CONTRACT FOR JOINT VENTURES USING CHINESE
AND FOREIGN INVESTMENT
Chapter 1 General Provisions
In accordance with "The Law of the People's Republic of China on Joint
Ventures Using Chinese and Foreign investment" and other relevant Chinese laws
and regulations, Shanghai Hong Xing Bearing Factory and Smith Acquisition
Company dba. Southwest Products Company, adhering to the principle of quality
and mutual benefit and through friendly consultations, agree to jointly invest
to set up a joint venture enterprise in Shanghai the People's Republic of China.
The contract is worked out hereunder.
Chapter 2 Parties to the Joint Venture
Article 1
Parties of this contract are as follows: Shanghai Hong Xing Bearing Factory
(hereinafter referred to as Party A), registered with Shanghai in China, and
its legal address is at 937, Zhong Shan Nan Yi Road, Lu wan district,
Shanghai, China.
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Legal representative: Name: Hu Xie Juan
Position: Director
Nationality: China
Smith Acquisition Company dba. Southwest Products Company (hereinafter referred
to as Party B), a California corporation. Its legal address is at 2240 Buena
Vista, Irwindale, CA 91706.
Legal representative: Name: William Reed Mckay
Position: President
Nationality: America
Chapter 3 Establishment of the Joint Venture Company
Article 2
In accordance with "The Law of the People's Republic of China on Joint
Ventures Using Chinese and Foreign Investment" and other relevant Chinese laws
and regulations, both parties to the joint venture agree to set up Shanghai
Southwest Bearing joint venture limited liability company (hereinafter referred
to as the joint venture company).
Article 3
The name of the joint venture company is Shanghai
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Southwest Bearing Company Ltd.
The name in foreign language is _____________.
The legal address of the joint venture company, is at 937, Zhong Shan Nan
Yi Road, Shanghai, China.
All activities of the joint venture company shall be governed by the laws,
decrees and pertinent rules and regulations of the People's Republic of China.
Article 5
The organization form of the joint venture company, is a limited liability
company. Each party to the joint venture company is liable to the joint venture
company within the limit of _______ capital subscribed by it. The profits,
risks and losses of the joint venture company shall be shared by the parties in
proportion to their real contributions of the registered capital.
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Chapter 4 Purpose, Scope and Scale of
Production and Business
Article 6
The purpose of the parties to the joint venture is in conformity with the
enhancing of the economic cooperation and technical exchange, to improve the
product quality, develop new products, and gain competitive position in the
world market in quality and price by adopting advanced and appropriate
technology and scientific management method, so as to raise economic results and
ensure satisfactory economic benefits for each investor.
Article 7
The productive and business scope of the joint venture company is to
design, manufacture and sell spherical bearing products and related modified
products.
The spherical bearing products will consist of steel to steel and
self-lubricating spherical and journal bearings. These bearings are standard,
precision, for special uses.
Provide maintenance service after the sale of the products; Study and
develop new products and new liner material,
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bonding technology.
Article 8
The production scale of the joint venture company is as follows:
1. The production capacity after the joint venture is put into operation
is 600,000 units per year for normal years.
2. The production scale and product varieties may be increased with the
development of the production and operation. (see Feasibility Study Report)
Chapter 5 Total Amount of Investment and
Registered Capital
Article 9
The total amount of investment of the joint venture company is $ 7,200,000.
Article 10
Investment contributed by the parties is $3,600,000 which will be the
registered capital of the joint venture company.
Of which: Party A shall pay $ 2,600,000, accounting for
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72.22%; Party B shall pay $ 1,000,000, accounting for 27.78%.
Article 11
Both Party A and Party B will contribute the following as their investment:
Party A:
Technology: $900,000 (was imported for producing
steel - to - steel and self - lubricating
spherical bearings)
Machines and Instruments: $1,100,000
Premises: $600,000
Party B:
Cash: $800,000
Technology: $200,000 (for manufacturing and
bonding self-lubricating liner)
Note: Both Party A and Party B shall strictly comply with Technology
Transfer Contract signed in Beijing On Dec. 18, 1992 (with Contract Amendment
signed on Aug. 24, 1993) and a second Technology Transfer Contract which will be
signed in Shanghai between the joint venture company and Party B in the future,
and Machinery Contract.
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Article 12
In accordance with Technology Transfer Contract and Machinery Contract, the
registered capital of the joint venture company shall be paid in installments by
Party A and Party B according to their respective proportion of their
investment.
Article 13
In case either party to the joint venture intends to assign all or part of
his investment subscribed to a third party, written consent shall first be
obtained from the other party to the joint venture, and approval from the
examination and approval authority is required.
When one party to the joint venture assigns all or part of his investment,
the other party has preemptive right to acquire the assignment provided this
preemptive right is not in violation of United States law or Chinese law.
Chapter 6 Responsibilities of Each Party
to the Joint Venture
Article 14
Party A and Party B shall be respectively responsible for the
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following matters:
Responsibilities of Party A:
Handling of applications for approval, registration, business license
and other matters concerning the establishment of the joint venture company from
relevant departments in charge in China;
Processing for applying the right to the use of a site to the authority in
charge of the land;
Organizing the design and construction of the premises and other
engineering facilities of the joint venture company;
Provided technology, machinery and instrument, construction and premises in
accordance with the stipulations in Article 11;
Assisting the joint venture company for processing import customs
declaration for buying technology from Party B and arranging the transportation
within the Chinese territory;
Assisting the joint venture company in purchasing or leasing equipment,
materials, raw materials, articles for office use, means of transportation and
communication facilities, etc;
Assisting the joint venture company in contacting and settling the
fundamental facilities such as water, electricity, transportation, etc;
Assisting the joint venture company in recruiting Chinese
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management personnel, technical personnel, workers and other personnel needed;
Assisting foreign workers and staff in obtaining housing and in
applying for the entry visa, work license and processing their travelling
matters;
Responsible for handling other matters entrusted by the joint venture
company.
Responsibilities for Party B:
Providing cash in accordance with the stipulations in Article 11 under time
limit as followings:
At first, as first installment of contribution by Party B pay US
$400,000 (four hundred thousand dollars) to the joint venture company
in half a year upon the date of establishing the joint venture; At
second, as second installment of contribution by Party B pay US
$200,000 (two hundred thousand dollars) to the joint venture within
one year upon the date of its establishing;
At last, as third installment of contribution by Party B pay US
$200,000 (two hundred thousand dollars) to the joint venture in one
year and half a year upon the date of establishment of the joint
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venture company.
and responsible for shipping to a Chinese port technical documents, etc;
Handling the matters entrusted by the joint venture company, such as
selecting and purchasing machinery and equipment outside China;
Providing needed technical personnel for installing, testing and trial
production of the equipment, as well as technical personnel for production and
inspecting;
Training the technical personnel and workers of the joint venture company;
Because Party B is the licensor, he shall be responsible for handling
American technology export license and the stable production of qualified
products of the joint venture company in the light of design capacity within the
stipulated period, and meet the production quote;
Responsible for other matters entrusted by the joint venture company.
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Chapter 7 Transfer of Technology
Article 15
Both Party A and Party B agree that a technology transfer agreement
shall be signed between Party A, the joint venture company and Party B so as to
obtain advanced production technology needed for realizing the production and
operation purpose and the production scale stipulated in Chapter 4 in the
contract, including products designing, technology of manufacturing, means of
testing, liner materials prescription and bonding technology, quality standard
and the training of personnel, etc. (see Technology Transfer Agreement signed in
Beijing)
Party B offers the following guarantees on the transfer of technology:
1. Party B guarantees that the overall technology such as the
designing, technology of manufacturing, technological process, tests and
inspecting of steel to steel spherical bearings, self-lubricating spherical
bearings, rod end bearings, bushings provided to the joint venture company must
be integrated, precise and reliable. It is to meet the requirement of the joint
venture's operation purpose, and be able to obtain the standard of
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production quality and production capacity stipulated in the contract.
2. Party B guarantees that he possesses the rights of the technology
stipulated in this contract and the technology transfer agreement, Party B
should the legitimate owner of the Technology. Should any legal prosecution
caused by disputes of possession henceforth, it will be settled by Party B
solely. So should any unsuccess of integrity and continuity arising from above
in executing the Contract be brought about, Party B should bear relevant
responsibility (refer to items regulated in Technology Transfer Contract),
and Party B has the rights to transfer it under license to Party A and the joint
venture company, and pledges that the provided technology should be truly most
advanced among the same type of technology of Party B, the model, specification
and quality of the equipment are excellent to meet the requirement of
technological operation and practical usage;
3. Party B shall work out a detailed list of the provided technology
and technological service at various stages as stipulated in the technology
transfer agreement to be an appendix to the contract, and guarantee its
performance;
4. The drawings, technological conditions and other detailed
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information are part of the transferred technology and shall be offered on time.
5. Within the validity period of the technology transfer agreement,
Party B shall provide the joint venture company with the improvement of the
technology and the improved information and technological materials in time, and
shall not charge separate fees;
6. Party B shall guarantee that technological personnel and the
workers in the joint venture company can master all the technology transferred
within the period stipulated in the technology transfer agreement.
Article 17
In case Party B fails to provide equipment or technology in accordance
with the stipulations in this contract and in the technology transfer agreement
or in case any deceiving or concealing actions are found, Party B shall be
responsible for compensating the direct losses to the joint venture company.
Article 18
Within the duration of the joint venture company, the joint venture
shall have the right to use, research and develop the
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imported technology as stipulated in technology transfer contract signed between
Party A, joint venture company and Party B. Both Party A and Party B shall
guarantee to provide each other with the improvement of the technology and
developed process, productive and designing information in time without extra
charge.
Chapter 8 Selling of Products
Article 19
The products of the joint venture company will be sold both on Chinese
market and on overseas market, the export part accounting for more than 90% of
annual overall output of the joint venture, and less than 10% for domestic
market. The parts will not be sold in violation of United States laws.
Article 20
Products may be sold on overseas market through the following channels:
The joint venture company may directly sell its products on the
international market only to those areas not specified in Item 2.2 of the
Technology Transfer Contract.
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Party B will sell the products made by the joint Venture in the areas
specified in Item 2.2 of the Technology Transfer Contract (executing as Article
9 in Articles of association). The amount sold will be no less than 300 to 540
thousand units per year. Party B will sell these products to Smith Acquisition
Company dba Southwest Products Company ("Buyer" ). The price of the Products
sold to Buyer shall be set by agreement of the General Manager and Deputy
General Manager. The price shall be based upon the JV's cost to manufacture the
Products plus a reasonable profit added thereto. The price established by the
JV must be agreed upon and accepted by the Buyer in the form of a purchase order
to be valid. The price shall basically at least not lower than the price as
specified in annex of the Feasibility Study Report.
Article 21
The joint venture's products to be sold in China may be sold directly by
joint venture company to enterprises and commercial departments in China, but
may not be sold in violation of United States laws.
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Article 22
The trade mark of the joint venture's products will be decided by the
board of the directors of the joint venture company (SW - SH for temporarily
use). The joint venture company shall apply for the registration of the trade
mark with the Trademark Office of the Administrative Authority for Industry and
Commerce in China, the right of trademark shall be protected by law. The joint
venture company shall enjoy an exclusive right to use the trademark. Should
products made by the Joint Venture be sold outside of China, the Joint Venture
company would have rights to use the trademark of Southwest Products Company,
but it is necessary to mark the site of production in clear position.
Chapter 9 The Board of Directors
Article 23
The date of registration of the joint venture company shall be the
establishment of the board of directors of the joint venture company.
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Article 24
The board of directors are composed of six directors, of which four
directors shall be appointed by Party A, two by Party B. The chairman of the
board shall be appointed by Party A, and its vice - chairman by Party B. The
term of office for the directors, chairman and vice-chairman is four years;
Their term of office may be renewed if continuously appointed by the relevant
party.
Article 25
The highest authority of the joint venture company shall be its board
of directors. It shall decide all major issues concerning the joint venture
company. Unanimous approval shall be required before any decisions are made
concerning major issues (See the Article 29 of Articles of Association). As for
other matters, approval by more than half of member of the board of directors
shall be required.
Article 26
The chairman of the board is the legal representative of the joint
venture company. Should the chairman be unable to exercise his responsibilities
for some reason, he shall authorize
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the vice - chairman or any other director the represent the joint venture
company temporarily.
Article 27
The board of directors shall convene at least one meeting every year.
The meeting shall be called and presided over by the chairman of the board. The
chairman may convene an interim meeting based on a proposal made by more than
one-third of the total number of directors. Minutes of the meetings shall be
placed on file.
Chapter 10 Business Management Office
Article 28
The joint venture company shall establish a management office which
shall be responsible for its daily management. The management office shall have
a general manager, appointed by Party B at the initial term; Two deputy general
managers by Party A; After the first term, nomination will be decided upon by
the unanimous agreement of the board of directors. The general manager and
deputy general managers shall be invited by the board of directors whose term of
office is four years.
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Article 29
The responsibility of the general manager is to carry out the decisions of
the board meeting and organize and conduct the daily management of the joint
venture company. The deputy general managers shall assist the general manager in
his work.
Several department managers may be appointed by the management office,
who shall be responsible for the works in various department respectively,
handle the matters handed over by the general manager and deputy general
managers and shall be responsible to them.
Article 30
In case of graft or serious dereliction of duty on the part of the
general manager and deputy general managers, the board of directors shall have
the power to dismiss them at any time.
Chapter 11 Purchase of Equipment
Article 31
In its purchase of required raw materials, fuel, parts, means of
transportation and articles for office use, etc., the joint venture company
shall give first priority to purchase in China
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where conditions are the same and the customer will accept Chinese raw material.
Article 32
In case the joint venture company entrusts Party B to purchase equipment on
overseas market, Party B shall invite persons appointed by Party A to take part
in the purchasing and pay attention to the site conditions of Party A.
Chapter 12 Preparation and Construction
Article 33
During the period of preparation and construction, a preparation and
construction office shall be set up under the board of directors. The
preparation and construction office shall consist of five persons, among which
four persons will be from Party A, one person from Party B. The preparation
and construction office shall have one manager recommended by Party A, and one
deputy manager by Party B. The manager and deputy manager shall be appointed by
the board of directors.
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Article 34
The preparation and construction office is responsible for the following
concrete work: examining the designs of the project, signing project
construction contract, organizing the purchasing and inspecting of relative
equipment, materials, etc., working out the general schedule of project
construction, compiling the expenditure plans, controlling project financial
payments and final accounts of the project, drawing up managerial methods and
keeping and filing documents, drawings, files and materials, etc., during the
construction period of the project.
Article 35
A technical group with several technical personnel appointed by Party A and
Party B shall be organized. The group, under the leadership of the preparation
and construction office, is in charge of the examination, supervision,
inspection, testing, checking and accepting and performance checking for the
project design, the quality of project, the equipment and materials and the
imported technology.
Article 36
After approved by both parties, the establishment,
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remuneration and the expenses of the staff of the preparation and construction
office shall be paid respectively by Party A and Party B with Party A paying its
assigned personnel and Party B paying its delegate.
Article 37
After having completed the project and finishing the turning over
procedures, the preparation and construction office shall be dissolved upon the
approval of the board of directors.
Chapter 13 Labour Management
Article 38
Labour contract covering the recruitment, employment, dismissal and
resignation, wages, labour insurance, welfare, rewards, penalty and other
matters concerning the staff and workers of the joint venture company shall be
drawn up between the joint venture company and the Trade Union of the joint
venture company as a whole or individual employees in accordance with the
"Regulations of the People's Republic of China on Labour Management in Joint
Ventures Using Chinese and Foreign Investment" and its implementation rules.
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The labour contracts shall, after being signed, be filed with the local
labour management department.
Article 39
The appointment of high-ranking administrative personnel recommended
by both parties, their salaries, social insurance, welfare and the standard of
travelling expenses, etc., shall be decided by the meeting of the board of
directors.
Chapter 14 Taxes, Finance and Audit
Article 40
Joint venture company shall pay taxes in accordance with the stipulations
of Chinese laws and other relative regulations.
Article 41
Staff members and workers of the joint venture company shall pay individual
income tax according to the "Individual Income Tax Law of the People's Republic
of China."
Article 42
Allocations for reserve funds, expansion funds of the joint
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venture company and welfare funds and bonuses for staff and workers shall be set
aside in accordance with the stipulations in "The Law of the People's Republic
of China on Joint Ventures Using Chinese and Foreign Investment." The annual
proportion of allocations shall be decided by the board of directors according
to the business situation of the joint venture company.
Article 43
The fiscal year of the joint venture company shall be from January 1 to
December 31. All vouchers, receipts, statistic statements and reports, account
books shall be written in Chinese and English.
Article 44
Financial checking and examination of the joint venture company shall be
conducted by an auditor registered in China and reports shall be submitted to
the board of directors and the general manager.
In case Party B considers it is necessary to employ a foreign auditor
registered in another country to undertake annual financial checking and
examination, Party A shall give its consent. All the expenses thereof shall be
borne by Party B.
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Article 45
In the first three months of each fiscal year, the general manager shall
prepare previous year's balance sheet, profit and loss statement and proposal
regarding the disposal of profits, and submit them to the board of directors for
examination and approval.
Chapter 15 Duration of the Joint Venture
Article 46
The duration of the joint venture company is 25 years. The establishment of
the joint venture company shall start from the date on which the business
license of the joint venture company is issued.
An application for the extension of the duration, proposed by one party and
unanimously approved by the board of directors, shall be submitted to the
Shanghai Foreign Investment Commission six months prior to the expiry date of
the joint venture.
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Chapter 16 The Disposal of Assets After Expiration
of the Duration
Article 47
Upon the expiration of the duration or termination before the date of
expiration of the joint venture, liquidation shall be carried out as per
liquidated procedure stipulated in Regulations of Shanghai Municipality on
Liquidation of Enterprises with Foreign Investment and according to the relevant
laws. The liquidated assets shall be distributed in accordance with the
proportion of investment contributed by Party A and Party B.
Chapter 17 Insurance
Article 48
Insurance policies of the joint venture company on various kinds of risks
shall be underwritten with the People's Republic of China. Types, value and
duration of insurance shall be decided by the board of directors in accordance
with the stipulations of the insurance company in China.
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Chapter 18 The Amendment, Alteration and
Discharge of the Contract
Article 49
The amendment of the contract or other appendices shall come into force
after the written agreement is signed by Party A and Party B and approved by the
original examination and approval authority.
Article 50
In case of inability to fulfill contract or to continue operation due to
heavy losses in successive years without any increased investment as a result of
force majeure, the duration of the joint venture and the contract shall be
terminated before the time of expiration after being unanimously agreed upon by
the board of directors and approved by the original examination and approval
authority.
Article 51
Should the joint venture company be unable to continue its operations
or achieve the business purpose stipulated in the contract due to the fact that
one of the contracting parties fails to
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fulfill the obligations prescribed by the contract and articles of association,
or seriously violates the stipulations of the contract and articles of
association, that party shall be deemed as unilaterally terminating the
contract. The other party shall have the right to terminate the contract in
accordance with the provisions of the contract after being approved by the
original examination and approval authority as well as to claim damages. In case
Party A and Party B of the joint venture company agree to continue the
operation, the party who fails to fulfill the obligations shall be liable to the
economic losses thus caused to the joint venture company.
Chapter 19 Liabilities for Breach of Contract
Article 52
Should either Party A or Party B fail to pay on schedule the contributions
in accordance with the provisions defined in Chapter 5 of this contract, the
breaching party shall pay to the other party 5% of the contribution starting
from the first month after exceeding the time limit. Should the breaching party
fail to pay after 3 months, 15% of the contribution shall be paid to the other
party, who shall have the right to terminate the contract and
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to claim damages to the breaching party in accordance with the stipulations in
Article 53 of this contract.
Article 53
Should all or part of the contract and its appendices be unable to be
fulfilled owing to the fault of one party, the breaching party shall bear the
responsibilities thus caused and compensate relevant economic losses. Should it
be the fault of both parties, they shall bear their respective responsibilities
and be liable to relevant economic losses according to actual situations.
Chapter 20 Force majeure
Article 54
Should either of the parties to the contract be prevented from executing
the contract by force majeure, such as earthquake, typhoon, flood, fire and war
and other unforeseen events, and their happening and consequences are
unpreventable and unavoidable, the prevented party shall notify the other party
by Fax without any delay, and within 15 days thereafter provide the detailed
information of the events and a valid document for
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evidence issued by the relevant public notary organization for explaining of the
reason of its inability to execute or delay the execution of all or part of the
contract. Both parties shall, through consultations, decide whether to terminate
the contract or to exempt the part of obligations for implementation of the
contract or whether to delay the execution of the contract according to the
effects of the events on the performance of the contract.
Chapter 21 Applicable Law
Article 55
The formation of this contract, its validity, interpretation, execution and
settlement of the disputes shall be governed by the related laws of the People's
Republic of China.
Chapter 22 Settlement of Disputes
Article 56
Any disputes arising from the execution of, or in connection with, the
contract shall be settled through friendly consultations between both parties.
In case no settlement can be reached
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through consultations, the disputes shall be submitted to Shanghai branch of the
International Economic and Trade Arbitration Commission of the China Council for
arbitration in accordance with its rules of procedure. The arbitral award is
final and binding upon both parties.
Article 57
During the arbitration, the contract shall be executed continuously by both
parties except for matters in dispute.
Chapter 23 Language
Article 58
The contract shall be written in Chinese version and in English version.
Both languages are equally authentic. In the event of any discrepancy between
the two aforementioned versions, the Chinese version shall prevail.
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Chapter 24 Effectiveness of the Contract
and Miscellany
Article 59
The appendices drawn up in accordance with the principles of this contract
are integral part of this contract, including: the project agreement, the
technology transfer agreement, the sales agreement . . . .
Article 60
The contract and its appendices shall come into force beginning from the
date of approval by Shanghai Mechanical & Electrical Industrial Administration
Bureau.
Article 61
The technology transfer contract signed in Beijing between Party A and
Party B will be signed in Shanghai between the joint venture company and Party
B, the machinery purchasing contract with which the joint venture company
entrusts Party B to purchase equipment on overseas market are all appendices of
this contract.
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If there are some contradictions among above mentioned contracts, this
contract shall prevail.
Article 62
Should notices in connection with any party's rights and obligations be
sent by either Party A or Party B by telegram or telex, etc., the written letter
notices shall be also required afterwards. The legal addresses of Party A and
Party B listed in this contract shall be the posting addresses.
Article 63
The contract is signed in Shanghai of China by the authorized
representatives of both parties on March 21, 1994.
For Party A For Party B
(Signature) (Signature)
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