EXHIBIT 10.19
ARTICLES OF ASSOCIATION
FOR JOINT VENTURES
USING CHINESE AND FOREIGN INVESTMENT
SHANGHAI, CHINA
18 MARCH, 1994
ARTICLES OF ASSOCIATION FOR JOINT VENTURES
USING CHINESE AND FOREIGN INVESTMENT
CHAPTER I GENERAL PROVISIONS
ARTICLE 1
In accordance with "The Law of the People's Republic of China on Joint
Ventures Using Chinese and Foreign Investment" and the contract, in which two
parties agree on setting up Shanghai Southwest Bearing joint venture company
Ltd. (hereinafter referred to as the joint venture company), signed by Shanghai
Hong Xing Bearing Factory (hereinafter referred to as Party A and Smith
Acquisition Company dba. Southwest Products Company of U.S.A. (hereinafter
referred to as Party B) in Shanghai, China, the articles of association hereby
is formulated.
ARTICLE 2
The name of the joint venture company is Shanghai Southwest Bearing
Company Ltd.
The name in Chinese language is ______________.
. 1 .
The legal address of the joint venture company is at 937, Zhong Shan Nan Yi
Road, Shanghai China.
ARTICLE 3
The names and legal addresses of the parties to the joint venture are
as follows:
Party A: Shanghai Hong Xing Bearing Factory at 937, Zhong Shan Nan Yi
Road, Shanghai, China
Party B: Smith Acquisition Company dba. Southwest Products Co. of
U.S.A. at 2240, Buena Vista, Irwindale, CA 91706, America
ARTICLE 4
The joint venture company is a limited liability company.
ARTICLE 5
The joint venture company has the status of a legal person and is
subject to the jurisdiction and protection of China's laws concerned. All its
activities shall be governed by Chinese laws, decrees and other pertinent rules
and regulations.
. 2 .
CHAPTER II PURPOSE AND SCOPE OF BUSINESS
ARTICLE 6
The purpose of the joint venture is to produce and sell spherical
bearing products as stipulated in the Contract for Joint Venture, to develop new
liner material and bonding technology, and to reach world class level for
obtaining satisfactory economic benefits for the parties to the joint venture
company.
ARTICLE 7
The business scope of the joint venture company is to design,
manufacture and sell spherical bearing products and related modified products,
machines; provide after sale-services.
ARTICLE 8
The scale of production of the joint venture company is as follows:
First year: 100,000 units
Second year: 500,000 units
Third year: 600,000 units
. 3 .
ARTICLE 9
The joint venture company may sell its products on the Chinese
domestic market and on the international market, its selling proportion based on
annual total output is as following:
First year: 100%
Second Year: 90% for export;
10% for the domestic market
Third Year: more than 90% for export; remaining for the domestic
market.
CHAPTER III THE TOTAL AMOUNT OF INVESTMENT AND REGISTERED CAPITAL
ARTICLE 10
The total amount of investment of the joint venture company is
$4,600,000. Its registered capital is $7,200,000.
. 4 .
ARTICLE 11
The investment contributed by each party is as follows:
PARTY A: Investment subscribed is $2,600,000, accounting for 72.22%
of the registered capital, among which,
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: Investment subscribed is $1,000,000, accounting for 27.78%
of the registered capital, among which,
Cash: $800,000
Technology: $200,000 (for manufacturing and bonding self-
lubricating liner)
ARTICLE 12
The parties to the joint venture shall pay in all the investment
subscribed according to the time limit stipulated in the contract.
. 5 .
ARTICLE 13
After the investment is paid by the parties to the joint venture, an
accountant who had been registered in China, agreed upon by both parties invited
by the joint venture company shall verify it and provide a certificate of
verification. According to this certificate, the joint venture shall issue an
investment certificate which includes the following items: name of the joint
venture; date of the establishment of the joint venture; names of the parties
and the investment contributed; date of the contribution of the investment; and
the date of issuance of the investment certificate.
ARTICLE 14
Within the term of the joint venture, the joint venture company shall
not reduce its registered capital.
ARTICLE 15
Should one party assign all or part of its investment subscribed,
written consent shall be obtained from the other party of the joint venture.
When one party assigns investment, the other party has preemptive right. Such
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assignment shall not be in violation of United States or Chinese law.
ARTICLE 16
Any increase or assignment of the registered capital of the joint
venture company shall be unanimously approved by the board of directors and
submitted to the original examination and approval authority for approval. The
registration procedures for changes shall be dealt with at the original
registration and administration office.
CHAPTER IV THE BOARD OF DIRECTORS
ARTICLE 17
The joint venture shall establish the board of directors which is the
highest authority of the joint venture company.
ARTICLE 18
The board of directors shall decide all major issues concerning the
joint venture company. Its functions and powers are as follows:
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_____ deciding and approving the important reports submitted by the
general manager (for instance: production plan, annual business report, funds,
loans, etc.,);
_____ approving annual financial reports, budget of receipts and
expenditures, distribution plan of annual profits;
_____ adopting major rules and regulations of the company;
_____ deciding to set up branches;
_____ amending the parties of association of the company;
_____ discussing and deciding the termination of production,
termination of the company or merging with another economic organization;
_____ deciding the engagement of high-rank officials such as the
general manager, chief engineer, treasurer, auditor, etc.;
_____ being in charge of expiration of the company and the
liquidation matters upon the expiration of the joint venture company;
_____ other major issues which shall be decided by the board of
directors.
. 8 .
ARTICLE 19
The board of directors shall consist of six directors, of which four
directors shall be appointed by Party A, two by Party B. The term of office for
the directors is four years and may be renewed.
ARTICLE 20
Chairman of the board shall be appointed by Party A and vice chairman
of the board by Party B.
ARTICLE 21
When appointing and replacing directors, a written notice shall be
submitted to the board.
ARTICLE 22
The board of directors shall convene one meeting every year. The
chairman may convene an interim meeting based on a proposal made by more than
one-third of the total number of directors.
ARTICLE 23
The board meeting will be held in principle on the
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location of the company.
ARTICLE 24
The board meeting will be called and presided over by the chairman.
Should the chairman be absent, the vice chairman shall call and preside over the
board meeting.
ARTICLE 25
The chairman shall give each director a written notice 30 days before
the date of the board meeting. The notice shall cover the agenda, time and
place of the meeting.
ARTICLE 26
Should a director be unable to attend the board meeting, he may
present a proxy in written form to the board. In case the director neither
attends nor entrusts other to attend the meeting, he will be regarded as
abstention.
ARTICLE 27
The board meeting requires a quorum of at least two-thirds of the
total number of directors. When the quorum is less than two-thirds, the
decisions adopted by
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the board meeting are invalid; Each board decision must be approved by at least
one board member appointed by Party B.
ARTICLE 28
Detailed written records shall be made for each board meeting and
signed by all the attending directors or by the attending proxy. The record
shall be made in Chinese and English, and shall be filed with the company.
ARTICLE 29
The following issues shall be unanimously agreed upon by the board of
directors:
_____ amending the articles of association of the joint venture
company;
_____ increasing and assignment the registered capital of the joint
venture company;
_____ deciding annual plan of production and selling, financial
budget and final account;
_____ deciding distribution plan of annual profits, use and
distribution proportion of reserve funds, expansion funds of the joint venture
company, welfare funds and
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bonuses for staff and workers.
_____ appointing and removing of the general manager and deputy
general managers;
_____ merging with other economic organization;
_____ terminating and disbanding the joint venture company;
_____ liquidation organization and plan of the joint venture company,
ARTICLE 30
The other important issues shall be passed by more than half of the
total number of directors, but must be approved by at least one director
appointed by Party B.
CHAPTER V BUSINESS MANAGEMENT ORGANIZATION
ARTICLE 31
The joint venture company shall establish a management organization.
It consists of production, technology, marketing, finance and administration
offices, etc.
ARTICLE 32
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The joint venture company shall have one general manager and two
deputy general managers who are engaged by the board of directors. The first
general manager shall be recommended by Party B; After the first term,
recommendation will be decided upon negotiation of the board of directors.
Deputy general managers shall be recommended by Party A, and approved by the
general manager.
ARTICLE 33
The general manager is directly responsible to the board of directors.
He shall carry out the decisions of the board of directors, organize and conduct
the daily production, technology and operation and management of the joint
venture company. The deputy general managers shall assist the general manager
in his work and act as the agent of the general manager during his absence and
exercise the functions of the general manager.
ARTICLE 34
Decision on the major issues concerning the daily work of the joint
venture company shall be signed jointly by the general manager and deputy
general managers, then the
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decisions shall come into effect. Issues which need co-signatures shall be
specifically stipulated by the board of directors.
ARTICLE 35
The term of office for the general manager and deputy general managers
shall be four years. After the initial term, the general manager and the deputy
general managers should continue to be nominated by the same parties as
originally stipulated, and be approved by the board of directors.
ARTICLE 36
At the invitation of the board of directors, the chairman, vice-
chairman or directors of the board may concurrently be the general manager,
deputy general managers or other high-ranking personnel of the joint venture
company.
ARTICLE 37
The general manager or deputy general managers shall not hold posts
concurrently as general manager or deputy
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general managers of other economic organizations in commercial competition with
their own joint venture company.
ARTICLE 38
The joint venture company shall have one chief engineer, one treasurer
and one auditor engaged by the board of directors and approved by the general
manager.
ARTICLE 39
The general engineer, treasurer and auditor shall be under the
leadership of the general manager.
The treasurer shall exercise leadership in financial and accounting
affairs, organize the joint venture company to carry out overall business
accounting and implement the economic responsibility system.
The auditor shall be in charge of the auditing work of the joint
venture company, examine and check the financial receipts and expenditure and
the accounts, and submit written reports to the general manager and the board of
directors.
. 15 .
ARTICLE 40
The general manager, deputy general manager, chief engineer,
treasurer, auditor and the other high-ranking personnel who wish to quit the job
with the joint venture shall submit their written resignation to the board of
directors in advance.
In case any one of the above-mentioned persons conduct graft or
serious dereliction of duty, they may be dismissed at any time upon the decision
of the board. Those who violate the criminal law shall be under criminal
sanction.
CHAPTER IV FINANCE AND ACCOUNTING
ARTICLE 41
The finance and accounting of the joint venture company shall be
handled in accordance with the "Stipulations of the Finance and Accounting
System of the Joint Ventures Using Chinese and Foreign Investment
formulated by the Ministry of Finance of the People's Republic of China.
. 16 .
ARTICLE 42
The fiscal year of the joint venture company shall coincide with the
calendar year, i.e. from January 1 to December 31 on the Gregorian calendar.
ARTICLE 43
All vouchers, account books, statistic statements and reports of the
joint venture company shall be written in Chinese and English.
ARTICLE 44
The joint venture company adopts RMB as its accounts keeping unit.
The conversion of RMB into other currency shall be in accordance with the
exchange rate of the converting day published by the State Administration of
Exchange Control of the People's Republic of China.
ARTICLE 45
The joint venture company shall open accounts in RMB and foreign
currency with the Bank of China or other banks agreed by the Bank of China.
. 17 .
ARTICLE 46
The accounting of the joint venture company shall adopt the
internationally used accrual basis and debit and credit accounting system in
their work.
ARTICLE 47
The following items shall be covered in the financial accounts books:
1. The amount of overall cash receipts and expense of the joint
venture company;
2. All material purchasing and selling of the joint venture company;
3. The registered capital and debts situation of the joint venture
company;
4. The time of payment, increase and assignment of the registered
capital of the joint venture company.
5. Other financial information deemed necessary by the general
manager to assist him in performing his duties.
ARTICLE 48
The joint venture company shall work out the statement
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of assets and liabilities and losses and gains accounts of the past year in the
first three months of each fiscal year, and submit to the board meeting for
approval after being examined and signed by the auditor.
ARTICLE 49
Parties to the joint venture have the right to invite an auditor to
undertake annual financial check and examination at their own expense. The
joint venture company shall provide convenience for checking and examination.
ARTICLE 50
The depreciation period for the fixed assets of the joint venture
company shall be decided by the board of directors in accordance with the Rules
for the Implementation of the Income Tax Law of the People's Republic of China
Concerning Joint Venture with Chinese and Foreign Investment.
ARTICLE 51
All matters concerning foreign exchange shall be handled in accordance
with the "Provisional Regulations for
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Exchange Control of the People's Republic Of China", and other pertaining
regulations as well as the stipulations of the joint venture contract.
CHAPTER VI PROFITS SHARING
ARTICLE 52
The joint venture company with unanimous approval of the board of
directors will draw reserve funds, expansion funds and bonuses and welfare funds
for staff and workers after payment of taxes. The proportion of allocation is
decided by the board of directors.
ARTICLE 53
After paying the taxes in accordance with law and drawing the various
funds, the remaining profits will be distributed according to the proportion of
each party's investment in the registered capital. At the beginning period of
the joint venture company, profits will be distributed by RMB currency.
ARTICLE 54
. 20 .
The joint venture company shall distribute its profits each year. The
profit distribution plan and the amount of profit distributed to each party
shall be published within the first three months following each fiscal year.
ARTICLE 55
The joint venture company shall not distribute profits unless the
losses of previous fiscal year have been made up. Remaining profit from previous
year can be distributed together with that of the current year.
CHAPTER VIII STAFF AND WORKERS
ARTICLE 56
The employment, recruitment, dismissal and resignation of the staff
and workers of the joint venture company and their salary, welfare benefits,
labour insurance, labour protection, labour discipline and other matters shall
be handled according to the "Regulations of the People's Republic of China on
Labour Management in Joint Ventures Using Chinese and Foreign Investment" and
its implementation rules.
. 21 .
ARTICLE 57
The required staff and workers to be recruited by the joint venture
company will be recommended by the local labour department or the joint venture
will do so through public selection examinations and employ those who are
qualified with the consent of the labour department.
ARTICLE 58
The joint venture company has the right to take disciplinary actions,
record a demerit and reduce salary against those staff members and workers who
violate the rules and regulations of the joint venture company and labour
discipline. Those with serious cases may be dismissed. Discharging of workers
shall be filed with the labour and personnel department in the locality.
ARTICLE 59
The salary treatment of the staff and workers shall be set by the
board of directors according to the specific situation of the joint venture,
with reference to pertaining stipulations of China, and shall be specified in
detail in
. 22 .
the labour contract.
The salary of the staff and workers shall be increased correspondingly
with the development of production and the raising of the ability and technology
of the staff and workers.
ARTICLE 60
Matters concerning the welfare funds, bonuses, labour protection and
labour insurance, etc. shall be stipulated in various rules by the joint venture
company to ensure that the staff and workers go in for production and work under
normal conditions.
CHAPTER IX TRADE UNION ORGANIZATION
ARTICLE 61
The staff and workers of the joint venture company have the right to
establish trade union organization and carry out activities in accordance with
the stipulations of the Trade Union Law of the People's Republic of China".
ARTICLE 62
. 23 .
The trade union in the joint venture company representative of the
interests of the staff and workers. The tasks of the trade union are: to
protect the democratic rights and material interests of the staff and workers
pursuant to the law; to assist the joint venture company to arrange and make
rational use of welfare funds and bonuses; to organize professional, scientific
and technical studies, carry out literary, art and sports activities; and
educate staff and workers to observe labour discipline and strive to fulfil the
economic tasks of the joint venture company.
ARTICLE 63
The trade union of the joint venture company shall sign labour
contracts with the joint venture company on behalf of the staff and workers, and
supervise the implementation of the contracts.
ARTICLE 64
Persons in charge of the trade union of the joint venture company have
the right to attend as nonvoting members and to report the opinions and demands
of staff and workers to meetings of the board of directors held to
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discuss issues such as development plans, production and operational activities
of the joint venture.
ARTICLE 65
The trade union shall take part in the mediation of disputes arising
between the staff and workers and the joint venture company.
ARTICLE 66
The joint venture company shall allot an amount of money totalling 2%
of all the salaries of the staff and workers of the joint venture company as
trade union's funds, which shall be used by the trade union in accordance with
the "Managerial Rules for the Trade Union Funds" formulated by the All China
Federation of Trade Unions.
CHAPTER X DURATION, TERMINATION AND LIQUIDATION
ARTICLE 67
The duration of the joint venture company shall be 25 years, beginning
from the day when business license is issued.
. 25 .
ARTICLE 68
An application for the extension of duration shall, proposed by both
parties and approved at the board meeting, be submitted to the original
examination and approval authority six months prior to the expiry date of the
joint venture. Only upon its approval may the duration be extended, and the
joint venture company shall go through registration formalities for the
alteration at the original registration office.
ARTICLE 69
The joint venture may be terminated before its expiration in case the
parties to the joint venture agree unanimously that the termination of the joint
venture is for the best interests of the parties.
To terminate the joint venture before the term expires shall be
decided by the board of directors through a plenary meeting, and it shall be
submitted to the original examination and approval authority for approval.
ARTICLE 70
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[MISSING PAGE 27]
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priority from the existing assets of the joint venture company.
ARTICLE 74
The remaining property after the clearance of debts of the joint
venture company shall be distributed between the parties to the joint venture
according to the proportion of each party's investment in the registered
capital.
ARTICLE 75
On completion of the liquidation, the joint venture company shall
submit a liquidation report to the original examination and approval authority,
go through the formalities for nullifying its registration in the original
registration office and hand in its business license, and at the same time, make
an announcement to the public.
ARTICLE 76
After winding up of the joint venture company, its account books shall
be left in the care of the Chinese participant.
. 28 .
ARTICLE 77
Following are the rules and regulations formulated by the board of
directors of the joint venture company.
1. Management regulations, including the powers and functions of the
managerial branches and its working rules and procedures;
2. Rules for the staff and workers;
3. Rules to keep secret;
4. System of labour and salary;
5. System of work attendance record, promotion and awards and penalty
for staff members and worker's;
6. Detailed rules of staff and worker's welfare;
7. Financial system;
8. Liquidation procedures upon the dissolution of the joint venture
company;
9. Other necessary rules and regulations;
. 29 .
CHAPTER XII SUPPLEMENTARY ARTICLES
ARTICLE 78
The amendments to the Articles of Association shall be unanimously
agreed on and decided by the board of directors and submitted to the original
examination and approval authority for approval.
ARTICLE 79
The Articles of Association is written in Chinese language and English
language. Both languages shall be equally authentic. In the event of any
discrepancy between the two above mentioned versions, the Chinese version shall
prevail.
ARTICLE 80
The Articles of Association shall come into effect upon the approval
by the Shanghai Foreign Investment Commission. The same applies in the event of
amendments.
ARTICLE 81
. 30 .
The Articles of Association 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)
[Signature appears here] [Signature appears here]
. 31 .