JOINT VENTURE CONTRACT
SHANGHAI INTERFACE CARPET CO. LTD.
March 20, 1996
TABLE OF CONTENTS
Page
ARTICLE 1 GENERAL STATEMENT 1
ARTICLE 2 THE PARTIES TO THE JOINT VENTURE 1
ARTICLE 3 DEFINITIONS 3
ARTICLE 4 ESTABLISHMENT OF THE JOINT VENTURE COMPANY 7
ARTICLE 5 PURPOSE, SCOPE OF OPERATIONS AND SCALE OF PRODUCTION OF
THE JOINT VENTURE COMPANY 10
ARTICLE 6 TOTAL INVESTMENT, REGISTERED CAPITAL, AND BORROWED
CAPITAL 11
ARTICLE 7 RESPONSIBILITIES OF THE PARTIES 19
ARTICLE 8 TECHNOLOGY LICENSE AND TRADEMARK 25
ARTICLE 9 CONFIDENTIAL INFORMATION 25
ARTICLE 10 NONCOMPETITION 27
ARTICLE 11 DISTRIBUTION OF PRODUCTS 27
ARTICLE 12 BOARD OF DIRECTORS 30
ARTICLE 13 OPERATIONS MANAGEMENT STRUCTURE 38
ARTICLE 14 PURCHASE OF EQUIPMENT AND MATERIALS 40
ARTICLE 15 PREPARATION AND CONSTRUCTION 41
ARTICLE 16 LABOUR MANAGEMENT AND TRADE UNION ORGANIZATION 42
ARTICLE 17 FOREIGN EXCHANGE 45
ARTICLE 18 FINANCE AND AUDITING 47
ARTICLE 19 TAXATION 51
ARTICLE 20 LAND USE 51
ARTICLE 21 WARRANTIES 52
i
ARTICLE 22 TERM 55
ARTICLE 23 DISSOLUTION, LIQUIDATION AND BUYOUT 56
ARTICLE 24 INSURANCE 60
ARTICLE 25 AMENDMENTS 60
ARTICLE 26 LIABILITIES FOR BREACH OF CONTRACT 60
ARTICLE 27 FORCE MAJEURE 61
ARTICLE 28 GOVERNING LAW 62
ARTICLE 29 DISPUTE RESOLUTION 62
ARTICLE 30 COUNTERPARTS AND LANGUAGE 63
ARTICLE 31 EFFECTIVENESS OF THE CONTRACT AND MISCELLANEOUS 63
ARTICLE 32 TERMINATION 67
ARTICLE 33 DEFAULTS 67
ARTICLE 34 SEVERABILITY 69
ARTICLE 35 NO INADVERTENT WAIVER OF RIGHTS 70
ARTICLE 36 NECESSARY MEASURES AND GOOD FAITH, NO AGENCY 70
ARTICLE 37 ASSIGNMENT OF THIS CONTRACT 70
ii
APPENDICES
Appendix I Schedule of Contributions to Registered Capital
Appendix II Technology License Agreement
Appendix III Trademark License Agreement
Appendix IV Site Plan
Appendix V Equipment List
iii
ARTICLE 1 GENERAL STATEMENT
This Contract is entered into this twentieth day of March,
1996 in Shanghai, the People's Republic of China (the "PRC") by
and between:
A) SHANGHAI CHINA TEXTILE INTERNATIONAL SCIENCE & TECHNOLOGICAL
INDUSTRIAL CITY DEVELOPMENT COMPANY, an enterprise
established in accordance with the laws of the PRC and a
legal person registered with the Shanghai Qingpu
Administrative Bureau of Industry and Commerce;
B) INTERFACE ASIA-PACIFIC, INC., an enterprise established in
accordance with the laws of the State of Georgia, the United
States of America;
C) BASF CORPORATION, a corporation established in accordance
with the laws of the State of Delaware, the United States of
America.
After friendly consultations and in accordance with the
spirit of equality and mutual benefit, Shanghai China Textile
International Science & Technological Industrial City Development
Company, Interface Asia-Pacific, Inc. and BASF Corporation
hereby agree to invest in and operate an equity joint venture in
China Textile International Science & Technological Industrial
City, Qingpu County, Shanghai and therefore agree as follows:
ARTICLE 2 THE PARTIES TO THE JOINT VENTURE
2.1 Party A
-------
Shanghai China Textile International Science &
Technological Industrial City Development Company
(hereinafter "Party A") was established in accordance with
the laws of the PRC and is a legal person registered with
Shanghai Qingpu Administrative Bureau of Industry and
Commerce.
-1-
Address : ▇▇. ▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
The People's Republic of China
Legal Representative : ▇▇▇▇ ▇▇ ▇▇▇▇▇
Position : President
Nationality : Chinese
2.2 Party B
-------
Interface Asia-Pacific, Inc. (hereinafter "Party B") is a
company incorporated under the laws of the State of
Georgia, the United States of America.
Address : Overlook III
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇
Legal representative : ▇▇▇▇▇ ▇▇▇▇▇▇
Position : President
Nationality : American
2.3 Party C
-------
BASF Corporation (hereinafter "Party C") is a corporation
incorporated under the laws of the State of Delaware, the
United States of America.
-2-
Address : ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - ▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇,
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇
Legal representative : ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Position : Group Vice President
Fiber Products Division
Nationality : American
ARTICLE 3 DEFINITIONS
The following terms used in this Contract shall have the
respective meanings set forth below:
3.1 "AFFILIATE" means in relation to any Party its parent
or holding corporation, or any legal entity at least
50% of the voting rights in which are controlled
directly or indirectly by such Party or its parent or
holding corporation.
3.2 "ARTICLES OF ASSOCIATION" means the Articles of
Association of the Joint Venture Company signed by the
Parties on March 20, 1996, with such amendments thereto
as may from time to time be duly adopted and approved
in accordance with the provisions thereof.
3.3 "BOARD OF DIRECTORS" means the Board of Directors of
the Joint Venture Company.
3.4 "CONFIDENTIAL INFORMATION" means all Technology (as
defined in the Technology License Agreement) as well as
all information, knowledge, codes, information
pertinent to the acquisition or use of raw materials,
machinery, tools or equipment, trade practices, know-
how, and secrets which if divulged or disclosed might
be detrimental to the commercial well-being of the
Joint Venture Company and/or the protection of the
Technology in any way communicated to the Joint Venture
Company by Interface or its Affiliates under the
Technology License Agreement, or by Party A or Party C,
save to the extent that such information is in or
becomes part of the public domain or is or becomes
known to the Joint Venture Company prior to its
disclosure to the Joint Venture Company by Interface or
its Affiliates or by Party A or Party C, or is at any
time disclosed to the Joint Venture Company by a third
party entitled to disclose it.
-3-
3.5 "CONTRACT" means this joint venture contract between
the Parties, including the appendices hereto (including
the Related Contracts), providing for the establishment
of the Joint Venture Company.
3.6 "EFFECTIVE DATE" means the date on which the
Examination and Approval Authority approves this
Contract and the Articles of Association of the Joint
Venture Company.
3.7 "ESTABLISHMENT DATE" means the date on which the
business license of the Joint Venture Company is issued
by the Shanghai Municipal Administrative Bureau of
Industry and Commerce.
3.8 "EVENT OF FORCE MAJEURE" means an earthquake, typhoon,
flood, fire, war declared or not, civil war, embargo or
any other unforeseeable, unpreventable or unavoidable
event whatsoever and without limitation, including any
event usually considered as an event of force majeure
under normal international commercial practice.
3.9 "EXAMINATION AND APPROVAL AUTHORITY" means the Shanghai
Foreign Investment Commission.
3.10 "FACILITY" means the factory to be constructed and the
equipment to be installed by the Joint Venture Company
for the production of the Products, and related
buildings and structures on the Land.
3.11 "FEASIBILITY STUDY" means the Feasibility Study Report
jointly prepared by the Parties.
3.12 "INDEPENDENT AUDITOR" means the independent registered
public accountant or firm of registered public
accountants registered in the PRC and selected by the
Board of Directors to perform auditing tasks required
by the Board of Directors and PRC law.
-4-
3.13 "INTERFACE" means Interface, Inc., a corporation
organized and existing under the laws of the State of
Georgia, the United States of America, having its
principal office at Overlook III, ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇, which is the parent company of Party B, and
is the licensor of Technology and the trademark
"INTERFACE" to the Joint Venture Company.
3.14 "INTERNATIONAL MARKET" means the markets in all
countries and regions outside of the PRC. For the
purpose of this definition, the territories of Taiwan,
Hong Kong and Macau shall be regarded as part of the
International Market.
3.15 "DOMESTIC MARKET" means the continental portion of the
PRC, excluding Hong Kong, Macao and Taiwan.
3.16 "JOINT VENTURE COMPANY" means the joint venture company
to be established by the Parties in accordance with
this Contract.
3.17 "JOINT VENTURE LAW" means the Law of the People's
Republic of China on Chinese-foreign Joint Ventures
adopted on July 1, 1979 and amended on 4th April 1990
by the National People's Congress.
3.28 "LAND" means the land to be used by the Joint Venture
Company.
3.19 "LAND USE CONTRACT" means the contract to be concluded
between the Joint Venture Company and the relevant
Shanghai land department providing for the transfer to
the Joint Venture Company of the land use rights to the
Land.
3.20 "NET BOOK VALUE" means the value of the net assets of
the Joint Venture Company as shown in the latest
audited accounts of the Joint Venture Company, and the
Net Book Value of any Shares will be the Net Book Value
divided by the total number of Shares, issued and
outstanding.
-5-
3.21 "PARTIES" means Party A, Party B and Party C or any two
of the parties, and a "PARTY" means Party A or Party B
or Party C.
3.22 "PRC" means the People's Republic of China.
3.23 "PRODUCTS" means carpet tile and roll goods of up to 2
meters wide with nylon face fibres and a polymeric
plastisol compound backing structure, together with any
new products manufactured and sold by the Joint Venture
Company.
3.24 "RELATED CONTRACTS" means the Trademark License
Agreement and the Technology License Agreement.
3.25 "RENMINBI" or "RMB" means currency of the PRC.
3.26 "SHARES" means the shares in the registered capital of
the Joint Venture Company from time to time.
3.27 "SITE PLAN" means the plan indicating the layout of the
Facility on the Land attached as Appendix IV hereto.
3.28 "TRADEMARK LICENSE AGREEMENT" means the agreement to be
concluded between Interface and the Joint Venture
Company providing for the license to the Joint Venture
Company by Interface for use of the trademark
"INTERFACE".
3.29 "TECHNOLOGY" means the technology to be licensed by
Interface to the Joint Venture Company in the form set
forth in the Technology License Agreement.
3.30 "TECHNOLOGY LICENSE AGREEMENT" means the agreement to
be concluded between Interface and the Joint Venture
Company whereby Interface grants a license for the use
of the Technology, as defined in the Technology License
Agreement, to the Joint Venture Company on the terms
and conditions set forth therein.
3.31 "THE THREE FUNDS" means collectively the Reserve Fund,
the Venture Expansion Fund, and the Staff and Workers
Bonus and Welfare Fund to be established by the Joint
Venture Company pursuant to the Joint Venture Law.
-6-
3.32 "US DOLLARS" or "US$" means dollars of currency of the
United States of America.
ARTICLE 4 ESTABLISHMENT OF THE JOINT VENTURE COMPANY
4.1 ESTABLISHMENT
In accordance with the Joint Venture Law and other
related laws and regulations of the PRC and the
provisions of this Contract, the Parties agree to
establish the Joint Venture Company as soon as
reasonably possible after the fulfillment of all the
conditions mentioned in Article 31.1 hereafter for
implementing this Contract in Shanghai.
4.2 APPROVAL AND REGISTRATION
After this Contract is signed, the Parties shall submit
it to the Examination and Approval Authority for
examination and approval, and shall within 30 days of
receipt of the final approval document carry out
registration procedures with the Shanghai
Administrative Bureau of Industry and Commerce.
4.3 NAME
4.3.1 The Joint Venture Company shall be named
"[Chinese symbols appear here]" in Chinese and "Shanghai
Interface Carpet Co. Ltd." in English.
4.3.2 Party B shall have the right by giving notice
to the Joint Venture Company to cause the Joint
Venture Company to change its name to a name
not including the word "[Chinese symbols appear here]" in
Chinese and "Interface" in English in the following
circumstances:
(a) The combined effective shareholding of
Party B and its Affiliates of the
registered capital of the Joint Venture
Company shall have been reduced to less
than 51 percent of the then registered
capital of the Joint Venture Company; or
-7-
(b) Liquidation of the Joint Venture Company
is completed pursuant to Article 23
hereof; or
(c) Party B requests in writing that change to
the Joint Venture Company.
4.4 ADDRESS
The legal address of the Joint Venture Company shall
be: China Textile International Science Technological
Industrial City, Qingpu County, Shanghai, the PRC.
4.5 LEGAL NATURE
4.5.1 The Joint Venture Company will be a Chinese
legal person and an autonomous economic entity.
4.5.2 All the activities of the Joint Venture Company
shall respect the laws, decrees and pertinent
rules and regulations of the PRC, and its
lawful rights and interests shall receive the
protection of such laws, decrees, and pertinent
rules and regulations.
4.5.3 The structure of the Joint Venture Company
shall be a limited liability company. The
liability of each Party with regard to the
risks and losses of the Joint Venture Company
shall be limited to the making of their
respective contributions to its registered
capital. None of the Parties shall bear any
liability for any of the debts or obligations
of the Joint Venture Company, other than each
Party's subscribed but unpaid contributions to
the Joint Venture Company's registered capital.
4.5.4 The Parties shall share profits of the Joint
Venture Company in proportion to their
contributions to the Joint Venture Company's
registered capital.
-8-
ARTICLE 5 PURPOSE, SCOPE OF OPERATIONS AND SCALE OF
PRODUCTION OF THE JOINT VENTURE COMPANY
5.1 PURPOSE
The purpose of the Joint Venture Company shall be, with
the desire of increasing the mutual economic
cooperation and technical exchange between the Parties,
and to further the PRC's economic development, to
import Party B's advanced equipment, scientific and
useful technology and production, operating and
management expertise relating to the Products, and to
produce and/or deal in the Products with a view to
earning satisfactory economic benefits for the Parties.
5.2 SCOPE OF BUSINESS
The scope of business of the Joint Venture Company
shall be to manufacture, market and sell carpet tile
and roll goods of up to 2 meters wide with nylon face
fibre and a polymeric plastisol compound backing
structure.
5.3 SCALE OF OPERATIONS
The initial annual production capacity of the Joint
Venture Company may reach approximately 3 million
square metres, which will be increased in phases to
approximately 10 million square metres per year.
ARTICLE 6 TOTAL INVESTMENT, REGISTERED CAPITAL, AND BORROWED CAPITAL
6.1 TOTAL INVESTMENT, REGISTERED CAPITAL AND BORROWED CAPITAL
6.1.1 The total amount of investment in the Joint
Venture Company is approximately US$12 million.
6.1.2 The registered capital of the Joint Venture
Company is US$5 million. The registration
currency is US Dollars.
-9-
6.1.3 Party A shall contribute 25%, i.e.
US$1,250,000, Party B shall contribute 70%,
i.e. US$3,500,000 and Party C shall contribute
5%, i.e. US$250,000, of the Joint Venture
Company's registered capital.
6.1.4 The balance of the investment, i.e. US$7
million, shall be met by interest free
shareholders' loans provided by the Parties in
respect to their share in the registered
capital of the Joint Venture Company, or by
obtaining loans from one or more financial
institutions inside or outside the PRC as
determined by the Board of Directors.
6.1.5 The working capital requirements of the Joint
Venture Company will be met by obtaining loans
from one or more financial institutions inside
or outside the PRC. Such loans may be secured
by the assets of the Joint Venture Company or
by guarantee provided severally by the Parties
in respect to their share in the registered
capital of the Joint Venture Company.
6.1.6 If required, additional working capital
requirements of the Joint Venture Company may
be met by shareholders' loans provided by the
Parties in respect to their share in the
registered capital of the Joint Venture Company
or by bank loans or as the Board of Directors
otherwise may determine.
6.2 FORM AND SCHEDULE OF CONTRIBUTIONS TO REGISTERED CAPITAL
6.2.1 The Parties' contributions to the registered
capital of the Joint Venture Company shall be
made in cash in accordance with the schedule
set out in Appendix I hereto. Party A's
contribution to the registered capital of the
Joint Venture Company shall be made in US
Dollars or its Renminbi equivalent. The
contribution of Party B and Party C to the
registered capital of the Joint Venture Company
shall be made in US Dollars.
6.2.2 Contributions to the registered capital of the
Joint Venture Company shall only be made after
the Joint Venture Company has received its
business license for carrying out the
activities as contemplated herein and the Joint
Venture Company has formally come into
existence as a legal person under PRC laws.
-10-
6.2.3 The first contribution to the registered
capital of the Joint Venture Company by each of
the Parties shall be 15 % of their respective
interest in the Joint Venture Company, and such
contribution shall be made within three months
of the issuance of the business license to the
Joint Venture Company by the Shanghai Municipal
Administrative Bureau of Industry and Commerce.
The details of further contributions are set
out in Appendix I of this Contract, with the
last contribution to be made not later than
twelve months from the date of the issuance of
the Joint Venture Company's business license.
6.3 VERIFICATION OF CONTRIBUTIONS
After the Parties have made particular contributions to
the registered capital in accordance with Appendix I
hereto, and after the Independent Auditor has verified
them and issued the verification certificates relating
thereto, the Board of Directors shall issue investment
certificates relating thereto in accordance with the
method set forth in Article 11 of the Articles of
Association. No Party may use an investment
certificate issued in the name of the Joint Venture
Company as security for a loan from a bank or financial
institution.
6.4 LATE CONTRIBUTIONS
If any Party fails to make its contribution to the
registered capital as required by Articles 6.1 and 6.2
hereof in the manner and in accordance with the
schedule set forth in Appendix I hereto, the matter
shall be handled in accordance with the Several
Provisions on Capital Contributions by Parties to
Chinese-foreign Joint Ventures. In addition, should
the breaching Party fail to make its contributions or
fail to make its contributions in full within thirty
(30) days from the scheduled contribution date, the
breaching Party shall pay to the Joint Venture Company
interest on the value of each late contribution until
the date when such contribution is actually made. The
rate of interest shall be equal to two percent (2%)
over the prime rate quoted by the Hong Kong and
Shanghai Banking Corporation for overdraft borrowings
in US Dollars during the same period.
-11-
6.5 ASSIGNMENT OF EQUITY
6.5.1 The Parties agree that at any time, any Party
may transfer to its parent company or any of
its Affiliates all or part of its equity in the
Joint Venture Company or to any entity with
which it may merge or amalgamate. The Parties
agree and warrant that in case where such
transfer would take place, the non-transferring
Parties will waive their preemptive right of
first refusal and will give consent in writing
to such transfer provided that the transferring
Party shall give notice of the transfer to the
non-transferring Parties and that the
transferee(s) shall agree in writing to be
bound by this Contract, and that the transferor
shall remain liable under this Contract to the
extent such transferee(s) fail to fully perform
its or their obligations hereunder.
6.5.2 Except as provided in this Contract, none of
the Parties shall be entitled to sell,
transfer, assign or otherwise dispose of all or
part of its Shares or to agree to do any of the
foregoing without the prior written consent of
the other Parties and such approvals as may be
required under PRC laws. Where one of the
Parties has obtained the prior written consent
of each of the other Parties and such approvals
as may be required under PRC laws to sell,
transfer, assign or otherwise dispose of all or
part of its Shares, then, unless such other
Party has, in giving their consents, also
waived their pre-emption rights under this
Article:
(i) The Party (the "Offeror") proposing to
sell, transfer, assign or otherwise
dispose of all or part of its Shares (the
"Relevant Joint Venture Interest") shall
first offer to transfer the Relevant Joint
Venture Interest to the other Parties, in
proportion to their participation in the
equity of the Joint Venture Company, and
shall give notice in writing (the
"Assignment Notice") of the proposed
assignment to the Joint Venture Company
and to the other Parties.
(ii) The Assignment Notice shall specify
whether the Relevant Joint Venture
Interest forms all or part (and, if part,
the extent) of the Shares of the Offeror
and the price and terms at which the
-12-
Offeror proposes to transfer the Relevant
Joint Venture Interest. The Assignment
Notice, once given, shall not be revoked
unless the other Party or Parties have
stated in writing that it does not intend
to purchase the Relevant Joint Venture
Interest, or the time for it to do so has
lapsed without necessary action by it to
preserve its rights to purchase. Any
such revocation must be in writing to the
other Parties.
(iii) Each of the other Parties shall have 30
days from the date of the Assignment
Notice (the "Offer Period") to notify the
Offeror in writing (a) whether or not it
intends to purchase the Relevant Joint
Venture Interest; and (b) if so, whether
or not it intends to purchase the Relevant
Joint Venture Interest at the price and
terms specified in the Assignment Notice.
(iv) If the other Parties (the "Purchasing
Parties") give notice to purchase the
Relevant Joint Venture Interest at the
price and terms specified in the
Assignment Notice pursuant to paragraph
(iii) within the Offer Period, then the
Offeror shall be bound to assign to the
Purchasing Parties the whole of the
Relevant Joint Venture Interest (in
proportion to the Purchasing Parties'
shareholding in the Joint Venture
Company), and the Offeror and the
Purchasing Parties shall proceed to
complete the assignment of the Relevant
Joint Venture Interest within 14 days
after the expiry of the Offer Period at
the price specified in the Assignment
Notice.
(v) If the other Parties give notice to
purchase the Relevant Joint Venture
Interest at a lower price or different
terms than specified in the Assignment
Notice pursuant to paragraph (iii) within
the Offer Period, then the Offeror shall
not be bound to assign to the other
Parties the Relevant Joint Venture
Interest, and the Offeror shall be
entitled to sell, transfer, assign or
otherwise dispose of the Relevant Joint
Venture Interest to any third party or
parties provided that the price and terms
at which the Relevant Joint Venture
Interest is to be sold, transferred,
assigned or otherwise disposed of shall
not be less in amount or less favourable
than the price and terms specified in the
Assignment Notice.
-13-
(vi) If the other Parties do not give notice to
purchase the Relevant Joint Venture
Interest pursuant to paragraph (iii) or if
the other Parties, after becoming bound
under the terms of this Article to
purchase from the Offeror the Relevant
Joint Venture Interest, default in doing
so or in paying the price therefor and
complying with all the terms thereof, then
the Offeror shall be entitled to sell,
transfer, assign or otherwise dispose of
the Relevant Joint Venture Interest to any
third party or parties and shall give
notice to the Joint Venture Company and
the other Parties of the third party or
parties to whom the Offeror intends to
sell, transfer, assign or otherwise
dispose of the Relevant Joint Venture
Interest. Such notice shall specify the
price and terms at which the Relevant
Joint Venture Interest is to be sold,
transferred, assigned or otherwise
disposed of, which shall not be less than
the price or at less favourable terms than
were specified in the Assignment Notice.
Any other terms upon which the Relevant
Joint Venture Interest is to be sold,
transferred, assigned or otherwise
disposed of to such third party or parties
shall also not be more favourable to such
third party or parties than the terms upon
which the Offeror has offered to assign
the Relevant Joint Venture Interest to the
other Parties.
(vii) If only one Party (the "Purchasing
Party") gives notice that it intends to
purchase the Relevant Joint Venture
Interest, the Purchasing Party shall be
given the option of purchasing the
remaining respective interest of the
Relevant Joint Venture Interest of the
non-purchasing party under the same price
and terms as in the Assignment Notice.
(viii) The sale, transfer, assignment or
disposal of the Relevant Joint Venture
Interest to any third party or parties in
accordance with paragraph (v) or (vi)
shall be effected only after such third
party or each such third party first
enters into a deed with the other Parties
providing for such third party or each
such third party to be bound by all the
provisions then subsisting of this
Contract insofar as they are applicable to
the Offeror.
-14-
(ix) Not withstanding the provisions of
paragraph (v) and (vi) above, none of the
Parties shall sell, transfer or assign all
or part of its shares to any third party
who is in competition or likely to be in
competition with the non selling Parties.
6.5.3 None of the Parties may create or permit to
subsist any mortgage, charge, pledge, lien,
encumbrance or other security interest on or
over or in respect of all or part of its Shares
without the prior written consent of the other
Parties and such approvals as may be necessary
under PRC laws.
6.5.4 In the event that any sale, assignment or
transfer of equity under this Contract shall be
subject to the validation or approval of the
government or authorities, such sale,
assignment or transfer shall not become
effective until such validation or approval has
been obtained in form and substance acceptable
to the Parties hereto.
When such validation or approval is required,
the periods of time during which the acceptance
by the Offeree of the sale, assignment or
transfer of the equity to a third party is
required to be made shall be extended by the
period of time reasonably necessary to obtain
such government or authority's approval.
6.5.5 Party A agrees to take promptly all measures
for obtaining relevant approvals from the
Chinese competent authorities with respect to
the transfer of the equity contemplated in this
Article.
-15-
6.5.6 Payments in connection with a transfer of Party
B or Party C's equity in the Joint Venture
Company shall be made in US Dollars or other
mutually agreed fully convertible international
foreign currency within 30 days after the
transfer procedures have been completed;
payment to Party A shall be made in RMB, US
Dollars or other mutually agreed foreign
currency.
6.6 INCREASE IN REGISTERED CAPITAL
6.6.1 The registered capital of the Joint Venture
Company may be increased only pursuant to a
unanimous decision of the Board of Directors
and with the approval of the Examination and
Approval Authority.
6.6.2 If it is necessary to increase the Joint
Venture Company's registered capital for
whatever reasons, the Parties may increase
their contributions to the registered capital
of the Joint Venture Company in proportion to
their respective shares in the original
registered capital of the Joint Venture
Company, provided such increase is made
pursuant to the unanimous resolution of the
Board of Directors and with the approval of the
Examination and Approval Authority.
6.6.3 In the event that a Party does not wish to
subscribe to the increase of the registered
capital of the Joint Venture Company, whether
in whole or in part, the Joint Venture Company
may allocate the unsubscribed equity to the
other Parties. The Party not wishing to
subscribe to such increase in the registered
capital of the Joint Venture Company shall
agree in writing in favor of such increase in
registered capital as required. The Parties'
respective shares of the registered capital of
the Joint Venture Company shall, after such a
change, be correspondingly revised and
adjusted.
6.6.4 Notwithstanding to Article 6.6.3 above, no
increase of registered capital shall be made,
nor shall any new registered capital be issued
if any of the Parties is unable to purchase
such shares due to any change of law,
regulation or guideline of any governmental
authority having jurisdiction over any of the
Parties, unless otherwise mutually agreed by
the Parties.
-16-
ARTICLE 7 RESPONSIBILITIES OF THE PARTIES
7.1 PARTY A'S RESPONSIBILITIES
In addition to the obligations elsewhere herein
specified Party A shall have the following
responsibilities under this Contract:
(a) To make its contribution of 25% of the registered
capital of the Joint Venture Company in accordance
with the provisions of Articles 6.1 and 6.2
hereof;
(b) To coordinate with the PRC government authorities
in connection with obtaining the business license
of the Joint Venture Company, and to assist the
Joint Venture Company in registering with the PRC
tax authorities, applying for preferential tax and
customs duties treatment, obtaining any necessary
import and export licenses, obtaining PRC
governmental approval of foreign exchange
balancing plans and activities and obtaining all
such other governmental approvals and permits as
are necessary or desirable for the furtherance of
the Joint Venture Company's business;
(c) To assist the Joint Venture Company in arranging
for customs clearance of the equipment, machinery
and other items that will be purchased with the
cash contributed by the Parties to the registered
capital of the Joint Venture Company;
(d) To assist the Joint Venture Company in recruiting
PRC personnel;
(e) To assist PRC personnel of the Joint Venture
Company to apply for the PRC entry and exit
permits and visas required for overseas travel
undertaken in connection with the Joint Venture
Company's business activities;
-17-
(f) To liaise with and, together with Party B and
Party C, take part in discussions with Chinese
financial institutions relating to financing for
the Joint Venture Company;
(g) To liaise with the Shanghai Qingpu County land use
department in carrying out the necessary
procedures to finalize the transfer of the land
use rights to the Land to the Joint Venture
Company;
(h) To assist the Joint Venture Company in securing
satisfactory housing, including both short-term
and long-term housing, for the Joint Venture
Company personnel sent by Party B to reside in PRC
and the dependents of such personnel;
(i) To assist the Joint Venture Company to arrange for
the provision of water, electricity, gas, steam,
waste water and waste disposal, transport and
telecommunications facilities, and such other
utilities, materials, and services as are
necessary for the full operational requirements of
the Joint Venture Company;
(j) To facilitate the Joint Venture Company's
development in the PRC by introduction to and
liaison with the relevant PRC government
departments, commercial enterprises, and other
relevant entities;
(k) In the event that any measure of legal or
administrative force is introduced or taken or any
commercial measure is implemented by any Chinese
entity whatsoever having detrimental effect on the
Joint Venture Company or on Party B or Party C,
liaise with the authorities responsible for such
measure and use its best efforts to remove or
limit such measure and detrimental effect to the
benefit of the Joint Venture Company or Party B or
Party C, as the case may be;
(l) To file or use in any country whatsoever any
patent application or industrial proprietary
rights applications relating to any know how
belonging to Interface and which may he either
licensed by Interface to the Joint Venture Company
or known by Party A; and
-18-
(m) To not do, or suffer to be done, any act or thing
which may, in any way, impair the rights of
Interface in and to the trademark "INTERFACE".
7.2 PARTY B'S RESPONSIBILITIES
In addition to the obligations elsewhere herein
specified, Party B shall have the following
responsibilities under this Contract:
(a) To make its contribution of 70% of the registered
capital of the Joint Venture Company in accordance
with the provisions of Articles 6.1 and 6.2
hereof;
(b) To assist the Joint Venture Company in arranging
for the procurement on the International Market of
any raw materials, machinery and equipment,
supplies, services, spare parts and other items
necessary or desirable for the operation of the
Joint Venture Company;
(c) To introduce to the Joint Venture Company foreign
nationals, as well as (if appropriate) people from
Hong Kong and Taiwan, to serve in senior
managerial and technical positions in the Joint
Venture Company;
(d) To cause Interface to license technology to the
Joint Venture Company, in accordance with the
provisions of Article 8.1 hereof and the
Technology License Agreement;
(e) To cause Interface to grant a trademark license to
the Joint Venture Company in accordance with the
provisions of Article 8.2 hereof and the Trademark
License Agreement;
(f) To arrange for, and participate in, discussions
with financial institutions inside or outside of
the PRC in an effort to help arrange financing for
the Joint Venture Company;
(g) To assist PRC employees of the Joint Venture
Company to obtain entry and exit permits and visas
overseas as needed for visits to those overseas
territories, and to assist with travel
arrangements; and
-19-
(h) To discharge the obligations under the
distribution contract in accordance with Article
11.2 hereof.
7.3 PARTY C'S RESPONSIBILITIES
In addition to the obligations elsewhere herein
specified, Party C shall have the following
responsibilities under this Contract:
(a) To make its contribution of 5% of the registered
capital of the Joint Venture Company in accordance
with the provisions of Articles 6.1 and 6.2
hereof;
(b) To assist the Joint Venture Company in arranging
for the procurement on the International Market
and within the PRC of any raw materials, machinery
and equipment, supplies, services, spare parts and
other items necessary or desirable for the
operation of the Joint Venture Company;
(c) To introduce to the Joint Venture Company foreign
nationals, as well as (if appropriate) people from
Hong Kong and Taiwan, to serve in senior
managerial and technical positions in the Joint
Venture Company;
(d) To assist the Joint Venture Company in
coordinating marketing and distribution operations
of the Products in China;
(e) To arrange for, and participate in, discussions
with financial institutions inside the PRC and, to
the extent authorized by relevant applicable laws,
outside of the PRC; and
(f) To not do, or suffer to be done, any act or thing
which may, in any way, impair the rights of
Interface in and to the trademark "INTERFACE".
7.4 SERVICES TO BE PERFORMED BY THE PARTIES
In order to implement a modern management structure and
improve the competitiveness of the Joint Venture
Company, the Joint Venture Company may contract with
the Parties or any outside consultant the performance
of services, such as:
-20-
- market survey regarding the position of the Joint
Venture Company with respect to the main
competitors;
- optimization of the purchase policy for raw
materials and components as well as selection of
the suppliers;
- implementation of modern hardware and software
systems for accounting and human resources
management;
- implementation of a modern accounting and
reporting procedures and systems for consolidation
purposes by each Party;
- recruitment of the Joint Venture Company's
personnel;
- training of the Joint Venture Company's personnel
in management operations as well as marketing and
sales of Products;
- assistance of technical and industrial experts
outside the scope of the Technology License
Agreement;
- other services mutually agreed upon between the
Parties.
The conditions of the services performed by each Party
to the Joint Venture Company shall be made at arms-
length.
The financial conditions of the services to be supplied
by each Party and/or the outside consultant shall
reflect the conditions of the market then in force.
In the case where the Joint Venture Company would
intend to invite any particular tenders for any
services from third parties, Party B will have a right
of preference provided that the financial conditions
made by the latter shall not exceed those made by the
relevant bidders.
-21-
ARTICLE 8 TECHNOLOGY LICENSE AND TRADEMARK
8.1 TECHNOLOGY LICENSE
The Joint Venture Company and Interface will enter into
the Technology License Agreement, a draft of which is
appended hereto as Appendix II, in order for the Joint
Venture Company to obtain the technology and technical
assistance listed therein relating to producing and
dealing in the Products.
8.2 USE OF TRADEMARK
The Joint Venture Company and Interface will enter into
the Trademark License Agreement, a draft of which is
appended hereto as Appendix III.
ARTICLE 9 CONFIDENTIAL INFORMATION
9.1 PROTECTION OF CONFIDENTIAL INFORMATION
The Joint Venture Company shall take every reasonable
precaution to safeguard and keep secret all
Confidential Information and will comply with all
reasonable and specific precautions which may be
requested by Interface, the Parties or any of the
Parties' Affiliates. Except as required by law, the
Joint Venture Company shall disclose the Confidential
Information only to such officers and employees of the
Joint Venture Company who require the information in
the performance of their duties. All such officers
and employees receiving Confidential Information shall
be advised by the Joint Venture Company of its
confidential nature and the prohibition on the use and
further disclosure thereof. The Joint Venture Company
shall use all reasonable endeavours to prevent any
unauthorised disclosure of Confidential Information by
any officer or employee of the Joint Venture Company.
9.2 NON-DISCLOSURE
Except as required by law, no disclosure of
Confidential Information shall be made to persons who
are not officers or employees of the Joint Venture
Company without the prior written consent of the
Parties, and any permitted disclosure shall be subject
to such terms and conditions as may be required by the
Parties. The contents of this Contract, the Articles
of Association, the Related Contracts, the Feasibility
Study and any relevant documents related to the
establishment of the Joint Venture Company shall be
treated as Confidential Information, and shall not be
disclosed by any of the Parties in whole or in part to
any third party except for the purposes of making
necessary applications or where such disclosure is
expressly permitted by this Contract or any relevant
Related Contracts, or required by law.
-22-
9.3 GOVERNMENT DISCLOSURES
The Parties recognize that Governmental agencies may
require Confidential Information on Products for
regulatory compliance purposes. The Parties agree
that the Joint Venture Company may file the required
disclosures under secrecy, provided that Interface, the
Parties, or the Parties' Affiliates (as necessary)
first provides written consent, such consent not to be
unreasonably withheld.
9.4 AFTER TERMINATION AND EXPIRATION
The provisions of this Article 9 shall continue in
force for a period of 10 years after expiration or
termination of this Contract.
ARTICLE 10 NONCOMPETITION
Party A, Party B and Party C agree that, as long as this
Contract is in effect unless they otherwise agree in writing,
they will not directly or indirectly invest in, own, or operate
with others a facility for the manufacturing in Shanghai of the
Products.
ARTICLE 11 DISTRIBUTION OF PRODUCTS
11.1 GENERAL
The Products may be sold on the International Market
and on the domestic Chinese market.
-23-
Provided that it is financially viable for the Joint
Venture Company to export the Products, the Joint
Venture Company will target to export 50% of its
Products insofar as is necessary and reasonable to
satisfy market demand and for balancing foreign
exchange requirements.
11.2 SALES ON THE INTERNATIONAL MARKET
Products for export to the International Market shall
be distributed exclusively through Party B or its
Affiliates on a competitive basis pursuant to a
distribution contract to be agreed by Party B or its
Affiliates and the Joint Venture Company.
11.3 SALES ON THE DOMESTIC MARKET
11.3.1 Products shall be distributed on the Domestic
Market using the following methods:
(a) directly by the Joint Venture Company;
(b) through agents authorized and appointed by
the General Manager; and
(c) in such other ways as the Board of
Directors shall approve.
11.3.2 For the purpose of sales in the domestic
market, the Joint Venture Company may enter
into distribution contracts and/or agency
contracts.
11.3.3 In order to contribute to the efficiency of the
commercial organization, the Parties shall
cause the Board of Directors of the Joint
Venture Company to establish a Commercial
Coordination Committee (hereinafter referred to
as the "Committee") which shall consist of the
following three (3) persons:
(1) the General Manager of the Joint Venture
Company;
(2) the Sales and Marketing Manager of the
Joint Venture Company;
-24-
(3) an Area Sales and Marketing Manager
designated by Party B;
The General Manager of the Joint Venture
Company shall preside and shall have authority
over such Committee.
The Committee shall be in charge of the
following:
(1) to coordinate marketing and distribution
operations between the Parties and the
Joint Venture Company;
(2) to coordinate the pricing policy between
the Parties and the Joint Venture Company;
(3) to define customer segments;
(4) to coordinate the promotion of Products
and other marketing communication
(catalogues, advertisement);
(5) to coordinate training of the Joint
Venture Company's sales force; and
(6) to coordinate services to be carried out
towards customers.
11.4 PRICING AND VOLUME
11.4.1 The General Manager, acting under authorization
from the Board of Directors, shall determine
the prices for Products sold on the Domestic
Market. Such prices shall respect relevant
Chinese regulations, shall be competitive, and
shall be set so as to enable the Joint Venture
Company to obtain a satisfactory level of
profit.
11.4.2 The General Manager, acting under authorization
from the Board of Directors, shall determine
the prices for Products sold on the
International Market which shall be set forth
in the distribution contract as referred to in
Article 11.2 hereof. Such prices shall be
competitive, and shall be set so as to enable
the Joint Venture Company to obtain a
satisfactory level of Profit.
-25-
ARTICLE 12 BOARD OF DIRECTORS
12.1 POWERS AND CONSTITUTION
12.1.1 The Joint Venture Company shall establish a
Board of Directors, which shall be the highest
authority of the Joint Venture Company and
shall be responsible for deciding all important
issues and approving the business plans
formulated by the management of the Joint
Venture Company.
12.1.2 The Board of Directors shall consist of four
members.
12.1.3 Party A shall appoint one director, who will
also act as the Vice Chairman of the Board of
Directors.
12.1.4 Party B shall appoint three directors,
including the Chairman of the Board of
Directors.
12.1.5 Party C shall not appoint any directors during
the term of this Contract.
12.1.6 Each director shall be appointed for a term of
four years, which may be renewed upon
reappointment by the Party that originally
appointed the director. Each Party shall have
the right, at any time, to remove and replace
any director whom it has appointed, but it must
first provide notice in writing to the other
Parties, to the Joint Venture Company and to
the former and newly appointed directors.
12.2 ESTABLISHMENT
The Board of Directors shall be deemed to be
established on the Establishment Date, and shall hold
its first meeting at the legal address of the Joint
Venture Company within ten days after the Establishment
Date.
-26-
12.3 RESPONSIBILITIES OF THE BOARD
The Board of Directors shall be responsible for
deciding all major issues and approving the business
plans formulated by the management of the Joint Venture
Company. The Board of Directors' primary areas of
responsibility are as follows, and the Joint Venture
Company may take these actions only after approval by
the Board of Directors:
(i) Decide on the Joint Venture Company's cessation or
expansion of production, termination, dissolution
and liquidation, or merger with another economic
organisation;
(ii) Sell, transfer, lease, license or in any way
dispose of all or a material part of the business,
undertaking, property or other assets of the Joint
Venture Company, including interests in any other
company whether by a single transaction or a
series of transactions, related or not with the
exception of equipment, machinery, raw materials
or vehicles with a cumulative book value as shown
in the latest audited accounts of the Joint
Venture Company of less than US$50,000;
(iii) Enter into any single transaction with a value
of more than US$20,000 (or its equivalent in local
currency) or a series of transactions with an
aggregate value of more than US$20,000 (or its
equivalent in local currency) in any calendar
year, if such transaction(s) is not provided for
in a current budget agreed by the Board of
Directors;
(iv) Commence, conduct, defend, settle, discontinue or
withdraw from any legal action or arbitration
proceedings, other than in the case of routine
debt collection for a sum not exceeding US$50,000
or its equivalent in local currency;
(v) Borrow any monies in any manner in excess of
US$50,000 including without limitation acceptance
credits, factoring, hire purchase, equipment
leasing and deferred payment, save to the extent
that such borrowing is reflected in any current
budget agreed by the Board of Directors;
-27-
(vi) Give any guarantee, indemnity or suretyship
(whether or not legally binding) in respect of the
liabilities or solvency of any third party or any
similar obligation;
(vii) Alter any mandate given to the Joint Venture
Company's bankers relating to any signature
authorization above US$20,000 concerning the
operation of such bank account;
(viii) Appoint or remove Independent Auditors;
(ix) Create, allot or issue any registered capital or
grant any right to acquire the allotment or issue
of any registered capital or permit the assignment
(other than as permitted in the Contract) of any
registered capital in any manner;
(x) Permit the passing of any resolution to amend any
provision of the Articles of Association or for
the winding up of the Joint Venture Company;
(xi) Create or issue any debenture, mortgage, charge or
other security, over assets having a value of, or
to secure indebtedness that exceeds US$50,000;
(xii) Pay any dividends or make any other
distribution of retained earnings;
(xiii) Enter into any contract which is outside the
ordinary and proper course of business of the
Joint Venture Company or is otherwise than at
arm's length or is of an unusual or onerous
nature;
(xiv) Decide on the appointment and dismissal of the
General Manager and the Deputy General Manager;
(xv) Make any change to the terms of engagement of the
General Manager of the Joint Venture Company
and/or any of its senior managerial staff, the
effect of which would be to provide to the General
Manager and/or such employees salary, fringe
benefits and/or other terms of appointment
substantially in excess of those prevailing in the
market;
(xvi) Review management reports submitted by the
General Manager;
-28-
(xvii) Approve the annual financial statement and
budget plans;
(xviii) Approve policies regarding the wages and
salary levels and bonuses of employees of the
Joint Venture Company;
(xix) Adopt major rules and regulations of the Joint
Venture Company;
(xx) Decide on the establishment of offices,
manufacturing facilities and branches in the PRC;
(xxi) Be responsible for the settlement of affairs
upon the dissolution of the Joint Venture Company;
(xxii) Adopt the annual business plan indicating the
financial and business objectives of the Joint
Venture Company for the ensuing year; and
(xxiii) Other major matters that are assigned to the
Board of Directors in this Contract or are
properly within the jurisdiction of the Board of
Directors in accordance with applicable law.
12.4 CHAIRMAN
The Chairman of the Board of Directors shall be the
legal representative of the Joint Venture Company. If
the Chairman is temporarily unable to exercise his
responsibilities, he shall authorize another director
to represent the Joint Venture Company.
12.5 DIRECTORS' INDEMNITY
The Joint Venture Company shall indemnify the directors
and hold them harmless from any liability in connection
with the Joint Venture Company's affairs arising out of
the proper exercise of their responsibilities as a
Director.
-29-
12.6 DIRECTORS' FEE
Unless agreed by the Board of Directors to the
contrary, no fee or remuneration shall be payable by
the Joint Venture Company to any Director. This
provision, however, shall not prohibit the payment of
any fee or remuneration to any Director in his capacity
as an employee of the Joint Venture Company, or
reimbursement to any Director for reasonable expenses
incurred by him acting in his capacity as a Director of
the Joint Venture Company.
12.7 MEETINGS
Regular meetings of the Board of Directors shall be
convened at least once each year. Interim meetings of
the Board of Directors may be convened by the Chairman
on ten (10) days' prior written notice based on a
proposal made by more than one-third of the total
number of directors.
12.8 LOCATION OF MEETINGS
Meetings of the Board of Directors shall generally be
held in Shanghai; upon agreement of the Board of
Directors they may also be held in other places.
12.9 PROCEDURES FOR MEETINGS
The Chairman shall notify each director in writing at
least 10 days before a regular meeting or a special
meeting of the Board of Directors, specifying the
matters to be covered and the time and place of the
meeting. Meetings of the Board of Directors may be
held by telephone or other means, as well as in person,
so long as all directors taking part can hear each
other. If the Chairman requests a meeting of the
Board of Directors upon less than 10 days notice, the
foregoing notices may be voluntarily waived by a
director. Attendance at a meeting of the Board of
Directors held on less than the required notice in
person or by proxy shall constitute such a waiver.
-30-
12.10 EQUAL RIGHTS
The rights of the directors to attend and vote at
meetings of the Board of Directors shall be identical
in all respects.
12.11 PROXY
A director may appoint a proxy to represent him at any
meeting of the Board of Directors and to vote thereat
on his behalf. Every appointment of a proxy shall be
in writing signed by the director by whom it is made
and shall be sent or delivered to the Chairman of the
meeting of the Board of Directors for which it is
given, at or prior to the commencement of such meeting.
If any director fails to appoint a proxy for a meeting
of the Board of Directors, and fails to attend such
meeting, he shall be considered to have waived his
rights to vote at such meeting.
12.12 QUORUM
A quorum for each Board of Directors meeting shall be
two-thirds of the total number of directors, and they
may be present in person or by proxy. When fewer than
two-thirds of the directors are present in person or by
proxy, resolutions adopted shall be invalid.
12.13 MINUTES OF MEETING
At each meeting, the Board of Directors shall appoint a
secretary, who may or may not be a director, to take
and prepare complete and accurate minutes (in both
English and Chinese) of all meetings and all business
transacted thereat. The secretary of the meeting
shall circulate the minutes to all of the directors as
soon as practicable after each meeting. Any director
attending the meeting (in person or by proxy) who
wishes to propose any amendment or addition thereto
shall submit the same in writing to the Chairman no
later than 7 days after the date of his receipt of such
minutes; otherwise he will be considered to have
ratified the minutes. The minutes shall indicate
which directors voted for and against all resolutions
acted on at the meeting.
-31-
12.14 MINUTE BOOK
At each meeting, the first item for consideration by
the Board of Directors (whether or not specifically
included in the agenda or notice) shall be the approval
of the minutes of the immediately preceding meeting and
the consideration of any amendments or additions
thereto proposed by any director. After approval by
the Board of Directors, the minutes of each meeting
shall be signed by the Chairman, shall be entered into
a minute book that shall be kept at the Joint Venture
Company or at such other place as may be decided from
time to time, and shall be conclusive of the
proceedings in question. The minute book shall be
available for inspection and copying by any director or
his authorized representative at all reasonable times,
and every director shall be furnished with a copy of
all signed minutes. The appointment and removal of
directors shall be recorded in the minute book,
together with each director's address for service of
notices. All notices of meetings, all agendas and all
proxies shall be filed in the minute book.
12.15 DIRECTORS' PERSONAL LIABILITY
Directors, or their duly appointed proxies, in carrying
out the functions of their posts within the scope
authorized by the Articles of Association shall incur
no personal liability in connection with the Joint
Venture Company's undertakings.
12.16 ADOPTING RESOLUTIONS WITHOUT MEETING
The Board of Directors may take actions and adopt
resolutions without convening a Board of Directors
meeting if all the directors agree in writing and if
that written agreement is entered in the minute book
referred to in Article 12.14 hereof.
12.17 UNANIMOUS DECISIONS
The following matters require unanimous adoption by all
directors:
(i) Amendment to the Articles of Association;
(ii) Termination and dissolution of the Joint Venture Company;
-32-
(iii) Increase or assignment of the registered
capital of the Joint Venture Company, or any
transfer thereof or of any part thereof; and
(iv) Merger of the Joint Venture Company with or sale
of all or substantially all of its assets to
another economic organisation.
Other matters require adoption by two-thirds of the
directors present and voting in person or by proxy at a
duly convened and properly constituted meeting of the
Board of Directors. In case of an equality of votes,
the Chairman shall have the casting vote.
ARTICLE 13 OPERATIONS MANAGEMENT STRUCTURE
13.1 GENERAL MANAGER, DEPUTY GENERAL MANAGER AND OTHER KEY MANAGERS
13.1.1 The Joint Venture Company will have a General
Manager, who shall be engaged by the Joint
Venture Company upon nomination by Party B, and
approval by the Board of Directors.
13.1.2 Party A shall have the right to nominate a
Deputy General Manager, who shall be appointed
by the Joint Venture Company upon approval by
the Board of Directors.
13.1.3 Other than the General Manager and the Deputy
General Manager, all other managers, staff and
workers of the Joint Venture Company shall be
appointed by the General Manager.
13.2 POWERS AND RESPONSIBILITIES OF THE GENERAL MANAGER
The General Manager shall be in charge of carrying out
the decisions of the Board of Directors of the Joint
Venture Company.
- The General Manager shall have general management
of the day to day business affairs and property of
the Joint Venture Company including, but not
limited to production, training and quality
supervision, marketing and sales, contracts
related to daily operations and administrative
duties such as finances, personnel and human
resources management as well as general
supervision over its officers and agents subject
-33-
to such limitations as the Board of Directors may
from time to time decide.
- The General Manager shall also enter into
contracts and other agreements on behalf of the
Joint Venture Company within the limits of
operating and capital budgets approved by the
Board of Directors and as otherwise provided
herein.
The General Manager shall:
- prepare and offer annual financial and sales
plans, including operating capital and budgets of
the Joint Venture Company for consideration and
approval by the Board of Directors;
- prepare and offer papers relating to the Joint
Venture Company's administrative and financial
affairs and regulations relating to the Joint
Venture Company's personnel for consideration and
approval by the Board of Directors;
- keep the Board of Directors informed of the state
and progress of matters relating to the Joint
Venture Company and inform the Board of Directors
on a timely basis of items requiring its attention
or action, including but not limited to problems
and progress towards their solution;
- prepare and offer for consideration and approval
by the Board of Directors within six (6) weeks
after the end of every fiscal year an annual
profit and loss statement and a balance sheet
calculating book values and preparing a profit
distribution plan; and
- submit to the Board of Directors annual reviews of
all key personnel with regard to achievement
level, motivation, style and development of
management culture.
-34-
13.3 Full Time Employment
Except as otherwise decided by the Board of Directors
all managers of the Joint Venture Company will devote
their full time and energies during normal working
hours to the affairs of the Joint Venture Company and
none of them may serve as managers of, or otherwise be
employed by, any other economic entity. None of them
may compete directly or indirectly with the Joint
Venture Company.
13.4 EXPATRIATE MANAGERS
Initially, the Joint Venture Company may employ several
expatriates in senior managerial and technical
positions. Over time, the Parties intend, to the
extent reasonably possible, to fill as many as possible
of these positions with PRC nationals.
13.5 COMPENSATION
The compensation of the General Manager and the Deputy
General Manager shall be determined by the Board of
Directors.
ARTICLE 14 PURCHASE OF EQUIPMENT AND MATERIALS
14.1 GENERAL PURCHASES
The Joint Venture Company shall have the right to
freely decide to purchase the equipment, raw materials,
parts, components, vehicles, office supplies and other
goods required by it either in the PRC or abroad. To
the extent consistent with considerations of
internationally competitive quality, price,
availability and other factors, such goods shall be
purchased in the PRC.
14.2 IMPORTS
14.2.1 The Joint Venture Company shall have the right
to carry out import/export operations in
accordance with PRC Laws. The Joint Venture
Company shall have the right to import raw
materials to Interface's specifications, and to
import semi-finished products for further
processing by the Joint Venture Company. The
Joint Venture Company shall also have the right
to import, from time to time, other items
including but not limited to processing
equipment, components, spare parts, etc. to
meet the operating requirement of the Joint
Venture Company.
-35-
14.2.2 The equipment the Joint Venture Company needs
to import in its initial phase of operation are
listed in Appendix V hereto.
ARTICLE 15 PREPARATION AND CONSTRUCTION
15.1 At its first meeting, the Board of Directors shall
establish a management structure to supervise the
construction of the Facility, and shall formulate a
plan covering the various aspects of preparation for
the commencement of operations of the Joint Venture
Company. Such management structure shall be managed
by the General Manager of the Joint Venture Company and
shall consist of 3 persons, which may include persons
seconded to the Joint Venture Company from the Parties
or Interface for the preparation and construction of
the Facility.
15.2 The management structure shall be responsible for the
following work:
- examining the design of the Facility;
- signing the project construction contract on
behalf of the Joint Venture Company;
- organizing the purchasing and inspecting of
related equipment, material etc.;
- working out the general schedule of project
construction;
- compiling the expenditure plans for the
construction of the Facility;
-36-
- controlling project financial payments and final
accounts of the project;
- drawing up managerial methods, keeping and filing
documents, drawing, files and material, etc.
during the construction period of the Facility.
15.3 The expenses incurred by the Parties and Interface's
personnel for performing the tasks and duties described
in this Article 15 shall be borne by the Joint Venture
Company.
ARTICLE 16 LABOUR MANAGEMENT AND TRADE UNION ORGANIZATION
16.1 GENERAL PRINCIPLES
16.1.1 All aspects of the Joint Venture Company's
labour management shall be in accordance with
the Provisions on Labour Management in Foreign
Investment Enterprises and the Regulations on
Labour Management in Foreign Invested
Enterprises in Shanghai.
16.1.2 The organisation structure and distribution of
staff and workers of the Joint Venture Company
shall be decided by the General Manager under
the guidance of the Board of Directors.
16.2 LABOUR CONTRACT SYSTEM
Unless otherwise decided by the Board of Directors:
(a) The staff and workers of the Joint Venture Company
shall be governed by the labour contract system;
(b) An individual labour contract shall be signed
between each staff or worker and the Joint Venture
Company; and
(c) Each labour contract will provide for the
following: employment, dismissal and resignation
of the staff or worker; term of contract and
probationary period; conditions for amendments to
and termination of the contract; production and
work duties; specific duties; grade and
compensation; labour insurance and welfare
benefits; labour protection and safety; labour
discipline; awards and penalties; liabilities for
breach of contract and other matters agreed upon
by both parties which are in accordance with PRC
state policies and regulations.
-37-
16.3 LABOUR MANAGEMENT DETAILS
16.3.1 The Joint Venture Company shall have the right
to recruit and hire staff and workers from
Shanghai, other places in the PRC, and from
abroad as appropriate in terms of necessary
skills and qualifications.
16.3.2 All employees, except the General Manager and
the Deputy General Manager, shall be hired
under the supervision of the General Manager,
and shall undergo examinations of their
qualifications.
16.3.3 All newly hired employees shall go through a
three-month probationary period.
16.3.4 The Joint Venture Company may in accordance
with relevant PRC and Shanghai laws and
regulations, and the individual labour
contracts, dismiss or temporarily lay off staff
and workers who after training are not able to
meet the standards required by the Joint
Venture Company to produce a high quality
product, or who, given the labour requirements
and profit objectives of the Joint Venture
Company are not required, or who refuse to
accept reassignment to positions appropriate to
their skills and training.
16.4 COMPENSATION
The compensation of all employees (except the General
Manager and the Deputy General Manager) including
wages, subsidy, bonus and welfare payments made on
behalf of the employee by the Joint Venture Company,
shall be determined by the General Manager in
accordance with guidelines established by the Board of
Directors.
-38-
16.5 TRADE UNION ORGANIZATION
16.5.1 The employees of the Joint Venture Company
shall have the right to establish a trade union
and carry out activities in accordance with the
stipulations of the Trade Union Laws of PRC,
the Articles of Association of the PRC Trade
Union and other relevant PRC regulations.
16.5.2 The trade union of the Joint Venture Company
will represent the interests of the employees
of the Joint Venture Company. The functions of
the trade union are: to protect the democratic
rights and interests of the employees pursuant
to relevant PRC regulations; to assist the
Joint Venture Company to arrange and make
rational use of welfare funds; to organize
study groups on business, science and
technologies for the employees; to carry out
literary, artistic and sporting activities; to
educate employees on labour disciplines and
diligent performance of the duties towards the
Joint Venture Company.
16.5.3 Each quarter, the Joint Venture Company shall
allot to the trade union an amount of money
corresponding to two (2) percent of the total
quarterly Joint Venture Company payroll of
union members as trade union funds.
ARTICLE 17 FOREIGN EXCHANGE
17.1 REGULATION
All foreign exchange matters of the Joint Venture
Company shall be handled in accordance with the
Regulations of the People's Republic of China on
Foreign Exchange Control and related regulations, and
other relevant PRC laws and regulations (collectively
referred to as the "Foreign Exchange Regulations").
-39-
17.2 FOREIGN EXCHANGE CONTROL
All foreign exchange revenue of the Joint Venture
Company shall be freely transferable into the PRC and
shall be deposited in the foreign exchange bank account
or accounts established by the Joint Venture Company
with the Bank of China and/or other banks inside the
PRC, and, after approval by the relevant PRC
authorities, outside the PRC, in accordance with the
Foreign Exchange Regulations. All foreign exchange
payments of the Joint Venture Company shall be paid out
of the above-mentioned bank accounts in accordance with
the Foreign Exchange Regulations.
17.3 FOREIGN EXCHANGE BALANCE
17.3.1 The Joint Venture Company may export a portion
of its output, and will at all times strive to
maintain a balance of foreign exchange revenues
and expenditures (including payment of
dividends).
17.3.2 The Joint Venture Company may adopt such
measures as may be allowed by PRC laws
including the Regulations of the State Council
Concerning the Issues of Balancing Foreign
Exchange Receipts and Disbursements by Joint
Venture Using Chinese and Foreign Investment to
enable it to balance its foreign exchange
receipts and payments. The Joint Venture
Company may also from time to time make use of
financial institutions authorized to engage in
the adjustment of foreign exchange to exchange
Renminbi for foreign exchange.
17.4 PRIORITY
The Joint Venture Company shall first utilize all
available foreign currency to satisfy the following
obligations in the following order:
(a) Importation of raw materials, parts and
components, etc. for general operating needs;
(b) Repayment of bank loans and interests;
-40-
(c) Payment of expatriates' salaries;
(d) Payment to Interface of the technology license fee
as provided in the Technology License Agreement,
and the trademark license fee as provided in the
Trademark License Agreement; and
(e) Distribution of profits to Party B and Party C (on
a pari passu basis).
ARTICLE 18 FINANCE AND AUDITING
18.1 ACCOUNTING SYSTEM
18.1.1 The Joint Venture Company shall establish a
financial and accounting system (the "Financial
and Accounting System") in accordance with the
Accounting System of the People's Republic of
China for Foreign Investment Enterprises and
related regulations and the particular
circumstances of the Joint Venture Company.
Circumstances not covered by relevant Chinese
laws and regulations will be dealt with by
reference to generally accepted relevant
international accounting principles. For
consolidating and reporting purposes, the Joint
Venture Company will also adopt international
accounting principles and practices, including
those relating to the business plan and budget.
18.1.2 The Financial and Accounting System shall be
implemented after being approved by the Board
of Directors. Changes in accounting
procedures and practices may be implemented
only upon approval by the Board of Directors.
The Financial and Accounting System, and
changes thereto, shall to the extent required
by relevant PRC regulations be filed with the
relevant PRC government departments.
18.1.3 The accounts of the Joint Venture Company shall
be maintained in Renminbi. Non-Renminbi
transactions will be translated into Renminbi
at the exchange rate for the involved foreign
currency quoted by the Bank of China prevailing
on the relevant transaction date. Monetary
assets and liabilities in foreign currencies
will be translated into Renminbi at the market
rates of exchange prevailing on the date that
they are included in the balance sheet.
Exchange gains and losses from foreign currency
translation will be dealt with in the profit
and loss account.
-41-
18.1.4 In order to meet the financial reporting
requirements of the Parties, the Joint Venture
Company shall prepare at the times and in the
manner required such financial information as
is required by the Parties.
18.1.5 The accounting records of the Joint Venture
Company shall be maintained in both Chinese and
English.
18.1.6 The Joint Venture Company's fiscal year shall
commence on January 1 and end on December 31 of
each year.
18.2 INDEPENDENT AUDITOR
The Independent Auditor selected by the Joint Venture
Company shall be an accountant registered in the PRC
and, if possible, a local office or affiliate of an
accounting firm of international reputation, who is
capable of performing accounting work meeting both PRC
domestic accounting standards and international
standards.
18.3 PARTY AUDITS
All account books of the Joint Venture Company shall be
made available for inspection or audit by any Party or
its representatives at all reasonable times. Any
Party shall have the right at any time to retain an
independent accountant to examine the accounting
records of the Joint Venture Company. The Joint
Venture Company and the other Parties shall extend full
cooperation to any such accountant, and shall allow him
full access to the records of the Joint Venture
Company. The expense of such audit shall be paid by
the Party that retained such accountant.
-42-
18.4 SPECIFIC ACCOUNTING MATTERS
Specific accounting matters (including recordkeeping,
accounting methods, bank accounts, fiscal year,
financial statements, depreciation and language of
accounts) are dealt with in this Article 18 and the
Articles of Association.
18.5 PRINCIPLES OF PROFIT DISTRIBUTION
18.5.1 Prior to distributing the after-tax profit of
the Joint Venture company, the Board of
Directors shall determine, every year, the
amount of such after-tax profit to be set aside
for the Three Funds in accordance with the
Joint Venture Law and other related laws and
regulations.
18.5.2 The annual rate of distribution of after tax
profit of the Joint Venture Company shall be
determined by the Board of Directors in
accordance with the financial resources, fixed
and working capital, loan repayment
requirements and mutually agreed future
expansion investments of the Joint Venture
Company. After-tax profits shall be
distributed to Party A, Party B and Party C in
proportion to their respective shares in the
registered capital of the Joint Venture
Company. Such distribution will be made within
three months of the end of each fiscal year of
the Joint Venture Company. Profits to be
distributed pursuant to this Article 18.5.2
shall be distributed in foreign currency (US
Dollars or another freely convertible
international currency in the case of foreign
currency distributed to Party B and Party C) to
the extent, but without limitation, specified
in Article 17.4 hereof. Such profits not able
to be distributed in foreign currency shall be
distributed in Renminbi.
18.5.3 Undistributed profits from previous years may
be included in the current year's distributable
profits. Notwithstanding the foregoing,
profits will not be distributed until the Joint
Venture Company's losses from previous years
have been made up.
18.5.4 Before contribution of the registered capital
has been completed, profit distribution may not
be carried out.
-43-
18.6 ACCOUNTING REPORTS
The Joint Venture Company shall deliver copies of its
monthly, quarterly and annual accounting statements to
the Parties, and, for so long as required by law, shall
deliver copies of its quarterly and annual accounting
statements to the tax office in Shanghai and the
relevant financial department. A copy of the annual
accounting statement shall be delivered to the
Examination and Approval Authority.
18.7 ANNUAL PLAN AND BUDGET
As soon as feasible following formation of the Joint
Venture Company, and thereafter prior to the
commencement of each financial year of the Joint
Venture Company (but in any event no later than the end
of the November preceding the commencement of the
following financial year), the General Manager shall
prepare and submit to the Board of Directors an annual
plan and budget for the coming year, including a
financial budget and a plan for capital investments and
dispositions, borrowings, and forecasts of price
levels, sales volumes, expenses, earnings,
distributable profits and such other items as are
required for production and business operations.
ARTICLE 19 TAXATION
19.1 JOINT VENTURE COMPANY
The Joint Venture Company shall pay taxes and customs
duties in accordance with the provisions of officially
promulgated laws, regulations and relevant agreements
of the PRC with relevant other countries. The Joint
Venture Company shall have the benefit of each and
every provision of preferential tax treatment accorded
to Chinese-foreign equity joint ventures established in
Shanghai.
19.2 INDIVIDUAL EMPLOYEES
The employees of the Joint Venture Company shall pay
individual income tax in accordance with the Individual
Income Tax Law of the PRC and other relevant laws and
regulations.
-44-
ARTICLE 20 LAND USE
20.1 LOCATION
The Joint Venture Company will occupy a piece of land
with approximate size of 10,500 square metres in China
Textile International Science & Technological
Industrial City, Qingpu County, Shanghai. Details of
the site is set forth in Appendix IV hereto.
20.2 LAND USE RIGHTS
20.2.1 The Joint Venture Company will obtain the
rights to use the Land for a period of 50 years
according to relevant PRC laws and regulations.
The price for the rights to use the Land shall
be stipulated in the Land Use Contract.
20.2.2 Immediately after the Establishment Date, the
Joint Venture Company will complete the
necessary steps to finalize the acquisition of
the land use rights to the Land under the
above-mentioned regulations, including
obtaining the Red Line Drawing, and executing
the Land Use Contract.
ARTICLE 21 WARRANTIES
21.1 PARTY A
Party A hereby makes to Party B and Party C the
following warranties:
(a) Party A is a legal person established in
accordance with the laws of the PRC, and has full
power and right to conduct its business within the
scope of its Business License;
(b) Party A has the authority to enter into and
perform its obligations under this Contract;
-45-
(c) Party A has taken all requisite action to
authorize the signing of this Contract and, upon
approval by the Examination and Approval
Authority, this Contract will be valid and legally
binding, and Party B and Party C shall have the
right to require Party A to perform its
obligations hereunder in accordance with its
terms;
(d) The execution and performance of this Contract by
Party A will not violate any other contract or
obligation of Party A or any currently effective
law, regulation, decree or policy of the PRC; and
(e) Party A shall sign and perform this Contract and
the Related Contracts on the basis of integrity,
trust and fairness. In implementing any matter
concerning the Joint Venture Company or Party B or
Party C, Party A shall not implement it on purpose
to prejudice the interests of the Joint Venture
Company or Party B or Party C.
21.2 PARTY B
Party B hereby makes to Party A and Party C the
following warranties:
(a) Party B is a validly existing corporation
organized under the laws of the State of Georgia,
the United States of America and has full power
and right to conduct its business within the scope
of its By-laws and Articles of Incorporation;
(b) Party B has the authority to enter into and
perform its obligations under this Contract and
the Related Contracts by the terms of which it is
a party;
(c) Party B has taken all requisite action to
authorize the signing of this Contract and, upon
approval by the Examination and Approval
Authority, this Contract will be valid and legally
binding, and Party A and Party C shall have the
right to require Party B to perform its
obligations hereunder in accordance with its
terms;
-46-
(d) The execution and performance of this Contract by
Party B will not violate any other contract or
obligation of Party B or any currently effective
law, regulation, decree or policy of the State of
Georgia, United States of America; and
(e) Party B shall sign and perform this Contract and
the Related Contracts on the basis of integrity,
trust and fairness. In implementing any matter
concerning the Joint Venture Company or Party A or
Party C, Party B shall not implement it on purpose
to prejudice the interests of the Joint Venture
Company or Party A or Party C.
21.3 PARTY C
Party C hereby makes to Party A and Party B the
following warranties:
(a) Party C is a validly existing corporation
organized under the laws of the State of Delaware,
the United States of America and has full power
and right to conduct its business within the scope
of its Memorandum and Articles of Association or
their functional equivalent;
(b) Party C has the authority to enter into and
perform its obligations under this Contract and
the Related Contracts by the terms of which it is
a party;
(c) Party C has taken all requisite action to
authorize the signing of this Contract and, upon
approval by the Examination and Approval
Authority, this Contract will be valid and legally
binding, and Party A and Party B shall have the
right to require Party C to perform its
obligations hereunder in accordance with its
terms;
(d) The execution and performance of this Contract by
Party C will not violate any other contract or
obligation of Party C or any currently effective
law, regulation, decree or policy of the State of
Delaware, the United States of America; and
-47-
(e) Party C shall sign and perform this Contract and
the Related Contracts on the basis of integrity,
trust and fairness. In implementing any matter
concerning the Joint Venture Company or Party A or
Party B, Party C shall not implement it on purpose
to prejudice the interests of the Joint Venture
Company or Party A or Party B.
21.4 INDEMNIFICATION
Each Party will indemnify the other Parties from any
and all losses that may arise out of the breach by such
Party of any of the warranties set forth in this
Article 21.
ARTICLE 22 TERM
22.1 TERM
The term of this Contract shall commence on the
Effective Date and shall remain in effect for 50 years
after the Establishment Date unless earlier terminated
in the manner specified herein.
22.2 EXTENSION
Unless any of the Parties gives notice to the other
Parties to object to an extension of the term of the
Joint Venture Company, the Parties shall begin
discussion on the extension of the joint venture term
no later than 6 months prior to its expiry, and file an
application to the Examination and Approval Authority
for approvals.
22.3 EXPIRATION
If the term of the Joint Venture Company is not
extended in accordance with Article 22.2 above, the
Joint Venture Company will be dissolved in accordance
with the procedures set forth in Article 23.2 hereof
upon expiry of the Joint Venture Company.
-48-
ARTICLE 23 DISSOLUTION, LIQUIDATION AND BUYOUT
23.1 DISSOLUTION
23.1.1 If:
(a) In the opinion of the Board of Directors the Joint
Venture Company suffers heavy losses so that it is
unable to continue operations;
(b) The Joint Venture Company is unable to continue
operations because of an Event of Force Majeure
that has continued or will continue for more than
one year;
(c) A Party commits a material breach and fails to
rectify such breach within 30 days after receipt
of notice thereof from another Party, and, in the
reasonable opinion of the non-breaching Party or
Parties, such breach defeats the economic
objectives of the Joint Venture Company or creates
a material risk of loss to said non-breaching
Party or Parties or materially and adversely
affects the value of its or their interest in the
Joint Venture Company;
(d) The Joint Venture Company is declared bankrupt or
insolvent or is otherwise unable to discharge its
financial obligations as they become due;
(e) Party A or Party B or their representatives are
effectively excluded for longer than four months
from participation in the Board of Directors or in
the management of the Joint Venture Company; or
(f) A material portion of the assets or properties of
the Joint Venture Company is expropriated or
requisitioned;
-49-
Then any Party, so long as it has not breached this
Contract and subject to reaching a mutual agreement
with the other non-breaching Party, if any, has the
right to have the Joint Venture Company dissolved
(subject to subsequent approval by the Examination and
Approval Authority), and, at the written request of any
Party, the Parties shall direct their appointed
directors unanimously to adopt a resolution to dissolve
the Joint Venture Company.
23.1.2 The Parties may also at any time agree
unanimously to dissolve the Joint Venture
Company, and instruct their appointed directors
to adopt a resolution approving such
dissolution.
23.2 PROCEDURES
Following adoption by the Board of Directors of a
resolution to dissolve the Joint Venture Company, the
Joint Venture Company shall apply to the Examination
and Approval Authority for approval of such
dissolution, and for termination of this Contract.
23.3 LIQUIDATION
Upon adoption by the Board of Directors of a resolution
to dissolve the Joint Venture Company, the Board of
Directors shall establish a committee to liquidate the
Joint Venture Company in accordance with relevant PRC
regulations, and the following provisions:
(a) The tasks of the liquidation committee shall be to
conduct a thorough check of the property, claims
and debts of the Joint Venture Company, to draw up
a balance sheet and inventory of assets, to
formulate a liquidation plan and to implement it
after such plan has been submitted to and adopted
by the Board of Directors;
(b) During the period of liquidation, the liquidation
committee shall represent the Joint Venture
Company in any litigation;
(c) The expenses of liquidation and the remuneration
of the members of the liquidation committee shall
be paid with priority from the existing assets of
the Joint Venture Company; and
-50-
(d) After payment of the liabilities of the Joint
Venture Company, the remaining assets shall be
distributed to the Parties in accordance with the
ratio of their respective contributions to the
registered capital, as of the date of adoption by
the Board of Directors of the resolution calling
for such dissolution. Payments to Party B and
Party C in connection with the liquidation shall
be made in US Dollars or other agreed currency
within 30 days after all liabilities of the Joint
Venture Company have been discharged.
In the event of either dissolution or liquidation of
the Joint Venture Company, or Party A or Party C buying
out the registered capital of Party B in the Joint
Venture Company, or the effective shareholding of Party
B or its affiliates in the Joint Venture Company shall
have been reduced to less than fifty one percent (51%)
of the then registered capital of the Joint Venture
Company, Party B shall have the right to immediately
terminate the Trademark License Agreement and the uses
by the Joint Venture Company of the trademark
"INTERFACE". Party B warrants that in such an event,
Party B will either allow the Joint Venture Company to
continue to sell the existing stock and work in
progress under the "INTERFACE" brand or will negotiate
to buy the existing stock and work in progress and
other branded materials from the Joint Venture Company.
23.4 Buyout
23.4.1 If, following the adoption by the Board of
Directors of a resolution to dissolve the Joint
Venture Company as provided in Article 23.1
hereof, one Party (or two Parties) desires to
continue the business of the Joint Venture
Company, and the other Parties (or Party)
desires to withdraw from the business of the
Joint Venture Company, a buyout of the Parties
(or Party) wishing to sell their registered
capital in the Joint Venture Company shall be
arranged in accordance with the following
provisions:
-51-
(a) The Parties shall confer and attempt to agree upon
a procedure for dealing with the purchase of the
registered capital of the Parties (or Party) that
wish to sell their registered capital in the Joint
Venture Company.
(b) If within sixty (60) days, the Parties do not
agree as to the steps to be taken to dispose of
the investment of the Parties (or Party) wishing
to sell their registered capitals in the Joint
Venture Company, the registered capital of such
Parties shall be disposed of on the following
basis.
Upon receipt of written notice from the Parties (or
Party) indicating its desire to sell their
shareholdings, the non-selling Party (or Parties) shall
for a period of sixty (60) days have the right to
notify the selling Parties (or Party) that it elects to
purchase the registered capital of the selling Parties
(or Party) at the price offered by a bona fide third
party or if no such price is available then at a price
(the "Price") based on the greater of: (i) Net Asset
Value shown in the most recent annual audited accounts
adjusted as appropriate for any dividends declared or
registered capital injections since the most recent
available balance sheet date; or (ii) a multiple of
three (3) times earnings before interest and taxes
shown in the most recent annual audited accounts (in
both cases the Price shall be calculated by multiplying
the total figure by the percentage of the registered
capital of the Joint Venture Company held by the
Parties (or Party) that are offering to sell their
registered capital in the Joint Venture Company).
Upon payment for the same the selling Parties shall
immediately take all steps necessary to transfer their
registered capital in the Joint Venture Company to the
purchasing Party, free and clear of all liens, claims
and encumbrances.
-52-
ARTICLE 24 INSURANCE
The various types of insurance required by the Joint
Venture Company shall be purchased from insurance
companies registered to do business in the PRC.
Matters such as the types, value, scope and term of
such insurance shall be decided by the Board of
Directors. If insurance companies registered to do
business in the PRC are unable to meet the Joint
Venture Company's requirements in respect of types of
insurance, scope of coverage and competitive rates,
upon the decision of the Board of Directors, the Joint
Venture Company may, in accordance with the scope
permitted by then prevailing PRC law, purchase such
insurance outside the PRC.
ARTICLE 25 AMENDMENTS
Any amendment of this Contract shall become effective
only after it has been agreed to in writing by all
three Parties and approved by the Examination and
Approval Authority.
ARTICLE 26 LIABILITIES FOR BREACH OF CONTRACT
If a breach by any Party or Parties causes the Joint
Venture Company to suffer any debt, liability or loss
(including but not limited to interest payments or
losses, but excluding lost profits) or causes the other
Party or Parties to suffer a debt, liability, or loss
(excluding lost profits) the Party or Parties in breach
shall completely indemnify the Joint Venture Company
and/or the other Party or Parties for all such losses.
If more than one Party is in breach, they shall bear
responsibility respectively in accordance with the
decision reached pursuant to the dispute resolution
procedures set forth in Article 29 hereof.
ARTICLE 27 FORCE MAJEURE
If all the following conditions are met, a Party that
fails to perform any of its obligations under this
Contract shall not be considered to be in breach:
(a) An Event of Force Majeure was the cause of said
Party's not fully performing its obligations under
this Contract;
-53-
(b) Said Party used reasonable efforts fully to
perform its obligations under this Contract and to
reduce the losses to the other Parties and to the
Joint Venture Company arising from the Event of
Force Majeure; and
(c) Within thirty (30) days after the occurrence of
the Event of Force Majeure, said Party provided
written notice thereof to the other Parties,
explaining why it did not and cannot fully perform
its obligations under this Contract.
However, should an Event of Force Majeure reasonably be
expected to last longer than four (4) months, the
Parties shall without delay meet to consult each other
and try to find an appropriate remedy to the situation
and to reach a mutual agreement thereon. Should the
Parties fail to reach an agreement within a five (5)
month period as from the expiration of said four (4)
month period, then the Parties agree to dissolve the
Joint Venture Company according to the provisions of
Article 23 hereinabove and terminate this Contract.
ARTICLE 28 GOVERNING LAW
The formation, validity, interpretation, performance
and settlement of disputes under this Contract shall be
governed by the laws of the PRC.
ARTICLE 29 DISPUTE RESOLUTION
29.1 CONSULTATION
Any dispute arising out of or relating to the
implementation of this Contract shall be resolved
through friendly consultation. Such consultation
shall begin immediately after one Party has delivered
to the other Parties written notice of a request for
such consultation.
29.2 ARBITRATION
If the dispute still cannot be resolved within 30 days
following the date on which such notice is given, any
Party shall have the right to submit the dispute to the
Arbitration Institute of the Stockholm Chamber of
Commerce in Stockholm, Sweden for arbitration in
accordance with its rules. In such an event:
-54-
(a) The procedures of the arbitration shall be
conducted in English, and a daily record of the
proceeding shall be compiled in English;
(b) There will be three (3) arbitrators. Party A and
Party B shall each appoint an arbitrator. The
third arbitrator, who shall also be the chief
arbitrator shall be appointed by the Director of
the Arbitration Institute;
(c) All the arbitrators shall be fluent in English;
and
(d) During the arbitration, the arbitrators shall make
reference to the English version of this Contract.
29.3 FINAL AND BINDING DECISION
The decision or award of the arbitrator(s) shall be
final and binding upon all three Parties, shall not be
appealable, and shall be enforceable in any court of
competent jurisdiction.
29.4 CONTINUED IMPLEMENTATION
During the period when a dispute is being resolved,
except for the matter in dispute, the Parties shall in
all respects continue their implementation of this
Contract unless that is impossible or impracticable due
to the nature of the dispute.
ARTICLE 30 COUNTERPARTS AND LANGUAGE
This Contract shall be executed in 20 counterparts
consisting of 10 counterparts of the Chinese language
text and 10 counterparts of the English language text.
Party A shall retain one English copy and one Chinese
copy, Party B shall retain one English copy and one
Chinese copy, Party C shall retain one English copy and
one Chinese copy, one English copy and one Chinese copy
will be filed with the Examination and Approval
Authority, and the remaining copies shall be
distributed to the relevant departments. The Chinese
and English language texts shall have the same legal
effect.
-55-
ARTICLE 31 EFFECTIVENESS OF THE CONTRACT AND MISCELLANEOUS
31.1 EFFECTIVE DATE
Following execution of this Contract and all the
Related Contracts, this Contract and the Related
Contracts shall be submitted to the Examination and
Approval Authority for approval, and shall become
effective on the Effective Date. Within five days
following such approval, Party A shall notify Party B
and Party C thereof, and shall at the same time send
Party B and Party C a copy of the original approval
document by telefax or by express air mail. It is
hereby understood between the Parties that in the case
where this Contract cannot become effective six (6)
months from the date of this Contract, this Contract
shall become null and void and none of the Parties
shall have any liability whatsoever to the other
Parties and no claim shall be allowed by one Party to
the other Party or Parties in that respect.
31.2 PREVIOUS AGREEMENTS
Except to the extent otherwise provided herein, this
Contract supersedes all previous proposals,
negotiations, letters of intent, minutes of meetings,
drafts and other agreements and documents between the
Parties regarding the subject matter hereof, both oral
and written, and such previous proposals, negotiations,
letters of intent, minutes of meetings, drafts and
other agreements and documents shall not be taken into
consideration in the interpretation or construction of
this Contract.
31.3 CONFLICT WITH ARTICLES OF ASSOCIATION
If, during the term of this Contract, there shall be
any conflict between the provisions of this Contract
and the Articles of Association, the provisions of this
Contract shall prevail.
-56-
31.4 APPENDICES
The Parties agree that at the time this Contract is
signed they will also sign all appendices hereto other
than the Related Contracts.
31.5 RELATED CONTRACTS
After the execution of this Contract, the duly
authorized representatives of each of the Parties shall
promptly indicate the Parties' agreement to the Related
Contracts by jointly signing the Related Contracts in
the form appended hereto on behalf of the Joint Venture
Company. As soon as possible after the Establishment
Date the Joint Venture Company will countersign all the
Related Contracts.
31.6 CONTINUING EFFECTIVENESS OF AGREEMENTS
Articles 9, 21 and 29 shall continue to be effective
after the termination of this Contract and the
dissolution of the Joint Venture Company.
31.7 NOTICES
All notices or other communications hereunder shall be
written in the preferred language of the recipient
(English or Chinese) and delivered personally or sent
by registered airmail, postage prepaid, or by telefax,
telegram or cable to the address of the receiving Party
set forth below or to such other address as may from
time to time be designated by such Party through
notification to the other Parties. The dates on which
notices shall be deemed to have been effectively given
shall be determined as follows:
(a) Notices given by personal delivery shall be deemed
effectively given on the date of personal delivery
provided that receipt shall be acknowledged in
writing by the receiver;
(b) Notices given by mail shall be deemed effectively
given on the 14th day after the date mailed (as
indicated by the postmark); and
-57-
(c) Notices given by ▇▇▇▇▇▇▇, telegram or cable shall
be deemed effectively given on the first business
day following the date of transmission, as
indicated on the document in question.
Party A: President
Shanghai China Textile International
Science & Technological
Industrial City Development Company,
▇▇. ▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
The People's Republic of China
Telephone: (▇▇-▇▇) ▇▇▇▇-▇▇▇▇
Fax: (▇▇-▇▇) ▇▇▇▇-▇▇▇▇
Party B: President
Interface Asia-Pacific, Inc.,
1413-1418, Shui On Centre,
▇ ▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇ ▇▇▇▇
Telephone: (▇▇▇) ▇▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇▇-▇▇▇▇
With a copy to: General Counsel
Interface Asia-Pacific, Inc.,
Overlook III,
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇
Telephone: (▇-▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇-▇▇▇) ▇▇▇-▇▇▇▇
-58-
Party C: General Counsel
BASF Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - ▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇,
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇
Telephone: (▇-▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇-▇▇▇) ▇▇▇-▇▇▇▇
31.8 CAPTIONS
The title headings herein are inserted for convenience
only and are not intended to affect the meaning of any
of the provisions hereof.
ARTICLE 32 TERMINATION
32.1 Any Party may terminate this Contract by operation of
law and without demand by written notice sent to the
other Parties according to the provisions of Article
31.7 hereinabove at any time prior to the release of
its first installment of capital contributions if any
of the other Parties has breached any material
representation, warranty, covenant or agreement
contained in this Contract, provided that this Contract
shall not be so terminated if any such breach, or an
unintentional misrepresentation shall be cured on or
prior to the release of its first installment of
capital contribution.
32.2 This Contract shall be deemed automatically terminated
towards any Party after the sale by such Party of all
of its equity to any other Party or to a third party
according to the provisions of Articles 6.5
hereinabove.
ARTICLE 33 DEFAULTS
33.1 If any Party commits an event of default (as defined in
Paragraph 33.3 below), then the other Parties shall be
entitled in their discretion to require the breaching
Party to sell to the latter in proportion (to each
other) of their participation in the Joint Venture
Company's equity all (but not part only) of the equity
in the Joint Venture Company held by the breaching
Party upon delivering written notice to the breaching
Party stating that the option hereby conferred is
exercised at any time within sixty (60) days of the
date of the occurrence of such event of default.
-59-
33.2 If the option created by paragraph 33.1 is exercised,
the breaching Party shall deliver to the other Parties,
within thirty (30) days of the date of the notice
exercising such option, a duly executed transfer of all
its equity in favour of the other Parties in proportion
of their participation in the Joint Venture Company's
equity (or as they may direct) upon full payment to it
of the Net Book Value of the equity of the Joint
Venture Company multiplied by the percentage of equity
held by the breaching Party. The equity so
transferred shall be deemed to be sold by the
transferor as beneficial owner with effect from the
date of such transfer free from any lien, charge or
encumbrance with all rights attaching thereto.
33.3 For the purpose of this Article, an event of default
means the occurrence of any of the following:
33.3.1 any Party committing a material breach of its
obligations under this Contract and, in the
case of a breach capable of remedy, failing to
remedy the same within thirty (30) days of
being specifically required in writing so to do
by the other Parties; or
33.3.2 the representations and warranties made by any
Party pursuant to this Contract are found to be
false or misleading in any material respect or
if any of the material covenants made herein or
therein for the benefit of the other Parties
are not complied with in all material respect;
or
33.3.3 any distress, execution, sequestration or other
process being levied or enforced upon or sued
out against the major portion of the property
of any Party which is not discharged within
thirty (30) days; or
33.3.4 any Party ceasing or threatening to cease
wholly or substantially to carry on its
business, otherwise than for the purpose of
reconstruction or amalgamation without
insolvency previously approved by the other
Parties (such approval not to be unreasonably
withheld); or
-60-
33.3.5 any receiver being appointed over the whole or
a major part of the undertaking, property or
assets of any Party; or
33.3.6 the making of any order or the passing of a
resolution for the winding up of any Party,
otherwise than for the purpose of a
reconstruction or amalgamation without
insolvency previously approved by the other
Parties (such approval not to be unreasonably
withheld).
33.4 Upon transfer of the equity, the defaulting
party shall procure to the non defaulting
Parties a resignation letter from each director
appointed by it.
ARTICLE 34 SEVERABILITY
If any of the provisions of this Contract are held
invalid or unenforceable and unless the invalidity or
unenforceability thereof does substantial violation to
the underlying intent and sense of the remainder of
this Contract, such invalidity or unenforceability
shall not affect in any way the validity or
enforceability of any other provisions of this Contract
except those of which the invalidated or unenforceable
provisions comprise an integral part of or are
otherwise clearly inseparable from. That invalidity
or unenforceability shall not affect any valid and
enforceable application of the remainder provisions,
and each such provision shall be deemed to be
effective, operative, made, entered into or taken in
the manner and to the full extent permitted by law.
ARTICLE 35 NO INADVERTENT WAIVER OF RIGHTS
No failure or delay on the part of any of the Parties
in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such power, right
or privilege preclude other or further exercise thereof
or any other right, power or privilege.
-61-
ARTICLE 36 NECESSARY MEASURES AND GOOD FAITH, NO AGENCY
The Parties shall in a timely manner take all measures
which are necessary or appropriate to cause the Joint
Venture Company and its Board of Directors to implement
the provisions of this Contract and the transactions
contemplated hereby, and the Parties shall at all times
act in good faith with respect to the obligations
incurred by them hereunder.
No Party shall be the agent, partner, or legal
representative of the others or of the Joint Venture
Company, either expressed or implied, nor shall any
Party have the right or power to enter into any
contractual obligation whatsoever on behalf of the
other Parties or the Joint Venture Company without the
prior written consent of the other Parties and/or the
Joint Venture Company.
ARTICLE 37 ASSIGNMENT OF THIS CONTRACT
Neither this Contract nor any rights or obligations
hereunder are assignable in whole or in part by a Party
without the prior written consent of the other Parties
except that this Contract, rights or obligations shall
be assigned in connection with and to the extent of a
transfer by any Party of all of its equity in the Joint
Venture Company as permitted under Article 6.5
hereinabove to a transferee which obtains such portion
of equity in accordance with the terms of this
Contract; provided that, there shall be no assignment,
in accordance with the terms of this Contract, of all
equity in the Joint Venture Company held by the
assigning Party without a simultaneous assignment of
all of the rights and obligations of the transferor
hereunder to the transferee.
It is hereby understood between the Parties that this
Contract shall not inure to the benefit of an assignee
or transferee in the case where any Party would assign
its equity to a third party which has not been agreed
by the other Parties. Such transfer of equity to a
third party shall be invalid and void and the assignor
shall assume all responsibilities as the Joint Venture
Company's Party.
-62-
IN WITNESS WHEREOF, Party A, Party B and Party C have
caused this Contract to be executed on the twentieth day of
March, 1996 in Shanghai, the People's Republic of China by their
duly authorized representatives.
Part A: )
SHANGHAI CHINA TEXTILE INTERNATIONAL )
SCIENCE & TECHNOLOGICAL INDUSTRIAL ) /s/
CITY DEVELOPMENT COMPANY ) ------------------
Party B: )
Interface Asia-Pacific, Inc. )
) /s/
) ------------------
Party C: )
BASF Corporation )
) /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
) ---------------------