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EQUITY JOINT VENTURE CONTRACT

Joint Venture JV Agreement

EQUITY JOINT VENTURE CONTRACT | Document Parties: ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LTD | SKY COMMUNICATIONS GROUP COMPANY LIMITED | BEIJING ASIA SKY TELECOMMUNICATIONS TECHNOLOGY COMPANY LIMITED You are currently viewing:
This Joint Venture JV Agreement involves

ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LTD | SKY COMMUNICATIONS GROUP COMPANY LIMITED | BEIJING ASIA SKY TELECOMMUNICATIONS TECHNOLOGY COMPANY LIMITED

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Title: EQUITY JOINT VENTURE CONTRACT
Date: 6/29/2005
Industry: Communications Services     Sector: Services

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                                                                    EXHIBIT 4.16

                                                                    ------------

 

 

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                           EQUITY JOINT VENTURE CONTRACT

 

 

                                     BETWEEN

 

 

                    SKY COMMUNICATIONS GROUP COMPANY LIMITED

 

 

                                       AND

 

 

                ASIA SATELLITE TELECOMMUNICATIONS COMPANY LIMITED

 

 

 

                            FOR THE ESTABLISHMENT OF

 

 

         BEIJING ASIA SKY TELECOMMUNICATIONS TECHNOLOGY COMPANY LIMITED

 

 

 

 

 

 

                             DATED March 29th, 2004

 

 

                                 BEIJING, CHINA

 

 

 

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                                TABLE OF CONTENTS

 

 

CLAUSE                                                                       PAGE

 

CHAPTER 1 - GENERAL PROVISION..................................................1

 

CHAPTER 2 - PARTIES TO THIS JOINT VENTURE CONTRACT.............................1

 

CHAPTER 3 - PURPOSE AND BUSINESS SCOPE OF THE JOINT VENTURE COMPANY............1

 

CHAPTER 4 - TOTAL AMOUNT OF INVESTMENT AND REGISTERED CAPITAL..................2

 

CHAPTER 5 - OBLIGATIONS OF THE PARTIES TO THE JOINT VENTURE COMPANY.............

 

CHAPTER 6 - THE BOARD OF DIRECTORS.............................................6

 

CHAPTER 7 - GENERALMANAGER AND SENIOR MANAGEMENT PERSONNEL.....................9

 

CHAPTER 8 - TAXES, FINANCE AND AUDIT..........................................10

 

CHAPTER 9 - TERM OF THE JOINT VENTURE COMPANY.................................11

 

CHAPTER 10 - INTELLECTUAL PROPERTY AND CONFIDENTIALITY........................12

 

CHAPTER 11 - LABOR MANAGEMENT.................................................13

 

CHAPTER 12 - TRANSFER OF EQUITY INTEREST......................................14

 

CHAPTER 13 - INSURANCE........................................................17

 

CHAPTER 14 - TERMINATION AND LIQUIDATION......................................17

 

CHAPTER 15 - FORCE MAJEURE....................................................21

 

CHAPTER 16 - SETTLEMENT OF DISPUTES...........................................22

 

CHAPTER 17 - GOVERNING LAW....................................................23

 

CHAPTER 18 - LANGUAGES AND COUNTERPARTS.......................................23

 

CHAPTER 19 - LIABILITY FOR BREACH OF CONTRACT.................................24

 

CHAPTER 20 - REPRESENTATIONS AND WARRANTIES...................................25

 

CHAPTER 21 - NOTICE AND MISCELLANEOUS.........................................27

 

 

<PAGE>

 

 

                          CHAPTER 1 - GENERAL PROVISION

 

In accordance with the Law of the People's Republic of China on Chinese-Foreign

Equity Joint Ventures and its Implementing Regulations (as amended) as well as

other applicable laws and regulations, SKY COMMUNICATIONS GROUP COMPANY LIMITED

and ASIA SATELLITE TELECOMMUNICATIONS COMPANY LIMITED, adhering to the

principles of equality and mutual benefit and through friendly consultation,

agree unanimously to enter into this Joint Venture Contract (the "JOINT VENTURE

CONTRACT") for the establishment of BEIJING ASIA SKY TELECOMMUNICATIONS

TECHNOLOGY COMPANY LIMITED (the "JOINT VENTURE COMPANY") in the People's

Republic of China ("CHINA" or the "PRC").

 

This Joint Venture Contract is executed by the Parties (as defined below) on the

29th day of March, 2004 in Beijing.

 

               CHAPTER 2 - PARTIES TO THIS JOINT VENTURE CONTRACT

 

ARTICLE 1

 

The Parties to this Joint Venture Contract are as follows:

 

(a)       SKY COMMUNICATIONS GROUP COMPANY LIMITED ("PARTY A"), a company

         incorporated in the PRC with its legal address at Room 209 Lujiazui

         Software Park, No. 98, Nong 91, Eshan Road, Pudong District, Shanghai,

         the PRC, postal code: 200127; telephone No.: (8621) 5090 9026;

         facsimile No.: (8621) 5873 0937.

 

(b)       ASIA SATELLITE TELECOMMUNICATIONS COMPANY LIMITED ("PARTY B"), a

         company incorporated under the laws of the Hong Kong Special

         Administrative Region of the PRC ("HONG KONG") with its registered

         office situated at Floor 23, East Exchange Tower, 38 Leighton Road,

         Causeway Bay, Hong Kong, the PRC; telephone No.: (852) 2500 0888;

         facsimile No.: (852) 2805 7038.

 

         In this Joint Venture Contract, Party A and Party B are each referred

         to as a "PARTY" and collectively as the "PARTIES."

 

 

      CHAPTER 3 - PURPOSE AND BUSINESS SCOPE OF THE JOINT VENTURE COMPANY

 

ARTICLE 2

 

The purpose of the Joint Venture Company shall be as follows: in accordance with

the principle of enhancing economic co-operation and technical exchange, and by

adopting international advanced and applicable technology and scientific

management methods, to provide Chinese domestic users with quality satellite

communications technical services and related value-added services.

 

 

                                       1

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ARTICLE 3

 

The business scope of the Joint Venture Company shall be the research,

development of network telecommunication technology; manufacture of network

telecommunication equipment, sale of self-produced products; provision of

telecommunication technology service, technical consultancy and transfer of

self-developed technology.

 

ARTICLE 4

 

The name of the Joint Venture Company is [CHINES CHARACTERS OMITTED] in Chinese

and BEIJING ASIA SKY TELECOMMUNICATIONS TECHNOLOGY COMPANY LIMITED in English.

The registered address of the Joint Venture Company is at No.22 Wanyuan Street,

Beijing Economic Technological Development Area, Beijing, The PRC.

 

ARTICLE 5

 

All the activities of the Joint Venture Company shall comply with the laws,

decrees and applicable rules and regulations of the PRC.

 

ARTICLE 6

 

The corporate form of the Joint Venture Company is a limited liability company.

Each Party shall be liable for the losses of Joint Venture Company only up to

the amount of its respective subscribed capital contribution to the registered

capital. The profits of the Joint Venture Company shall be shared by the Parties

in proportion to their respective contributions to the registered capital of the

Joint Venture Company.

 

 

         CHAPTER 4 - TOTAL AMOUNT OF INVESTMENT AND REGISTERED CAPITAL

 

ARTICLE 7

 

The total amount of investment of the Joint Venture Company is [

                                  ].

 

ARTICLE 8

 

The registered capital of the Joint Venture Company is [                     ],

of which:

 

(a)       Party A shall contribute the VSAT equipment set forth in Appendix 1

         hereof ("PARTY A'S CONTRIBUTED Assets") equivalent to [             ]

         as its contribution in kind, representing 51% of the registered

         capital; and

 

(b)       Party B shall contribute foreign exchange cash in an amount equivalent

         to [                      ], representing 49% of the registered capital.

 

 

 

                                       2

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ARTICLE 9

 

The Parties shall make their respective contributions in accordance with Article

11 hereof. If additional funds are required for working capital or any other

purpose, the Joint Venture Company may borrow from banks or other institutions

with the consent of the Board (as defined below).

 

ARTICLE 10

 

This Joint Venture Contract shall become effective from the date on which the

approval is obtained from the relevant government authority that has the right

to approve this Joint Venture Contract and the articles of association of the

Joint Venture Company (the "ARTICLES") pursuant to the applicable laws and

regulations of the PRC (the "EXAMINATION AND APPROVAL AUTHORITY").

 

ARTICLE 11

 

(a)       Subject to Article 11(c) and (d), Party A shall make 30% of its

         contribution to the registered capital of the Joint Venture Company

         within 30 days after the date on which the Joint Venture Company has

         obtained its business license. Party A shall contribute the balance of

         70% in one lump sum payment within 90 days after the date on which the

          Joint Venture Company has obtained its business license.

 

(b)       Subject to Article 11(c) and (d), Party B shall make 30% of its

         contribution to the registered capital of the Joint Venture Company

         within 30 days after the date on which the Joint Venture Company has

         obtained its business license. Party B shall contribute the balance of

         70% in one lump sum payment within 90 days after the date on which the

         Joint Venture Company has obtained its business license.

 

(c)       The Parties shall be obligated to make their contributions to the

         registered capital of the Joint Venture Company only after all of the

         following conditions have been satisfied or waived in writing by the

         Parties:

 

         (i)       following execution by the Parties, this Joint Venture

                  Contract and the Articles having been approved by the

                  Examination and Approval Authority without substantive

                  amendments thereto;

 

         (ii)      the Joint Venture Company having been issued its business

                  license without substantial amendments to the business scope

                  of the Joint Venture Company set forth in Article 3 hereof;

 

         (iii)      the Joint Venture Company having received all necessary

                  rights, licenses, permits, approvals, waivers and

                  authorizations to engage in the business activities

                  contemplated in Article 3 hereof;

 

          (iv)      the Joint Venture Company having entered into the Consulting

                  and Billing Services Contract and the Intellectual Property

                  Rights License Contract (collectively, the "PARTY A SUBSIDIARY

                  Contracts") with a subsidiary of Party A ("PARTY A

                  SUBSIDIARY") in form and substance satisfactory to the

                  Parties;

 

         (v)       Party A Subsidiary having received all necessary rights,

                  licenses, permits, approvals, waivers and authorizations to

                  engage in the operation of a VSAT communications business;

 

 

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         (vi)      Party A having entered into a facilities purchase contract

                   ("FACILITIES PURCHASE CONTRACT") with Party A Subsidiary with

                  respect to the purchase by Party A Subsidiary of Party A's

                  VSAT hub and related facilities in form and substance

                  satisfactory to the Parties;

 

         (vii)     Party B having entered into a Transponder Lease Agreement with

                  Party A Subsidiary with respect to the lease of transponder

                  capacity by Party B to Party A Subsidiary in form and

                   substance satisfactory to the Parties;

 

         (viii)    Party A having entered into a transfer contract with Party A

                  Subsidiary in form and substance satisfactory to the Parties

                  in accordance with which Party A shall transfer all satellite

                  hub service contracts entered into with its Affiliates (as

                  defined below) to Party A Subsidiary at no consideration. The

                  transfer contract shall also provide that Party A Subsidiary

                  may transfer such satellite hub service contracts to the

                  foreign-invested telecommunications enterprise that will be

                  established by Party A and Party B in accordance with the

                  applicable PRC laws and regulations and approved to engage in

                  the operation of VSAT communications business;

 

         (ix)      Party A having terminated or having caused its Affiliates to

                  terminate the employment contracts with the employees to be

                  seconded to the Joint Venture Company and having released in

                  writing the non-competition and confidentiality obligations of

                  such employees under such employment contracts or any other

                  documents, except as otherwise agreed by the parties.

 

         (x)       Party B having received a legal opinion from Party A's PRC

                  counsel to Party A in form and substance satisfactory to Party

                   B; and

 

         (xi)      all of the respective representations and warranties made by

                  Party A in Articles 51(a) and (b) being true and correct in

                  every respect.

 

(d)       After the Parties have made their contributions to the Joint Venture

         Company, a Chinese registered accountant satisfactory to the Parties

         shall verify the capital contribution made by each Party and issue a

         capital contribution verification report. Thereupon the Joint Venture

         Company shall issue investment certificates to the Parties, in which

         the following items shall be included:

 

         (i)       the name of the Joint Venture Company;

 

         (ii)      the date of the establishment of the Joint Venture Company;

 

         (iii)     the names of the Parties and their capital contributions;

 

         (iv)      the date on which the contributions were made; and

 

         (v)       the date on which the investment certificate is issued.

 

The investment certificates shall be signed by the Chairman (as defined below)

and the Vice-Chairman (as defined below).

 

ARTICLE 12

 

If a Party fails to make its contribution to the registered capital of the Joint

Venture Company in accordance with Articles 8 and 11, such Party (the

"CONTRIBUTION DEFAULTING PARTY") shall pay to the other Party default interest

on the unpaid contribution accruing at the rate of 0.02% per day from the tenth

day after the due date set forth in Article 11 until the date on which the

 

 

                                        4

<PAGE>

 

 

contribution is paid in full. For the avoidance of any doubt, a Party who does

not make its contribution due to the non-fulfillment of the conditions set forth

in Article 11 shall not be regarded as a Contribution Defaulting Party under

this Article 12 and Article 13.

 

ARTICLE 13

 

If the Contribution Defaulting Party fails to make its contribution to the

registered capital of the Joint Venture Company within 60 days after the due

date, the other Party may apply to the original Examination and Approval

Authority for approval to terminate the Joint Venture Company and cancel this

Joint Venture Contract.

 

ARTICLE 14

 

The difference between the total amount of investment and the registered capital

stipulated herein shall be made up by the Parties jointly by fund raising.

 

 

        CHAPTER 5 OBLIGATIONS OF THE PARTIES TO THE JOINT VENTURE COMPANY

 

ARTICLE 15

 

The obligations of each Party are as follows:

 

(a)       The obligations of Party A include:

 

         (i)       submitting this Joint Venture Contract, the Articles and other

                  relevant documents of the Joint Venture Company to the

                  Examination and Approval Authority in accordance with the

                  requirements of the applicable PRC laws and regulations and

                  using its best endeavors to obtain the prompt approval of the

                  application;

 

         (ii)      promptly making its contribution to the registered capital as

                  stipulated in Articles 8 and 11 hereof;

 

         (iii)     handling the registration matters of the Joint Venture

                  Company, obtaining the business license from the relevant PRC

                  government department, providing assistance in respect of the

                   opening of the bank accounts of the Joint Venture Company and

                  other matters related to the establishment of the Joint

                  Venture Company;

 

         (iv)      recommending a suitable person who will serve as the first

                  deputy general manager (the "DEPUTY GENERAL MANAGER") of the

                  Joint Venture Company upon the approval of the Board;

 

         (v)       causing Party A Subsidiary (1) to enter into the Party A

                  Subsidiary Contracts with the Joint Venture Company on the

                  date of establishment of the Joint Venture Company; (2) to

                  accept the services and the license of intellectual property

                  rights provided by the Joint Venture Company in accordance

                  with the Party A Subsidiary Contracts; and (3) to pay promptly

                  all payments due under the Party A Subsidiary Contracts to the

                  Joint Venture Company;

 

 

 

                                        5

<PAGE>

 

 

         (vi)      causing Party A Subsidiary to enter into a three-party

                  customer contract with the Joint Venture Company and each

                  customer of Party A Subsidiary's VSAT communications business,

                  pursuant to which Party A Subsidiary shall provide such

                  customers with services for which a company is required to

                  have a VSAT communication business operating permit in order

                  to provide and the Joint Venture Company shall provide other

                  services relating to the VSAT communications business for

                  which such permit is not required;

 

         (vii)     assisting the Joint Venture Company in developing the domestic

                  market;

 

         (viii)    advising the Joint Venture Company on the laws and policies of

                  PRC and coordinating the relationship between the Joint

                  Venture Company and relevant PRC government agencies;

 

         (ix)      providing the Joint Venture Company with administrative and

                  logistic support and assistance;

 

         (x)       handling other matters reasonably entrusted to it by the

                  Board; and

 

         (xi)      fulfilling other obligations set forth in this Joint Venture

                  Contract.

 

(b)       The obligations of Party B include:

 

         (i)       promptly making its contribution to the registered capital as

                  stipulated in Articles 8 and 11 hereof; (ii) assisting Party A

                  in handing the registration matters of the Joint Venture

                  Company;

 

         (iii)     recommending suitable persons who will serve as the first

                  general manager of the Joint Venture Company (the "GENERAL

                  MANAGER") and the first financial controller of the Joint

                  Venture Company (the "FC") upon the approval of the Board;

 

         (iv)      assisting the Joint Venture Company in obtaining advanced

                  marketing and promotion experience of the international

                  market;

 

         (v)       assisting the Joint Venture Company in its ordinary operation;

 

         (vi)      providing managerial and technical support and personnel

                  training to the Joint Venture Company;

 

         (xii)     handling other matters reasonably entrusted to it by the

                  Board; and

 

         (xiii)    fulfilling other obligations set forth in this Joint Venture

                  Contract.

 

ARTICLE 16

 

As permitted by PRC law and upon the approval and request of the Board, each

Party shall have the obligation to assist the Joint Venture Company in applying

for permission to carry out new businesses.

 

 

 

 

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<PAGE>

 

 

                       CHAPTER 6 - THE BOARD OF DIRECTORS

 

ARTICLE 17

 

(a)       The board of directors of the Joint Venture Company (the "BOARD") shall

         be established on the date on which the business license of the Joint

         Venture Company is issued. The Board shall be the highest authority of

         the Joint Venture Company and shall direct the overall management,

         supervision and control of the business of the Joint Venture Company.

         All major matters of the Joint Venture Company shall be decided by the

         Board. The Board shall adopt resolutions in accordance with this Joint

         Venture Contract, the Articles and the applicable laws and regulations

         of the PRC.

 

(b)       To the extent that the laws and regulations of the PRC in effect as of

         the date of the adoption of the relevant resolution require, decisions

         with respect to the following matters shall require the unanimous

         approval of the directors present and voting in person or by proxy at a

         Board meeting:

 

         (i)       any amendment to the Articles;

 

         (ii)      termination and dissolution of the Joint Venture Company;

 

         (iii)     increases or decreases in the registered capital of the Joint

                  Venture Company or any transfer (other than transfers pursuant

                  to Chapter 12) of either Party's interest in the Joint Venture

                  Company;

 

         (iv)      division of the Joint Venture Company or merger of the Joint

                  Venture Company with other economic organizations; and

 

         (v)       other matters requiring unanimous approval of the Board as

                  provided in officially promulgated and implemented laws and

                  regulations of the PRC.

 

(c)       Decisions with respect to all other matters that require the approval

         of the Board shall be adopted if they receive the affirmative vote of a

         simple majority of the directors present and voting in person or by

         proxy, including at least one director or its proxy appointed

         respectively by each Party.

 

ARTICLE 18

 

(a)       The Board shall consist of six directors, of whom three directors shall

         be appointed by Party A and three directors shall be appointed by Party

         B. Each of the directors shall have one vote.

 

(b)       One of the directors nominated by Party A shall be appointed as the

         chairman of the Board (the "Chairman") and shall preside over Board

         meetings. One of the directors nominated by Party B shall be appointed

         as the vice-chairman of the Board (the "VICE-CHAIRMAN"). In the absence

         of the Chairman, the Vice Chairman will chair the Board meeting.

 

(c)       The term of office of the directors shall be four years, renewable upon

         reappointment by the appointing Party. Upon approval of the Board, any

         director may serve as a senior manager of the Joint Venture Company.

 

(d)       If there is a vacancy on the Board due to a director retiring,

         resigning, falling ill, becoming incapacitated, dying, being removed by

         its appointing Party or otherwise ceasing to be a director, the Party

         that appointed such director shall appoint a successor to serve for the

         remainder of the term of office of such director.

 

 

 

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ARTICLE 19

 

(a)       Except as otherwise set forth in Article 19(b), four directors, present

         in person or by their officially authorized proxies shall constitute a

         quorum for any Board meeting.

 

(b)       If such a quorum is not present within one hour after the time

         appointed for the meeting or if at any time during the meeting a quorum

         is no longer present for any reason, the meeting shall adjourn to a

         second meeting, at such place and time (which is at least 15 days

         later) as those directors who attended the first meeting shall decide

         or, if no such decision is reached, at the same place and time 15 days

         later. If a quorum is not present within 20 minutes after the time

         appointed for the second meeting or if at any time during the second

         meeting a quorum is no longer present for any reason, the number of

         directors present shall be deemed to constitute a quorum for the

         purpose of that second meeting; PROVIDED THAT not less than 10 days'

         notice of the second meeting is given to all directors. For the purpose

         of determining whether a quorum is present, directors participating in

         person or by proxy shall be deemed as directors present at the meeting.

 

ARTICLE 20

 

Subject to Article 27(a), if the Board fails to adopt a resolution regarding the

matters set forth in Articles 17(b) or 17(c) by unanimous vote or simple

majority vote (as the case may be), a deadlock will be deemed to have occurred

(the "DEADLOCK") and the Chairman shall not have a casting vote. If a Deadlock

occurs, the General Manager of the Joint Venture Company shall draft and submit

to Party A and Party B a detailed report on such matter within 30 days after the

occurrence of the Deadlock. From the date of receipt of the above report, the

Parties shall attempt to reach a successful resolution of the matter in another

30 days (or a longer period agreed by the Parties). If the Parties fail to do so

within the aforesaid period,

 

(a)       either Party, the Purchasing Party (as defined below), may purchase or

         designate another person to purchase the interest of the other Party,

         the Non-Purchasing Party (as defined below) pursuant to the procedures

         set forth in Article 40(b). If both Parties issue Invocation Notices

         (as defined below) pursuant to Article 40(b), the valuation procedures

         set forth in Article 40(b)(i) through (viii) shall not be implemented

         and instead the Party willing to pay the highest price per percentage

         interest of the Joint Venture Company shall have the right to purchase

         or designate another party to purchase the interest of the

         Non-Purchasing Party at such purchase price in accordance with the

         provisions of Article 40(b)(ix) and (x),

 

(b)       the provisions of Article 41 shall apply in the event that neither

         Party is willing to carry on the business of the Joint Venture Company

         as a going concern.

 

During the Deadlock period, the Parties shall continue to perform their

obligations under this Joint Venture Contract.

 

ARTICLE 21

 

Regular meetings of the Board shall be convened at least twice every year, of

which at least one regular meeting shall be convened within three months after

the completion of each financial year. Special meetings of the Board shall be

convened by the Chairman at any time on a motion of any two directors. The

minutes of all Board meetings shall be kept on file by the Joint Venture Company

for reference.

 

ARTICLE 22

 

The detailed powers and procedures of the Board, the scope of authority and

responsibilities of the Chairman and the Vice Chairman, and the rights and

obligations of the directors shall be as set forth in the Articles.

 

 

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            CHAPTER 7 GENERAL MANAGER AND SENIOR MANAGEMENT PERSONNEL

 

ARTICLE 23

 

(a)       The management organization of the Joint Venture Company shall consist

         of the following senior management personnel (the "SENIOR MANAGEMENT

         PERSONNEL"): one General Manager, one Deputy General Manager, one FC

         and other officers that the Board may appoint as being necessary for

         the operation of the Joint Venture Company. The Senior Management

         Personnel shall be appointed or dismissed by the Board.

 

(b)       Party B shall nominate the candidates for the positions of the first

         General Manager and the first FC, and Party A shall nominate the

         candidate for the position of the first Deputy General Manager.

         Subsequent General Managers, Deputy General Managers and FCs shall be

         nominated and appointed by the Board. If any candidate nominated by

         Party A or Party B for the positions of the initial Senior Management

         Personnel is not appointed by the Board, the original nominating Party

         shall have the right to nominate another candidate for the relevant

         position for appointment by the Board. The General Manager, the Deputy

         General Manager and the FC shall each serve for a term of three years.

         The Board shall have the right to remove the General Manager, the

         Deputy General Manager, the FC and other Senior Management Personnel at

         any time for any reasonable reason, but in the case of the initial

         Senior Management Personnel the replacement candidate for the position

         of such Senior Management Personnel shall be nominated by the original

         nominating Party for appointment by the Board and shall serve the

         remainder of the term of the Senior Management Personnel whom he or she

         is replacing..

 

ARTICLE 24

 

(a)       The duties of the General Manager shall be to implement the decisions

         of the Board and to organize and lead the daily operations and

         management of the Joint Venture Company in every respect within the

         scope authorized by the Board. The General Manager shall use all his

         efforts to ensure that the Joint Venture Company does not suffer losses

         in the course of its operation. The General Manager shall submit the

         relevant monthly or annual report at each Board meeting.

 

(b)       The duties of the Deputy General Manager shall be to assist the General

         Manager in his work and he shall be responsible for the daily operation

         work of the Joint Venture Company. The duties of the FC shall be to

         organize and lead all financial and accounting affairs of the Joint

         Venture Company. The FC shall report to both the General Manager and

         the Board.

 

(c)       The detailed scope of authority and duties of the Senior Management

         Personnel shall be as set forth in the Articles.

 

ARTICLE 25

 

Without the written approval of the Board, none of the Senior Management

Personnel may concurrently serve in any operations management position at any

other economic organizations, except in the Parties or their Affiliates or the

subsidiaries or Affiliates of the Joint Venture Company.

 

 

 

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                      CHAPTER 8 - TAXES, FINANCE AND AUDIT

 

ARTICLE 26

 

(a)       The financial and accounting matters of the Joint Venture Company shall

         be handled in accordance with the applicable laws and regulations of

         the PRC. The Joint Venture Company shall establish an independent

         financial and accounting system in light of the special conditions of

         the Joint Venture Company and international accounting principles,

         which shall be implemented upon the approval of the Board.

 

(b)        The fiscal year of the Joint Venture Company (the "FISCAL YEAR") shall

         begin on January 1 and end on December 31 of each year and a financial

         report shall be prepared every year. All financial reports and

         management reports of the Joint Venture Company shall be written in

         Chinese and English. The cost of translation shall be borne by the

         Joint Venture Company. Such financial reports will be prepared by using

         the accounting records prepared in accordance with the applicable laws

         and regulations.

 

(c)       The major financial reports of the Joint Venture Company (the

         "FINANCIAL REPORTS") shall be prepared strictly in accordance with the

         applicable laws and regulations of the PRC. The Joint Venture Company

         shall prepare a quarterly management report, which will include

         quarterly financial reports (the "QUARTERLY REPORTS"). The form and

         content of the Quarterly Reports shall comply with the requirements of

         the Board. All annual Financial Reports and Quarterly Reports shall be

         completed and submitted to the Board from time to time in accordance

         with the reporting schedule adopted by the Board. All Financial Reports

         shall be written in Chinese and English. The costs of preparing and

         translating the Financial Reports shall be borne by the Joint Venture

         Company.

 

(d)       The Joint Venture Company shall select an independent auditor to audit

         the Financial Reports of the Company and perform such other accounting

         and financial duties as required by PRC law and the Board. The

         independent auditor selected by the Board shall preferably be a

         Chinese-foreign joint venture firm of accountants registered in the PRC

         that is capable of performing accounting work meeting both PRC domestic

         and international accounting standards and the foreign party of such

         joint venture shall be an accounting firm of international standing and

         repute. The Financial Reports shall be audited by such independent

         auditor. If required, the Board may select a Chinese investment

         independent auditor in view of the situation provided that such

         independent auditor should be a reputable and impartial independent

         auditor recognized in the industry.

 

(e)       Furthermore, each Party shall have the right to retain independent

         auditors to audit the Financial Reports of the Joint Venture Company at

         its own expense (unless the results of any such audit are significantly

         different from that conducted by the independent auditor and are

         accepted by the Board, in which case the expense shall be borne by the

         Joint Venture Company). The Joint Venture Company and each Party shall

         extend full cooperation to any audit.

 

(f)       The Joint Venture Company shall use Renminbi as its accounting unit.

         The conversion of Renminbi into other currencies shall be made in

         accordance with the relevant exchange rate published by the People's

         Bank of China. The Joint Venture Company shall open Renminbi and

         foreign currency accounts with banks duly licensed to operate Renminbi

         and foreign currency business. All accounts opened by the Joint Venture

         Company shall be managed and supervised in accordance with the

         financial and accounting system of the Joint Venture Company; PROVIDED

         THAT all accounts shall have the FC as one of the authorized

         signatories.

 

 

                                       10

<PAGE>

 

 

ARTICLE 27

 

(a)       No later than three months prior to the end of each Fiscal Year, the

         General Manager shall, in conjunction with the Deputy General Manager

         and the FC, prepare and submit to the Board for approval, a capital and

         operating budget and a business plan for the next Fiscal Year in

         accordance with the requirements of the Board and within the framework

         of the business plan adopted by the Board. These budgets and plans

         shall provide for the development of activities of the Joint Venture

         Company that are in line with the business scope and major tasks of the

         Joint Venture Company specified in Articles 2 and 3. The Board may

         approve the budget and business plan submitted by the General Manager

         or require amendments to be made prior to its approval. If the Board

         fails to approve the capital and operating budget and business plan of

         the next Fiscal Year prior to the commencement of the next Fiscal Year,

         the General Manager shall, in conjunction with the Deputy General

         Manager and the FC, be responsible for preparing a provisional plan to

         ensure the ongoing operation of the Joint Venture Company based on the

         capital and operating budget and business plan of the previous Fiscal

         Year and the framework of the business plan already adopted by the

          Board taking into consideration factors such as inflation.

 

(b)       The profit distribution plan of the Joint Venture Company shall be

         determined at the discretion of the Board. The profit distribution plan

         and the amount of profits to be distributed to the Parties shall be

         announced within three months after approval by the Board. The profit

         share payable to Party B shall be paid in United States dollars.

 

(c)       If the Joint Venture Company suffers losses in any Fiscal Year, the

         profit of the next Fiscal Year shall be used first to make up such

         losses. No profit shall be distributed unless the losses from the

         previous Fiscal Years have been made up.

 

ARTICLE 28

 

The Joint Venture Company shall pay taxes in accordance with the applicable laws

and regulations of the PRC. The personnel of the Joint Venture Company shall pay

individual income tax in accordance with the laws and regulations of the PRC.

The Parties shall apply to obtain for the benefit of the Joint Venture Company,

the Parties and all of their personnel, all of the applicable tax exemptions,

reductions, privileges and preferences that are now or in the future become

obtainable under the laws and regulations of the PRC and under any applicable

treaties or international agreements to which the PRC may now be or may

hereafter become a party.

 

 

                  CHAPTER 9 - TERM OF THE JOINT VENTURE COMPANY

 

ARTICLE 29

 

The Joint Venture Company shall be established on the date on which the Joint

Venture Company is issued its business license. The term of the Joint Venture

Company shall be 30 years.

 

ARTICLE 30

 

Prior to the expiration of the term of the Joint Venture Company or any

extension thereof, the Parties may agree to extend such term, subject to

approval by the Examination and Approval Authority and provided that such

extension is handled in accordance with applicable laws and regulations.

Negotiations with respect to the extension of such term shall begin not later

 

 

                                        11

<PAGE>

 

 

than one year prior to expiration of the original joint venture term (or

extension thereof) and, subject to the successful conclusion of such

negotiations, the Joint Venture Company shall submit the application to extend

the joint venture term to the Examination and Approval Authority six months

prior to the expiration of the term of the Joint Venture Company or any

extensions thereof. Upon approval of the application for the extension of the

term of the Joint Venture Company, procedures for change in registration shall

be handled in accordance with the applicable laws and regulations of the PRC.

 

 

             CHAPTER 10 - INTELLECTUAL PROPERTY AND CONFIDENTIALITY

 

ARTICLE 31

 

When the Board determines that it is necessary, each Party shall, and shall

cause its Affiliates to, enter into technology transfer or license, trademark

license, technical services or management consultancy services contracts with

the Joint Venture Company in order to provide for the transfer of technology or

the provision of license, trademark license, technical services or management

consultancy services to the Joint Venture Company in accordance with the terms

and conditions requested by the Board. The Joint Venture Company shall handle

all necessary examination and approval, registration or filing procedures with

the government authorities in accordance with the applicable laws and

regulations of the PRC.

 

ARTICLE 32

 

(a)       All technology, know-how, techniques, software, proprietary databases,

         trade secrets, trade practices, methods, specifications, designs and

         other proprietary information disclosed by any Party to the Joint

         Venture Company under t


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