EQUITY JOINT VENTURE CONTRACT SINOPEC YIZHENG CHEMICAL FIBRE COMPANY LIMITED

1.   

Definitions

1.1.  

Specific Definitions

In this Contract, unless the context otherwise specifies, the following terms shall have the meanings set forth below:

(a)  

“ Affiliate ” of a Person (the “ Relevant Person ”) means any other Person directly or indirectly Controlling, Controlled by or under common Control with the Relevant Person.

(b)  

“ Approval Date ” means the date of issuance of a document by the Examination and Approval Authority approving this Contract, the Articles of Association and the Feasibility Study Report, and without making any substantive amendments thereto.

(c)  

“ Arbitration Centre ” means the Singapore International Arbitration Centre.

(d)  

“ Articles of Association ” means the Articles of Association of the Company in the agreed form and attached as Appendix I hereto.

(e)  

“ Board ” means the board of directors of the Company.

(f)  

“ Business Day ” means any day other than a Saturday, Sunday or other day on which commercial banks in the city of Yizheng, the PRC or Greensboro, North Carolina, USA are required or authorized by Law or executive order to be closed.

(g)  

“ Business License ” means the business license of the Company issued by SAIC following the approval of this Contract, the Articles of Association and the Feasibility Study Report.

(h)  

“ Business Scope ” means the business scope of the Company set forth in Section 4.2 hereunder.

(i)  

“ Company ” means the Chinese-foreign equity joint venture established by the Parties in accordance with the provisions of this Contract and the Articles of Association.

(j)  

“ Company Approvals ” means all rights, licenses, permits, approvals, waivers, consents and authorizations that are necessary for the Company to engage in the activities specified in the Business Scope and the other business activities contemplated in this Contract.

(k)  

“ Confidential Information ” means any technology, know-how, trade secrets, marketing plans, commercial or financial information, demonstrations, drawings, prototypes, models, samples, devices, specifications, data, methods, recipes, or business policies or practices of the Company or any Party, whether conveyed verbally, in writing or in any tangible or intangible form whatsoever (including electronically).

(l)  

“ Control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise and includes:

(i)  

ownership, directly or indirectly, of 50% or more of the shares in issue or other equity interests of such Person;

(ii)  

possession, directly or indirectly, of 50% or more of the voting power of such Person; or

(iii)  

the power directly or indirectly to appoint a majority of the members of the board of directors or similar governing body of such Person,

and the terms “ Controlling ” and “ Controlled ” shall have meanings correlative to the foregoing.

(m)  

“ Deputy General Manager ” means the deputy general manager of the Company, appointed pursuant to Section 9.1(c).

(n)  

“ DTY ” means Polyester Drawn Textured Yarn.

(o)  

“ Encumbrance ” means (i) any mortgage, charge, pledge, lien, hypothecation, assignment, deed of trust, title retention, security interest or other encumbrance of any kind securing, or conferring any priority of payment in respect of, any obligation of any Person, including any right granted by a transaction that, in legal terms, is not the grant of security but that has an economic or financial effect similar to the creation of a security that is legally enforceable under applicable Law, any proxy, power of attorney, voting trust agreement, interest, option, right of first offer, negotiation or refusal or transfer restriction in favor of any Person and (ii) any adverse claim as to title, possession or use.

(p)  

“ Equity Interest ” means the equity interest held by each Party in the Registered Capital.

(q)  

“ Examination and Approval Authority ” means the Ministry of Commerce of the PRC or its relevant local counterpart that is legally authorized to approve this Contract and the Articles of Association pursuant to Law.

(r)  

“ FDY ” means Polyester Fully Drawn Yarn.

(s)  

“ Feasibility Study Report ” means the “Feasibility Study Report on Joint Venture Project of 150,000 T/Y PET yarn between Unifi Asia Holding, SRL and Yizheng Chemical Fibre Co., Ltd.” jointly prepared by the Parties in connection with the establishment and operation of the Company, a copy of which is attached hereto as Appendix II.

(t)  

“ Foreign Exchange Regulations ” means the applicable Laws of the PRC on foreign exchange.

(u)  

“ General Manager ” means the general manager of the Company appointed pursuant to Section 9.1(c).

(v)  

“ JV Products ” means the Products that will be produced and sold by the Company.

(w)  

“ Land ” means the land with a total area of 216,197.36 square meters, parcel number 13-2-11 located at Road Number 4, Yihua Factory Area, at Yizheng, Jiangsu Province, PRC, a map of which is attached as Appendix V hereto.

(x)  

“ Law ” means all officially published and publicly available and applicable laws, regulations, rules and orders of any governmental authority, securities exchange or other self-regulatory body, including any ordinance, statute or other legislative measure and any officially published and publicly available regulation, rule, treaty, order, decree or judgment.

(y)  

“ Party A Affiliate ” means any company, joint venture, limited liability company, enterprise or other entity with legal person status directly Controlled by Party A.

(z)  

“ Person ” means an individual, corporation, joint venture, enterprise, partnership, trust, unincorporated association, limited liability company, government or any department thereof, or any other entity.

(aa)  

“ Plant Number 5 ” means the production facility and associated structures owned and operated by Party A under the designation of South Area of Filament Business Department and located in the area specified in the Land Map attached hereto as Appendix V.

(bb)  

“ POY ” means polyester partially oriented yarn, but specifically excluding partially oriented yarns used to produce industrial yarns which have a tenacity of 6.0 grams per denier or higher.

(cc)  

“ Products ” means (i) the various types of differentiated polyester textile filament, including different types of POY and FDY and different types of further processed differentiated polyester textile filament in the form of DTY, whether or not they have undergone additional value added process such as

covering, warping, beaming, dyeing and/or air jet texturing; and (ii) woven fabrics.

(dd)  

“ RMB ” means Renminbi, the lawful currency of the PRC.

(ee)  

“ SAIC ” means the State Administration of Industry and Commerce of the PRC or its local branches as appropriate to the context.

(ff)  

“ Subsidiary ” of a Person means any other Person that the Relevant Person Controls.

(gg)  

“ US Dollars ” or “ US$ ” means United States Dollars, the lawful currency of the USA.

1.2.  

Other Defined Terms

The following terms shall have the meanings defined in the Section indicated:

1.3.  

Principles of Interpretation

The following principles for interpretation shall apply:

(a)  

Any reference to a “ company ” in this Contract shall be to a company or legal person entity incorporated in any relevant jurisdiction.

(b)  

Any reference to a “ director ” in this Contract shall include reference to a proxy or proxy director (if relevant).

(c)  

Any reference to “ statutes ” or “ statutory provisions ” shall include reference to those statutes or provisions as amended or re-enacted or serving as amendment (exclusive of any amendment or re-enactment with retroactive effect).

(d)  

Headings set forth in this Contract shall not affect the interpretation or construction of this Contract.

(e)  

“ Include ,” “ including ,” “ are inclusive of ” and similar expressions are not expressions of limitation and shall be construed as if followed by the words “ without limitation .”

(f)  

References to any government ministry, agency, department or authority shall be construed as references to the duly appointed successor ministry, agency, department or authority of such ministry, agency, department or authority where the context permits.

(g)  

A reference in this Contract to a document “ in the agreed form ” is to a document agreed by the Parties and initialed by them for identification purposes as of the date of this Contract.

(h)  

Each attachment and appendix hereunder shall constitute an integral part of this Contract.

(i)  

Any reference to “ the PRC ”, “ China ” or “ the Territory ” shall mean the People’s Republic of China, which for the purposes of this Contract shall exclude Taiwan and the Hong Kong and Macau Special Administrative Regions.

2.   

Parties to Joint Venture Company

2.1.  

Parties to the Contract

(a)  

Party A

(b)  

Party B

2.2.  

Representations, Warranties and Covenants

(a)  

Each Party represents, warrants and covenants to the other Party, with respect to itself, as follows:

(i)  

Such Party is a company duly organized, validly existing and in good legal standing as an independent legal person under the laws of the jurisdiction of its incorporation, and has the corporate power and lawful authority to conduct its business in accordance with its business

license, articles of association, company ordinance or other similar corporate constitutional documents;

(ii)  

Such Party has the full right, power and authority to enter into this Contract and the Relevant Contracts to which it is a party, and to perform fully its obligations hereunder and thereunder;

(iii)  

This Contract has been duly authorized, executed and delivered by such Party and, assuming the due authorization, execution and delivery by the other Party and approval by the Examination and Approval Authority, constitutes the valid and binding obligation of such Party enforceable against it in accordance with its terms;

(iv)  

Neither the execution of this Contract or any Relevant Contract, nor the performance of such Party’s obligations hereunder or thereunder will conflict with, or result in a breach of or constitute a default under any provisions of the business license, resolutions of the shareholders’ meetings or Board, certificate of incorporation, articles of association, company ordinance or similar constitutional documents of such Party, as the case may be, or any law, regulation, rule, authorization or approval of any government agency or authority or any contract or agreement to which such Party is a party or by which it is bound;

(v)  

Such Party is, has been and, during the JV Term, will continue to be in compliance in all material respects with all applicable Law of its jurisdiction of incorporation and is not aware of any circumstances that would be a breach of any such Law;

(vi)  

As of the date of this Contract, there is no lawsuit, arbitration or legal, administrative or other proceeding or governmental investigation pending or, to the best knowledge of such Party, threatened against such Party with respect to the subject matter of this Contract or that would negatively affect in any way such Party’s ability to enter into or perform this Contract, and if any such lawsuit, arbitration or legal, administrative or other proceeding or governmental investigation should come to the knowledge of such Party after the date of this Contract it shall promptly notify the other Party and provide the other Party with detailed information with respect to such matter;

(vii)  

All documents, statements and information of, or derived from, any governmental body in the possession of such Party relating to the transactions contemplated in this Contract have been disclosed to the other Party or will be promptly disclosed to the other Party to the extent that they first come to the attention to such Party after the date of this Contract, and no document previously provided by such Party to the other Party contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements contained therein not misleading; and

(viii)  

Such Party has the full right and power to grant the licenses respectively set forth in the Asset Contribution and Purchase Contract

and the Party B Technology License and Support Contract identified in Section 6.1(e) and Section 6.1(f), as the case may be.

(b)  

Party A further represents and warrants to Party B as follows:

(i)  

Party A has procured all requisite permits and approvals from the relevant governmental departments to cooperate with the Company and Party B in accordance with the provisions of this Contract and the Related Contracts to which it is a party, including all requisite permits and approvals in relation to the contribution of State-owned assets, and that such permits and approvals shall be valid and in full force and effect during the JV Term;

(ii)  

Party A is the lawful owner of the Contributed Assets and the Purchased Assets (collectively with the Contributed Assets, the “ Transferred Assets ”), free and clear of all Encumbrances. Party A has the right to contribute the Contributed Assets and to sell the Purchased Assets to the Company and subsequent to the contribution of the Contributed Assets and the sale of the Purchased Assets to the Company such assets shall be owned by the Company free and clear of all Encumbrances. The Company will not be liable for any import duties, grant fees or any other fees, charges or expenses in connection with the contribution of the Contributed Assets and the purchase of the Purchased Assets except for the deed tax and stamp duty required to be paid by the Company pursuant to the Laws of the PRC in connection with the contribution or purchase of the machinery and structures by Party A to the Company. The Transferred Assets together with those assets specified in Appendix IV attached hereto (the “ Excluded Assets ”) comprise of all the assets, used and usable, that are associated with Plant Number 5;

(iii)  

Party A has been duly issued a Land Use Right Approval and Land Use Rights Certificate with respect to the Land, and Party A has the full legal right to lease the Land to the Company as contemplated in the Lease Contract identified in Section 6.1(c);

(iv)  

Party A has been duly issued building ownership certificates with respect to all of the buildings located on the Land in connection with Plant Number 5 and has the full legal right to contribute or sell, as the case may be, such buildings as contemplated in the Asset Contribution and Purchase Contract identified in Section 6.1(e); and

(v)  

All of the JV Products that are currently manufactured by Party A in Plant Number 5 and which will be manufactured by the Company have received all necessary environmental approvals from relevant Chinese governmental authorities, and shall meet all environmental requirements under the Laws of the PRC.

3.   

Establishment of Joint Venture Company

3.1.  

Establishment of the Company

The Parties hereby agree to jointly establish the Company at Yizheng, Jiangsu Province, PRC in accordance with the Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures, the Regulations for the Implementation of the Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures, other applicable Law of the PRC, this Contract and the Articles of Association.

3.2.  

Name and Legal Address

(a)  

The name of the Company shall be [Chinese text] in Chinese and Yihua Unifi Fibre Industry Company Limited in English.

(b)  

The legal address of the Company shall be: Yangzhou Chemical Industry Park, Jiangsu Province, PRC 211900.

3.3.  

Application

This Contract, the Articles of Association and the Feasibility Study Report shall be submitted by Party A to the Examination and Approval Authority for approval (the “ Application ”) as soon as possible after all of the following conditions have been fulfilled:

(a)  

The board of directors of each Party has adopted a resolution approving the transactions contemplated in this Contract;

(b)  

The transactions contemplated in this Contract have been duly approved by the shareholders of Party A voting at a duly convened shareholders’ meeting in accordance with Party A’s charter documents;

(c)  

This Contract, the Articles of Association and the Feasibility Study Report have been executed by the duly authorized representative of each Party hereto; and

(d)  

Each Party has initialed all of the Relevant Contracts specified in Section 6.1 as indication of its agreement with the form and content of each such Relevant Contract.

Party B shall have the right to review and approve all documents to be submitted in connection with the Application prior to such submission and no document shall be submitted until it is satisfactory to Party B.

3.4.  

Approval

(a)  

Party A shall notify Party B by facsimile within three (3) days after the Examination and Approval Authority issues the preliminary approval related to the establishment of the Company (the “ Preliminary Approval ”); Party A shall simultaneously deliver a copy of the Preliminary Approval to Party B together with such notification.

(b)  

If the Parties accept both the format and content of the Preliminary Approval, Party A shall, within seven (7) days after issuance of the Preliminary Approval, apply to the Examination and Approval Authority for issuance of the “Certificate of Approval for Establishment of Enterprises with Foreign Investment in the PRC” (the “ Certificate of Approval ”).

(c)  

If the Examination and Approval Authority requires any amendments to this Contract, the Articles of Association or the Feasibility Report Study Report or any of their attachments or appendixes with respect to the Application, the Parties shall promptly consult with each other and decide whether to make such amendments as required by the Examination and Approval Authority. If the Parties agree to make such amendment as required, they shall, as soon as practicable, execute an amended version of the relevant document, reflecting the amendments agreed by the Parties, and Party A shall apply to the Examination and Approval Authority for the Certificate of Approval within five (5) days after execution of such amended version of such document.

3.5.  

Business License

The Parties shall, within five (5) days after the Examination and Approval Authority issues the Certificate of Approval, jointly file copies of this Contract, the Articles of Association and the Feasibility Study Report, and an application with the SAIC for registration of the Company as a limited liability company and obtain the Business License for the Company. The date on which the first Business License of the Company is issued shall be hereinafter referred to as the “ Establishment Date .”

3.6.  

PRC Laws

All activities of the Company shall be in compliance with all applicable Laws of the PRC and shall be subject to the jurisdiction and protection of all such Laws.

3.7.  

Limited Liability

The Company shall be a limited liability company with enterprise legal person status. The liability of each Party with respect to the Company shall be limited to the amount it has subscribed to contribute to the registered capital of the Company (the “ Registered Capital ”) in accordance with Section 5.2. Neither Party shall have any liability to any third party in respect of the debts, liabilities or obligations of the Company.

4.   

Goals and Scope of Business Operations

4.1.  

Goals

The goals of the Parties in the establishment of the Company are to: (a) strengthen economic cooperation and technical exchange between the Parties in the field of manufacturing differentiated polyester filament in the PRC; (b) to operate a manufacturing plant in line with world class practices and standards by adopting advanced and appropriate technologies and scientific management methods; and (c) to earn favorable returns for the shareholders by producing high-quality products as designated by the Parties.

4.2.  

Business Scope

The initial Business Scope of the Company shall be the following:

To primarily engage in the manufacturing, processing and marketing of high value-added differentiated polyester textile filament products, including fine denier yarn and other polyester textile filament products; to engage in further value-added processing of polyester textile filament products, including by means of twisting, dyeing, covering, warping and beaming; to engage in polyester textile weaving, manufacturing and marketing; to conduct research and engage in development activities related to polyester textile products; to engage in the sale of self-produced products; and to provide after-sales service.

4.3.  

Project Scale

(a)  

The initial scale of production for the first year of the Company after its establishment is estimated to be:

DTY 80,000 tons

FDY 8,000 tons

POY 10,000 tons

(b)  

As more fully described in the Feasibility Study Report, the Parties wish to expand the scale of production to an annual sales of US$500,000,000 to US$600,000,000 within five (5) years after establishment of the Company, increasing from the current scale of approximately US$130,000,000 at Plant Number 5. During such five (5) year expansion period, the Company shall maintain an acceptable return on investment for the Parties. Accordingly, the Parties agree that the appropriate course of development for the Company shall include:

(i)  

optimizing the existing business of Plant Number 5 by higher yields and productivity, higher-value product mix and increased sales;

(ii)  

building additional processing capacity to absorb Party A’s surplus POY capacity;

(iii)  

introducing further value-added processes such as textured yarn package dyeing; and

(iv)  

investing in new polymerization and POY capacity for the Company’s use to expand the business.

(c)  

Subject to Section 4.3(b) above, the development plan and implementation schedule of the Company shall be decided by the Board based on domestic and international market conditions. In addition, the Company may expand or reduce production capacity, increase or decrease product varieties based on the capacity of the Company, the domestic and foreign market demand and other factors as decided by the Board.

5.   

Total Investment, Registered Capital and Method of Contribution

5.1.  

Total Amount of Investment, Registered Capital and Loans

(a)  

The total amount of investment of the Company (the “ Total Investment ”) shall be US$90,000,000.

(b)  

The Registered Capital shall be US$30,000,000.

(c)  

The difference between the Total Investment and the Registered Capital may be raised by the Company through loans as determined by the Board. If required by any financial institutions, the assets of the Company shall be mortgaged in accordance with Law as security for such loans.

(d)  

In order to realize the goals set forth in Section 4.3, the Parties agree that, within one year after the Establishment Date, upon approval of the Board, the Parties shall increase the Registered Capital to US$60,000,000 and the Total Investment to US$180,000,000.

5.2.  

Proportion of Investment, Method of Contribution, Currency

(a)  

The contribution to the Registered Capital subscribed by Party A shall be equal to US$15,000,000, representing a 50% equity interest in the Company. Subject to Section 5.4, Party A shall make its contribution to the Registered Capital in the form of certain assets located within or otherwise associated with Plant Number 5 (the “ Contributed Assets ”), and pursuant to an asset contribution and purchase contract between the Company, Party A and Party B (the “ Asset Contribution and Purchase Contract ”). At the time of their contribution, the Contributed Assets shall be free of all Encumbrances.

(b)  

The contribution to the Registered Capital subscribed by Party B shall be US$15,000,000, representing a 50% equity interest in the Company. Subject to Section 5.4, Party B’s contribution shall be made in cash in US Dollars.

(c)  

Party A shall sell to the Company, as mutually agreed by the Parties, certain assets located within or otherwise associated with Plant Number 5 with a total value equal to RMB367,469,836 (the “ Purchased Assets ”) pursuant to the Asset Contribution and Purchase Contract.

(d)  

The Transferred Assets, having a total value of RMB491,669,836 are listed in Appendix III attached hereto.

5.3.  

Procedure of Contribution

(a)  

Subject to Section 5.4(a), Party A shall, within thirty (30) days after the Establishment Date, complete the procedures for transfer of title to the Transferred Assets to the Company and shall, within sixty (60) days after the Closing Date, as defined in the Asset Contribution and Purchase Contract, provide the Company with a valid title certificate or statement in writing certifying that the Company holds valid title to and ownership in all Transferred Assets. The capital contribution shall be deemed completed when the Company obtains such title certificate or written certification. For the

purpose of calculating the US Dollar equivalent of Party A’s capital contribution, the applicable exchange rate shall be the average of the buying and selling rates for US Dollars quoted by the People’s Bank of China on the date on which the contribution is made.

(b)  

Subject to Section 5.4(b), Party B’s contribution specified in Section 5.2 shall be made in cash and shall be paid in a single lump sum within seven (7) days after the Establishment Date.

(c)  

Party B’s capital contribution to the Company as specified in Section 5.3(b) above shall be deemed completed when such payment of contribution is remitted into the bank account of the Company.

(d)  

Within fifteen (15) days after each Party has made its respective capital contributions in accordance with this Section 5, a certified public accountant registered in the PRC shall be engaged by the Company to verify the contributions made and issue a capital verification report to such effect. Within fifteen (15) days after receipt of each such capital verification report, the Company shall issue to such Party an investment certificate signed by the Chairman of the Board evidencing payment of such contributions as of the date of the issuance of the investment certificate.

5.4.  

Conditions for Contribution

(a)  

Party A shall not be obligated to make any contribution to the Registered Capital until each of the following conditions has been satisfied or waived in writing by Party A:

(i)  

following execution by the Parties, this Contract, the Articles of Association and other relevant documents have been approved by the Examination and Approval Authority without substantive amendments thereto;

(ii)  

the Business License has been issued without altering in any material respect the Company’s initial Business Scope as set forth in Section 4.2;

(iii)  

the Company has received all of the Company Approvals;

(iv)  

Party B or its Affiliate has executed each of the Relevant Contracts to which it is a party;

(v)  

the Company has secured working capital financing on terms satisfactory to the Parties; and

(vi)  

there has been no breach of any provision of this Contract by Party B.

(b)  

Party B shall not be obligated to make any contribution to the Registered Capital until each of the following conditions has been satisfied or waived in writing by Party B:

(i)  

following execution by the Parties, this Contract, the Articles of Association and other relevant documents have been approved by the Examination and Approval Authority without substantive amendments thereto;

(ii)  

the Business License has been issued without altering in any material respect the Company’s initial Business Scope as set forth in Section 4.2;

(iii)  

the Company has received all of the Company Approvals;

(iv)  

Party A or its Affiliate has executed each of the Relevant Contracts to which it is a party;

(v)  

Party A and the Company have entered into the Assignment and Assumption Contract in a form acceptable to Party B, and any and all third party consents in connection therewith have been obtained;

(vi)  

Party A has obtained all approvals necessary for the contribution of the Contributed Assets and the sale of the Purchased Assets;

(vii)  

the Company has secured working capital financing on terms satisfactory to the Parties; and

(viii)  

there has been no breach of any provision of this Contract by Party A.

(c)  

The Parties shall make all reasonable efforts to ensure the fulfillment of each of the conditions set forth in Sections 5.4(a) and 5.4(b) as soon as possible after the execution of this Contract. Such reasonable efforts shall include taking all measures, which are necessary or required for obtaining the Company Approvals (including delivery of notices, registration and filing) as soon as possible.

5.5.  

Increase and Reduction of Registered Capital

(a)  

The Company shall not increase or reduce the Registered Capital during the JV Term unless approved by the Board in accordance with this Contract and the Articles of Association and approved by the Examination and Approval Authority. The amount, mode and ratio of any capital increase or reduction shall be negotiated by the Parties and decided by the Board.

(b)  

In case of any increase or reduction in the Registered Capital, the Parties shall make amendments to the relevant provisions of this Contract and, upon the approval of the Examination and Approval Authority, register such change with SAIC. In the case of an additional subscription of increased Registered Capital, the Company shall issue to such Party a new investment certificate evidencing payment of the additional amount of contribution made by such party as of the date of the issuance of the new investment certificate, and cancel the original investment certificate issued to such Party.

5.6.  

Transfer of Equity Interest

(a)  

Neither Party A nor Party B shall sell, give, assign, transfer or otherwise dispose of any Equity Interest or any right, title or interest therein or thereto (each, a “ Transfer ”) to any third party (a “ Transferee ”) without the prior written consent of the other Party, except as expressly permitted by this Section 5.6. Any purported Transfer in violation of this Section 5.6 shall be null and void ab initio , and the Company and the Parties shall not register or recognize any such Transfer.

(b)  

Except as otherwise permitted in Sections 5.6(g), 5.7, 8.4 or 16.3 of this Contract, neither Party shall Transfer any Equity Interest to any Transferee during the period commencing on the Establishment Date and ending on the tenth anniversary of the Establishment Date.

(c)  

During the JV Term, neither Party may Transfer any Equity Interest to any Transferee, including an Affiliate of such Party, that directly or indirectly through its Affiliates, produces, markets or sells any products in competition with the JV Products.

(d)  

Notwithstanding any other provisions of this Contract and except if such Transfer is pursuant to Section 5.7, 8.4 or 16.3 of this Contract, no Transfer may be made unless (i) the Transferee has agreed in writing to be bound by the terms and conditions of this Contract and the Articles of Association, which may be amended and restated to the extent that the Parties and the Transferee agree to such amendments; and (ii) the Transfer complies in all respects with the other applicable provisions of this Contract, the Articles of Association and other relevant documents designated by the non-Transferring Party, including any Relevant Contract to which the Transferring Party or its Affiliate is a party.

(e)  

Subject to the restrictions set forth in Sections 5.6(b) and (c), if a Party wishes to Transfer all or any portion of its Equity Interest to a Transferee, such Party (the “ Transferring Party ”) shall provide a written notice (the “ Transfer Notice ”) to the other Party stating its wish to make such Transfer, the interest it wishes to Transfer, the price of such interest and the identity of the proposed Transferee. The other Party shall have the right of first refusal to purchase such Equity Interest on terms no less favorable than those offered to or by such Transferee. Within thirty (30) days of receipt of the Transfer Notice from the Transferring Party, the other Party shall deliver its response stating whether it chooses to exercise its right to purchase the Equity Interest that the Transferring Party wishes to Transfer. If the other Party fails to respond within such thirty (30) day period, it shall be deemed to have given its prior written consent to the Transferring Party’s Transfer of the Equity Interest on the terms set forth in the Transfer Notice.

(f)  

The Transferring Party and the Transferee shall enter into an equity interest transfer contract with respect to the Transfer of the relevant Equity Interest. The Parties shall thereafter amend this Contract and the Articles of Association to reflect the respective equity interests in the Company held by the Parties and the Transferee, subsequent to the completion of such equity

interest transfer contract and to reflect changes in the composition of the Board in accordance with Section 8.2(c). The Parties shall (i) cause the Company to apply to the relevant governmental authorities for approval of the Transfer and the amendments to this Contract and Articles of Association, (ii) cause the Company to apply for the issuance of a new Business License reflecting the relevant changes in the particulars of the Company set forth in the amendments to this Contract and Articles of Association, and (iii) use their best efforts to assist the Company to obtain all such approvals and the issuance of such license. The Parties shall, and shall cause the Company to, promptly execute all such further documents and perform all such further acts as the Transferring Party may reasonably require to constitute the Transferee, as the legal and beneficial owner of the equity interest Transferred pursuant to the Transfer free from any and all Encumbrances.

(g)  

Subject to the restriction set forth in Section 5.6(c), Party A may Transfer all or any portion of its Equity Interest to one or more Party A Affiliates (a “ Party A Affiliate Transferee ”), and Party B may Transfer all or any portion of its Equity Interest to one or more of its Affiliates (a “ Party B Affiliate Transferee ”) and the other Party hereby gives its prior consent to any such Transfer; provided that such Party A Affiliate Transferee or Party B Affiliate Transferee, as the case may be, has substantial assets and operating capacities relative to the scale of the Company’s business operations at the time of such Transfer. In case of a Transfer under this Section 5.6(g), the Transferring Party shall provide the other Party documents supporting the status of the relevant Affiliate Transferee, as a Party A Affiliate, in the case of a Transfer by Party A, or an Affiliate of Party B, in the case of a Transfer by Party B, and information on the businesses and commercial activities of the relevant Affiliate Transferee, including information related to the financial status and economic health of the relevant Affiliate Transferee and information on whether the relevant Affiliate Transferee produces, markets or sells any products in competition with the Company.

(h)  

In case of a Transfer by a Party A to a Party A Affiliate Transferee or Party B to a Party B Affiliate Transferee in accordance with Section 5.6(g), the Transferring Party and the relevant Affiliate Transferee shall enter into an equity interest transfer contract with respect to the Transfer of the relevant Equity Interest. The Parties shall thereafter amend this Contract and the Articles of Association to reflect the respective equity interests in the Company held by the Parties and the relevant Affiliate Transferee subsequent to the completion of such equity interest transfer contract and to reflect changes in the composition of the Board in accordance with Section 8.2(c). The Parties shall (i) cause the Company to apply to the relevant governmental authorities for approval of the Transfer and the amendments to this Contract and Articles of Association, (ii) cause the Company to apply for the issuance of a new Business License reflecting the relevant changes in the particulars of the Company set forth in the amendments to this Contract and Articles of Association, and (iii) use their best efforts to assist the Company to obtain all such approvals and the issuance of such license. The Parties shall, and shall cause the Company to, promptly execute all such further documents and perform all such further acts as the Transferring Party may reasonably require

to constitute the relevant Affiliate Transferee as the legal and beneficial owner of the Equity Interest Transferred pursuant to the Transfer free from any and all Encumbrances.

(i)  

If a Party A Affiliate Transferee or Party B Affiliate Transferee at any time ceases to be a Party A Affiliate, in the case of a Transfer by Party A, or an Affiliate of Party B, in the case of a Transfer by Party B, the Transferring Party shall ensure that the relevant Affiliate Transferee shall forthwith Transfer the Equity Interest back to such Transferring Party. The equity interest transfer contract to be entered into by the Transferring Party and the relevant Affiliate Transferee in accordance with Section 5.6(h) shall require that if such Affiliate Transferee at any time ceases to be a Party A Affiliate, in the case of a Transfer by Party A, or an Affiliate of Party B, in the case of a Transfer by Party B, the Transferring Party shall ensure that the relevant Affiliate Transferee shall forthwith Transfer the Equity Interest back to such Transferring Party.

5.7.  

Party B Put Option

(a)  

Party A hereby grants Party B an irrevocable option (the “ Party B Put Option ”), pursuant to which Party B shall have the right (but not the obligation) to sell all (but not less than all) of its Equity Interest to Party A, and Party A shall directly, or cause another Person to, purchase all the Equity Interest of Party B in accordance with the provisions of this Section 5.7. Party B shall have the right to exercise the Party B Put Option under either of the following circumstances:

(i)  

at any time during the period starting on the fourth (4th) anniversary of the Establishment Date and ending on the date that is six months after the fourth (4th) anniversary of the Establishment Date, at Party B’s discretion; or

(ii)  

in accordance with the provisions of Section 8.4(d).

(b)  

In accordance with the provisions of Section 5.7(a), Party B may exercise the Party B Put Option by delivering a notice (the “ Valuation Notice ”) to Party A and invoking the valuation procedures set forth in Section 17.

(c)  

After the determination of the Final FMV pursuant to Section 17, Party B shall have the right, within thirty (30) Business Days after such date of determination, to issue a notice (the “ Put Exercise Notice ”) to Party A stating that it intends to exercise its right to sell its entire Equity Interest to Party A at a purchase price equal to the Final FMV multiplied by the percentage of the Company’s total equity interests held by Party B at such time (the “ Put Exercise Price ”). Party A shall have the right to designate a third party to purchase the Equity Interest from Party B (the “ Third Party Buyer ”) by notifying Party B of the identity of such third party within thirty (30) Business Days after its receipt of the Put Exercise Notice.

(d)  

Within forty-five (45) Business Days after the date of delivery of the Put Exercise Notice, Party A or the Third Party Buyer, as the case may be, and

Party B shall execute an equity interest transfer contract with respect to the Transfer by Party B of its entire Equity Interest to Party A or the Third Party Buyer, as the case may be, for a total consideration of the Put Exercise Price. Unless otherwise agreed by the Parties, the terms of such equity interest transfer contract shall consist only of the Put Exercise Price, the date by which payment of the Put Exercise Price must be made by Party A or the Third Party Buyer, as the case may be, and any other terms required by Law, and shall not contain any other terms or conditions, including any representations or warranties by either Party. Party A agrees and covenants that, in the event that it designates a Third Party Buyer to acquire the Equity Interest from Party B, it shall guaranty the due performance of the Third Party Buyer’s obligations in connection with the Transfer of Party B’s Equity Interest. Each Party shall promptly cause the directors on the Board appointed by it to vote in favor of a resolution approving the Transfer. If any director does not vote in favor of such resolution, the Party that appointed such director shall promptly remove and replace such director and cause the newly appointed director to vote in favor of the resolution approving the Transfer.

(e)  

The Parties shall thereafter terminate this Contract and amend the Articles of Association to reflect the change in the equity interests in the Company subsequent to the completion of the relevant equity interest transfer contract and to reflect changes in the composition of the Board. Each Party shall promptly cause the directors on the Board appointed by it to vote in favor of any resolution approving any change in the size and/or composition of the Board resulting from the above sentence, and if any director does not vote in favor of such resolution, the Party that appointed such director shall promptly remove and replace such director and cause the newly appointed director to vote in favor of the resolution approving the proposed change of the Board. The Parties shall (i) cause the Company to apply to the relevant governmental authorities for approval of the Transfer and the amendments to the Articles of Association, (ii) cause the Company to apply to be converted from a Chinese-foreign equity joint venture company into a non-foreign invested domestic enterprise, if applicable (iii) cause the Company to apply for the issuance of a new Business License reflecting the relevant changes in the particulars of the Company set forth in the amendments to the Articles of Association, and (iv) use their respective best efforts to assist the Company to obtain all such approvals and the issuance of such Business License.

(f)  

If (i) Party B exercises the Party B Put Option or the Party B Deadlock Put Option, and (ii) following the exercise of either such option by Party B, the Company is converted from a Chinese-foreign equity joint venture company to a wholly domestically-owned company, then subject to the conditions and limitations set forth in this Section 5.7(f), Party B shall pay Party A or the Company, as the case may be, for the amounts of additional tax obligations payable by Party A or the Company, as the case may be, as specifically set forth in this Section 5.7(f). Party B shall only be liable under this Section 5.7(f) with respect to the following three taxes, being value-added tax, import tax and enterprise income taxes that (1) are directly attributable to the conversion of the Company from a Chinese-foreign equity joint venture company to a wholly domestically-owned company; (2) are required to be

paid by Party A or the Company, as the case may be, under the Laws of the PRC; (3) relate to the period beginning on the Establishment Date and ending on the date on which Party A received the relevant Option Notice from Party B; and (4) are actually paid by Party A or the Company, as the case may be, within six (6) months after the date on which the wholly domestically-owned company receives its business license. Party B’s liability for payment of such taxes that meet all of the conditions set forth in the preceding sentence shall be limited to the following amount: (i) fifty percent (50%) of the additional tax obligations of Party A or the Company, as the case may be, for the valued-added tax and import taxes, plus (ii) the amount that is the lesser of (a) fifty percent (50%) of enterprise income taxes and (b) the cumulative total of dividends that have been paid by the Company to Party B. As evidence of its payment of such additional tax obligations specified in this Section 5.7(f), Party A or the Company, as the case may be, shall provide to Party B: (1) a copy of the official receipt in respect of the payment of such additional tax obligations, and (2) a document setting forth the amount and type of taxes paid and the specific legal basis on which Party A or the Company, as the case may be, is required to pay each such tax, each issued to Party A or the Company, as the case may be, and affixed with the seal of the relevant tax authorities of the PRC. Party B shall pay the amount for which it is liable under this Section 5.7(f) within thirty (30) days after receipt of documents, in a form acceptable to Party B, evidencing payment by Party A or the Company, as the case may be, of such additional tax obligations. Party A shall, and shall ensure that the Company shall, take all reasonable actions to reduce its liability for the additional tax obligations specified under this Section 5.7(f).

6.   

Relevant Contracts

6.1.  

Execution of Relevant Contracts

Within seven (7) days of the Establishment Date, each Party shall execute each of the following contracts (collectively, the “ Relevant Contracts ”) to which it is a party, and shall cause its Affiliate and/or the Company, as the case may be, to execute each of the following contracts to which such Affiliate and/or the Company is a party:

(a)  

Utilities Supply Contract between Party A and the Company (the “ Utilities Supply Contract ”), pursuant to which Party A shall provide the Company with electricity, steam, nitrogen gas, water, compressed air, waste water treatment service and other utilities, in the agreed form;

(b)  

Comprehensive Services Contract between Party A and the Company and its Affiliates (the “ Services Contract ”), pursuant to which Party A and its Affiliates shall provide the Company with property management, road maintenance, fire control, environmental protection and certain other corporate services, as well as services related to the welfare and benefits of employees, in the agreed form;

(c)  

Lease Contract between Party A and the Company (the “ Lease Contract ”), pursuant to which Party A shall lease the Land to the Company for its use, in the agreed form;

(d)  

Raw Material Supply Contract between Party A and the Company (the “ Raw Material Supply Contract ”), pursuant to which Party A shall provide the Company with raw materials for use in the production of the JV Products, in the agreed form;

(e)  

Asset Contribution and Purchase Contract between the Company, Party A and Party B, pursuant to which Party A shall contribute the Contributed Assets and sell the Purchased Assets to the Company and license to the Company certain proprietary information and technology in connection with the manufacture and sale of the JV Products, in the agreed form;

(f)  

Technology License and Support Contract between Party B and/or its Affiliate and the Company (the “ Party B Technology License and Support Contract ”), pursuant to which Party B and/or its Affiliate shall license to the Company certain proprietary information and technology in connection with the manufacture and sale of the JV Products, in the agreed form;

(g)  

Trademark License Contract between Party A and the Company (the “ Party A Trademark License Contract ”), pursuant to which Party A shall license to the Company certain of its trademarks for use on the JV Products, in the agreed form;

(h)  

Trademark License Contract between Party B and/or its Affiliate and the Company (the “ Party B Trademark License Contract ”), pursuant to which Party B and/or its Affiliate shall license to the Company certain of its trademarks for use on the JV Products, in the agreed form;

(i)  

Sales Agency Contract between Party B and/or its Affiliate and the Company (the “ Sales Agency Contract ”), pursuant to which the Company shall pay Party B and/or its Affiliate certain commission fees for any customer referred to the Company by Party B or its Affiliates, as the case may be, in the agreed form;

(j)  

Assignment and Assumption Contract between Party A and the Company (the “ Assignment and Assumption Contract ”), pursuant to which Party A shall assign to the Company, and the Company shall assume, all of Party A’s rights and obligations under certain sales contracts entered into by Party A, in the agreed form;

(k)  

Other documents and agreements necessary for the full accomplishment of the transactions contemplated in this Contract.

7.   

Responsibilities of the Parties

7.1.  

Responsibilities of Party A

Party A shall be responsible for performing the following duties in addition to the other responsibilities set forth elsewhere in this Contract:

(a)  

strictly performing its obligations under this Contract, the Articles of Association and each Relevant Contract to which it is a party, and ensuring

that each of its Affiliates performs its obligations under each Relevant Contract to which such Affiliate is a party;

(b)  

filing all documents required for the establishment of the Company with the relevant Governmental Authorities, obtaining all necessary Company Approvals for the establishment of the Company and assisting the Company in obtaining and maintaining in force throughout the JV Term all Company Approvals and agreements that are necessary for the Company to achieve its goals and business objectives;

(c)  

assisting the Company in applying for and obtaining any existing preferential treatment in tax, customs, foreign exchange and other fields that are available or may be available under any preferential policy in accordance with Law;

(d)  

appointing in a timely manner members of the Board as specified in Section 8.2 hereunder;

(e)  

nominating in a timely manner candidates for Senior Management Staff as specified in this Contract and the Articles of Association;

(f)  

assisting the Company in obtaining financing deemed necessary by the Board, including the initial working capital financing referred to in Section 5.4(a)(v);

(g)  

assisting the Company in liaising with PRC government authorities and other PRC companies with which the Company wishes to cooperate (including Affiliates of Party A);

(h)  

causing its directors to exercise their voting rights in accordance with this Contract and the Articles of Association;

(i)  

assisting the Company in obtaining all necessary visas, travel documents and/or work permits for its expatriate employees and their families, including Party B’s secondees so as to enable them to enter, leave and stay in PRC for their work in the Company and other activities;

(j)  

providing and causing the Company to provide Party B and its Affiliates with all necessary assistance and cooperation in order for Party B and its Affiliates to comply with applicable Laws;

(k)  

assisting the Company in matters related to the employees of the Company;

(l)  

if requested by the General Manager, and to such extent as is necessary and convenient, supporting and assisting the Company in its production activities;

(m)  

if requested by the General Manager, assisting the Company in marketing the JV Products within PRC; and

(n)  

assisting the Company in other matters as requested by the Board from time to time.

7.2.  

Responsibilities of Party B

Party B shall be responsible for performing the following duties in addition to the other responsibilities set forth elsewhere in this Contract:

(a)  

strictly performing its obligations under this Contract, the Articles of Association and each Relevant Contract to which it is a party and ensuring that each of its Affiliates performs its obligations under each Relevant Contract to which such Affiliate is a Party;

(b)  

appointing in a timely manner members of the Board as specified in Section 8.2 hereunder;

(c)  

nominating in a timely manner candidates for Senior Management Staff as specified in this Contract and the Articles of Association;

(d)  

assisting in obtaining the approvals, permits, licenses and tax registration necessary for the establishment and legal operation of the Company and providing all necessary documents for such applications on a timely basis;

(e)  

assisting the Company in developing advanced management systems;

(f)  

assisting the Company with respect to developing systems for operation of the Company’s production lines in an efficient and effective manner;

(g)  

assisting the Company in preparing efficient staffing plans;

(h)  

assisting the Company in obtaining financing deemed necessary by the Board;

(i)  

causing its directors to exercise their voting rights in accordance with this Contract and the Articles of Association;

(j)  

assisting the Company in obtaining all necessary visas, travel documents and/or work permits for its Chinese employees so as to enable them to come in and out of and stay in the United States for technical training, carrying out work responsibilities and conducting other activities on behalf of the Company as requested by the Board;

(k)  

if requested by the General Manager, and to such extent as is necessary and convenient, supporting and assisting the Company in its production activities;

(l)  

assisting the Company in marketing the JV Products outside the PRC in accordance with the Sales Agency Contract; and

(m)  

assisting the Company in other matters as requested by the Board from time to time.

8.   

Board of Directors

8.1.  

Establishment of the Board

The Board shall be established on the Establishment Date.

8.2.  

Composition of the Board; Appointment, Dismissal and Remuneration of Directors

(a)  

The Board shall consist of six (6) directors, three (3) of whom shall be appointed by Party A and three (3) by Party B. The term of office for each director shall be four (4) years, renewable upon reappointment by the appointing Party. The term of the directors of the first Board shall commence on the Establishment Date. There is no restriction on the number of times a director may be reappointed.

(b)  

The Board