SINO-AMERICAN
EQUITY JOINT VENTURE CONTRACT
BETWEEN
FUJIAN FUFA COMPANY LIMITED
AND
MAGNETEK, INC.
FOR THE ESTABLISHMENT OF
MAGNETEK FUZHOU GENERATOR
COMPANY LIMITED
CONTENTS
CHAPTER I GENERAL PROVISIONS 1
CHAPTER II PARTIES TO THE CONTRACT 1
CHAPTER III ESTABLISHMENT OF THE EQUITY JOINT VENTURE COMPANY 2
CHAPTER IV PURPOSE, SCOPE AND SCALE OF PRODUCTION AND BUSINESS 4
CHAPTER V TOTAL AMOUNT OF INVESTMENT AND REGISTERED CAPITAL 5
CHAPTER VI RESPONSIBILITIES OF EACH PARTY TO THE COMPANY 9
CHAPTER VII PROVISIONS OF TECHNOLOGY 12
CHAPTER VIII SELLING OF PRODUCTS 16
CHAPTER IX THE BOARD OF DIRECTORS 17
CHAPTER X BUSINESS MANAGEMENT STAFF 18
CHAPTER XI PURCHASE OF EQUIPMENT 20
CHAPTER XII LABOR MANAGEMENT 20
CHAPTER XIII ACCOUNTING, AUDITING AND TAXATION 21
CHAPTER XIV DURATION AND TERMINATION OF THE CONTRACT 22
CHAPTER XV INSURANCE 26
CHAPTER XVI THE AMENDMENT OF THE CONTRACT 27
CHAPTER XVII LIABILITIES FOR BREACH OF CONTRACT 27
CHAPTER XVIII FORCE MAJEURE 28
CHAPTER XIX APPLICABLE LAW 28
CHAPTER XX SETTLEMENT OF DISPUTES 28
CHAPTER XXI LANGUAGE 30
CHAPTER XXII EFFECTIVENESS OF THE CONTRACT AND MISCELLANY 30
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SINO-AMERICAN
EQUITY JOINT VENTURE CONTRACT
BETWEEN
FUJIAN FUFA COMPANY LIMITED
AND
MAGNETEK, INC.
FOR THE ESTABLISHMENT OF
MAGNETEK FUZHOU GENERATOR COMPANY LIMITED
This Contract (hereinafter referred to as the "Contract") for the
Establishment of MAGNETEK FUZHOU GENERATOR COMPANY LIMITED (hereinafter
referred to as the "Company") is entered into by and between FUJIAN FUFA
COMPANY LIMITED (hereinafter referred to as "Party A"), and MAGNETEK, INC.
(hereinafter referred to as "Party B", and together with Party A, the
"Parties" or "Party" if the context so requires) and shall be effective as of
the date that the Contract, including its Schedules attached hereto, receives
approval by the Fuzhou Foreign Trade and Economic Cooperation Bureau of the
People's Republic of China ("PRC") or its relevant examination and approval
authority having due authority to approve this Contract (the "Approving
Authorities"). Such date is hereinafter referred to as the "Effective Date".
References to the PRC in this Contract shall not be applicable to Hong Kong,
Macau or Taiwan.
CHAPTER I GENERAL PROVISIONS
In accordance with "The Company Law of the People's Republic of China"
and "The Law of the People's Republic of China on Joint Ventures Using
Chinese and Foreign Investment", as well as other relevant promulgated and
publicly available Chinese laws and regulations, Party A and Party B,
adhering to the principle of equality and mutual benefit and through friendly
consultations, agree to jointly invest in, and to set up the Company, as an
equity joint venture limited liability enterprise in Fuzhou, Fujian, PRC, in
accordance with the following terms and conditions:
CHAPTER II PARTIES TO THE CONTRACT
Article 1
The Parties to this Contract are as follows:
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1.1 Party A: FUJIAN FUFA COMPANY LIMITED, a duly established and registered
Company under the laws of the PRC, whose legal address is at 223 Gong Ye
Road, Fuzhou, Fujian, PRC 350004. The designated legal representative for
Party A is :
Name: Chen Guo Xiang
Position: Chairman of the Board and General Manager
Nationality: Chinese Citizen
1.2 Party B: MAGNETEK, INC., a duly established and registered corporation
under the laws of the State of Delaware in the United States of America,
whose legal address is at 26 Century Blvd., P.O. Box 290159, Nashville,
Tennessee 37229-0159. The designated authorized representative for
Party B is:
Name: Gary R.Wolfe
Position: Vice-president of the Generator Business
Nationality: USA Citizen
1.3 The Parties reserve the right to change their respective legal or
authorized representatives from time-to-time upon prior written notice to
the other Party.
CHAPTER III ESTABLISHMENT OF THE EQUITY JOINT VENTURE COMPANY
ARTICLE 2
2.1 In accordance with "The Company Law of the People's Republic of China"
and "The Law of the People's Republic of China on Joint Ventures Using
Chinese and Foreign Investment" as well as other relevant promulgated and
publicly available Chinese laws and regulations, both Parties to this
Contract agree to establish MagneTek Fuzhou Generator Company Limited, a
Sino-American equity joint venture limited liability enterprise.
2.2 Contemporaneously with the execution of this Contract, the Parties have
approved and adopted the "Articles of Association" for the Company, which
shall come into effect together with the Contract upon the grant of
approvals by the Approving Authorities.
ARTICLE 3
3.1 The name of the Company in English is MagneTek Fuzhou Generator Company
Limited.
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3.2 The name of the Company in Chinese is "______________________________".
3.3 The name of the Company shall be used to identify the Company in
connection with any and all of its activities. The legal address of the
Company is at 223 Gong Ye Road, Fuzhou, Fujian, PRC 350004.
ARTICLE 4
4.1 The activities of the Company shall be governed, where applicable, by
this Contract and the relevant promulgated and publicly available laws,
decrees, rules and regulations of the PRC.
ARTICLE 5
5.1 The organization form of the Company is a limited liability company.
5.2 The Company shall be responsible for all its liabilities up to the
amount of its assets. Each Party's individual liability to the Company is
limited to and shall not exceed its respective capital contribution to the
Company's registered capital, such capital contribution hereinafter
sometimes being referred to as a Party's "Equity Interest" in the Company.
5.3 Neither Party A nor Party B shall be individually liable for any other
debt or obligation of any nature whatsoever of the Company, or of the other
Party, unless otherwise stated in writing and signed by a designated legal
representative (in the case of Party A) or a designated authorized
representative (in the case of Party B) of the Party to be charged with
such liability.
5.4 The Company shall not, and does not have the authority to bind or
obligate either Party A or Party B in their individual capacities, unless
otherwise provided in the Contract.
5.5 The profits of the Company shall be shared by the Parties in proportion
to their respective contributions to the registered capital of the Company.
5.6 The risks and losses of the Company shall be shared by the Parties in
proportion, but not to exceed their respective subscribed contribution to
the Company's registered capital.
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CHAPTER IV PURPOSE, SCOPE AND SCALE OF PRODUCTION AND BUSINESS
ARTICLE 6
6.1 The purpose of the Parties in entering into this Contract and
forming the Company is to enhance economic cooperation and technical
exchange, to elevate the product posture in the market, elevate the
process and management technology of the Company, improve the product
quality, develop new products, and gain and maintain a competitive
position in its world marketplace and enhance overall business
capabilities, quality, service and price, by adopting internationally
advanced and appropriate technology and scientific management methods, so
as to generate satisfactory economic returns to the Company and achieve
satisfactory economic profits for the Parties.
ARTICLE 7
7.1 The production and business scope of the Company shall include the
production of the generator products set forth in Schedule A of the
Contract, as may be amended from time-to-time by the Board of Directors,
and to include all related accessories and attachments for such generator
products (hereinafter referred to as the "Products").
7.2 The production and business scope of the Company will also include
aftermarket maintenance service and replacement parts sales for the
Products. Party A, including its direct and indirect subsidiaries and
affiliates, shall discontinue generator aftermarket maintenance service
and replacement parts sales within the PRC on a time schedule to be
agreed upon by the Company's Board of Directors, and upon authorization
by the Company, Party A may conduct replacement parts sales for the Party
A Products set forth in Section 2.1 of Schedule A sold outside the PRC,
exclusive of the Nippon Sharyo Generators, defined in Schedules A and D.
ARTICLE 8
8.1 The present estimated scale of production is approximately 7,000 units by
the end of calendar year 1998. Actual production levels are to be
determined by the Board of Directors based upon market demand and
conditions.
8.2 Within five (5) years from the Effective Date of this Contract, the
Parties shall review the production capacity and determine whether the
capacity of Products should be expanded or adjusted to match market
demand or other circumstances.
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CHAPTER V TOTAL AMOUNT OF INVESTMENT AND REGISTERED CAPITAL
ARTICLE 9
9.1 The total amount of investment of the Company will be 13,700,000.00
U.S. Dollars ("USD").
ARTICLE 10
10.1 The registered capital of the Company will be 10,548,332.00 USD.
ARTICLE 11
11.1 Each Party's cash and non-cash contribution to the registered capital of
the Company, shall be:
(a) Party A shall inject cash and non-cash contributions of 4,746,749.00
USD to the Company which shall constitute 45% of the registered
capital of the Company;
(b) Party B shall inject cash and non-cash contributions of 5,801,583.00
USD to the Company which shall constitute 55% of the registered
capital of the Company.
11.2 The Parties shall make their respective contributions to the registered
capital of the Company in the following manner:
PARTY A'S CAPITAL CONTRIBUTION
AND METHOD OF MAKING CONTRIBUTION
Party A's contribution of non-cash assets shall be in accordance with the
terms of the form of Capital Contribution Schedule set forth in Schedule
B, (hereinafter the "Contribution Schedule" or "Schedule B") and the form
of Deed of Generator Business Transfer and Technology License, a form of
which is attached hereto as Schedule D (the "Deed of Generator Business
Transfer and Technology License")
(i) Existing generator business ("Party A's Generator Business"), as
described in Schedule D
(ii) Rights to use the existing technology of Party A's Generator
Business
(iii) Rights to use the "Fufa" trademark on the Products
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equivalent in value to 424,000 USD
(iv) Cash 4,322,749 USD
PARTY B'S CAPITAL CONTRIBUTION
AND METHOD OF MAKING CONTRIBUTION
(i) Rights to use generator and automatic voltage regulator technology
(ii) Rights to use the "MagneTek" trademark on the Products
equivalent in value to 1,613,000 USD
(iii) Cash 4,188,583 USD
TOTAL REGISTERED CAPITAL 10,548,332 USD
The terms and conditions in accordance with which Parties A and B shall
make their respective contributions to the Company's registered capital
are set forth in Schedule B.
11.3 Immediately after the Business License Date (as hereinafter defined),
Party A shall enter into the Generator Business Transfer and Technology
License and Party B shall enter into the Deed of Technology License in
order to effect their respective contributions to the registered capital
of the Company as provided in Articles 11.1 and 11.2 herein. For purpose
of this Contract, the Business License Date shall be the date of the
initial business license for the establishment of the Company, as issued
by the relevant government authority.
11.4 Party A may use Renminbi of the PRC (RMB) as its cash contribution. The
exchange rate of RMB for USD will be the mid-rate of exchange for buying
and selling USD quoted by the People's Bank of China for the day when the
contribution of cash is received by the Company.
ARTICLE 12
12.1 Total contribution by the Parties to the registered capital of the
Company shall be made in predetermined installments on a timely basis
in accordance with Schedule B.
12.2 As soon as each Party has contributed an installment of its subscribed
capital, a PRC registered accountancy firm appointed by the Company shall
verify the actual contribution and issue an interim investment
verification report for such
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installment. A formal investment verification report shall be issued by
such registered accountancy firm when all the registered capital has been
fully paid-up. According to this investment verification report, the
Company shall issue to such relevant Party a certificate of capital
contribution which shall include the following items:
(i) name of the Company;
(ii) date of establishment of the Company;
(iii) name of the Party and total amount of registered capital subscribed
by that Party;
(iv) amount of capital contribution made by the Party to-date, and the
date of making the same;
(v) date of issuance of the certificate of capital contribution.
12.3 Within 90 days of signing the Contract by the respective, duly
authorized representatives of the Parties, Party A shall enter into the
form of Lease Contract. Pursuant to the terms of the Lease Contract,
Party A shall lease to the Company the Site and facilities (the "Site")
to be used by the Company for its manufacturing business, all as
indicated in the red line drawings and improvement descriptions contained
in the Lease Contract. At the time of the execution of the Lease
Contract, Party A shall hold a land use certificate evidencing Party A's
land use grant right in the Site being leased to the Company. Party A
shall have paid all premiums required under the land use grant between
Party A and the Fuzhou Land Administration Bureau covering the Site
thereby enabling Party A to legally lease the Site with improvements
thereon to the Company. Party A represents and warrants to Party B that
the Site is environmentally acceptable, contamination free and is in full
compliance with the relevant government authority for land
administration, environmental protection, water and soil conservation,
construction standards, fire prevention and worker safety. Party A hereby
indemnifies and holds harmless Party B and the Company for any and all
claims, demands, liabilities, damages, costs and expenses that arise out
of, or in connection with, any use of or activities on the Site, or
failure of the Site to meet compliance standards indicated in the
preceding sentence prior to the date of the Lease Contract.
12.4 Each Party shall cooperate and deal fairly and in good faith with the
other in the performance of this Contract and in the operation of the
Company.
12.5 In the event that the Company's Board of Directors approves an increase
of the registered capital of the Company, then each Party shall pay into
the Company, on such terms and at such times as shall have been approved
by the Company's Board of Directors, its respective portion of the
registered capital so increased, as
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determined by its Equity Interest immediately prior to the making of the
decision by the Board of Directors for the increase of the registered
capital.
12.6 If a Party fails to pay its portion of the Company's registered capital
when due (the "Non-performing Party"), whether the initial registered
capital approved in Chapter V of this Contract or increased registered
capital approved by the Board of Directors, and if the other Party (the
"Performing Party") makes its full capital contribution within the time
limit, then, subject to the provisions of Article 38, the Performing
Party shall have the right to subscribe to the portion of the
Non-performing Party, and consequently the Performing Party's Equity
Interest shall be increased and the Non-performing Party's Equity
Interest shall be decreased to reflect their actual payment into the
Company's registered capital.
ARTICLE 13
13.1 In case a Party wishes to assign all or part of its Equity Interest to a
third party, consent to such assignment must be obtained from the other
Party and approval thereof obtained from the Board of Directors. In
addition, approval must also be granted by the original Approving
Authorities. The assignee is required to assume all the assignor's rights
and obligations under this Contract in respect to the assigned portion of
the investment.
13.2 When one Party wishes to assign all or part of its Equity Interest to a
third party, the other Party shall have a right of first refusal to
purchase that portion of that Party's Equity Interest in the Company's
registered capital which that Party wishes to assign in accordance with
the following provision:
(a) A Party who wishes to assign all or part of its Equity Interest in
the Company (the "Transferring Party") shall notify the other Party
of its desire to do so, and the other Party shall have the
preferential right within 60 days following the receipt of such
notice to agree to purchase all of the offered Equity Interest upon
the terms offered by the Transferring Party.
(b) If at the end of such 60 day period, the other Party has not agreed
to purchase all the Equity Interest offered by the Transferring
Party upon terms which the Transferring Party is willing to accept,
the Transferring Party shall be free to assign all or part of its
Equity Interest to any third party, provided that the conditions of
such sale cannot be more favorable to the third party, and provided
further that the approvals referred to in Article 13.1 herein are
granted.
13.3 Notwithstanding anything contained in Articles 13.1 and 13.2 herein to
the contrary, if one Party wishes to assign or transfer all or a part of
its Equity Interest (the "Assigning Party") to an affiliate of the
Assigning Party or, in the event of a
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sale, merger, or assignment of the generator business of the Assigning
Party, to a third party which is at least as financially viable as the
Assigning Party (such affiliate or third party referred to as the
"Permitted Assignee"), provided that the Assigning Party has entered into
all necessary instruments and agreements with the Permitted Assignee for
the transfer of the title or right to use and sublicense the respective
technology previously licensed to the Company by the Assigning Party as
part of its contribution to the Company and further provided that in the
case where Party A is the Assigning Party, such Permitted Assignee is not
a company or entity that is a competitor of Party B, the other Party does
hereby give consent to such proposed assignment or transfer and shall
cause the Directors appointed by it to approve such assignment or
transfer. Approval must also be granted by the original Approving
Authorities. Such transfer or assignment will become effective upon the
grant of approval by the original Approving Authorities. The Permitted
Assignee is required to assume the Assigning Party's rights and
obligations under this Contract arising from ownership of the portion of
the Equity Interests being transferred. In the case where Party B is the
Assigning Party, Party B shall not use the technology it has licensed to
the Company to produce separately the Products in the PRC for the term of
this Contract. For purposes of this Article 13.3, and as used elsewhere
in this Contract, "affiliate" shall mean: (i) any company or entity that
directly or indirectly holds a controlling interest of the issued and
outstanding voting shares or equity interests in the Assigning Party (a
"Parent Company"); (ii) any company or entity in which the Assigning
Party directly or indirectly holds a controlling interest of the issued
and outstanding voting shares or equity interests; or (iii) any company
or entity in which a Parent Company directly or indirectly holds a
controlling interest of the issued and outstanding voting shares.
CHAPTER VI RESPONSIBILITIES OF EACH PARTY TO THE COMPANY
ARTICLE 14
Party A and Party B shall be respectively responsible for the following matters
in addition to other obligations under this Contract:
14.1 Responsibilities of Party A:
(A) Handling of applications and obtaining approval, registration and
business license for the establishment of the Company, assisting the
Company in being designated "technologically advanced enterprise" and/or
"export-oriented enterprise", and obtaining all the tax incentives
available in connection with such designation and assisting in other
matters concerning the establishment and operation of the Company from
relevant departments in charge in the PRC;
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(B) Assisting the Company with the organization, design and construction of
the premises and other facilities of the Company;
(C) Making cash and non-cash contributions, in accordance with the
stipulations in Article 11 of this Contract, Schedule B and Schedule D;
(D) Assisting the Company to make necessary installation, start up,
calibration and final acceptance of normal operation of machinery and
equipment provided to the Company by either Party A or B or acquired by
the Company;
(E) Assisting the Company and Party B in the importation of equipment,
machinery and raw materials; in handling customs procedures and
obtaining all necessary import licenses or permits relating to the
aforesaid imports and arranging the domestic transportation of the
aforesaid imports after they are shipped to a designated port of the PRC;
(F) Assisting the Company in purchasing or leasing equipment, components,
raw materials, articles for office use, means of transportation and
communication, etc.;
(G) Assisting the Company in ensuring adequate supplies of all necessary
utilities including water, electricity, transportation, and
telecommunications;
(H) For properties leased to the Company, assisting the Company to obtain all
adequate fire protection and other insurance to protect the interests
of the Company;
(I) Assisting the Company in recruiting and employing qualified Chinese
management personnel, technical personnel, workers and other personnel
needed;
(J) Assisting foreign workers and staff in applying for entry visas and work
licenses, and in processing their traveling matters; and providing
personnel records for all former employees of Party A who become
employees of the Company ;
(K) Recommending the needed technical personnel to support and use product
process and management technologies contributed to the Company by
Party B;
(L) Recommending the necessary English speaking technical and management
personnel, to enable timely and efficient training to be contributed by
Party B to the Company;
(M) Assisting the Company in obtaining adequate housing for its expatriate
employees and otherwise obtaining other welfare and recreational
facilities for its employees;
(N) Assisting the Company in applying to authorized banks approved by the
PRC State Administration of Exchange Control for the opening of foreign
currency
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and Renminbi accounts and assisting the Company in obtaining local
financing in Renminbi when necessary;
(O) Assisting the Company with applying to the relevant exchange control
agencies for the necessary foreign exchange registration in order to
obtain foreign currency and to use foreign currency in the conduct of
the Company's business;
(P) Assisting the Company with obtaining, and providing to the Company
copies of, all PRC, provincial or local laws and regulations or similar
information enacted or occurring which affect the operation of the
Company with the English translations to the extent available;
(Q) Executing the Deed of Generator Business Transfer and Technology License
immediately after the Business License Date, executing the Lease
Contract within ninety (90) days of the Effective Date; executing a
Trademark License with the Company covering the Party A trademark (the
"Party A Trademark License"); and a technical assistance agreement, more
particularly described in Article 15.4 hereof (the "Technical Assistance
Agreement").
(R) Such other matters as may be entrusted to Party A by the Company which
Party A agrees to accept.
14.2 Responsibilities of Party B:
(A) Contributing the right to use the technologies and trademarks and
contributing cash in accordance with the stipulations in Article 11 of
this Contract, Schedule B and Schedule C;
(B) Assisting the Company in selecting and purchasing machinery and
equipment;
(C) Assisting the Company in purchasing or leasing equipment, components,
raw materials, articles for office use, means of transportation and
communication, etc.;
(D) Execute the Deed of Technology and execute a Trademark License with the
Company covering the MagneTek trademark (the Party B Deed of Trademark
License") and an engineering assistance agreement more particularly
described in Articles 15.2 and 15.3 hereof (the "Engineering Assistance
Agreement");
(E) Assisting the Company with sales of its products in the PRC and for
export of its products in accordance with Schedule A;
(F) Providing information about sales conditions and sales channels for the
Company's products in the relevant export markets;
(G) Training the Company's management staff; and
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(H) Such other matters as may be entrusted to Party B by the Company which
Party B agrees to accept.
14.3 The reasonable, documented out of pocket expenses incurred by Party A or
Party B in their performance of their responsibilities in this Article
14 shall be reimbursed by the Company provided, however, said expenses
will be approved by the general manager prior to incurrence thereof.
CHAPTER VII PROVISIONS OF TECHNOLOGY
ARTICLE 15
15.1 Party B agrees that as part of its contribution to the Company's
registered capital, it will enter into the Deed of Technology License
and the Party B Deed of Trademark License with the Company pursuant to
which it shall license the Company rights to use the advanced technology
for the manufacture and sale of the MagneTek Products (as defined in
Schedule A) as well as rights to use its trademark on the MagneTek
Products, to enhance the capability of the Company in achieving its
purpose, scope and scale of production as defined in this Contract.
Detailed terms and conditions in respect of the technology license is
set forth in Schedule C. Upon the expiration or earlier termination of
this Contract or transfer of Party A's or Party B's Equity Interest
arising under Articles 32 or 33 of this Contract, the Deed of Technology
License, Deed of Trademark License and Engineering Assistance Agreement
shall terminate and all rights of the Company to use the technology and
other proprietary information and processes set forth therein shall
immediately terminate and such rights shall revert to Party B, except,
if applicable, such limited license rights set forth in Article 35.2
herein.
15.2 Party B shall provide to the Company ongoing engineering design and
technical assistance for the Products, including new product
development, technology improvements, competitive benchmarking and cost
reductions, advanced commercially feasible process definition and
improvement, and drawing control and other engineering document
maintenance pursuant to the terms of the Engineering Assistance
Agreement to be entered into between Party B and the Company.
15.3 In consideration for Party B's ongoing engineering design and technical
assistance as set forth in the Engineering Assistance Agreement, the
Company shall pay Party B a monthly fee in USD of 2.3% of net invoice
sales (defined as gross sales less sales returns, discounts and
allowances), hereinafter referred to as "Net Sales", of the Company, of
those Party B Products defined and specifically designated in Section
2.1(b) of Schedule A. The monthly fees shall be payable for the period
starting with the date on which the Company begins the initial
production to satisfy
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customer orders (the "Production Date") of the Party B Products through
the fifth year following said Production Date; thereafter, the fee shall
be reduced to 1.5% of such Net Sales of Party B Products for the
remaining term of this Contract, all as particularly set forth in the
Engineering Assistance Agreement. The dollar value of this monthly fee
shall be computed on the average of the mid-rate of exchange for buying
and selling USD as quoted by the People's Bank of China for the 20 days
preceding the last business day of each month. The fee shall be paid to
Party B within 30 days of the end of each month in USD and shall be
remitted by wire transfer to the account designated in writing by Party
B in its bank outside the PRC. The Company's obligation to pay this
monthly fee shall remain in effect for the term of the Engineering
Assistance Agreement or its earlier termination.
15.4 Party A shall provide ongoing engineering assistance and design
capability to the Company for the Party A Products specifically defined
in Schedule A above 500KW. All technology in connection with such
engineering assistance and design shall be licensed by Party A
exclusively to the Company. In consideration for Party A's ongoing
engineering design and technical assistance, the Company shall pay Party
A a monthly fee in RMB of 2.3% of net sales from the Party A Products
above 500KW. The monthly fees shall be payable for the period starting
with the Production Date of the Products as defined in Schedule A
through the fifth year following said Production Date; thereafter, the
fee shall be reduced to 1.5% of such net sales of Party A Products for
the remaining term of this Contract, all as particularly set forth in
the Technical Assistance Agreement to be entered into between Party A
and the Company. The fee shall be paid to Party A within 30 days of the
end of each month in RMB and shall be remitted by wire transfer to the
account designated in writing by Party A in its bank. The Company's
obligation to pay this monthly fee shall remain in effect for the term
of the Technical Assistance Agreement or its earlier termination.
ARTICLE 16
16.1 Party B commits that the product designs provided by Party B to the
Company in accordance with this Contract and Schedules A, B and C shall
be complete, precise, correct, effective, applicable and reliable and
will enable the Company to produce the Products as described in Schedule
A without further enhancement, if properly employed for the uses
stipulated in this Contract and Schedule C.
16.2 Party B commits that the technologies to be licensed by Party B to the
Company pursuant to this Contract and Schedules A, B and C have been
selected on the premise that such technologies are complete, precise,
correct, effective, applicable and reliable, are truly advanced and are
the same or similar to those currently employed by Party B on its own
behalf. These technologies will enhance the Company's operation and help
the Company achieve globally competitive
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standards of product quality and production capability, if properly
employed, for the uses stipulated in this Contract.
16.3 Party B is making application in the PRC to register its trademark to be
licensed to the Company in the PRC; upon taking all steps legally
required to enable Party B to license the right to use such trademarks
to the Company, Party B shall enter into the Party B Deed of Trademark
License with the Company.
ARTICLE 17
17.1 The Deed of Technology License and the Party A Generator Business
Transfer and Technology License shall have a term of ten years as set
forth in such agreements. The Party A Deed of Trademark License and
Party B Deed of Trademark License, and the Engineering Assistance
Agreement shall have a term of same duration as the term of this
Contract, including extensions to the term of such approved deeds
approved in writing by Party A, Party B and the Company, as the case may
be, and shall terminate concurrently with the expiration or earlier
termination of this Contract or a transfer of either Party A's or Party
B's Equity Interest pursuant to Article 32 or 33 hereof.
ARTICLE 18
18.1 Information relating to this Contract, its Schedules and the Articles of
Association, the Company's business and management, technology and
manufacturing processes and licensed intangible assets, customer lists,
sales, prices, financial affairs, and product development strategies
shall be kept confidential by Party A and Party B and the Company and
their employees and shall not be disclosed to any third party (except as
required by applicable law or regulation governing the Company and the
Parties), unless such information has previously been disclosed
generally to the public or the Board has authorized the disclosure of
such information. All information provided by Party A or Party B, or
their respective affiliates, under this Contract, its Schedules, the
Articles of Association of the Company and other related agreements
shall be kept confidential and shall not be disclosed by the Company,
Party A, Party B or any of their employees to any third party without
the prior written consent of the other Party and the Company, unless
such information has previously been disclosed generally to the public.
If Party A or Party B is in breach of this confidentiality provision it
shall pay to the non-breaching Party its actual damages and commercial
losses arising directly or indirectly from such breach and shall give
rise to termination of this Contract and dissolution to the Company, if
so elected, by the non-breaching Party pursuant to Article 33. The
obligations set forth in this Article 18.1 shall survive the termination
of this Contract for a period of three years.
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18.2 With respect to proprietary information and material to be furnished by
Party B under this Contract, which includes, but is not limited to, the
technology licensed pursuant to the Deed of Technology License to be
used for the production of the Products, Party A hereby covenants and
agrees that during the term of this Contract, and for a period of three
years following earlier termination thereof commencing from the date the
Contract is terminated, it will not directly or indirectly on its own
account or through any of its affiliates or otherwise, utilize such
technology or other proprietary information to produce generator
products or automatic voltage regulator products, except where Party A
has acquired the Equity Interest of Party B pursuant to Articles 31, 32
and 33 and subject to the limitations set forth in Article 35.2.
18.3 Party B hereby covenants and agrees that during the term of this
Contract and for a period of three years following earlier termination
thereof commencing from the date the Contract is terminated, neither it,
nor any of its direct or indirect affiliates, except for the Company,
shall utilize product designs contributed by Party A to the Company, or
use such product design information to produce the Party A Products or
other equivalent products.
18.4 During the term of this Contract or the duration of the Company,
whichever is shorter, the technology to be licensed by Party B to the
Company pursuant to Schedule C shall not be licensed by Party B to any
third party with the intent to use or sublicense the technology for the
manufacture and sale of such technology within the PRC. The Parties
shall manufacture and conduct direct marketing and sales of the Products
in the PRC exclusively through the Company. Party B retains its right
to use the technology it licenses to the Company to manufacture,
distribute and sell the Products outside the PRC; provided however,
Party B shall sell such Products manufactured outside the PRC into the
PRC exclusively through the Company, except in the following situations
in which Party B shall have the right to sell such Products directly:
(i) the Company cannot meet the specific production demands as required
by the market, and through a sales agreement between the Company and
Party B to be approved by a special majority of the Board, which special
majority of the Board shall be as defined in Article 4.14 of the
Articles of Association, or (ii) to Caterpillar to meet its requirements
during the initial period of the Company. Although the Company will
strive to achieve planned production capacity within 24 months after the
Business License is issued to the Company, the initial period referred
to herein shall be approximately 36 months after the business license is
issued to the Company but before the Company has started full production
and thus cannot satisfy Caterpillar's requirements for the Products.
This provision is not intended to prohibit or limit Party B's right to
participate in other ventures or business arrangements in the PRC which
do not engage in the production or sales of generator products or
provision of services in connection with generator products which are
not the Company's Products defined in Schedule A.
15
18.5 Upon contribution of Party A's Generator Business to the Company in
accordance with Article 11.2 herein and Schedule D, Party A and its
affiliates shall not manufacture any generator products during the term
of this Contract and shall not develop or manufacture any new generator
products utilizing technologies listed in this Contract and the
Schedules attached hereto during the term of this Contract. In the case
of earlier termination of this Contract, such obligations shall survive
for another three years commencing from the date the Contract is
terminated.
CHAPTER VIII SELLING OF PRODUCTS
ARTICLE 19
19.1 The Company will use reasonable, commercial efforts to achieve and
maintain foreign exchange balance.
19.2 The Company may sell the Products, materials and components to Party A
or B for their own use.
ARTICLE 20
20.1 The Products sold by the Company, shall be sold into the Chinese
domestic and export market under the sales terms and conditions, and
through direct or independent channels, as determined by the Company in
accordance with Schedule A.
20.2 For Party A Products defined as Fufa Generators in Schedule A, when
those products exceed 500KW, the said products shall be sold through
Party A in accordance with an agreement to be established between Party
A and the Company.
ARTICLE 21
21.1 Party A shall not purchase products competitive with the Products unless
the Company is unable to meet Party A's reasonable requirements for
price, quality, service and commercial terms.
ARTICLE 22
22.1 The Company may set up sales branches which may, among other things,
provide maintenance or parts service for the Products in accordance with
the terms set forth in Schedule A.
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ARTICLE 23
23.1 The use of Party B's trademark by the Company shall be in accordance
with the provisions of the Party B Deed of Trademark License, provided,
however, the Company may use other labeling or trademarks not in
violation of the provisions of this Contract or the Party B Deed of
Trademark License.
CHAPTER IX THE BOARD OF DIRECTORS
ARTICLE 24
24.1 The Company shall establish a board of directors (hereinafter referred
to as the "Board", its members being the "Directors"), which shall be
the highest governing authority of the Company. The Board shall be
established on the Business License Date and such Board shall commence
its activities as from the date of its establishment.
24.2 The Board shall decide all issues concerning the Company that are not
delegated by it to the management staff of the Company, as provided for
hereinafter. The unanimous approval of the Directors attending in
person or by proxy a Board meeting at which a quorum is present shall be
required with respect to any "Major Issues", as defined in Article 4.13
of the Articles of Association of the Company. All other matters
required to be approved by the Board, including those matters set forth
in Articles 4.14 and 4.15 of the Articles of Association, shall require
approval by a majority of the Directors attending in person or by proxy
a Board meeting at which a quorum is present.
24.3 The Board shall be composed of a total of five Directors, of which two
shall be appointed by Party A and three by Party B, such appointments to
be made by written notice to the other party and to any Directors then
in office.
Each Party may, at any time, remove any Director appointed by such Party
by giving to the Company not less than 15 days prior written notice.
If a seat on the Board is vacated by the retirement, removal,
resignation, illness, disability or death of a Director, the Party which
originally appointed such Director shall appoint a successor to serve
out the remainder of such Director's term.
24.4 The Board shall have one Chairman (the "Chairman") to be appointed by
Party B and one Vice Chairman (the "Vice Chairman") to be appointed by
Party A.
The Chairman is the legal representative of the Company, but his actions
will only bind the Company if they are taken in accordance with the
authorization given to him by the Board. Whenever the Chairman is unable
to perform his duties for any
17
reason, he shall authorize in advance the Vice Chairman to act as the
legal representative of the Company.
24.5 The term of office for the Directors, Chairman and Vice Chairman, shall
be four years or until such Director's earlier death, resignation or
removal, and any person serving in any such office may serve one or more
terms, consecutively or otherwise, if appointed or reappointed to such
office or offices by the relevant Party.
24.6 Matters requiring unanimous approvals of Directors and approvals of the
majority of the Directors are set forth in the Articles of Association.
24.7 Other matters regarding the Board shall be as set forth in the Articles
of Association.
CHAPTER X BUSINESS MANAGEMENT STAFF
ARTICLE 25
25.1 The Company shall establish a management staff which shall be
responsible for the Company's daily management, to include
responsibility for such matters as manufacturing and production
planning, engineering and technology, product development, marketing,
finance, human resources, total quality management, materials purchasing
and planning, supplier management, and other administrative tasks.
25.2 The management staff shall have a general manager nominated by Party B
and deputy general manager nominated by Party A which shall be approved
by the Board. The general manager and deputy general manager may
participate as Directors of the Board during the term of their
employment as general manager or deputy general manager if so appointed
by the appointing Party. The general manager may also be appointed as
the Chairman, if Party B so desires.
25.3 The general manager shall report to and be under the leadership of the
Board. The responsibility of the general manager is to carry out all
decisions of the Board , and organize and conduct the daily management
of the Company, which shall include, but not be limited to, the
following:
(a) Manage and direct the activities of management staff and all
employees.
(b) Determine business strategies and plans relative to markets, sales
and service channels, product pricing, costs and margins, new
product development, capital expenditures, competitive market
posture, annual sales plan and proposing an annual budget to the
Board. The general manager shall use his best efforts to consider
the interests of the Company when establishing price
18
agreements for Company product sales to Caterpillar, Inc. and all other
markets.
(c) Responsibility for the Company's annual profitability and cash
flows.
(d) Implementation of appropriate hiring, firing and manpower staffing
decisions.
(e) Establishing hourly and salaried pay rates and any rate changes.
(f) Formulating and implementing the rules and regulations described
in the these Articles of Association.
(g) Recommending to the Board allocations and proportions of reserve,
expansion, bonus and welfare fund payments.
In handling the issues mentioned above, the general manager shall
consult with the deputy general manager. The general manager shall
authorize the deputy general manager, in writing, to act on his behalf
in his absence pursuant to the terms of such authorization.
The deputy general manager and the Company management staff shall be
supervised by and be responsible to the general manager.
25.4 The term of office and employment agreements for the general manager,
deputy general manager, manager of finance and other expatriate
employees, shall be approved by a majority of the Board.
Party B's international service employee policies shall be taken into
consideration by the Board for determination of the general manager's
compensation and terms of employment.
25.5 The general manager or deputy general manager shall not hold posts
concurrently in other economic organizations without prior approval from
a majority of the Board.
The general manager and deputy general manager shall not, in exercising
their powers, vary the resolutions of the Board or exceed the scope of
their authorities. The Directors, general manager and deputy general
manager owe a duty in exercising their powers, to exercise honesty,
loyalty and diligence pursuant to the PRC laws and regulations and the
Company's Contract and Articles of Association
ARTICLE 26
26.1 The Company shall have a manager of finance, who shall be part of the
management staff. The manager of finance shall be nominated by Party A
and shall be appointed by the general manager.
The manager of finance shall be responsible for the financial, treasury,
audit, and accounting affairs of the Company, and shall organize the
Company's business accounting department, provide for the adoption and
implementation of accounting
19
practices acceptable to the Board, and implement the necessary financial
systems and internal controls.
26.2 The Company shall establish an engineering function for the purpose of
implementing ongoing benchmarking of competitive products in the PRC and
assisting other departments with the development of new products and
product improvements suitable for the Chinese market as determined by
the Board from time to time.
CHAPTER XI PURCHASE OF EQUIPMENT
ARTICLE 27
27.1 In its purchase of required raw materials, fuel, parts, means of
transportation, and articles for office use, etc., the Company shall
purchase from the suppliers who are able to provide the greatest
commercial value to the Company in terms of quality, cost, service,
transportation, logistics expense, expediency, responsiveness,
flexibility, etc.
ARTICLE 28
28.1 Final purchase decisions will be made by the Company. In case the
Company entrusts Party A or Party B to assist with the purchase of
equipment, the entrusted party shall ensure that such purchase is
carried out on such terms and conditions and at such costs, expenses and
prices as are acceptable to the Company. If the other Party believes it
is necessary to participate in such assistance, such Party may do so at
its own expense. If Party A or Party B is requested by the Company to
participate in the purchasing assistance, related expenses of such party
shall be reimbursed by the Company.
CHAPTER XII LABOR MANAGEMENT
ARTICLE 29
29.1 A form of uniform labor contract covering recruitment, employment,
dismissal, resignation, wages, benefits, incentives, unemployment,
welfare, penalties, and other matters concerning the staff and workers
of the Company (hereinafter referred to as the "Labor Contract"), shall
be developed by the general manager in accordance with the relevant
promulgated and publicly available laws and regulations of the PRC, and
then approved by the Board for the Company, in accordance with and
pursuant to the Articles of Association.
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29.2 The Company shall give first consideration to employees of Party A and
Party B in employing its staff.
CHAPTER XIII ACCOUNTING, AUDITING AND TAXATION
ARTICLE 30 ACCOUNTING AND AUDITING
30.1 The Company's accounting and auditing systems shall be provided for in
the Articles of Association.
30.2 Taxation
30.2.1 The Company shall pay out of its taxable income the applicable
PRC state and local income taxes according to the "PRC Income
Tax Law on Enterprises with Foreign Investment and Foreign
Enterprises" promulgated on April 9, 1991 and its Implementing
Regulations (collectively, the "FIE Tax Law"), and other
applicable taxes according to the relevant promulgated and
publicly available laws and regulations of the PRC.
30.2.2 The Company shall apply to relevant tax authorities for its
entitlement to the most favorable tax treatment permitted by PRC
law which, as of the date of this Contract, permits
production-oriented foreign investment enterprises with terms of
operation of ten (10) years or more (i) an exemption from income
tax in the first and second years commencing with the first
profit-making year, and (ii) a 50% reduction from the third year
to the fifth year. With the assistance of Party A, the Company
shall make all efforts necessary or advisable to obtain all
possible PRC or local tax exemptions, preferences, or reductions
to which it may now be, or hereinafter become, entitled. All
PRC taxes, duties, late charges, penalties and related tax
liabilities of the Company shall be calculated and paid in RMB.
Party A shall assist the Company in applying for designation of
the Company, if applicable, as a "technologically advanced
enterprise" or an "export-oriented enterprise" and shall assist
the Company in applying for all appropriate tax preferences
permitted on the date of this Contract.
30.3 The employees of the Company shall pay personal income tax in accordance
with "The Individual Income Tax Law of the PRC" as amended on October 31,
1993.
30.4 The Company shall obtain, within the permission of the relevant PRC laws
and regulations existing on the date of this Contract, all PRC import
licenses and approvals for duty-free clearance from the PRC Customs for
the import of equipment, machinery and raw materials purchased by the
Company.
21
CHAPTER XIV DURATION AND TERMINATION OF THE CONTRACT
ARTICLE 31
31.1 This Contract and the Company shall continue for a term of 50 years
commencing on the Business License Date, unless earlier terminated in
accordance with the provisions of this Chapter.
31.2 Notwithstanding Article 31.1, either Party to this Contract may propose
an extension to the term of the Company not later than twelve (12)
months before expiry of the Company term. If such proposal is accepted
by the other Party and approved by the Board of Directors, then an
application for approval to extend the term of the Company shall be
submitted to the Approving Authorities not later than 180 days prior to
the expiry date of the Company term. Upon such approval being granted
the Company shall proceed with registration formalities to extend the
Company term.
ARTICLE 32
32.1 This Contract and the Company may be terminated before the expiration of
the 50 year term, in the event both Party A and Party B agree that an
earlier termination of this Contract and the Company is in the best
interest of both Parties, and only upon the unanimous approval of the
Board. Notwithstanding any other provisions in this Contract, upon any
expiration or earlier termination of this Contract or transfer of Party
A's or Party B's Equity Interest to each other within five years of the
Business License Date arising under Article 32 or Article 33 hereof, the
Deed of Technology License (Schedule C), Deed of Trademark License and
the Engineering Assistance Agreement entered into between the Company
and the Parties or their affiliates and any other agreements regarding
the license of technology or intellectual property from the Parties or
their affiliates to the Company shall immediately terminate and all
rights licensed pursuant to such deeds, contracts and agreements shall
revert to the Parties or their affiliates.
32.2 After consultation between the Parties, either Party to this Contract
may instruct the Directors appointed by it to request the Chairman of
the Board to convene a board meeting for the purpose of deciding on
whether or not to terminate this Contract prior to the expiry of the
joint venture term if, subject to the relevant provisions of the PRC
laws and regulations, any of the following events occurs:
(a) The other Party becomes insolvent or bankrupt, or is the subject
of proceedings for liquidation or dissolution, or ceases to carry
on its business.
22
(b) The conditions or consequences of any force majeure described in
Article 40 hereof prevail with respect to either Party, or prevail
mutatis mutandis with respect to the Company, for a period in
excess of 180 days, and the Parties are unable to agree to an
equitable solution to resolve the problem.
(c) Change in the relevant PRC policies, laws or regulations which
materially affect the economic benefits and interests of the
Company or the Parties including without limitation the duty free
treatment on the import of machinery and equipment submitted in
1995 and income tax exemptions and reductions as set forth in
Article 30.2.2 hereof, or prevent Party B from participating in
the Company in the manner defined in this Contract or the Articles
of Association.
(d) The cumulative losses of the Company exceed fifty per cent (50%)
of the Company's total assets.
(e) The Company is unable to achieve its purpose and/or scope of
operation as set forth in this Contract.
32.3 If due to happening of any of the events described in Article 32.2
above, one Party (the "First Party") requests a termination of this
Contract and the dissolution of the Company at a meeting of the
Board of Directors, and if the other Party (the "Second Party") for
whatever reason does not agree to such request, then the First
Party shall have the right to require the Second Party to acquire
the First Party's entire Equity Interest in the Company. The price
for such acquisition shall be equal to the First Party's percentage
share in the Company's paid-up registered capital multiplied by the
net asset value of the Company as determined in accordance with
Article 33.4 and the Company's balance sheet as adjusted by the
Company's independent auditor as at the end of the most recent
accounting month immediately preceding the date when the First
Party's request for termination is made.
32.4 If the Second Party agrees to the First Party's request for terminating
this Contract and dissolving the Company, then both Parties shall
instruct their Directors to pass the appropriate Board resolution for
approving the termination of this Contract and dissolution of the
Company, and to take all other necessary actions and comply with all
legal formalities for effecting the dissolution of the Company.
32.5 If the Second Party does not agree to the First Party's request for
terminating this Contract, and if the First Party then exercises its
right to require the Second Party to acquire the First Party's entire
Equity Interest in the Company pursuant to Article 32.3, the Second
Party shall purchase the entire Equity Interest of the First Party at
the price stipulated in Article 32.3, and ensure that all loans and
debts owing by the Company to the First Party are repaid, and
liabilities issued or
23
incurred by the First Party on behalf of, or for the account of, the
Company are released in full.
ARTICLE 33
33.1 In the circumstances set out below, this Contract may be terminated and
the Company may be dissolved or, if elected by the non-defaulting
Party, the non-defaulting Party may acquire the entire Equity Interest
of the defaulting Party in the Company:
(a) One Party commits a material breach of this Contract (the
"defaulting Party"), and does not remedy such breach within 90
days (or within such longer period as may be agreed by the
other Party (the "non-defaulting Party") from the date of
receipt by the defaulting Party of written notice of default
issued by the non-defaulting Party, and if such breach and
failure to adopt remedial measures is admitted by the
defaulting Party, then the non-defaulting Party shall have the
option of either acquiring the defaulting Party's entire Equity
Interest in the Company at the price stipulated in Article 33.2
hereof, or dissolving the Company, in addition to its right to
claim damages for breach of contract from the defaulting Party.
The defaulting Party shall consent to the dissolution of the
Company (if the non-defaulting Party requests dissolution), or
shall sell the defaulting Party's entire Equity Interest in the
Company to the non-defaulting Party at the price stipulated in
Article 33.2 (if the non-defaulting Party chooses to purchase
the defaulting Party's entire Equity Interest in the Company),
as the case may be.
(b) If the Party alleged by the non-defaulting Party to be in
default does not admit that it has committed a material breach
of this Contract, or if a dispute arises as to whether such
breach has been remedied within 90 days (or such longer period
as may be agreed by the non-defaulting Party) from the date of
receipt by the defaulting Party of written notice of default
issued by the non-defaulting Party, then the dispute shall be
settled by arbitration in accordance with Articles 42 and 43
hereof. If the arbitrators decision confirms that a serious
breach under this Contract has in fact occurred, or that such
breach was not satisfactorily remedied by the defaulting Party,
then the non-defaulting Party shall have the option of either
acquiring the defaulting Party's entire Equity Interest in the
Company at the price stipulated in Article 33.2 hereof, or
dissolving the Company, in addition to its right to claim
damages for breach of contract from the defaulting Party. The
defaulting Party shall consent to the dissolution of the
Company (if the non-defaulting Party requests dissolution) or
shall sell the defaulting Party's entire Equity Interest in the
Company to the non-defaulting Party at the price stipulated in
Article 33.2
24
hereof (if the non-defaulting Party chooses to purchase the
defaulting Party's entire Equity Interest in the Company), as
the case may be.
33.2 The price at which the non-defaulting Party shall purchase (and at
which the defaulting Party shall sell) the defaulting Party's entire
Equity Interest in the Company pursuant to Articles 33.1(a) or 33.1(b)
hereof shall be equal to the defaulting Party's percentage share in the
Company's paid up registered capital multiplied by the net asset value
of the Company. Such net asset value shall be determined in accordance
with Article 33.4 and the Company's Balance Sheet as at the end of the
calendar month immediately preceding the date of issuance of notice by
the non-defaulting Party of its option of purchase.
33.3 If the non-defaulting Party chooses to purchase the defaulting Party's
entire Equity Interest in the Company pursuant to Articles 33.1(a) or
33.1(b) hereof, then the non-defaulting Party shall ensure that all
loans and debts owing by the Company to the defaulting Party are
repaid, and further ensure that the defaulting Party be released from
all existing guarantees and liabilities issued or incurred by the
defaulting Party on behalf of or for the account of the Company.
33.4 The "net asset value" referred to in Articles 32 and 33 hereof shall
mean the value of the Company's total assets minus the Company's total
liabilities and, to the extent that this is not considered as
liabilities, also the Company's bonus and welfare fund for staff and
workers. For the purposes of this Article, the value of the Company's
total assets shall mean whichever shall be the lower of :
(i) the total assets of the Company as valued at cost, but minus
depreciation and amortization (but without giving any value to
any technology licensed to the Company by Party A or Party B,
except the unamortized value of any technology for which the
Company retains a limited license pursuant to Article 35.2) as
determined by an independent qualified appraiser appointed by
the First Party in the case of Article 32 hereof, and appointed
by the non-breaching Party in the case of Article 33 hereof.
(ii) the market value of the total assets of the Company at the
relevant time as determined by an independent qualified
appraiser appointed by the First Party in the case of Article
32 hereof, and appointed by the non-breaching Party in the case
of Article 33 hereof.
ARTICLE 34
34.1 If the Company is to be dissolved for reasons other than due to the
expiry of the Contract term, the Board of Directors shall submit to the
Approving Authorities an application for dissolution of the Company.
25
34.2 Upon expiry of the Contract term, or if the Company is to be dissolved
upon early termination of this Contract, the Company shall undergo
liquidation in accordance with the pertinent laws and regulations of
the PRC.
34.3 If, at the time the Company is to be dissolved, the Company's assets
are sufficient to settle all its debts and the Board of Directors is
able to organize the liquidation, then the Company shall undergo
ordinary liquidation and a liquidation committee shall be formed
consisting of at least three members of which two shall be Directors,
each representing the interests of their respective Party A and Party B,
and the third shall be an independent member mutually acceptable to
both Party A and Party B.
34.4 If at the time the Company is to be dissolved, the Company is insolvent
or the Board of Directors is unable to organize the liquidation
committee, then the Company shall undergo special liquidation in
accordance with the relevant laws and regulations of the PRC.
ARTICLE 35
35.1 Upon expiration of the term or upon earlier termination of this
Contract and the Company, the Parties shall enjoy the rights set forth
in this Chapter XIV and in Chapter X of the Articles of Association.
35.2 Upon the expiration or early termination of this Contract, Party A
shall have no right to the technology contributed by Party B in
accordance with this Contract, except that if Party A purchases Party
B's Equity Interest in the Company, pursuant to the provisions of
Articles 32 and 33 hereof (a "Party A Purchase"), then the Company
shall retain a limited license right from Party B to use the
technologies but not the Party B trademark used by the Company up to
the time of the termination or expiration as the case may be. In the
event of a Party A Purchase, Party B will retain all rights of
ownership or otherwise to the technology licensed, except for the
limited license provided in the preceding sentence.
CHAPTER XV INSURANCE
ARTICLE 36
36.1 Insurance policies of the Company for various kinds of risks shall be
underwritten in the PRC. Types, value and duration of insurance shall
be decided by the Board of Directors in accordance with the
stipulations of the PRC.
26
36.2 At the discretion of the Board, the Company shall also carry such other
insurance underwritten within or outside the PRC for coverage of
product liability claims in connection with sales of the Products.
CHAPTER XVI THE AMENDMENT OF THE CONTRACT
ARTICLE 37
37.1 The amendment of this Contract, including any of its Schedules, shall
be effected through friendly negotiations and subject to the written
unanimous approval of the Parties, as well as, approval by the
Approving Authorities or other relevant governmental agencies.
CHAPTER XVII LIABILITIES FOR BREACH OF CONTRACT
ARTICLE 38
38.1 Both Party A and Party B shall make their respective contributions on
schedule as stipulated in Schedule B of this Contract. The defaulting
party shall pay to the other Party 5% of the scheduled contribution as
a penalty for its non-performance exceeding 30 days from the scheduled
date such contribution is due and an additional 10% of the scheduled
contribution shall be paid to the other party if the non-performance
exceeds the prescribed time limits by 60 days. Such payments shall be
in USD, and shall be computed on terms consistent with the provisions
of Article 11.4 hereof. Additionally, the non-defaulting Party may
suspend its performance under this Contract until such time as the
defaulting Party has cured its breach. If the defaulting Party's
default continues for 60 days or more, the other Party may terminate
this Contract and the Company in accordance with Chapter XIV of this
Contract and relevant and promulgated PRC laws.
ARTICLE 39
39.1 Should all or part of this Contract, including its Schedules, be unable
to be fulfilled owing to the fault of one Party, the defaulting Party
shall be liable to the non-defaulting Party for all losses arising from
such breach including lost profits of the Company and shall include the
reasonable attorney's fees and expenses incurred by the non-defaulting
Party in connection with such breach; provided however, in no event
shall either party be liable to the other for any damages in excess of
such Party's actual cash contribution to the Company. Should all or
part of this Contract including its Schedules be unable to be
fulfilled owing to the fault of both Parties, they shall bear liability
in proportion to the amount of losses caused by each Party's respective
breach.
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CHAPTER XVIII FORCE MAJEURE
ARTICLE 40
40.1 Should either of the Parties be prevented from performing under this
Contract by force majeure, including earthquake, typhoon, flood, fire,
war, civil unrest, labor disturbance, strikes, disruption of
transportation, disruption of communication systems or other unforeseen
events, and their happening and consequences are unavoidable and beyond
the control of the prevented Party, such Party shall so notify the
other Party as soon as possible by the best means reasonably available,
and within 15 days thereafter provide detailed information of the
events. If requested by the other Party, the prevented Party shall also
provide verified documentary evidence explaining the reason of its
inability to execute, or of the delay in execution of its performance.
Both Parties shall, through consultations, decide whether to terminate
this Contract and dissolve the Company, or to waive partial performance
of the Contract, or to delay the execution of performance of the
Contract according to the effects of the events on the performance of
the Contract.
CHAPTER XIX APPLICABLE LAW
ARTICLE 41
41.1 The formation of this Contract, its validity, interpretation and
performance, and settlement of the disputes shall be governed by the
relevant promulgated and publicly available laws of the PRC.
CHAPTER XX SETTLEMENT OF DISPUTES
ARTICLE 42
42.1 The Parties shall initially attempt to settle any disputes arising from
the execution of, or in connection with, this Contract, through
friendly consultations between the Parties.
42.2 In case no settlement can be reached within sixty days, then disputes
shall be settled through arbitration by the arbitration tribunal of the
International Chamber of Commerce situated in Geneva, Switzerland, in
accordance with the Rules of Conciliation and Arbitration of the
International Chamber of Commerce. The site of such arbitration
proceedings shall be Geneva, Switzerland, or such other site as
28
the Parties may mutually agree. The arbitration proceedings shall be
conducted in English. Party A and Party B agree further:
(A) Arbitration may be initiated by either Party by giving thirty
days notice in writing to the other Party.
(B) Each Party may select one arbitrator and the arbitrators so
selected shall select an additional arbitrator, to compose an
arbitration panel of three members.
(C) If the arbitrators selected by Parties A and B are unable to
select a third arbitrator, then the Chairman of the
International Chamber of Commerce will select the third
arbitrator.
(D) The third arbitrator shall have technical knowledge or
experience relevant to the subject matter of the dispute to be
arbitrated.
(E) In making their decisions, the arbitrators shall be bound by
the explicit provisions of this Contract, its Schedules and the
Articles of Association of the Company, as well as the laws and
regulations of the PRC governing Chinese-Foreign equity
ventures.
(F) Decisions of the majority of arbitrators shall be final and
binding upon the parties and judgment on the award may be
entered in any court having jurisdiction and the Parties agree
to exclude any right of application or appeal to the courts of
Geneva or elsewhere in connection with any question of law
arising in the course of the arbitration or with respect to any
award made, except for appeals involving bad faith performance
of an arbitrator.
(G) The costs of arbitration, including reasonable attorney fees,
shall be borne by the losing Party or as otherwise specified in
the ruling of the arbitration tribunal.
(H) The award is to be considered as a settlement of the dispute
between the Parties and both Parties shall accept this
settlement as the true expression of their own determination in
connection therewith.
(I) All sums ordered by the arbitrators to be paid by one Party to
the other Party shall be paid in USD within sixty (60) days of
the arbitrators final decision.
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ARTICLE 43
43.1 During any arbitration proceeding, the Contract shall be performed
continuously by both Parties except for matters in dispute.
CHAPTER XXI LANGUAGE
ARTICLE 44
44.1 This Contract is written in both the Chinese language and the English
language. Both language versions shall be equally authentic, valid and
binding. In no event shall this Contract be construed or interpreted
for or against the position of either Party A or Party B in reliance
upon principles of construction of agreements that would penalize the
draftsman of an agreement. In the event of any ambiguity, both Parties
hereto having negotiated the terms, having participated in the
drafting, and having had the advice of all such advisors as they may
have deemed necessary or advisable in the preparation of this Contract
and the Articles of Association.
CHAPTER XXII EFFECTIVENESS OF THE CONTRACT AND MISCELLANY
ARTICLE 45
45.1 Schedules A and B of this Contract are hereby incorporated by reference
into the Contract and are to be considered an integral part of this
Contract and shall be effective upon approval by the Approving
Authorities. Schedules C, D, and E shall respectively be effective
upon the later to occur of full execution and delivery or relevant
approval of the Approving Authorities.
ARTICLE 46
46.1 Notices required or permitted in connection with any Party's
rights and obligations under this Contract shall be in writing and may
be sent to the other Party by (a) telegram of facsimile, the receiving
day of record shall be the next business day following the sending day;
or (b) by mail, the receiving day of record for mailed notices shall be
the 12th business day after the air postage seal date.
46.2 All such notices shall be given to the respective parties as follows:
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(A) If to Party A: Mr. Chen Guo Xiang
Chairman of the Board and General Manager
Fufa Company Limited
223 Gong Ye Road
Fuzhou, Fujian, PRC 350004
with a copy to: Mr. Lin Zhao Ping
Chief Engineer & Vice President
Fufa Company Limited
223 Gong Ye Road
Fuzhou, Fujian, PRC 350004
(B) If to Party B: Mr. Samuel Miley
Vice President and Secretary
MagneTek,Inc
26 Century Blvd
P.O.Box 290159
Nashville, TN, USA 37229-0159
with a copy to: Mr. Kyle Hale
VP & General Manager, Motors & Generators
MagneTek, Inc.
669 Natchez Trace Drive
Lexington, TN 38351, USA
46.3 Changes in the posting address of either Party A or Party B shall be
given by written notices as specified in this Article 46.
ARTICLE 47
47.1 All provisions, clauses and covenants contained in this Contract are
severable and in the event any of them shall be held to be invalid,
illegal or unenforceable, the remainder of this Contract shall be
interpreted as if such invalid, illegal or unenforceable provisions,
clause or covenants were not contained herein.
47.2 In consideration of the mutual covenants and undertaking of the Parties
as stated herein, the Parties have caused their duly authorized
representatives to execute this Contract on this 17th day of December,
1995 in Fuzhou, Fujian Province, the PRC.
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Fujian Fufa Company Limited MagneTek,Inc.
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Chen Gou Xiang Gary Wolfe
Legal Representative Authorized Representative
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