Article 5         The organizational form of the EJV shall be that of a limited liability EJV.  Each of Party A and Party B, unless they otherwise expressly assume an additional liability, shall be liable for the liabilities and losses of the EJV only to the limit of their respective subscription to the registered capital of the EJV.  The after-tax profits of the EJV shall be distributed between Party A and Party B in the following ratio:  to Party A, fifty percent; and to Party B, fifty percent.

 

Chapter 4              Purpose, Business Scope and Scale of Production

 

Article 6         The purpose of the EJV will be to provide services to customers in China and around the world, through manufacture and sale of high-quality gas equipment and products (hereinafter, “the Products”), EJV’s use of the international brands of Party B and registration of its own trademarks.

 

Article 7         The business scope of the EJV will be to manufacture and sell high-quality gas equipment and products Without limiting the generality of the foregoing, the purpose of the EJV shall also include engaging in such other business activities as, in the discretion of the Board of Directors, are necessary or desirable in order to promote the successful marketing and sale of the Products, such as providing after-sales service.

 

Article 8         Recognizing that market conditions may change within China and in the international markets the EJV will initially target, each of Party A and Party B intends to cooperate so that the EJV can achieve an estimated initial annual scale of production of approximately 2,000,000 units of the Products.  The Parties recognize that production will fluctuate over time and in response to changing market conditions.

 

Chapter 5              Total Amount of Investment and Registered Capital

 

Article 9         The total amount of investment of the EJV shall be US$5,000,000.

 

Article l0        The registered capital of the EJV shall be US$3,000,000, of which Party A shall contribute fifty (50) percent and Party B shall contribute fifty (50) percent. Fifteen percent (15%) of the registered capital will be contributed within three months following the issuance of business license, and the remaining contribution shall be completed within two years after the issuance of business license.

 

Article 11       The contribution to registered capital to be made by Party A shall be in the form of cash equal to fifty (50) percent of the total registered capital amount.  The contribution to registered capital to be made by Party B shall be in the form of cash equal to fifty (50) percent of the total registered capital amount.

 

Article 12       The EJV may borrow up to US$2,000,000 additional funds required to carry on the business activities stipulated at Article 7 of this Contract and may mortgage

 

2

 

its assets in relation to such borrowing. Neither of Party A nor Party B shall be obligated to lend additional funds to the EJV or to guarantee loans made to the EJV by third parties or financial institutions.  Notwithstanding the foregoing, however, any Party making a loan or giving a guarantee in connection with debt assumed by the EJV, as aforesaid, shall be entitled to be paid interest and / or related transaction fees as if it were not a Party to this Contract and as if the transaction were a negotiated arm’s-length financing concluded with a third party.

 

Article 13       The registered capital of the EJV may be increased or decreased only with the unanimous written approval of the Board of Directors of the EJV and the approval of the Original Examination and Approval Authority.

 

If the Board of Directors of the EJV decides to change the registered capital of the EJV, each of Party A and Party B shall have the option - in order to maintain its original percentage ownership share in the registered capital of the EJV as changed - of changing its contribution to the registered capital in proportion to its original equity share.

 

Article 14       Where either of Party A and Party B wishes to assign ownership of all or part of its registered capital contribution to a third party, written consent must be obtained from the non-assigning Party and, promptly thereafter, written approval shall be sought and obtained from the Original Examination and Approval Authority.

 

Article 15       Where a Party (the “Transferring Party”) wishes to assign, sell or otherwise dispose of all or part of its registered capital contribution to the EJV to a third party (the “Transfer”), it shall give written notice (the “Transfer Notice”) to the other Party of: (i) its wish to make the Transfer; (ii) the interest it wishes to transfer; (iii) the terms and conditions of the Transfer; and (iv) the identity of the proposed transferee.  The other Party shall have a pre-emptive right to purchase the whole of such interest on the same terms and conditions as are specified in the Transfer Notice.

 

Article 16       Within thirty (30) days of actual delivery to it of the Transfer Notice, the other Party shall give the Transferring Party written notice of whether it will purchase the whole of the interest to be transferred.  If the other Party fails to give written notice to the Transferring Party within such thirty (30) day period that it will purchase such interest, it shall be deemed to have agreed to the Transfer specified in the Transfer Notice, and the Transferring Party may assign, sell or otherwise dispose of such interest to the proposed transferee on the terms and conditions set out in the Transfer Notice.  The Parties shall cause the directors of the EJV to unanimously agree to such assignment, sale or other disposition.  The Transferring Party shall provide the other Party with a duplicate of the executed written agreement concluded with the transferee within fourteen (14) days of execution of such agreement.

 

3

 

Chapter 6              Responsibilities of Each Party to the EJV

 

Article 17       Party A, in addition to its other responsibilities under this Contract, shall be responsible for:

 

(1) assisting the EJV to handle matters incidental to (i) submitting applications to, and obtaining the approval of this Contract from, the Original Examination and Approval Authority in Ningbo and / or any other Chinese government Original Examination and Approval Authority whose approval is required; (ii) completing registration formalities with the Administration for Industry and Commerce in Ningbo and obtaining a valid business license for the EJV; (iii) registering the EJV with relevant tax authorities and other relevant registrations authorities; and (iv) timely contributing the cash amount to the registered capital of the EJV as is indicated in Article 12 hereof;

 

(2) assisting the EJV, in cooperation with the relevant government departments in Ningbo, to handle registration procedures for the EJV’s land-use rights to the site or sites on which it carries on its business activities; and in handling all other necessary procedures to ensure that the EJV has the right to use such site or sites for operations throughout the full term (including any extensions) of its operation; and in making certain that the EJV is issued and receives, from the relevant government department(s) in Ningbo, a valid land-use rights certificate(s) for the site or sites on which it carries on its business activities;

 

(3) if requested in writing to do so, assisting the EJV in obtaining approval from the Original Examination and Approval Authority in Ningbo confirming that all equipment and components, and other machines and materials to be imported by the EJV for manufacturing purposes are exempt from PRC Customs duties and other import-related taxes; handling PRC Customs declaration procedures (including obtaining all relevant import and export licenses, to be handled in accordance with existing tax and duty stipulations of PRC) for imported raw materials, machinery, equipment, materials, supplies, and related documentation and exported products of the EJV; and arranging for the inland transportation of imports to the site or sites on which the EJV carries on its business activities; and in applying for other governmental approvals required for operation of the EJV in China;

 

(4) assisting the EJV in obtaining all required approvals, permits and certificates relating to the construction, renovation, ownership, management and maintenance of the site or sites on which the EJV carries on its business activities;

 

(5) if requested in writing to do so, assisting the EJV in obtaining, sourcing, purchasing or leasing within China adequate supplies of fuels, raw materials, local equipment, articles for office use, means of transportation, communication facilities etc.;

 

(6) assisting the EJV in contracting for, and obtaining, the fundamental facilities, services and utilities required by the EJV, such as, but not limited to, water, electricity, heating, sewage and waste treatment, telecommunications, and transportation and such as conform to specifications and conditions specified by the EJV in writing, on a continuous uninterrupted basis, in quantities sufficient to meet the full operational requirements of the EJV and in line with the practice of other comparable joint ventures in Ningbo, at a

 

4

 

favorable cost in Renminbi not higher than that paid by state-owned enterprises for similar facilities, services and utilities in the Ningbo area;

 

(7) assisting expatriate personnel of the EJV and of Party B in handling the necessary procedures for entry visas, work permits and traveling arrangements, and assisting in arranging appropriate housing acceptable to Party B for expatriate employees of the EJV, and hotel accommodations for Party B personnel visiting China on temporary assignment to the EJV;

 

(8) ensuring that management and technical personnel and workers hired and trained by the EJV are not transferred to Party A (or to subordinate companies wholly or partially owned by Party A) or, especially, without the consent of General Manager of the EJV, to competitors of Party B or the EJV operating in China;

 

(9) assisting the EJV in obtaining Renminbi and foreign exchange loans from financial institutions within China;

 

(10) assisting the EJV to apply for and obtain all possible tax reductions and exemptions and all other relevant investment incentives, privileges and preferences available to the EJV under Chinese law, including, if appropriate, designation of the EJV as a technologically advanced enterprise or a high-or-new technology enterprise;

 

(11) if requested in writing to do so, and thereafter on an on-going basis, assisting the EJV in applying for and being granted all necessary approvals, permits, certificates and licenses required in connection with safety, environmental matters (especially waste disposal) and other matters regulated by Chinese governmental authorities;

 

(12) generally assisting the EJV in establishing and maintaining good relations with the Ningbo local government authorities and Chinese companies able to contribute to the success of the EJV; and

 

(13) handling such as other matters as are entrusted to it by the EJV from time to time.

 

Article 18       Party B, in addition to its other responsibilities under this Contract, shall be responsible for:

 

(1) assisting the EJV to purchase or lease all necessary items of machinery, equipment, supplies, office appliances, means of transportation, communication facilities and other materials required by the EJV from outside China and necessary for successful operation of the EJV;

 

(2) assisting the EJV, at the EJV’s expense, in arranging with the manufacturers of the imported machinery and equipment referenced in (1), above, for the provision of necessary technical personnel during the installation and testing of such machinery and equipment during commissioning, if the Parties deem such assistance to be necessary;

 

5

 

(3) assisting the EJV in recruiting expatriate management and technical personnel;

 

(4) assisting the EJV in formulating standards for recruiting, evaluating and promoting both locally hired and expatriate staff and workers;

 

(5) assisting the EJV in arranging foreign visas and suitable accommodations for personnel and directors of the EJV who are required to travel outside China on legitimate business or other purposes of the EJV;

 

(6) timely contributing cash amount to the registered capital of the EJV as is indicated in Article 12 hereof; and

 

(7) handling such other matters as are entrusted to it by the EJV from time to time.

 

Chapter 7              Transfer of Technology

 

Article 19       Each of Party A and Party B agrees that a no-cost technology transfer agreement shall be signed between the EJV and Party B and that, pursuant to and in consequence of such agreement, Party B shall disclose and license to the EJV certain confidential and proprietary information and know-how necessary for the EJV to achieve the production and sale of Products as specified in Chapter 4 of this Contract.

 

Article 20       Party B offers the following guarantees with respect to the technology it will transfer to the EJV pursuant to the technology transfer agreement:

 

(1) Party B guarantees that the technology will meet all operating requirements of the EJV and permit the EJV to manufacture Products at a consistent standard of quality and production capacity so that the EJV is able to achieve its purpose as set out in Article 6 hereof;

 

(2) Party B guarantees that the technology specified in this Contract and in the technology transfer agreement shall be fully transferred to the EJV, and pledges that the said technology shall be truly advanced among the same type of technology produced by Party B and that the model, specifications, and quality of the equipment shall be excellent and able meet the requirements of technological operation and practicality;

 

(3) Party B shall work out a detailed list of the technology to be transferred and provide this to the EJV as soon as possible following execution of this Contract;

 

(4) Relevant drawings, technological conditions and other detailed information shall be included as part of the transferred technology and shall be timely provided to the EJV; and

 

6

 

(5) During the term of the technology transfer agreement, and for no additional fee, Party B shall provide to the EJV all improvements in the technology transferred to the EJV as provided in the technology transfer agreement.

 

Chapter 8              Right to Use the Site; Lease of Facilities to EJV; Utilities

 

Article 21       Party A represents and warrants that: (i) it has obtained granted land use rights to the site on which are located the premises it will lease to the EJV at start-up of operations in China; (ii) the term of the granted land use rights is 50 years and will be available to the EJV for the full length of its term, including any extensions thereof; (iii) official documents issued to Party A by the Ningbo Land Bureau, or other relevant Ningbo governmental agency, will be presented to Party B’s attorney for review prior to execution of this Contract; (iv) pursuant to the lease agreement it will conclude with the EJV, Party A will provide preferential treatment to the EJV in respect to all matters relating to the leased premises; and (v) with assistance from Party A as required, the EJV will obtain a sufficient and uninterrupted supply of various public utilities services required by the EJV on terms and conditions no less favorable than those obtained by other Chinese-owned and operated enterprises located in the vicinity.

 

Chapter 9              Trademark License Agreement

 

Article 22       Within thirty (30) days following execution of this Contract, Party B and the EJV will enter into a no-charge trademark license agreement such that the EJV will be authorized to use certain licensed trademarks belonging to Party B, including those indicated below in the course of marketing and offering for sale, both in China and in international markets, the Products.

 

Article 23       The trademarks licensed by Party B to the EJV are:  Victor and Cutskill.

 

Chapter 10            Sale of Products

 

Article 24       The Products will be sold in China and in such international markets as shall be determined by the Board of Directors of the EJV from time to time.

 

Article 25       The Products shall be sold in international markets through the following channels:

 

(1) the EJV may directly sell the Products into a certain international market using marketing and sales channels known and introduced to it by Party B;

 

(2) the EJV may, through supply contracts and at a price equal to the actual cost of manufacturing the Products plus a fifteen percent (15%) markup, sell Products to Party B and/or its subsidiary companies for export from China by Party B and/or its subsidiary

 

7

 

companies. The aforesaid actual costs of manufacturing are defined as material costs, direct and indirect manufacturing labor costs and other costs directly related to the manufacture of the Products; or

 

(3) with the prior written approval of Party B, the EJV may sign marketing and sales contracts with Chinese or foreign trading companies, thereby entrusting such companies to function as a sales or exclusive sales agent within an area defined in each particular sales contract.

 

Article 26       The Products of the EJV that are to be sold within China may be marketed and sold by the EJV itself or, in the discretion of the Board of Directors of the EJV, may be entrusted to a Chinese marketing and sales agent appointed by them pursuant to a written contract.

 

Article 27       In order to provide high-quality maintenance service to the Products sold in China in international markets, the EJV may (subject to the approval of the relevant Chinese governmental authority) establish sales and service branch operations of the EJV both in China and in such international markets.

 

Chapter 11            The Board of Directors

 

Article 28       The Board of Directors of the EJV shall be formed on the date on which the Ningbo Administration for Industry and Commerce issues the valid business license of the EJV.

 

Article 29       The Board of Directors of the EJV, including the Chairman and vice-Chairman, shall consist of four (4) directors.  Each of Party A and Party B shall appoint two (2) directors.  The Chairman shall be appointed by Party B and the vice-Chairman shall be appointed by Party A.  Each of the Chairman, vice-Chairman and the other two directors shall be appointed for a term of four (4) years. Four (4) years later, the Chairman shall be appointed by Party A and the vice-Chairman shall be appointed by Party B. Thereafter, such power of appointment shall be rotated every four years.

 

Article 30       A Party may, at any time, remove any director appointed by such Party by giving written notice to the EJV and a copy of such notice to the other Party.  If a seat on the Board of Directors is vacated by retirement, removal, resignation, illness, disability or death of a director, the Party that originally appointed such director may appoint a successor to serve out such director’s term.

 

Article 31       Notice of a meeting of the Board of Directors of the EJV shall be in writing and sent simultaneously to each of Party A and Party B at their usual business address using any of the means for delivery of notices stipulated in Article 105 hereof.

 

Article 32       To transact any business or adopt any resolutions, a quorum of not less than three (3) directors must be present, either in person or by proxy, at a meeting of the

 

8

 

Board of Directors of the EJV.  Each director shall be entitled to cast one vote in response to each proposed resolution and, in the event of an equal number of votes being cast, the deadlock shall be handled in accordance with the dispute settlement provisions set out in Chapter 26 hereof.

 

Article 33       Assuming a quorum is present, decisions of the Board of Directors relating to the following matters shall be deemed to be properly made only upon the unanimous agreement of directors present at a Board of Directors meeting:

 

(1) unplanned expenditure of capital outside the ordinary course of business of the EJV;

(2) hiring and firing of high-ranking management personnel of the EJV;

(3) expenditures required for employees of the EJV involved in international business on behalf of the EJV;

(4) amendment of the Articles of Association of the EJV;

(5) termination and dissolution of the EJV;

(6) increase or assignment of the registered capital of the EJV;

(7) merger of the EJV with another economic organization;

(8) incurring short or long term debt; or

(9) sale of assets outside the normal course of business.

 

Decisions on other matters shall be deemed to be properly made if made in accordance with rules of procedure stipulated in the Articles of Association of the EJV.

 

Article 34       The Chairman of the Board of Directors is the legal representative of the EJV.  Should the Chairman, for any reason, be unable to discharge his responsibilities as legal representative, he shall authorize the vice-Chairman or any other director to act as the legal representative of the EJV on a temporary basis.

 

Article 35       The Board of Directors of the EJV shall convene at least one (1) meeting each year.  The meeting shall be called and presided over by the Chairman of the Board of Directors.  In addition, the Chairman may elect to convene an interim meeting, or interim meetings, of the Board of Directors following a proposal made by at least one-half of the total number of directors and provided that at least one (1) director from each of Party A and Party B participates in making such proposal.

 

Article 36       Meetings of the Board of Directors shall be conducted in English and Chinese and, to the extent necessary, Party A will provide an interpreter to carry out consecutive translation.  Likewise, minutes of the meetings of the Board of Directors shall be kept in both English and Chinese, copied to each of Party A and Party B and kept on file at the registered office of the EJV for review by any director.

 

Article 37       In lieu of a meeting of the Board of Directors, the directors may adopt a written resolution.  Such a written resolution shall be adopted if sent to all members of the Board of Directors and returned to the registered office of the EJV affirmatively signed by the number of directors necessary to make such a decision as stipulated in Article 34 hereof.

 

9

 

Article 38       Directors shall not be paid a salary by the EJV.  However, reasonable transportation and accommodation expenses incurred by a director in connection with his or her attendance at a meeting of the Board of Directors shall be reimbursed by the EJV on presentation of acceptable documentation.  Nothing in the foregoing shall prohibit the EJV from paying a salary to a director where such director concurrently acts as an officer or employee of the EJV.

 

Chapter 12            The Operation and Management Organization

 

Article 39       The EJV shall adopt a management system under which the management organization shall be responsible to, and under the leadership of, the Board of Directors.  Initially, the management organization of the EJV shall consist of: (1) a General Manager in charge of Operations (hereinafter, the “General Manager”); (2) a Vice General Manager, Finance (hereinafter, the “Vice General Manager, Finance”); and (3) a Vice General Manager, Sales (hereinafter, the “Vice General Manager, Sales”).  Party A shall appoint the Vice General Manager, Sales, while Party B shall appoint the General Manager and the Vice General Manager, Finance.

 

Article 40       The EJV may elect to expand its operation and management organization as business circumstances evolve and the EJV grows more successful.  In the event of any such future expansion, the Board of Directors will adopt a duly made resolution to increase the number of senior management staff of the EJV and will specify the role(s) such individual(s) will assume in the new management structure.

 

Article 41       Unless otherwise determined by the Board of Directors of the EJV, the General Manager shall be the senior management officer and shall be responsible for day-to-day operations and management of the EJV.  All Vice General Managers shall report to the General Manager and shall assist him in his work as required.

 

Article 42       Unless otherwise determined by the Board of Directors of the EJV, the precise responsibilities and powers of the General Manager shall be as set out in the relevant provisions of the Articles of Association of the EJV (as amended from time to time).  Without limiting the generality of the foregoing, however, the General Manager,  together with a copy of disaggregated by month financial statements concerning sales, orders and inventory for the year just ended, shall submit an annual business plan to the Board of Directors for approval by not later than 30 November of each fiscal year.

 

Article 43       The General Manager shall have the right to sign contracts within type and financial limits authorized by the Board of Directors and as arise within the normal course of business of the EJV.  Without limiting the generality of the foregoing, the General Manager shall have signing authority on behalf of the EJV in regard to such matters as contracts for the purchase of equipment, materials and supplies, and sale of Products to end-users in China and in international markets.

 

10

 

Article 44       Each of the Vice General Manager, Finance and the Vice General Manager, Sales shall be appointed by the Board of Directors and shall be responsible both to the General Manager and to the Board of Directors.

 

Article 45       Neither the General Manager nor any other senior management officer of the EJV may concurrently hold any position as general manager, manager, or as any officer or employee, of any other economic organization, provided, however, that the General Manager, the Vice General Manager, Finance and the Vice General Manager, Sales - where such individuals have been seconded to the EJV by either of Party A or Party B - may concurrently be employees of Party A or of Party B.

 

Article 46       The terms and conditions of any secondment of personnel at or above the level of supervisor from either of Party A or Party B to the EJV shall be contained in separate Personnel Secondment Agreements to be signed by whichever of Party A or Party B is party thereto and kept by the Board of Directors of the EJV for the record.

 

Article 47       In case of graft or serious dereliction of duty on the part of the General Manager, the Vice General Manager, Finance or the Vice General Manager, Sales, the Board of Directors shall have the power to dismiss any or all of such senior management staff at any time.

 

Chapter 13            Labor Management

 

Article 48       The number of staff and workers to be employed by the EJV at any point in time shall be determined by the General Manager in accordance with the requirements of the EJV and the specific conditions of the labor market in Ningbo.

 

Article 49       In accordance with Chinese laws and regulations, the General Manager will formulate specific plans regarding the recruitment, dismissal, wages, labor insurance, welfare, rewards and penalties of the EJV’s staff and workers and will submit such plans to the Board of Directors for approval.

 

Article 50       The EJV may recruit local and expatriate staff and workers in accordance with relevant laws and regulations of China.  In so doing, the EJV shall recruit and hire such staff and workers based on their education and skills as determined, in the discretion of the General Manager, through competitive examination.  The EJV, on a preferential basis, shall hire employees currently employed by Party A wherever, in the discretion of the General Manager, it is in the interest of the EJV to do so.

 

Article 51       The EJV shall adopt the employment contract system for all its staff and workers. The agreed standard form of labor contract is attached to this Contract as Appendix D.  The EJV shall sign labor contracts with individual staff members and workers in a form which, to the extent required by law, will be reviewed and verified by the labor bureau of the Ningbo Municipal Government.

 

11

 

If necessary, the EJV may also enter into employment contracts with expatriate personnel on such terms and conditions as may be approved by the Board of Directors.

 

Article 52       The salary and other remuneration of EJV personnel (except for senior management staff, as set forth in this Chapter 13, and personnel seconded from either of Party A or Party B to the EJV) will be determined by the General Manager based on the ability and skill of such personnel and with reference to pertinent Chinese law and regulations.  Salary and remuneration details shall be set forth in the labor contracts concluded with each employee of the EJV and, reflecting the changed circumstances of the EJV over time, shall be adjusted based on those then-actual circumstances and the ability and skills of the staff and workers.

 

Article 53       The compensation of the senior management staff of the EJV shall be decided (except for personnel seconded to the EJV by either of Party A or Party B, in which case such remuneration shall be governed by the applicable Personnel Secondment Agreement) by the Board of Directors.

 

Chapter 14