying salaries to employees who serve as directors.
The Board of Directors shall be the highest authority of the JV. It shall decide all major issues concerning the JV. Resolutions involving the following matters shall only be adopted by the unanimous affirmative vote of all members of the Board of Directors:
| (1) | the amendment of the Articles of Association of the JV; |
| (2) | the suspension of production, early termination and dissolution of the JV; |
| (3) | the increase or assignment of the registered capital of the JV; |
| (4) | the merger of the JV will other economic organizations; |
| (5) | the termination of the JV; |
| (6) | the appointment of the auditor for the JV. |
All other matters to be resolved by the Board of Directors, including but not limited to the following matters, shall be adopted upon the affirmative vote of more than three (3) directors, hereto vote in favor of the resolution:
| (1) | decisions on and approval of important reports submitted by the General Manager; |
| (2) | Approval of the JV's cost budget for construction and purchases of equipment; |
| (3) | Approval of all annual production, product distribution plans and business reports, as well as annual operating budgets, including financial statements, cash flow, working capital and capital expenditures, marketing and advertising total expenditure amount, annual profit distribution and remedies for losses; |
| (4) | Adoption of important rules and regulations of the JV including wages, reward and punishment methods, welfare benefits and the employment and dismissal of staff and workers; |
| (5) | Decisions to establish branch organizations of the JV; |
| (6) | Decisions on borrowing and lending, guarantees, mortgaging and other financing arrangements of the JV; |
| (7) | Decisions on the proportion to be set aside for the reserve fund, the staff and workers' bonus and welfare fund and the enterprise development fund of the JV; |
| (8) | Decisions on the alteration of the JV's production scale, renovation of equipment and new product types; |
| (9) | Examination and approval of all unbudgeted purchases and expenditure for which no offset is provided within the operating budget; |
| (10) | Deciding on appointment of the General Manager, Deputy General Manager, Operations Manager, finance Manager and Deputy Finance Manager and on their functions and powers, remuneration, social insurance and welfare benefits; |
| (11) | Decisions on the liquidation of the JV upon its expiration or early termination; |
| (12) | Approval of work rules for the General Manager and Deputy General Managers and the chart of authority for the management organization; |
| (13) | Establishing the date of the Parties' contribution to the JV's registered capital; and |
| (14) | Approval of the annual distribution of profits to the Parties. |
The Chairman of the Board of Directors shall call and preside over meetings of the Board of Directors. In the event that the Chairman of the Board of Directors cannot perform his/her duties for any reason, he/she may temporarily authorize in writing the Vice Chairman or any other director to act as his/her representative. Should any director be unable to attend a meeting of the Board of Directors, he may authorize a representative by written proxy to attend such meeting. Such representative shall enjoy the rights of such directors.
| 28.1 | The Board of Directors shall convene at least two (2) meetings every year Such meetings shall in principle be held at the place where the JV is located, and may also be held alternately at the places where the Parties agree. The quorum to be present at a meeting of the Board of Directors shall be four (4) directors, which must include one (1) director appointed by each Party. Any resolution adopted at a meeting of the Board of Directors with less than the quorum referred to in the preceding sentence shall be invalid. |
| 28.2 | Expenses incurred by the directors in attending meetings of the Board of Directors shall be paid by the JV as provided in the Articles of Association. |
| 28.3 | Upon the request of one-half or more of the directors, the Chairman may, after consulting with the Vice Chairman, convene an interim meeting of the Board of Directors. Minutes of a meeting shall be signed and approved by all members who attended the meeting and kept on file by the JV. Minutes of meetings shall be kept in Chinese and English. |
| 28.4 | In lieu of a meeting of the Board of Directors, a written resolution may be adopted by the Board of Directors if such resolutions sent to all members of the Board of Directors and affirmatively signed and adopted by the number of directors who could adopt such resolution at a duly convened meeting of the Board of Directors pursuant to the relevant provisions of this Contract; provided, however that at least one (1) director appointed by each of the Parties must affirmatively sign such resolution. |
CHAPTER IX
OPERATION AND MANGEMENT ORGANIZATION
The JV shall establish an operation and management organization which shall be responsible for the production, distribution and sales as well as the day-to-day management work of the JV. The operation and management organization shall have one General Manager, one Finance Manager, one Operations Manager, one Deputy General Manager and one Deputy Finance Manager. Each of the aforesaid mangers shall be recommended by Party A and appointed by the Board of Directors and their respective terms of office shall be four (4) years. Consecutive terms may be served upon reappointment. The Parties shall conduct consultations prior to recommending the aforesaid management personnel.
The General Manager shall have responsibility for organizing the management and operations work of the JV and implementing the resolutions of the Board of Directors.
| 30.1 | The concrete operations of management shall be in accordance with the rules and chart of authority as approved by the Board of Directors for the General Manager and Deputy General Managers. |
| 30.2 | The terms of employment offered by the JV to managerial personnel (including but not limited to salary, benefits, housing and transportation fees) shall be provided with reference to treatment of managers of other Sino-Foreign joint ventures located in Guanxi, People's Republic of China and decided by the Board of Directors. |
In the event of graft or serious breach of duty on the part of the General Manager, the Deputy General Managers or any of the other senior managers of the JV, they may be replaced at any time subject to the decision of a meeting of the Board of Directors.
CHAPTER X
PURCHASE OF RAW MATERIALS AND EQUIPMENT
Priority shall given to purchase in the People's Republic of China of items required by the JV including equipment, raw materials, fuels, parts, vehicles, and office supplies so long as the terms applicable to such purchase are equal to or better than terms offered by sellers of such items outside of the People's Republic of China. Prices for the above stated goods and materials which are purchased in the People's Republic of China shall in accordance with the provisions of the Regulations for the Implementation of the Law of the People's Republic of China on Joint Ventures using Chinese and Foreign Investment be the same as the prices paid for such goods and materials by state-owned enterprises and payable in Renminbi.
CHAPTER XI
LABOR MANAGEMENT
The General Manager shall formulate plans regarding the employment, dismissal, wages, labor insurance, welfare benefits, rewards and punishments of the staff and workers of the JV, which shall be examined and approved by the Board of Directors. Such plans shall be in accordance with the Regulations of the People's Republic of China on Labor Management in Joint Venture Using Chinese and Foreign Investment and other relevant laws and regulations.
| 35.1 |
The General Manager shall determine and report to the Board of Director the number of employees needed for the efficient operation of the JV. |
| 35.2 | The JV shall publicly recruit its staff and workers. Those candidates who receive the best results in the examination administered by the General Manager or the Deputy General Managers shall be employed on a probationary basis and, after the General Manager determines that an employee has successfully completed the probationary period, the employee, shall be officially employed by the JV. |
| 36.1 | The standards of wages and benefits paid by the JV to the general personnel shall be based on the relevant stipulations and shall be discussed and decided by the Board of Directors. |
| 36.2 | The employment, remuneration, social insurance, welfare benefits, travel allowance, and overseas allowances of the management personnel of the rank of department manager and above, shall be submitted by the General Manager to the Board of Director for discussion and approval. The salary and benefit level of other management personnel of the JV shall be set by the General Manager after consultation with the Deputy General Managers and shall be reported by the General Manager to the Board of Directors and to the extent required to the department concerned. |
| 37.1 | Provisions relating to the employment, dismissal, resignation, remuneration, welfare benefits, rewards, discipline, punishments, labor insurance and labor discipline of the staff and workers of the JV shall be specified in a labor contract to be entered into by and between the JV and each individual staff member and worker of the JV. |
| 37.2 | After each labor contract is signed, it shall be filed with the Hechi Labor Management Department. Matters relating to labor management shall be reported to the Hechi Labor Department to the extent required under relevant regulations. |
In accordance with guidelines set forth by the Board of Directors, the General Manager, in consultation with the Deputy General Managers, shall have the right to take disciplinary action against staff and workers by giving warning, recording a demerit or reducing salaries or wages. Staff and workers who have committed serious offenses may be dismissed. Dismissal of any staff member or worker shall be reported to the local labor department. Dismissal of departmental managers shall be in accordance with the provisions of the Articles of Association of the JV.
The JV shall establish a trade union organization in accordance with the relevant provisions of the relevant Regulations.
CHAPTER XII
TAXES
The JV shall pay various taxes in accordance with the stipulations of relevant Chinese laws and regulations and shall apply for the various preferential tax treatments given by the State to joint venture companies, including those provided under the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises (April 9, 1991) and its Implementing Regulations (July 1, 1991), State Council Regulations Concerning Encouragement of Foreign Investment (October 11, 1986), the Measures of the Ministry of Finance for the Implementation of the Preferential Tax Treatment Provisions of the State Council Regulations Concerning Encouragement of Foreign Investment (January 31, 1987) and the other relevant local regulations promulgated by Guangxi government. In the event that new laws or regulations permit more favorable taxation for joint ventures at a later date, the JV shall be entitled to apply for the benefit of the relevant new tax law or regulation.
The JV shall be entitled to obtain the maximum additional preferential customs and tax treatment permitted by the current an effective Chinese laws and regulations.
Among the preferential tax provisions to be enjoyed, the JV shall be exempted from enterprise income tax in its first two (2) profit-making years and shall enjoy a fifty percent (50%) reduction in enterprise income tax in the third to fifth profit-making year.
Staff and workers of the JV shall pay individual income tax in accordance with the Individual Income Tax Law of the People's Republic of China.
CHAPTER XIII
FINANCE AND ACCOUNTING
The JV shall set aside from its after tax profits the reserve fund, the enterprise development fund and the bonus and welfare fund for staff and workers in accordance with the stipulations in the Joint Venture Law. The proportion to be set aside annually shall be discussed and decide by the Board of Directors according to the business situations of the JV. The total amount set aside for the three funds each year shall be limited strictly to amounts required to fund the reasonable financial needs of said funds and shall generally not exceed ten percent (10%) of the after tax profit in such year.
The JV shall adopt the internationally practiced accrual basis of accounting and the debit and credit method for book keeping, and shall prepare complete, accurate and appropriate financial and accounting books and records in accordance with the Accounting System of the People's Republic of China for Joint Ventures Using Chinese and Foreign Investment and relevant financial systems. The accounting system and procedures to be adopted by the JV shall be prepared by the General Manager, the Deputy General Manager responsible for finance, and the Finance Manager. The accounting system and procedures so adopted shall be submitted to the Board of Directors for approval. Once approved by the Board of Directors, the accounting system and procedures shall be filed with the local department of finance and the tax authorities.
After the business license has been issued, the JV shall separately open a foreign exchange account and a Renminbi account at a branch of the Bank of China in Hechi or other bank(s) approved by the People's Bank of China.
Renminbi shall be used as the unit of accounting by the JV in its financial accounting. Profits and earnings of the Parties shall be computed in Renminbi. Except for payments to be made in foreign exchange under Chapter XIV or as otherwise required, payments of the JV shall be made in Renminbi. The earning of the staff and workers shall be computed and payable in Renminbi whereas staff members appointed by the Board of Directors to be remunerated in foreign exchange shall be paid in foreign exchange.
The fiscal year of the JV shall begin on January 1 and end on December 31 of each year. Monthly, quarterly and annual accounting statements shall be written in both the Chinese and English languages and copies shall be provided in a timely fashion to each Party.
| 49.1 | The JV shall engage an accounting firm registered in China to be its auditor and to examine and verify the financial accounting of the JV and to deliver an audit report to the Board of Directors and the General Manager. |
| 49.2 |
If necessary, any Party may engage an auditor at its own expense from China or another country to examine the financial accounting books of the JV. The JV shall provide the necessary convenience for such examination. |
The balance sheet, profit and loss statement and profit distribution plan for each business year must be submitted for examination and approval at a meeting of the Board of Directors.
CHAPTER XIV
FOREIGN EXCHANGE
| 51.1 | All matters concerning the foreign exchange matters of the JV shall be handled in accordance with the Provisional Regulations for Foreign Exchange Control of the People's Republic of China and other relevant stipulations, including the Regulations of the State Council Concerning the Issue of Balancing Foreign Exchange Receipts and Disbursements by Joint Ventures Using Chinese and Foreign Investment and other relevant regulations. |
| 51.2 | Issues concerning the balance of foreign exchange of the JV shall be resolved by the JV on its own in accordance with the relevant regulations. |
| 52.1 | All foreign exchange earnings of the JV must be deposited in the foreign exchange bank account opened by the JV. All foreign exchange expenditures shall be paid out of its foreign exchange deposits. The foreign exchange of the JV shall be used in the following order of priority: | |
| 52.1.1 | To purchase imported raw materials and spare parts for machinery and equipment required for the production of the JV; | |
| 52.1.2 | To pay the wages of the expatriate management personnel of the JV and the expenses of the JV personnel while traveling abroad; | |
| 52.1.3 | To repay foreign exchange loans; | |
| 52.1.4 | To distribute profits to the parties; | |
| 52.1.5 | To pay to the parties their respective proceeds from liquidation of the assets of the JV. | |
| 52.2 | Whenever a payment computed in Renminbi terms is made by the JV in foreign exchange the equivalency between U.S. Dollars and Renminbi shall be determined in accordance with the exchange rate quoted by the State Administration of Exchange Control of the People's Republic of China on the date the payment is made. | |
CHAPTER XV
DURATION OF THE JV
| 53.1 | The term of the JV shall commence on the date of issuance of its business license (the "Establishment Date") and shall terminate on the date which is thirty (30) years from the Establishment Date, provided, however, that unless one of the parties notifies the other party in writing within one hundred and eighty (180) days of the expiration of the term that the notifying parties do not wish for the term of the JV to be extended, the term shall be automatically extended for consecutive ten (10) year terms upon approval of such extension by the original examination and approval authority; provided further that the JV may be earlier terminated in any of the following events: | |
| 53.1.1 |
if the Parties to the JV unanimously agree to terminate the JV; or |
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| 53.1.2 | In the event of a material breach by a party (the "Defaulting Party") in the performance of its obligations under the Contract, where within ninety (90) days of having become aware of the breach, the non-defaulting Party agrees to terminate the JV Contract and gives written notice thereof to the Defaulting Party. | |
| 53.2 | Upon termination, the assets of the JV shall immediately be liquidated pursuant to Article 11. | |
| 54.1 | Within thirty (30) days of an agreement or notification to termination the JV under Article 57 hereof, or the date upon which the term of the JV expires without extension, the Board of Directors shall establish a liquidation committee comprised of two (2) persons representing Party A, two (2) persons representing Party B. Within ninety (90) days of its establishment, the liquidation committee shall submit to the Chairman of the Board of Directors a liquidation report which shall contain: | |
| 54.1.1 | a written inventory of the properties (including personal property and real property), creditors rights and debts of the JV, which shall set forth the basis for evaluation of the properties; | |
| 54.1.2 | a balance sheet of the Joint Venture Company. | |
| 54.2 | The Board of Directors shall, based upon the report of the liquidation committee, approve the liquidation of the JV within twenty (20) days of the submission of the liquidation committee's liquidation report to the Chairman of the Board, and shall authorize the liquidation committee to proceed immediately with the liquidation. In the event that the Board of Directors fails or is unable to (i) establish a liquidation committee; or (ii) resolve to approve the liquidation of the JV, then the matter of liquidation of the JV shall be deemed a dispute under this Contract and shall be referred by any one Party to arbitration pursuant to Article 59, in which case, the arbitrators shall decide to establish a liquidation committee and resolve on the liquidation of the JV as would the Board of Directors pursuant to the procedures set forth in this Article. | |
| 54.3 | The liquidation plan shall provide for the sale of the assets of the JV as expeditiously as possible either within or outside the People's Republic of China at prices which are determined at the sole discretion of the liquidation committee to reflect the fair market value of said property; provided, however, that the liquidation committee shall maximize foreign exchange proceeds from the sale of said property and shall sell said property outside of the People's Republic of China if foreign exchange proceeds can, by that means, be maximized so long as the price obtained outside of the People's Republic of China is no less than that which may be obtained within the People's Republic of China. Party A shall have a first right of refusal to purchase all or a part of said assets on the terms offered by the liquidation committee. The proceeds of liquidation shall be used first to pay off all debts of the JV, including but not limited to taxes and government imposed levies and fees. | |
| 54.4 |
In the event the assets of the JV are liquidated, to the extent it is necessary to calculate the proceeds of liquidation in U.S. Dollars, the exchange rate quoted by the State Administration of Exchange Control of the People's Republic of China on the date such proceeds are paid to the Parties shall be used. |
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| 54.5 | Party A shall have a right of first refusal to purchase the assets of the JV on terms (including but not limited to price, currency of payment, and time of payment) no less favorable than those offered by any third party or parties. | |
CHAPTER XVI
FORCE MAJEURE
In the event that any Party (an "Affected Party") is unable to perform certain obligations (the "Affected Obligations") under the Contract as a result of any event of force majeure that is unforeseeable and the occurrence and consequence of which is unpreventable or unavoidable (such as, for example, natural disaster, war, work stoppage or political reasons), the Affected Party shall immediately notify the other Parties of the conditions of the event by cable or telex and shall, within twenty-five (25) days provide details of the event and the reasons such event has prevented performance of the Affected Obligations. Performance by an Affected Party of Affected Obligations shall be suspended for a period of time equivalent to the period of time during which performance of the Affected Obligations has been prevented by an event of force majeure. If an event of force majeure occurs, none of the Parties shall be responsible for any damage, increased costs, or loss which the other Party may sustain by reason of a failure or delay of performance, and such failure or delay shall not be deemed a breach of this Contract. In the event that an event of force majeure renders the JV economically unviable, the Parties may agree to terminate the JV Contract under Article 53.
CHAPTER XVII
AMENDMENT
Any amendment to this Contract shall be effective only after a written agreement is signed by the Parties and approved by the original examination and approval authority.
CHAPTER
XVIII
LIABILITIES FOR BREACH OF CONTRACT
| 57.1 | In the event that one of the Parties fails to make all or part of its capital contribution at the time and in the amount as stipulated in Articles 13 and 14 of this Contract, the Party in default shall pay to the other Party a penalty interest in accordance with the relevant stipulation promulgated by the People's Bank of China. |
| 57.2 | Should one of the Parties fail to make the capital contribution on time or in full in accordance with the stipulations of the Contract and the contribution or full payment has been overdue for two (2) months, such Party shall be deemed to have waived all of its rights in the Contract and it shall be deemed to have withdrawn voluntarily from the JV. The performing Party shall have the right to apply to the original examination and approval authority for approval to dissolve the JV or apply for approval to find another party to assume the rights and obligations of the defaulting Party under the Contract. The performing Party may at the same time claim compensation from the defaulting Party in accordance with law for losses caused by its failure to make or fully make the capital contribution. |
| 57.3 | If the defaulting Party has already paid part of its capital contribution in accordance with the provisions of the Contract, the JV shall liquidate such capital contribution. |
CHAPTER XIX
APPLICABLE LAW AND SETTLEMENT OF DISPUTES
The execution, construction, effectiveness, interpretation, performance and settlement of disputes under of this Contract shall be governed by the laws of the People's Republic of China. If a material change occurs to the economic benefits of any Party after the effective date of this Contract due to the promulgation of new laws, decrees, rules and regulations or any amendment to the laws, decrees, rules and regulations made by the government of the People's Republic of China, the Parties shall consult promptly and make necessary revisions and adjustment to the relevant provisions of this Contract in order to maintain the normal economic benefits of such Party hereunder.
| 59.1 | All disputes arising out of this Contract, so far as is reasonably possible, shall be settled amicably through friendly consultations by the Board of Directors. |
| 59.2 | In the event that the Board of Directors unable to settle any dispute within sixty (60) days of its submission in writing by one Party to each of the other Parties, then such dispute shall be submitted for mediation or arbitration to the China International Economic and Trade Arbitration Commission in Beijing, in accordance with its arbitration rules. |
The arbitration award shall be final and binding on the Parties and shall be enforceable in accordance with its terms. The cost of the arbitration (including the reasonable fees and expenses of the lawyers appointed by each of the Parties) shall be borne by the losing Party or in accordance with the ruling of the arbitration tribunal.
During the course of consultation or arbitration, this Contract shall continue to be performed except for the part which the Parties are disputing and which is undergoing consultation or arbitration.
This Contract has been written in both the Chinese and English languages. Both languages shall be equally effective.
CHAPTER XXI
EFFECTIVENESS OF THE CONTRACT, APPROVAL AUTHORITY AND MISCELLANEOUS
The Articles of Association of the JV and the annexes hereto shall be an integral part of this Contract.
The government agency with authority to approve this Contract is the Hechi Foreign Trade and Economic Co-operation Administration.
| 65.1 | This Contract shall become effective upon: | |
| 65.1.1 | The execution of this Contract by the Parties; and | |
| 65.1.2 | The approval of the Hechi Foreign Trade and Economic Co-operation Administration. | |
| 65.2 | Upon receiving the approval of the Hechi Foreign Trade and Economic Co-operation Administration, Party A shall immediately notify all the other Parties and supply them with copies of the approval document. | |
| HECHI INDUSTRIAL CO. LTD. | BIOGAN (BVI) INTERNATIONAL INC. |
| Signed by: /s/ Xxxxx Yihuai | Signed by: /s/ Xxxxxx Xxxxxxxxxx |
| Name: Xxxxx Yihuai | Name: Xxxxxx Xxxxxxxxxx |
| Title: President | Title: Director |
