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Exhibit 10.3
CONTRACT
Party A: Guangzhou Tianhe Dongpu Economic Development General
Company
Address: 1 Da Ma Lu, Dongpu, Tianhe, Guangzhou, PRC
Telephone: 230 6496
Legal Representative: Mr Liang Xingquan, Manager
Party B: Zindart Industrial Company Limited
Address: Flats C & D, 25th Floor, Block 1, Taiping Industrial
Centre, 57 Ting Kok Road, Tai Po, N.T., Hong Kong
Telephone: 2665 6992
Legal Representative: Mr. Fok Xiaorong, Managing Director
In order to strengthen management of production and product quality, and to
increase the economic outcome of the Enterprise, Party A and Party B hereby
enter into this agreement in relation to Dongpu Zhongxin Toys Factory's
contracting-out management, the terms of which are as follows:
ARTICLE 1 NAME, NATURE AND ADDRESS
Name of the subject Enterprise: Guangzhou Dongpu Zhongxin Toys Factory ("the
Factory")
Economic Nature of Enterprise: "Further processing" town-collective-owned
enterprise
Address of factory premises: 7 Dongpu Da Ma Lu, Dongpu, Tianhe, Guangzhou,
PRC
ARTICLE 2 OBLIGATIONS OF PARTIES
Party A:
1. To provide the Factory's premises, together with its accompanying
buildings and open space, for production of toys by Party B. The total
area of land of this sector is 8,000 square metres (of which 6,335
square metres are occupied by the old factory premises, and 1,665 square
metres by the new factory premises). 4 of these buildings have shelving
structures, 3 with simple steel structured workshops and with power
room, canteen, duty room, power plant etc. having a total area of 14,700
square metres (of which 8,040 square metres belong to the old factory
premises, 6,660 square metres belong to the new factory premises, and
3,482 square metres being roadways and open space);
2. To provide the 4-inch water supply system and fire safety system, and
the whole set of existing 960kVA electricity loading and supply
facilities;
3. To provide the existing facilities and machinery, currently owned by
Party A, for Party B's use, and be responsible for the costs of
maintenance and repairs of the same during the Period of Contract (see
Attachment 1);
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4. Be responsible for appointing the factory manager, assistant factory
manager, accounts clerk, remittance clerk and customs declaration clerk
to assist Party B in the management of the Factory;
5. To assist Party B in recruitment of labour and matters concerning public
order;
6. To assist Party B in matters involving the use of water and electricity,
environmental protection, public health and prevention of diseases.
Party B:
1. To be responsible for the Factory's work regarding further processing,
production, operational management, skills management, quality
inspection, training of workers, etc.;
2. To be responsible for the Factory's equipment and their repair and
maintenance;
3. To pay for all the outgoings in relation to production, and also the
wages and bonuses of all staff;
4. To pay for all governmental taxes and charges incurred during the
production operation;
5. To pay the Contract Sums to Party A according to the stipulated time and
amount;
6. To pay for all fees in relation to staff's labour insurance, welfare,
allowances etc. in accordance with the law.
ARTICLE 3 PERIOD OF CONTRACTING-OUT MANAGEMENT
Period of Contract = from 1 January 1997 to 31 December 1999.
ARTICLE 4 CONTRACT SUMS
Party B shall, during the Period of Contract, annually pay Party A the
following Contract Sums:
Year 1 (1997): Total sum = RMBY2,182,110, comprised of RMB
Y1,048,110 from the old plastic toys factory, and RMB
Y1,134,000 from the alloy toys factory.
Year 2 (1998): Total sum = RMBY2,291,215, comprised of RMB
Y1,100,515 from the old plastic toys factory, and RMB
Y1,190,700 from the alloy toys factory.
Year 3 (1999): Total sum = RMBY2,405,776, comprised of RMB
Y1,155,540 from the old plastic toys factory, and RMB
Y1,250,236 from the alloy toys factory.
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The Contract Sums include management fees, welfare planning fees, depreciation
charges and profits. During the Period of Contract, Party A shall pay income
tax on the Contract Sums. Where Party A obtains a reduction or exemption of
income tax, any amount received in respect of such reduction or exemption shall
belong to Party A; where such reduction or exemption pertains to business tax,
50% of any amount received in respect thereof shall belong to Party A, and the
remaining 50% shall be used to update the Factory's development reserve fund.
ARTICLE 5 METHOD OF PAYMENT
1. Payment of the Contract Sums by Party B to Party A shall comply with the
regulations of the relevant State General Administration of Exchange
Control (SAEC) of the PRC, and shall be paid to the Factory; Party A
shall issue a receipt and collect the payment at the Factory.
2. Party B shall pay the Contract Sums during the Period of Contract in two
instalments, the first of which, being 50% of each Contract Sum, shall
be payable on 31 May of each year, the second of which, being the
remainder thereof, shall be payable on 30 November of each year. Where
Party B without the consent of Party A fails to pay any Contract Sum on
the due date, Party A shall receive from Party B an additional 0.1% of
that Contract Sum per day of delay.
3. Any foreign exchange bonus awarded to the Factory by the relevant SAEC,
together with any retained foreign currency amounts, shall belong to
Party A. Party A shall pay any tax on such bonus.
ARTICLE 6 FIXED ASSETS
Title to the factory premises, its accompanying buildings, water and electricity
supply, equipment, etc. provided by Party A shall remain with Party A, and
ownership of the production facilities and living commodities provided by Party
B without compensation shall remain with Party B.
ARTICLE 7 RECEIVABLES AND DEBTS
Prior to the contracting-out management, both parties shall finalise their
finance matters. Any receivables or debts accrued prior to the contracting-out
management shall be handled by Party A (See Attachment 2). During the Period of
Contract, all receivables and debts of the Factory shall be handled by Party B.
ARTICLE 8 FINANCIAL INSURANCE
As from the commencement of the Period of Contract, Party B shall take out
insurance policies and pay insurance premium on the Factory and its equipment
and facilities.
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ARTICLE 9 RECRUITMENT AND DISMISSAL OF STAFF
During the Period of Contract, Party B shall recruit and dismiss staff in
accordance with the relevant laws and regulations of the PRC. Also, before the
dismissal of regular staff of the town-collective-owned enterprise, consent
from Party A shall be obtained. Equally, where Party A re-allocates the regular
staff of town-collective-owned enterprise, consent from Party A shall be
obtained.
ARTICLE 10 LIABILITY FOR BREACH
1. As from the effective date of this Contract, both parties shall be bound
by the same. If any party shall breach this Contract, it shall
compensate non-breaching party for any economic losses suffered as a
result of the breach; if the breach shall continue, the non-breaching
party may have the right to unilaterally terminate this Contract.
2. During the production operation activities, Party B shall comply with
the relevant policies, decrees and regulations of the PRC, and shall not
operate in breach of this Contract. Where Party B's acts in breach of
this Contract, causing losses in operation or incurring legal liability,
Party shall be solely responsible; where the outcome is serious, Party A
shall have the right to terminate the performance of this Contract.
ARTICLE 11 TERMINATION
1. If Party B needs to extend this Contract at the end of the Period of
Contract, it shall within 6 months before the end of the Period of
Contract negotiate with Party A. Once agreed by Party A, this Contract
may be extended, and the Contract Sums shall be separately negotiated.
Where this Contract is not extended, it shall terminate accordingly.
2. Both parties may agree to terminate this Contract before its expiry.
3. At the expiry / termination of this Contract, the factory premises,
water and electricity supply facilities, and Party B's internal
renovations and new constructions shall be returned to Party A in good
condition. All production facilities, production and living commodities,
and working capital net of all debts shall be returned to Party B.
ARTICLE 12 ARBITRATION
During the Period of Contract, where a dispute arises between the parties, they
shall enter into negotiations to resolve the matter. Where the dispute could
not be resolved by negotiations, it may be handed over to arbitration in a
court of law in the district in which the Factory is situated.
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ARTICLE 13 OTHER MATTERS
1. During the Period of Contract, where Party B needs to repair or alter
the building structures or equipment within the Factory, or to carry out
civil engineering or construction works, it shall be consented to by
Party A. Party B shall be responsible for the costs thereof.
2. During the Period of Contract, if the State shall resume the land or if
matters beyond the parties' control occur, which causes the Factory to
be unable to continue production, both parties may, upon negotiations,
terminate this Contract before its expiry.
3. During the Period of Contract, where one party is genuinely in
difficulties and requires early termination of this Contract, consent
shall be obtained from the other party 6 months before the expiry of the
Period of Contract and, upon obtaining such consent, may carry out the
procedures for termination of this Contract.
4. Upon signing of this Contract, Party B shall not without permission
alter the scope of operations of the Factory, or sub-contract other
third party units to carry out the contracting-out management work.
5. Should there be any matters which have not been addressed in this
Contract, both parties may, upon negotiations, resolve the same or
supplement it by way of Supplemental Contract. Such Supplemental
Contract shall form an integral part of this Contract.
ARTICLE 14 EFFECTIVENESS OF CONTRACT
This Contract is made up of 4 identical parts, and each party shall hold 2
parts. Upon signing of this Contract by both parties, the same shall come into
effect.
Chop of Guangzhou Tianhe Dongpu Economic Chop of Zindart Industrial
Development General Company affixed Company Limited affixed
Signed by Legal Representative: Signed by Legal Representative:
Date: 18 February 1996
Signed at Dongpu Town, Tianhe District, Guangzhou City, PRC.