Exhibit 2
SINO-FOREIGN JOINT VENTURE AGREEMENT
(Explanatory note: Executed at the request of the local government to
restate and amend an earlier agreement among the parties singed on
September 30, 2004 and to lay down detailed rules of operation.
Explanatory Note added by the Company)
INDEX
1 INTRODUCTION
2 PARTIES OF JOINT VENTURE
3 ESTABLISHMENT OF THE COMPANY
4 PRINCIPLE, BUSINESS SCOPE AND SCALE
5 INVESTMENT AND REGISTERED CAPITAL
6 RESPONSIBILITIES
7 PRODUCTS
8 BOARD OF DIRECTORS
9 MANAGEMENT
10 FACILITIES AND PROCUREMENT OF RAW MATERIALS
11 LAND AND BUILDINGS
12 LABORS MANAGEMENT
13 TAXES, FINANCIAL AND AUDITING
14 PROFIT SHARING
15 FOREIGN CURRENCY MANAGEMENT
16 JOINT VENTURE PERIOD
17 DISPOSALS OF PROPERTIES
18 INSURANCE
19 AMENDMENTS, REVISED AND TERMINATION
20 BREACH OF CONTRACT
21 SEVERABILITY AND ENFORCEMENT
22 GOVERNING LAWS
23 ARBITRATION
24 OTHERS
1. Introduction
This agreement (the "Agreement) is signed by the shareholders of Suzhou Hengyi
Pharmaceutical of Feedstock Co., Ltd. ("Hengyi") and China Biopharmaceuticals
Holdings Inc. ("CBH"), in compliance with the "Sino-Foreign Joint Venture Law of
China" and other related Chinese laws ("Joint Venture Business Law"), to agree
to transform Hengyi, located in Dongfang, Zhoushi Town, Kunshan City, Jiangsu
Province, into a Sino-froeign joint venture company in continuing its operations
under the same business name of Suzhou Hengyi pharmaceutical of Feedstock Co.,
Ltd. (the "Company").
2. Parties of the Company
Ariicle 1. Parties of the Agreement:
Party A: Natural person: ZHU GANG (Original shareholder of Hengyi)
Nationality: China
Address: NO.7, Group 10, Lufen, Fuqiao Town, Taicang City,
Jiangsu Province
ID NUMBER: [deleted for privacy protection]
Party B: Natural Person: ZHOU FU YING (Original shareholder of Hengyi)
Nationality: China
Address: NO.50, Group 2, Xinchuang Village, Xinhu Town,
Taicang City, Jiangsu Province
ID NUMBER: [deleted for privacy protection]
Party C: Company Name: China Biopharmaceuticals Holdings Inc.
Legal address: NO.101, 52 St., New York , NY USA
Legal representative: Lufan AN
Position: President
Nationality: CHINA
3. Establishment of The Company
Article 2. In comply with the Joint Venture Business Law, Parties A, B and C
agree to set up a sino-foreign joint venture company of Suzhou Hengyi
pharmaceutical of Feedstock Co., Ltd. in Dongfang, Zhoushi Town, Kunshan City,
Jiangsu Province, where Hengyi is located.
Article 3. The name of the Company shall remain as Suzhou Hengyi pharmaceutical
of Feedstock Co., Ltd., and the legal address of the Company is Dongfang
village, Zhoushi Town, Kunshan City (54 Kuntai Road, Zhoushi town, Kunshan
City).
Article 4. The organization of the Company is classified as a limited liability
company. The percentage of profit sharing, risk taking and the undertaking of
liabilities of the Company shall be shared by all three parties based on the
percentage of capital invested respectively. Profit earned by the Company is
distributed according to the regulations of the government and the decision of
the Board.
Article 5. The operations of the Company must comply with the laws and
regulations of China under the jurisdiction and protection of the Chinese
government.
4. PRINCIPLE, BUSINESS SCOPE AND PRODUCTION CAPIBILITY
Article 6. The principle of the Company is to enhance economic cooperation and
technology exchange; to establish a company at an internationally advanced
level; and to ensure satisfactory economic benefits by adopting scientific
management methods in the spirit of mutual benefit and understanding. All three
parties will strive to expand business scope and make progress in business
development.
Article 7. The business scope of the Company includes: manufacturing
Carbamazepine and Flumequine; selling its own manufactured products; and import
and export business; Distribution business is not included.
Article 8. The production capability of the Company shows an average sale of
approximately 80 to 100 Million in Renminbi ("RMB") per year. This production
capability can be enhanced by increasing or readjusting production lines based
on the market demand.
5. INVESTMENT AND REGISTERED CAPITAL
Article 9. Total investment in the Company by the parties is RMB 24,850,000.00
out of which the registered capital is RMB 17,400,000. Party A and Party B's
combined investment is included the original registered capital of RMB 3,000,000
in Hengyi plus the retained earnings of RMB 1,217,656 as of December 31, 2004.
CBH invests RMB 13,242,400, among which RMB 13,182,344 is for the Company's
registered capital. Among the total investment from Party A and Party B, RMB
3.08 are accounted for capital surplus and among the total investment from Party
C, RMB 60,056 are accounted for capital surplus.
Article 10. Invested capitals by Party A, B and C are calculated in RMB. Party A
provides its net assets valued at RMB 2,108,829.54 based on Hengyi's unaudited
financial statement of balance sheet as of December 31. 2004, which represented
12.1197% ownership of the Company; Party B invests RMB 2,108,829.54 based on
Hengyi's unaudited financial statement of balance sheet as of December 31. 2004,
which represented 12.1197% ownership of the Company; and Party C invests USD
1,600,000, which equals RMB 13,242,400 (exchange rate is USD1=RMB8.2765), which
represented 75.7606% ownership of the Company. The investment in the Company by
Party C will be paid by installments: The first payment of USD 320,000 shall be
wired to the Company within 7 days after received the "Certificate of Approval
for Establishment of Enterprises with Foreign Inve4stment in the People's
Republic of China" (the "Certificate of Approval"). The second payment of USD
1,280,000 shall be wired to the company within 90 working days after received
the Certificate of Approval.
Article 11. Total registered capital of the Company is RBM 17,400,000.
Article 12. Should one Party decide to sell partial or all of its shares, a
written agreement from other Party or Parties and with the approval from the
Administration of Industry and Business Management is required; and other Party
or Parties have the right of the first refusal on future such sale.
6. DUTIES AND RESPONSIBILITIES
Article 13. Duties & responsibilities of Party A and Party B:
(1) To process and complete the approval, the change of corporation,
business license and other matters concerning the forming of the
Company through relevant departments in China;
(2) To have the exact amount of investment into the Company on schedule
according to article 10 and 11 in the Agreement.
(3) To take charge of other related matters the Company entrusts.
Article 14. Duties & responsibilities of Party C:
(1) To have the exact amount of investment into the Company on schedule
according to article 10 and 11 in the Agreement.
(2) To assist party A and party B with the issue in processing the
approval, the change of corporation, business license and other
matters concerning the forming of the Company through relevant
departments in China;
(3) To provide information of international market related to the Company;
(4) To assist and train technical personnel and production workers;
(5) To take charge of other related matters the Company entrusts.
7. PRODUCTS
Article 15. Parties A, B and C are all responsible for the business operation of
the Company. Periodically, the Board of Directors will make decisions on
operation cost and profit margin referring to product prices and operation model
of similar companies in world market.
Article 16. Equipments, raw materials, office facilities and transportation
vehicles should be purchased preferentially in domestic market.
8. BOARD OF DIRECTORS
Article 17. The commencement of the Board is the day when the Company is
registered with Business License.
Article 18. The board is formed with five directors, among them, one director
each is assigned by Party A and party B, two directors are assigned by party C,
the fifth director is decided by party A, B and C all together; the chairman is
assigned by party C, with a term of three years, and can stay in this position
if he or she is reassigned by the assigner.
Article 19. The board is the utmost authority of the Company and can decide all
important issues of the Company. The following issues must be unanimously passed
by all directors of the board:
(1) To modify the Agreement, articles and revised attachments.
(2) To terminate and dissolve the Company or to extend the period of joint
venture;
(3) To increase the capital, adjust the investment percentage, change or
transfer the registered capital of the Company;
(4) To merge the Company with other business entities;
(5) Approving and fixing the domestic and export prices of products;
(6) To decide the growth strategy, production and business plan, budget,
profit sharing and wages & salaries adjustment;
(7) To appoint and remove general manager and senior staffs of the
Company;
(8) To liquidate the assets when the Company is terminated in advance or
the joint venture agreement expired;
(9) Issues other than the above-mentioned eight items should be approved
and decided by the agreement of a simple majority of the board.
Article 20. The board of directors' meeting should be held for no less than
twice annually, and should be convoked and presided by the chairman of the
board; if the chairman is absent, the board should be convoked and presided by
vice chairman of the board or other directors assigned by chairman of the board.
If one third of the directors propose a board of directors' meeting, the
chairman can convoke temporary board meeting.
Article 21. The board meeting can only be held in the presence of more than four
fifth of directors. If a director cannot be present, he or she can assign other
to attend and vote on the behalf of he or she. Minute of the meeting should be
signed by all the directors present and then be preserved. The board meeting is
usually held in the legal address of the joint venture. Chairman is the legal
representative of the joint venture, if he or she cannot fulfill the
responsibility, he or she should authorize other directors to be the
representative.
9. MANAGEMENT
Article 22. Management structure is set up in the joint venture in charge of
daily operation and management. The management is led by the general manager,
appointed by the board, with a term of three years, and can continue in the
position if reappointed by the board of directors.
Article 23. The duty of the general manager is to execute the resolutions of the
board, organize and lead daily management of the joint venture. Under the
authorization of the board, the general manager can represent the joint venture
and appoint and remove the staff, execute other powers authorized by the board.
Article 24. Appointed by the board, chairman and directors can take the position
of general manager and other senior management positions in the Company. If the
manager and other senior officers mis-manage the Company, the board can decide
to remove him or her immediately and also render necessary punishment.
10. FACILITIES AND MATERIALS
Article 25. Necessary equipment, raw material, office facilities and
transportation vehicles should be purchased preferably in the domestic market,
under equivalent conditions.
Article 26. The Company entrusts Party A and Party B to purchase imported
materials and facilities, which must be approved by all parties.
11. LAND AND BUILDINGS
Article 27. The land of 26,252.7 square meters used by the Company has been
registered with State Administration of Land Management with Certificate of Land
Use Right, land title No. 1020113016#, for 50 years of usage of this land. All
operational required buildings have been basically completed.
12. LABOUR
Article 28. Issues of hiring and terminating employees, determining wages and
salaries, employee insurance, employee benefit and rewards and punishment will
be executed according to the "Regulations of Labaor Management of Sino-Foreign
Joint Venture Business of China"; and other implantations should be decided by
the board in joint effort of both the Company and the labor union of the Company
to regulate the contract with individual worker or all workers. Once concluded,
the labor contract should be reported to and filed with the relevant government
labor department.
Article 29. After discussion by all parties, minimal wages are set to RMB
8,608.00 per year per worker, which is based on the baseline standard announced
by Kunshan City in 2004, with the understanding that based on the expansion of
production capability, the improvement of employees' professional skill, the
growth of domestic living standard and the adjustment of wages level in China
that the Company will consider to adjust wages appropriately.
Article 30. The Company promises to keep all original employees in their
positions. The salaries, social security insurance, benefit and reimbursement of
the senior management personnel recommended by Parties A, B and C will be
decided by the board of directors.
13. TAXES, FINANCIAL AND AUDITING
Article 31. The Company will comply with regulations of the "Joint Venture
Business Law of China" to provide for the contingency fund, business development
fund and employee benefit fund. Respective annual reserve funds amounts will be
decided by the board based on relevancy government regulations in connection
with the Company's operational result and financial performances.
Article 32. Fiscal year of the Company is from January 1 to December 31; and all
the accounting records, documents, paper and books should be written in Chinese
and Currency Unit of Renminbi is used in bookkeeping and accounting.
Article 33. The Company's financial statements are on monthly and yearly basis.
Auditing should be made by Chinese Certified Public Accountants, and the results
should be reported to the board and general manager. Should a foreign auditor is
requested by one party to audit the Company's annual report; the other parties
shall give consent. The party who request foreign auditor shall bear the
expenses incurred.
Article 34. During every first quarter of business year, the general manager
should take charge for working out the balance sheet, income statement and
profit sharing proposal of the previous year and present to the board for review
and approval.
14. PROFIT SHARING
Article 35. According to the "Corporate Income Tax Law for Enterprises with
Foreign Investment in China", the Company will apply for tax exemption or tax
benefit. After deducting the reserved contingency fund and business development
fund required by government regulations and the employee benefit fund which is
decided by the board, the remained profit can be distributed to shareholders
upon the decision of the board of directors.
15. FOREIGN CURRENCY MANAGEMENT
Article 36. With issued business license, the Company should open its Renminbi
account and foreign currencFy account in the bank or financial institute, which
is authorized by the "Administration of Foreign Exchange Control".
Article 37. Any foreign exchange activities in the Company should comply with
regulations of the "Administration of Foreign Exchange Control of China".
Article 38. Termination or liquidation of the Company, after fulfilling its
duties and responsibilities in the Company, distributable profit and/or party
contributed capitals, can be legally remitted and wired out of China with the
permission of the government according to the government regulations of foreign
exchange control.
16. JOINT VENTURE PERIOD
Article 39. The term of this joint venture is 15 years; commencing from the day
of issuing business license of the Company.
Article 40. Six months before the expiry of the joint venture, if one party
proposes to extend the joint venture and directors so approve unanimously, the
Company can apply to the relevant foreign trade bureau or the relevant
government agencies to extend the term of the joint venture.
17. DISPOSAL OF PROPERTIES
Article 41. When the joint venture has expired or is terminated, assets of the
Company shall be liquidated by any accounting firm after liquidating auditing.
Net assets, among which the land shall be priced at the original purchase price,
shall be distributed to all parties based on their ownership percentages in the
Company. Party A will take the land at original purchased price. All other
assets and liabilities shall be shared by all parties based on their ownership
percentage in the Company.
18. INSURANCE
Article 42. The Board decides that all insurances of the Company shall be bought
from the People's Insurance Company of China; the coverage, category, value and
period of insurances will have to base on the regulations of the insurance
company.
19. AMENDMENTS, REVISED AND TERMINATION
Article 43. Amendment to the Agreement or attachments can take effect only
through supplementary amending agreement signed by all parties and approved by
the State Administration of Industry & and Commerce.
Article 44. If due to force majeure, the Agreement cannot be fulfilled, or due
to continuing operation loss over a long period of time causing the Company to
be in non-operating condition and if unanimously agreed to by all the parties
hereto and with the approval of the Administration of Industry & Commerce, the
Agreement can be terminated before its term..
Article 45. If one party doesn't fulfill or violate its duties described in the
Agreement or articles herein, it shall be treated as unilaterally terminating
the Agreement. If all parties agree to continue the joint venture, then the
violating party should compensate the Company for the loss it caused.
20. BREACH OF CONTRACT
Article 46. If any party does not invest the exact number of capital as
stipulated in Chapter 5 of the contract, from the first month of exceeding the
deadline, the default party should pay 3% of the investment for compensation. If
it cannot make the payment in three months, the compensation is 9% of the
investment, and the other parties have the right to terminate the contract
according to Article 45, and ask for compensation.
Article 47. If one party bleaches the Agreement or attachment of the Agreement,
the breaching party shall take sole responsibility for such breach. If all three
parties breach the Agreement or attachment of the Agreement, all of them shall
take the responsibility accordingly.
21. SEVERABILITY AND ENFORCEMENT
Article 48. Due to force majeure that cannot be predicted and of which the
outcome cannot be prevented or avoided, such as earthquake, typhoon, flood, fire
and war, the fulfillment of the contract is affected. The party encountering
these accidents should notify the other parties immediately, within 15 days, and
provide details and effective evidences to prove that the contract cannot be
fulfilled or the fulfillment needs to be delayed. The evidence should be
provided by local notarization agents, and in consideration for the extent that
the fulfillment is affected by the accident, three parties should negotiate to
decide whether to eliminate the contract, partly eliminate the contract or delay
the fulfillment of the contract.
22. GOVERNING LAW
Article 49. The establishment, force, interpretation, fulfillment and
arbitration of the contract are all governed by the law of the People's Republic
of China.
23. Arbitration
Article 50. All disputes in connection with the execution of this Agreement
shall be settled friendly through negotiation among all three parties. In case
no settlement can be reached, the disputes should be submitted for arbitration
to the Arbitration Commission of the China Council for the Promotion of
International Trade in accordance with the Provisional Rules of Procedure
promulgated by the said Arbitration Commission. The award by the Arbitration
commission shall be final and binding upon all parties and the arbitration fee
shall be borne by the losing parties.
Article 51. In the process of arbitration, except for the disputed part in
arbitration, the Agreement should continue to implemented.
24. MISCELLANCEOUS
Article 52. All supplements of the Agreement include company bylaws which are
legal components of the Agreement.
Article 53. The Agreement and its supplements should be approved by Ministry of
Foreign Trade or relevant approval government agencies.
Article 54. The notification regarding rights and duties of three parties should
be delivered by registered mail to the legal addresses of the three parties
listed in this Agreement or by telegraph or fax.
Article 55. The Agreement is written in Chinese, in triplet, and each party hold
one copy. Other duplicates are filed or preserved with relevant government
agencies.
Article 56. The Agreement is entered into as of the December 31, 2004 by legal
representatives of the three parties on the third floor meeting room of Suzhou
Hengyi Pharmaceutical Feedstock Co. Ltd. with address of Dongfang Village,
Zhoushi town, Kunshan City, Jiangsu province.
Party A: /s/ ZHU GANG
Party B: /s/ZHOU FU YING
Party C: China Biopharmaceuticals Holdings Inc.
By: /s/ AN LUFAN
Title: President