EXHIBIT 4.16
LANGSHA TEFRON SEAMLESS CO. LTD
JOINT VENTURE AGREEMENT
TEFRON Ltd. (Israel)
LANGSHA Knitting Co., Ltd. (China)
ITOCHU TEXTILE MATERIALS (ASIA) Ltd. (Hong Kong)
JOINT VENTURE AGREEMENT
THIS JOINT VENTURE AGREEMENT (this "AGREEMENT") is entered as of May 8,
2006 in __________ by and between TEFRON LTD., a company duly established and
registered under the laws of the State of Israel with its principal place of
business at Industrial Center Teradyon, Misgav, 20179, Israel ("TEFRON");
LANGSHA KNITTING CO., LTD., a company duly incorporated established and
registered under the laws of the People's Republic of China with its principal
place of business at 308 Jinfa Road, Yiwu City, Zhejiang (economic development
zone), PRC ("LANGSHA") and ITOCHU TEXTILE MATERIALS (ASIA) LTD., a company duly
incorporated established and registered under the laws of Hong Kong with its
principal place of business at Suites 2304-6, The Gateway, Tower 2, 25-27,
Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong ("ITM");
(TEFRON, LANGSHA and ITM shall hereinafter be collectively referred to as the
"PARTIES" and individually as a "PARTY").
PREAMBLE
WHEREAS, TEFRON is a leading manufacturer of seamless apparel; and
WHEREAS, LANGSHA is one of the leading companies in the Chinese Textile Cut &
Sew industry, having outstanding experience and strong brand name
recognition in the PRC; and
WHEREAS, ITM is a company with strong financial capabilities, which operates in
the textile industry; and
WHEREAS, The Parties wish to form together a joint venture company for the
purpose of designing, developing, manufacturing, marketing and selling
seamless apparel in the PRC and in Asia;
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth
herein the Parties hereto agree and undertake as follows:
1. INTERPRETATIONS AND DEFINITIONS
1.1 In this Agreement, a reference to an Article, unless the context
otherwise requires, is a reference to an article of this Agreement.
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1.2 The preamble to this Agreement and the Schedules attached hereto form
an integral part hereof.
1.3 The captions of the Articles in this Agreement are intended solely for
convenience, and will have no meaning or significance in the
interpretation of this Agreement.
1.4 The following terms as used in this Agreement shall have the meanings
set forth below:
1.4.1 "AFFILIATE" shall mean a corporation, partnership, joint
venture, trust or other entity or person directly or indirectly
controlling or controlled by a Party or individual or entity or
under direct or indirect common control with a Party, individual
or entity. For the purpose of this definition, "CONTROL" means
direct or indirect ownership or control of more than fifty
percent (50%) of the voting rights of a company or more than
fifty percent (50%) of the ownership interest representing the
right to make the decisions for a partnership, joint venture or
unincorporated association, as the case may be.
1.4.2 "ANNUAL PRODUCTION VOLUME" shall have the meaning set out in
Article 3.2.2.
1.4.3 "ANNUAL PROFITABILITY FORECAST" shall have the meaning set out
in Article 3.2.2
1.4.4 "BOARD" or "BOARD OF DIRECTORS" shall mean the board of
directors of the Company.
1.4.5. "BUSINESS SCOPE" shall have the meaning set out in Article
3.1.2 of this Agreement.
1.4.6 "CHAIRMAN" shall mean the chairman of the Board of Directors of
the Company.
1.4.7 "COMPANY" shall have the meaning set out in Article 2.2 of this
Agreement.
1.4.8 "COMPANY'S OBJECTIVES" shall have the meaning set out in Article
3.1.1 of this Agreement.
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1.4.9 "CONFIDENTIAL INFORMATION" shall mean non-public or proprietary
data or information (including business plans and financial data)
whether disclosed orally or in writing, which pertains to
non-public or proprietary data or information of TEFRON or any
Affiliate thereof and its respective businesses and activities,
including without limitation any commercial, financial, business,
professional and technical information, including information
regarding TEFRON's or its Affiliates' operations, plans,
activities, policies and procedures, specifications, designs,
know how, trade secrets and marketing, all whether or not marked
confidential or relating to seamless apparel.
1.4.10 "DIRECTOR" shall mean a member of the Board of Directors.
1.4.11 "ESCROW AGENT" shall mean an escrow agent to be chosen from
among the Chinese branch of one of the top four international
accounting firms (KPMG, Delloite & Touche, PriceWaterhouseCoopers
and Ernst & Young) subject to the mutual written consent of the
Parties and prior to any investment pursuant to Article 4.2.
1.4.12 "ESTABLISHMENT DATE" shall have the meaning set out in Article
2.5 of this Agreement.
1.4.13 "EVENT(S) OF DISSOLUTION" shall have the meaning set out in
Article 16.1 of this Agreement.
1.4.14 "EVENT(S) OF FORCE MAJEURE" shall mean any one or more events
or circumstances beyond the control of a Party, which cannot be
prevented by reasonable precautions taken by such Party, having a
material adverse effect on a Party's ability to perform its
obligation under this Agreement. An Event of Force Majeure shall
include: earthquake, typhoon, war, or enactment or revision of
laws and ordinances, or any other reason beyond the control of
any of the Parties which affects that Party's ability to perform
its obligations hereunder all provided that: (I) such a Party is
acting in good faith and without fault in causing such events,
(II) such Event of Force Majeure is the sole reason for the
nonperformance of such Party's obligations hereunder and (III)
that the non-performing Party(s) has notified the other Party(s)
of such Event of Force Majeure within 7 days from its beginning
or consummation.
1.4.15 "EXAMINATION AND APPROVAL AUTHORITY" means the Ministry of
Commerce of the PRC and/or its authorized department who shall
examine and approve the establishment of the Company.
1.4.16 "GAAP" means the Generally Accepted Accounting Principles
adopted by the Financial Accounting Standards Board in the U.S.A.
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1.4.17 "INTERESTS" shall mean the entire interests of a Party in the
total registered capital of the Company, representing such
Party's percentage of ownership in the Company at any particular
time.
1.4.18 "MACHINES" shall have the meaning set out in Article 4.2.1 of
this Agreement.
1.4.19 "MANAGEMENT TEAM" shall have the meaning set out in Article
9.1.1 of this Agreement.
1.4.20 "OPERATING EXPENSES" shall mean all costs and expenses of
maintaining the operations of the Company including, without
limitation, bookkeeping, reporting, taxes, fees and other
governmental charges levied against the Company, fees for outside
services (including, without limitation, audit, outside counsels
and accountants), insurance, litigation and travel expenses.
1.4.21 "PERMITTED TRANSFER" shall mean any transfer of Interests in
the Company from a Party to its Affiliates and any transfer among
such Affiliates themselves.
1.4.23 "PRC" means the People's Republic of China, excluding Hong Kong
Special Administration Region, Taiwan and Macau Special
Administration Region.
1.4.24 "RAW MATERIALS" shall mean un-knitted and in a raw form
materials such as yarns, accessories and packaging materials.
1.4.25 "REGISTERED CAPITAL" shall have the meaning as defined in
Article 18 of the IMPLEMENTATION RULE OF THE SINO-FOREIGN EQUITY
JOINT VENTURE LAW OF THE PEOPLE'S REPUBLIC OF CHINA.
1.4.26 "REGISTRATION AUTHORITY" shall mean the State Administration
for Industry and Commerce or its authorized department with which
the Company shall be registered.
1.4.27 "RMB" shall mean the lawful currency of the PRC.
1.4.28 "TERM" shall have the meaning set out in Article 15 of this
Agreement.
1.4.29 "TOTAL INVESTMENT AMOUNT" shall have the meaning as defined in
Article 17 of the IMPLEMENTATION RULE OF THE SINO-FOREIGN EQUITY
JOINT VENTURE LAW OF THE PEOPLE'S REPUBLIC OF CHINA.
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1.4.30 "TRANSFER" shall mean to sell, assign, transfer, pledge,
encumber or otherwise dispose of the Interests in the registered
capital of the Company or any portion thereof or right therein.
1.4.31 "VICE CHAIRMAN" shall mean the vice chairman of the Board of
Directors of the Company.
2. ESTABLISHMENT OF A JOINT VENTURE COMPANY
2.1 PARTIES TO THE COMPANY
The Parties to this Agreement shall be as follows:
TEFRON LTD., a company duly established and registered under the laws
of the State of Israel with its principal place of business at
Industrial Center Teradyon, Misgav, 20179, Israel.
Legal Representative: Name: Yos Shiran
Position: Chief Executive Officer
Nationality: Israeli
LANGSHA KNITTING CO., LTD, a company duly incorporated established and
registered under the laws of the People's Republic of China with its
principal place of business at 308 Jinfa Road, Yiwu City, Zhejiang
(economic development zone), PRC.
Legal Representative: Name: _________
Position: _________
Nationality: _________
ITOCHU TEXTILE MATERIALS (ASIA) LTD. a company duly incorporated
established and registered under the laws of Hong Kong with its
principal place of business at Suites 2304-6, The Gateway, Tower 2,
25-27, Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong.
Legal Representative: Name: _________
Position: _________
Nationality: _________
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2.2 ESTABLISHMENT OF THE COMPANY
The Parties agree to establish a joint venture company in Yiwu City,
Zhejiang Province, People's Republic of China, in accordance with the
Chinese-Foreign Equity Joint Venture Enterprise Laws of the People's
Republic of China (the: "COMPANY").
2.3 NAME AND LEGAL ADDRESS OF THE COMPANY
2.2.1 The name of the Company shall be "LANGSHA TEFRON SEAMLESS CO.
LTD" in English and ____________ in Chinese.
2.2.2 The registered address of the Company shall be 308 Economic
Development Zone, Yiwu City, Zhejiang Province, People's Republic
of China.
2.4 LIMITED LIABILITY COMPANY
2.4.1 The Company is a limited liability company. The liability of
each of the Parties for the debts and losses of the Company shall
be limited to such Party's obligation to make its respective
contribution to the registered capital of the Company, as
provided in Article 4.1., and therefore, it is hereby expressly
acknowledged and agreed by the Parties that no Party is
responsible or liable for any additional funding with respect to
the Company. Any creditors of the Company shall have recourse
only to the assets of the Company and may not seek repayment from
either Party.
2.4.2 No Party is an agent of the other Parties and no Party has any
power to bind the other Parties or to assume or to create any
obligation of responsibility, express or implied, on behalf of
the other Parties or in the other Parties names. This Agreement
shall not be construed as creating any form of legal relationship
between the Parties with the effect that an act or failure to act
by one Party would impose liability upon the other Party(s).
2.5 THE ESTABLISHMENT DATE
The Establishment of the Company shall mean the date on which the
Company's business license is issued by the Registration Authority
(the: "ESTABLISHMENT DATE").
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3. PURPOSES, SCOPE AND SCALE OF PRODUCTION AND BUSINESS
3.1 THE OBJECTIVES OF THE COMPANY AND ITS PURPOSES
3.1.1 The purpose of the Company shall be to design, develop,
manufacture, market and sell seamless apparel for the purpose of
becoming a leading company in the Asian seamless apparel market
(the: "COMPANY'S OBJECTIVES"). The Company shall use its
financial means, technological know-how, extensive production
capacity, the extensive experience of LANGSHA and ITM in the
Asian markets and their leading brand name in order to achieve
the Company's Objectives, as provided hereinabove.
3.1.2 The business scope of the Company ("BUSINESS SCOPE") shall be
designing, developing, manufacturing, marketing and selling
seamless apparel.
3.1.3 The Company shall be entitled to expand or modify the
aforementioned Company's Business Scope provided however that
such expansion or modification was confirmed by the Board in a
unanimous vote and subject to receiving all necessary permits.
3.2 SCOPE AND SCALE OF PRODUCTION
3.2.1 LANGSHA has submitted a three-year detailed business plan to
TEFRON and ITM. Once such business plan is agreed upon and
approved by TEFRON and ITM and executed by TEERON, ITM and
LANGHSA, it will be legally binding upon all the Parties and the
Company (the: "BUSINESS PLAN"). Such Business Plan shall be
attached to this Agreement as SCHEDULE 3.2.1.
3.2.2 The Business Plan shall establish an annual target in production
volume, as provided in SCHEDULE 3.2.2(A) hereto (the: "ANNUAL
PRODUCTION VOLUME") and an annual profitability forecast as
provided in SCHEDULE 3.2.2(B) (the: "ANNUAL PROFITABILITY
FORECAST"). Unless the Parties mutually agree otherwise in
writing, the Parties shall make their best efforts so that the
Company will meet the Annual Production Volume and the Annual
Profitability Forecast, provided, however that if the Company did
not meet the Annual Production Volume or the Annual Profitability
Forecast in spite of the fact that all Parties made their genuine
best efforts, then , no Party shall be held liable.
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4. THE REGISTERED CAPITAL OF THE COMPANY
4.1 REGISTERED CAPITAL AND TOTAL INVESTMENT
The Total Investment Amount of the Company shall be US$8,000,000
(eight million US dollars), and the Registered Capital of the Company
shall be US$4,008,016 (four million eight thousand and sixteen US
dollars).
4.2 INVESTMENTS IN THE REGISTERED CAPITAL
The Parties shall invest in the registered capital of the Company a
total amount of US$4,008,016 (four million eight thousand and sixteen
US dollars) (the: "REGISTERED CAPITAL"), as follows:
4.2.1 TEFRON shall contribute to the Company's registered capital 144
(one hundred and forty four) machines (the: "MACHINES") as
provided in SCHEDULE 4.2.1 hereto. The Parties, after a thorough
examination and independent evaluation, have agreed that the
Machines shall be invested in the Company at a value of
US$2,008,016 (two million eight thousand and sixteen US dollars),
all in consideration for 50.1% of the Company's registered
capital. TEFRON shall be entitled to provide the Machines in
separate shipments, provided however that all the Machines are
delivered to the Company within 6 (six) months after the
Establishment Date. Violation of the abovementioned obligations
to provide the Machines shall be deemed material breach of this
Agreement.
Any benefits, awards bonuses or tax returns of any kind
whatsoever, which will be granted or offered by any governmental
authority of any entity whatsoever in connection with the
Machines (including without limitation any VAT returns) shall be
provided to the Company and shall be used for the benefit of the
Company. For the avoidance of any doubt it is hereby clarified
that such benefits, awards, bonuses or tax returns shall not be
provided directly to the Parties themselves and that any benefit
related directly or indirectly to the Machines shall be the
property of the Company.
Any failure or delay in the delivery of any of the shipments of
the Machines arising from an Event of Force Majeare shall not be
deemed as a breach of this Agreement by TEFRON and shall not
expose TEFRON to any claims or demands whatsoever.
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4.2.2 No later than 2 months after the Establishment Date, LANGSHA
shall contribute to the Company's registered capital the amount
of US$1,600,000 (one million and six hundred thousand US dollars)
in cash and eight (8) machines as provided in SCHEDULE 4.1.2, all
in consideration for 39.9% of the Company's registered capital.
Violation of the abovementioned obligations shall be deemed
material breach of this Agreement.
4.2.3 No later than 2 months after the Establishment Date, ITM shall
contribute to the Company's registered capital the amount of
US$400,801 (four-hundred thousand and eight hundred one US
dollars) in cash in consideration for 10% of the Company's
registered capital. Violation of the abovementioned obligations
shall be deemed material breach of this Agreement.
4.2.4 After each contribution is effected by the Parties in accordance
with Article 4.2, an accounting firm certified and registered in
the PRC and designated by the Board, shall be retained to verify
such contributions respectively and then issue the capital
verification report regarding such contribution.
The Company shall issue the investment certificate to each Party
setting forth the amount of the Party's contribution immediately
after the receipt of capital verification report issued by the
accounting firm as stated in Article 4.2. The investment
certificates shall be in the form as required by relative Chinese
laws and shall be signed by the Chairman and Vice Chairman and be
affixed with the chop of the Company confirming that the
contributions of the Parties are in accordance with this
Agreement.
4.3 TRANSFER OF INTERESTS IN THE REGISTERED CAPITAL OF THE COMPANY
4.3.1 Except for a Permitted Transfer, if at any time during the Term,
a Party (the "OFFEROR") wishes to Transfer any part or all of its
Interests in the registered capital of the Company (the "OFFERED
EQUITY INTERESTS") to another entity or group of entities (the:
"OTHER ENTITY"), shall first submit a written offer (the "SALE
NOTICE") to each Party (each an "OFFEREE") offering them to
purchase the Offered Equity Interests on the terms and
conditions, including without limitation the price at which the
Offeror would be willing to Transfer the Offered Equity Interests
to the Other Entity.
4.3.2 Each Offeree shall have the right, exercisable upon written
notice delivered to the Offeror and the Company (the "ACCEPTANCE
NOTICE") within 45 days from the date of the Sale Notice (the
"OFFER PERIOD"), to purchase the whole (and not less than the
whole) of the Offered Equity Interests at the price and on the
other terms and conditions stated in the Sale Notice.
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4.3.3 If an Offeree submits the Acceptance Notice within the Offer
Period, then the Offeror shall, within 90 (ninety) days following
its delivery of the Acceptance Notice (the: "CLOSING PERIOD"),
shall sell such portion of Offered Equity Interests to such
Offeree at a price and on other terms and conditions stated in
the Sale Notice.
4.3.4 If the acceptance by the accepting Offerees, in the aggregate,
are in respect of all of, or more than, the Offered Equity
Interests, then the accepting Offerees shall acquire the Offered
Equity Interests, on the terms aforementioned, in proportion to
their respective Interests in the Company at such time that the
Sale Notice is given, provided however that the transfer is
approved by the Registration Authority.
4.3.5 If the Offeree(s) fail to deliver the Acceptance Notice within
the Offer Period, the Offeror shall be deemed to have consented
to the Transfer of the Offered Equity Interests by the Offeror to
the Other Entity. If the Offeree(s) consent, or deemed to have
consented to the Transfer, the Transferor shall be free during
the period of 90 ninety days following the expiration of the
Offer Period to Transfer such Offered Equity Interests not
purchased by the Offeree(s) to the Other Entity on terms and
conditions no more favorable to the Other Entity than those set
forth in the Sale Notice without again complying with the
procedures set forth in this Article 4.3 hereof. The Transfer
will become effective and binding only after the Other Entity has
acceded to all the agreements in force ruling the relationship
between the Parties and provided that the purchase price shall be
paid and the Transfer shall be consummated within such 90-day
period. The Parties shall act in good faith, take all the
necessary actions, submit all the necessary filings and fully
cooperate in order to give force and effect to such Transfer.
If the Transfer is not consummated within such 90-day period, the
Offeror shall not be permitted to Transfer the Offered Equity
Interests or any part thereof to any third party without again
complying with the procedures set forth in this Article 4.3
hereof.
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4.3.6 Notwithstanding the aforesaid, it is agreed that in the event
the Offered Equity Interests represents the Offeror's entire
Interests in the registered capital of the Company, so that after
the sale of such Offered Equity Interest the Offeror will have no
more Interests in the Company, then the Offeree(s) will be
entitled to introduce an alternative purchaser for such Offered
Equity Interests, provided that such an alternative purchaser is
acceptable to the other Offeree and approved by simple majority
of the Board of Directors. Such an alternative Offeree shall be
deemed as an Offeree and therefore shall be subject to the
provisions of this Article 4.3 hereof.
4.3.7 PERMITTED TRANSFER
Notwithstanding the forgoing provisions, the Parties hereby agree
and commit to the following:
Each Party is hereby allowed to transfer its Interests in the
Company to its Affiliates ("PERMITTED TRANSFER"). The other
Parties hereby consent to such Permitted Transfer and its
directors of the Board of Directors shall be deemed to have
consented unanimously to such Permitted Transfer. It shall be
further deemed that all of the Parties and all directors of the
Board have unanimously consented to such Permitted Transfer (or
if a separate Board resolution of the Company is required by PRC
law to approve the Permitted Transfer, each Party shall cause the
directors it appointed to the Board to vote in favour of the
Permitted Transfer). In case any other Party or the Company fails
to produce necessary supporting documents for such transfer for
purpose of change of registration at the Examination and Approval
Authority, the Offeror shall be entitled to apply to the
Examination and Approval Authority for change of shareholder by
presentation of this provision.
4.3.8 When one Party assigns all or part of its equity interest in the
Company, such Party shall return to the Company its investment
certificate issued by the Company. If part of the equity interest
is assigned, after such Party returns its investment certificate
to the Company, a new investment certificate shall be issued by
the Company to such Party identifying its capital contribution
after the equity transfer.
4.3.9 Notwithstanding the assignment of the equity interest in the
Company pursuant to this Article 4, the Parties agree that
assignment of the equity interest in the Company will not relieve
them of their confidentiality obligations under Article 7.
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4.3.10 COMPULSORY TRANSFER
In the following circumstances, the other Parties shall be
entitled to force such Party falling in below situations to sell
its Interests in the Company to them or other purchasers they
respectively selected and approved by the Board of Directors of
the Company in proportion to their share equity at that time:
4.3.10.1 A material breach of this Agreement has occurred and
such breach is not cured by the breaching Party within 30
(thirty) days after receipt of written notice of the breach
from the non-breaching Party, provided however that the
non-breaching Party does not wish to dissolve and liquidate
the Company.
4.3.10.2 Any Party becomes bankrupt, or is the subject of
proceedings for liquidation or dissolution, or ceases to
carry on business or becomes unable to pay its debts as they
come due, provided however that the other Parties do not
wish to dissolve and liquidate the Company.
5. RESPONSIBILITIES OF THE PARTIES
TEFRON, LANGSHA and ITM shall be respectively responsible for the following
matters:
5.1 RESPONSIBILITIES OF TEFRON
Among its responsibilities under this Agreement, TEFRON shall:
5.1.1 make its respective contribution to the registered capital of
the Company according to the terms and conditions of Article 4.2
above.
5.1.2 participate and cooperate in the design and development of new
products.
5.1.3 provide the Company with managerial consultation.
5.1.4 assist the Company in installation, testing and operation of the
equipment, which was provided to the Company by TEFRON pursuant
to Article 4.2 above.
5.2 RESPONSIBILITIES OF LANGSHA
Among its responsibilities under this Agreement, LANGSHA shall:
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5.2.1 make its respective contribution to the registered capital of
the Company according to the terms and conditions of Article 4.2
above.
5.2.2 to the extent requested by TEFRON and/or ITM and for as long as
such request remains in full force and effect, properly handle
the matters relating to the establishment of the Company, in
accordance with the relevant laws and regulations of the PRC,
such as the applications for approvals, registration and business
license and other formalities relating to the relevant Chinese
governmental authorities.
5.2.3 assist the Company in selling and marketing its products in
domestic markets, i.e. in the PRC and in Asia for the purpose of
achieving its Annual Production Volume and Annual Profitability
Forecast and enhance the overall image and position of the
Company in local markets.
5.2.4 make its best efforts in assisting the Company to obtain
favorable local regulatory and financial support along with
incentives and tax preferential treatment.
5.2.5 assist the foreign personnel or representatives of TEFRON and
ITM in obtaining all necessary PRC entry visas, travel documents
and work permits; and
5.2.6 upon the occurrence of an Event of Dissolution, assist in
assuring the prompt dissolution and liquidation of the Company
pursuant to the terms hereof and the repatriation of any funds
and/or other contributions (including the Machines) invested in
the Company and any and all profits accrued thereon out of the
PRC.
5.2.7 handle customs clearance for importing equipment, raw materials
and machinery imported by the Company and arranging the
transportation to the Company's factory premises.
5.2.8 assist the Company in obtaining preferred rights of land use for
its operations from the Land Resources Administrative Bureau (all
in good terms for the Company), as well as assisting the Company
in negotiating the design and construction of buildings and
facilities required by the Company.
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5.2.9 arrange necessary provision of water, electricity,
telecommunications and all other required installations.
5.2.10 assist the Company in locating suitable local workers and other
staff needed by the Company, all in reasonable and profitable
terms to the Company.
5.2.11 perform professional maintenance activities and adjustment of
equipment, at a reasonable low costs to the Company.
5.3 RESPONSIBILITIES OF ITM
Among its responsibilities under this Agreement, ITM shall:
5.3.1 make the payment of its contribution to the registered capital
of the Company according to the terms and conditions of Article
4.2 above.
5.3.2 assist the Company in selling and marketing its products in Asia
for the purpose of achieving its Annual Production Volume and
Annual Profitability Forecast, as further provided in SCHEDULES
3.2.2 A AND 3.2.2 (B) and enhance the overall image and position
of the Company in Asia.
5.3.3 provide information on market trends in raw materials and
products, and consulting on technology.
5.3.4 assist the Company in Import-export procedures, and cooperate in
product distribution.
5.3.5 continuously use its contacts and acquaintance with the Chinese
and Asian market in order to enhance the Company's business and
protect the Company's rights in the PRC and in Asia.
5.4 Notwithstanding the above agreements on the allocation of
responsibilities, all fees and costs in relation to the establishment
of the JV (other than the professional fee each Party pay to their
respective advisor for the negotiation of the JV Contract and Articles
of Association of the Company) shall be borne by the Company. The
Company shall reimburse each Party for such expenses upon receipt of
the supporting documents, which is in compliance with accounting rules
of the PRC.
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5.5 FINANCING
Notwithstanding the terms and conditions hereof, the Parties agree
that the Company shall, in principle, be responsible for obtaining its
own financing from third party lenders to operate its business, fund
capital expenditures and maintain working capital. If the Company
cannot obtain such funds, then, upon the adoption of the resolution of
the Board in simple majority, LANGSHA shall assist the Company to
obtain such financing, and/or shall make loans to the Company, on a
non-recourse basis to TEFRON and ITM.
Further agreement between the Company and LANGSHA shall be reached
with regard to the above issue after the establishment of the Company.
6. PRODUCT EXPORT AND MARKETING, TRADEMARKS AND NON- COMPETITION
6.1 PRODUCT EXPORT AND MARKETING
The Company shall market its own products under its own responsibility
and judgment within the People's Republic of China and Asia.
6.2 SALE OF PRODUCTS
Notwithstanding anything to the contrary, the Parties agree that the
products manufactured or produced by the Company shall, if exported to
the Japanese market, be sold and/or exported through ITM to the
Japanese market where ITM has the exclusive right to purchase from the
Company and to sell the products during the Term in Japan. In
obtaining the exclusive distribution right mentioned above in the
Japanese market, ITM shall submit business target for the sell of
products of the Company in Japan to the Company which is subject to
the simple majority approval of the BOD of the Company. Failure to
meet the approved business target by ITM will enable the Company to
appoint another distributor for the distribution of products of the
Company in the Japanese market.
Further agreement between the Company and ITM shall be reached with
regard to the above issue after the establishment of the Company.
6.3 TRADEMARKS
6.3.1 The Company's products will be marketed under the name "LANGSHA
TEFRON SEAMLESS" in English and _________ in Chinese (the:
"Company's Trademarks"). The Company's Trademarks shall be
registered in the name of the Company in accordance with the
Trademark Law of the PRC.
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After the termination of the Company for any reason, the
trademark "LANGSHA TEFRON SEAMLESS" or any other trademarks owned
by the Company shall be transferred to TEFRON free of charge.
6.3.2 For the avoidance of any doubt it is hereby agreed that with the
exception of the Company's Trademarks, as specifically provided
above, the Company shall not be entitled to manufacture, market
and/or sell products under the name "TEFRON" in any variation
whatsoever which will remain the property of TEFRON and therefore
will be registered in the name of TEFRON Ltd. in accordance with
the Trademark Law of the PRC.
LANGSHA, ITM or the Company shall not at any time during the Term
of this Agreement nor at any time thereafter reserve or register
or cause the registration or reservation of any business or
company name similar to or incorporating the words TEFRON or any
Chinese characters for these words or reserve or register or
cause the registration or reservation of any trademarks similar
to or incorporating the words TEFRON in the People's Republic of
China or elsewhere.
Violation of the above obligation shall be deemed material breach
of this Agreement and the defaulting party shall pay damage at
the amount of [USD Five Million] to TEFRON within forty-five days
upon receipt of TEFRON's written notice for the breach.
LANGSHA shall provide TEFRON with all the necessary assistance
required for the successful registration of its trademarks.
TEFRON can sign a separate agreement regarding on it with TEFRON
when it deems necessary.
6.4 NON-COMPETITION
6.4.1 It is hereby agreed that during the Term LANGSHA's and ITM's
direct and indirect seamless activities shall be carried out
fully and exclusively by the Company, with the exception only of
the following activities, provided however that such limitations
will apply to ITM only and not its affiliates:
6.4.1.1 ITM's existing sale activity of Raw Materials as further
provided in SCHEDULE 6.4.1.1
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6.4.1.2 Langsha's existing sale activity of the seamless intimate
apparel products listed in SCHEDULE 6.4.1.2 hereto to its
customers listed in SCHEDULE 6.4.2 hereto.
Without derogating from the aforesaid, during the Term and for 7
(seven) years thereafter (the RESTRICTED PERIOD FOR BUSINESS),
LANGSHA and ITM shall not be involved, directly or indirectly in
any activity, which is competitive with the Company's Business
Scope and TEFRON shall act in accordance with its obligations in
the Letter of Undertaking, a copy of which its attached hereto as
SCHEDULE 6.4.1.
6.4.2 Throughout the Term and for 5 years after the expiration of the
Term or the termination of this Agreement (the RESTRICTED PERIOD
FOR CONTACT) for any reason whatsoever: (I) LANGSHA shall not
solicit approach, directly or indirectly, any of TEFRON's
customers listed in SCHEDULE 6.4.2A, as updated from time to
time, nor sell or offer to sale or manufacture, directly or
indirectly, any goods or services for any of the abovementioned
TEFRON's customers, without prior written approval of TEFRON,
except for Raw Materials and seamed socks and hosiery that
LANGSHA already sells to the customers listed in SCHEDULE 6.4.2.B
AND as specifically indicated therein; and (II) ITM shall not
solicit approach, directly or indirectly, any of TEFRON's
customers listed in SCHEDULE 6.4.2A, as updated from time to
time, nor sell or offer to sale or manufacture, directly or
indirectly, any seamless products for any of the abovementioned
TEFRON's customers, without prior written approval of TEFRON,
provided however that such limitations will apply to ITM only and
not to its Affiliates; and (III) TEFRON shall not approach,
directly or indirectly, any of LANGSHA's customers listed in
SCHEDULE 6.4.2B and ITM's customers listed in SCHEDULE 6.4.2C ,
as updated from time to time, nor sell or offer to sale or
manufacture, directly or indirectly, any goods or services
(except for Raw Materials and apparel that TEFRON already sells
to the customers listed in SCHEDULE 6.4.2A) for any of the
abovementioned LANGSHA's customers and ITM's customers, without
prior written approval of LANGSHA and/or ITM.
6.4.3 Articles 6.4.1 and Article 6.4.2 above shall survive the
termination of this Agreement as well as the dissolution and/or
liquidation and/or termination of the Company.
6.4.4 Violation of the above-mentioned obligation shall be deemed
material breach of this Agreement.
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7. CONFIDENTIALITY
7.1 LANGSHA and ITM hereby undertake towards TEFRON as follows:
7.1.1 to strictly maintain the confidentiality of, and not to
disclose, any and all Confidential Information received by them.
7.1.2 to use the Confidential Information or any part thereof only for
the purposes of this Agreement and for no other purpose
whatsoever.
7.1.3 to procure that the Company will permit access to the
Confidential Information only to those employees, Directors,
officers, advisers or agents to whom disclosure is necessary for
the Company to fulfill its purposes and objectives hereunder and
who shall sign a written undertaking in form satisfactory to
TEFRON to keep the Confidential Information in strict confidence
and to use the same only for the purposes of this Agreement. For
the removal of any doubt, the execution by an officer or employee
on such undertaking shall not derogate from LANGSHA and ITM
obligations to maintain the Confidential Information in full
confidence and procure that the Company or its employees do not
reveal such Confidential Information to any third parties.
7.2 Nothing herein contained shall be interpreted as: (I) requiring the
disclosure of any Confidential Information; (II) granting of any
express or implied license or other right under any patent, copyright,
right to trade secretes or any other intellectual property right or
other right of TEFRON relating to the Confidential Information; (III)
restricting, limiting or preventing TEFRON from disclosing to third
parties or otherwise dealing with the Confidential Information and its
technology as it deems fit.
7.3 Immediately upon the termination of this Agreement for any reason
whatsoever, the Parties and the Company will immediately cease all use
of the Confidential Information, and will promptly return to TEFRON
all forms of Confidential Information and any and all copies or
derivatives thereof (including notes or other write-ups thereof made
by the Company). The obligations of the Parties and the Company
regarding non-disclosure and confidentiality pursuant to this Article
7 will remain in full force indefinitely.
7.4 Violation of the above clause shall constitute material breach of this
Article and the defaulting party shall pay damage at the amount of
[USD Six Million] to the non-defaulting party.
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8. BOARD OF DIRECTORS
8.1 FORMATION AND ESTABLISHMENT OF THE BOARD
The Board shall be established on the Establishment Date. Unless
otherwise agreed by the Parties, the first meeting of the Board shall
be held within thirty (30) days after the Establishment Date.
8.2 COMPOSITION OF THE BOARD
8.2.1 The Board of Directors shall consist of 5 (five) Directors, of
which 3 (three) Directors shall be appointed by TEFRON, 1 (one)
Director shall be appointed by LANGSHA and 1 (one) Director shall
be appointed by ITM.
8.2.2 The Chairman of the Board, who shall also be the Company's legal
representative, shall be appointed by TEFRON and the Vice
Chairman of the Board shall be appointed by LANGSHA.
8.2.3 As the legal representative of the Company, the Chairman of the
Board shall have the authority to execute and deliver, on behalf
of the Company, all agreements, contracts and other documents
binding upon the Company, except as otherwise provided in this
Agreement. If the Chairman is unable or unavailable to perform
his/her duties, the Board shall designate and authorize another
Director to perform such duties. Neither the Chairman, nor such
Director designated and authorized by the Board shall be
empowered to act on behalf of the Company beyond the scope of the
express authorization of the Board.
8.2.4 Each Director shall be entitled to one (1) vote. Neither the
Chairman of the Board nor the Vice Chairman of the Board shall be
entitled to an additional or casting vote. While serving in such
position, all Directors shall owe a duty of loyalty to the
Company, shall act to the Company's benefit and best interest and
shall act in good faith in performing their duties and
responsibilities.
8.3 TERM OF APPOINTMENT
8.3.1 Each individual serving in the capacity of Chairman, Vice
Chairman or Director shall hold office for a term of 4 (four)
years and each shall be eligible for consecutive terms of office
upon reappointment by the original appointing Party. Any vacancy
created in the Board shall be filled by the Party, which
originally appointed the absent Director causing the vacancy.
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8.3.2 Any Party may at any time remove for any reason any or all of
the individuals appointed by such Party as a Director or
Directors and appoint in lieu thereof another individual or
individuals to serve the remainder of the relevant term(s). Any
Party removing or appointing a Director shall promptly notify the
other Parties in writing of such removal and appointment in
advance.
8.3.4 The Parties shall cooperate to register any change in the
composition of the Board with the relevant authorities in the
PRC.
8.4 AUTHORITY
The Board of Directors shall monitor the CEO's performance of duties
and shall be the highest decision-making body responsible for all
important matters in the Company. Such primary matters shall include,
without limitation, the followings:
8.4.1 Current, mid-term and long-term operational planning (scheduling
of production, planning for equipment, profitability, financing,
etc.) and the budget estimation and approval required for these
purposes.
8.4.2 Quarterly business reports, approval of earnings distribution
proposals.
8.4.3 Creating restrictions or limitations on borrowing loans.
8.4.4 Establishment and revision of major Company policies and rules.
8.4.5 System of major Company policies and rules.
8.4.6 Transfer of major assets.
8.4.7 Entering, altering and renewal of factory rental contracts.
8.4.8 Distribution of profit.
8.4.9 Create any mortgage or charge on any part of the undertaking
property or assets of the Company or any subsidiary of the
Company.
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8.4.10 Enter into any contract or arrangement with any shareholder or
Director or any person who is a connected person or Affiliated
Company of a shareholder or Director or enter into any contract
or arrangement in which any such person or Affiliated Company is
interested, whether directly or indirectly.
8.4.11 All other matters, which could have a significant impact on
Company operations.
8.5 MEETING OF THE BOARD; QUORUM
8.5.1 The Board of Directors shall convene a minimum of four (4)
meetings a year. The meetings shall be called and presided over
by the Chairman of the Board. If the Chairman is unable,
unavailable or fails to call or preside over a meeting, the
meeting thereof shall be called and presided over by the Vice
Chairman. If the Vice Chairman is unable, unavailable or fails to
call or preside over a meeting, the meeting shall be called and
presided over by a Director jointly recommended by half or more
than half of the Directors. Each meeting shall be called by at
least 15 (fifteen) working days prior notice. Such notice must
specify the time and the place of a meeting as well as the issues
to be discussed. The notice shall be given to all the members of
the Board. The Chairman of the Board shall call an interim
meeting based on a request made by at least two Directors. If the
Chairman is unwilling, unable or unavailable to perform his/her
duties, the Board shall designate and authorize another Director
to perform such duties.
8.5.2 The attendance of not less than two thirds of the Directors
either in person or by proxy will constitute a quorum.
8.5.3 Each Director shall be entitled to appoint an alternate Director
to participate and vote in any Board meeting in his stead. The
alternate Director shall provide a written pro-forma attestation
issued by the Company certifying its right to serve as an
alternate Director.
8.5.4 A synopsis in English of the proceedings and resolutions passed
in meetings and a Chinese translation thereof shall be recorded
in the meeting minutes, which Directors present shall sign and
seal, and which shall be archived by the Company.
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8.6 VOTING AND ADOPTION OF BOARD RESOLUTIONS
8.6.1 Decisions of the Board shall be adopted by a majority vote,
provided that a quorum is present. Notwithstanding the aforesaid,
in the following matters, the approval of all of the Board
members shall be required:
8.6.1.1 Amendments to the Articles of Association of the Company.
8.6.1.2 Termination or dissolution of the Company, provided that
upon the occurrence of any Event of Dissolution, such
consent shall be deemed granted by all Parties hereto.
8.6.1.3 Increase or decrease in the registered capital of the
Company.
8.6.1.4 Any merger or division of the Company.
8.6.2. If all Directors are in agreement, decisions may be taken in
writing by circulating documents containing the items in question
to each of the Directors, rather than by convening and conducting
a Board of Director meeting. The Board of Directors may conduct
meetings by any means of telecommunications, including video or
telephone conference, provided that all of the Directors
participating may hear each other simultaneously.
8.6.3 If upon any resolution there is a deadlock, another Board
meeting shall be held within 30 days following the previous Board
meeting. In the event that the subsequent Board meeting can not
reach any resolution, then the matter shall then be referred to
the chief executive officers of the parties to the Company. The
chief executive officers of the parties to the Company will
discuss the matter in good faith in order to resolve it.
9. BUSINESS MANAGEMENT ORGANIZATION
9.1 ESTABLISHMENT OF MANAGEMENT TEAM
9.1.1 The Board shall establish a management team ("MANAGEMENT TEAM"),
which shall be in charge of the day-to-day operations and
management of the Company. The Management Team shall be consisted
of one CEO, one CFO and department mangers.
9.1.2 The CEO shall be nominated by a mutual decision among TEFRON and
LANGSHA and ITM shall be engaged and removed following a decision
of the Board.
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9.1.3 The CFO shall be recommended, appointed and removed by TEFRON
following a decision of the Board. The CFO shall be in charge of
the financial and account management of the Company and shall be
accountable to the Board and CEO. Each of the financial
statements shall require the approval and signature of the CFO
and the CEO and the approval of the Board.
9.1.4 All other employees, including projects managers, shall be hired
and their employment shall be terminated by the CEO of the
Company, subject to the relevant decisions adopted from time to
time by the Board.
9.2 AUTHORITIES OF THE CEO
The responsibilities of the CEO shall be to carry out the decisions
made by the Board and to organize and direct the daily management of
the Company in accordance with the provisions of this Agreement. Such
responsibilities of the CEO shall include, without limitation:
9.2.1 routine operation of the Company within the scope of the
operational plans as approved by the Board of Directors.
9.2.2 preparation of an annual business report, earnings distribution
proposals, current, mid-term and long-term operational planning
(scheduling of production, planning for equipment, profitability,
financing, etc.) and submission to the Board of Directors
9.2.3 signing on routine business documents of the Company, within the
scope of the powers granted by the Board of Directors and the
Chairman, acting as the legal representative of the Company as
provided in Article 8.2.2.
9.2.4 preparation of monthly reports on business operations and
monthly accounting statements, which shall be delivered to each
of Parties hereto.
9.2.5 providing timely notifications to each of the Parties hereto
relating to any occurrence of events of significance.
9.2.6 presenting for the approval of the Board the organizational
structure of Company including its proposed appointments of
department mangers as well as their remuneration.
24
9.2.7 preparation of the annual budget of the Company for the approval
of the Board.
9.3 The Management Team shall assist the CEO in its abovementioned duties
and will manage the tasks assigned to it by the CEO.
9.4 The CEO may not hold managerial position at any other firm or
commercial organization in the PRC or abroad and shall not participate
in any way in competition of other economic organization against the
Company's activities.
11. PURCHASE OF EQUIPMENT AND RAW MATERIAL
The Company is authorized to determine whether it shall purchase needed
machinery and equipment, raw materials, fuel, accessories, transport
vehicles, and administrative supplies within the People's Republic of China
or from foreign sources. Notwithstanding the above it is hereby agreed that
raw materials for the Company shall be purchased through ITM, provided
however that such raw materials are timely supplied and offered for sale in
competitive market prices all in accordance with the Company's best
interest and needs and quality requirements.
12. LABOR MANAGEMENT
12.1 Policies on recruitment, hiring, dismissal, wages and salaries,
employment insurance, welfare, and worker incentive programs will be
established by the Board of Directors in conformity with the Labor Law
of People's Republic of China, the regulations on foreign investment
in the Jinhua City, Zhejiang Province labor management board and other
effective national and local labor regulations. The Company will
conclude individual labor contracts with workers and this document
will be submitted to the local labor management board.
12.2 The Board of Directors will discuss and decide upon matters relating
to hiring of other top management except the CEO and CFO, and
compensation of the CEO, CFO and other top management, social
insurance, welfare and the standard of travel expense,
12.3 The Company shall directly hire office staff and factory workers
through a contract system, while observing the relevant laws and
regulations of the People's Republic of China, and shall compensate
employees through a direct payment system, provided that wages,
allowances and bonuses for individual staff and workers shall depend
upon their ability, performance, experience and general attitude.
25
12.4 The CEO shall engage office staff and factory workers directly while
observing the hiring policies established by the Board of Directors.
Contracts for new hires shall contain a fixed probation period, at the
conclusion of which the CEO shall determine whether or not to formally
hire the employee. Upon the CEO's request LANGSHA shall provide the
CEO with all the assistance necessary for the purpose of locating
compatible factory workers and personnel.
12.5 The Company's employees shall be entitled to establish the labor union
organization (hereunder referred to as "LABOR UNION") in accordance
with the LABOR UNION LAW OF THE PEOPLE'S REPUBLIC OF CHINA and the
ARTICLES OF ASSOCIATION OF THE LABOR UNION OF CHINA. Based on the
relevant PRC laws, the Company shall pay each month two percent (2%)
of the total amount of the wages to be received by its staff and
workers as the Labor Union fund
13. TAXATION, FINANCIAL AFFAIRS AND FINANCIAL AUDITING
13.1 Employees of the Company shall contribute individual income taxes in
conformity with the "Individual Income Tax Law of the People's
Republic of China." Staff members and employees of the Company shall
be responsible for paying their own individual income tax. in
accordance with the relevant Chinese laws and regulations. After
paying their taxes, the expatriate member of the Company shall be
entitled to remit their money abroad.
13.2 Pursuant to relevant China laws and regulations, the Company shall
accumulate savings in three areas, namely for reserve funding,
business development, and promotion of employee welfare. Each year the
Board of Directors shall determine the annual rate of savings based
upon Company performance, provided however that such rate of savings
shall be at the minimum amount as mandatory required by law..
13.3 The fiscal year of the Company shall be from January 1 to December 31
of each year. All vouchers, receipts, statistical statements, reports
and account books shall be written in both Chinese and English.
13.4 Monthly, quarterly and annual financial reports shall be prepared in
Chinese and in English and shall be submitted to the Board. Financial
statements shall include amounts in both RMB and US dollars. The
financial reports shall include Profit and loss statement, balance
sheet and cash flow statement. The financial and accounting affairs of
the Company shall be conducted in accordance with: (I) the ENTERPRISE
ACCOUNTING SYSTEM OF THE PRC, (II) this Agreement, and (III) the GAAP.
The Parties shall cause the Company to maintain its books and records
and to prepare financial statements. Furthermore, the financial and
accounting affairs of the Company shall be conducted in a manner
sufficient to satisfy the financial and tax reporting requirements of
each Party. To enable the Parties to satisfy such requirements, the
Company shall provide to the Parties copies of all such documents as
requested by the Parties and access to such materials.
26
13.5 The Company shall engage an accountant registered in China, agreed by
all parties and familiar with the GAAP to conduct its annual financial
audit and examination and to provide a report, which would be
submitted to the CEO and the Board. In the event that either Party
considers it necessary, a foreign auditor may be engaged to conduct a
separate annual financial audit on such Party's account.
13.6 Within the first two-month period of every fiscal year, the CEO shall
organize the preparation of a balance sheet and a profit and loss
statement with respect to the preceding year as well as an earnings
distribution proposal, and submit them to the Board for approval after
being examined and signed by the auditor. Quarterly statements will be
submitted up to 30 days after quarter end in the same manner.
13.7 All disbursements shall be signed by the CEO or his authorized
personnel. Any disbursements or the equivalent of over US$ 5,000 shall
also require the signature of the Chairman of the Board.
14. FOREIGN CURRENCY CONTROL, BANK ACCOUNTS AND OPERATING EXPENSES
14.1 All of the Company's foreign currency operations shall be in
compliance with China's foreign exchange laws and regulations and all
other related regulations. The Company shall remit the profit due to
TEFRON to a bank account designated by TEFRON in accordance with the
foreign exchange laws and regulations.
14.2 The Company shall open foreign exchange deposit accounts and RMB
accounts as designated by the Board. All foreign exchange receipts of
the Company (including any loans from foreign banks, export revenues
etc.) shall be deposited in the Company's foreign exchange account.
All on-going foreign exchange disbursements (including imports of raw
material, transportation expenses, principal and interest repayments
for foreign bank loans, overseas traveling expenses, after tax profits
distributed to TEFRON, salaries of foreign staff etc.) shall be paid
through such foreign exchange account.
14.3 Based on its business needs and upon the approval of the local
Administration of Foreign Exchange Control, the Company shall be
entitled to open foreign exchange deposit accounts in banks outside of
the PRC or in Hong Kong. The Company shall also be entitled to borrow
foreign exchange funds from banks abroad or in Hong Kong, provided
that the Company shall file such matters with the local Administration
of Foreign Exchange Control.
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14.4 RMB shall generally be used in transactions between the Company and
Chinese entitles, enterprises or individuals, unless otherwise
approved by the local Administration of Foreign Exchange Control or
were relevant government regulations permit the Company to use foreign
exchange in such transactions. Payments for all imported products and
salaries of foreign staff shall be paid in US dollars.
14.5 The Parties agree that the Operating Expenses of the Company, as
approved by the Board, shall be borne by the Company. The Parties
agree to keep the Operating Expenses at the minimum required in order
to enable the Company to fulfill its Objectives. It is also agreed
that all costs and expenses associated with the establishment of the
Company including, without limitation any costs and expenses relating
to the transfer of the Machines to the Company shall be borne by the
Company.
15. DURATION
The duration of the Company shall be 50 (fifty) years commencing on the
Establishment Date (the: "TERM"). The Parties may agree in writing, at any
time, to extend the Term.
16. DISSOLUTION
16.1 EVENTS OF DISSOLUTION
The Company shall be dissolved in accordance with and upon expiration
of the Term or any extension thereof. Without derogating from the
aforesaid and unless the Parties mutually agreed otherwise in writing,
this Agreement shall be terminated and the Company shall be dissolved
prior to the expiration of the Term and any extension thereof in any
of the following events ("EVENTS OF DISSOLUTION"):
16.1.1 The Establishment Date does not occur within 6 (six) months
after the date hereof, provided however that at least one Party
wishes to stop the establishment process of the Company;
16.1.2 A material breach of this Agreement has occurred and such
breach is not cured by the breaching Party within 30 (thirty)
days after receipt of written notice of the breach from the
non-breaching Party, provided however that the non-breaching
Party wishes to dissolve and liquidate the Company or when any of
the Parties to this agreement is in default of its obligations as
stipulated by the Agreement, making continued operation of the
Company impossible.
28
16.1.3 The Company becomes bankrupt, or is the subject of proceedings
for liquidation or dissolution, or ceases to carry on business or
becomes unable to pay its debts as they come due;
16.1.4 Any Party becomes bankrupt, or is the subject of proceedings
for liquidation or dissolution, or ceases to carry on business or
becomes unable to pay its debts as they come due, provided
however that the other Parties wish to dissolve and liquidate the
Company;
16.1.5 In the event that the failure in total or partial performance
of this Agreement caused by any Event of Force Majeure continues
for more than 90 (ninety) days, provided however that at least
one Party (other than the non performing Party) wishes to
dissolve and liquidate the Company;
16.1.6 In the event that the Company's losses amount to 80% (eighty
percent) or more of its Registered Capital, provided however
that: (I) the Parties could not reach within 30 days a mutual
agreement with respect to the additional financing of the Company
and (II) at least one Party wishes to dissolve and liquidate the
Company.
Without derogating from the aforesaid, it is hereby agreed that the
Company shall be dissolved pursuant to a demand of TEFRON provided
however that any new law or regulation, or any new interpretation of
existing law or regulation, is put into effect which (I) materially
and adversely affects the profitability of the Company and/or TEFRON;
(II) materially or severely limits or prevents the repatriation of any
funds invested in the Company and all profits accrued thereon out of
the PRC. Upon TEFRON's decision any of the aforementioned events shall
be deemed as an Event of Dissolution.
16.2 DISSOLUTION PROCEDURE
16.2.1 Upon the occurrence of an Event of Dissolution and following
the delivery of a written request from one Party to the others,
the Parties shall act in good faith, take all the necessary
actions, submit all the necessary filings and fully cooperate for
the purpose of dissolving and liquidating the Company.
29
16.2.2 The Chairman of the Board shall convene a Board meeting within
30 (thirty) of the occurrence of any Event of Dissolution. The
Directors of the Company shall attend the meeting in person or by
proxy. After the approval of the dissolution of the Company by
the Board and upon approval of the dissolution of the Company by
the relevant Chinese authorities, the dissolution and liquidation
of the Company shall be handled in accordance with Article 17
hereof.
16.3 ESCROW
Promptly after the execution hereof and prior to making any
contribution or payment hereunder, each Party and all of the Directors
shall deposit a duly signed power of attorney with the Escrow Agent
enabling the other Party (the: "BENEFICIARY") to carry out, on its
behalf, all necessary actions and sign and submit all the necessary
documents for the dissolution and liquidation of the Company (the:
"POWER OF ATTORNEY"). The Escrow Agent shall deliver the Power of
Attorney to a Beneficiary, provided that such Beneficiary has
furnished the Escrow Agent with an arbitrational judgment, pursuant to
Article 24 below, ruling that the Company shall be dissolved. For the
avoidance of any doubt it is hereby clarified that the abovementioned
does not derogate from any right granted to the Parties under any
applicable law. For the avoidance of any doubt, in the event that for
any reason whatsoever any new person or entity is appointed as
Director of the Company, such Party appointing such new Director shall
procure that the new Director appointed by it will sign a Power of
Attorney in accordance with to this Article 16.3.
17. LIQUIDATION AND TERMINATION
17.1 LIQUIDATION
Upon approval by the relevant Chinese Authority to dissolve the
Company, the Parties shall cause the Directors appointed by them to
adopt a resolution to liquidate the Company, formulate liquidation
procedures in accordance with applicable PRC laws and regulations,
establish a liquidation committee, and submit the Board's proposals
regarding liquidation to the government authority in charge for
approval or verification, if required.
17.2 SALES OF ASSETS
17.2.1 Upon liquidation of the Company by the Parties, all assets of
the Company shall be liquidated and sold, at market prices (to
the extent possible), first to either Party which wishes to
purchase the assets. If two or more Parties wish to purchase the
assets, they will be entitled to purchase the amount of the
assets in proportion to their respective then actual Interests in
the Company. If neither Party wishes to purchase the assets, the
Company may sell the assets to one or more third parties. All
such sales shall be conducted in a manner so as to maximize the
return to the Company.
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17.2.2 All assets shall be used to settle outstanding liabilities and
expenses, and any remaining balance shall be distributed to each
Party in proportion to their then respective fully paid Interests
in the Company.
17.2.3 Notwithstanding anything to the contrary, it is agreed that
TEFRON shall have a right of first refusal to repurchase the
Machines, in whole or in part, by paying an amount equal the
higher between: (I) the price offered by any third party(s),
including the Parties hereto (other than TEFRON) or (II) the
proportionate original value of such machines (calculated
pursuant to Article 4.1.1 above) LESS depreciation thereof, as
determined in the Company's books.
17.3 TERMINATION
After the liquidation of the Company is completed and the Company has
been effectively dissolved, the Parties shall terminate this Agreement
by a written document executed by their duly authorized
representatives or their beneficiaries.
18. INSURANCE
In conformity with the applicable laws and regulations of the People's
Republic of China, the Company shall obtain insurance coverage. The
insurance coverage shall be provided by insurers within the People's
Republic of China, provided however that the identity of such insurer as
well as the types, value and duration of insurance shall be subject to the
decision of the Board.
19. AMENDMENTS
Amendments or revisions to this Agreement must bear the signatures of all
the Parties hereto and shall be submitted to the relevant examination
authority. Such amendments and revisions shall become effective upon their
approval.
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20. BREACH OF CONTRACT
20.1 Failure by one of the Parties to perform in accordance with the
stipulations of this Agreement or a serious breach of contract leading
to the Company's inability to continue to operate or to fulfill its
managerial objectives, or any of the above causes shall be recognized
as unilaterally terminating the Agreement, provided however that a
prior written notice of at least 30 days was given to the breaching
Party.
20.2 Termination of this Agreement following a breach shall be without
prejudice to any rights or remedies accrued to either Party prior to
such termination. The non-breaching Parties shall be entitled to seek
recognition by the examination authority of termination of the
Agreement, pursuant to the provisions of this Agreement.
21. FORCE MAJEURE
21.1 If any Party is prevented from performing any of its obligations under
this Agreement due to an Event of Force Majeure, the time for
performance of such obligations under this Agreement shall be extended
by a period equal to the period of delay caused by such Event of Force
Majeure. A Party claiming inability to perform due to an Event of
Force Majeure shall take appropriate measures to minimize or remove
the effects of the Event of Force Majeure and, within the shortest
possible time, attempt to resume performance of the obligation(s)
affected by the Event of Force Majeure.
21.2 The affected Party shall immediately notify the other Party of the
occurrence of any Event of Force Majeure and shall provide available
evidence thereof. Should the delay caused by any Event of Force
Majeure continue for more than 90 (ninety) days, either Party may
initiate the termination of this Agreement and the dissolution of the
Company pursuant to Article 17 hereof.
22. APPLICABLE LAW
22.1 The formation and the registration of the Company in China and the
operation of the Company in China shall be governed by the relevant
officially promulgated laws, regulations, measures and rules of the
PRC.
22.2 The formation, validity, interpretation, execution, amendment and
termination of this Agreement shall be governed by the published laws
and regulations of PRC.
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23. SETTLEMENT OF DISPUTES
23.1 Any dispute arising from, out of or in connection with this Agreement
shall be first settled through friendly consultations between the
Parties. Such consultations shall begin immediately after one Party
has delivered to the other Parties written request for such
consultation. If within thirty (30) days following the date on which
such notice is given, the dispute was not settled through
consultations, the dispute shall be conducted in Singapore under the
Arbitration Institute of Singapore International Arbitration Center
(the: "ARBITRATION INSTITUTE") in accordance with its arbitration
rules in effect on the date on which the application for arbitration
is submitted.
23.2 One arbitrator shall be elected in mutual consent of the Parties. In
the event that the Parties do not reach mutual agreement with respect
to the identity of the arbitrator, such arbitrator shall be chosen by
the Arbitration Institute. The arbitration proceedings shall be
conducted for no more than 30 (thirty) days.
23.3 The arbitral award shall be final and binding upon the Parties, not
subject to any appeal, and shall deal with the question of costs of
arbitration and all matters related thereto.
23.4 Judgment upon the enforcement of award rendered by the arbitration may
be entered in any court having jurisdiction, or application may be
made to such court for a judicial recognition of the award or any
order of enforcement thereof.
23.5 During the period when a dispute is being resolved, the Parties shall
in all other respects continue their implementation of this Agreement.
24. LANGUAGE
This agreement shall be executed in three languages: English, Chinese and
Japanese. All language versions shall be equally valid.
25. REPRESENTATIONS AND WARRANTIES OF THE PARTIES
25.1 REPRESENTATIONS AND WARRANTIES OF TEFRON
TEFRON hereby represents and warrants towards LANGSHA and ITM as
follows:
25.1.1 it is a corporation duly formed and validly existing under the
laws of the State of Israel and is in compliance with all
conditions required to maintain its status as a company under
these laws;
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25.1.2 it has delivered to LANGSHA and ITM, a copy of certificate of
incorporation evidencing its due formation;
25.2 REPRESENTATIONS AND WARRANTIES OF LANGSHA
LANGSHA hereby represents and warrants towards TEFRON and ITM as
follows:
25.2.1 it is a company duly established and validly existing under the
laws of the PRC, and is in compliance with all conditions
required to maintain its status as a company under the laws of
the PRC.
25.2.2 it has submitted to TEFRON and ITM a true and complete copy of
its current business license bearing a current annual inspection
seal from the relevant governmental authority in the PRC;
25.2.3 It is one of the leading companies in the Chinese Textile Cut &
Sew industry having an outstanding experience and strong
distribution network and brand name recognition in the PRC as
well as good access to domestic information and local networks in
the PRC. It well understands the Chinese business environment; it
is capable of helping the Company in meeting the Annual
Production Volume and the Annual Profitability Forecast achieving
large sales in the PRC. It is well acquainted with the Chinese
regulatory system and therefore is able to provide the Company
with favorable local regulatory and financial support along with
incentives and tax preferential treatment.
25.3 REPRESENTATIONS AND WARRANTIES OF ITM
ITM hereby represents and warrants towards LANGSHA and TEFRON as
follows:
25.3.1 It is a corporation duly formed and validly existing under the
laws of Hong Kong and is in compliance with all conditions
required to maintain its status as a company under these laws;
25.3.2 It has delivered to LANGSHA and TEFRON, a copy of certificate
of incorporation evidencing its due formation;
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25.4 MUTUAL REPRESENTATIONS AND WARRANTIES OF THE PARTIES
Each Party hereby represents and warrants towards the other Parties as
follows:
25.4.1 it has full power and authority to enter into this Agreement,
the transactions contemplated hereunder and to perform its
obligations hereunder. It has taken all appropriate and necessary
corporate actions to authorize its authorized representative to
execute and deliver this Agreement on its behalf.
25.4.2 It has obtained all consents, approvals and authorizations
necessary for the valid execution and delivery of this Agreement.
25.4.3 Its execution, delivery and performance of this Agreement will
not violate any of its charter documents, any of its other
agreement or obligation, or currently effective law, regulation
or decree that may be applicable to any aspect of this Agreement.
25.4.4 Upon the approval of this Agreement by the relevant PRC
Examination and Approval authority, this Agreement shall
constitute a legal, valid and binding obligation of such Party.
26. MISCELLANEOUS
26.1 SEVERABILITY
If any one or more of the provisions contained in this Agreement or
any document executed in connection herewith shall be invalid, illegal
or unenforceable in any respect under any applicable law, (I) the
validity, legality and enforceability of the remaining provisions
contained herein or therein shall not in any way be affected or
impaired and shall remain in full force and effect; and (II) the
invalid, illegal or unenforceable provision shall be replaced by a
provision that is valid, legal and enforceable and that comes closest
to expressing the intention of such invalid, illegal or unenforceable
provision.
26.2 ENTIRE AGREEMENT
This Agreement including all annexes and exhibits hereto constitutes
the entire agreement among the Parties with respect to the subject
matters set forth herein and supersedes all previous oral and written
discussions, negotiations, notes, memoranda, documents, agreements,
contracts, and communications of the Parties in respect of such
subject matters.
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26.3 NO WAIVER
Unless otherwise provided for, failure or delay on the part of any
Party to exercise any right, power or privilege under this Agreement
shall not operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege preclude further exercise
thereof or exercise of any other right, power or privilege. Any waiver
by a Party at any time of a breach of any term or provision of this
Agreement shall not be construed as a waiver by such Party of any
subsequent breach, its rights under such provision, or any of its
other rights hereunder.
26.4 NOTICES
Notices or other communications required to be given by any Party or
the Company pursuant to this Agreement shall be in writing. Such
notices or other communications may be delivered personally, sent by
registered airmail (postage prepaid), by a recognized courier service
or sent by facsimile transmission to the addresses of the other Party
or Parties set forth below. The dates on which such notices shall be
deemed to have been effectively given shall be determined as follows:
26.4.1 Notices given by personal delivery shall be deemed effectively
given on the date of personal delivery.
26.4.2 Notices given by registered airmail (postage prepaid) shall be
deemed effectively given on the fifteenth (15th) day after the
date on which they were mailed (as indicated by the postmark).
26.4.3 Notices given by courier shall be deemed effectively given on
the third (3rd) day after they were sent by recognized courier
service.
26.4.4 Notices given by facsimile transmission shall be deemed
effectively given on the first (1st) business day following the
date of transmission.
For the purpose of notices, the addresses of the Parties are as
follows:
IF TO TEFRON: Mr. Yos Shiran
TEFRON Ltd.
Industrial Center
Teradyon, Misgav,
20179, Israel
Tel:_____________
Fax: _____________
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With a copy to: Mr. Yaacov Yisraeli, Adv.
Shiboleth, Yisraeli, Roberts, Zisman & Co.
46 Montefiore Street
Tel Aviv 65201, Israel
Tel: + (972) 3-7103311
Fax: + (972) 3-7103322
IF TO LANGSHA: Mr./Mrs. ____________
LANGSHA Knitting Co., Ltd.
308 Jinfa Road, Yiwu City,
Zhejiang (economic development zone)
People's Republic of China
Tel:_____________
Fax: _____________
With a copy to: _________________
_________________
_________________
_________________
If to ITM: Mr./Mrs. ____________
Itochu Textile Materials (Asia) Ltd.
Suites 2304-6,
The Gateway Tower 2,
25-27, Canton Road
Tsim Sha Tsui, Kowloon,
Hong Kong, Japan
Tel:_____________
Fax: _____________
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With a copy to: _________________
_________________
_________________
_________________
Any Party may at any time change its address by notice in writing
delivered to the other Parties in accordance with the terms hereof.
26.5 ASSIGNMENT
The terms, conditions and obligations of this Agreement shall inure to
the benefit of and be binding upon the Parties hereto and their
respective permitted successors and assigns. Without the prior written
consent of the other Party hereto, a Party may not assign its rights,
duties or obligations hereunder or any part thereof to any other
person or entity.
Notwithstanding anything to the contrary, in light of the fact that
the tax planning of the transaction contemplated hereunder has not
been completed prior to the execution hereof, it is hereby agreed
that, TEFRON shall be entitled, at its sole discretion to assign its
rights hereunder, in whole or in part, to other legal entity(s) or
individual(s), provided however that such assignees agreed to the
terms, conditions, right and obligations hereunder.
26.6 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute
one and the same instrument.
26.7 ARTICLES OF ASSOCIATION
The articles of Association of the Company shall reflect the
provisions hereof and in any event of contradiction between this
Agreement and the Articles of Association, the provisions of this
Agreement shall prevail. The Articles of Association of the Company
shall be submitted to the Yiwu City, Zhejiang Bureau of Foreign Trade
& Economic Cooperation for approval.
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THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK - SIGNATURE PAGE FOLLOWS
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date set forth in the first paragraph hereof.
TEFRON CO., LTD. (ISRAEL)
By: /s/ Yosef Shiran
- --------------------
Name: YOSEF SHIRAN
Title: CHIEF EXECUTIVE OFFICER, TEFRON LTD.
/s/ Asaf Alperovitz
- -------------------
Name: ASAF ALPEROVITZ
Title: CHIEF FINANCIAL OFFICER, TEFRON LTD.
LANGSHA KNITTING CO., LTD. ZHEJIANG (CHINA)
By /s/ Weng Rongdi
- ------------------
Name: WENG RONGDI
Title: CHAIRMAN OF THE BOARD
ITOCHU TEXTILE MATERIALS (ASIA) LTD
By /s/ Yoichi Ikezoe
- --------------------
Name: YOICHI IKEZOE
Title: EXECUTIVE DIR
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