EXHIBIT 2.1
JOINT VENTURE CONTRACT
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BETWEEN
PANYU TIAN LE ELECTRICAL APPLIANCE MANUFACTURING CO., LTD.
AND
D.V.S. H.K. LIMITED
FOR THE ESTABLISHMENT OF
PANYU D.V.S. ELECTRICAL APPLIANCES MANUFACTURING CO., LTD.
Panyu Municipality, Guangdong Province, China
TABLE OF CONTENTS
Chapter Page
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1. General Provisions........................................................................... 1
2. The Parties.................................................................................. 1
3. Establishment of the Joint Venture........................................................... 2
4. Purpose, Scope and Scale of Production and Business.......................................... 2
5. Investment and Forms of Capital Contribution................................................. 3
6. Responsibilities of the Parties to the Joint Venture......................................... 6
7. Intellectual Property Rights................................................................. 7
8. Purchase of Equipment and Raw Materials and Sale of Products................................. 8
9. Board of Directors and Management Organization............................................... 8
10. Site and Existing Plant...................................................................... 10
11. Labor Management............................................................................. 12
12. Taxation, Financial Affairs and Distribution................................................. 12
13. Foreign Exchange Control..................................................................... 14
14. Confidentiality.............................................................................. 14
15. Joint Venture Term, Dissolution and Liability for Beach of Contract.......................... 15
16. Mutual Representations and Warranties........................................................ 19
17. Entry into Effect of the Contract and Miscellaneous Provisions............................... 20
Signatures........................................................................................ 22
Appendices
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1. Capital Contribution Schedule and List
2. State-Owned Land Use Rights Transfer Contract
3. Non-Competition Agreement
4. Confidentiality Agreement
JOINT VENTURE CONTRACT
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CHAPTER 1. GENERAL PROVISIONS
Article 1. In accordance with the Law of the People's Republic of China on
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Equity Joint Ventures and other relevant laws and regulations of China and
adhering to the principle of equality and mutual benefit, the Parties, following
friendly consultations, agree to jointly invest in and establish an equity joint
venture in Panyu Municipality, Guangdong Province, the People's Republic of
China and therefore conclude this Contract.
CHAPTER 2. THE PARTIES
Article 2. The Parties to this Contract are set forth below:
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(1) Panyu Tian Le Electrical Appliance Manufacturing Co., Ltd. ("Party A"),
registered with the Panyu Administration for Industry and Commerce,
China.
Legal address: Nan Da Highway, South Side, Zhi Village, Dashi
Town, Panyu Municipality, Guangdong Province
Legal representative: Mr Su Xxx Xxxx
Telephone: (000) 00000000
Bank with which an
account has been
opened: Industrial and Commerical Bank of China, Dashi,
Panyu, Guangdong
Account No.: 000-0000-0000000
(2) D.V.S. H.K. Limited ("Party B")
Legal address: Xxxx 000, Xxxxxxxxx Xxxxxx, 00 Hung To Road, Xxxx
Xxxx, Kowloon, Hong Kong
Legal representative: Name: Dr Edmund Sun
Position Chairman
Nationality: American
Telephone: 000-00000000
Bank with which an
account has been
opened: Citibank N.A. Hong Kong
Account No.: 0000000000 (HK$)
CHAPTER 3. ESTABLISHMENT OF THE JOINT VENTURE
Article 3. The Parties agree to establish an equity joint venture in Panyu
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Municipality in accordance with the Law of the People's Republic of China on
Sino-Foreign Equity Joint Ventures and other relevant laws regulations of China.
The Joint Venture shall be an economic entity that carries out independent
accounting and a Chinese legal person. All activities must comply with the laws,
decrees and relevant laws and regulations of the People's Republic of China.
Article 4. The name of the Joint Venture shall be "Panyu D.V.S. Electrical
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Appliances Manufacturing Co., Ltd." in England and [UNRECOGNISABLE CHARACTERS]
in Chinese (the "Joint Venture").
The legal address of the Joint Venture shall be Zhi Village, Dashi Town, Panyu
Municipality, Guangdong Province.
To the extent as provided in the laws and regulations of China, this Contract
and the Articles of Association, the Joint Venture shall have the right to
autonomously carry on operation and management and to enjoy the preferential
treatment available to Sino-foreign equity joint ventures.
Article 5. The Dashi Town People's Government shall be the department in
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charge of the Joint Venture. It shall be responsible for guiding, assisting and
supervising the Joint Venture.
Article 6. The form of organization of the Joint Venture shall be a limited
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liability company. The Joint Venture shall be liable for its debts with all of
its assets. The Parties' liability to the Joint Venture shall be limited to
their respective subscribed capital contributions. The profits, risks and losses
shall be shared between the Parties in proportion to their respective
contributions to the registered capital.
CHAPTER 4. PURPOSE, SCOPE AND
SCALE OF PRODUCTION AND BUSINESS
Article 7. Based on the desire to strengthen economic cooperation and
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technological exchange, the purpose of the Joint Venture's production and
business is to enhance product quality by adopting appropriate advanced
technology and scientific operation and management methods, so as to enable the
investors to obtain satisfactory economic benefits.
Article 8. The scope of business shall be the production, processing,
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marketing and sale of self-produced VCD players, DVD players, loader and optical
pick-ups of VCD and DVD players, digital broadcasting systems, networking
systems, microcomputers and related products.
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Article 9. The scale of production of the Joint Venture shall be as set
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forth below:
(1) Production capacity of the Joint Venture after the commencement of
production: The planned annual output is 600,000 units and the planned
annual output value is RMB(Yen)720 million. Thereafter, the scale of
production shall be further expanded according to market circumstances.
(2) The site area of the factory shall 8,754 square meters and the area of the
factory buildings 1,428 square meters.
(3) The planned number of staff and workers is 480 persons.
CHAPTER 5. INVESTMENT AND FORMS OF CAPITAL CONTRIBUTION
Article 10. The total amount of investment of the Joint Venture shall be US$8
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million, comprising US$3.92 million in fixed assets and US$4.08 million in
working capital.
Article 11. The subscribed amount of capital contribution by both Parties
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shall be US$8 million, and this will be the registered capital.
Article 12. Party A shall make its contribution to registered capital as
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follows:
(1) Land Use Rights for Site: (as further described in Appendix 1)
(2) Existing Plant: (as further described in Appendix 1)
(3) Machinery and Equipment: (as further described in Appendix 1)
Party A's contribution of Land Use Rights for Site, Existing Plant, Machinery
and Equipment, shall in the aggregate constitute US$3.92 million, representing
forty nine percent (49%) of the Joint Venture's registered capital.
Party A further expressly acknowledges that the Joint Venture shall not assume
any debts, liabilities, mortgages, or other encumbrances, or any claims by any
third parties which may be associated with the Site, Existing Plant or Machinery
and Equipment transferred by Party A to the Joint Venture at the date of their
contribution to the Joint Venture as described in Article 13 below. The
assumption of any such debt liability, mortgage or other encumbrance or any
claim by any third party by the Joint Venture shall be a cause for termination
of this Contract under Article 55.
Party B shall make its contribution to registered capital as follows:
(1) Cash: US$2 Million
(2) Parts and major components (hereinafter referred to as
"Inventory"): US$2.08 Million
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Party B's contribution of Cash and Inventory, shall in the aggregate constitute
US$4.08 million, representing fifty one percent (51%) of the Joint Venture's
registered capital.
Article 13. The Parties shall make their contributions to the Joint Venture
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within the following time limit:
Party A shall contribute the Land Use Rights for Site, Existing Plant and
Machinery and Equipment, all as listed on Appendix 1 within 30 days after a
business license is obtained.
Party B shall contribute US$612,000 in Cash, representing 15 percent of its
share of registered capital within 30 days after a business license is obtained.
The balance of Party B's contribution to registered capital shall be in the form
of Cash and Inventory and shall be paid in accordance with the funding and
working capital requirements of the Joint Venture as determined by the Board of
Directors, provided the entire balance is contributed within three (3) years
after the business license is obtained. Upon such determination by the Board of
Directors, Party B may in its absolute discretion elect to contribute either
Cash or Inventory, and Party B furthermore has the right to select, in its
absolute discretion, the Inventory so contributed. The Inventory should consist
of parts and major components necessary for production in accordance with the
Joint Venture's approved scope of business. The value of the Inventory shall be
determined by the relevant Chinese Commodities Inspection Authorities. The
importation of Inventory shall be in accordance with applicable government
regulations governing the importation of such Inventory. Party B shall promptly
comply with any such determination by the Board of Directors to contribute
registered capital to meet the working capital requirements of the Joint
Venture.
Article 14. Subject to Article 15 below, the assignment by either Party of
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all or part of its rights and obligations to a third party shall be subject to
the consent of the other Party and the approval of the examination and approval
authority, and shall require the carrying out of procedures for change of
registration with the administration authority for industry and commerce. When
one Party assigns all or part of its rights and obligations, the other Party
shall have a preemptive right of purchase.
Article 15. Party A agrees to waive its preemptive right of purchase, and to
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consent to any transfer of registered capital, and further agrees to cause the
directors appointed by it to consent unanimously to such a transfer, in any of
the following circumstances:
(1) Party B transfers all or any part of its interest in the registered capital
of the Joint Venture to its Fully-Owned Affiliates. For the purposes of
this Article 15, "Fully-Owned Affiliates" shall mean any company or
enterprise which is controlled by Party B; "controlled" for the purposes of
this Article 15 meaning direct or indirect ownership of one hundred
percent(100%) of the registered capital or voting stock of that company or
enterprise.
(2) Party B is merged with another company to form a new company, and such
merger requires the transfer of all or part of Party B's interest in the
registered capital of the Joint Venture to that new company.
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(3) Substantially all of the assets of Party B are acquired by another company
("Acquiring Company"), and such acquisition requires the transfer of all or
part of Party B's interest in the registered capital of the Joint Venture
to the Acquiring Company.
Article 16. After the Parties have made their capital contributions in
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accordance with Articles 12 and 13 hereof, an accountant registered in China
shall verify the same and issue a contribution verification report, on the basis
of which the Joint Venture shall issue investment certificates. Neither Party
may use the amount of its capital contribution to take out a mortgage loan from
or provide a guarantee to third parties, or dispose of it otherwise.
The Joint Venture may not reduce the amount of its registered capital during the
joint venture term.
Article 17. Any increase in the registered capital of the Joint Venture
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requires approval by a unanimous vote of the directors present in person or by
proxy at a duly constituted meeting of the Board of Directors, and shall be
submitted to the Examination and Approval Authority for examination and
approval. Upon receipt of the approval of the Examination and Approval
Authority, the Joint Venture shall register the increase in registered capital
with the State Administration for Industry and Commerce ("SAIC") or the relevant
local branch of the SAIC.
If the Board of Directors determines on the basis of a resolution approved by a
simple majority of the Board of Directors that the Joint Venture requires
additional funds and recommends that the Joint Venture raise such funds from
either external borrowing or an increase in registered capital, and either Party
(the "Non-participating Party") is unable or unwilling to participate in any
such arrangement proposed by the Board of Directors, then:
(1) in the case of an increase in registered capital, the Party supporting the
Board's recommendation shall be entitled to make any such increase
unilaterally and the Non-participating Party's interest in the registered
capital of the Joint Venture shall be diluted accordingly, in which case
each Party shall be deemed to have consented to the increase of the Joint
Venture's registered capital and shall cause its appointed Director(s) to
approve such increase; and
(2) in the case of external borrowing, if either Party is unable to provide a
guarantee on behalf of the Joint Venture in respect of such borrowing, then
the other Party may, at its option, guarantee the entire amount of such
borrowing or fund the entire amount of the additional financing required by
means of an increase in the registered capital of the Joint Venture, in
which in the latter case the provisions of the subsection (1) herein shall
apply mutatis mutandis.
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In the event that either Party fails to make its registered capital contribution
(or any portion thereof) or fails to provide its share of any increase in the
Joint Venture's registered capital, then in addition to any other rights the
Joint Venture may have against the defaulting Party, the Joint Venture will
offer such portion to the non-defaulting Party. Such offer to provide a portion
of any increase in the registered capital as described in this Article requires
approval by the Examination and Approval Authority.
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Article 18. Party A warrants to Party B that, as of the date on which Party A
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contributes the Machinery and Equipment listed in Appendix 1, to the Joint
Venture:
(1) it is lawful owner of the machinery and equipment and has the full legal
authority to transfer ownership thereof to the Joint Venture;
(2) all taxes and fees in respect of the machinery and equipment have been
fully paid;
(3) none of the machinery and equipment is subject to any mortgage, pledge,
lien or other encumbrance; and
(4) all of the machinery and equipment is in normal operating condition,
subject to normal wear and tear in the case of any used machinery and
equipment.
CHAPTER 6. RESPONSIBILITIES OF THE PARTIES
TO THE JOINT VENTURE
Article 19. In addition to providing their amounts of capital contribution
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according to schedule and in accordance with Chapter 5, the Parties shall, at
their own separate cost and expense except as otherwise agreed, be responsible
for accomplishing the following matters, respectively:
(1) Responsibilities of Party A:
(a) to handle matters for the establishment of Joint Venture such as
application for approval, registration, obtaining of the business
license etc. with the relevant Chinese authorities in charge;
(b) to assist the Joint Venture in properly handling local relations,
security inside and outside the factory and environmental hygiene in
the perimeter of the factory buildings; the required expenses shall be
borne by the Joint Venture;
(c) to assist with the customs declaration procedures for the import of
machinery and equipment and the transportation thereof inside China;
(d) to assist the Joint Venture in its purchase of equipment, materials,
raw materials, office articles, means of and facilities for
transportation, etc. inside China;
(e) to assist the Joint Venture in the distribution and sale of the Joint
Venture's products in China;
(f) to assist the Joint Venture with liaising for and effectively securing
infrastructure facilities such as for water, electricity,
communications, transportation, etc.;
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(g) to assist the Joint Venture in recruiting local business personnel,
technical personnel, workers and other necessary personnel;
(h) to assist the expatriate working personnel with the required
procedures for entry visas, work permits and travel; and
(i) to be responsible for handling other matters entrusted by the Joint
Venture.
(2) Responsibilities of Party B:
(a) to assist the Joint Venture with overseas purchases of machinery,
equipment, materials etc. which are necessary for the operation of the
Joint Venture. Party B shall not, unless otherwise agreed, be
responsible for the purchase of the machinery, equipment or materials,
nor shall it be responsible for the payment of any customs duties,
value added tax or other such charges associated with the import of
machinery, equipment or materials into the People's Republic of China.
The purchase of such machinery, equipment or materials and the payment
of any such customs duties, value added tax or other charges shall be
the responsibility of the Joint Venture;
(b) to provide the necessary technical personnel for the installation,
testing and adjustment of equipment and for production, and the
necessary technical personnel for production and inspection;
(c) to train the technical personnel and workers of the Joint Venture, so
as to enable the Joint Venture to produce up-to-standard products
within the specified time limit, in accordance with the designed
capacity and in a stable manner; and
(d) to be responsible to use reasonable efforts to generate sales of the
Joint Venture's products.
CHAPTER 7. INTELLECTUAL PROPERTY RIGHTS
Article 20. The Joint Venture shall not have any right, interest or title,
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whether under PRC or US law, to any and all inventions, discoveries, designs,
developments, improvements, copyrightable material, and trade secrets
(collectively herein "Inventions"), conceived, developed or reduced to practice
by an employee of Party B whatsoever, whether conceived, developed or reduced to
practice on the premises of the Joint Venture, in collaboration with the Joint
Venture, or resulting from work performed for the Joint Venture, unless
authorized in writing by party B. Where legal title to Inventions conceived,
developed or reduced to practice by Party B employees in collaboration with the
Joint Venture (whether during joint development efforts between the Joint
Venture and Party B or otherwise), vest, under PRC or U.S. law, with the Joint
Venture, the Joint Venture shall immediately assign such Inventions to Party B
without consideration, and the cost and expense of such assignment shall be
borne by the Joint Venture.
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Notwithstanding the preceding paragraph, all intellectual property rights,
including but not limited to technology, patents, trademarks, copyrights and
other such proprietary information (collectively herein as "Intellectual
Property"), which are the property of Party A and Party B pre-existing on the
date hereof, shall remain the property of Party A and Party B, and shall not be
the property of the Joint Venture nor be used by or transferred or assigned to
the Joint Venture unless pursuant to formal written contracts entered into
between the Joint Venture and the respective parties for the license,
assignment, transfer or use of such Intellectual Property.
CHAPTER 8. PURCHASE OF EQUIPMENT
AND RAW MATERIALS AND SALE OF PRODUCTS
Article 21. The Board of Directors shall select the models of equipment
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required by the Joint Venture for manufacturing the products of the Joint
Venture. Where the equipment is to be purchased outside the People's Republic of
China, the Board of Directors, may from time to time, request Party B to act on
the Joint Venture's behalf for the purchase of such equipment. Any such request
shall be made in writing pursuant to a formal agency agreement to be signed
between the Joint Venture and Party B.
Article 22. The raw materials and parts, auxiliary materials and packaging
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materials required by the Joint Venture shall mainly be obtained by means of
import, to be handled in accordance with the principle contained in Article 19.
The raw and auxiliary materials and packaging materials for products to sold
domestically shall be purchased in China.
Article 23. The products of the Joint Venture shall be sold on markets in and
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outside China. Of such products, those exported shall account for 20 percent,
and those sold domestically shall account for 80 percent. Party B's
responsibility under Article 19(2)(d) of this Contract shall in no way be
interpreted to mean that Party B and/or its affiliates are obligated to purchase
any products manufactured by the Joint Venture.
Article 24. Joint Venture products to be sold domestically may be sold
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directly by the Joint Venture, or sold by Chinese supplies authorities or
commercial authorities on the basis of off-take of all the products or on an
agency basis.
Article 25. Upon approval by the relevant Chinese authorities, the Joint
Venture may establish sales branches in and outside China in order to sell
products in and outside China.
Article 26. The pricing principles and settlement methods with respect to
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products for domestic sale and export shall be determined separately by the
Board of Directors.
CHAPTER 9. BOARD OF DIRECTORS
AND MANAGEMENT ORGANIZATION
Article 27. The Joint Venture shall implement the system under which the
General Manager is in charge, under the leadership of the Board of Directors.
The Board of
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Directors shall consist of three persons, of whom one shall be appointed by
Party A and two shall be appointed by Party B. Party A shall designate a
director to serve as the Chairman of the Board of Directors and Party B shall
designate another director to serve as the Vice-Chairman of the Board.
The directors shall serve terms of the three years and may serve consecutive
terms if reappointed by the respective Parties which originally appointed such
directors.
The Chairman of the Board of Directors shall be the legal representative of the
Joint Venture Company. If the Chairman of the Board of Directors is unable to
perform his duties for any reason, he shall authorize the Vice Chairman of the
Board of Directors or another director to represent the Joint Venture.
Article 28. The Joint Venture shall have one General Manager, one Deputy
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General Manager and one Financial Controller, who shall be responsible for the
day-to-day work of the Joint Venture. The General Manager shall be nominated by
Party A and the Deputy General Manager and Financial Controller shall be
nominated by Party B, and each of them shall be appointed by the Board of
Directors. The Deputy General Manager shall assist the General Manager in his
work. The Financial Controller shall report to the Board of Directors.
The General Manager shall report to the Board of Directors. The General Manager
shall implement the resolutions of the meetings of the Board of Directors and
organize and direct the day-to-day production, operation and management of the
Joint Venture. Within the scope of authority delegated by the Board of
Directors, the General Manager shall represent the Joint Venture in dealing with
third parties and appoint and dismiss subordinate personnel other than those
appointed and dismissed by the Board of Directors, and exercise the other
functions and powers granted by the Board of Directors.
The General Manager and the Deputy General Manager may not concurrently hold the
position of general manager or deputy general manager in any other economic
organization and may not join in acts of commercial competition against the
Joint Venture by any other organization where expressly authorized in writing by
the Board of Directors.
If the General Manager or a Deputy General Manager commits graft or serious
dereliction of duty, he may be dismissed at any time upon the adoption of a
resolution by the Board of Directors.
Article 29. The establishment of the management organization of the Joint
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Venture shall be decided on by the Board of Directors according to business
requirements. The department managers and engineers shall be appointed and
dismissed by the Board of Directors. They shall be in charge of the work of
their respective departments and report to the General Manager and the Deputy
General Manager.
The regulations and functions of the Board of Directors and the functions and
powers of the General Manager and the Deputy General Manager shall be specified
in the Articles of Association of the Joint Venture. The work scope,
responsibilities and regulations of
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each department shall be formulated by the General Manager and the Deputy
General Manager and submitted to the Board of Directors for the record.
CHAPTER 10. SITE AND EXISTING PLANT
Article 30. Party A shall transfer the land use rights for the parcel of land
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with an area of 8,754 square meters situated at Zhi Village, Dashi Town, Panyu
Municipality, Guangdong Province PRC (the "Site") and further described in
Appendix 1 to the Joint Venture pursuant to the State-Owned Land Use Rights
Transfer Contract attached hereto as Appendix 2. Party B, on behalf of the Joint
Venture, and Party A shall sign the State-Owned Land Use Rights Transfer
Contract simultaneously with the signing of this Contract. The Board of
Directors shall ratify, and an authorized representative of the Joint Venture
shall countersign the State Owned Land Use Rights Transfer Contract at the first
meeting of the Board of Directors.
Article 31. The land use rights for the Site are part of Party A's
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contribution to the Joint Venture's registered capital. Party A shall carry out
the registraton and other procedures necessary to complete the transfer of land
use rights to the Joint Venture and shall obtain for the Joint Venture a Land
Use Rights Certificate for State-Owned Land issued in the name of the Joint
Venture within the time stipulated in Chapter 5.
Article 32. The ownership rights to the factory buildings and other
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production and operation facilities located on the Site as further described in
Appendix 1 ("Existing Plant") are part of Party A's contribution to the Joint
Venture's registered capital. Concurrently with carrying out the procedures set
forth in Article 31, Party A shall carry out all registration and other
procedures necessary to transfer ownership of the Existing Plant to the Joint
Venture and shall obtain for the Joint Venture a Real Estate Ownership
Certificate issued in the name of the Joint Venture within the time stipulated
in Chapter 5.
Subject to the following paragraph, prior to the transfer of the Site and
Existing Plant, Party A shall pay and discharge all taxes, charges levies, or
other fees related to the Site and Existing Plant and their transfer to the
Joint Venture ("Transfer Costs") so that no payment of any Transfer Costs are
required from the Joint Venture or Party B regarding the transfer of the land
use rights to the Site or the ownership rights of the Existing Plant to the
Joint Venture. "Transfer Costs", for the purposes of this Contract, shall not
include any debts, liabilities, mortgages, or other encumbrances related to the
Site and Existing Plant.
Party B shall, upon fulfilment of the following conditions, reimburse to Party A
the portion of Transfer Costs comprised of Business Tax, Land Value Added Tax,
Stamp Duty, and registration fees imposed by the relevant land and real estate
administration bureaus, up to a maximum amount of US$50,000 or 50% of such
portion of Transfer Costs, whichever is the lesser amount:
(1) Party A provides to Party B copies of all official receipts, stamps,
payment vouchers or other documentation, evidencing Party A's payment of
the Transfer Costs which relate to Business Tax, Land Value Added Tax,
Stamp
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Duty and registration fees imposed by the relevant land and real estate
administration bureau; and
(2) the land use rights to the Site and the ownership rights to the Existing
Plant are transferred to the Joint Venture.
If any of the above conditions are not fulfilled, Party B shall have the right
not to contribute any amount to the Transfer Costs, or may in its absolute
discretion, contribute only a portion of the Transfer Costs.
Article 33. Party A hereby warrants to Party B that as of the date hereof, and
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as of the date of issuance of the Business License;
(1) Party A has hereby acquired the land use rights for the Site by way of
grant from the relevant land bureau with jurisdiction over the Site and is
the sole owner of the Existing Plant, and has complied fully with all of
its legal obligations in connection with the Site and the Existing Plant;
(2) Party A is entitled under Chinese laws and regulations to transfer to the
Joint Venture the land use rights for the Site and ownership rights of the
Existing Plant, Party A and the Joint Venture will be able to complete
registration procedures with the relevant land and real estate
administration bureau with jurisdiction over the Site and the Existing
Plant, and a Land Use Rights Certificate for State-Owned Land and a Real
Estate Ownership Certificate will be issued in the name of the Joint
Venture, whereupon the Joint Venture will obtain the land use rights for
the Site and sole ownership of the Existing Plant; and,
(3) the land use rights for the Site and the ownership rights of the Existing
Plant are free from any defects.
Article 34. Party A hereby represents and warrants to Party B that prior to
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the date on which the transfer to the Joint Venture of the land use rights for
the Site and the ownership rights of the Existing Plant becomes effective:
(1) Party A has obtained all permits and other authorizations which are
required for the Existing Plant and the Site under the Law of the People's
Republic of China on Environmental Protection and other Chinese laws,
administrative regulations and local regulations relating to pollution or
protection of the environment (hereinafter collectively referred to as
"Chinese Environmental Laws"); and,
(2) the Existing Plant and the Site are in full compliance with all material
terms and conditions of the foregoing permits and authorizations and are
also in full compliance with other material requirements set forth in
Chinese Environmental Protection Laws.
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CHAPTER 11. LABOR MANAGEMENT
Article 35. The contract worker system shall be adopted for the staff and
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workers of the Joint Venture. Matters such as the employment, dismissal, wages,
labor insurance, welfare benefits, rewarding, punishment, etc. shall be worked
out in a plan by the Board of Directors in accordance with the labor management
regulations of the Peoples's Republic of China and the implementing measures
therefor. Staff members and workers may be dismissed by the Joint Venture. If
staff members or workers breach their contracts, they may be subjected to
sanctions, up to expulsion, whereupon they shall be resettled by the unit that
recommended them.
The labor contracts concluded shall be filed for the record with the local labor
management authority.
Employees of the Joint Venture shall have the right to establish a labor union
and arrange union activities in accordance with Chapter 13 of the Implementing
Regulations for the Law of the People's Republic of China on Sino-Foreign Equity
Joint Venture.
Article 36. The employment, wages, social insurance, welfare benefits,
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standards for business travel expenses, etc. of the General Manager, Deputy
General Manager and senior management personnel shall be decided upon by the
Board of Directors.
Article 37. The Joint Venture shall not in any way be obligated to employ any
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employee of Party A, nor shall it be obligated to assume any responsibilities,
duties or liabilities, whether under contract or under PRC law, which Party A
may have towards its own employees. Unless formally employed by the Joint
Venture in accordance with Article 35 of this Contract, Party A employees shall
not be entitled to any Joint Venture employment benefits whatsoever, including
but not limited to salaries or wages, pensions, severance, medical leave,
housing and accommodation and other such benefits, unless otherwise authorized
by resolution of the Board of Directors.
CHAPTER 12. TAXATION, FINANCIAL AFFAIRS AND DISTRIBUTION
Article 38. The Joint Venture shall pay various tax and apply for tax
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reductions and exemptions in accordance with the relevant laws and regulations
of China. The Joint Venture shall timely submit accounting and statistical
statements and be subject to supervision and administration by the financial and
taxation authorities and by the department in charge of the Joint Venture. The
Financial Controller of the Joint Venture, under the leadership of the General
Manager, shall be responsible for the financial management of the Joint Venture.
The staff and workers of the Joint Venture shall pay individual income tax in
accordance with the Individual Income Tax Law of the People's Republic of China.
Article 39. The Joint Venture shall keep independent account books within
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China. The accounting system of the Joint Venture shall be formulated by the
Board of Directors in accordance with the Regulations of the People's Republic
of China Concerning the Financial Administration of Enterprises With Foreign
Investment and
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the Accounting System of the People's Republic of China for Enterprises With
Foreign Investment, and in the light of the actual circumstances of the
enterprise. The said accounting system shall be submitted to the local
financial and taxation authorities for the record.
Article 40. The fiscal year of the Joint Venture shall commence on January 1
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of each year and end on December 31 of the same year. All vouchers, account
books and statements shall be made and kept in Chinese. In principle, the
Renminbi shall be adopted as the bookkeeping base currency. If the actual
amount received or paid is in a foreign currency, the amount shall also be
entered in the currency actually received or paid.
Article 41. The principles for distribution of net profit are set forth below:
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(1) Allocations shall be made to a reserve fund, enterprise development fund
and bonus and welfare fund for staff and workers, at the rate decided
upon by the Board of Directors.
(2) The Board of Directors shall determine a distribution plan for the
distributable profit remaining after the allocations to the three funds.
The said profit shall be distributed in proportion to the Parties'
respective contributions to the Joint Venture's registered capital.
Losses, if any, shall be shared in the proportion set forth above.
Article 42. No profit may be distributed until the losses of the Joint Venture
----------
have been made up. Retained profits from previous years may be distributed
together with the profits of the current year.
Article 43. The Parties shall have full and equal access to the Joint
----------
Venture's accounts, which shall be kept at the legal address of the Joint
Venture. The Joint Venture shall furnish to the Parties unaudited financial
reports on a monthly and quarterly basis so that they may continuously be
informed about the Joint Venture's financial performance.
The Joint Venture shall engage Ernst and Young or its joint venture affiliate
registered in the PRC, or any other internationally recognized accounting firm
or its affiliate registered in China, as its auditor ("Auditor") to examine and
verify the annual report on the final accounts. The Joint Venture shall submit
to the Parties an annual statement of final accounts within four (4) months
after the end of the fiscal year, together with the audit report of the Auditor.
Article 44. The Financial Controller shall also prepare and provide to Party B
----------
financial reports prepared in accordance with U.S. Generally Accepted Accounting
Principles (GAAP), on an annual, monthly and quarterly basis so that Party B may
continuously be informed about the Joint Venture's financial performance. Annual
financial reports prepared in accordance with GAAP under this Article 44, shall
be prepared for the purposes of financial auditing under GAAP.
13
CHAPTER 13. FOREIGN EXCHANGE CONTROL
Article 45. All foreign exchange transactions of the Joint Venture shall be
----------
handled in accordance with the Provisional Regulations of the People's Republic
of China Concerning Exchange Control and related control regulations.
Article 46. The Joint Venture shall open Renminbi and foreign exchange
----------
accounts with the Panyu Sub-branch of the Bank of China or with another bank
agreed to by the Administration of Exchange Control. All foreign exchange
revenue shall be deposited with the bank with which an account has been opened
and all foreign exchange expenditure shall be made out of the foreign exchange
account, and the same shall be subject to supervision by the Administration of
Exchange Control and the bank with which the account has been opened. All
remittances from any of the Joint Venture's bank accounts, whether by cash
withdrawal, telegraphic transfer, check or other method of payment, may be done
only upon the signature of any two of the following persons: Financial
Controller, either director of the Joint Venture appointed by Party B, the
financial controller of Party B, or such other person as designated by Party B.
At the first meeting of the Board of Directors, these persons shall be
designated as authorized signatories in respect of the Joint Venture's bank
accounts.
Article 47. The net profit distributed to Party B and Party B's share of the
----------
property remaining after liquidation of the Joint Venture as well as the other
lawful revenue of Party B may be invested domestically or paid out of the Joint
Venture's foreign exchange account and, in accordance with the foreign exchange
control regulations, be remitted to Party B's bank account outside China through
the bank with which the account has been opened.
CHAPTER 14. CONFIDENTIALITY
Article 48. Prior to and during the term of the Contract, each Party has
----------
disclosed or may disclose to the other Party confidential and proprietary
information concerning their respective business, financial condition,
proprietary technology, research and development and other confidential matters.
Furthermore, during the term of the Contract, the Parties may obtain such
confidential and proprietary information concerning the Joint Venture and the
Joint Venture may obtain such confidential and proprietary information
concerning the Parties. Except as may be provided in other relevant
confidentiality agreements, each of the Parties and the Joint Venture receiving
all such information as aforesaid (including written and unwritten information)
("Confidential Information") shall during the term of the Contract and for ten
(10) years thereafter:
(1) maintain the confidentiality of such Confidential Information; and
(2) not disclose it to any person or entity, except to their respective
employees who need to know such Confidential information to perform their
work responsibilities, or except where disclosure of such Confidential
Information is required under relevant law.
14
Article 49. If required by either Party, the Joint Venture shall execute a
----------
separate secrecy agreement in respect of Confidential Information obtained by
the Joint Venture from such Party or its affiliates with provisions similar to
those set out in this Chapter.
Article 50. The provisions of this Chapter shall remain binding upon any
----------
natural or legal person who has been a party to this Contract after such person,
through an assignment of registered capital and corresponding contractual rights
and obligation, ceases to be a party to this Contract. In addition, the rights
and obligations under this Chapter shall survive the expiration or earlier
termination of this Contract, and shall remain in effect for the periods stated
herein, notwithstanding the dissolution of the Joint Venture.
CHAPTER 15. JOINT VENTURE TERM,
DISSOLUTION AND LIABILITY FOR BREACH OF CONTRACT
Article 51. The term of the Joint Venture shall be 25 years, calculated from
----------
the date of issuance of the business license (the "Joint Venture Term").
Upon expiration of the Joint Venture Term, the Parties may agree to continue the
joint venture. An application for extension of the joint venture term shall be
submitted to the examination and approval authority six months prior to
expiration of the term.
Article 52. A Party may submit written notice ("Termination Notice") to the
----------
other Party of an intention to terminate this Contract (subject to Article 53)
at any time if:
(1) the other Party materially breaches this Contract or violates the
Articles of Association of the Joint Venture, and such breach or
violation is not cured within thirty (30) days of written notice to the
breaching Party;
(2) the other Party breaches any of its representations or warranties set
forth in this Contract;
(3) after both Parties have fully contributed their respective shares of
registered capital to the Joint Venture in accordance with Chapter 5,
serious losses incurred by the Joint Venture have made it impossible to
continue business operations without substantial additional capital
infusions;
(4) serious losses incurred as a result of an event of force majeure and the
Parties have been unable to find an equitable solution pursuant to
Article 58;
(5) the Joint Venture has failed to achieve its business purposes and has no
development prospects;
(6) the other Party becomes bankrupt, or is the subject of proceedings for
bankruptcy, liquidation or dissolution, or ceases to carry on business
or becomes unable to pay its debts as they come due;
(7) the Joint Venture has not been issued a Land Use Rights Certificate for
State-Owned land for the Site or Real Estate Ownership Certificates for
the Existing
15
Plant listed in Appendix 1 by the competent government authority within
sixty (60) days of issuance of the Business License;
(8) the Joint Venture becomes bankrupt or is the subject of proceedings for
liquidation or dissolution, or ceases to carry on business or becomes
unable to pay its debts as they come due; or
(9) Party A becomes subject to Tax Payment Guarantee or Enforcement Measures by
the local tax authorities for breaches of PRC taxation laws. For the
purposes of this Contract, "Tax Payment Guarantee or Enforcement Measures"
means measures carried out by the local tax bureau to guarantee or enforce
payment of tax by Party A, and which includes, but is not limited to, the
suspension of Party A's bank accounts, the deduction of tax from Party A's
bank accounts, the detention, sealing off, or sale of Party A's property,
and other such measures which may be carried out by the local tax
authorities against Party A for the guarantee or enforcement of the payment
of tax by Party A.
The mere submission by either Party of a Termination Notice shall not by itself
constitute a termination of this Contract.
Article 53. In the event that either Party submits a Termination Notice
----------
pursuant to Article 52 above with respect to any matter specified thereunder,
the Parties shall for a two (2) month period after such notice is given conduct
negotiations and endeavor to resolve the situation which resulted in the giving
of such notice. In the event such matters are not resolved to the satisfaction
of the Parties within two (2) months of the date of such notice, the Contract
shall terminate with immediate effect.
Article 54. In the event that a Termination Notice is submitted pursuant to
----------
Article 52 above and the Parties are unable to reach a resolution pursuant to
Article 53 above, then the Party submitting the Termination Notice ("Terminating
Party") shall have the option of offering its interest (the "Put") in the
registered capital of the Joint Venture to the non-terminating Party in
accordance with this Article. The Party delivering the Termination Notice shall
advise the Board of Directors of its intention. The Board of Directors shall
forthwith request the independent auditors of the Joint Venture to determine and
certify in writing the value of the Parties' respective interests in registered
capital of the Joint Venture. The sum so determined and so certified shall be
the Purchase Price. The auditors shall act hereunder as experts and not as
arbitrators and their determination shall be final and binding on the Parties.
The costs of such determination shall be borne by the Party receiving the
Termination Notice. The auditors shall calculate the Purchase Price within
sixty (60) days of the Termination Notice. For the purposes of this Article, the
fair value of the interests of the Parties in registered capital of the Joint
Venture shall be determined by reference to the then prevailing accounting
principles of the Joint Venture at the date of the Termination Notice.
If the non-terminating Party refuses to purchase or is otherwise unable to
acquire the Terminating Party's interest pursuant to the Put, or the Terminating
Party decides not to put its interest to the non-terminating Party, then the
Terminating Party shall have the right to:
16
(a) acquire the non-terminating Party's interest in the registered capital of
the Joint Venture at the value of the non-terminating Party's interest in
the registered capital of the Joint Venture as certified under this Article
54 ("Acquisition"); or
(b) request that the non-terminating Party sell its interest in the registered
capital of the Joint Venture to a third party designated by the Terminating
Party ("Third Party"), at the value of the non-terminating Party's interest
in the registered capital of the Joint Venture as certified under this
Article 54 ("Third Party Sale").
Upon completion of the determination of the Purchase Price of the selling
Party's interest, the Parties shall, in the case of an Acquisition, execute a
contract for the transfer of interest in registered capital of the Joint Venture
within sixty (60) days. The Terminating Party shall pay the full Purchase Price
in United States Dollars within thirty (30) days after the signing of the
contract for the transfer of interest in the registered capital of the Joint
Venture and obtaining all necessary government approvals for such contract.
Upon completion of the determination of the Purchase Price of the non-
terminating Party's interest, and upon selection of the Third Party by the
Terminating Party, the non-terminating Party shall, in the case of a Third Party
Sale, execute a contract for the transfer of interest in the registered capital
of the Joint Venture to the Third Party within sixty (60) days. The Terminating
Party agrees to waive its preemptive right of purchase, and to consent to any
transfer of registered capital, and further agrees to cause its directors
appointed by it to consent unanimously to such a transfer.
In the case of either an Acquisition or Third Party Sale, each party shall use
its best efforts to obtain any required government approvals. If such approvals
cannot be obtained within sixty (60) days of the signing of the contract for the
transfer of interest in registered capital of the Joint Venture to the
Terminating Party or the Third Party as the case may be, then such contract
shall be null and void and the Joint Venture shall be liquidated in accordance
with the provisions of Article 56 hereof.
Until such time as the sale of the interest of one Party in the registered
capital of the Joint Venture to the other Party or Third Party (as the case may
be) is completed, the Joint Venture shall, to the fullest extent possible,
maintain the conduct of its business in the ordinary course and neither Party
shall hinder the Joint Venture from the conduct of its business.
Article 55. In the event that any Land Use Rights for the Site, the Existing
----------
Plant and/or Machinery and Equipment described in Xxxxxxxx 0, Xxxxxxxxx X, is
subject to any debt, liability, mortgage or other encumbrance, or any claim by
any third party ("Transfer Debt") on the fourteenth (14th) day after issuance
of the approval certificate by the relevant examination and approval authority;
then only Party B shall have the right to immediately terminate the Contract at
any time and shall furthermore have the right to:
(a) effect a Third Party Sale as set forth in Article 54(b) above;
17
(b) effect an Acquisition as set forth in Article 54(a) above;
(c) request Party A to assign to Party B without consideration, its interest in
the registered capital of the Joint Venture of an amount equivalent to the
Transfer Debt, in which case Part A shall be deemed to have consented to
such assignment, and shall execute a contract for the transfer of interest
in the registered capital of the Joint Venture to Party B within thirty
(30) days, and further agrees to cause its directors appointed by it to
consent unanimously to such assignment ("Assignment"). In the case of
Assignment, each party shall use its best efforts to obtain any required
government approvals. If such approvals cannot be obtained within sixty
(60) days of the signing of the contract for the transfer of interest in
registered capital of the Joint Venture to Party B, then such contract
shall be null and void and the Joint Venture shall be liquidated in
accordance with the provisions of Article 56 hereof;
(d) request that Party A make an application to withdraw and cancel the
approval for the establishment of the Joint Venture in which case neither
Party shall be obligated to contribute its share of registered capital
under this Contract; or
(e) if the Joint Venture's business license has been issued at the time of
termination under this Article 55, dissolve the Joint Venture in accordance
with Article 56.
Party A agrees to consent to, and further agrees to cause its directors
appointed by it to unanimously consent to, any action taken by Party B under
Articles 55(a) to 55(e) above.
Article 56. In the event that the Joint Venture is liquidated pursuant to this
----------
Contract, it shall be liquidated in accordance with this Article 56, Articles
103 to 108 of the Implementing Regulations for the Law of the People's Republic
of China on Chinese-Foreign Equity Joint Venture and the Measures for the
Liquidation of Foreign Investment Enterprises.
Party A and Party B agree that all members of the liquidation committee shall be
appointed by a majority vote of the Board of Directors of the Joint Venture.
The property remaining after the payment of the liquidation expenses and the
clearance of debts of the Joint Venture ("Remaining Property") shall be
distributed by the liquidation committee in accordance with the then existing
ratio of the capital contributions of the Parties.
The liquidation committee shall, subject to the preceding paragraph, have full
and absolute discretion with respect to the method by which the Remaining
Property is distributed between Party A and Party B.
Party B, at its own expense, shall have the right to obtain copies of all of the
Joint Venture's accounting vouchers, account books, account statements, minutes
and resolutions of the Board of Directors and other relevant documents after the
conclusion of liquidation.
18
Article 57. If either Party fails to complete its capital contribution on
----------
schedule and in the correct amounts in accordance with Chapter 5 hereof, the
Party in breach shall pay the non-breaching Party liquidated damages at the rate
of 2 percent of the outstanding amount of capital contribution for each month of
delay, commencing from the first month of delay. If the contribution is not made
within three months after the expiration of the time limit, the Party in breach
shall pay aggregate liquidated damages at the rate of 6 percent of the
outstanding amount of capital contribution and, in addition, the non-breaching
Party shall have the right to terminate the Contract in accordance with Article
52 hereof and to demand compensation from the Party in breach for all losses
arising therefrom.
Article 58. If the performance of the Contract is directly affected by, or if
----------
the Contract cannot be performed on the agreed conditions due to, an earthquake,
typhoon, flood, fire, war or other event of force majeure which cannot be
foreseen and the occurrence and consequences of which cannot be prevented or
avoided, the Party affected by such event of force majeure shall promptly notify
the other Party by telegram of the event and, within fifteen (15) days, furnish
detailed information on the event and a valid certificate attesting to the
reason why the Contract cannot be performed or can only be partially performed
or why the term for its performance needs to be extended. Such certificate shall
be issued by the notarial organization of the area where the event of force
majeure occurred. The Parties shall consult with each other and decide whether
the Contract shall be rescinded, or whether part of the obligation to perform
the Contract shall be released or whether the term for performance of the
Contract shall be extended, according to the extent of the impact of the event
of force majeure on the performance of the Contract.
CHAPTER 16. MUTUAL REPRESENTATIONS
AND WARRANTIES
Article 59. Each Party hereby represents and warrants to the other Party that,
----------
as of the date hereof and as of the Effective Date:
(1) such Party is duly organized, validly existing and in good standing under
the laws of the place of its establishment or incorporation;
(2) such Party has carried out all procedures and obtained all approvals
required under the laws and regulations to which it is subject, and has the
requisite power under such laws and regulations, to enter into this
Contract and to perform all of its obligations hereunder;
(3) such Party has taken all internal actions necessary to authorize it to
enter into and perform this Contract and its representative whose signature
is affixed hereto is fully authorized to sign this Contract and to bind
such Party thereby;
(4) upon the date of this Contract, this Contract shall be legally binding on
such Party;
(5) neither the signature of this Contract nor the performance of its
obligations hereunder will conflict with, or result in a breach of, or
constitute a default under, any
19
provision of the Articles of Association or By-Laws of such Party, or any
law, regulation, rule, authorization or approval of any government agency
or body, or of any contract or agreement, to which such Party is a party
or subject;
(6) no lawsuit, arbitration, other legal or administrative proceeding, or
governmental investigation is pending, or to the best of such Party's
knowledge threatened, against such Party that would affect in any way its
ability to enter into or perform this Contract; and
(7) such Party has disclosed all information in its possession relating to the
Joint Venture establishment or future operations which may have a material
adverse effect on such Party's ability to fully perform its obligations
hereunder, or which if disclosed to the other Party, would have a material
effect on the other Party's willingness to enter into this Contract, and
none of the information provided by such Party to the other Party contains
any material statements which are false or misleading.
Article 60. Party A represents and warrants that as of the date of this
----------
Contract, it is in full compliance with all applicable PRC taxation laws, and is
not subject to any Tax Payment Guarantee or Enforcement Measures. Party A
further represents and warrants that no administrative proceeding, or
investigation is pending, or to the best of Party A's knowledge threatened,
against Party A by the local tax authorities.
Article 61. Either Party shall indemnify the Joint Venture and the other
----------
Party for all losses, damages and claims, including without limitation any
related interest, penalties, and reasonable attorneys' fees, in connection with
any breach of its representations and warranties set forth in this Contract
whatsoever ("Indemnification Liability"). Party A may, with Party B's written
consent, discharge its Indemnification Liability to Party B, if any, in part or
in whole, by assigning to Party B an amount of registered capital of the Joint
Venture equivalent to the monetary value of the Indemnification Liability
("Monetary Value"). The Monetary Value of the Indemnification Liability shall be
determined by an independent valuer appointed by the Joint Venture with the
consent of both Parties, and the costs of such determination shall be borne by
Party A. Party A's Indemnification Liability under this Article shall only be
discharged upon completion of all government approvals and registration
procedures necessary to legally effect the assignment of the registered capital
of the Joint Venture to Party B. Any taxes, fees, duties, levies, or other
government charges whatsoever associated with the assignment of registered
capital to Party B under this Article shall be borne by Party A.
CHAPTER 17. ENTRY INTO EFFECT OF THE CONTRACT
AND MISCELLANEOUS PROVISIONS
Article 62. All items of insurance of the Joint Venture shall be taken out
----------
with appropriate insurers in China in accordance with relevant PRC laws and
regulations. The types, values and duration of insurance coverage etc. shall be
discussed and decided by the Joint Venture's Board of Directors in accordance
with relevant PRC laws and regulations.
20
Article 63. The conclusion, validity, interpretation and performance of, and
----------
the settlement of disputes in connection with, this Contract shall all be
governed by the laws of the People's Republic of China.
Article 64. All disputes arising in connection with the implementation of
----------
this Contract or relating to this Contract shall be resolved through friendly
consultations between the Parties. If consultations are unsuccessful, the
dispute shall be submitted to the China International Economic and Trade
Arbitration Commission for arbitration according to its provisional rules of
arbitration procedure. The arbitration award shall be final and binding on both
Parties. The required costs shall be borne by the losing Party.
During the arbitration proceedings, this Contract shall continue to be performed
except for the portion which is the subject of the dispute under arbitration.
Article 65. This Contract is written in Chinese and English. Both language
----------
versions shall be equally authentic.
Article 66. The subsidiary agreements and documents, including the Articles
----------
of Association of the Joint Venture, concluded in accordance with the principles
set forth herein shall be integral parts hereof.
Article 67. This Contract and its Annexes must all be approved by the
----------
examination and approval authority of the People's Republic of China and shall
become effective on the date of approval ("Effective Date").
Any amendment to this Contract and its Annexes shall require the signature of a
written agreement by the signatory Parties and become effective only after
submission to and approval by the examination and approval authority.
Article 68. Any notice from a Party which is made by telegram or telex and
----------
involves the rights and obligations of the Parties shall promptly be followed by
written notice in the form of a letter. The legal addresses of the Parties as
set forth herein shall be their correspondence addresses.
Article 69. Unless as otherwise specified in this Contract, neither Party A
----------
or Party B shall be prohibited from manufacturing the same or similar products
of the Joint Venture.
Article 70. This Contract is signed in Dashi Town, Panyu Municipality,
----------
Guangdong Province, China by the authorized representatives of the Parties on
5th August, 1997.
21
Party A: Party B
------- -------
Panyu Tian Le Electrical Appliance D.V.S. H.K. Limited
Manufacturing Co., Ltd. For and on behalf of
D.V.S. H.K. LIMITED
[SEAL APPEARS HERE]
By: /s/ Su Xxx Xxxx By: /s/ Xxxxxx Sun
--------------------------- -------------------------
Name: Mr Su Xxx Xxxx Name: Dr Edmund Sun
[UNRECOGNIZABLE CHARACTERS]
22
APPENDIX 1
----------
CAPITAL CONTRIBUTION SCHEDULE AND LIST
--------------------------------------
A. CAPITAL CONTRIBUTION SCHEDULE
Party A
-------
Party A shall contribute the Land Use Rights for Site, Existing Plant and
Machinery and Equipment described in Paragraph B below, within thirty (30) days
after a business license is obtained.
Party B
-------
Party B shall contribute Cash and Inventory in accordance with the provisions of
Article 13 of the Contract. The Inventory contributed by Party B under this
Contract shall be selected by Party B in its absolute discretion.
B. LIST OF IN KIND CAPITAL CONTRIBUTIONS BY PARTY A
Land Use Rights for Site
------------------------
Comprises two parcels of land with an area of 6,981 square meters and 1,773
square meters, respectively located in Zhi Village, Dashi Town, Panyu
Municipality, Guangdong Province, PRC. The boundaries and exact location of the
Site is shown in the Site Map B attached hereto as page 1.
Existing Plant
--------------
1. see attached pages 2 to 3
Machinery and Equipment
-----------------------
1. see attached pages 4 to 5
[UNRECOGNIZABLE CHARACTERS]
[MAP APPEARS HERE]
LAND 1
(6,981 sq. m.)
LAND 2
(1,773 sq. m.)
1
Existing Plant
--------------
-----------------------------------------------------------------------------------------
No. Description Location Area Floor Structure Total
Address Approx. Area Number of
(m/2/) Approx Stories
(m/2/)
-----------------------------------------------------------------------------------------
1 Seven story Zhi Village, 9890.08 1428.00 Frame 7
factory building Dashi, Panyu
-----------------------------------------------------------------------------------------
2 High-grade Zhi Village 360.00 Mix 3
dormitory for staff Dashi, Panyu
and workers
-----------------------------------------------------------------------------------------
The seven story factory building and high grade dormitory for staff and workers
are further described on the Site Map A attached hereto.
2
[UNRECOGNIZABLE CHARACTERS]
[MAP APPEARS HERE]
DORMITORY BUILDING
7-STOREY FACTORY BUILDING
3
Machinery and Equipment
-----------------------
---------------------------------------------------------------------------------------------------------
No. Name, Model and Equipment No. Unit of Quantity Month and
Specifications Measurement Year of
Purchase
(Import)
---------------------------------------------------------------------------------------------------------
1 Color television (21"29"), piece 2 March 1995
ageing
---------------------------------------------------------------------------------------------------------
2 MD-88 assembly line piece 4 February
1995
---------------------------------------------------------------------------------------------------------
3 PN-155 disk-type rotating piece 1 December
production line 1995
---------------------------------------------------------------------------------------------------------
4 Assembly line piece 3 1995
---------------------------------------------------------------------------------------------------------
5 Drum-type transmission set 1 1997
assembly line
---------------------------------------------------------------------------------------------------------
6 Diesel Oil generator set piece 1 April 1995
---------------------------------------------------------------------------------------------------------
7 Wave soldering machine WST-1 piece 1 July 1995
---------------------------------------------------------------------------------------------------------
8 Numerically controlled X16325A set 1 May 1995
universal xxxxxx
---------------------------------------------------------------------------------------------------------
9 Electroplating machine set 1 January 1995
---------------------------------------------------------------------------------------------------------
10 Electric door piece 1 April 1995
---------------------------------------------------------------------------------------------------------
11 Graphic instrument QT-2 piece 1 August 1995
---------------------------------------------------------------------------------------------------------
12 Servo SR200 piece 1 January 1995
---------------------------------------------------------------------------------------------------------
13 Vibrator piece 1 September 1995
---------------------------------------------------------------------------------------------------------
14 Color television, testing PLANTRON2 1" piece 7 March 1996
---------------------------------------------------------------------------------------------------------
15 Color television, testing PLANTRON2 9" piece 2 November 1995
---------------------------------------------------------------------------------------------------------
16 Color television, testing PLANTRON2 5" piece 7 November 1995
---------------------------------------------------------------------------------------------------------
17 Oscilloscope WC4260 piece 35 December 1994
---------------------------------------------------------------------------------------------------------
18 Oscilloscope LBO-514A piece 5 December 1994
---------------------------------------------------------------------------------------------------------
19 Computer 486 set 4 December 1995
---------------------------------------------------------------------------------------------------------
20 Computer 386 set 2 September 1995
---------------------------------------------------------------------------------------------------------
21 Oscilloscope CO-13030 piece 4 March 1995
---------------------------------------------------------------------------------------------------------
22 Oscilloscope SOST041 piece 1 March 1995
---------------------------------------------------------------------------------------------------------
23 Air-cooling upright air set 3 January 1996
conditioner
---------------------------------------------------------------------------------------------------------
24 Handset piece 3 March 1996
---------------------------------------------------------------------------------------------------------
25 Handset piece 7 March 1996
---------------------------------------------------------------------------------------------------------
26 Transformer 630KNA set 1 March 1996
---------------------------------------------------------------------------------------------------------
27 Millivolt meter piece 14 January 1995
---------------------------------------------------------------------------------------------------------
28 Facsimile machine piece 1 January 1996
---------------------------------------------------------------------------------------------------------
29 Fluorescent tube and support set 1 June 1995
---------------------------------------------------------------------------------------------------------
4
----------------------------------------------------------------------------------------------------
No. Name, Model and Equipment No. Unit of Quantity Month and
Specifications Measurement Year of
Purchase
(Import)
----------------------------------------------------------------------------------------------------
30 Air conditioner piece 5 November
1995
----------------------------------------------------------------------------------------------------
31 Air conditioner piece 1 November
1995
----------------------------------------------------------------------------------------------------
32 Air conditioner piece 3 May 1995
----------------------------------------------------------------------------------------------------
33 Boss's chair piece 1 February
1996
----------------------------------------------------------------------------------------------------
34 Leather sofa and office desk set 1 February
1996
----------------------------------------------------------------------------------------------------
35 Telephone number line 7
----------------------------------------------------------------------------------------------------
36 Telephone number line 6
----------------------------------------------------------------------------------------------------
37 Supersonic wave cleaning piece 1 1997
machine
----------------------------------------------------------------------------------------------------
38 Jet-flow tin furnace piece 1 1997
----------------------------------------------------------------------------------------------------
39 Photocopier NPA15 piece 2 March 1997
----------------------------------------------------------------------------------------------------
40 Tin furnace SE-10 piece 2 January 1995
----------------------------------------------------------------------------------------------------
41 End cutting machine SE-28 piece 2 January 1995
----------------------------------------------------------------------------------------------------
42 Compressor W-0.8/12-ACR piece 1 April 1995
----------------------------------------------------------------------------------------------------
43 Wow/flutter meter MK-668C piece 2 February
1995
----------------------------------------------------------------------------------------------------
44 Horizontal lathe L6127 piece 1 1994
----------------------------------------------------------------------------------------------------
45 Any other machinery and equipment located within the Existing Plant as of the date of
this Contract
----------------------------------------------------------------------------------------------------
5
APPENDIX 2
----------
STATE-OWNED LAND USE RIGHTS TRANSFER CONTRACT
---------------------------------------------
BETWEEN
PANYU TIAN LE ELECTRICAL APPLIANCE MANUFACTURING CO., LTD.
AND
PANYU D.V.S. ELECTRICAL APPLIANCES MANUFACTURING
CO., LTD.
Panyu Municipality, Guangdong Province, China
TABLE OF CONTENTS
Article Page
------- ----
1 General Principles............................................. 1
2 Definitions.................................................... 1
3 The Parties.................................................... 2
4 Transfer and Term of Land Use Rights........................... 2
5 Responsibilities of the Parties................................ 3
6 Representations, Warranties, Undertakings and Indemnification.. 3
7 Governing Law.................................................. 5
8 Dispute Settlement............................................. 6
9 Miscellaneous Provisions....................................... 6
Signatures.......................................................... 7
Attachment 1 - Site Maps
STATE-OWNED LAND USE RIGHTS TRANSFER CONTRACT
---------------------------------------------
THIS CONTRACT is made in Panyu Municipality, Guangdong Province, the
People's Republic of China ("PRC") on this 5th day of August, 1997, by and
between PANYU TIAN LE ELECTRICAL APPLIANCE MANUFACTURING CO., LTD. ("Party A"),
a Chinese enterprise legal person registered in the Panyu Municipality,
Guangdong Province, PRC and PANYU D.V.S. ELECTRICAL APPLIANCES MANUFACTURING
CO., LTD., a Sino-foreign equity joint venture to be registered in the Panyu
Municipality, Guangdong Province, PRC ("Party B"). (Party A and Party B are
hereinafter also individually referred to as a "Party" and collectively as the
"Parties").
ARTICLE 1. GENERAL PRINCIPLES
------------------
1.01 This Contract is entered into pursuant to, and forms an integral part
of, the Joint Venture Contract dated 5th August, 1997, between Party A
and D.V.S.H.K. Limited, a corporation duly organized and existing under
the laws of the Hong Kong Special Administrative Region (the "Joint
Venture Contract").
1.02 This Contract is made in accordance with the Provisional Regulations of
the PRC Concerning the Grant and Transfer of State-owned Land Use Rights
and other relevant regulations.
ARTICLE 2. DEFINITIONS
-----------
2.01 Unless the context indicates otherwise, and except as provided below,
the terms used in this Contract shall have the same meanings as set
forth in the Joint Venture Contract.
2.02 "Existing Plant" means the 7-storey factory building and the dormitory
--------------
building located on the Site, which are delineated in pink in the Site
Map A attached hereto as Attachment 1.
2.03 "Transfer Date" means the date on which Party A shall transfer and
-------------
deliver the Site and the Existing Plant to Party B, which shall be
agreed in writing by the Parties and shall occur no later than thirty
(30) days of the issuance of the business license of Party B, unless
otherwise agreed by the Parties in writing.
2.04 "Site" comprises two parcels of land with an area of 6,981 square meters
----
and 1,773 square meters respectively located in Zhi Village, Dashi Town,
Panyu Municipality, Guangdong Province, PRC, which are hereinafter
referred to as "Land 1" and "Land 2". The boundaries and exact location
of the Site (including Land 1 and Land 2) are shown in the Site Map B
attached hereto as Attachment 1.
ARTICLE 3. THE PARTIES
-----------
The Parties to this Contract are:
(a) Party A
-------
Name: Panyu Tian Le Electrical Appliance
Manufacturing Co., Ltd.
Legal address: Nan Da Highway, South Side, Zhi Village,
Dashi Town, Panyu Municipality, Guangdong
Province, PRC
Legal representative: Mr Su Xxx Xxxx
Position: Executive Director
Nationality: Chinese
(b) Party B
-------
Name: Panyu D.V.S. Electrical Appliances
Manufacturing Co., Ltd.
Legal address: Zhi Village, Dashi Town, Panyu Municipality,
Guangdong Province, PRC
Legal representative: Dr Edmund Sun
Position: Director
Nationality: American
ARTICLE 4. TRANSFER AND TERM OF LAND USE RIGHTS
------------------------------------
4.01 In accordance with Article 30 of the Joint Venture Contract, Party A
hereby agrees to transfer its land use rights granted for value for the
Site and its ownership rights for the Existing Plant together with all
technical documents, drawings and plans for the Site and the Existing
Plant and all utilities supply infrastructure for the Site and the
Existing Plant to Party B on the Transfer Date as part of its registered
capital contribution to Party B.
4.02 On the Transfer Date, Party A shall deliver actual possession of the Site
and the Existing Plant to Party B and shall cause a Land Use Certificate
in respect of the granted land use rights for the Site and Building
Ownership Certificates in respect of the Existing Plant to be issued in
the name of Party B. The term of the
2
granted land use rights to the Site (the "Term") shall commence on the
Transfer Date and shall continue for such period as stated below:
Land 1: Until 18 August 2042.
Land 2: Until 18 August 2045.
ARTICLE 5. RESPONSIBILITIES OF THE PARTIES
-------------------------------
5.01 In addition to its other responsibilities under this Contract, Party A
shall be responsible for:
(a) carrying out all formalities for effecting the transfer of the granted
land use rights for the Site and ownership rights of the Existing
Plant to Party B, and providing Party B with copies of all the
application and registration documents;
(b) carrying out all procedures at its own expense for obtaining a Land
Use Certificate for the Site issued by the Panyu Municipal Land Bureau
and Building Ownership Certificates for the Existing Plant issued by
the Panyu Municipal Real Estate Administration Bureau in the name of
Party B, and providing Party B with the originals of all such
certificates on the Transfer Date;
(c) applying for government inspection of the Existing Plant, obtaining
inspection certificates, and providing Party B with copies of such
certificates;
(d) delivering to Party B actual possession of the Site and the Existing
Plant free from mortgages, encumbrances and other third party rights
on the Transfer Date and allowing Party B quiet enjoyment of the Site
and the Existing Plant throughout the Term;
(e) ensuring, at its own expense, that all current commercial and
residential occupants not essential to the operation of Party B's
business have vacated the Site and the Existing Plant prior to the
Transfer Date.
ARTICLE 6. REPRESENTATIONS, WARRANTIES, UNDERTAKINGS
-----------------------------------------
AND INDEMNIFICATIONS
--------------------
6.01 Party A represents, warrants and undertakes to Party B that:
(1) it has lawfully acquired the land use rights for the Site by way of
grant from the Panyu Municipal Land Bureau, and is the sole owner and
has lawfully acquired full ownership rights of the Existing Plant;
3
(2) it has fully complied with all of its legal obligations in
connection with the Site and the Existing Plant, and that it has
not committed, and will not commit up until the Transfer Date,
and breach of such legal obligations;
(3) it is entitled under PRC laws and regulations to transfer to
Party B the granted land use rights for the Site and the
ownership rights of the Existing Plant, and that Party A and
Party B will be able to complete all the necessary registration
procedures with the land and real estate administration
department with jurisdiction over the Site and the Existing
Plant, and that a Land Use Certificate for State-Owned Land and
Real Estate Ownership Certificates will be issued in the name of
Party B, whereupon Party B shall obtain the granted land use
rights for the Site and the sole ownership of the Existing Plant
on the terms as stipulated in this Contract;
(4) it will pay and discharge all taxes and fees related to the Site
and the Existing Plant which have accrued up until the Transfer
Date, as well as all taxes and fees which may be required from
any PRC authorities related to the transfer of the land use
rights of the Site and the ownership rights of the Existing Plant
to Party B so that no payments of any such taxes and fees will be
required from Party B or any third regarding such transfers;
(5) the land use rights for the Site and the ownership rights of the
Existing Plant are free from any defects and are not subject to
any mortgage or other encumbrance, or any claims by any third
parties;
(6) following transfer of the granted land use rights for the Site to
Party B, the Site and the transferred granted land use rights
will meet the following specifications:
(a) area: a total of 8,745m/2/
(b) term: (1) Land 1: Commencing from Transfer Date and
continue until 18 August 2042.
(ii) Land 2: Commencing from the Transfer Date and
continue until 18 August 2045.
(c) user: Panyu D.V.S. Electrical Appliances Manufacturing
Co., Ltd.
(d) assignability and transferability: Party B may at any time
freely sell, lease, transfer, mortgage or assign the granted
land use rights for the Site and the Existing Plant to any
third party without payment of any additional land grant fee
or transfer fee to any PRC governmental authorities or third
parties;
(e) environmental fitness: compliance with PRC legal
requirements
4
(7) Party B shall be able to use the Site and the Existing Plant for all
of the business purposes set forth in the scope of business of the
Joint Venture Contract;
(8) the layout, design, construction and operation of the Existing Plant
are in full compliance with all requirements of relevant
governmental authorities for land administration, water and soil
conservation, construction standards, fire prevention and work
safety;
(9) it has obtained all permits and other authorizations which are
required for the Site and the Existing Plant under the Law of the
People's Republic of China on Environmental Protection and other
Chinese laws, administrative regulations and local regulations
relating to pollution or protection of the environment (hereinafter
collectively referred to as "Chinese Environmental Laws"), and that
the Site and the Existing Plant are in full compliance with all
material terms and conditions of the foregoing permits and
authorizations and are also in full compliance with other material
requirements set forth in Chinese Environmental Protection Laws;
(10) there is no existing or latent environmental damage or hazard on the
Site or in the areas surrounding the Site and that, during the Term,
Party B shall not be liable for any environmental liability in
connection with the Site or the surrounding areas of the Site,
including, without limitation, liability arising out of the disposal
of polluted wastes on or in the area surrounding the Site or
elsewhere to the extent the cause of such environmental liability
occurred prior to the Transfer Date.
6.02 Party A hereby agrees to indemnify fully Party B from and against all
claims, demands, actions, damages, losses (including loss of profit),
liabilities, penalties and expenses sustained by Party B or any affiliate
of Party B directly or indirectly in respect of any breach by Party A of
any of the above provisions of this Article 6.
ARTICLE 7. GOVERNING LAW
-------------
7.01 The conclusion , validity, interpretation and performance of, and the
settlement of disputes in connection with this Contract shall be governed
by the laws of the PRC.
7.02 If any of the Parties' economic benefits are adversely and materially
affected by the promulgation of any newly enacted or published laws, rules
or regulations of the PRC or the amendment or interpretation of any
existing laws, rules or regulations of the PRC after the date of this
Contract, the Parties shall promptly consult with each other and use their
best efforts to implement any adjustments necessary to maintain each of
the Parties' economic benefits derived from this Contract on a basis no
less favorable than the economic benefits it would have
5
derived if such laws, rules or regulations had not been promulgated or
amended or so interpreted.
ARTICLE 8. DISPUTE SETTLEMENT
------------------
8.01 All disputes arising in connection with the implementation of this Contract
or relating to this Contract shall be resolved through friendly
consultations between the Parties. If consultations are unsuccessful, the
dispute shall be submitted to the China International Economic and Trade
Arbitration Commission for arbitration according to its provisional rules
of arbitration procedure. The arbitration award shall be final and binding
on both Parties. The required costs shall be borne by the losing Party.
8.02 During the arbitration proceedings, this Contract shall continue to be
performed except for the portion which is the subject of the dispute under
arbitration.
ARTICLE 9. MISCELLANEOUS PROVISIONS
------------------------
9.01 This Contract is made for the benefit of the Parties and may be enforced by
either of them. Any amendment to this Contract shall require the signature
of a written agreement by the authorized signatories of the Parties.
9.02 This Contract is executed in two (2) English and two (2) Chinese originals.
Both language versions shall be equally authentic.
9.03 Any notice from a Party which is made by telegram or telex and involves the
rights and obligations of the Parties shall promptly be followed by written
notice in the form of a letter. The legal addresses of the Parties as set
forth herein shall be their correspondence addresses.
9.04 This Contract shall be signed by Party A and, initially, D.V.S. H.K.
Limited on behalf of Party B. As soon as reasonably possible following the
issuance of the business license Party B, Party A and D.V.S. H.K. Limited
shall cause Party B to ratify this Contract so as to give it full force and
effect.
IN WITNESS WHEREOF, the Parties hereto have caused this Contract to be executed
by their duly authorized representatives as of the date first written above.
6
Party A: Party B
------- -------
Panyu Tian Le Electrical Appliance D.V.S. H.K. Limited
Manufacturing Co., Ltd. For and on behalf of
D.V.S. H.K. LIMITED
[SEAL APPEARS HERE]
By: /s/ Su Xxx Xxxx By: /s/ Xxxxxx Sun
--------------------------- -------------------------
Name: Mr Su Xxx Xxxx Name: Dr Edmund Sun
[UNRECOGNIZABLE CHARACTERS]
Confirmation
------------
I hereby confirm that this Contract has been ratified at a duly convened meeting
of the Board of Directors of Panyu D.V.S. Electrical Appliances Manufacturing
Co., Ltd. on this _____ day of _________, 1997.
PANYU D.V.S. ELECTRICAL APPLIANCES MANUFACTURING CO., LTD.
By: /s/ Su Xxx Xxxx
---------------------------
Name: Mr Su Xxx Xxxx
Title: Chairman
7
ATTACHMENT 1
SITE MAPS
---------
8
[UNRECOGNIZABLE CHARACTERS]
[MAP APPEARS HERE]
DORMITORY BUILDING
7-STOREY FACTORY BUILDING
[UNRECOGNIZABLE CHARACTERS]
[MAP APPEARS HERE]
LAND 1
(6,981 sq.m.)
LAND 2
(1,773 sq.m.)
APPENDIX 3
----------
NON-COMPETITION AGREEMENT
-------------------------
THIS AGREEMENT forms an integral part of the Joint Venture Contract ("Contract")
signed between Panyu Tian Le Appliance Manufacturing Co., Ltd, and D.V.S.H.K.
Limited for the establishment of Panyu D.V.S. Electrical Appliances
Manufacturing Co., Ltd. (the "Company") dated 5th August, 1997 and shall in all
respects become part of and is incorporated into said Contract.
NOW WHEREAS the Company and Mr Su Xxx Xxxx ("Xx Xx") hereto agree as follows:
1. Associated Businesses
---------------------
Mr Su shall not, without the express written authority of the Company, at
any time during the term of the Contract, in any country or place where the
Company and/or its affiliates has carried on business, carry on or be
employed, concerned or interested directly or indirectly whether as
shareholder, director, employee, partner, agent or otherwise and whether
alone or jointly with others, in any business in competition with the
Company and/or its affiliates.
For the purposes of this Agreement, the term "affiliates" shall mean any
enterprise or other entity which directly or indirectly controls the
Company, or is controlled by the Company; the term "control" meaning
ownership of fifty percent (50%) or more of the registered capital (or
voting stock as the case may be) or the power to appoint the general
manager, or other principal person in charge of an enterprise or other
entity.
2. Customers & Suppliers
---------------------
Mr Su shall not, without the express written authority of the Company, at
any time during the term of the Contract either on his own account or in
conjunction with or on behalf of any other person, enterprise, or other
entity (including, but not limited to any government agency or department),
directly or indirectly solicit or entice away from the Company and/or its
affiliates any person, enterprise or entity who is or at any time during
the term of the Contract or at the date of the termination of the Contract,
may have become a customer or supplier of the Company and/or its
affiliates. This Clause 2 shall apply equally in the case of a prospective
customer or supplier.
3. Company Employees
-----------------
Mr Su shall not, without the express written authority of the Company, at
any time during the term of the Contract either on his own account or in
conjunction with or on behalf of any other person, enterprise or other
entity (including, but not limited to any government agency or department),
directly or indirectly solicit or entice away from the Company or its
affiliates or employ or otherwise
engage any person who now is or at any time during the term of the Contract
or at the date of the termination of the Contract may have become an
employee of the Company or its affiliates.
4. Association with the Company
----------------------------
Mr Su shall not, without the express written authority of the Company, at
any time or for any purpose after termination of the Contract use either
the English or Chinese name of the Company or any name similar thereto in
connection with his own or other name in any way calculated to suggest that
he is or has been with the Company's business, nor in any way hold himself
out as having any such connection.
THE COMPANY MR SU XXX XXXX
By: /s/ Su Xxx Xxxx By: /s/ Su Xxx Xxxx
--------------------- ---------------------
Name: Mr Su Xxx Xxxx Name: Mr Su Xxx Xxxx
Title: Chairman
Date: 5th August, 1997 Date: 5th August, 1997
2
APPENDIX 4
----------
CONFIDENTIALITY AGREEMENT
-------------------------
THIS AGREEMENT forms an integral part of the Joint Venture Contract ("Contract")
signed between Panyu Tian Le Appliance Manufacturing Co., Ltd. and D.V.S.H.K.
Limited for the establishment of Panyu D.V.S. Electrical Appliances
Manufacturing Co., Ltd. (the "Company") dated 5th August, 1997 and shall in all
respects become part of and is incorporated into said Contract.
NOW WHEREAS the Company and Mr Su Xxx Xxxx ("Xx Xx") hereto agree as follows;
1. Mr Su expressly acknowledges that any unpublished patentable or
unpatentable items of technical or non-technical information, such as (but
not limited to), materials, tooling, equipment, designs, processes,
formulae, projects, products, costs, financial data, marketing plans,
customer and supplier lists or business projections used by the Company in
its business, constitute valuable trade secrets or confidential information
(hereinafter referred to as "Confidential Information") are the property of
the Company, and Mr Su hereby agrees not to disclose or use the same other
than in the business of the Company. Furthermore, Mr Su specifically
agrees;
(a) not to, directly or indirectly, disclose or make available to anyone
or use outside of the Company organization during or after the term of
the Contract, any Confidential Information without the prior written
consent of the Board of Directors of the Company;
(b) to safeguard all Confidential Information at all times so it is not
exposed to, or taken by, unauthorized persons, and when entrusted to
Mr Su, Mr Su shall exercise his best efforts to assure its safe-
keeping; and,
(c) upon termination of the Contract, if applicable, to deliver to the
Company all materials, including, but not limited to personal notes
and reproductions relating to the Company's business which are in Mr
Su's possession or control.
2. With respect to all work done by Mr Su in relation to the Company, Mr Su
hereby agrees that all right, title and interest to any and all inventions,
discoveries, designs, developments, improvements, copyrightable material,
and trade secrets (collectively herein as "Inventions"), conceived,
developed or reduced to practice by Mr Su, whether conceived, developed or
reduced to practice during working hours or otherwise and whether alone or
jointly with others, are the sole property of the Company. With respect to
all patent conceptions and implementing projects, Mr Su also agrees that
during and after termination of the Contract, Mr Su and his heirs or
representatives, shall, as requested, assist in the preparation and
execution of all patent applications and other instruments, as well as
execute all requested assignments and do all other things which the Company
deems necessary to obtain
or to maintain patent rights inside or outside the People's Republic of
China and to protect the Company's rights and interests.
THE COMPANY MR SU XXX XXXX
By: /s/ Su Xxx Xxxx By: /s/ Su Xxx Xxxx
------------------ ------------------
Name: Mr Su Xxx Xxxx Name: Mr Su Xxx Xxxx
Title: Chairman
Date: 5th August, 1997 Date: 5th August, 1997
2
ARTICLES OF ASSOCIATION
-----------------------
OF
PANYU D.V.S. ELECTRICAL APPLIANCES MANUFACTURING CO., LTD.
TABLE OF CONTENTS
Chapter Page
------- ----
1. General Provisions.................................................. 1
2. The Parties......................................................... 1
3. Establishment of the Joint Venture.................................. 2
4. Purpose, Scope and Scale of Production and Business................. 2
5. Investment and Forms of Capital Contribution........................ 3
6. Intellectual Property Rights........................................ 6
7. Purchase of Equipment and Raw Materials and Sale of Products........ 6
8. Board of Directors and Management Organization...................... 7
9. Labor Management.................................................... 9
10. Taxation, Financial Affairs and Distribution........................ 10
11. Foreign Exchange Control............................................ 11
12. Joint Venture Term.................................................. 12
13. Termination, Buyout and Liquidation................................. 12
14. Miscellaneous Provisions............................................ 15
Signatures............................................................... 16
Appendix
--------
1. Capital Contribution Schedule and List
ARTICLES OF ASSOCIATION
-----------------------
PRELIMINARY
These Articles of Association are made in Panyu Municipality, Guangdong
Province, the People's Republic of China on this 5th day of August, 1997 by and
between Panyu Tian Le Electrical Appliance Manufacturing Co., Ltd., an
enterprise legal person established and existing under the laws of the People's
Republic of China with its legal address at Nan Da Highway, South Side, Zhi
Village, Dashi Town, Panyu Municipality, Guangdong Province ("Party A") and
D.V.S. H.K. Limited, a corporation duly organized and existing under the laws of
Hong Kong, the People's Republic of China, with its principal address at Xxxx
000, Xxxxxxxxx Xxxxxx, 00 Hung To Road, Xxxx Xxxx, Kowloon, Hong Kong ("Party
B"). Each of Party A and Party B shall hereinafter individually be referred to
as a "Party" and collectively as the "Parties".
CHAPTER 1. GENERAL PROVISIONS
Article 1. These Articles of Association are formulated in accordance with the
---------
Law of the People's Republic of China on Sino-Foreign Equity Joint Ventures, the
implementing regulations thereunder, other relevant Chinese laws and
regulations, and the joint venture contract entered into by the Parties and
dated 5th August, 1997 (the "Contract").
Unless the terms or context of these Articles of Association provide otherwise,
the terms used herein shall have the same meanings as set forth in the Contract.
CHAPTER 2. THE PARTIES
Article 2. The Parties to these Articles of Association are set forth below:
---------
(1) Party A, Panyu Tian Le Electrical Appliance Manufacturing Co., Ltd.,
registered with the Panyu Administration for Industry and Commerce,
China.
Legal address: Nan Da Highway, South Side, Zhi Village, Dashi
Town, Panyu Municipality, Guangdong Province
Legal representative: Mr Su Xxx Xxxx
Telephone: (000) 00000000
Bank with which an
account has been
opened: Industrial and Commercial Bank of China, Dashi,
Panyu, Guangdong
Account No.: 000-0000-0000000
(2) Party B,D.V.S. H.K. Limited ("Party B")
Legal address: Xxxx 000, Xxxxxxxxx Xxxxxx, 00 Hung To Road, Xxxx
Xxxx, Kowloon, Hong Kong.
Legal representative: Name: Dr Edmund Sun
Position: Chairman
Nationality: American
Telephone: 000-00000000
Bank with which an
account has been
opened: Citibank N.A. Hong Kong
Account No.: 0000000000 (HK$)
CHAPTER 3. ESTABLISHMENT OF THE JOINT VENTURE
Article 3. The name of the Joint Venture shall be "Panyu D.V.S. Electrical
---------
Appliances Manufacturing Co., Ltd." in English and "[UNRECOGNIZABLE
CHARACTERS]" in Chinese (the "Joint Venture").
The legal address of the Joint Venture shall be Zhi Village, Dashi Town, Panyu
Municipality, Guangdong Province.
To the extent as provided in the laws and regulations of China and these
Articles of Association, the Joint Venture shall have the right to autonomously
carry on operation and management and to enjoy the preferential treatment
available to Sino-foreign equity joint ventures.
Article 4. The Dashi Town People's Government shall be the department in
---------
charge of the joint Venture. It shall be responsible for guiding, assisting and
supervising the Joint Venture.
Article 5. The form of organization of the Joint Venture shall be a limited
---------
liability company. The Joint Venture shall be liable for its debts with all of
its assets. The Parties' liability to the Joint Venture shall be limited to
their respective subscribed capital contributions. The profits, risks and losses
shall be shared between the Parties in proportion to their respective
contributions to the registered capital.
CHAPTER 4. PURPOSE, SCOPE AND
SCALE OF PRODUCTION AND BUSINESS
Article 6. Based on the desire to strengthen economic cooperation and
---------
technological exchange, the purpose of the Joint Venture's production and
business is to enhance product quality by adopting appropriate advanced
technology and scientific operation and management methods, so as to enable the
investors to obtain satisfactory economic benefits.
2
Article 7. The scope of business shall be the production, processing,
---------
marketing and sale of self-produced VCD players, DVD players, loader and optical
pick-ups of VCD and DVD players, digital broadcasting systems, networking
systems, microcomputers and related products.
Article 8. The scale of production of the Joint Venture shall be as set
---------
forth below:
(1) Production capacity of the Joint Venture after the commencement of
production: The planned annual output is 600,000 units and the planned
annual output value is RMB(Yen)720 million. Thereafter, the scale of
production shall be further expanded according to market circumstances.
(2) The site area of the factory shall be 8,754 square meters and the area of
the factory buildings 1,428 square meters.
(3) The planned number of staff and workers is 480 persons.
CHAPTER 5. INVESTMENT AND FORMS OF CAPITAL CONTRIBUTION
Article 9. The total amount of investment of the Joint Venture shall be US$8
---------
million, comprising US$3.92 million in fixed assets and US$4.08 million in
working capital.
Article 10. The subscribed amount of capital contribution by both Parties
----------
shall be US$8 million, and this will be the registered capital.
Article 11. Party A shall make its contribution to registered capital as
----------
follows:
(1) Land Use Rights for Site: (as further described in Appendix 1)
(2) Existing Plant: (as further described in Appendix 1)
(3) Machinery and Equipment: (as further described in Appendix 1)
Party A's contribution of Land Use Rights for Site, Existing Plant, Machinery
and Equipment, shall in the aggregate constitute US$3.92 million, representing
forty nine percent (49%) of the Joint Venture's registered capital.
Party A further expressly acknowledges that the Joint Venture shall not assume
any debts, liabilities, mortgages, or other encumbrances, or any claims by any
third parties which, may be associated with the Site, Existing Plant or
Machinery and Equipment transferred by Party A to the Joint Venture at the date
of their contribution to the Joint Venture as described in Article 12 below. The
assumption of any such debt liability, mortgage or other encumbrance or any
claim by any third party by the Joint Venture shall be a cause for termination
of the Contract under Article 46 of these Articles of Association.
Party B shall make its contribution to registered capital as follows:
3
(1) Cash: US$2 Million
(2) Parts and major components (hereinafter referred to as "Inventory"):
US$2.08 Million
Party B's contribution of Cash and Inventory, shall in the aggregate constitute
US$4.08 million, representing fifty one percent (51%) of the Joint Venture's
registered capital.
Article 12. The Parties shall make their contributions to the Joint Venture
----------
within the following time limit;
Party A shall contribute the Land Use Rights for Site, Existing Plant and
Machinery and Equipment, all as listed on Appendix 1 within thirty (30) days
after a business license is obtained.
Party B shall contribute US$612,000 in Cash, representing 15 percent of its
share of registered capital within thirty (30) days after a business license is
obtained. The balance of Party B's contribution to registered capital shall be
in the form of Cash and Inventory and shall be paid in accordance with the
funding and working capital requirements of the Joint Venture as determined by
the Board of Directors, provided the entire balance is contributed within three
(3) years after the business license is obtained. Upon such determination by the
Board of Directors, Party B may in its absolute discretion elect to contribute
either Cash or Inventory, and Party B furthermore has the right to select, in
its absolute discretion, the Inventory so contributed. The Inventory should
consist of parts and major components necessary for production in accordance
with the Joint Venture's approved scope of business. The value of the Inventory
shall be determined by the relevant Chinese Commodities Inspection Authorities.
The importation of Inventory shall be in accordance with applicable government
regulations governing the importation of such Inventory. Party B shall promptly
comply with any such determination by the Board of Directors to contribute
registered capital to meet the working capital requirements of the Joint
Venture.
Article 13. Subject to Article 14 below, the assignment by either Party of all
----------
or part of its rights and obligations to a third party shall be subject to the
consent of the other Party and the approval of the examination and approval
authority, and shall require the carrying out of procedures for change of
registration with the administration authority for industry and commerce. When
one Party assigns all or part of its rights and obligation, the other Party
shall have a preemptive right of purchase.
Article 14. Party A agrees to waive its preemptive right of purchase, and to
----------
consent to any transfer of registered capital, and further agrees to cause the
directors appointed by it to consent unanimously to such a transfer, in any of
the following circumstances:
(1) Party B transfers all or any part of its interest in the registered capital
of the Joint Venture to its Fully-Owned Affiliates. For the purposes of
this Article 14, "Fully-Owned Affiliates" shall mean any company or
enterprise which is controlled by Party B; "controlled" for the purposes of
this Article 14 meaning direct or indirect ownership of one hundred percent
(100%) of the registered capital or voting stock of that company or
enterprise.
4
(2) Party B is merged with another company to form a new company, and such
merger requires the transfer of all or part of Party B's interest in the
registered capital of the Joint Venture to that new company.
(3) Substantially all of the assets of Party B are acquired by another company
("Acquiring Company"), and such acquisition requires the transfer of all or
part of Party B's interest in the registered capital of the Joint Venture
to the Acquiring Company.
Article 15. After the Parties have made their capital contributions in
----------
accordance with Articles 11 and 12 hereof, an accountant registered in China
shall verify the same and issue a contribution verification report, on the basis
of which the Joint Venture shall issue investment certificates. Neither Party
may use the amount of its capital contribution to take out a mortgage loan from
or provide a guarantee to third parties, or dispose of it otherwise.
The Joint Venture may not reduce the amount of its registered capital during the
joint venture term.
Article 16. Any increase in the registered capital of the Joint Venture
----------
requires approval by a unanimous vote of the directors present in person or by
proxy at a duly constituted meeting of the Board of Directors, and shall be
submitted to the Examination and Approval Authority for examination and
approval. Upon receipt of the approval of the Examination and Approval
Authority, the Joint Venture shall register the increase in registered capital
with the State Administration for Industry and Commerce ("SAIC") or the relevant
local branch of the SAIC.
If the Board of Directors determines on the basis of a resolution approved by a
simple majority of the Board of Directors that the Joint Venture requires
additional funds and recommends that the Joint Venture raise such funds from
either external borrowing or an increase in registered capital, and either Party
(the "Non-participating Party") is unable or unwilling to participate in any
such arrangement proposed by the Board of Directors, then.
(1) in the case of an increase in registered capital, the Party supporting the
Board's recommendation shall be entitled to make any such increase
unilaterally and the Non-participating Party's interest in the registered
capital of the Joint Venture shall be diluted accordingly, in which case
each Party shall be deemed to have consented to the increase of the Joint
Venture's registered capital and shall cause its appointed Director(s) to
approve such increase; and
(2) in the case of external borrowing, if either Party is unable to provide a
guarantee on behalf of the Joint Venture in respect of such borrowing, then
the other Party may, at its option, guarantee the entire amount of such
borrowing or fund the entire amount of the additional financing required by
means of an increase in the registered capital of the Joint Venture, in
which in the latter case the provisions of the subsection (1) herein shall
apply mutatis mutandis.
----------------
In the event that either Party fails to make its registered capital contribution
(or any portion thereof) or fails to provide its share of any increase in the
Joint Venture's registered capital, then in addition to any other rights the
Joint Venture may have against the defaulting Party, the Joint Venture will
offer such portion to the non-defaulting Party. Such offer to provide a portion
of
5
any increase in the registered capital as described in this Article requires
approval by the Examination and Approval Authority.
Article 17. Party A warrants to Party B that, as of the date on which Party
----------
A contributes the Machinery and Equipment listed in Appendix 1, to the Joint
Venture:
(1) it is the lawful owner of the machinery and equipment and has the full
legal authority to transfer ownership thereof to the Joint Venture;
(2) all taxes and fees in respect of the machinery and equipment have been
fully paid;
(3) none of the machinery and equipment is subject to any mortgage, pledge,
lien or other encumbrance; and,
(4) all of the machinery and equipment is in normal operating condition,
subject to normal wear and tear in the case of any used machinery and
equipment.
CHAPTER 6. INTELLECTUAL PROPERTY RIGHTS
Article 18. The Joint Venture shall not have any right, interest or title,
----------
whether under PRC or US law, to any and all inventions, discoveries, designs,
developments, improvements, copyrightable material, and trade secrets
(collectively herein "Investions"), conceived, developed or reduced to practice
by any employee of Party B whatsoever, whether conceived, developed or reduced
to practice on the premises of the Joint Venture, in collaboration with the
Joint Venture, or resulting from work performed for the Joint Venture, unless
authorized in writing by Party B. Where legal title to Inventions conceived,
developed or reduced to practice by Party B employees in collaboration with the
Joint Venture (whether during joint development efforts between the Joint
Venture and Party B or otherwise), vest, under PRC or U.S. law, with the Joint
Venture, the Joint Venture shall immediately assign such Inventions to Party B
without consideration, and the cost and expense of such assignment shall be
borne by the Joint Venture.
Notwithstanding the proceding paragraph, all intellectual property rights,
including but not limited to technology, patents, trademarks, copyrights and
other such proprietary information (collectively herein as "Intellectual
Property"), which are the property of Pary A and Party B pre-existing on the
date hereof, shall remain the property of Party A and Party B, and shall not be
the property of the Joint Venture nor be used by or transferred or assigned to
the Joint Venture unless pusuant to formal written contracts entered into
between the Joint Venture and the respective parties for the license,
assignment, transfer or use of such Intellectual Property.
CHAPTER 7. PURCHASE OF EQUIPMENT
AND RAW MATERIALS AND SALE OF PRODCUTS
Article 19. The Board of Directors shalll select the modeles of equipment
----------
required by the Joint Venture for maufacturing the products of the Joint
Venture. Where the equipment is to be purchased outside the People's Republic of
China, the Board of Directors may from time to
6
time, request Party B to act on the Joint Venture's behalf for the purchase of
such equipment. Any such request shall be made in writing pursuant to a formal
agency agreement to be signed between the Joint Venture and Party B.
Article 20. The raw materials and parts, auxiliary materials and packaging
----------
materials required by the Joint Venture shall mainly be obtained by means of
import. The raw and auxiliary materials and packaging materials for products to
be sold domestically shall be purchased in China.
Article 21. The products of the Joint Venture shall be sold on markets in and
----------
outside China. Of such products, those exported shall account for 20 percent,
and those sold domestically shall account for 80 percent.
Article 22. Joint Venture products to be sold domestically may be sold
----------
directly by the Joint Venture, or sold by Chinese supplies authorities or
commercial authorities on the basis of off-take of all the products or on an
agency basis.
Article 23. Upon approval by the relevent Chinese authorities, the Joint
----------
Venture may establish sales branches in and outside China in order to sell
products in and outside China.
Article 24. The pricing principles and settlement methods with respect to
----------
products for domestic sale and export shall be determined separately by the
Board of Directors.
CHAPTER 8. BOARD OF DIRECTORS
AND MANAGEMENT ORGANIZATION
Article 25. The Joint Venture shall implement the system under which the
----------
General Manager is in charge, under the leadership of the Board of Directors.
The Board of Directors shall consist of three persons, of whom one shall be
appointed by Party A and two shall be appointed by Party B. Party A shall
designate a director to serve as the Chairman of the Board of Directors and
Party B shall designate another director to serve as the Vice-Chairman of the
Board. Party A shall designate another director to serve as the a Vice-Chairman
of the Board.
The directors shall serve terms of three years and may serve consecutive terms
if reappointed by the respective Parties which originally appointed such
directors.
The Chairman of the Board of Directors shall be the legal representative of the
Joint Venture Company. If the Chairman of the Board of Directors is unable to
perform his duties for any reason, he shall authorize the Vice Chairman of the
Board of Directors or another director to represent the Joint Venture.
Article 26. The Joint Venture shall have one General Manager, one Deputy
----------
General Manager and one Financial Controller, who shall be responsible for the
day-to-day work of the Joint Venture. The General Manager shall be nominated by
Party A and the Deputy General Manager and Financial Controller shall be
nominated by Party B, and each of them shall be appointed by the Board of
Directors. The Deputy General Manager shall assist the General Manager in his
work. The Financial Controller shall report to the Board of Directors.
7
The General Manager shall report to the Board of Directors. The General Manager
shall implement the resolutions of the meetings of the Board of Directors and
organize and direct the day-to-day production, operation and management of the
Joint Venture. Within the scope of authority delegated by the Board of
Directors, the General Manager shall represent the Joint Venture in dealing with
third parties and appoint and dismiss subordinate personnel other than those
appointed and dismissed by the Board of Directors, and exercise the other
functions and powers granted by the Board of Directors.
The General Manager and the Deputy General Manager may not concurrently hold the
position of general manager or deputy general manager in any other economic
organization and may not join in acts of commercial competition against the
Joint Venture by any other organization except where expressly authorized in
writing by the Board of Directors.
If the General Manager or a Deputy General Manager commits graft or serious
dereliction of duty, he may be dismissed at any time upon the adoption of a
resolution by the Board of Directors.
Article 27. The establishment of the management organization of the Joint
----------
Venture shall be decided on by the board of Directors according to business
requirements. The department managers and engineers shall be appointed and
dismissed by the Board of Directors. They shall be in charge of the work of
their respective departments and report to the General Manager and the Deputy
General Manager.
The regulations and functions of the Board of Directors and the functions and
powers of the General Manager and the Deputy General Manager shall be specified
in the Articles of Association of the Joint Venture. The work scope,
responsibilities and regulations of each department shall be formulated by the
General Manager and the Deputy General Manager and submitted to the Board of
Directors for the record.
Article 28. The first Board meeting shall be held within one (1) month from
----------
the date of issuance of the Joint Venture's business license.
The Board shall meet at least once during the first twelve (12) months following
the issuance of the Joint Venture's business license. Thereafter, meetings
shall be held at least once each year. Meetings shall be generally held at
the legal address of the Joint Venture. In addition, meetings may be held at
such other address in China or aboard as is designated by the Board. Meetings
may be attended by directors in person, by proxy, or by telephone.
The Chairman of the Board, after consultation with the Vice Chairman of the
Board, and in the Chairman's absence, the Vice Chairman, shall set the agenda
for all meetings of the Board and be responsible for presiding over such
meetings. All meetings of the Board shall require not less than five (5) days
notice to each director. Notice shall be given via facsimile transmission.
Upon the written request of two (2) or more of the directors of the Joint
Venture specifying the matters to be discussed, the Chairman of the Board and in
his absence the Vice Chairman shall, within not less than five (5) days and no
more than ten (10) days of such written request, convene an interim meeting of
the Board. The Chairman and in his absence the Vice
8
Chairman shall decide on the timing and location of such interim meetings.
Two-thirds (2/3) of the total number of directors must be present in person, by
proxy or by telephone to constitute a quorum which shall be necessary for the
conduct of business at any meeting of the Board. If at any properly convened
meeting, no quorum is constituted, then the Chairman may call another meeting
with seven days' notice. Any director absent from a meeting without giving
reason shall be considered to abstain from voting.
In case a Board member is unable to participate in the Board meeting, he shall
issue a proxy and entrust a representative to participate in the meeting on his
behalf. The representative so entrusted shall have the same rights and powers as
the Board member. Each director (including the Chairman) present in person or by
proxy or by telephone at a meeting of the Board shall have one vote.
The Board will cause complete and accurate minutes to be kept of all meetings
(including a copy of the notice of the meeting) and of business transacted at
such meetings. Minutes of all meetings of the Board shall be distributed to all
the directors as soon as practicable after each meeting but not later than
thirty (30) days from the date of such meeting. Any director who wishes to
propose any amendment or addition thereto shall submit the same in writing to
the Chairman and the Vice Chairman within two (2) weeks after receipt of the
proposed minutes. The minutes shall be finalized by the Chairman and Vice
Chairman not later than sixty (60) days after the relevant meeting and signed by
all directors within two (2) weeks after receipt of the final minutes.
Any action to be taken by the Board may be taken without a meeting if all
members of the Board consent in writing to such action. Such written consent
shall be filed with the minutes of the Board proceedings and shall have the same
force and effect as a unanimous vote taken by members physically present.
CHAPTER 9. LABOR MANAGEMENT
Article 29. The contract worker system shall be adopted for the staff and
----------
workers of the Joint Venture. Matters such as the employment, dismissal, wages,
labor insurance, welfare benefits, rewarding, punishment, etc, shall be worked
out in a plan by the Board of Directors in accordance with the labor management
regulations of the People's Republic of China and the implementing measures
therefor. Staff members and workers may be dismissed by the Joint Venture. If
staff members or workers breach their contracts, they may be subjected to
sanctions, up to expulsion, whereupon they shall be resettled by the unit that
recommended them.
The labor contracts concluded shall be filed for the record with the local labor
management authority.
Employees of the Joint Venture shall have the right to establish a labor union
and arrange union activities in accordance with Chapter 13 of the Implementing
Regulations for the Law of the People's Republic of China on Sino-Foreign Equity
Joint Venture
9
Article 30. The employment, wages, social insurance, welfare benefits,
----------
standards for business travel expenses, etc. of the General Manager, Deputy
General Manager and senior management personnel shall be decided upon by the
Board of Directors.
Article 31. The Joint Venture shall not in any way be obligated to employ any
----------
employee of Party A, nor shall it be obligated to assume any responsibilities,
duties or liabilities, whether under contract or under PRC law, which Party A
may have towards its own employees. Unless formally employed by the Joint
Venture in accordance with Article 29 of these Articles of Association, Party A
employees shall not be entitled to any Joint Venture employment benefits
whatsoever, including but not limited to salaries or wages, pensions, severance,
medical leave, housing and accommodation and other such benefits, unless
otherwise authorized by resolution of the Board of Directors.
CHAPTER 10. TAXATION, FINANCIAL AFFAIRS AND DISTRIBUTION
Article 32. The Joint Venture shall pay various tax and apply for tax
----------
reductions and exemptions in accordance with the relevant laws and regulations
of China. The Joint Venture shall timely submit accounting and statistical
statements and be subject to supervision and administration by the financial and
taxation authorities and by the department in charge of the Joint Venture. The
Financial Controller of the Joint Venture, under the leadership of the General
Manager, shall be responsible for the financial management of the Joint Venture.
The staff and workers of the Joint Venture shall pay individual income tax in
accordance with the Individual Income Tax Law of the People's Republic of China.
Article 33. The Joint Venture shall keep independent account books within
----------
China. The accounting system of the Joint Venture shall be formulated by the
Board of Directors in accordance with the Regulations of the People's Republic
of China Concerning the Financial Administration of Enterprises With Foreign
Investment and the Accounting System of the People's Republic of China for
Enterprises With Foreign Investment, and in the light of the actual
circumstances of the enterprise. The said accounting system shall be submitted
to the local financial and taxation authorities for the record.
Article 34. The fiscal year of the Joint Venture shall commence on January 1
----------
of each year and end on December 31 of the same year. All vouchers, account
books and statements shall be made and kept in Chinese. In principle, the
Renminbi shall be adopted as the bookkeeping base currency. If the actual amount
received or paid is in a foreign currency, the amount shall also be entered in
the currency actually received or paid.
Article 35. The principles for distribution of net profit are set forth
----------
below:
(1) Allocations shall be made to a reserve fund, enterprise development fund
and bonus and welfare fund for staff and workers, at the rate decided
upon by the Board of Directors.
(2) The Board of Directors shall determine a distribution plan for the
distributable profit remaining after the allocations to the three funds.
The said profit shall be distributed
10
in proportion to the Parties' respective contributions to the Joint
Venture's registered capital. Losses, if any, shall be shared in the
proportion set forth above.
Article 36. No profit may be distributed until the losses of the Joint
----------
Venture have been made up. Retained profits from previous years may be
distributed together with the profits of the current year.
Article 37. The Parties shall have full and equal access to the Joint
----------
Venture's accounts, which shall be kept at the legal address of the Joint
Venture. The Joint Venture shall furnish to the Parties unaudited financial
reports on a monthly and quarterly basis so that they may continuously be
informed about the Joint Venture's financial performance.
The Joint Venture shall engage Ernst and Young or its joint venture affiliate
registered in the PRC, or any other internationally recognized accounting firm
or its affiliate registered in China, as its auditor ("Auditor") to examine and
verify the annual report on the final accounts. The Joint Venture shall submit
to the Parties an annual statement of final accounts within four (4) months
after the end of the fiscal year, together with the audit report of the Auditor.
Article 38. The Financial Controller shall also prepare and provide to Party
----------
B financial reports prepared in accordance with U.S. Generally Accepted
Accounting Principles (GAAP), on an annual, monthly and quarterly basis so that
Party B may continuously be informed about the Joint Venture's financial
performance. Annual financial reports prepared in accordance with GAAP under
this Article 38, shall be prepared for the purposes of financial auditing under
GAAP.
CHAPTER 11. FOREIGN EXCHANGE CONTROL
Article 39. All foreign exchange transactions of the Joint Venture shall be
----------
handled in accordance with the Provisional Regulations of the People's Republic
of China Concerning Exchange Control and related control regulations.
Article 40. The Joint Venture shall open Renminbi and foreign exchange
----------
accounts with the Panyu Sub-branch of the Bank of China or with another bank
agreed to by the Administration of Exchange Control. All foreign exchange
revenue shall be deposited with the bank with which an account has been opened
and all foreign exchange expenditure shall be made out of the foreign exchange
account, and the same shall be subject to supervision by the Administration of
Exchange Control and the bank with which the account has been opened. All
remittances from any of the Joint Venture's bank accounts, whether by cash
withdrawal, telegraphic transfer, check or other method of payment, may be done
only upon the signature of any two of the following persons: Financial
Controller, either director of the Joint Venture appointed by Party B, the
financial controller of Party B, or such other person as designated by Party B.
At the first meeting of the Board of Directors, these persons shall be
designated as authorized signatories in respect of the Joint Venture's bank
accounts.
Article 41. The net profit distributed to Party B and Party B's share of the
----------
property remaining after liquidation of the Joint Venture as well as the other
lawful revenue of Party B may be invested domestically or paid out of the Joint
Venture's foreign exchange account
11
and, in accordance with the foreign exchange control regulations, be remitted to
Party B's bank account outside China through the bank with which the account has
been opened.
CHAPTER 12. JOINT VENTURE TERM
Article 42. The term of the Joint Venture shall be 25 years, calculated from
----------
the date of issuance of the business license (the "Joint Venture Term").
Upon expiration of the Joint Venture Term, the Parties may agree to continue the
joint venture. An application for extension of the joint venture term shall be
submitted to the examination and approval authority six months prior to
expiration of the term.
CHAPTER 13. TERMINATION, BUYOUT AND LIQUIDATION
Article 43. A Party may submit written notice ("Termination Notice") to the
----------
other Party of an intention to terminate the Contract (subject to Article 44) at
any time if:
(1) the other Party materially violates the Contract, and such violation is
not cured within thirty (30) days of written notice to the breaching
Party;
(2) the other Party breaches any of its representations or warranties set
forth in the Contract;
(3) after both Parties have fully contributed their respective shares of
registered capital to the Joint Venture in accordance with Chapter 5 of
the Contract, serious losses incurred by the Joint Venture have made it
impossible to continue business operations without substantial
additional capital infusions;
(4) serious losses incurred as a result of an event of force majeure and the
Parties have been unable to find and equitable solution;
(5) the Joint Venture has failed to achieve its business purposes and has no
development prospects;
(6) the other Party becomes bankrupt, or is the subject of proceedings for
bankruptcy, liquidation or dissolution, or ceases to carry on business
or becomes unable to pay its debts as they come due;
(7) the Joint Venture has not been issued a Land Use Rights Certificate for
State-Owned Land for the Site or Real Estate Ownership Certificates for
the Existing Plant listed in Appendix 1 of the Contract by the competent
government authority within sixty (60) days of issuance of the Business
License;
(8) the Joint Venture becomes bankrupt or is the subject of proceedings for
liquidation or dissolution, or ceases to carry on business or becomes
unable to pay its debts as they come due; or
12
(9) Party A becomes subject to Tax Payment Guarantee or Enforcement Measures by
the local tax authorities for breaches of PRC taxation laws. For the
purposes of these Articles of Association, "Tax Payment Guarantee or
Enforcement Measures" means measures carried out by the local tax bureau to
guarantee or enforce payment to tax by Party A, and which includes, but is
not limited to, the suspension of Party A's bank accounts, the deduction of
tax from Party A's bank accounts, the detention, sealing off, or sale of
Party A's property, and other such measures which may be carried out by the
local tax authorities against Party A for the guarantee or enforcement of
the payment of tax by Party A.
The mere submission by either Party of a Termination Notice shall not by itself
constitute a termination of the Contract.
Article 44. In the event that either Party submits a Termination Notice
----------
pursuant to Article 43 above with respect to any matter specified thereunder,
the Parties shall for a two (2) month period after such notice is given conduct
negotiations and endeavor to resolve the situation which resulted in the giving
of such notice. In the event such matters are not resolved to the satisfaction
of the Parties within two (2) months of the date of such notice, the Contract
shall terminate with immediate effect.
Article 45. In the event that a Termination Notice is submitted pursuant to
----------
Article 43 above and the Parties are unable to reach a resolution pursuant to
Article 44 above, then the Party submitting the Termination Notice ("Terminating
Party") shall have, the option of offering its interest (the "Put") in the
registered capital of the Joint Venture to the non-terminating Party in
accordance with this Article. The Party delivering the Termination Notice shall
advise the Board of Directors of its intention. The Board of Directors shall
forthwith request the independent auditors of the Joint Venture to determine and
certify in writing the value of the Parties' respective interests in registered
capital of the Joint Venture. The sum so determined and so certified shall be
the Purchase Price. The auditors shall act hereunder as experts and not as
arbitrators and their determination shall be final and binding on the Parties.
The costs of such determination shall be borne by the Party receiving the
Termination Notice. The auditors shall calculate the Purchase Price within sixty
(60) days of the Termination Notice. For the purposes of this Article, the fair
value of the interests of the Parties in registered capital of the Joint Venture
shall be determined by reference to the then prevailing accounting principles of
the Joint Venture at the date of the Termination Notice.
If the non-terminating Party refuses to purchase or is otherwise unable to
acquire the Terminating Party's interest pursuant to the Put, or the Terminating
Party decides not to put its interest to the non-terminating Party, then the
Terminating Party shall have the right to:
(a) acquire the non-terminating Party's interest in the registered capital of
the Joint Venture at the value of the non-terminating Party's interest in
the registered capital of the Joint Venture as certified under this Article
45 ("Acquisition"); or
(b) request that the non-terminating Party sell its interest in the registered
capital of the Joint Venture to a third party designated by the Terminating
Party ("Thirty Party"), at the value of the non-terminating Party's
interest in the registered capital of the Joint Venture as certified under
this Article 45 ("Third Party Sale").
13
Upon completion of the determination of the Purchase Price of the selling
Party's interest, the Parties shall, in the case of an Acquisition, execute a
contract for the transfer of interest in registered capital of the Joint Venture
within sixty (60) days. The Terminating Party shall pay the full Purchase Price
in United States Dollars within thirty (30) days after the signing of the
contract for the transfer of interest in the registered capital of the Joint
Venture and obtaining all necessary government approvals for such contract.
Upon completion of the determination of the Purchase Price of the
non-terminating Party's interest, and upon selection of the Third Party by the
Terminating Party, the non-terminating Party shall, in the case of a Third Party
Sale, execute a contract for the transfer of interest in the registered capital
of the Joint Venture to the Third Party within sixty (60) days. The Terminating
Party agrees to waive its preemptive right of purchase, and to consent to any
transfer of registered capital, and further agrees to cause its directors
appointed by it to consent unanimously to such transfer.
In case of either an Acquisition or Third Party Sale, each party shall use its
best efforts to obtain any required government approvals. If such approvals
cannot be obtained within sixty (60) days of the signing of the contract for the
transfer of interest in registered capital of the Joint Venture to the
Terminating Party or the Third Party as the may be, then such contract shall be
null and void and the Joint Venture shall be liquidated in accordance with
the provisions of Article 47 hereof.
Until such time as the sale of the interest of one Party in the registered
capital of the Joint Venture to the other Party or Third Party (as the case may
be) is completed, the Joint Venture shall, to the fullest extent possible,
maintain the conduct of its business in the ordinary course and neither Party
shall hinder the Joint Venture from the conduct of its business.
Article 46. In the event that any Land Use Rights for the Site, the Existing
----------
Plant and/or Machinery and Equipment described in Appendix 1, paragraph B, is
subject to any debt, liability, mortgage or other encumbrance, or any claim by
any third party ("Transfer Debt") on the fourteenth (14/th/) day after issuance
of the approval certificate by the relevant examination and approval authority,
then only Party B shall have the right to immediately terminate the Contract at
any time and shall furthermore have the right to:
(a) effect a Third Party Sale as set forth in Article 45(b) above;
(b) effect an Acquisition as set forth in Article 45(a) above;
(c) request Party A to assign to Party B without consideration, its interest in
the registered capital of the Joint Venture of an amount equivalent to the
Transfer Debt, in which case Party A shall be deemed to have consented to
such assignment, and shall execute a contract for the transfer of interest
in registered capital of the Joint Venture to Party B within thirty (30)
days, and further agrees to cause its directors appointed by it to consent
unanimously to such assignment ("Assignment"). In case of Assignment, each
party shall use its best efforts to obtain any required government
approvals. If such approvals cannot be obtained within sixty (60) days of
the signing of the contract for the transfer of interest in registered
capital of the Joint Venture to Party B, then such
14
contract shall be null and void and the Joint Venture shall be liquidated
in accordance with the provisions of Article 47 hereof.
(d) request that Party A make an application to withdraw and cancel the
approval for the establishment of the Joint Venture in which case neither
Party shall be obligated to contribute its share of registered capital
under the Contract or these Articles of Association; or
(e) if the Joint Venture's business license has been issued at the time of
termination under this Article 46, dissolve the Joint Venture in accordance
with Article 47.
Party A agrees to consent to, and further agrees to cause its directors
appointed by it to unanimously consent to, any action taken by Party B under
Articles 46(a) to 46(e) above.
Article 47. When the Joint Venture is liquidated pursuant to these Articles of
----------
Association, it shall be liquidated in accordance with this Article 47, Articles
103 to 108 of the Implementing Regulations for the Law of the People's Republic
of China on Chinese-Foreign Equity Joint Venture and the Measures for the
Liquidation of Foreign Investment Enterprises.
Party A and Party B agree that all members of the liquidation committee shall
be appointed by a majority vote of the Board of Directors of the Joint Venture.
The property remaining after the payment of the liquidation expenses and the
clearance of debts of the Joint Venture ("Remaining Property") shall be
distributed by the liquidation committee in accordance with the then existing
ratio of the capital contributions of the Parties.
The liquidation committee shall, subject to the preceding paragraph, have full
and absolute discretion with respect to the method by which the Remaining
Property is distributed between Party A and Party B.
Party B, at its own expense, shall have the right to obtain copies of all of the
Joint Venture's accounting vouchers, account books, account statements, minutes
and resolutions of the Board of Directors and other relevant documents after the
conclusion of liquidation.
CHAPTER 14. MISCELLANEOUS PROVISIONS
Article 48. All items of insurance of the Joint Venture shall be taken out
----------
with appropriate insurers in China in accordance with relevant PRC laws and
regulations. The types, values and duration of insurance coverage etc. shall
be discussed and decided by the Joint Venture's Board of Directors in accordance
with relevant PRC laws regulations.
Article 49. These Articles of Association are written in Chinese and English.
----------
Both language versions shall be equally authentic.
15
Article 50. These Articles of Association must all be approved by the
----------
examination and approval authority of the People's Republic of China and shall
become effective on the date of approval ("Effective Date").
Any amendment to these Articles of Association shall require the signature of a
written agreement by the signatory Parties and become effective only after
submission to and approval by the examination and approval authority.
Article 51. Any notice from a Party which is made by telegram or telex and
----------
involves the rights and obligations of the Parties shall promptly be followed by
written notice in the form of a letter. The legal addresses of the Parties as
set forth herein shall be their correspondence addresses.
Article 52. These Articles of Association are signed in Dashi Town, Panyu
----------
Municipality, Guangdong Province, China by the authorized representatives of the
Parties on 5th August, 1997.
Article 53. The chop of the Company shall only be used with the authority of the
----------
General Manager. Every document to which the chop of the Company is affixed
shall be signed and chopped by the General Manager, or shall be signed and
chopped by the Deputy General Manager in accordance with a power of attorney
duly executed by the General Manager.
Party A: Party B:
------- -------
Panyu Tian Le Electrical D.V.S. H.K. Limited
Appliance Manufacturing Co. Ltd. For and on behalf of
D.V.S. H.K LIMITED
[SEAL APPEARS HERE]
By: /s/ Su Xxx Xxxx By: /s/ Xxxxxx Sun
------------------------ ---------------------------
Name: Mr Su Xxx Xxxx Name: Dr Edmund Sun
[UNRECOGNIZABLE CHARACTERS]
16
APPENDIX 1
----------
CAPITAL CONTRIBUTION SCHEDULE AND LIST
--------------------------------------
A. CAPITAL CONTRIBUTION SCHEDULE
Party A
-------
Party A shall contribute the Land Use Rights for Site, Existing Plant and
Machinery and Equipment described in Paragraph B below, within thirty (30) days
and after a business license is obtained.
Party B
-------
Party B shall contribute Cash and Inventory in accordance with the provisions of
Article 13 of the Contract. The Inventory contributed by Party B under this
Contract shall be selected by Party B in its absolute discretion.
B. LIST OF IN KIND CAPITAL CONTRIBUTIONS BY PARTY A
Land Use Rights for Site
------------------------
Comprises two parcels of land with an area of 6,981 square meters and 1,773
square meters, respectively located in Zhi Village, Dashi Town, Panyu
Municipality, Guangdong Province, PRC. The boundaries and exact location of the
Site is shown in the Site Map B attached hereto as page 1.
Existing Plant
--------------
1. see attached pages 2 to 3
Machinery and Equipment
-----------------------
1. see attached pages 4 to 5
17
[UNRECOGNIZABLE CHARACTERS]
[MAP APPEARS HERE]
LAND 1
(6,981 sq.m.)
LAND 2
(1,773 sq.m.)
Existing Plant
--------------
--------------------------------------------------------------------------------
No. Description Location Area Floor Structure Total
Address Approx. Area Number of
(m/2/) Approx. Stories
(m/2/)
--------------------------------------------------------------------------------
1 Seven story Zhi Village, 9890.08 1428.00 Frame 7
factory building Dashi, Panyu
--------------------------------------------------------------------------------
2 High-grade Zhi Village, 360.00 Mix 3
dormitory for staff Dashi, Panyu
and workers
--------------------------------------------------------------------------------
The seven story factory building and high grade dormitory for staff and workers
are further described on the Site Map A attached hereto.
2
[UNRECOGNIZABLE CHARACTERS]
[MAP APPEARS HERE]
DORMITORY BUILDING
7-STOREY FACTORY BUILDING
Machinery and Equipment
-----------------------
-----------------------------------------------------------------------------------------------------
No. Name, Model and Equipment No. Unit of Quantity Month and
Specifications Measurement Year of
Purchase
(Import)
-----------------------------------------------------------------------------------------------------
1 Color television (21"29"), piece 2 March 1995
ageing
-----------------------------------------------------------------------------------------------------
2 MD-88 assembly line piece 4 February 1995
-----------------------------------------------------------------------------------------------------
3 PN-155 disk-type rotating piece 1 December
production line 1995
-----------------------------------------------------------------------------------------------------
4 Assembly line piece 3 1995
-----------------------------------------------------------------------------------------------------
5 Drum-type transmission set 1 1997
assembly line
-----------------------------------------------------------------------------------------------------
6 Diesel Oil generator set piece 1 April 1995
-----------------------------------------------------------------------------------------------------
7 Wave soldering machine WST-1 piece 1 July 1995
-----------------------------------------------------------------------------------------------------
8 Numerically controlled XI6325A set 1 May 1995
universal xxxxxx
-----------------------------------------------------------------------------------------------------
9 Electroplating machine set 1 January 1995
-----------------------------------------------------------------------------------------------------
10 Electric door piece 1 April 1995
-----------------------------------------------------------------------------------------------------
11 Graphic instrument QT-2 piece 1 August 1995
-----------------------------------------------------------------------------------------------------
12 Servo SR200 piece 1 January 1995
-----------------------------------------------------------------------------------------------------
13 Vibrator piece 1 September
1995
-----------------------------------------------------------------------------------------------------
14 Color television, testing PLANTRON2 piece 7 March 1996
1"
-----------------------------------------------------------------------------------------------------
15 Color television, testing PLANTRON2 piece 2 November
9" 1995
-----------------------------------------------------------------------------------------------------
16 Color television, testing PLANTRON2 piece 7 November
5" 1995
-----------------------------------------------------------------------------------------------------
17 Oscilloscope WC4260 piece 35 December
1994
-----------------------------------------------------------------------------------------------------
18 Oscilloscope LBO-514A piece 5 December
1994
-----------------------------------------------------------------------------------------------------
19 Computer 486 set 4 December
1995
-----------------------------------------------------------------------------------------------------
20 Computer 386 set 2 September
1995
-----------------------------------------------------------------------------------------------------
21 Oscilloscope CO-13030 piece 4 March 1995
-----------------------------------------------------------------------------------------------------
22 Oscilloscope SOST041 piece 1 March 1995
-----------------------------------------------------------------------------------------------------
23 Air-cooling upright air set 3 January 1995
conditioner
-----------------------------------------------------------------------------------------------------
24 Handset piece 3 March 1996
-----------------------------------------------------------------------------------------------------
25 Handset piece 7 March 1996
-----------------------------------------------------------------------------------------------------
26 Transformer 630KNA set 1 March 1996
-----------------------------------------------------------------------------------------------------
27 Millivoltmeter piece 14 January 1995
-----------------------------------------------------------------------------------------------------
28 Facsimile machine piece 1 January 1996
-----------------------------------------------------------------------------------------------------
29 Fluorescent tube and support set 1 June 1995
-----------------------------------------------------------------------------------------------------
4
--------------------------------------------------------------------------------------------------------
No. Name, Model and Equipment No. Unit of Quantity Month and
Specifications Measurement Year of
Purchase
(Import)
--------------------------------------------------------------------------------------------------------
30 Air conditioner piece 5 November
1995
--------------------------------------------------------------------------------------------------------
31 Air conditioner piece 1 November
1995
--------------------------------------------------------------------------------------------------------
32 Air conditioner piece 3 May 1995
--------------------------------------------------------------------------------------------------------
33 Boss's chair piece 1 February 1996
--------------------------------------------------------------------------------------------------------
34 Leather sofa and office desk set 1 February 1996
--------------------------------------------------------------------------------------------------------
35 Telephone number line 7
--------------------------------------------------------------------------------------------------------
36 Telephone number line 6
--------------------------------------------------------------------------------------------------------
37 Supersonic wave cleaning piece 1 1997
machine
--------------------------------------------------------------------------------------------------------
38 Jet-flow tin furnace piece 1 1997
--------------------------------------------------------------------------------------------------------
39 Photocopier NPA15 piece 2 March 1997
--------------------------------------------------------------------------------------------------------
40 Tin furnace SE-10 piece 2 January 1995
--------------------------------------------------------------------------------------------------------
41 End cutting machine SE-28 piece 2 January 1995
--------------------------------------------------------------------------------------------------------
42 Compressor W-08/12-ACR piece 1 April 1995
--------------------------------------------------------------------------------------------------------
43 Wow/flutter meter MK-668C piece 2 February 1995
--------------------------------------------------------------------------------------------------------
44 Horizontal lathe L6127 piece 1 1994
--------------------------------------------------------------------------------------------------------
45 Any other machinery and equipment located within the Existing Plant as of the date of
this Contract
--------------------------------------------------------------------------------------------------------
5
