Baotou Steel - General Steel
Special Steel Pipe
Joint Venture Agreement
 (Amendment)

 
 

 
 

BAOTOU IRON & STEEL GROUP CO., LTD.
TIANJIN DAQIUZHUANG METAL SHEET CO., LTD.
 

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JOINT VENTURE AGREEMENT

1. GENERAL PROVISIONS

1.1
In accordance with the Laws of the People’s Republic of China on Joint Ventures
Using Chinese and Foreign Investment (“Joint Venture Law”) and other relevant
published laws and regulations of China, the following Parties hereby enter this
initial joint venture agreement (“Agreement”) with the intention of forming a
joint venture enterprise.

 
2. PARTIES TO THE JOINT VENTURE

2.1   
Parties to this Agreement are as follows:

Party A: Tianjin Daqiuzhuang Metal Sheet Co., Ltd. (Daqiuzhuang Metal)
Located at Daqiuzhuang, Jinghai county, Tianjin city, China;
Legal Representative Yu, Zuo Sheng (Nationality: Chinese)

Party B: Baotou Iron & Steel Group Co., Ltd. (Baotou Steel)
Located at River West Industrial Area, Kundulun District, Baotou city, Inner
Mongolia, China;
Legal Representative: Li, Ren Ming (Nationality: Chinese)

3. ESTABLISHMENT OF THE JOINT VENTURE

3.1   
In accordance with the Joint Venture Law and other relevant published laws and
regulations of the People’s Republic of China, the Parties herein hereby agree
to establish a Joint Venture Limited Liability Company (hereinafter referred to
as "Joint Venture" or “JV”) in Inner Mongolia, China.

3.2
The name in English of the Joint Venture will be: Baotou Steel - General Steel
Special Steel Pipe Joint Venture Company Limited. The legal address of the Joint
Venture will be Kundulun District, Baotou city, Inner Mongolia, China.

 
3.3
The form of organization of the Joint Venture shall be a limited liability
company. The liability of each Party herein is limited to the capital
contribution to the registered capital in accordance with Section 5.2 of this
Agreement; including increases and decreases in each Party's share of ownership
interest made in compliance with the regulations and laws of the People’s
Republic of China.

4: PURPOSES, SCOPE AND SCALE OF PRODUCTION AND BUSINESS
 
 
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4.1   
The purposes of the Joint Venture will be, in conformity with the mutual desire
of each Party herein of strengthening economic cooperation and technical
exchanges, to improve the product quality and the production capacity, to
develop new products and gain competitiveness in both domestic and international
markets in terms of quality, variety and price by adopting advanced technology
in the production of steel products, and the adoption of advanced management
methods, so as to constantly raise economic results and ensure satisfactory
economic benefits for each Party.

4.2   
The products of the Joint Venture shall be those classified as special steel. At
the first stage of JV, the products are special steel pipes. The products shall
be sold in both domestic and international markets. The total production scale
of the Joint Venture will be 600,000 metric tons a year.

5: TOTAL INVESTMENT, REGISTERED CAPITAL AND OWNERSHIP

5.1   
The total amount of investment is 50,000,000 RMB (approximately $6,400,000 USD).

5.2
The registered capital is 50,000,000 RMB (approximately $6,400,000 USD).

Party A shall contribute 40,000,000 RMB (approximately $5,130,000 USD).
Party A shall have 80% ownership interest.
The investment shall be used for purchasing equipment necessary to create four
pipe production lines and working capital.

Party B shall contribute 10,000,000 RMB (approximately $1,270,000 USD).
Party B shall have 20% ownership interest.
The investment shall be used for purchasing land, setting up new workshops and
buildings, establishing power and water systems and creating an accessing road.

5.3
Scope of Investment:

Party A: The payments to be made by Party A toward the registered capital of the
Joint Venture must be paid as follows:

a. 20,000,000 RMB (approximately $2,558,000 USD) of its capital contribution
used to purchase equipment necessary to create the four production lines at the
date of approval of Joint Venture;
b. 8,000,000 RMB (approximately $1,023,000 USD) of its capital contribution at
the date 30 days from the approval of the Joint Venture;
 
 
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c. 8,000,000 RMB (approximately $1,023,000 USD) of its capital contribution at
the date 3 months from the approval of the Joint Venture; and
d. The remainder of its capital contribution at the date 6 months from the
approval of the Joint Venture.

Party B: The full payment of its contribution must be paid at the date of the
approval of Joint Venture.

5.4
After the registered capital is paid in full by both Parties herein, an
accounting firm registered in China appointed by both Parties will verify that
all contributions cited in this Agreement have been made in accordance with the
terms and conditions of this Agreement. The accounting firm will issue a
verification report stating that all contributions according to this Agreement
Parties have been made in full by both Parties herein. Based on the verification
report, the Joint Venture shall issue an investment certificate to each Party
herein. This report will be signed by both the Chairman of the Board of
Directors and the Vice Chairman of the Board of Directors of the Joint Venture.

5.5   
Should either Party herein desire to assign all or part of its interest in the
Joint Venture to a third Party, written approval must be obtained from the
following entities: the other Party herein, the Joint Venture Board of
Directors; and the appropriate government approval authority. In the event of a
transfer of interest by either Party herein in this Agreement, the other Party
herein will have a preemptive right over the shares to be transferred. If a
transfer is made to a third party, the terms for the transfer shall not be
superior to those for the Parties herein. Any transfer deviating from the
specifications of this Agreement shall be deemed invalid. Any transfer of
interest must be reported to the appropriate local government authority for
approval.

 
6: RESPONSIBILITIES OF THE PARTIES

6.1   
Responsibilities of the Party A:

a. Making capital contributions in accordance with term 5.2, 5.3;

b. Assisting Party B to obtain the business approval, registration and business
license;

 
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c. Assisting Party B to obtain the various government related benefits eligible
to companies qualified to participate in the “Advantages of Developing the
Western Territory” government program; and

d. Preparing all relevant documents for local government approval.
 

6.2   
Responsibilities of Party B:

a. Making capital contributions in accordance with term 5.2. 5.3;

b. Assisting Party A to obtain the business approval, registration and business
license;

c. Providing sufficient raw materials, water, electricity, gas, transportation
and other services for the Joint Venture (A contract with respect to the supply
of raw materials, air, water, electricity and gas shall be signed separately by
the both Parties herein.);

d. Providing sufficient land for the JV operation (A land lease agreement for 20
years shall be signed by both parties.).

7. PRODUCTION AND SALES OF PRODUCTS

7.1   
Party A will provide the equipment necessary for creating four special pipe
production lines;

7.2   
Party A will provide the production technology and the government production
permission approval by the relevant authority;

7.3   
The products of the Joint Venture will be sold primarily in the domestic market.
Each Party herein will assist in a good faith effort to expand sales to the
international market.

8: BOARD OF DIRECTORS

8.1   
The Board of Directors will be established at the date of issuance of the
business license.

8.2   
The Board of Directors will consist of seven ( 7) directors of which five (5)
will be appointed by Party A and two ( 2 ) shall be appointed by Party B. The
Chairman of Board will be appointed by Party A. The Vice Chairman of the Board
shall be appointed by Party B. The term of the directors is four (4) years. This
term of office may be renewed upon reappointment by the appointing Party herein.

 
 
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8.3   
The highest authority of the Joint Venture shall be its Board of Directors. It
will decide all important issues concerning the Joint Venture. In handling all
important matters, the Board of Directors will reach its decision through
consultation among the participants in the principle of equality and mutual
benefit. All issues of the Joint Venture brought before the Board of Directors
for consideration and vote will require a two-thirds majority assent for
approval.

8.4   
The following important issues will require the unanimous approval of the Board
of Directors:

a. Amendment of the Articles of Incorporation of the Joint Venture;
b. Termination and dissolution of the Joint Venture;
c. An increase of the registered capital of the Joint Venture and any
transfer of ownership interest by any Party herein; and
d. Merger of the Joint Venture with another economic organization.

8.5   
The Chairman of the Board is the legal representative of the Joint Venture. If
the Chairman of the Board is unable to exercise his or her responsibilities, he
or she will authorize the Vice Chairman of the Board of Directors to be the
legal represent the Joint Venture.

8.6   
The Board of Directors will convene at least two (2) meetings each year. The
meetings shall be called and presided over by the Chairman of the Board. The
General Manager of the Joint Venture and the Vice General Managers of the Joint
Venture may attend the meetings, but have no voting rights. The meetings can be
held at a site mutually agreed upon by the Parties herein. The Chairman of the
Board may convene interim meetings based on proposal made by more than one third
of the directors. The minutes of all meetings will be kept on file. The
directors will have the right to be represented by a designated representative.
One (1) union representative can attend the meetings, but has no voting rights.

8.7   
A decision signed by all the members of the Board of Directors has the same
validity as a decision made during an official Board of Directors meeting.

 
9: BUSINESS MANAGEMENT ORGANIZATION

9.1   
The Joint Venture shall establish a management office which will be responsible
for the daily operation and management of the entity. The management office
shall have one (1) General Manager, three (3) Vice General Managers and one (1)
Chief Financial Officer.

 
 
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Party A will appoint the General Manager;
Party A will appoint the Chief Financial Officer;
Party A will appoint two (2) Vice General Mangers; and
Party B will appoint one (1) Vice General Manager.

9.2   
The office is authorized by Board of Directors. The term of office shall be four
(4) years.

9.3   
The responsibilities of the General Manager will be to carry out the decisions
of the Board of Directors and to organize and direct the daily management of the
Joint Venture in accordance with the provisions of this Agreement and the
Articles of Incorporation.

9.4   
The Vice General Managers will assist the General Manager in his or her duties.

9.5   
The department managers will be responsible for the work in the respective
departments of production, technology, business operation, finance and
administration. Department managers will handle matters delegated by the General
Manager and the Vice General Managers and will be accountable to them. The
General Manager will prepare and present for approval to the Board of Directors
a yearly budget, including proposed appointments of department managers as well
as their remunerations.

9.6   
The General Manager and Vice General Managers will not serve as employees of
other entities, and will not serve or act on behalf of other economic entities
in competition with the Joint Venture except that they may be an officer,
director or employee of their respective Party herein.

9.7   
The Board of Directors will have the power to dismiss the General Manager and
the Vice General Managers in the event of behavior in violation of the laws of
the People’s Republic of China or serious dereliction of duty.

 
10: LABOR MANAGEMENT

10.1
Policies relating to matters such as, but not limited to, the total number of
employees, recruitment, dismissal, wages, welfare, benefits, labor insurance,
bonuses and labor discipline will be determined by the management office in
accordance with “Labor Management Laws and Provisions of Foreign Invested
Enterprises Provisions Laws of People’s Republic of China”, and other
regulations and policies stipulated by the Board of Directors of the Joint
Venture.

 
 
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10.2
The Joint Venture shall have the right to recruit and hire employees directly
from any available sources in the Baotou Steel Union You Yi Alloy Rod Mill. In
all cases, the Joint Venture will employ only those employees who are
sufficiently qualified for employment, as determined through tests and/or
examinations.

10.3
The Joint Venture, acting through the General Manager, will sign individual
labor agreements with each employee. Each labor agreement, according to the
framework duly approved by the Board of Directors, will include the type of
work, the technical requirements and the wages of the employee. The labor
agreement for each employee will be filed for reference at the local labor
management department.

10.4
The labor agreements of employees who will likely in the course of their routine
work responsibilities have access to or receive confidential information and/or
particular training from the Joint Venture or from Party B will include,
confidentiality clauses and non-competition clauses pursuant to which the
employee will not be permitted to work for an enterprise or organization in the
same field of operation as the Joint Venture for a period of two (2) years after
leaving the employment of the Joint Venture.

10.5
The employees of the Joint Venture will have the right to establish a labor
union in accordance with relevant laws and regulations of People’s Republic of
China.

 
11: TAXES, FINANCE, AUDIT AND PROFIT DISTRIBUTION

11.1
The Joint Venture will pay various taxes in accordance with relevant laws and
regulations of the People’s Republic of China.

11.2
The Joint Venture will prepare financial statements at the end of each fiscal
year and at times as may be required by the Board of Directors. The Joint
Venture will conduct inspections and verification according to the related laws
and regulations of foreign invested enterprises in the People’s Republic of
China. Unless otherwise requested by the Board of Directors, the fiscal year
financial statements should be submitted to both Parties herein for review
within the duration of April 1st to May 1st of each year.

11.3
Each Party herein has the right to engage a professional outside entity for the
purpose of auditing the financial records of the Joint Venture. The costs for
the services of such outside entity are solely the responsibility of the
initiating Party herein. The Joint Venture will not withhold unreasonably
cooperation from the outside entity.

 
 
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11.4
After the Joint Venture distributes the after-tax profit of the current year, it
will put ten percent (10%) of the profit into a legal accumulation fund and five
percent (5%) of the profit into public welfare fund.

When the Joint Venture operates at a financial loss, it must first cover the
loss from any profit of the previous year before it takes any money from the
legal accumulation fund and public welfare fund to cover its loss.
 
11.5
Any after-tax profit that exists after the above cited required contributions to
the legal accumulation fund and the social welfare fund will be distributed to
the Parties herein in proportion to the capital contribution made by each Party
herein.

11.6
The two Parties herein may also negotiate other profit distribution methods.

 
12: DURATION OF THE JOINT VENTURE

12.1        
The duration of the Joint Venture will be 20 years. The date of establishment of
the Joint Venture will be the date of issuance of the business license. The
duration of the Joint Venture can be prolonged if either Party herein submits a
written proposal to the Board of Directors before six (6) months of the expiring
date of the Agreement and it is approved by the Board of Directors.

13: DISPOSAL OF ASSETS UPON LIQUIDATION OF THE JOINT VENTURE
 

13.1        
Upon termination of the Joint Venture, liquidation of all assets will be carried
out according to relevant laws and regulations of the People’s Republic of
China.

13.2        
The Board of Directors will form a Liquidation Committee comprised of members
representing both Parties herein. The Liquidation Committee will conduct all
liquidation procedures in accordance with the relevant laws and regulations of
the People’s Republic of China.

13.3        
The liquidated assets will be distributed, upon the discharge of all liabilities
of the Joint Venture, to the Parties herein in proportion to the capital
contribution made by both Parties herein.

 
 
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13.4        
Fees incurred during the liquidation and the salaries for the Liquidation
Committee will be deducted from the residual equity.

13.5        
All original copies of documents, files, contracts and books and records of the
Joint Venture will be kept by Party A after the liquidation.

14: INSURANCE

14.1        
The types, value and duration of insurance will be decided by the Board of
Directors in accordance with the relevant laws and regulations of the People’s
Republic of China.

15. AMENDMENT, ALTERATION AND TERMINATION OF AGREEMENT
 

15.1
Any amendment to this Agreement or its appendices will come into force only by
written agreement signed by both Parties herein and approved by the original
government examination and approval authority.

15.2
Should it become impossible to fulfill this Agreement as a result of force
majeure, or should it become impossible to continue the operations of the Joint
Venture as a result of heavy losses sustained by the Joint Venture in successive
years, the Joint Venture and this Agreement may be terminated prior to the date
of expiration if unanimously decided by the Board of Directors and approved by
the original government examination and approval authority. The Joint Venture
may be terminated prior to its expiration date in the event that both Parties
herein agree that termination of the Joint Venture is the mutual and the best
interest of the Parties herein. The registration of the Joint Venture must then
be canceled at the original government registration office.

15.3
If due to any one Party herein being unable to fulfill the obligations of this
Agreement and the Articles of Incorporation, and if for that reason the Joint
Venture cannot continue its normal business or cannot reach its target mentioned
in the Agreement, then the Agreement would be deemed to have been stopped by the
Party herein who made the violation. The other Party herein has the right to
claim damages and to apply for the termination of the Agreement. If the other
Party herein agrees to continue the business, the Party which committed the
violation should compensate the economic damage. The other Party would have in
that case a buying option for the shares owned by the defaulting Party.

 
16: FORCE MAJEURE
 
 
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16.1         
Should the performance of this Agreement be directly affected or should it
become impossible to perform this Agreement in accordance with the prescribed
terms as a result of a force majeure event such as earthquake, typhoon, flood,
fire, war, civil disorder, unforeseeable events where the occurrences and
consequences are unpreventable and unavoidable without limitation, the Party
herein affected by such event will notify the other Party herein by telegram or
facsimile without any delay and, within ten (10) days thereafter, provide the
detailed information of such event and a valid certification document giving
reasons for such Party's inability to perform all or part of this Agreement or
its delay of the performance.

16.2
If possible, the said document will be issued by a notary public office at the
location where the force majeure event occurs. The Parties herein will decide
through consultations whether to terminate this Agreement or to waive part of
the obligations to be performed under this Agreement or to delay the performance
of this Agreement according to the effects of the force majeure event on the
performance of this Agreement.

 
17: DISPUTE RESOLUTION
 
17.1
Any dispute arising from the execution of or in connection with this Agreement
shall first be settled through friendly consultations between the Parties
herein. In the event that no settlement can be reached through consultations,
the disputes will be submitted to the China International Economic and Trade
Arbitration Commission for arbitration. The arbitration fees and related
expenses occurred will be borne by the losing Party.

 

17.2        
When the dispute, controversy or claim arising out of or in connection with this
Agreement are being resolved either through friendly consultation or through
arbitration, the Parties herein should take the interest of the whole into
account and shall not hinder or affect the performance of the provisions other
than in dispute, so as to guarantee the smooth operation of the Joint Venture to
the extent possible.

 
18: EFFECTIVENESS OF CONTRACT

18.1        
The following appendices formulated in accordance with the principles of this
Agreement shall be integral part of this Agreement:

 
 
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Appendix 1:  Copies of business licenses of the Parties herein;
Appendix 2:  Credit certificates of the Parties herein;
Appendix 3:  Identification certificated of the legal representatives  or
authorized persons of the Parties herein;
Appendix 4:  Authorization Proxy executed by the representatives  of each Party
herein;
Appendix 5:  Board of Directors resolution for approval of the JV Agreement;
Appendix 6:  Raw Materials Contract; and
Appendix 7:  Water, Electricity, Gas and Transportation contracts.
 
18.2
This Agreement and its appendices will become effective subject to successful
purchase of the equipment necessary to create the four production lines and upon
approval by the original government examination and approval authority. The same
applies in event of amendment.

18.3
The Parties herein will take all such efforts to carry out the purposes of this
Agreement and its appendices. Neither Party herein will take any action that
might have an adverse competitive effect or adverse consequence on the operation
of the Joint Venture.

 
19: Others
 

19.1        
Any amendment to this Agreement will be approved by Board of Directors and
submitted to the original government examination and approval authority.

19.2        
This contract is in eight (8) originals, each Party herein receiving two (2)
originals, the rest will be used for government authority approval and
registration of the Joint Venture.

19.3        
In witness whereof, the Parties herein have signed this Agreement on ________ by
their duly authorized representatives in Inner Mongolia, China.

19.4        
The right of interpretation belongs to the Board of Directors of the Joint
Venture.

 
 
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Party A: Tianjin Daqiuzhuang Metal Sheet Co., Ltd. (Daqiuzhuang Metal)
Legal representative:
Date:
 

 

Party B: Baotou Iron & Steel Group Co., Ltd. (Baotou Steel)
Legal representative:
Date:
 
 
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