CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
UT STARCOM (HANGZHOU) TELECOMMUNICATION CO. LTD.
CONTRACT
CHAPTER ONE
GENERAL RULES
UT Starcom (Hangzhou) Telecommunication Co. Ltd. (abbreviated as
HUTS) which was established in May 1992, is a branch company set up in China
by UT Starcom Inc. of USA whose registered capital is 3,500,000 US dollars.
It has been chosen as the Advanced Enterprises of Hangzhou High-tech Industry
Development Zone for 1995 and 1996. The sales volume of 1996 is [*], the
profit is [*], and the tax it paid to the country is [*]. It mainly produces
OMUX-Optical terminal equipment, HDSL, ACCESS and wireless local loop, etc.
Zhejiang Yutong Telecommunication Equipment Co. Ltd. (abbreviated as
UTL) is a joint venture enterprises jointly invested by Zhejiang
Telecommunication Equipment Factory and UT Starcom Inc. of USA with 2,350,000
US dollars' registered capital. It has been chosen as the Advanced
Enterprises of Hangzhou High-tech Industry Development Zone for 1994, 1995
and 1996 Its sales volume of 1996 is [*], the profits is [*], and the taxes
paid to the country is [*]. It mainly produces LCS-9/9B access network
systems incorporating digital loop carrier equipment.
Since the two companies share the same foreign investor--UT Starcom
Inc. of USA and the products they produced are all access network systems of
telecommunication, in order to make one company's superiority in production
and process, products auxiliary systems, capital running and human resources
as the complementation of the other company, the leaders in the two companies
negotiated for several times and applied for the approval of their investor.
In accordance with the Laws of the People's Republic of China on Joint
Ventures Using Chinese and Foreign Investment and other relevant Chinese laws
and regulations, both companies enter into agreement to reorganize the assets
and merge into establishing a new joint venture company--UT Starcom
(Hangzhou) Telecommunication Co. Ltd. in Hangzhou, China.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
CHAPTER TWO
PARTIES OF JOINT VENTURE
ARTICLE 1: The parties of this contract:
Zhejiang Telecommunication Equipment Factory (hereinafter
referred to as Party A) is registered in Zhejiang Province;
Legal residence: No.118 Moganshan Road Gongshu District,
Hangzhou, China. 310005.
Legal representative: Zhao Xing-Huang Title: Director
Nationality: China
UT Starcom Inc. of USA (hereinafter referred to as Party B)
is registered in Delaware, USA.
Legal residence: 1275 Harbor Bay Parkway, Suite 100 Alameda,
California 94502 USA.
Legal representative: Hong Liang-Lu Title: Chairman
Nationality: USA
CHAPTER THREE
ESTABLISHMENT OF JOINT VENTURE COMPANY
ARTICLE 2: In accordance with the Laws of the People's Republic of
China on Joint Ventures Using Chinese and Foreign Investment
and other relevant Chinese laws and regulations, Party A and
Party B enter into establishing a joint venture company of UT
Starcom (Hangzhou) Telecommunication Co. Ltd. in the territory
of China.
ARTICLE 3: Full name of the Joint Venture Company: UT STARCOM
(Hangzhou) Telecommunication CO. LTD. (hereinafter referred to
as the Joint Venture Company). Legal residence of the Joint
Venture Company: Building No.2 and No.3 of Yile Industry Zone,
No.129 Wenyi Road, Hangzhou, China. 310012.
ARTICLE4: The Joint Venture Company is a Chinese legal entity and is
governed and protected by Chinese laws. All of its activities
shall obey Chinese laws rules and relevant regulations.
ARTICLE 5: The Company is a limited liability company. Party A and
Party B shall undertake responsibilities of the Company's
liabilities on the basis of the invested capital of each
party, and shall share profits and risks and deficits in
proportion to their investment.
CHAPTER FOUR
THE PURPOSE, SCOPE AND SCALE OF PRODUCTION AND BUSINESS
ARTICLE 6: The purposes of the Joint Venture Company: With the purpose
to strengthen economic cooperation and technology exchange,
The Joint Venture Company shall apply advanced and proper
technology and scientific operation and management methods,
develop new products, enhance its competitive ability in
international market in quality and price, and achieve
satisfactory economic profits.
ARTICLE 7: The production and business scope of the Joint Venture
Company: Designs, develops, assembles, produces, sells and
installs high-tech telecommunication hardware and software,
including digital integration of telecommunication access
network systems (including wireless and cable access network),
optical transmission equipment, intelligent network systems,
personal communication and multi-media, data and information
network systems and other telecommunication systems (with the
exception of the programs restricted or banned by the
country), and provides maintenance and technical consultation
services of its own products.
ARTICLE 8: The production scale:
1. [*] of OMUX serial optical terminal machines;
2. [*] of digital integration access network systems;
3. [*] of subscriber digital loop;
4. [*] of wireless local loop;
5. [*] of HDSL;
6. Other telecommunication products and equipment.
CHAPTER FIVE
TOTAL INVESTMENT AND REGISTERED CAPITAL
ARTICLE 9: The total investment of the Joint Venture Company is [*].
ARTICLE 10: The investment of Party A and Party B is [*] and it is the
registered capital of the Joint Venture Company
in which Party A invests [*], accounting for 12% of
shares, and Party B invests [*], accounting for 88%
of shares.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
ARTICLE 11: The investment of Party A and Party B is the following.
Party A: materials and cash amount to [*].
Party B: materials and cash amount to [*].
The exchange rate of RMB and US dollar shall be determined on
the basis of the exchange quotation published by the State
Administration Bureau of Foreign Currency of the PRC for the
date of concern.
ARTICLE 12: The registered capital of the Joint Venture Company shall
be paid off within six months from the date when the business
license of the Joint Venture Company is signed and issued in
proportion to the investment of Party A and Party B.
ARTICLE 13: In case any of the two parties transfers part or all of
its investment to a third party, it shall be agreed by the
other party and shall be submitted to examination and approval
authority for approval. The other party shall have priority to
buy the transferred investment.
CHAPTER SIX
RESPONSIBILITIES OF THE PARTIES
ARTICLE 14: Party A and Party B shall be responsible for the following
matters:
Duties of Party A:
1. Assisting the Joint Venture Company to apply for approval of
relevant Chinese authorities concerned, register the Joint
Venture Company and receive business license, etc.;
2. Providing cash and materials according to Chapter Five;
3. Assisting to handle with the import declaration procedures of
machine equipment and instruments provided by Party B as
investment and to transport them in the territory of China;
4. Assisting the Joint Venture Company to purchase or rent
equipment, materials, office appliances, means of
transportation, telecommunication facilities, etc. in the
territory of China;
5. Assisting the Joint Venture Company to implement
infrastructures for water, electricity, transportation and
facilities for meals, health, activity, etc.;
6. Assisting the Joint Venture Company to recruit and employ
Chinese operation and management staff, technical staff and
workers and others;
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
7. Assisting foreign staff to handle entry visas, working
certificates and travel procedures;
8. Assisting foreign staff to handle accommodation and
transportation problems;
9. Handling the other matters appointed by the Joint Venture
Company.
Duties of Party B:
1. Providing cash and materials according to Chapter Five, and
transporting the machine equipment and other materials which
are part of its investment to Chinese port;
2. Handling the purchasing of machines, instruments, materials,
parts outside of Chinese territory appointed by the Joint
Venture Company;
3. Assisting to install, adjust, test, maintain the newly
purchased equipment;
4. Training the technical staff and workers of the Joint Venture
Company;
5. Being responsible for steadily producing qualified products in
accordance with the designed capacity within the time limits;
6. Assisting the Joint Venture Company to providing American
documents and materials necessary for the staff who go abroad;
7. Assisting the settlement of accommodation and transportation
of the company's staff abroad outside Chinese territory;
8. Providing information of telecommunication market outside of
Chinese territory for the Joint Venture Company;
9. Assisting the establishment and management of branch
organizations of the Joint Venture Company outside of Chinese
territory, and provide business convenience for the branch
organizations; Being responsible of the selling of the
products of the Joint Venture Company for sale abroad and
providing services after the sale of products outside of
Chinese territory;
10. Handling other matters appointed by the Joint Venture Company.
CHAPTER SEVEN
TECHNOLOGY TRANSFER
ARTICLE 15: Party A and Party B enter into agreement that the new
technologies and products studied and developed by Party B
shall be produced in the joint Venture Company. The Joint
Venture Company and Party B shall stipulate contract of
transferring
technologies with the purpose of gaining the advanced
technologies necessary for achieving the production and
business purpose and scale stipulated in Chapter Four,
including designs of products, part of production crafts,
testing methods, quality standard and training staff, etc.
(The items relevant to technology transfer shall be separately
submitted to examination and approval authority.)
ARTICLE 16: Party B shall be responsible for the following duties in
technology transfer:
1. Guaranteeing that the designs, production technologies, flow
process of crafts and tests of the new technologies and
products provided for the Joint Venture Company are complete,
accurate, and reliable, fitting the operation purpose and
requirement of the Joint Venture Company and achieving the
quality and production capacity required by the contract;
2. Listing out in detail the technologies and technical services
provided at each stage stipulated by the agreement on
technology transfer as a supplement to the agreement, and
guaranteeing its implementation;
3. Guaranteeing to submit on time the drawings, technical
conditions and other detailed materials which are part of the
transferred technologies;
4. Timely providing improvements of technologies, information of
improvements and technical materials for the Joint Venture
Company with no additional charge within the valid term of the
agreement on technology transfer;
5. Guaranteeing that the technical staff and workers in the Joint
Venture Company are able to grasp the technology transferred
within the time limits stipulated by the agreement on
technology transfer.
ARTICLE 17: The expenses of transferring technologies shall be paid by
means of [*]. The [*] rate shall be [*]. In case the foreign
currency is imbalance, the part lacked shall be settled
by RMB.
ARTICLE 18: The term of the agreement on technology transfer is [*].
After it expires, the Joint Venture Company shall have
the rights to continue using, studying and developing the
transferred technologies. The Joint Venture Company may use,
amend, and develop the technologies transferred by Party B.
The Joint Venture Company shall not transfer part or all of
the technologies to the enterprises besides Party A and Party
B.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
CHAPTER EIGHT
THE SALES OF PRODUCTS
ARTICLE 19: The products of the Joint Venture Company shall be sold to
the markets inside and outside of [*] after the products are
put into production formally.
ARTICLE 20: With the purpose of selling products inside or outside of
[*] and providing maintenance and repair services after the
sale of products, the Joint Venture Company may establish
branch organizations for sale and repair services inside and
outside of the [*].
ARTICLE 21: The trademark used by the products of the Joint Venture
Company shall be trademarks determined by the Joint Venture
Company.
CHAPTER NINE
BOARD OF DIRECTORS
ARTICLE 22: The Board of Directors of the Joint Venture Company shall
be established from the date when the Joint Venture Company is
registered.
ARTICLE 23: The Board of Directors shall be composed of six Directors,
two appointed by Party A and four appointed by Party B. The
Chairman shall be appointed by Party B, and the Vice Chairman
shall be appointed by Party A. The Chairman and Vice Chairman
shall hold the office for a period of four years and may be
reappointed consecutively.
ARTICLE 24: The Board of Directors shall be the highest authority of
the Company, determining all important matters of the Company.
The Board meetings shall be held with the participation of
two-thirds of the Directors (including at least one from Party
A). The determination of important issues shall be unanimously
approved by the Directors attending the meeting or all
Directors:
1. Amendment of the regulations of the Joint Venture Company;
2. Termination and dismissal of the Joint Venture Company;
3. Increases and transfers of the registered capital of the Joint
Venture Company;
4. Mergers of the Joint Venture Company with other economic
organizations.
Other matters shall be determined by majority's approval (at
least with the approval of one Directors from Party A).
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
ARTICLE 25: In case the Chairman cannot fulfill his duties, he shall
appoint the Vice Chairman or other Directors to temporarily
carry out his duties.
ARTICLE 26: The Board meetings shall be held at least once a year and
shall be organized by the Chairman. The Chairman may convene a
special meeting with the proposal of one-third of the
Directors. The minutes of Board meetings shall be written in
Chinese and English and shall be filed in the Joint Venture
Company.
ARTICLE 27: The Chairman shall inform Party A and Party B of the
important matters and resolutions of the Joint Venture Company
within the term of joint venture.
CHAPTER TEN
BUSINESS MANAGEMENT OFFICE
ARTICLE 28: The Joint Venture Company shall set up a business
management office, in charge of daily operational management.
The Joint Venture Company shall have one General Manager
nominated by Party B. One Deputy General Manager shall be
nominated by Party A and another Deputy General Manager shall
be nominated by Party B. The General Manager and the Deputy
General Managers shall be appointed by the Board of Directors
and shall hold office for a period of three years.
ARTICLE 29: The duties of General Manager is executing the resolutions
of the Board meetings, organizing the routine operation and
management of the Joint Venture Company. The Deputy General
Manager shall assist the work of General Manager.
The business management office may have several department
managers who are being responsible to General Manager and
Deputy General Manager. The number and candidates of
department managers shall be nominated by General Manager and
Deputy General Manager, and shall be appointed and dismissed
by General Manager. If necessary, department managers may be
recruited and employed publicly. The General Manager shall
inform the Chairman of the appointment or dismissal of
department managers within ten days.
ARTICLE 30: In case of graft and corruption or serious neglect on the
part of the General Manager and the Deputy General Manager,
the Board of Directors shall have the rights to dismiss them
at any time.
CHAPTER ELEVEN
PURCHASES OF EQUIPMENT
ARTICLE 31: The raw materials, parts, auxiliary parts, means of
transportation and office appliances necessary for the Joint
Venture Company may be purchased inside or outside of China.
ARTICLE 32: The Joint Venture Company shall appoint Party B to
purchase equipment in foreign market case. The function and
price of equipment shall be consulted and approved by the
Joint Venture Company. Party B shall invite the
representatives of Party A or the Joint Venture Company to
participate in the purchasing of machines of big size.
CHAPTER TWELVE
LABOR MANAGEMENT
ARTICLE 33: The employment, dismissal, wages, labor insurance,
welfare, rewards and penalties, etc. of the stuff and workers
of the joint Venture Company shall be planned by the Board of
Directors and stipulated by labor contracts made together or
respectively between the Joint Venture Company and the labor
union according to the Administration Regulations of the
People's Republic of China on Joint Ventures Using Chinese and
Foreign Investment and its implementations.
After the labor contract is signed, it shall be submitted to
local labor management authority to be filed.
ARTICLE 34: The employment, wages, achievement rewards, insurance,
welfare, standard of travel expenses, etc. shall be determined
by the Board of Directors.
CHAPTER THIRTEEN
TAX, FINANCE ACCOUNTING AND FOREIGN CURRENCY
ARTICLE 35: The Joint Venture Company shall pay taxes in accordance
with the relevant laws and regulations of the PRC.
ARTICLE 36: The staff and workers of the Joint Venture Company shall
pay individual income taxes according to the Individual Income
Tax Law of the People's republic of China.
ARTICLE 37: The Joint Venture Company shall draw funds in accordance
with the relevant regulations of the PRC. The proportion of
every year shall be discussed and
determined by the Board of Directors according to the
operation status of the Joint Venture Company.
ARTICLE 38: The fiscal year of the Joint Venture Company is from the
first of January to the thirty-first of December. Vouchers,
documents, statements and account books shall be prepared in
Chinese. The vouchers and documents of foreign business shall
be prepared in Chinese, English or both.
ARTICLE 39: The Joint Venture Company shall invite accountants and
auditors registered in China or other countries to check the
finance and accounts, and shall submit the result to the Board
of Directors and the General Manager.
ARTICLE 40: The General Manager shall prepare the balance sheets, the
statement of loss and profit and the profits allocation
proposal of the previous fiscal year, and submit them to the
Board of Directors for examination and approval within the
first three months of the present fiscal year. After the
profit allocation proposal is decided, the Joint Venture
company shall allocate the profits to Party A and Party B
immediately in accordance with the relevant laws of the PRC.
The foreign currency shall be settled by either RMB or US
dollar.
ARTICLE 41: All the foreign currency matters of the Joint Venture
Company shall be handled according to the relevant
stipulations of the Regulations of the People's Republic of
China on Foreign Currency Administration.
CHAPTER FOURTEEN
TERMS OF JOINT VENTURE
ARTICLE 42: The term of the Joint Venture Company shall be 50 years.
The establishment of the Joint Venture Company is on the day
when the business license of the Joint Venture Company is
signed and issued.
With the proposal of two parties and the unanimous approval of
the Board of Directors, the Joint Venture Company may apply to
the Ministry of Foreign Trade and Economic Cooperation of the
PRC (or the examination and approval authority it appointed)
for prolonging the term of joint venture within six months
before the original term expires.
CHAPTER FIFTEEN
THE DISPOSAL OF ASSETS WHEN THE JOINT VENTURE TERM EXPIRES
ARTICLE 43: When the term of joint venture expires or is terminated,
the Joint Venture Company shall conduct liquidation according
to the laws. The assets after liquidation shall be allocated
in proportion to the investment of Party A and Party B.
CHAPTER SIXTEEN
INSURANCE
ARTICLE 44: The insurance of the Joint Venture Company that is inside
China shall be underwritten with the insurance companies in
China, and insurance outside Chinese territory may be
underwritten with the local insurance companies or other
insurance companies. The coverage, insurance value and
insurance term shall be discussed and decided by the Board of
Directors of the Joint Venture Company according to the
regulations of the insurance companies in the territory of
China and other insurance companies.
CHAPTER SEVENTEEN
THE AMENDMENT, ALTERATION AND CANCELLATION OF THE CONTRACT
ARTICLE 45: The amendment of the contract shall be signed in writing
by Party A and Party B and shall be submitted to the original
examination and approval authority for approval to be
effective.
ARTICLE 46: Owing to the failure of fulfilling the contract due to
Force Majeure or of continuing operation due to the constant
deficits of the Joint Venture Company, the termination of the
term of joint venture and the cancellation of the contract
before the end of the term shall be unanimously approved by
the Board of Directors and shall be submitted to the original
examination and approval authority for approval.
ARTICLE 47: In case one party doesn't fulfill the obligations
stipulated in the contract and articles of association or
seriously violate the contract and articles of association,
which lead to the failure of operating or achieving the
business purpose of the Joint Venture Company as stipulated in
the contract, it shall be regarded as the Delinquent party's
unilateral termination the contract. Besides claiming to the
delinquent party for compensation, the observant party also
has rights to apply to the original examination and approval
authority for the approval of terminating the joint venture
contract according the stipulation of the contract. In case
Party A and Party B agree to
continue the operation, the delinquent party shall compensate
the economical losses of the Joint Venture Company.
CHAPTER EIGHTEEN
LIABILITIES FOR BREACH OF CONTRACT
ARTICLE 48: In case any of the two parties doesn't pay off its
investment in accordance with the Chapter Five of the
contract, the delinquent party shall pay penalty fee which
amount to 1% of the investment it shall pay a month counted
from the first month that exceeds the time limits to the
observant party a month counted from the first month that
exceeds the time limits. In case the delinquent party doesn't
pay off its investment three months after the time limits,
besides requiring the delinquent party to pay the penalty fee
which accumulated to 3% of the investment it shall pay, the
observant party also has rights to terminate the contract
according to Chapter Seventeen of the contract and require the
delinquent party to compensate its losses.
ARTICLE 49: The liability of the failure of fulfilling or partially
fulfilling the contract due to the faults of one party shall
be undertaken by the party who is guilty. In case both parties
are guilty, the liabilities for breach of contract shall be
undertaken by the two parties respectively according to the
actual situations.
CHAPTER NINETEEN
FORCE MAJEURE
ARTICLE 50: Due to earthquake, typhoon, flood, war and other
unpredictable and unavoidable Force Majeure accidents which
directly influence the fulfillment of the contract on the
agreed conditions, the party that suffers from the
above-mentioned accident shall inform the other party of the
accident by telegram or facsimile in time, and present the
detailed minutes of the accident and a valid certificate
stating the reasons why it cannot fulfill or partially fulfill
the contract or why it needs to prolong the fulfillment of the
contract within fifteen days. This certificate shall be
presented by local notary authority of where the accident
happens. Whether to cancel the contract or partially relieve
the responsibilities of fulfilling the contract or prolonging
its fulfillment shall be decided through negotiations between
the two parties according to the degree of the influence of
the accident on the fulfillment of the contract.
CHAPTER TWENTY
GOVERNING LAWS
ARTICLE 51: The formulation, effect, explanation and execution of the
contract and the settlement of disputes shall be governed by
the laws of the People's Republic of China.
CHAPTER TWENTY-ONE
SETTLEMENT OF DISPUTES
ARTICLE 52: All disputes due to the fulfillment of the contract or
related to the contract shall be settled through friendly
negotiations of the two parties. In case the negotiation does
not work. The dispute shall be submitted to an arbitrary
organization agreed by both parties for arbitration.
The arbitrary award is final and binding upon both parties.
ARTICLE 53: During the arbitration, except for the parts that causes
the disputes and is being arbitrated, the contract shall
continue to be fulfilled.
CHAPTER TWENTY-TWO
CONTRACTUAL LANGUAGE
ARTICLE 54: The contract shall be prepared in Chinese.
CHAPTER TWENTY-THREE
EFFECTIVENESS OF THE CONTRACT AND OTHERS
ARTICLE 55: The articles of association of the Joint Venture Company
formulated in accordance with the principals of the contract
shall be regarded as a part of it.
ARTICLE 56: The contract shall be approved by the Ministry of Foreign
Trade and Economic Cooperation of the PRC.(or the examination
and approval authority it appointed) and will enter into
effect from the day of approval. The contracts of the former
UT Starcom (Hangzhou) Equipment Co. Ltd. (Sole proprietorship)
and Zhejiang Yutong Telecommunication Equipment Co. Ltd. shall
be submitted to the original examination and approval
authority for cancellation and termination.
ARTICLE 57: The ways Party A and Party B dispatch notices, such as by
telegram, telex and facsimile, which relate to the rights and
obligations of each party, shall be followed
with written letters. The legal residences listed out in the
contract are the addresses of Party A and Party B where the
letters are received.
ARTICLE 58: The contact shall be signed by the representatives
appointed by Party A and Party B and is made into five copies.
Zhejiang Telecommunication Equipment Factory UT Starcom Inc. of USA
Representative: Representative:
/s/ (Signature) /s/ (Signature)
Date of signature: July 31, 1997 Date of signature: