PROJECT COOPERATION CONTRACT
(HEBEI PROVINCIAL MULTI-MEDIA NETWORK)
HEBEI CABLE TELEVISION STATION
AND
HEBEI UNITED TELECOMMUNICATIONS
EQUIPMENT COMPANY LIMITED
APRIL 8, 1997
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CONTENTS
Article I Definitions & Interpretation
Article II Representations and Warranties
Article III Covenants of Both Parties
Article IV Contract and Its Attachment
Article V Basic Content of the Contract
Article VI Content Outline of the Project
Article VII Providing Construction Capital
Article VIII Project Construction
Article IX Project Operation
Article X Investment Repayments and Profit Distributions
Article XI Project Asset Ownership
Article XII Rights and Obligations
Article XIII Advisory Board
Article XIV Project Expansion
Article XV Asset Transfer & Grant
Article XVI Insurance
Article XVII Confidentiality
Article XVIII Force Majeure
Article XIX Violation of the Contract
Article XX Termination of the Contract
Article XXI Governing Law
Article XXII Dispute Settlement
Article XXIII Term of the Contract
Article XXIV Fulfillment of the Responsibilities After Termination
of the Contract
Article XXV Transfer and Change of the Contract
Article XXVI Complete Contract
Article XXVII Miscellaneous
Attachment 1 Financial Implementation Details
Attachment 2 Technical Plan
Attachment 3 Project Asset Ownership
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Party A: Hebei Cable Television Station
Address: ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ Province
Zip Code: 050031
Legal Representative: Yang Xingsheng
Position: Deputy Director
Telephone: ▇▇▇▇-▇▇▇▇▇▇▇
Fax: ▇▇▇▇-▇▇▇▇▇▇▇
Party B: Hebei United Telecommunications Equipment Company Limited
Address: 11th Floor, 288 Songbiandian Building, Xinhua Road, Shijiazhuang
Hebei Province
Zip Code: 050051
Legal Representative: Liang Jiangli
Position: Chairman
Telephone: ▇▇▇▇-▇▇▇▇▇▇▇
Fax: ▇▇▇▇-▇▇▇▇▇▇▇
Pursuant to PRC laws and regulations, subject to the principles of fair
profit sharing, sincere cooperation, and, after amicable negotiations, both
Party A and B have agreed to enter into the following contract to develop the
Hebei Provincial Multi-Media Network:
ARTICLE I
DEFINITIONS:
1. Unless the context, including the recitals, in this contract require
otherwise, the following words and expressions shall have the meanings
shown below:
(1). "THE PROJECT" indicates the Hebei Provincial Multi-media Network
Project which will cover 11 cities in Hebei Province. This
network will not only transmit radio and television programs, but
will also be developed to offer various forms of information
services and provide information channels to different businesses.
(2). "THE CONTRACT" means the contract and its attachments signed by
Party A and B regarding the Hebei Provincial Multi-Media Network
Project ("Master Contract"). "ATTACHMENTS" means attachment 1, 2
and 3 of the Contract. Attachments are part of the contract and
can not be separated. When mentioning "the Contract", attachments
shall be included.
(3). "OPERATING REVENUES" mean the total revenues obtained through the
operation of the project, including cable TV subscription revenues,
line leasing revenues, advertising revenues, information service
revenues, etc.
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(4), "OPERATING COSTS AND EXPENSES" mean costs and expenses occurred
during project operation, including equipment maintenance expenses
(water, electricity, equipment, instrument, transportation
maintenance and other maintenance expenses), management expenses,
program expenses, and taxes (5% revenue tax and 3% income tax
according to the tax law issued by the state authority).
(5). "PROJECT CAPITAL" means all required capital to construct the
Project provided by Party B pursuant to the Contract (including
interest incurred during the construction phase. The interest
shall be calculated based on the loan interest rate issued by the
Bank of China at the time the amount of capital has been remitted).
(7). "PROJECT ASSETS" mean total of all fixed assets, intangible assets,
and deferred assets which is not considered fixed assets provided
by Project Capital invested by Party B.
2. The title of each article in the contract shall not be considered part of
the contract, and shall not restrict, modify or affect the meaning of the
contract.
ARTICLE II
REPRESENTATIONS AND WARRANTIES:
Both parties, or either party, upon execution of the Contract and thereafter,
represents and warrants that:
1. Both entities are corporations duly incorporated and existing in good
standing under the laws of the PRC, and have obtained the necessary
business license from the Industry and Commerce Administration Department.
Each party has its own company regulations and has maintained a good
reputation in its own business field. Both parties have the right to
execute the contract, and the execution and fulfillment of this contract
will not violate their respective corporate regulations.
2. Party B warrants that the execution and fulfillment of this contract will
not be in conflict with any other contracts, agreements or letters of
guarantee which have binding force on Party B or its assets.
3. Party B warrants that, pursuant to its current financial and business
situation, it has full power and authority to enter into and to perform
under the Contract in accordance with its terms. Further, it is possible
and feasible for Party B to fulfill its project construction
responsibilities.
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ARTICLE III
COVENANTS OF BOTH PARTIES:
Party A and B guarantee the following upon the execution of the contract:
1. Party A guarantees to pay all payments due to Party B in accordance with
the terms of the Contract.
2. Party A and Party B guarantee to fulfill all regulations issued by the
Chinese government relating to the Contract.
3. Party B guarantees to provide all required Project Capital pursuant to the
schedule, method, and sub-amounts required pursuant to the Contract.
ARTICLE IV
CONTRACT AND ITS ATTACHMENTS:
The Contract and its attachments shall be deemed as a complete legal document of
this project upon execution by Party A and Party B.
ARTICLE V
BASIC CONTENT OF THE CONTRACT:
Both parties agree that the contract shall include the following items:
1. All contents described in the Contract shall be confirmed and agreed by
both parties.
2. Based on this contract, Party B will have primary responsibility during the
construction period while Party A will be responsible for project
operation.
3. All equipment procurements, engineering designs and construction shall be
settled through a bid process in which both parties are involved.
4. Based on the technical plan, finalized by both parties, Party B shall be
responsible for raising the capital and shall control the use of such
funds raised.
5. Party A shall be responsible for the actual construction process. Upon
completion of project construction, both parties shall be responsible for
network testing and acceptance.
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6. Party A and Party B shall supervise and manage the operation of the
Project.
7. Party A and Party B shall set forth the employment and billing structures
for the Project. The structures will be implemented after they are
approved by the Provincial Employment Planning Commission and Pricing
Bureau
ARTICLE VI
CONTENT OUTLINE OF THE PROJECT:
The Project includes, but is not limited to, the following contents:
1. LOCATION OF THE PROJECT:
The location of the Project will be Hebei Province, the People's Republic
of China.
2. SIZE OF THE PROJECT:
(1). SIZE OF THE PROJECT:
A. To complete the network connection in 11 provincially administered
cities.
- To complete a self-healing loop network from Shijiazhuang,
Baoding, Langfang, Cangzhou, Hengshui and to Shijiazhang.
- To complete bus-organized transmission construction from
Shijiazhuang, Xingtai to Handan.
- To complete a digital microwave transmission network in the
northeast (from Langfang, Tangshan to Qinghuangdao)
- To complete the upgrade of microwave network digitization
from Yutian to Xinglong and Chengde in northern Hebei.
- To complete the upgrade of microwave network digitization
from Guan to Hengling, Xiahuayuan and Zhangjiakou.
- To complete the HFC upgrade in at least one city.
B. Construction Period: the construction will be finished one and a
half years after the Contract has been executed.
(2). AMOUNT OF PROJECT CAPITAL:
Phase one of the project requires an estimated investment of RMB 190
million. The actual investment amount invested will be determined in
the financial closing documents of the project approved by both
parties.
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(3). Once the Master Contract becomes effective, both parties shall
further negotiate a technical proposal. When approved, this
proposal shall be signed by both parties and shall be included
as Attachment 2.
ARTICLE VII
PROVIDING CONSTRUCTION CAPITAL:
Both parties agree that:
1. Once the Contract becomes effective, Party A shall submit a funding usage
plan to Party B one month before using such funds, and shall guarantee
that such funds will be used in accordance with the preliminary design of
the project as approved by both parties.
2. Party A shall formulate a funding usage plan for the construction of the
project based on the preliminary design approved by both parties. Such
plan shall be approved by Party B. Then Party B shall provide required
capital pursuant to the related construction development contracts.
3. Both parties shall fulfill their obligations to pay all expenses required
to purchase any imported equipment and domestic corollary equipment,
including, but not limited to, issuing the Letters of Credit pursuant to
Article VIII of the Contract.
4. Investment currency and foreign exchange rate: both parties agree that
mainly RMB will be invested for the construction and operation of the
Project, except for the purchase of imported equipment. When investing in
US dollars, the exchange rate shall be based on the average of the buying
and selling prices of the PRC's exchange rate. Party B shall be
responsible for handling all required procedures and related currency
exchange service charge.
ARTICLE VIII
PROJECT CONSTRUCTION:
1. Both parties agree to complete this project in accordance with the
following documents: (1) the approved preliminary design and construction
design of this project; (2) the Contract.
2. Both parties agree that the project construction includes, but is not
limited to, the following:
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(1). Both parties will appoint a qualified institute to be responsible for
the related designs. The designs shall be examined and approved by
both parties pursuant to the construction standards and procedures
issued by the State authority or Ministry of Radio, Film and
Television.
(2). Both parties are responsible for network testing and acceptance upon
network completion.
(3). After the testing and acceptance of the project construction, Party B
shall be responsible to draft the financial closing documents of this
project which need to be approved by both parties.
3. Both parties shall be responsible for selecting imported equipment and
domestic corollary equipment required by the construction of the project
through a public bid.
ARTICLE IX
PROJECT OPERATION:
1. When Party A starts to operate the network, Party A immediately obtains
the right for project operation, management, and maintenance, and the
right to receive revenues through network operation. Party B then
immediately obtains the right to supervise project operation and management
(see attachment 1 for operation structure) .
2. In order to fully utilize the initiative of both parties and improve the
efficiency of the operation, both parties shall establish an Advisory
Board. The Advisory Board will have financial report meetings and Board
meetings on a regular basis.
3. Party B shall only be responsible for the operating expenses pursuant to
the basic content of the project described in the Contract. Party A shall
be responsible for operating expenses not included in the Project.
4. Party B shall be able to participate in the project operation through
financial management at a minimum. Party B is allowed to appoint a PRC
representative to be jointly in charge of and to supervise financial
management and operation with Hebei Cable Television Station.
ARTICLE X
INVESTMENT REPAYMENTS AND PROFIT DISTRIBUTIONS
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1. Both parties have agreed on the form of the project operation in which the
project shall keep separate accounting and assume sole responsibility for
its profits and losses. All revenues generated by the Project, less all
expenses incurred during the process of generating such revenues, shall be
distributed. The method of asset amortization shall be handled based on
attachment 1 ("Financial Implementation Details").
2. DEPRECIATION: Before Party A obtains ownership of the assets of the
Project, ownership of all equipment of the Project shall be notarized with
a notary agency, and be temporarily recorded on Party A's account.
Depreciation shall then be accounted for as part of Party A's cost.
Depreciation shall be drawn from the revenue after operating tax has been
paid but before income tax is paid and shall be distributed between Party A
and Party B in accordance with their pro rata ownership of the project
assets. The profit retained after paying income tax shall then be
distributed on a 2:8 ratio (Party A 20% and Party B 80%).
3. INVESTMENT REPAYMENTS: During the period of investment repayments (the
period to repay all investment principle and interest incurred during the
construction phase), Operating Revenues, less Operating Costs and Expenses,
shall be distributed to Party A and Party B in the ratio of 20% and 80%,
respectively. After the period of investment repayments, the profit
distribution ratio shall be 70% to Party A and 30% to Party B until the
cooperation term is satisfied.
4. Operating expenses shall be confirmed by both parties.
5. Investment repayments and profit distributions shall be made on a quarterly
basis, but financial statements shall be prepared every 6 months.
ARTICLE XI
PROJECT ASSET OWNERSHIP (SEE ATTACHMENT 3)
ARTICLE XII
RIGHTS AND OBLIGATIONS:
Unless otherwise specified in the Contract, both parties shall be entitled to
the following rights and shall undertake the following obligations:
1. Party A:
(1). Shall participate in project construction and shall be responsible for
project operation.
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(2). Shall make all payments due to Party B in accordance with the terms of
the Contract.
(3). Shall obtain all approvals and permits required for the operation of
the project.
(4). Shall obtain all import permits for purchasing equipment and other
materials abroad.
(5). Shall develop this project pursuant to the terms of this Contract.
(6). Shall approve the financial closing documents of the project.
2. Party B:
(1). Shall be responsible for project construction, for raising project
construction capital, and for controlling the use of funds.
(2). Shall participate in the management of the project operation.
(3). Shall provide consulting services for project operation.
(4). Shall examine and approve the project's preliminary design (including
a budget estimate), and construction budget plans. In addition, Party
B shall submit the financial closing documents of the project. It
shall also examine and approve the annual project budget and annual
financial documents.
(5). Shall directly supervise the project's financial status during project
operation.
(6). Shall appoint management to participate in network operation and
financial management.
(7). Shall develop the Project pursuant to the terms of the Contract.
3. Each party shall fulfill its own responsibilities on a timely basis to
ensure that the construction and operation of the project proceed
smoothly.
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ARTICLE XIII
ADVISORY BOARD:
1. In order to settle any problems promptly during the operation of the
Project, both parties shall jointly establish an Advisory Board after the
network testing and acceptance (hereafter referred to as the "Advisory
Board").
2. Both parties will appoint 4 representatives to the Advisory Board. These 8
representatives shall be the formal members of such Advisory Board. The
Chairman of the Advisory Board shall be appointed by Party A and the Vice
Chairman shall be appointed by Party B.
3. The Advisory Board shall have the following responsibilities:
(1). It shall examine and approve the annual project budget plan and annual
financial documents.
(2). It shall resolve any major issues arising during project operation.
It shall also check and ratify operating expenses, billing structure,
and employment structure.
(3). It shall be responsible for any other tasks assigned by both parties.
Other than the above described responsibilities, it shall also examine,
approve and supervise all issues deemed necessary by both parties.
4. The time, location, subject and agenda of the Advisory Board meetings shall
be decided by the Chairman and Vice Chairman.
5. If 2/3 of the 8 members of the Advisory Board members attend the meeting,
such meeting shall be deemed effective. Any resolutions passed by at least
2/3 of the 8 members of the Advisory Board shall be deemed effective. If
any member can not attend a meeting for any reason, he is allowed to
appoint a representative to attend the meeting with a written notice. His
representative shall be entitled to have the same rights as other formal
members on the board.
ARTICLE XIV
PROJECT EXPANSION:
Party A shall determine any expansion of the project according to market demand.
When additional investment is required, Party B shall provide any required
capital if it decides not to give up its right of investment.
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1. SIZE OF PROJECT EXPANSION:
A. To upgrade the networks in certain cities.
B. To connect 40 counties to the provincial network.
2. The estimated investment amount will be ▇▇▇ ▇▇▇ million.
ARTICLE XV
ASSET TRANSFER AND PRESENT:
During the term of the Contract, neither party shall transfer, present or sell
the assets to a third party without getting written approval from the other
party.
ARTICLE XVI
INSURANCE:
1. Both parties shall select the appropriate type of insurance, insurance
amounts and insurance clauses for project equipment. The insurance
premium shall be accounted for as part of construction and operating
expenses. The insurance beneficiary shall be identified in the insurance
contract.
2. Party A or Party B (During the construction period, Party B shall be the
policyholder. During the operation period, Party A shall be the
policyholder) shall purchase insurance from the insurance companies in
China to insure the equipment or assets of this project for the full amount
based on the type of insurance, insurance amount and insurance clauses
selected by both parties. During the construction of this project, Party
B shall be the policyholder and shall pay for the insurance premium, and
the amount shall be regarded as part of its investments. When Party A
formally starts to operate the network, Party A shall be the policyholder
and shall pay for the insurance premium, and the amount shall be regarded
as part of Operating Costs and Expenses.
ARTICLE XVII
CONFIDENTIALITY:
1. During the term of the Contract and three years after the termination of
the Contract, both parties shall not disclose, release, or provide any
information to a third party, which includes financial, business related,
technological, managerial and other related documents and information
obtained from the other party (either orally or in writing).
2. The above confidential responsibilities shall exclude the following:
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(1). Information already known to the recipient of the Contract before the
information is delivered by the other party of the Contract.
(2). Any confidential information already in the public domain, or the
release of information is not a mistake caused by the recipient of the
Contract.
(3). Information received from a third party outside of the Contract.
Since no third party has responsibility to keep the information
confidential, it may disclose or release this information to the
recipient of the Contract.
(4). The confidential information was developed alone by the recipient of
the Contract.
(5). One party of the Contract has obtained a written agreement from
another party of the Contract to disclose or release any confidential
information to a third party outside of the Contract.
3. Disclosing, releasing or providing confidential information shall be
permitted in the following situations:
(1). It is required by documents issued by the government authority which
is based on laws and regulations.
(2). It is required to source orders, or to fulfill equipment purchase
contracts or service contracts.
(3). Confidential information has become public information through other
methods without violating the confidentiality provisions.
(4). Either party of the Contract may disclose certain confidential
information to its technical consultants who are also subject to the
same confidentiality provisions.
4. Either party of the Contract may disclose certain confidential information
to employees or contractors if required. However, the employees or
contractors shall be restrained by the same confidentiality provisions.
ARTICLE XVIII
FORCE MAJEURE:
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1. During the term of the Contract, if the performance of the Contract is
prevented by any cause beyond its reasonable control including acts of
earthquake, storms, war, fires, floods, strikes, riots, government martial
law or other natural disaster and any other event which that party could
not foresee at the time of executing this contract, both parties shall
handle such matters pursuant to relevant Chinese regulations.
2. The obligations of a party shall be terminated, in whole or in part, if its
power to perform the terms of the Contract is prevented by any course
beyond its natural control.
3. The party whose obligations are terminated by reasons of any such event
shall notify the other party of the Contract of such event by telex or fax.
In addition, it shall submit effective documents issued by government
agencies related to such event within 30 days, stating the nature of the
event, the reasons for the party's inability to fulfill its
responsibilities or to delay the fulfillment of its responsibilities. Both
parties shall immediately resolve the situation to minimize all losses that
may be incurred by such event.
ARTICLE XIX
VIOLATION OF THE CONTRACT:
1. If the Contract or part of the Contract cannot be fulfilled due to one
party's violation of the Contract, the violating party shall be responsible
for compensating any direct losses. If both parties violate the Contract,
both parties shall pay for any compensation in accordance to the party's
responsibilities based on the specific situation.
2. Both parties agree that neither party has the right to terminate the
Contract except for causes beyond its reasonable control, or due to severe
violations of the Contract performed by both parties which result in the
inability to fulfill the Contract.
ARTICLE XX
TERMINATION OF THE CONTRACT:
1. The contract may be terminated under the following situations, and with the
consents of both parties:
(1). If the normal operation of the Project is prevented by any of the
force majeure events.
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(2). If the normal operation of the Project is prevented due to
non-performance or violations of the Contract by Party A or Party B.
(3). If the normal operation of the Project is prevented due to other
reasons. And both parties agree that there is not a future for
further project development.
2. If the time of termination is during the investment repayments period, the
following method shall be applied:
At the time of termination agreed by both parties, if the total investment
repayments made by Party A to Party B is less than the Project Capital,
then party A shall pay to Party B an amount of money within 60 days after
the termination of the contract in accordance with the following
calculation:
Due payment amount = (Project Capital - Paid Investment Repayments) +
(Project Capital - Paid Investment Repayments) x (bank deposit
interest/day) x (number of days from the termination date of this contract
to the date of paying such Due payment amount to Party B)
3. If the time of termination is after the investment repayments period, the
following method shall be applied:
Due payment amount = (Operating Revenues - Operating Costs and Expenses) of
the previous year of the Contract termination date/365 x 30% x (20 x 365 -
the actual cooperation date before the termination of this contract).
ARTICLE XXI
GOVERNING LAW:
This contract shall be governed by and interpreted in accordance with the laws
of the PRC.
ARTICLE XXII
DISPUTE SETTLEMENT:
1. Any disputes, differences in opinion, or conflicts arising out of the
Contract during the fulfillment of the Contract shall, to the fullest
extent possible, shall be settled amicably by negotiation and discussion
between the parties.
2. If such disputes, differences in opinion, or conflicts can not be settled
by amicable agreement within 60 days of one party submitting a written
notice
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to the other party, it shall be submitted to the Hebei Arbitration
Committee for arbitration.
3. The arbitration shall be conducted under "PRC Arbitration Law".
4. Any decision taken by the arbitrators will be final, binding and
conclusive.
5. The arbitration fee shall be paid by the party who loses the case.
6. During the process of arbitration, both parties shall continue to operate
the Project in accordance with the Contract, except for the part currently
under arbitration.
ARTICLE XXIII
TERM OF THE CONTRACT
1. The Contract shall be deemed effective upon execution of the Contract by
Party A and B (Master contract and all attachments will become effective
simultaneously upon execution of the Contract by both parties).
2. The term of this contract commences on the effective day, and terminates 20
years from the date of formal operation of the project (the same date 20
years after the date of formal operation).
ARTICLE XXIV
FULFILLMENT OF THE RESPONSIBILITIES AFTER TERMINATION OF THE CONTRACT:
1. Upon termination of the Contract and pursuant to the terms of the Contract,
if there are unfulfilled responsibilities according to the Contract by
either party, such party shall fulfill any remaining obligations (including
payment owed by Party A to Party B during the term of the Contract).
2. Before one party has completely fulfilled its obligations, the other party
still has the binding right toward that party on any unfinished
obligations.
ARTICLE XXV
TRANSFER AND CHANGE OF THE CONTRACT
Neither Party A nor Party B shall transfer the Contract, any portion of the
Contract, any right, profit or obligations specified by the Contract to a third
party without prior written consent from the other Joint Venture party.
ARTICLE XXVI
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COMPLETE CONTRACT
The Contract and its Attachments are the only contract regarding this project
signed by Party A and Party B.
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ARTICLE XXVII
MISCELLANEOUS
1. Any amendments to the Contract shall only become effective after such
amendments are signed by authorized persons from both parties.
2. Any notice, request, or communications to be given under this contract
shall be sent by registered mail, and shall be written in Chinese.
Telegram, telex and fax shall are acceptable. However, the original copy
shall be sent by registered post to each party. Any telex, telegram, fax
and registered mail shall be sent to the following address:
Party A: Hebei Cable Television Station of the PRC
Address: ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ Province
Zip Code: 050031
Receiver: ▇▇▇▇ ▇▇▇
Fax: ▇▇▇▇-▇▇▇▇▇▇▇
Party B: Hebei United Communications Equipment Company Limited
Address: 288 Xinhua West Road, Shijiazhuang, Hebei Province
Zip Code: 050051
Receiver: Xiao Jun
Fax: ▇▇▇▇-▇▇▇▇▇▇▇
3. The notice shall be effective from the date of receipt of such post.
4. This contract is written in Chinese and has two copies. Each party holds
one copy, and each copy has equal legal force.
5. This contract has been signed on April 8 ,1997 by representatives of Party
A and B at Shijiazhuang, the People's Republic of China.
Party A: Hebei Cable Television Station
Representative: Yang Xingsheng
Position: Deputy Director of Radio and Television Department of
Hebei Province
Party B: Hebei United Telecommunications Equipment Company Limited
Representative: Xiao Jun
Position:
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