_________________________
JOINT VENTURE CONTRACT
_________________________
BY AND BETWEEN
__________________________________________________
TIANJIN TANGGU VALVE PLANT
AND
WATTS INVESTMENT COMPANY
__________________________________________________
_________________________
RELATING TO THE ESTABLISHMENT OF
TIANJIN TANGGU WATTS VALVE COMPANY LIMITED
_________________________
DATED JUNE 27, 1994
TABLE OF CONTENTS
ARTICLE 1 - DEFINITIONS 1
ARTICLE 2 - PARTIES TO THE CONTRACT 4
ARTICLE 3 - ESTABLISHMENT OF THE JOINT VENTURE COMPANY 6
ARTICLE 4 - THE PURPOSE AND SCOPE OF PRODUCTION AND OPERATION 8
ARTICLE 5 - TOTAL AMOUNT OF INVESTMENT AND REGISTERED CAPITAL 8
ARTICLE 6 - RESPONSIBILITIES OF THE PARTIES 17
ARTICLE 7 - PURCHASE OF PARTY A'S INVENTORY AND CONTRIBUTION
OF ASSETS 19
ARTICLE 8 - TECHNOLOGY AND TECHNICAL SERVICES 21
ARTICLE 9 - SALE OF JOINT VENTURE PRODUCTS 23
ARTICLE 10 - BOARD OF DIRECTORS 24
ARTICLE 11 - OPERATION AND MANAGEMENT 28
ARTICLE 12 - BUILDINGS AND LAND 31
ARTICLE 13 - TRADEMARKS 34
ARTICLE 14 - SUPPLY AND PURCHASE OF RAW MATERIALS AND SERVICES 34
ARTICLE 15 - LABOR MANAGEMENT 35
ARTICLE 16 - FINANCIAL AFFAIRS AND ACCOUNTING 37
ARTICLE 17 - TAXATION AND INSURANCE 42
ARTICLE 18 - CONFIDENTIALITY 43
ARTICLE 19 - THE JOINT VENTURE TERM 45
ARTICLE 20 - TFRMINATION, BUY-OUT AND LIQUIDATION PROCEDURES 46
ARTICLE 21 - FORCE MAJEURE 50
ARTICLE 22 - SETTLEMENT OF DISPUTES 51
ARTICLE 23 - EXPERT PROCEDURES 53
ARTICLE 24 - APPLICABLE LAW 54
ARTICLE 25 - MISCELLANEOUS PROVISIONS 55
SIGNATURES
LIST OF EXHIBITS
Exhibit A - Articles of Association
Exhibit B - List of PARTY A's Contribution of Machinery, Equipment and
Inventory
Exhibit C - Agreement Regarding Land Use Rights
Exhibit D - Technology License Contract between the Company and PARTY A
Exhibit E - Technology License Contract between the Company and PARTY B
Exhibit F - Trademark License Contract between the Company and PARTY B
Exhibit G - Plant Services Contract between the Company and PARTY A
Exhibit H - Export Distributor Contract between the Company and Party B
Exhibit I - Buildings Lease Contract
JOINT VENTURE CONTRACT
THIS CONTRACT is made in the People's Republic of China on
this 27th day of June, 1994, by and between TIANJIN TANGGU
VALVE PLANT a legal person duly organized and existing under the
laws of the People's Republic of China and having its registered
address at 5 Yongtai Road, Tanggu, Tianjin, the People's Republic of
China ("PARTY A") and WATTS INVESTMENT COMPANY, a company
duly organized and existing under the laws of the State of Delaware,
United States of America, and having its head office at 715 King
Street, Suite 300, Wilmington, Delaware, United States of America
19801 ("PARTY B").
PRELIMINARY STATEMENT
After friendly consultations conducted in accordance with the
principle of equality and mutual benefit, PARTY A and PARTY B have
agreed to establish a limited liability equity joint venture in
accordance with the Law of the People's Republic of China on Joint
Ventures Using Chinese and Foreign Investment (the "Joint Venture
Law"), the Implementing Regulations issued thereunder (the "Joint
Venture Regulations") and the provisions of this Contract.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
ARTICLE 1 - DEFINITIONS
Unless the terms or context of this Contract otherwise
provides, the following terms shall have the meanings set out below:
1.01 "Affiliate" means any company which, through ownership
of voting stock or otherwise, directly or indirectly, is controlled by,
under common control with, or in control of a PARTY; the term
"control" being used in the sense of power to elect a majority of
directors or to direct the management of a company.
1.02 "Approval Authority" shall mean the Ministry of
Foreign Trade and Economic Cooperation or the local authority
designated by such Ministry to approve this Contract and the Central
and Municipal agencies as may be necessary to implement the
provisions of this Contract and any ancillary contracts referred to
herein.
1.03 "Articles of Association" shall mean the Articles of
Association of the Company as set forth in Exhibit A attached hereto.
1.04 "Board" shall mean the board of directors of the
Company.
1.05 "Business License" shall mean the business license of the
Company issued by the SAIC following approval of this Contract.
1.06 "China or "PRC" shall mean the People's Republic of
China (and will refer to the Chinese Mainland only).
1.07 "Company" shall mean Tianjin Tanggu Watts Valve
Company Limited, a joint venture limited liability company formed by
the PARTIES pursuant to this Joint Venture Contract, the Joint
Venture Law, the Joint Venture Regulations, and other relevant
Chinese laws.
1.08 "Contributed Assets" shall mean those assets contributed
by PARTY A pursuant to Article 5.03(a) and which are more
particularly described in Exhibit B.
1.09 "Effective Date" shall mean the effective date of this
Contract, which date shall be the date on which all of the following
conditions have been fulfilled:
(a) Agreement and Articles. This Contract and the
Articles of Association have been approved by the Approval Authority
without any additional or different conditions being imposed; and
(b) Business License. The Business License has been
issued by the SAIC, reflecting the status and structure of the
Company as described herein, without any additional or different
conditions being imposed.
1.10 "Joint Venture Products" shall mean valve products
including center line wafer type butterfly valves, large rubber-seated
butterfly valves, high performance butterfly valves, above ground and
underground valves, gate valves, check valves, small high pressure
ball valves, large rubber-seated ball valves, and other valves used in
gas, liquid, water pipelines, mud and paper-making industries.
1.11 "Joint Venture Term" shall mean the term of the
Company as set forth in Article 19 hereof.
1.12 "Land" shall mean the land more particularly described in
Exhibit C and located at 5 Yongtai Road, Tanggu, Tianjin
Municipality, The People's Republic of China.
1.13 "Management Personnel" shall mean and include the
General Manager, Executive Vice General Manager, Vice General
Manager, Production Manager, Financial Controller, Marketing
Manager, Production Engineer, Auditor and such other personnel
designated as Management Personnel by the Board.
1.14 "PARTY" or "PARTIES" means PARTY A and PARTY B
individually or collectively.
1.15 "Renminbi" or "RMB" shall mean the lawful currency of China.
1.16 "SAEC" means the State Administration of Exchange
Control of China and/or its local branches as appropriate to the
context.
1.17 "SAIC" means the State Administration of Industry and
Commerce of China and/or its local branches as appropriate to the
context.
1.18 "United States Dollars", "U.S. Dollars" and "US$" shall
mean the lawful currency of the United States of America.
1.19 "Working Personnel" shall mean the employees of the
Company except the Management Personnel.
ARTICLE 2 - PARTIES TO THE CONTRACT
2.01 The Parties
The PARTIES to this Contract are:
(a) PARTY A, Tianjin Tanggu Valve Plant, registered in
Tanggu District, Tianjin, with its registered address at 5 Yongtai
Road, Tanggu, Tianjin, the People's Republic of China.
Legal Representative: Han You Sheng
Position: President
Nationality: Chinese
(b) PARTY B, Watts Investment Company, a company
registered in the state of Delaware, United States of America with its
head office at 715 King Street, Suite 300, Wilmington, Delaware,
United States of America 19801.
Legal Representative: David A. Bloss, Sr.
Position: Executive Vice President
Nationality: U.S.A.
2.02 Authority
Each PARTY hereby represents and warrants to the other
PARTY that, as of the date hereof and as of the Effective Date:
(a) such PARTY is duly organized, validly existing and
in good standing under the laws of the place of its establishment or
incorporation;
(b) such PARTY has all requisite power, authority and
authorization required to enter into this Contract and, upon the
Effective Date, will have all requisite power, authority and
authorization to perform fully each and every one of its obligations
hereunder;
(c) such PARTY has taken all actions necessary to
authorize it to enter into this Contract and such PARTY
representative whose signature is affixed hereto is fully authorized to
sign this Contract, and to bind such PARTY thereby;
(d) upon the Effective Date, this Contract shall
constitute the legal, valid and binding obligations of such PARTY;
(e) neither the execution of this Contract, nor the
performance of such PARTY's obligations hereunder, will conflict
with, or result in a breach of, or constitute a default under, any
provision of the Articles of Incorporation or By-Laws of such PARTY,
or any law, rule, regulation, authorization or approval of any
government agency or body, or of any contract or agreement to which
it is a party or subject;
(f) there is no lawsuit, arbitration, or legal,
administrative or other proceeding or governmental investigations
pending or, to the best knowledge of such PARTY, threatened against
such PARTY with respect to the subject matter of this Contract; and
(g) that all documents and information which is
provided to the other PARTY must be authentic, accurate and reliable
and will not have an adverse affect on such PARTY in performing its
obligations under this Contract.
ARTICLE 3 - ESTABLISHMENT OF THE JOINT VENTURE COMPANY
3.01 Establishment of the Company
The PARTIES hereby agree to establish the Company promptly
after the Effective Date in accordance with the Joint Venture Law, the
Joint Venture Regulations and the provisions of this Contract.
3.02 Name and Address of the Company; Branches
(a) Name. The name of the Company shall be:
"[CHINESE SYMBOLS]" in Chinese, and "Tianjin Tanggu Watts
Valve Company Limited" in English. At the expiration or
termination of this Contract, the Company shall forthwith change its
name by removing therefrom the trade names "Watts" and
"[CHINESE SYMBOLS]" without replacing them or any parts thereof
by any similar words or expressions. Similarly, notwithstanding
anything in this Contract to the contrary, should PARTY B's
participation in the registered capital of the Company at any time
during the existence of this Contract fall below 50%, the Company
shall forthwith change its name if requested by PARTY B in the same
manner as provided above. PARTY A in any case undertakes not to
continue or take over the Company's business using the trade name
"Watts" or "[CHINESE SYMBOLS]" or any parts thereof or any similar
words or expressions.
(b) Address. The legal address of the Company shall be 5 Yongtai Road,
Tanggu District, Tianjin, the People's Republic of China.
(c) Branches. The Company may establish necessary branch offices inside
of China with the approval of the
Board and the relevant authority in the location of the proposed
branch.
3.03 Limited Liability Company
The form of organization of the Company shall be a limited
liability company. Except as otherwise provided herein, once a
PARTY has paid in full its contribution to the registered capital of the
Company, it shall not be required to provide any further funds to or
on behalf of the Company by way of capital contribution, loan,
advance, guarantee or otherwise. Except as otherwise provided
pursuant to written agreement signed by the PARTY to be charged,
creditors of the Company shall have recourse only to the assets of
the Company and shall not seek repayment from any PARTY. The
Company shall indemnify the PARTIES against any and all losses,
damages or liability suffered by the PARTIES in respect of third-party
claims arising out of the operation of the Company. Subject to the
above, the profits, risks and losses of the Company shall be shared
by the PARTIES in proportion to and limited by their respective
contributions to the Company's registered capital.
3.04 Laws and Decrees
The Company shall be a legal person under the laws of China.
The activities of the Company shall be governed and protected by the
relevant published and publicly available laws, decrees, rules and
regulations of China.
ARTICLE 4 - THE PURPOSE AND SCOPE
OF PRODUCTION AND OPERATION
4.01 Purpose and Scope of the Company
(a) Purpose. The Company shall adopt advanced technology and scientific
management methods with the aim to earn lawful profits, gain a
competitive position in the market and make a contribution to the people
of China.
(b) Scope. The scope of the Company is to manufacture, distribute, and
sell Joint Venture Products.
ARTICLE 5 - TOTAL AMOUNT OF INVESTMENT AND
REGISTERED CAPITAL
5.01 Total Investment. The Company's total investment shall be
Two Hundred and Twenty Nine Million Eight Hundred and Ninety Thousand
Renminbi (RMB 229,890,000).
5.02 Registered Capital. The Company's registered capital
shall be One Hundred and Twenty Three Million Renminbi (RMB
123,000,000).
5.03 Contribution to Capital
(a) The contribution to the registered capital of the
Company subscribed by PARTY A shall be Forty Nine Million Two
Hundred Thousand Renminbi (RMB 49,200,000), representing a forty
percent (40%) share of the registered capital of the Company.
PARTY A's contribution shall consist of:
(i) Machinery and equipment as more particularly described in the list set
forth as Exhibit B which, based on the results of evaluation, the
PARTIES agree is valued at Twenty Seven Million Two Hundred and Ninety
Five Thousand Renminbi (RMB 27,295,000);
(ii) land development fee which, based on the results of evaluation, the
PARTIES agree are valued at Sixteen Million Four Hundred and Forty Nine
Thousand Renminbi (RMB 16,449,000);
(iii)Technology as more particularly described in Exhibit D which, based
on the results of evaluation, the PARTIES agree is valued at Three
Million Five Hundred and Thirty Seven Thousand Renminbi
(RMB 3,537,000); and
(iv) Inventory to be selected from the finished goods in PARTY A's total
inventory up to a cost value of One Million Nine Hundred and Nineteen
Thousand Renminbi (RMB 1,919,000).
(b) The contribution to the registered capital of the Company subscribed
by PARTY B shall be Eight Million Four Hundred Eighty Thousand United
States Dollars (US$8,480,000), equivalent to Seventy Three Million Eight
Hundred Thousand Renminbi (RMB 73,800,000) and representing a sixty
percent (60%) share of the registered capital of the Company.
(c) The capital contributions which shall be made by PARTY A and PARTY B
shall be used by the Company only in the implementation of this
Contract. Except as otherwise provided herein and in the Technology
License attached as Exhibit E, all of the items contributed by the
PARTIES to the Company shall remain the property of the Company
throughout the entire term of this Contract.
5.04 Payment of Registered Capital and Conditions Precedent Thereto
(a) Subject to Article 5.04 (b) below, each PARTY shall pay into the Company
the capital contribution subscribed by it as follows: one third of each
PARTY's capital contribution shall be contributed within a (30) days
after the Effective Date; an additional one third shall be contributed
within sixty (60) days of the Effective Date; and the final one third
shall be deposited within ninety (90) days of the Effective Date.
(b) Notwithstanding the foregoing, the PARTIES' obligations to make their
respective contribution to the Company's registered capital shall not
arise until each of the following conditions has been fulfilled:
(i) approval of the following, if necessary, has been obtained from the
Approval Authority or other relevant authorities:
(1) This Contract, the Articles of Association attached hereto as Exhibit A,
and theFeasibility Study; and
(2) the Technology License Contract to be executed by the Company and
Tianjin Tanggu Valve Plant in the form set forth in Exhibit D
attached hereto and made a part hereof, and
(3) the Technology License Contract to be executed by the Company and
Watts Investment Company in the form set forth in Exhibit E attached
hereto respectively and made a part hereof; and
(4) the Trademark License Contract to be executed by the Company and Watts
Investment Company in the form set forth in Exhibit F attached hereto
and made a part hereof,
(ii) the issuance of the Company's Business License (with a scope of
business as set forth in Article 4.01 hereof);
(iii)the Company has submitted an application to the Tianjin Commission
of Foreign Trade and Economic Cooperation for designation as a
"Technologically Advanced Enterprise"; and
(iv) the Company has received a land use rights certificate from the
relevant governmental authorities evidencing the Company's right to
the exclusive possession, use and enjoyment of the Land for the full
scope of operation specified in Article 4.01 for the Joint Venture Term.
5.05 Late Contribution to Registered Capital Subject to Article 5.04 (b) ,
any delay in payment of either PARTY's contribution in accordance with
Article 5.04 (a) shall result in a payment of penalty to the Company
equal to 1% of the relevant PARTY's total contribution for that month
or part thereof that the delay in payment continues.
5.06 Investment Certificate
After each PARTY's contribution to the registered capital has
been made in full, an independent Chinese registered accountant
appointed by the Company in accordance with this Contract shall
verify the contribution and issue a contribution verification report to
the Company. Thereupon, the Company shall issue within sixty (60)
days after the payment of the contribution an investment certificate
to each PARTY signed by the Chairman of the Board. Each
investment certificate shall indicate on its face the amount of the
capital contribution evidenced thereby and a copy shall be submitted
to the Approval Authority for the record. The Board shall request the
Financial Controller to maintain a register identifying the investment
certificates that have been issued to the PARTIES.
5.07 Additional Financing
(a) Any additional capital investment in excess of the registered capital
or additional required working capital, may be obtained in the form of
loans to the Company from Chinese or foreign sources. As a general
principle and subject to Board approval, borrowings of the Company, if
any, shall be secured by the tangible assets of the Company.
(b) Interest on loans incurred by the Company shall be debited as a
financing cost of the Company.
(c) Except for the portion of working capital (i) to be provided by the
PARTIES as capital contribution or (ii) from bank loans received by the
Company, additional operating funds may be obtained principally from
net revenues generated by sales of the Company or as agreed to by the
Board of Directors.
5.08 Transfer or Assignment of Register
(a) General Principle. Each PARTY hereto undertakes to the other PARTY
that, except as permitted in this Article 5.08, it shall not:
(i) transfer, assign, sell or otherwise dispose of the legal or beneficial
ownership of; or
(ii)create any mortgage, charge, pledge, or other encumbrance over either
the whole or any part of its interest in the Company's registered
capital ("Interest") or its rights, obligations and benefits under this
Contract.
(b) Transfers to Affiliates. Notwithstanding the foregoing, either of the
PARTIES ("Transferor Party") may transfer its Interest to its affiliates
("Transferee Affiliates") on giving thirty (30) days' prior written
notice to the other PARTY.
The PARTIES hereby agree that in any such transfer between a Transferor
Party and its Transferee Affiliates, the other PARTY shall:
(i) waive any pre-emptive rights to purchase the Transferor Party's
Interest;
(ii) upon the request of the Transferor Party, give its written consent to
such transfer; and
(iii) cause its directors on the Board to vote in favor of a resolution
approving such transfer.
(c) Transfers to Third Parties. A Transferor Party shall have the right to
transfer its Interest to a non-Affiliate third party ("Third-Party
Transferee") provided:
(i) the Transferor Party first offers to transfer its Interest to the other
PARTY ("Non-transferring Party") in accordance with the preemption
procedures set out in Article 5.08(d) below and the Non-transferring
Party has declined to exercise its rights thereunder;
(ii) the Non-transferring Party has given its consent to the transfer in
writing to the Transferor Party; and
(iii)the Board has unanimously passed a written resolution approving the
transfer.
(d) Pre-emptive Rights. Where a Transferor Party desires to transfer its
Interest to a Third-Party Transferee, the Non-transferring Party shall
have a preemptive right to purchase or acquire such Interest in
accordance with, the provisions of this Article 5.08(d). In any
proposed transfer to a Third-Party Transferee, the Transferor Party
shall provide written notice (the "Disposal Notice") to the
Non-transferring Party setting forth the identity of the
Third-Party Transferee, the amount of consideration to be paid and
other particulars of the proposed transfer. By written notice to the
Transferor Party within sixty (60) days from the date of the Disposal
Notice, the Non-transferring Party shall have the right, but not the
obligation, to either:
(i) acquire the Transferor Party's interest under the same terms and
conditions and for the same consideration offered to the Third-Party
Transferee; or
(ii) introduce a new party or parties of its choice ("Substitute Party or
Parties") to acquire such interest from the Transferor Party under the
same terms and conditions and for the same consideration offered to the
Third-Party Transferee.
(e) Pre-emptive Rights. If the terms and conditions of a proposed
assignment described in a Disposal Notice do not provide
a purchase price or provide a purchase price which is not payable
entirely in cash, then the Non-transferring Party, or the Substitute
Party or Parties, shall have a pre-emptive right of purchase
exercisable in the same manner as provided in Article 5.08(d) for a
purchase price equivalent to the open market value of the Company
allocated on a pro-rata basis to the Transferor Party's interest. For
purposes of this Article, the "open market value" of the Company
shall be determined by the PARTIES or, if the PARTIES are unable to
agree on such value within a (30) days of the date of the Disposal
Notice, by an Expert as defined in Article 23. The expenses of such
Expert shall be bore equally by the PARTIES.
(f) Disposal. If the Non-transferring Party, or the Substitute Party or
Parties, fails to exercise the pre-emptive right as aforesaid, the
Transferor Party may, subject to the consent of the Non-transferring
Party and the decision of the Board, assign, sell or otherwise dispose
of all or part of its Interest for a purchase price equal or greater to
that described in the Disposal Notice to a third party.
(g) Third Party to be Bound by Contract. Subject to this Article 5.08, in
the event of a sale, assignment or other disposition of the Transferor
Party's interest, any purchaser, transferee or assignee shall together
with the remaining PARTY or PARTIES execute such documents as are
necessary to make such third party bound by the terms of this Contract.
(h) Continued Operation. In the event that PARTY B, or a Substitute Party
or Parties, acquire PARTY A's interest and as a consequence the Company
is no longer a Sino-foreign equity joint venture, PARTY A shall assist
and support PARTY B in seeking the necessary approvals to allow PARTY B
to continue operations of the Company as a wholly foreign-owned
enterprise or otherwise.
(i) Approval. Any sale or assignment pursuant to this Article shall be
submitted to the Approval Authority for examination and approval.
Upon receipt of the approval of the Approval Authority, the Company
shall register the change in ownership with the SAIC.
(j) Confidentiality. Notwithstanding the assignment of the registered
capital pursuant to this Article, the PARTIES agree they will not be
relieved of their confidentiality obligations under Article 18 hereof.
The -above-mentioned confidentiality obligations shall remain in effect
for twenty (20) years following the effective date of such assignment.
5.09 Increase of Registered Capital
(a) Any increase in the registered capital of the Company shall be
contributed by the PARTIES in accordance with the ratio of each PARTY's
share of the registered capital at the time of such increase and within
the limit and in the form specified by the Board for such increase.
In the event of either PARTY refusing or failing to contribute to the
increase in the capital in full or in part, the same could be
contributed by the other PARTY in addition to its respective share of
the increase within the total increase in capital approved by the Board
with the resultant changes in the proportions of the interests of each
PARTY in the registered capital of the Company.
(b) Notwithstanding any other provision of this Contract, in the event that
PARTY B wishes to increase its share of the registered capital, PARTY A
shall have the right to make additional contributions in accordance
with the ratio of their interest of the registered capital at the time
of such increase and within the limit and in the form specified by
PARTY B, provided, however, that should either PARTY refuse or fail to
contribute to an increase in accordance with this Article 5.09(b), the
other PARTY shall be permitted to contribute to such increase with the
resultant changes in the proportions of the interest of each PARTY in
the registered capital of the Company. The PARTIES shall cause
their directors on the Board of Directors to vote in favor of an
increase in capital under this Article 5.09(b).
ARTICLE 6 - RESPONSIBILITIES OF THE PARTIES
6.01 Responsibilities of PARTY A
In addition to its other obligations under this Contract, PARTY
A shall be responsible for the following matters:
(a) Approvals. Assist the Company in obtaining (1) the right to use the
Land and Buildings for the Joint Venture Term, and (2) the approvals,
permits and licenses necessary for the establishment and operation of
the Company and the manufacture, distribution and sale of the Joint
Venture Products; (b) Tax Treatment. Assist the Company in applying
for and obtaining the most favorable tax and customs duty
reductions and exemptions and other investment incentives available
for the Company under the laws of China, Tianjin Municipality or
other local laws;
(c) Imports. Assist with the procedures for applying for, and procuring
licenses for the import of machinery and equipment, materials and
supplies required by the Company and arranging for the transport of
imported equipment;
(d) Employee Assistance. Assist the foreign or expatriate employees and
work force of the Company and of the parties with whom it contracts and
their families, to obtain all entry visas and work permits necessary,
and arrange boarding, lodging, office space, transportation and medical
facilities for such persons in Tianjin during the operation of the
Company;
(e) Bank Accounts. Assist the Company in opening RMB and convertible
currency bank accounts immediately upon issuance of the Company's
Business License;
(f) Raw Materials Assist the Company in securing preferential purchasing
status for purchases of raw materials, machinery and equipment in China,
including, if necessary, the official allocations of all raw materials
the Company deems critical at the lowest possible price;
(g) Technologically Advanced Enterprise. Assist the Company in the
application process for designation as a "Technologically Advanced
Enterprise" and securing the appropriate confirmation certificate;
(h) Loans. Assist the Company in obtaining RMB loans from local financial
institutions upon the decision of the Board;
(i) Modifications to Buildings. Assist the Company in organizing,
preparing and executing the detailed design, construction
and implementation of modifications and additions to the Buildings
including the layout of the machinery and equipment in accordance
with the design program to be provided by PARTY B pursuant to the
Technology License Contract attached as Exhibit E;
(j) Plant Services. Provide the Company with services as more particularly
described in the Plant Services Contract attached hereto as Exhibit G
including use of the clinic, canteen, buses for transportation of
personnel between their homes and the Company and other personnel
related services provided by PARTY A to Company's employees; and
(k) Sales Orders. Transfer to the Company any sales orders received by
PARTY A as of the Effective Date.
6.02 Responsibilities of PARTY B
In addition to its other obligations under this Contract, PARTY
B shall have the following responsibilities:
(a) Personnel. Assist the Company in recruiting personnel in charge of
management, technical, engineering, production, finance and quality
control;
(b) Domestic Materials. Assist the Company in the purchase of the equipment
and raw materials manufactured in China to ensure they are of the
proper quantity and quality for the conduct of the Company's business;
(c) Offshore Financing. Assist the Company in arranging offshore financing
subject to the decision of the Board;
(d) Technology Licence. Perform its obligations under the Technology License
Contract attached as Exhibit E; and
(e) Export Sales. Use its best efforts to assist the Company to achieve its
export target of 40%.
6.03 Expenses
In assisting the Company with respect to any matter discussed in Article
6.01 or 6.02, should either PARTY incur any reasonable expense on behalf
of the Company, such reasonable expenses will be reimbursed by the
Company.
ARTICLE 7 - PURCHASE OF PARTY A'S INVENTORY AND
CONTRIBUTION OF ASSETS
7.01 PARTY A's Inventory
Upon the execution of this Contract and subsequent to the
Effective Date, the Company will purchase selected raw materials,
finished components in addition to all or a portion of the work in
progress of PARTY A (the "Inventory") up to a cost value of Forty Five
Million Renminbi (RMB 45,000,000). The purchase price for the
Inventory will be the same as PARTY A's cost in manufacturing such
Inventory.
7.02 Condition Precedent to Purchase
The purchase by the Company of PARTY A's Inventory shall be
subject to the condition precedent that PARTY A's representations
and warranties as stated in Article 7.03 below remain as true and
accurate on the date of the purchase as if such representations and
warranties were made on the date of purchase. If any of the
representations or warranties of Article 7.03 concerning the Inventory
are not true and accurate on the date of purchase, the Company
may, in addition to whatever other rights it may have, refuse to
purchase all or a portion of the Inventory.
7.03 PARTY A Representations and Warrants
PARTY A represents and warrants as follows:
(a) PARTY A is the lawful owner of the Contributed Assets and the
Inventory, which are free and clear of any lien, mortgage or other
security interests and claims;
(b) PARTY A possesses rights, powers and authorization adequate for it to
dispose of the Contributed Assets and the Inventory in the manner
described in this Contract;
(c) there is no ongoing or future legal procedure, lawsuit, arbitration
procedure, administrative litigation or other government or court order,
interdiction, decision or ruling to which PARTY A is a party or which
binds or affects the Contributed Assets or the Inventory or is capable
of so doing;
(d) all information provided to PARTY B concerning the Contributed Assets
or the Inventory, business, finances and other aspects of business is
true, accurate and complete in every respect;
(e) as of the date of this Contract and as of the Effective Date, all of
the Contributed Assets are in good operating condition, consistent with
PARTY A's past practices;
(f) as of the Effective Date and as of the date of purchase of the Inventory,
all the Inventory selected by PARTY B in accordance with this Article 7
shall be of the quality and standard that is consistent with PARTY A's
past practices;
(g) PARTY A has conducted its business in compliance with all laws,
regulations, provisions and orders of any governmental authority with
jurisdiction over it, its business, finances or operations or its
property; and
(h) before and after the execution of this Contract, PARTY A has taken and
shall take all necessary or appropriate actions to cause this Contract
to be adequately performed in accordance with the terms hereof.
ARTICLE 8 - TECHNOLOGY AND TECHNICAL SERVICES
8.01 Technology License Contract with PARTY A
(a) PARTY A shall license certain proprietary technology to the Company
in accordance with the Technology License Contract set forth as Exhibit
D hereto.
(b) The PARTIES shall cause their representatives to execute the Technology
License Contract between the Company and PARTY A simultaneously with
the execution of this Contract; provided, however, that such contracts
will not enter into effect until (i) they have been approved by the
relevant Approval Authority and (ii) are ratified by the Board of
Directors after the issuance of the Business License.
8.02 Technology License Contract with PARTY B
(a) PARTY B shall license certain proprietary technology and provide
technical support and assistance to the Company in accordance with the
Technology License Contract set forth as Exhibit E hereto.
(b) The PARTIES shall cause their representatives to execute the Technology
License Contract between the Company and PARTY B simultaneously with
the execution of this Contract; provided, however, that such contracts
will not enter into effect until (i) they have been approved by the
relevant Approval Authority and (ii) are ratified by the Board of
Directors after the issuance of the Business License. The Parties
shall cause their Directors on the Board of Directors to vote in favor
of ratification of the Technology License Contract at the first Board
meeting.
8.03 Other Products
If the Company decides to produce other products utilizing
technology possessed by PARTY B not licensed to the Company, the
technology and know-how for producing such products will be
obtained from PARTY B through a separate technology license
agreement or agreements to be mutually negotiated and agreed
between the Company and PARTY B, subject to any applicable
provisions of the Technology License Contract to be executed between
the Company and PARTY B set forth as Exhibit E hereto.
8.04 Technologically Advanced Enterprise
As soon as feasible after issuance of the Business License, the
Company shall apply to the Approval Authority for certification as a
"Technologically Advanced Enterprise". The PARTIES agree that the
Company should qualify itself as a technologically advanced
enterprise and will therefore exercise their best efforts to obtain such
status for the Company.
ARTICLE 9 - SALE OF JOINT VENTURE PRODUCTS
9.01 Domestic Sales
The Company, with the assistance of the PARTIES, shall develop effective
sales channels for the domestic market with the aim of maximizing the
Company's profitability. Products may be sold for both Renminbi and
foreign exchange (or any combination thereof) upon approval of the SAEC.
The principles for determining the currency of the Company's sales shall
be set by the Board, and the sales prices shall be implemented and
adjusted, as required, by the General Manager.
9.02 International Sales
(a) The Company shall strive to make its products competitive on the
international market in terms of price, quality and delivery time;
provided that increasing export sales will be dependent on the Company's
products meeting international quality standards.
(b) Subject to paragraph (c) below, the Company shall appoint PARTY B as its
exclusive export distributor for its international sales and shall
enter into the export distributor contract substantially in the form
attached hereto as Exhibit H. As the exclusive export distributor,
PARTY B shall make its best efforts to assist the Company in reaching
its export targets.
(c) The Company may be permitted to act as an export distributor for the
Company's products with respect to export sales to existing clients or
customers of PARTY A, under terms and conditions to be agreed upon by
the Company and PARTY A.
ARTICLE 10 - BOARD OF DIRECTORS
10.01 The Formation of the Board
(a) Composition. The Board shall consist of five (5) directors, two (2)
of whom shall be appointed by PARTY A and three (3) of whom shall be
appointed by PARTY B. At the time this Contract is executed and each
time directors are appointed, each PARTY shall notify the others of the
names of its appointees.
(b) Term and Replacement. Each director shall be appointed for a term of
four (4) years and may serve consecutive terms if reappointed by the
PARTY which originally appointed him. If a seat on the Board is vacated
by the retirement, resignation, illness, disability or death of a
director or by the removal of such director by the PARTY which
originally appointed him, the PARTY which originally appointed such
director shall appoint a successor to serve out such director's term.
(c) Chairman. The Chairman of the Board shall be appointed by PARTY B, and
the Vice Chairman shall be appointed by PARTY A. The Chairman of the
Board shall be the legal representative of the Company. Whenever the
Chairman of the Board is unable to perform his responsibilities, he
shall authorize the Vice Chairman to exercise the Chairman's
responsibilities.
(d) Additional Attendees. Reflecting the importance of close
communications between the Board and the management of the
Company, the General Manager may attend Board meetings upon
invitation of a majority of the Board but shall not vote unless he is a
director in his own right. Other managers, including the Financial
Controller, as well as other parties that are not directly related to
the Company or either PARTY, may attend such meetings upon the
invitation of a majority of the Board.
10.02 Meetings and Powers of the Board
(a) Powers. The Board shall be the highest authority of the Company.
It shall discuss and determine all major issues regarding the Company.
(b) Meetings. The first Board meeting shall be held as soon as possible
within sixty (60) days after the date of issuance of the Business
License. Thereafter, regular meetings of the Board shall be held at
least two times each year. Upon the written request of three (3) or
more of the directors of the Company specifying the matters to be
discussed, the Chairman of the Board shall call a meeting of the Board.
(c) Notice and Agenda. Board meetings shall be held at the registered
address of the Company or such other address in China or abroad as may
be designated by the Chairman. Meetings shall be held on twenty-one
(21) days notice to the directors if held in China and thirty (30) days
notice if held abroad, provided that the directors may waive such notice
by unanimous written consent. A notice of a Board m meeting shall
cover the agenda, time and place for such meeting. The Chairman of the
Board shall be responsible for convening and presiding over such
meetings. The General Manager shall assist the Chairman in preparing an
agenda for each Board meeting.
(d) Proxies. In case a Board member is unable to participate in a Board
meeting in person or by telephone, he may issue a proxy and entrust
another person to participate in the meeting on his behalf. The have
the same rights and powers as the Board member. A representative shall
be permitted to serve as a proxy for up to three (3) Board members
appointed by the same PARTY as such representative. If a Board member
fails to participate or to entrust another to participate, he will be
deemed as having waived such right.
(e) Quorum. Four (4) directors present in person, by proxy or by telephone
shall constitute a quorum which shall be necessary for the conduct of
business at any meeting of the Board.
(f) Voting. Each director present in person, by proxy or by telephone at
a meeting of the Board of Directors shall have one vote.
(g) Unanimous Votes. Resolutions involving the following matters may only
be adopted at a duly constituted and convened meeting of the Board of
Directors upon the unanimous affirmative vote of each and every director
of the Board voting in person, by proxy or by telephone at such meeting:
(i) the amendment of the Articles of Association;
(ii) the merger of the Company with another organization;
(iii) termination and dissolution of the Company; and
(iv) the increase or assignment of the Company's registered capital.
(h) Super Majority. Resolutions involving the following major matters may
only be adopted at a duly constituted and convened meeting of the Board
of Directors upon the affirmative vote of four (4) directors of the
Board voting in person, by proxy or by telephone at such meeting:
(i) the formulation of or changes to the management structure of the Company;
(ii) the formulation of policies and plans relating to the recruitment of
employees, employees wages, welfare and compensation, as well as the
formulation of labor management rules; and
(iii)the appointment, dismissal, limitations on authority and compensation
of Management Personnel, except the Executive Vice General Manager.
(i) Simple Majority. Other issues that require resolutions by the Board
may be raised at a duly convened meeting of the Board and must be
adopted by the affirmative vote of three (3) of the directors present
in person, by proxy or by telephone at such meeting where a quorum is
present.
(j) Action without a Meeting. Any action 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 or
majority vote, as the case may be, taken by members physically present.
(k) Expenses. The Company shall be responsible for the reasonable travel,
lodging and meal expenses incurred by appointed directors or their proxy
in attending Board meetings.
ARTICLE 11 - OPERATION AND MANAGEMENT
11.01 Management Procedures and Structures
The policies, structures and procedures concerning operational
management, sales and marketing, health and safety,
environmental and technological matters, which may be adopted by
the Board from time to time shall be developed in consultation with
PARTY B so as to be generally in accordance with PARTY B's
practices in its worldwide operations subject to the overall direction
and approval of the Board.
11.02 Management Organization
The Company shall adopt a management system under
which the management organization shall be responsible to and
under the leadership of the Board. All Management Personnel,
including the General Manager, Executive Vice General Manager, and
Vice General Manager shall serve at the discretion of the Board. The
Company shall have a General Manager nominated by PARTY A, an
Executive Vice General Manager nominated by PARTY B and a Vice
General Manager nominated by PARTY A and appointed by the Board
pursuant to a duly adopted resolution. The terms of office of the
General Manager, Executive Vice General Manager and Vice General
Manager shall be as determined by the Board. The General
Manager, Executive Vice General Manager and Vice General Manager
may be dismissed only by a resolution of the Board of Directors. If it
becomes necessary, due to dismissal or resignation, to replace the
General Manager, Executive Vice General Manager or Vice General
Manager, PARTY A shall nominate the General Manager's
replacement, PARTY B shall nominate the Executive Vice General
Manager's replacement and PARTY A shall nominate the Vice General
Manager's replacement for appointment by the Board.
11.03 Responsibilities and Powers of the General Manager
The duties of the General Manager shall consist of carrying out
the decisions of the Board and organizing and directing the day-to-
day operation and management of the Company in accordance with
the modern management practices and structures as determined by
the Board. Within the scope granted by the Board, the General
Manager will represent the Company in external matters and, within
the Company, he will appoint and dismiss personnel subordinate to
himself and exercise other functions and powers granted him by the
Board.
11.04 Management Personnel
(a) Other Management Personnel. The Company shall have such number and
types of other Management Personnel as determined by the General Manager
and approved by the Board to be necessary or advisable to implement the
modern management practices and structures determined by the Board.
All Management Personnel shall be responsible to and under the direction
of the General Manager.
(b) Salaries. The salaries and other remuneration of the Management
Personnel of the Company (including the General Manager) shall be
determined by the Board in its sole discretion on an individual basis.
11.05 Annual Plans and Budgets
The General Manager, assisted by the other Management Personnel,
shall be responsible for the preparation of the annual business plan
and budget of the Company. The annual business plan and budget
(including the projected balance sheet, profit and loss statement and
cash transaction report) for each fiscal year shall be submitted to the
Board and shall include comprehensive detailed information on:
(a) the procurement of equipment and other assets of the Company;
(b) the raising and application of funds;
(c) plans with respect to production and sale of Joint Venture Products;
(d) the repair and maintenance of the assets and equipment of the Company;
(e) the estimated income and expenditures of the Company covered by the
production plan and budget;
(f) plans for training the staff and workers of the Company;
(g) wage and salary plans for staff and workers of the Company;
(h) requirements of raw materials, fuel, water, electricity and other
utilities, and all other inputs for the next year's production;
(i) plans for the proportion of foreign currency sales;
(j) plans for balancing foreign exchange receipts and expenditures; and
(k) any other matter in respect of which the Board may have requested a
report.
The General Manager shall prepare a monthly management report containing
such information as shall be requested by the Board.
11.06 Approval and Implementation of Annual Plans and Budgets
The Board shall examine and approve the annual business plan and budget.
The General Manager, assisted by the other Management Personnel, shall
be responsible for the implementation of the plan and budget approved
by the Board.
ARTICLE 12 - BUILDINGS AND LAND
12.01 Description of Location of Buildings
The Buildings, located at 5 Yongtai Road, Tanggu, Tianjin
Municipality, The People's Republic of China, are more particularly
described in the Building Lease Contract set forth as Exhibit I.
12.02 Buildings Lease Contract
Simultaneously with the execution of this Contract, the PARTIES will
cause their representatives to execute the Buildings Lease Contract
attached hereto as Exhibit I on behalf of the Company;
provided, however, that such Contract shall not enter into effect until
ratified by the Board of Directors.
12.03 Land Description
The Land located on the site, which consists of an area of
63,265.79 square meters at 5 Yongtai Road, Tanggu, Tianjin
Municipality, the People's Republic of China.
12.04 Land Use Rights
Details and undertakings regarding the land use rights are set
forth in the "Agreement Regarding Land Use Rights" attached hereto
as Exhibit C. Within a (30) days after the Effective Date, Party A
will use its best efforts to complete all necessary formalities
regarding the transfer of the land use rights to the Company and
procure on behalf of the Company the "Land Use Rights Certificate for a
Foreign Invested Enterprise" in the Company's name.
12.05 Representation and Warranties
PARTY A hereby represents and warrants that:
(a) it has acquired and presently possesses the exclusive right to use the
Buildings for the Joint Venture Term or longer;
(b) except for the land use fees described in Exhibit C, no other fees are
or will be payable with respect to the Company's use of land for the
entire Joint Venture Term; any such additional fees will be the
responsibility of PARTY A and PARTY A shall indemnify and hold harmless
the Company and PARTY B against any obligation to pay such fees.
(c) upon the Effective Date, the Company will possess the exclusive right
to use the Buildings and the Land for the Joint Venture Term;
(d) possesses the authority to lease the Buildings to the Company;
(e) the Buildings and Land will be free of defects and free and clear of
any mortgage, lien or encumbrance;
(f) no government or administrative department, military unit, organization,
company, or any entity in any form, or any individual, has any right or
potential right to use, occupy, or control the Buildings and the Land
or any part thereof or to subject PARTY A's right to use the Buildings
and the Land to any conditions except for those specified herein.
12.06 Indemnity
(a) With respect to the Buildings and the Land and the operations of
PARTY A prior to the establishment of the Company at the Buildings and
the Land, PARTY A shall indemnify and hold harmless PARTY B and the
Company against all damages, losses, costs, judgments, expenses
(including reasonable attorney's fees) in connection with:
(i) any operations of PARTY A which resulted in the discharge of air
pollutants, water pollutants or process wastewater or the disposal of
solid or hazardous wastes;
(ii) any pollution to the environment or other event, condition or
circumstance arising before the Effective Date that may interfere with
the conduct of the Company's business or the Company's compliance with
any environmental laws or regulations;
(iii) any environmental contamination presently on or arising from the
Buildings and the Land or failure by PARTY A to have contained
substances which are or may be harmful to the environment, or which may
require the Company to undertake any remedial or corrective work; and
(iv) the failure by PARTY A to have obtained all necessary permits,
environmental clearances and other governmental approvals required for
the conduct of its operations.
(b) PARTY A shall indemnify and hold harmless PARTY B and the Company
against all damages, losses, costs, judgments and expenses
(including reasonable attomey's fees) arising out of or caused by the
actions or omissions of PARTY A.
12.07 Additional Fees and Taxes
Party A shall bear the costs of any additional fees or taxes imposed in
connection with the use of the Buildings or the Land apart from the
fees and taxes specified in Exhibit C, "Agreement Regarding Land Use
Rights", and Exhibit 1, Buildings Lease Contract.
12.08 Plant Services and Related Fees
PARTY A shall provide certain employee and operating services
to the Company in accordance with a fee-based Plant Services
Contract to be executed after the issuance of the Company's
Business License between the Company and PARTY A. These
services shall include employee food service, clinic, buses to
transport employees between their homes and their place of work and
other services. A list of the services covered will be included as part
of the Plant Services Contract attached as Exhibit G.
ARTICLE 13 - TRADEMARKS
13.01 Trademark Licenses
Simultaneous with the execution of this Contract, the Company and
PARTY B shall execute the Trademark License Contract attached as
Exhibit F, provided that such Contract shall enter into effect only
after ratification by the Board and after the issuance of the Business
License. The PARTIES shall cause their Directors on the Board to vote
in favor of ratification of the Trademark License Contract at the first
Board meeting. Upon the termination of this Contract, neither the
Company nor PARTY A shall have any right to use the trademarks licensed
under such Contract.
ARTICLE 14 - SUPPLY AND PURCHASE OF RAW
MATERIALS AND SERVICES
14.01 Raw Materials and Supplies
It is contemplated by the PARTIES that the raw material, parts,
means of transportation and other supplies required by the Company
for the production of Joint Venture Products will be first purchased
within China provided that such goods are of the requisite quality,
competitively priced and otherwise meet the requirements of the
Company.
14.02 Imported Materials, Supplies and Equipment
The Company shall subject to Article 14.01 above have the right to
import raw materials, machinery, equipment, components, spare parts and
other supplies in the qualities, quantities and prices necessary for
the production of Joint Venture Products.
14.03 Domestic Materials and Supplies
Materials, supplies and services purchased by the Company within China
shall be purchased in Reminbi at either the lowest market price, or the
prices charged to local state-owned enterprises for purchases of similar
materials and services.
14.04 Services The Company shall have the right to appoint foreign
architects, consultants, engineers and contractors to undertake
relevant work when there are no local companies or individuals qualified
or available to undertake such work according to the General Manager.
ARTICLE 15 - LABOR MANAGEMENT
15.01 Governing Principle
The General Manager shall formulate a plan for matters concerning the
recruitment, employment, dismissal, wages, labor insurance, welfare
benefits, reward and discipline of the workers and staff members of the
Company in accordance with modem management standards, practices and
policies determined by the Board, the "Regulations of the People's
Republic of China on Labor Management in Joint Ventures Using Chinese
and Foreign Investment ", the "Provisions of the Ministry of Labor and
Personnel of the People's Republic of China on the Right of Autonomy of
Enterprises with Foreign Investment in the Hiring of Personnel and
on Wages, Insurance and Welfare Expenses of Staff and Workers",
and relevant regulations of Tianjin Municipality. The plan shall be
submitted for the approval of the Board of Directors.
15.02 Working Personnel
Working Personnel shall be employed by the Company in accordance with
a labor contract which shall be entered into between the Company and
each individual worker after the establishment of the Company. Such
labor contract shall establish all terms governing the employment,
duties and benefits of that individual. The Board shall approve the
general form and terms and conditions included in such contracts.
15.03 Management Personnel
Management Personnel shall be employed by the Company in accordance with
the terms of individual employment contracts. The detailed terms and
conditions of the employment and compensation of the Management
Personnel shall be decided by the Board.
15.04 Expatriate Personnel
As the Company's needs require, expatriate Management Personnel and
senior technical personnel shall be hired by the General Manager after
approval by the Board of Directors, upon the recommendation of PARTY B.
Such personnel shall enter into individual employment contracts with
the Company. The PARTIES agree that such expatriate personnel shall
receive salaries and benefits in accordance with PARTY B's personnel
policies.
15.05 Conformity with Labor Protection
The Company shall conform to rules and regulations of the Chinese
government concerning labor protection and ensure safe and civilized
production. Labor insurance for the working personnel of the Company
shall be handled in accordance with the relevant regulations of the
Chinese government.
15.06 Trade Union
To the extent required by law, the Company shall establish a trade union
to represent the rights and interests of the workers and staff members,
to mediate disputes between the workers and staff members on the one
hand and the Company on the other and to protect the lawful interests
of the workers and staff members. To the extent required by law, the
Company shall actively support the work of the trade union, provide the
trade union facilities to conduct union activities and other lawful
activities after working hours, and allocate trade union funds.
15.07 Trade Union Fund
In accordance with Article 99 of the Joint Venture Regulations,
the Company shall allot each month two Percent (2%) of the total
amount of real wages received by the company staff and workers,
including expatriate employees, for payment into a trade union fund,
such payments to be an expense of the Company. The trade union
may use these funds in accordance with the relevant control
measures of labor union funds formulated by the All China
Federation of Labor Unions.
ARTICLE 16 - FINANCIAL AFFAIRS AND ACCOUNTING
16.01 Accounting System
(a) Responsibilities. The Financial Controller of the
Company, under the leadership of the General Manager, shall be
responsible for the financial management of the Company.
(b) Procedures. The General Manager and the
Financial Controller shall prepare the accounting system and
procedures in accordance with the Accounting System of the People's
Republic of China for Foreign Investment Enterprises, the
supplementary stipulations promulgated by the Ministry of Finance
and, to the extent possible, general accepted international accounting
principles. All vouchers, receipts, statistical statements and reports
shall be written in Chinese and English concurrently. In addition,
the Company shall adopt operating and financial policies and
procedure sand shall prepare periodic reporting of financial
information in accordance with the requirements of PARTY B.
16.02 Auditing
(a) Company Auditor. The Board shall establish a
position for a Company Auditor who will be responsible for examining
and auditing the Company's financial and accounting books and will
prepare a report for the Board and expenditures the General
Manager.
(b) Independent Audit. An independent accountant
registered in China and otherwise qualified to render opinions on the
compliance by the Company with the accounting standards provided
herein, shall be engaged by the Board of Directors as the Company's
auditor to examine and verify the annual report on the final accounts
("Independent Auditor"). The Company shall submit to the PARTIES
the annual financial statements (including the audited Profit and
Loss Account, the Balance Sheet and Cash Flow Balance and Foreign
Exchange Balance for the fiscal year) within three (3) months after
the end of the fiscal year, together with the audit report of the
Chinese registered accountant. The annual financial statements, the
audit report and the monthly reports shall be prepared in both
Chinese and English.
(c) Board Review. The Board shall review and approve
the periodic audits of the accounts. In the event that the Board
determines that the audits submitted by the Independent Auditor are
unable to properly meet the standards set forth above, the Board may
replace the Independent Auditor or retain another auditor at
Company expense, to supplement or adjust the work of the
Independent Auditor or to perform specific accounting and auditing
tasks.
(d) Notwithstanding anything contained in 16.02(a)
and (b), at PARTY B's cost, PARTY B may at any time, employ a
foreign auditor or send its internal auditor to examine the records
and procedures of the Company and PARTY A and the Company shall
cooperate and use best efforts to assist such auditors.
16.03 Bank Accounts and Foreign Exchange Control
The Company shall separately open foreign exchange accounts
and Renminbi accounts at banks within or outside China upon
approval by the relevant authorities. The Company's foreign
exchange transactions shall be handled in accordance with the
regulations of China relating to foreign exchange control.
16.04 Foreign Exchange Balance
The Company shall be responsible to maintain a balance in its
foreign exchange receipts and expenditures. The principal methods
for balance foreign exchanges will be as follows:
(i) Foreign Currency Sales. The primary means
for balancing foreign exchange will be through the sale of the
Joint Venture Products in foreign currency.
(ii) Export of Domestic Product. Subject to the
approval of the Approval Authority, the Company may
purchase products domestically in Renminbi and export them
for foreign currency.
(iii) Other Measures. If the Company is unable
to balance its foreign exchange using the measures described
above, the Board of Directors will consider all other methods
permitted under the laws and regulations of the People's
Republic of China.
16.05 Fiscal Year
The Company shall adopt the calendar year as its fiscal
year for Chinese statutory accounting purposes, which shall begin on
January 1 and end on December 31 of the same year, provided that
the first fiscal year of the Company shall commence on the date the
Company receives its Business License, and shall end on the
immediately succeeding December 31.
16.06 Allocations to Three Funds
To the extent required by law, the Company shall make
payments in Renminbi into a reserve fund, an enterprise expansion
fund and a bonus and welfare fund for its workers and staff members
(the "Three Funds"). The proportion of each year's payments shall be
discussed and determined by the Board of Directors on the basis of
the Company's circumstances and in the general interest of the
Company and its workers; provided, however, that the payments to
each individual Fund shall not exceed seven percent (7%) of the
Company's after tax income and the total of the payments to the
Three Funds shall not exceed fifteen percent (15%) of the Company's
after-tax income in the relevant year. Plans for the application of
these Three Funds shall be formulated by the General Manager.
16.07 Profit Distribution
(a) Proportionate Distributions. After required
allocations, if any, have been made to the Three Funds in accordance
with Article 16.06, the Board shall determine distribution of profits
by way of dividend among the PARTIES in proportion to their
respective shares in the registered capital of the Company and the
balance of net profits will be retained in the Company and utilized as
may be decided by the Board from time to time. If the Company
carries over losses from the previous year, the profit of the current
year shall first be used to cover such losses. No profit shall be
distributed unless a prior deficit is made up. The profit retained by
the Company and carried over from the previous years may be
distributed together with the distributable profit of the current year,
or after the deficit of the current year is made up therefrom.
(b) Insufficient Foreign Exchange. In the event that
there is not sufficient foreign exchange to pay PARTY B's share of
distributed profits, the Company shall, to the extent of the unpaid
portion, hold distributed Remninbi profits in trust for PARTY B in a
special interest bearing account set up for that purpose, when such
account is available, in satisfaction of the Company's obligation to
distribute such share of the Company's profit to PARTY B. From and
after the date on which such account is established, the Company
shall not withdraw or use the funds therein except upon PARTY B's
prior written instructions. When the Company obtains foreign
exchange that is available for distribution to PARTY B pursuant to
Article 16.07 (a), the Company any interest earned therefrom) with its
U.S. Dollar equivalent in accordance with the average of the buying
and selling rates published by the Bank of China at the time of the
transaction. The Company shall then immediately pay such U.S.
Dollars to PARTY B. PARTY B may from time to time instruct the
Company to distribute Renminbi as directed by PARTY B in such
account for any legal purpose.
(c) Method of Payment. All payments to be
distributed under this Article 16 shall at the request of the receiving
PARTY be remitted to an account at a bank specified in advance by
such PARTY.
ARTICLE 17 - TAXATION AND INSURANCE
17.01 Income Tax, Customs Duties and Other Taxes
(a) Tax Payments. The Company shall pay tax under
the relevant laws of China and any special tax regulations applicable
to Tianjin. Chinese and foreign management and working personnel
shall be periodically reminded to pay their individual income tax in
accordance with the tax laws of China.
(b) Tax Preference. The Company will use its best
endeavors to apply for and obtain preferential tax treatment,
reductions and exemptions, as provided by the relevant regulations.
Promptly after the execution of this Contract, the PARTIES shall
submit an application to the Tianjin Municipal Tax Bureau for
confirmation of the Company's tax treatment.
17.02 Insurance
The Company shall, at its own cost and expense, take out and
maintain full and adequate insurance of the Company against loss or
damage by fire and such other risks as may be decided by the Board.
The property, transportation, product liability and other items of
insurance of the Company shall be obtained within or outside China,
subject to any legal restrictions which may apply, and such policies
will be denominated in Chinese and foreign currencies, as
appropriate. The types and amounts of insurance coverage shall be
determined by the Board in accordance with applicable Chinese laws,
if any.
ARTICLE 18 - CONFIDENTIALITY
18.01 Confidential Information
From time to time and during the term of this Contract, either
PARTY may disclose to one another whether in writing, orally,
visually or by any other means, information which is either non-
public, confidential or proprietary in nature. All such information
disclosed to one PARTY, including to its directors, officers, employees,
agents or representatives, including attorneys, accountants and
consultants (collectively, "Representatives"), by the other PARTY or
any of its Representatives, and all proposals, analyses, studies or
other documents prepared by either PARTY or its Representatives
containing or based, in whole or in part, on any such information is
herein referred to as the "Confidential Information".
18.02 Mutual Obligation
Except as otherwise provided in any Agreement between the
Company and a PARTY, the receiving PARTY will during the term of
this Contract and for twenty (20) years after or in the event the
Company is not established, for 50 years after the date of this
Contract, keep confidential and will not, without the prior written
consent of the PARTY originally disclosing the Confidential
Information, disclose the Confidential Information in whole or in part
to any third party. The Confidential Information will not be used by
the PARTY receiving the Confidential Information or its
Representatives directly or indirectly for any purpose other than
evaluating and/or in connection with the establishment or operation
of the Company. The PARTY receiving the Confidential Information
agrees to transmit the Confidential Information only to those
Representatives on a need to know basis provided that the Party
receiving the Confidential Information notifies the PARTY disclosing
the Confidential Information prior to the disclosure and provided
further that the Representatives are informed of the confidential
nature of the Confidential Information. The PARTY receiving
Confidential Information will be responsible for any breach of this
Article 18 by any of its Representatives and will indemnify and hold
harmless the PARTY disclosing the Confidential Information for any
losses, damages, fees or expenses (including reasonable attomey's
fees) arising out of or resulting from such breach.
18.03 Return of Confidential Information
The written Confidential Information and all copies thereof will
be destroyed or returned immediately, without retaining any copies
thereof, as directed by the PARTY disclosing the Confidential
Information, if such PARTY is no longer privy to the Contract or upon
termination of this Contract.
18.04 Disclosure
In the event that the PARTY receiving the Confidential
Information or its Representative is requested or becomes legally
compelled to disclose any of the Confidential Information, such
PARTY will notify the other PARTY promptly in writing so that the
PARTY which originally disclosed the Confidential Information may
seek a court order or other appropriate remedy and/or waive compliance with
this Article 18; the PARTY who has been requested or who has become legally
compelled to disclose any of the Confidential Information will cooperate
with the other PARTY in such efforts. In the event that a court order or
other remedy is not obtained, the PARTY who has been compelled to disclose
Confidential Information will disclose only that portion of the Confidential
Information which is legally required and will exercise its best efforts
to obtain an assurance that the Confidential Information will be treated
confidentially.
18.05 Public Domain
The foregoing obligations of confidentiality, non-disclosure and non-use
shall apply to Confidential Information which:
(a) the PARTY receiving the Confidential Information is already in
possession of such Confidential Information at the time of disclosure,
and which was not acquired directly or indirectly from the PARTY
disclosing the Confidential Information; or
(b) was in the public domain at the time of disclosure; or
(c) has become part of the public domain by publication through no fault
of the PARTY receiving the Confidential Information.
ARTICLE 19 - THE JOINT VENTURE TERM
19.01 Joint Venture Term
The Joint Venture Term of the Company shall commence on
the Effective Date and shall expire thirty (30) years therefrom.
19.02 Extension of the Joint Venture Term
Prior to the expiration of the Joint Venture Term, upon the
agreement of the PARTIES, the Company may apply for an extension
of up to a (30) years. The PARTIES will notify the Board of their
desire to extend the term no later than nine (9) months prior to
expiration of the Joint Venture Term. The PARTIES shall cause their
directors on the Board to unanimously approve such extension and
will submit an application for such extension to the Approval
Authority for approval no less than six (6) months prior to the
expiration of the Joint Venture Term. PARTY B shall be offered
terms under an extended term that are no less favorable than the
terms of this Contract and those being offered at that time to other
foreign enterprises negotiating joint venture projects in China.
19.03 Failure to Agree on Extension
Upon the expiry of the term of the Company as set out in
Article 19.01, and any extension thereof under Article 19.02, this
Contract shall terminate and the provisions of Article 20 hereof shall
apply.
19.04 Contract to Continue in Force
This Contract shall remain in force for the term of the
Company and any extension thereof provided that the rights and
obligations of the PARTIES under Article 18 shall remain in force
indefinitely notwithstanding expiry of this Contract or liquidation of
the Company.
ARTICLE 20 - TFRMINATION, BUY-OUT AND
LIQUIDATION PROCEDURES
20.01 Reasons for Termination
A PARTY shall have the right to terminate this Contract by
written notice to the other PARTY and notify of its desire to
commence negotiations under Article 20.02 below if the following
occurs:
(a) Material Breach. If the other PARTY materially
breaches this Contract or violates the Articles of Association, and
such breach or violation is not cured within sixty (60) days of written
notice to the breaching Party;
(b) Liquidation. If the Company or the other PARTY
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 become due;
(c) Expropriation. If all or any material part of the
assets of the Company are expropriated by any government
authority;
(d) Government Action. If any government authority
having authority over a PARTY requires any provision of this
Contract or the Articles of Association to be revised in such a way as
to cause significant adverse consequences to the Company or any of
the PARTIES;
(e) Force Majeure. If the conditions or consequences
of Force Majeure prevail for a period in excess of three (3) consecutive
complete calendar months and the PARTIES have been unable to find
an equitable solution pursuant to Article 21.01(d) hereof;
(f) Termination of Related Agreements. If any of the
Technology License Contract, Trademark License Contract or the
Export Agency Contract between the Company and PARTY B is
terminated prior to its scheduled expiration (in which case only
PARTY B shall have the right to terminate); or
(g) Economic Necessity. If an event described in
Article 24.02 hereof occurs, or the effects of the market such as
pricing, competition or cost of materials has an adverse impact and
the PARTIES do not reach an agreement on economic adjustment
within sixty (60) days after the initiation of discussions.
20.02 Notification Procedure
In the event that a PARTY gives notice pursuant to Article
20.01 hereof a desire to terminate this Contract, the PARTIES shall
within a one-month period after such notice is given commence
negotiations and endeavor to resolve the reason for notification of
termination. In the event matters are not resolved to the satisfaction
of the PARTIES within one month after commencement of
negotiations or the non-notifying PARTY refuses to commence
negotiations within the period stated above, the notifying PARTY may
terminate this Contract by and effective upon giving the other PARTY
final written notice of termination.
20.03 Buy-Out
(a) In the event that this Contract is terminated
pursuant to Article 20.01 or for any other reason (whether by the
expiration of the Joint Venture Term, agreement of the PARTIES or
otherwise), then any PARTY shall be entitled to withdraw from the
Joint Venture (the "Withdrawing Party") and the other PARTY (the
"Acquiring Party") shall have a priority right to purchase the
Withdrawing Party's interest in the Joint Venture Company's
registered capital ("Interest"). If desired, the Acquiring Party may
continue the operations of the Company. For this purpose:
(i) the PARTIES shall agree upon the value of
the Company and if they are unable to so agree within a (30)
days such value will be determined within thirty (30) days
thereafter, at the expense of the Company, on a going concern
basis, and if the PARTIES are not able to agree, then such
value shall be determined by an Expert in accordance with
Article 23;
(ii) the purchase price for the Withdrawing
Party's Interest shall be equal to that percentage figure which is such
PARTY's percentage share of the registered capital of the Company
multiplied by the value of the Company as so agreed upon or
determined;
(iii) the Withdrawing Party may decline to sell its
Interest in the Company to the Acquiring Party within fifteen (15)
days of notification of the value of the Company as determined above.
(b) The full purchase price for the Withdrawing Party's
Interest shall be paid by the Acquiring Party in United States Dollars.
Such payment shall be made within sixty (60) days after the PARTIES
shall have agreed upon the value of the Company or notification of
the value of the Company as determined by the above-mentioned
Expert. If PARTY A purchases the Interest of PARTY B the United
States Dollar purchase price will, upon application to the SAEC, be
freely remittable out of China in accordance with the foreign
exchange regulations of China.
(c) Any other provisions of this Contract to the
contrary notwithstanding, until such time as the sale of the Interest
of a Withdrawing Party to the Acquiring Party or Parties is completed,
the Company will continue to conduct its business in the ordinary
course.
20.04 Liquidation
(a) Option upon Termination. In the event that this
Contract has been terminated in accordance with 20.01 hereof or for
any other reason and the PARTIES have not agreed on an acquisition
of the Company as a going concern by either PARTY or by a third
party, then the physical assets of the Company shall be valued by
and liquidated under the direction of a Liquidation Committee formed
within 30 days of termination in accordance with the Joint Venture
Regulations.
(b) Valuing and Selling Procedure. In valuing and
selling physical assets, the Liquidation Committee shall use every
effort to obtain the highest possible price for such assets, including
the retention of an independent third party expert knowledgeable in
assessing the value of the types of assets owned or held by the
Company to assist in such valuation. Any disputes as to valuation
by the expert shall be handled in accordance with Article 23. Sales
of the Company's assets shall be in United States Dollars to the
fullest extent possible.
(c) Settlement and Payment. After liquidation and
the settlement of all outstanding debts of the Company and subject
to the payment of any applicable taxes, the joint account shall be
paid over to the PARTIES in proportion to their respective shares in
the registered capital of the Company. Any and all amounts payable
to PARTY B pursuant to this Article 20 shall be paid promptly in
United States Dollars and shall be freely remittable by PARTY B out
of China in accordance with the Foreign Exchange Regulations of
China.
20.05 Survival
To the extent permitted by law, the provisions of Articles 18
and 20 and the obligations and benefits hereunder shall survive the
termination of this Contract and the termination, dissolution or
liquidation of the Company.
ARTICLE 21 - FORCE MAJEURE
21.01 Force Majeure
(a) Definition and Examples. "Force Majeure" shall
mean all events which are beyond the control of the PARTIES to this
Contract, and which are unforeseen, or if foreseen, unavoidable, and
which prevent total or partial performance by either PARTY. Such
events shall include but are not limited to any strikes, lockouts,
explosions, shipwrecks, acts of nature, fires, flood, sabotage,
accidents, wars, riots, inability to obtain transportation, and any
other similar or different contingency.
(b) Effect. If an event of Force Majeure occurs, to the
extent that the contractual obligations of the PARTIES to this
Contract (except the obligations under Article 18 hereof) cannot be
performed as a result of such event, such contractual obligations
shall be suspended during the period of delay caused by the Force
Majeure and shall be automatically extended, without penalty, for a
period equal to such suspension.
(c) Notice Required. The PARTY claiming Force
Majeure shall promptly inform the other PARTY in writing and shall
furnish appropriate proof of the occurrence and duration of such
Force Majeure. The PARTY claiming Force Majeure shall also use all
reasonable endeavors to terminate the Force Majeure.
(d) Consultation Required. In the event of Force
Majeure, the PARTIES shall immediately consult with each other in
order to find an equitable solution and shall use all reasonable
endeavors to minimize the consequences of such Force Majeure.
ARTICLE 22 - SETTLEMENT OF DISPUTES
22.01 Consultation
In the event a dispute arises in connection with the
interpretation or implementation of this Contract, the PARTIES shall
attempt in the first instance to resolve such dispute through friendly
consultations.
22.02 Arbitration.
If the dispute is not resolved through friendly consultation
within sixty (60) days after the commencement of discussions or such
longer period as the PARTIES agree to in writing at that time, then
notwithstanding any other provision of this Contract the PARTIES
shall resolve the dispute in Stockholm, Sweden according to the
arbitration rules of the Stockholm Chamber of Commerce ("SCC").
Arbitration shall be conducted as follows:
(a) English Proceedings. All proceedings in any
such arbitration shall be conducted in English and a daily
transcript in English of such proceedings shall be prepared.
(b) One Arbitrator. There shall be one (1) arbitrator,
fluent in English, appointed by the SCC.
(c) Award Binding. The arbitration award shall be
final and binding on the PARTIES, and the PARTIES agree to be
bound thereby and to act accordingly.
(d) Obligations to Continue. When any dispute occurs
and when any dispute is under arbitration, except for the matters
under dispute the PARTIES shall continue to exercise their remaining
respective rights, and fulfil their remaining respective obligations
under this Contract.
(e) Enforcement. In any arbitration proceeding, any
legal proceeding to enforce any arbitration award or any legal action
between the PARTIES relating to this Contract, each PARTY expressly
waives the defense of sovereign immunity and any other defense
based on the fact or allegation that it is an agency or instrumentality
of a sovereign state. Any award of the arbitrators shall be
enforceable by any court having jurisdiction over the PARTY against
which the award has been rendered, or wherever assets of the PARTY
against which the award has been rendered can be located and shall
be enforceable in accordance with the "United Nations Convention on
the Reciprocal Enforcement of Arbitral Awards (1958).
ARTICLE 23 - EXPERT PROCEDURES
23.01 Appointment of Expert
If this Contract so provides, or if the PARTIES otherwise agree,
that a controversy or dispute between them should be resolved by an
Expert, either PARTY may request that such controversy or dispute
shall be resolved by such Expert as provided herein and such costs
shall be borne by the requesting PARTY.
23.02 Recourse to ICC
If any PARTY requests an Expert determination the PARTIES
shall attempt in the first instance to agree on a single expert to whom
the matter shall be referred. If, within fourteen (14) days from
receipt of such request, the PARTIES have failed to agree on the
appointment of a single Expert, then the PARTIES agree to have
recourse to the International Centre for Technical Expertise of the
International Chamber of Commerce ("ICC") in accordance with the
ICC's Rules for Technical Experts.
23.03 Expert Procedures
The Expert so appointed shall promptly fix a reasonable time
and place for receiving submissions or information from the PARTIES
and may make such other enquiries and require such other evidence
as the expert deems necessary for resolving the matter. All
information and data submitted by either PARTY as confidential shall
not be disclosed by the Expert to third parties. The PARTIES shall
have the opportunity to make representations to the Expert.
23.04 Effect of Expert Decision
The Expert shall be deemed not to be an arbitrator but shall
render his decision as an Expert, and no law or regulation relating to
arbitration shall apply to such Expert or his determinations or the
procedure by which he reaches his determinations. The PARTIES
shall rely on the determination of the Expert, unless one or more of
them believes in good faith that the determinations of the Expert are
incorrect or patently unfair or have been made as a consequence of
misconduct on the part of such Expert. In such event, either PARTY
shall have the right to refer the dispute or controversy to arbitration
in accordance with Article 22.
ARTICLE 24 - APPLICABLE LAW
24.01 Applicable Law
The formation, validity, interpretation and implementation of
this Contract and settlement of disputes arising therefrom shall be
governed by the published and publicly available laws, decrees and
regulations promulgated by the People's Republic of China, but in the
event that there is no published and publicly available law, decree or
regulation in China governing any particular matter relating to this
Contract, reference shall be made to general international commercial
practice.
24.02 Economic Adjustment
If either PARTY's economic benefits are adversely and
materially affected by the promulgation of any new laws, rules or
regulations of China or the amendment or interpretation of any
existing laws, rules or regulations of China after the date of this
Contract, the PARTIES shall promptly consult with each other and
use their best endeavors to implement any adjustments necessary to
maintain each PARTY's economic benefits derived from this Contract
on a basis no less favorable than the economic benefits it would have
derived if such laws, rules or regulations had not been promulgated
or amended or so interpreted.
24.03 Preferential Treatment
The Company and the PARTIES shall be entitled to any tax,
investment or other benefits or preferences that become available or
publicly known after the signing of this Contract and which are more
favorable than those set forth in this Contract.
ARTICLE 25 - MISCELLANEOUS PROVISIONS
25.01 Waiver
Failure or delay on the part of any PARTY hereto to exercise
any right, power or privilege under this Contract, or under any other
contract or agreement relating hereto, shall not operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege preclude any other future exercise thereof.
25.02 Amendments
This Contract may not be changed orally, but only by a written
instrument signed by the Parties and approved, if required, by the
relevant authorities in China.
25.03 Language
This Contract is written and executed in Chinese and English,
and both language versions shall be equally valid.
25.04 Severability
The invalidity of any provision of this Contract shall not affect
the validity of any other provision of this Contract.
25.05 Entire Agreement
This Contract and the Exhibits attached hereto constitute the
entire agreement among the PARTIES with respect to the subject
matter of this Contract and supersede all prior discussions,
negotiations and agreements among them. In the event of any
conflict between the terms and provisions of this Contract and the
Articles of Association, the terms and provisions of this Contract
shall prevail.
25.06 Headings
The headings used herein are for convenience only and shall
not be used to interpret, construe or otherwise affect the meaning of
the provisions of this Contract.
25.07 Approvals
The PARTIES obligations under this Contract are subject to the
requisite permissions, approvals and sanctions of their respective
governmental authorities under applicable laws.
25.08 Notices
Any notice or written communication provided for in this
Contract by one PARTY to the others, including but not limited to any
and all offers, writings, or notices to be given hereunder, shall be
made in English and Chinese by registered airmail letter or by
facsimile or telex confirmed by registered airmail letter, promptly
transmitted or addressed to the appropriate PARTY. The date of
receipt of a notice or communication hereunder shall be deemed to be
twelve (12) days after its postmark in the case of an airmail letter and
two (2) working days after dispatch in the case of a facsimile or telex.
All notices and communications shall be sent to the appropriate
address as set forth below, until the same is changed by notice given
in writing to the other PARTY or the PARTIES, as the case be.
PARTY A:
Tianjin Tanggu Valve Plant
5 Yongtai Road
Tanggu, Tianjin
People's Republic of China
Fax: (022) 589-5087
Attention: Mr. Han You Sheng
PARTY B:
Watts Investment Company
c/- Watts Industries, Inc
815 Chestnut Street
North Andover, Massachusetts 08145 U. S. A.
Fax: (1-508) 688-2976
Attention: Mr. David A. Bloss, Sr.
25.09 Exhibits
The Exhibits attached hereto are hereby made an integral part
of this Contract and are equally binding with these Articles 1-25.
The Exhibits are as follows:
Exhibit A Articles of Association
Exhibit B List of PARTY A's Contribution of Machinery and Equipment
Exhibit C Matters Concerning Land Use Rights
Exhibit D Technology License Contract between the Company and PARTY A
Exhibit E Technology License Contract between the Company and PARTY B
Exhibit F Trademark License Contract between the Company and PARTY B
Exhibit G Plant Services Contract between the Company and PARTY A
Exhibit H Export Distributor Contract between the Company and Party B
Exhibit I Buildings Lease Contract
IN WITNESS WHEREOF, each of the PARTIES hereto have
caused this Contract to be executed by their duly authorized
representatives on the date first set forth above.
PARTY A: PARTY B
TIANJIN Tianjin Tanggu Valve Plant WATTS INVESTMENT COMPANY
/S/ Han You Sheng /s/ David A. Bloss
Name: Han You Sheng Name: David A. Bloss, Sr.
Title: President Title: Executive Vice President
Nationality: Chinese Nationality: U.S.A.
EXHIBIT A
TIANJIN TANGGU WATTS VALVE COMPANY LIMITED
______________________________
ARTICLES OF ASSOCIATION
______________________________
DATED 27 JUNE 1994
CONTENTS
Article
1. Introduction
2. Parties to the Joint Venture
3. Establishment of the Company
4. The Purpose, Scope and Scale of Production and Operation
5. Total Amount of Investment and Registered Capital
6. Board of Directors
7. Operation and Management
8. Labor Management
9. Financial Affairs and Accounting
10. Foreign Exchange
11. Distribution of Profit
12. Taxation and Insurance
13. Joint Venture Term
14. Termination, buy-out Liquidation Procedures
15. Amendments and Conflicts
16. Waiver
17. Language
Signatures
ARTICLES OF ASSOCIATION
ARTICLE 1 - INTRODUCTION
1.01 Introduction
THESE ARTICLES OF ASSOCIATION ("Articles of Association")
of TIANJIN TANGGU WATTS VALVE COMPANY LIMITED are made by
TIANJIN TANGGU VALVE PLANT, ("PARTY A") and WATTS
INVESTMENT COMPANY ("PARTY B") in accordance with the Law of
the People's Republic of China on Joint Ventures Using Chinese and
Foreign Investment (the "Joint Venture Law"), the Implementing
Regulations issued thereunder (the "Joint Venture Regulations") and
the provisions of the Joint Venture Contract ("Joint Venture
Contract") entered into by and among the PARTIES dated June 27,
1994.
1.02 Terms
Terms used but not defined herein shall have the meanings set
forth in the Joint Venture Contract.
ARTICLE 2 - PARTIES TO THE JOINT VENTURE
2.01 The Parties
The PARTIES to the Joint Venture Contract are:
(a) PARTY A, __________ , Tianjin Tanggu Valve Plant
registered in Tianjin, with its registered address at 5 Yongtai Road,
Tanggu, Tianjin, the People's Republic of China.
Legal Representative: Han You Sheng
Position : President
Nationality: Chinese
(b) PARTY B, Watts Investment Company, a company
registered in the state of Delaware, United States of America with its
head office at 715 King Street, Suite 300, Wilmington, Delaware,
United States of America 19801.
Legal Representative: David A. Bloss Sr.
Position : Executive Vice President
Nationality: U. S. A.
ARTICLE 3 - ESTABLISHMENT OF THE COMPANY
3.01 Name
The name of the Company shall be: "________________________"
in Chinese, and "Tianjin Tanggu Watts Valve Company Limited" in English.
3.02 Address
The legal address of the Company shall be 5 Yongtai Road,
Tanggu District, Tianjin, the People's Republic of China.
3.03 Branches
The Company may establish necessary branch offices inside of
China with the approval of the Board and the relevant authority in
the location of the proposed branch.
3.04 Limited Liability Company
The form of organization of the Company shall be a limited
liability company. Except as otherwise provided herein, once a
PARTY has paid in full its contribution to the registered capital of the
Company, it shall not be required to provide any further funds to or
on behalf of the Company by way of capital contribution, loan,
advance, guarantee or otherwise. Except as otherwise provided
pursuant to written agreement signed by the PARTY to be charged,
creditors of the Company shall have recourse only to the assets of the
Company and shall not seek repayment from any PARTY. The
Company shall indemnify the PARTIES against any and all losses,
damages or liability suffered by the PARTIES in respect of third-party
claims arising out of the operation of the Company. Subject to the
above, the profits, risks and losses of the Company shall be shared
by the PARTIES in proportion to and limited by their respective
contributions to the Company's registered capital.
3.05 Laws and Decrees
The Company shall be a legal person under the laws of China.
The activities of the Company shall be governed and protected by the
relevant published and publicly available laws, decrees, rules and re
rations of China.
ARTICLE 4 - THE PURPOSE, SCOPE AND SCALE
OF PRODUCTION AND OPERATION
4.01 Purpose
The Company shall adopt advanced technology and scientific
management methods with the aim to earn lawful profits, gain a
competitive position in the market and make a contribution to the
people of China.
4.02 Scope
The scope of the Company is to manufacture, distribute, and
sell Joint Venture Products.
ARTICLE 5 - TOTAL AMOUNT OF INVESTMENT
AND REGISTERED CAPITAL
5.01 Total Investment
The Company's total investment shall be Two Hundred and
Twenty Nine Million Eight Hundred and Ninety Thousand
Renminbi (RMB229,890,000).
5.02 Registered Capital
The Company's registered capital shall be One Hundred and
Twenty Three Million Renminbi (RMB123,000,000).
5.03 Contribution to Capital
(a) The contribution to the registered capital of the Company
subscribed by PARTY A shall be Forty Nine Million Two Hundred
Thousand Renminbi (RMB49,200,000), representing a forty percent
(40%) share of the registered capital of the Company.
(b) The contribution to the registered capital of the Company
subscribed by PARTY B shall be Eight Million Four Hundred and
Eighty Thousand United States Dollars (US$8,480,000) equivalent to
Seventy Three Million Eight Hundred Thousand Renminbi
(RMB73,800,000) and representing a sixty percent (60%) share of the
registered capital of the Company.
(c) The capital contributions which shall be made by PARTY
A and PARTY B shall be used by the Company only in the
implementation of the Joint Venture Contract. Except as otherwise
provided herein and in the Technology License Contract set forth as
Exhibit E and attached to the Joint Venture Contract, all of the items
contributed by the PARTIES to the Company shall remain the
property of the Company throughout the entire term of the Joint
Venture Contract.
5.04 Investment Certificate
After each PARTY's contribution to the registered capital has
been made in full, an independent Chinese registered accountant
appointed by the Company in accordance with this Contract shall
verify the contribution and issue a contribution verification report to
the Company. Thereupon, the Company shall issue within sixty (60)
days after the payment of the contribution an investment certificate
to each PARTY signed by the Chairman of the Board. Each
investment certificate shall indicate on its face the amount of the
capital contribution evidenced thereby and a copy shall be submitted
to the Approval Authority for the record. The Board shall request the
Financial Controller to maintain a register identifying the investment
certificates that have been issued to the PARTIES.
5.05 Additional Financing
(a) Any additional capital investment in excess of the
registered capital or additional required working capital may be
obtained in the form of loans to the Company from Chinese or foreign
sources. As a general principle and subject to Board approval,
borrowing of the Company, if any, shall be secured by the tangible
assets of the Company.
(b) Interest on loans incurred by the Company shall be
debited as a financing cost of the Company.
(c) Except for the portion of working capital (i) to be provided
by the PARTIES as capital contribution or (ii) from bank loans
received by the Company, additional operating funds may be
obtained principally from net revenues generated by sales of the
Company or as agreed to by the Board of Directors.
5.06 Transfer or Assignment of Registered Capital
The PARTIES may not assign, sell or otherwise dispose of their
registered capital except in accordance with Article 5.08 of the Joint
Venture Contract.
5.07 Increase of Registered Capital
Any increase in the registered capital of the Company shall be
handled in accordance with Article 5.09 of the Joint Venture
Contract.
ARTICLE 6 - BOARD OF DIRECTORS
6.01 Composition
The Board shall consist of five (5) directors, two (2) of whom
shall be appointed by PARTY A and three (3) of whom shall be
appointed by PARTY B. At the time these Articles of Association are
executed and each time directors are appointed each PARTY shall
notify the others of the names of its appointees.
6.02 Term and Replacement
Each director shall be appointed for a term of four (4) years and
may serve consecutive terms if reappointed by the PARTY which
originally appointed him. If a seat on the Board is vacated by the
retirement, resignation, illness, disability or death of a director or by
the removal of such director by the PARTY which originally appointed
him, the PARTY which originally appointed such director shall
appoint a successor to serve out such director's term.
6.03 Chairman
The Chairman of the Board shall be appointed by PARTY B,
and the Vice Chairman shall be appointed by PARTY A. The
chairman of the board shall be the legal representative of the
Company. Whenever the Chairman of the Board is unable to perform
his responsibilities, he shall authorize the Vice Chairman to exercise
the Chairman's responsibilities.
6.04 Additional Attendees
Reflecting the importance of close communications between the
Board and the management of the Company, the General Manager
may attend Board meetings upon invitation of a majority of the Board
but shall not vote unless he is a director in his own right. Other
managers, including the Financial Controller, may attend such
meetings upon the invitation of a majority of the Board.
6.05 Powers
The Board shall be the highest authority of the Company. It
shall discuss and determine all major issues regarding the Company.
6.06 Meetings
The first Board meeting shall be held as soon as possible
within sixty (60) days after the date of issuance of the Business
License. Thereafter, regular meetings of the Board shall be held at
least two times each year. Upon the written request of three (3) or
more of the directors of the Company specifying the matters to be
discussed, the Chairman of the Board shall call a meeting of the
Board.
6.07 Notice and Agenda
Board meetings shall be held at the registered address of the
Company or such other address in China or abroad as may be
designated by the Chairman. Meetings shall be held on twenty-one
(21) days notice to the directors if held in China and thirty (30) days
notice if held abroad, provided that the directors may waive such
notice by unanimous written consent. A notice of a Board meeting
shall cover the agenda, time and place for such meeting. The
Chairman of the Board shall be responsible for convening and
presiding over such meetings. The General Manager shall assist the
Chairman in preparing an agenda for each Board meeting.
6.08 Proxies
In case a Board member is unable to participate in a Board
meeting in person or by telephone, he may issue a proxy and entrust
another person to participate in the meeting on his behalf. The
representative so entrusted shall have the same rights and powers as
the Board member. A representative shall be permitted to serve as a
proxy for up to three (3) Board members appointed by the same
PARTY as such representative. If a Board member fails to participate
or to entrust another to participate, he will be deemed as having
waived such right.
6.09 Quorum
Four (4) directors present in person, by proxy or by telephone
shall constitute a quorum which shall be necessary for the conduct of
business at any meeting of the Board.
6.10 Voting
Each director present in person, by proxy or by telephone at a
meeting of the Board of Directors shall have one vote.
6.11 Unanimous Votes
Resolutions involving the following matters may only be
adopted at a duly constituted and convened meeting of the Board of
Directors upon the unanimous affirmative vote of each and every
director of the Board voting in person, by proxy or by telephone at
such meeting:
(i) the amendment of the Articles of Association;
(ii) the merger of the Company with another organization;
(iii) termination and dissolution of the Company; and
(iv) the increase or assignment of the Company's registered capital.
6.12 Super Majority
Resolutions involving the following major matters may only be
adopted at a duly constituted and convened meeting of the Board of
Directors upon the affirmative vote of four (4) directors of the Board
voting in person or by proxy or by telephone at such meeting:
(i) the formulation of or changes to the management
structure of the Company;
(ii) the formulation of policies and Plans relating to the
recruitment of employees, employee wages, welfare and
compensation, as well as the formulation of labor
management rules; and
(iii) the appointment, dismissal, limitations on authority and
compensation of Management personnel, except the Executive Vice General
Manager.
6.13 Simple Majority
Other issues that require resolutions by the Board may be
raised at a duly convened meeting of the Board and must be adopted
by the affirmative vote of three (3) of the directors present in person,
by proxy or by telephone at such meeting where a quorum is present.
6.14 Action without a Meeting
Any action 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
or majority vote, as the case may be, taken by members physically
present.
6.15 Expenses
The Company shall be responsible for the reasonable travel,
lodging and meal expenses incurred by appointed directors in
attending Board meetings.
6.16 Preparation of Minutes
The minutes of the Board of Directors' meetings shall be
prepared in English and Chinese and shall be signed by the
Chairman. The minutes shall be distributed within thirty (30) days
from the date of the relevant meeting to each director and each PARTY.
6.17 Amendments to Minutes
Any director who wishes to propose any amendment or
addition to the minutes of the Board of Directors' meetings shall
submit the same in writing to the Chairman within fourteen (14) days
after receipt of such director's copy of the original signed minutes.
Provided that all directors consent, the amendment or addition shall
be incorporated into the official minutes. If there is disagreement
among the directors concerning the proposed amendment or
addition, the issue shall be decided by a resolution of the Board.
6.18 Filing of Minutes
All directors present at a Board meeting shall sign the finalized
minutes of each Board meeting, which shall then be placed on file
with the Company.
ARTICLE 7 - OPERATION AND MANAGEMENT
7.01 Management Procedures and Structures
The policies, structures and procedures concerning operational
management, sales and marketing, health and safety, environmental
and technological matters, which may be adopted by the Board from
time to time shall be developed in consultation with PARTY B so as to
be generally in accordance with PARTY B's practices in its worldwide
operations subject to the overall direction and approval of the Board.
7.02 Management Organization
The Company shall adopt a management system under which
the management organization shall be responsible to and under the
leadership of the Board. All Management Personnel, including the
General Manager, Executive Vice General Manager and Vice General
Manager shall serve at the discretion of the Board. The Company
shall have a General Manager nominated by PARTY A, an Executive
Vice General Manager nominated by PARTY B and a Vice General
Manager nominated by PARTY A and appointed by the Board
pursuant to a duly adopted resolution. The terms of office of the
General Manager, Executive Vice General Manager and Vice General
Manager shall be as determined by the Board. The General Manager,
Executive Vice General Manager and Vice General Manager may be
dismissed only by a resolution of the Board of Directors. If it
becomes necessary, due to dismissal or resignation, to replace the
General Manager, Executive Vice General Manager or Vice General
Manager, PARTY A shall nominate the General Manager's
replacement, PARTY B shall nominate the Executive Vice General
Manager's replacement and PARTY A shall nominate the Vice General
Manager's replacement for appointment by the Board.
7.03 Responsibilities and Powers of the General Manager
The duties of the General Manager shall consist of carrying out
the decisions of the Board and organizing and directing the day-to-
day operation and management of the Company in accordance with
the modern management practices and structures as determined by
the Board. Within the scope granted by the Board, the General
Manager will represent the Company in external matters and, within
the Company, he will appoint and dismiss personnel subordinate to
himself and exercise other functions and powers granted him by the
Board.
7.04 Management Personnel
(a) Other Management Personnel. The Company shall have
such number and types of other Management Personnel as
determined by the General Manager and approved by the Board to be
necessary or advisable to implement the modern management
practices and structures determined by the Board. All Management
Personnel shall be responsible to and under the direction of the
General Manager.
(b) Salaries. The salaries and other remuneration of the
Management Personnel of the Company (including the General
Manager) shall be determined by the Board in its sole discretion on
an individual basis.
7.05 Annual Plans and Budgets
The General Manager, assisted by the other Management
Personnel, shall be responsible for the preparation of the annual
business plan and budget of the Company.
The annual business plan and budget (including the projected
balance sheet, profit and loss statement and cash transaction report)
for each fiscal year shall be submitted to the Board and shall include
comprehensive detailed information on:
(a) the procurement of equipment and other assets of the Company;
(b) the raising and application of funds;
(c) plans with respect to production and sale of Joint Venture Products;
(d) the repair and maintenance of the assets and equipment
of the Joint Venture Company;
(e) the estimated income and expenditures of the Company
covered by the production plan and budget;
(f) plans for training the staff and workers of the Company;
(g) wage and salary plans for staff and workers of the Company;
(h) requirements of raw materials, fuel, water, electricity and
other utilities, and all other inputs for the next year's production;
(i) plans for the proportion of foreign currency sales;
(j) plans for balancing foreign exchange receipts and expenditures; and
(k) any other matter in respect of which the Board may have
requested a report.
The General Manager shall prepare a monthly management
report containing such information as shall be requested by the
Board.
7.06 Approval and Implementation of Annual Plans and Budgets
The Board shall examine and approve the annual business
plan and budget. The General Manager, assisted by the other
Management Personnel, shall be responsible for the implementation
of the plan and budget approved by the Board.
ARTICLE 8 - LABOR MANAGEMENT
8.01 Governing Principle
The General Manager shall formulate a plan for matters
concerning the recruitment, employment, dismissal, wages, labor
insurance, welfare benefits, reward and discipline of the workers and
staff members of the Company in accordance with modern
management standards, practices and policies determined by the
Board, the "Regulations of the People's Republic of China on Labor
Management in Joint Ventures Using Chinese and Foreign
Investment" and the "Provisions of the Ministry of Labor and
Personnel of the People's Republic of China on the Right of Autonomy
of Enterprises with Foreign Investment in the Hiring of Personnel and
on Wages, Insurance and Welfare Expenses of Staff and Workers"
and relevant regulation of Tianjin Municipality. The plan shall be
submitted for the approval of the Board of Directors.
8.02 Working Personnel
Working Personnel shall be employed by the Company in
accordance with a labor contract which shall be entered into between
the Company and each individual worker after the establishment of
the Company. Such labor contract shall establish all terms
governing the employment, duties and benefits of that individual.
The Board shall approve the general form and terms and conditions
included in such contracts.
8.03 Management Personnel
Management Personnel shall be employed by the Company in
accordance with the terms of individual employment contracts. The
detailed terms and conditions of the employment and compensation
of the Management Personnel shall be decided by the Board.
8.04 Expatriate Personnel
As the Company's needs require, expatriate Management
Personnel and senior technical personnel shall be hired by the
General Manager after approval by the Board of Directors, upon the
recommendation of PARTY B. Such personnel shall enter into
individual employment contracts with the Company. The PARTIES
agree that such expatriate personnel shall receive salaries and
benefits in accordance with PARTY B's personnel policies.
8.05 Conformity with Labor Protection
The Company shall conform to rules and regulations of the
Chinese government concerning labor protection and ensure safe and
civilized production. Labor insurance for the working personnel of
the Company shall be handled in accordance with the relevant
regulations of the Chinese government.
8.06 Trade Union
To the extent required by law, the Company shall establish a
trade union to represent the rights and interests of the workers and
staff members, to mediate disputes between the workers and staff
members on the one hand and the Company on the other and to
protect the lawful interests of the workers and staff members. To the
extent required by law, the Company shall actively support the work
of the trade union, provide the trade union facilities to conduct union
activities and other lawful activities after working hours, and allocate
trade union funds.
8.07 Trade Union Fund
In accordance with Article 99 of the Joint Venture Regulations,
the Company shall allot each month two percent (2%) of the total
amount of real wages received by the Company staff and workers,
including expatriate employees for payment into a trade union fund,
such payments to be an expense of the Company. The trade union
may use these funds in accordance with the relevant control
measures of labor union funds formulated by the All China
Federation of Labor Unions.
ARTICLE 9 - FINANCIAL AFFAIRS AND ACCOUNTING
9.01 Accounting System
(a) Responsibilities. The Financial Controller of the
Company, under the leadership of the General Manager, shall be
responsible for the financial management of the Company.
(b) Procedures. The General Manager and the Financial
Controller shall prepare the accounting system and procedures in
accordance with the Accounting System of the People's Republic of
China for Foreign Investment Enterprises, the supplementary
stipulations promulgated by the Ministry of Finance and, to the
extent possible, general accepted international accounting principles.
All vouchers, receipts, statistical statements and reports shall be
written in Chinese and English concurrently. In addition, the
Company shall adopt operating and financial policies and procedures
and shall prepare periodic reporting of financial information in
accordance with the requirements of PARTY B.
9.02 Auditing
(a) The Board shall establish a position for a Company
Auditor who will be responsible for examining and auditing the
Company's financial expenditures and accounting books and will
prepare a report for the Board and the General Manager.
(b) Independent Audit. An independent accountant
registered in China and otherwise qualified to render opinions on the
compliance by the Company with the accounting standards provided
herein, shall be engaged by the Board of Directors as the Company's
auditor to examine and verify the annual report on the final accounts
("Independent Auditor"). The Company shall submit to the PARTIES
the annual financial statements (including the audited Profit and
Loss Account, the Balance Sheet and Cash Flow Balance and Foreign
Exchange Balance for the fiscal year) within three (3) months after
the end of the fiscal year, together with the audit report of the
Chinese registered accountant. The annual financial statements, the
audit report and the monthly reports shall be prepared in both
Chinese and English.
(c) Board Review. The Board shall review and approve the
periodic audits of the accounts. In the event that the Board
determines that the audits submitted by the Independent Auditor are
unable to properly meet the standards set forth above, the Board may
replace the Independent Auditor or retain another auditor at
Company expense, to supplement or adjust the work of the
Independent Auditor or to perform specific accounting and auditing
tasks.
(d) Notwithstanding anything contained in Article 9.02(a)
and (b), at PARTY B's cost, PARTY B may at any time, employ a
foreign auditor or send its internal auditor to examine the records
and procedures of the Company and PARTY A and the Company shall
cooperate and use best efforts to assist such auditors.
9.03 Fiscal Year
The Company shall adopt the calendar year as its fiscal year for
Chinese statutory accounting purpose, which shall begin on January
1 and end on December 31 of the same year, provided that the first
fiscal year of the Company shall commence on the date the Company
receives its Business License, and shall end on the immediately
succeeding December 31.
ARTICLE 10 - FOREIGN EXCHANGE
10.01 Bank Accounts and Foreign Exchange Control
The Company shall separately open foreign exchange accounts
and Renminbi accounts at banks within or outside China upon
approval by the relevant authorities. The Company's foreign
exchange transactions shall be handled in accordance with the
regulations of China relating to foreign exchange control.
10.02 Foreign Exchange Balance
The Company shall be responsible to maintain a balance in its
foreign exchange receipts and expenditures. The principal methods
for balancing foreign exchange will be as follows:
(i) Foreign Currency Sales. The primary means for
balancing foreign exchange will be through the sale of the Joint
Venture Products in foreign currency.
(ii) Export of Domestic Product. Subject to the approval of
the Approval Authority, the Company may purchase products
domestically in Renminbi and export them for foreign currency.
(iii) Other Measures. If the Company is unable to balance its
foreign exchange using the measures described above, the Board of
Directors will consider all other methods permitted under the laws
and regulations of the People's Republic of China.
ARTICLE 11 - DISTRIBUTION OF PROFIT
11.01 Allocations to Three Funds
To the extent required by law, the Company shall make
payments in Renminbi into a reserve fund, an enterprise expansion
fund and a bonus and welfare fund for its workers and staff members
(the "Three Funds"). The proportion of each year's payments shall be
discussed and determined by the Board of Directors on the basis of
the Company's circumstances and in the general interest of the
Company and its workers; provided, however, that the payments to
each individual Fund shall not exceed seven percent (7%) of the
Company's after tax income and the total of the payments to the
Three Funds shall not exceed fifteen percent (15 %) of the Company's
after-tax income in the relevant year. Plans for the application of
these Three Funds shall be formulated by the General Manager.
11.02 Profit Distribution
(a) Proportionate Distributions. After required allocations, if
any have been made to the Three funds in accordance with Article
11.01, the Board shall determine distribution of profits by way of
dividend among the PARTIES in proportion to their respective shares
in the registered capital of the Company and the balance of net
profits will be retained in the Company and utilized as may be
decided by the Board from time to time. If the Company carries over
losses from the previous year, the profit of the current year shall first
be used to cover such losses. No profit shall be distributed unless a
prior deficit is made up. The profit retained by the Company and
carries over from the previous years may be distributed together with
the distributable profit of the current year, or after the deficit of the
current year is made up.
(b) Insufficient Foreign Exchange. In the event that there is
not sufficient foreign exchange to pay PARTY b's share of distributed
profits, the Company shall, to the extent of the unpaid portion, hold
distributed Renminbi profits in trust for PARTY B in a special interest
bearing account set up for that purpose, when such account is
available, in satisfaction of the Company's obligation to distribute
such share of the Company's profit to PARTY B. From and after the
date on which such account is established, the Company shall not
withdraw or use the funds therein except upon PARTY B's prior
written instructions. When the Company obtains foreign exchange
that is available for distribution to PARTY B pursuant to Article 11.02
(a), the Company shall, at PARTY B's option, replace the Renminbi in
such account (including any interest earned therefrom) with its U.S.
Dollar equivalent in accordance with the average of the buying and
selling rates published by the Bank of China at the time of the
transaction. The Company shall then immediately pay such U.S.
Dollars to PARTY B. PARTY B may from time to time instruct the
Company to distribute Renminbi as directed by PARTY B in such
account for any legal purpose.
(c) Method of Payment. All payments to be distributed
under this Article 11 shall at the request of the receiving PARTY be
remitted to an account at a bank specified in advance by such
PARTY.
ARTICLE 12 - TAXATION AND INSURANCE
12.01 Income Tax, Customs Duties and Other Taxes
(a) Tax Payments. The Company shall pay tax under the
relevant laws of China and any special tax regulations applicable to
Tianjin. Chinese and foreign management and working personnel
shall be periodically reminded to pay their individual income tax in
accordance with the tax laws of China.
(b) Tax Preferences. The Company will use its best
endeavours to apply for and obtain preferential tax treatment,
reductions and exemptions, as provided by the relevant regulations.
Promptly after the execution of this Contract, the PARTIES shall
submit an application to the Tianjin Municipal Tax Bureau for
confirmation of the Company's tax treatment.
12.02 Insurance
The Company shall, at its own cost and expense, take out and
maintain full and adequate insurance of the Company against loss or
damage by fire and such other risks as may be decided by the Board.
The property, transportation, product liability and other items of
insurance of the Company shall be obtained within or outside China,
subject to any legal restrictions which may apply, and such policies
will be denominated in Chinese and foreign currencies, as
appropriate. The types and amounts of insurance coverage shall be
determined by the Board in accordance with applicable Chinese laws,
if any.
ARTICLE 13 - THE JOINT VENTURE TERM
13.01 Joint Venture Term
The Joint Venture Term of the Company shall commence on
the Effective Date and shall expire thirty (30) years therefrom.
13.02 Extension of the Joint Venture Term
Extensions of the Joint Venture Term will be handled in
accordance with Article 19 of the Joint Venture Contract.
ARTICLE 14 - TERMINATION, BUY-OUT AND LIQUIDATION PROCEDURES
14.01 Termination, Buy-out and Liquidation
Termination, buy-out and liquidation procedures will be
handled in accordance with Article 20 of the Joint Venture Contract.
ARTICLE 15 - AMENDMENTS AND CONFLICTS
15.01 Amendments
These Articles of Association may not be changed orally, but
only by a written instrument signed by the Parties and approved by
the unanimous resolution of the Board of Directors and Approval
Authority.
15.02 Conflicts
In the event of any conflict between the terms and provisions of
the Joint Venture Contract and these Articles of Association, the
terms and provisions of the Joint Venture Contract shall prevail.
ARTICLE 16 - WAIVER
16.01 Waiver
Failure or delay on the part of any PARTY hereto to exercise
any right, power or privilege under the Joint Venture Contract, this
Articles of Association or under any other contract or agreement
relating thereto, shall not operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege preclude any
other future exercise thereof.
ARTICLE 17 - LANGUAGE
17.01 Language
These Articles of Association are written and executed in
Chinese and English, and both language versions shall be equally
valid.
IN WITNESS WHEREOF, each of the PARTIES hereto have
caused these Articles of Association to be executed by their duly
authorized representatives on the date first set forth above.
PARTY A:
TIANJIN TANGGU VALVE PLANT
/s/Han You Sheng
Name: Han You Sheng
Title: President
Nationality Chinese
PARTY B
WATTS INVESTMENT COMPANY
/s/David A. Bloss
Name: David A. Bloss, Sr.
Title: Executive Vice President
Nationality U.S.A.